[House Report 108-800]
[From the U.S. Government Publishing Office]
108th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 108-800
_______________________________________________________________________
Union Calendar No. 485
SUMMARY OF ACTIVITIES
__________
A REPORT
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
December 29, 2004.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
LETTER OF TRANSMITTAL
----------
House of Representatives,
Committee on Small Business,
Washington, DC, December 29, 2004.
Hon. Jeff Trandahl,
Clerk, House of Representatives,
Washington, DC.
Dear Mr. Trandahl: On behalf of the Committee on Small
Business of the U.S. House of Representatives, I am pleased to
transmit the attached Summary of Activities of the Committee on
Small Business for the 108th Congress.
This report is submitted in compliance 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.
The purpose of this report is to provide a reference
document for 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), 2(b)(1)
and 3(g), of the Rules of the House of Representatives. This
document is intended to serve as a general reference tool, and
not as a substitute for the hearing records, reports and other
Committee files.
Sincerely,
Donald A. Manzullo,
Chairman.
C O N T E N T S
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Page
Chapter I--Introduction.......................................... 1
1.1 Historical Background................................... 1
1.2 Extracts from the Rules Of the House of Representatives. 2
1.3 Number and Jurisdiction of Subcommittees................ 3
1.4 Disposition of Legislation Referred to the Committee.... 4
Chapter II--The Small Business Administration.................... 7
2.1 SBA Programs in General................................. 7
2.2 SBA Business Loans...................................... 8
2.3 Disaster Assistance Loans............................... 9
2.4 Small Business Investment Companies..................... 10
2.5 Procurement Assistance.................................. 10
2.6 Entrepreneurial Development............................. 11
2.7 Surety Bond Guarantees.................................. 13
2.8 Technology and Innovation............................... 13
2.9 Export Assistance....................................... 15
2.10 Office of Advocacy..................................... 16
Chapter III--Hearings and Meetings Held by the Committee on Small
Business and Its Subcommittees, 108th Congress................. 19
3.1 Full Committee.......................................... 19
3.2 Subcommittee on Workforce, Empowerment and Government
Programs................................................... 20
3.3 Subcommittee on Regulatory Reform and Oversight......... 20
3.4 Subcommittee on Tax, Finance and Exports................ 20
3.5 Subcommittee on Rural Enterprises, Agriculture and
Technology................................................. 21
Chapter IV--Publications of the Committee on Small Business and
Its Subcommittees, 108th Congress.............................. 23
4.1 Reports................................................. 23
4.2 Hearings Records........................................ 23
Chapter V--Summary of Legislative Activities of the Committee on
Small Business, 108th Congress................................. 27
5.1 H.R. 205 National Small Business Regulatory Assistance
Act of 2003................................................ 27
5.2 H. Res. 368--Honoring the 50th Anniversary of the Small
Business Administration.................................... 34
5.3 H.R. 923--Premier Certified Lenders Program Improvement
Act of 2003, P.L. 108-232.................................. 36
5.4 H.R. 1166--To amend the Small Business Act to expand and
improve the assistance provided by Small Business
Development Centers to Indian tribe members, Native
Alaskans, and Native Hawaiians............................. 39
5.5 H.R. 1460--Veterans Entrepreneurship Act of 2003, P.L.
108-183.................................................... 42
5.6 H.R. 1772--Small Business Advocacy Improvement Act of
2003....................................................... 46
5.7 H.R. 2345--Regulatory Flexibility Improvements Act of
2003....................................................... 49
5.8 H.R. 2802--Small Business Reauthorization and
Manufacturing Revitalization Act of 2003................... 51
5.9 H.R. 3915--To provide for an additional temporary
extension of programs under the Small Business Act and the
Small Business Investment Act of 1958 through April 2,
2004. P.L. 108-205......................................... 63
5.10 H.R. 4062--To provide for an additional temporary
extension of programs under the Small Business Act and the
Small Business Investment Act of 1958 through June 4, 2004,
and for other purposes. P.L. 108-217....................... 64
5.11 H.R. 4478--To provide for an additional temporary
extension of programs under the Small Business Act and the
Small Business Investment Act of 1958 through July 23,
2004, and for other purposes............................... 73
5.12 H.R. 5008--To provide an additional temporary extension
of programs under the Small Business Act and the Small
Business Investment Act of 1958 through September 30, 2004,
and for other purposes. P.L. 108-306....................... 74
5.13 H.R. 5108--Small Business Reauthorization and
Manufacturing Assistance Act of 2004 Key elements of H.R.
5108 were incorporated into Division K of the Consolidated
Appropriations Act, 2005 (H.R. 4818--P.L. 108-447)......... 75
5.14 S. 141--To Improve the Calculation of the Federal
Subsidy Rate with respect to Certain Small Business Loans.
P.L. 108-8................................................. 81
5.15 S. 1895--A bill to temporarily extend the programs
under the Small Business Act and the Small Business
Investment Act of 1958 through March 15, 2004, and for
other purposes. P.L. 108-172............................... 83
Chapter VI--Summary of Other Legislative Activities of the
Committee on Small Business.................................... 85
6.1 Committee Meetings...................................... 85
6.1.1 Organizational Meetings........................... 85
6.1.2 Oversight Plan for the 108th Congress............. 85
6.2 Budget Views and Estimates.............................. 90
6.2.1 Fiscal Year 2004 Budget........................... 90
6.2.2 Fiscal Year 2005 Budget........................... 98
Chapter VII--Summary of Oversight, Investigations, and Other
Activities of the Committee on Small Business and Its
Subcommittees.................................................. 109
7.1 Summary of Committee Oversight Plan and Implementation.. 109
7.2 Summaries of the Hearings Held by the Full Committee on
Small Business............................................. 109
7.2.1 The SBA FY 2004 Budget............................ 109
7.2.2 Small Business Access and Alternatives to Health
Care................................................... 111
7.2.3 RESPA Reform and Economic Effects on Small
Business............................................... 112
7.2.4 Changes to SBA Financing Programs Needed for
Revitalization of Small Manufacturers.................. 115
7.2.5 Will We Have an Economic Recovery Without a Strong
U.S. Manufacturing Base?............................... 117
7.2.6 IRS Compliance with the Regulatory Flexibility Act 118
7.2.7 Are Big Businesses Receiving Contracts That Were
Intended For Small Businesses?......................... 120
7.2.8 The WTO's Challenge to the FSC/ETI Rules and the
Effect on America's Small Businesses................... 121
7.2.9 The Visa Approval Backlog and its Impact on
American Small Business................................ 123
7.2.10 Revitalizing America's Manufacturers: SBA
Business and Enterprise Development Programs........... 124
7.2.11 Globalization of White-Collar Jobs............... 126
7.2.12 Foreign Currency Manipulation and its Effect on
Small Manufacturers and Exporters...................... 129
7.2.13 Saving the Defense Industrial Base............... 131
7.2.14 Doctors as Small Businesses, field hearing,
Frederick, Maryland.................................... 133
7.2.15 Assisting Small Businesses Through the Tax Code:
Recent Gains and What Remains to be Done............... 134
7.2.16 Small Business Access to Health Care............. 135
7.2.17 Attracting Economic Growth in Rural America...... 137
7.2.18 The WTO's Challenge to the FSC/ETI Rules and the
Effect on America's Small Businesses................... 139
7.2.19 National Small Business Week: Small Business
Success Stories........................................ 140
7.2.20 Is America Losing Its Lead In High-Tech:
Implications For The U.S. Defense Industrial Base...... 141
7.2.21 The Offshoring Of High-Skilled Jobs: Part II..... 142
7.2.22 Lowering The Cost Of Doing Business In The United
States: How To Keep Our Companies Here................. 143
7.2.23 Increasing the Competitiveness of U.S.
Manufacturers in Pennsylvania.......................... 144
7.2.24 Real Estate Settlement Procedure Act Regulations:
Working Behind Closed Doors to Hurt Small Businesses
and Consumers.......................................... 145
7.2.25 Can U.S. Companies Compete Globally using
American Workers?...................................... 147
7.2.26 The President's Proposed Budget for the Small
Business Administration FY 2005........................ 149
7.2.27 Availability of Capital and Federal Procurement
Opportunities to Minority-Owned Small Businesses....... 150
7.2.28 Spike in Metal Prices: What Does it Mean for
Small Manufacturers?................................... 152
7.2.29 Spike in Metal Prices--Part II................... 154
7.2.30 Improving the Regulatory Flexibility Act--H.R.
2345................................................... 156
7.2.31 Red Tape Reduction: Improving the Competitiveness
of America's Small Manufacturers....................... 157
7.2.32 Careers for the 21st Century: The Importance of
Education and Worker Training for Small Business....... 159
7.2.33 The Rebate of Value-Added Taxes at the Border and
the Competitive Disadvantage for U.S. Small Businesses. 161
7.2.34 How We Can Make Our Trade Laws Work for America's
Small Business......................................... 162
7.3 Summaries of the Hearings Held by the Subcommittee on
Workforce, Empowerment and Government Programs............. 164
7.3.1 Improving and Strengthening the SBA Office of
Advocacy............................................... 164
7.3.2 Status of Small Business Manufacturing in the
Midwest, field hearing, St. Peters, MO................. 165
7.3.3 Hearing on the Current and Future States of the
SBIR, FAST and MEP Programs............................ 166
7.3.4 Federal Procurement Policy: Is the Federal
Government Failing Certain Industrial Sectors?......... 168
7.3.5 The Rising Cost of Health Care for Small Business
Owners, field hearing, Charleston, SC.................. 169
7.3.6 Opportunities for Economic Growth and Job
Creation, field hearing, Newnan, GA.................... 170
7.3.7 Federal Prison Industries Effects on the U.S.
Economy and the Small Business Environment, Joint
Subcommittee hearing with the Subcommittee on
Workforce, Empowerment and Government Programs and the
Subcommittee on Tax, Finance and Exports............... 171
7.3.8 Union Salting of Small Business Worksites......... 172
7.3.9 The Benefits of Health Savings Accounts........... 174
7.3.10 Would an Increase in the Federal Minimum Wage
Help or Hinder Small Business?......................... 175
7.3.11 The Department of Labor's Overtime Regulations
Effect on Small Business............................... 176
7.3.12 Excellence in Action: Government Support of
Disabled Veteran-Owned Businesses, Joint Subcommittee
hearing with the Subcommittee on Workforce, Empowerment
and Government Programs and the House Veteran's Affairs
Committee's Subcommittee on Benefits................... 178
7.4 Summaries of the Hearings Held by the Subcommittee on
Regulatory Reform and Oversight............................ 180
7.4.1 Improving and Strengthening the SBA Office of
Advocacy............................................... 180
7.4.2 Federal Agency Treatment of Small Business........ 180
7.4.3 CRS Regulations and Small Business in the Travel
Industry............................................... 181
7.4.4 Contract Bundling and Small Business Procurement.. 182
7.4.5 What is OMB's Record in Small Business Paperwork
Relief?................................................ 184
7.4.6 Spam and its Effects on Small Business............ 185
7.4.7 Increasing the Competitiveness of U.S.
Manufacturers.......................................... 186
7.4.8 What is the Administration's Record in Relieving
Burden on Small Business?--Part I...................... 187
7.4.9 Challenges to Small Business Growth............... 188
7.4.10 Small Businesses Creating Jobs and Protecting the
Environment............................................ 190
7.4.11 Reforming Regulation to Keep America's Small
Businesses Competitive................................. 191
7.4.12 Department of Labor's Enforcement Actions Against
Small Business......................................... 192
7.4.13 What is the Administration's Record in Relieving
Burden on Small Business?--Part II..................... 193
7.4.14 Small Business Liability Reform.................. 194
7.5 Summaries of the Hearings Held by the Subcommittee on
Tax, Finance and Exports................................... 195
7.5.1 Small Business Asset Expensing.................... 195
7.5.2 Overcoming Obstacles Facing the Uninsured......... 197
7.5.3 The Chilean Free Trade Agreement: Opening Doors to
South American Markets................................. 198
7.5.4 Removing Roadblocks to Success: How can the
Federal Government Help Small Businesses Revitalize the
Economy, field hearing, Denver, CO..................... 200
7.5.5 Small Business Exporting and the Southern
California Economy, field hearing, Long Beach, CA...... 201
7.5.6 Federal Prison Industries Effects on the U.S.
Economy and the Small Business Environment, Joint
Subcommittee hearing with the Subcommittee on
Workforce, Empowerment and Government Programs and the
Subcommittee on Tax, Finance and Exports............... 202
7.5.7 The August 14, 2003 Blackout: Effects on Small
Business and Potential Solutions....................... 202
7.5.8 H.R. 1818, The Workforce Health Improvement
Program Act: Healthy Employees, Healthy Bottom Line.... 203
7.6 Summaries of the Hearings Held by the Subcommittee on
Rural Enterprises, Agriculture and Technology.............. 205
7.6.1 Litigating the Americans with Disabilities Act.... 205
7.6.2 Traversing the Twists and Impacts of the Highway
Beautification Act Upon Small Businesses............... 207
7.6.3 Endangered Farmers and Ranchers: the Unintended
Consequences of the Endangered Species Act............. 208
7.6.4 The Future of Rural Telecommunications: Is the
Universal Service Fund Sustainable?.................... 210
7.6.5 Challenges that Small Businesses Face Accessing
Homeland Security Contracts............................ 212
7.6.6 A Small Business Component to the Federal Flight
Deck Officer Program--It's a Win-Win Scenario.......... 213
7.6.7 The Endangered Species Act's Impact on Small
Businesses and Farmers, field hearing, St. Joseph, MO.. 215
7.6.8 The Benefits of Tax Incentives for Producers of
Renewable Fuels and its Impact on Small Businesses and
Farmers................................................ 217
7.6.9 Tax Incentives for Homeland Security Related
Expenses............................................... 219
7.6.10 The Impact of High Natural Gas Prices on Small
Farmers and Manufacturers.............................. 220
Union Calendar No. 485
108th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 108-800
======================================================================
SUMMARY OF ACTIVITIES
_______
December 29, 2004.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Manzullo of Illinois, from the Committee on Small Business,
submitted the following
R E P O R T
SUMMARY OF ACTIVITIES
CHAPTER ONE
INTRODUCTION
This is the fifteenth summary report of the standing
Committee on Small Business. The action by the House of
Representatives in adopting the House Resolution 988 on October
8, 1974, provided that the committee be established as a
standing committee, and 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 had historically exercised.
The adoption of the House rules in the 94th through 108th
Congress confirmed this action and continued the process begun
on August 12, 1941, when, by virtue of House Resolution 294
(77th Congress, 1st 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 93rd Congress, recognizing the importance
of the work performed on behalf of this nation's small
businesses, 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 end of the 92nd Congress, may be found in House Document
93-197 (93rd Congress, 2nd session), entitled ``A History and
Accomplishments of the Permanent Select Committee on Small
Business.''
The Committee is bipartisan in 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 focal point for small business legislation.
In recognition of the importance of the Committee, the
House of Representatives has established the Committee's
membership at 36 Members. The following Members were named to
constitute the Committee in the 108th Congress:
Republicans included:
Donald A. Manzullo (IL), Chairman; Roscoe G. Bartlett
(MD) Vice Chairman; Sue W. Kelly (NY); Steve Chabot
(OH); Patrick J. Toomey (PA); Jim DeMint (SC); Sam
Graves (MO); Edward L. Schrock (VA); W. Todd Akin (MO);
Shelley Moore Capito (WV); Bill Shuster (PA); Marilyn
N. Musgrave (CO); Trent Franks (AZ); Jim Gerlach (PA);
Jeb Bradley (NH); Bob Beauprez (CO); Chris Chocola
(IN); Steve King (IA); Thaddeus G. McCotter (MI).
Democrats included:
Nydia M. Velazquez (NY), Ranking Minority Member;
Juanita Millender-McDonald (CA); Tom Udall (NM); G.K.
Butterfield (NC); Eni F. H. Faleomavaega (AS); Donna M.
Christensen (VI); Danny K. Davis (IL); Grace F.
Napolitano (CA); Anibal Acevedo-Vila (PR); Ed Case
(HI); Madeleine Z. Bordallo (GU); Denise L. Majette
(GA); Jim Marshall (GA); Michael H. Michaud (GA); Linda
T. Sanchez (CA); Brad Miller (NC); (Vacancy).
1.2 Extracts From the Rules of the House of Representatives
----------
RULE X
ORGANIZATION OF COMMITTEES
COMMITTEES AND THEIR LEGISLATIVE JURISDICTIONS
1. There shall be in the House the following standing committees,
each of which shall have the jurisdiction and related functions
assigned by this clause and clauses 2, 3, and 4. All bills,
resolutions, and other matters relating to subjects within the
jurisdiction of the standing committees listed in this clause shall be
referred to those committees, in accordance with clause 2 of rule XII,
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) In order to determine whether laws and programs
addressing subjects within the jurisdiction of a committee are being
implemented and carried out in accordance with the intent of Congress
and whether they should be continued, curtailed, or eliminated, each
standing committee (other than the Committee on Appropriations) shall
review and study on a continuing basis--
(A) The application, administration, execution, and
effectiveness of laws and programs addressing subjects within
its jurisdiction;
(B) The organization and operation of Federal agencies and
entities having responsibilities for the administration and
execution of laws and programs addressing subjects within its
jurisdiction;
(C) any conditions or circumstances that may indicate the
necessity or desirability of enacting new or additional
legislation addressing subjects within its jurisdiction
(whether or not a bill or resolution has been introduced with
respect thereto); and
(D) future research and forecasting on subjects within its
jurisdiction.
(2) Each committee to which subparagraph (1) applies having more
than 20 members shall establish an oversight subcommittee, or require
its subcommittees to conduct oversight in their respective
jurisdictions, to assist in carrying out its responsibilities under
this clause. The establishment of an oversight subcommittee does not
limit the responsibility of a subcommittee with legislative
jurisdiction in carrying out its oversight responsibilities.
(c) Each standing committee shall review and study 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. (k) The Committee on Small Business shall study and investigate
on a continuing basis the problems of all types of small business.
1.3 Number and Jurisdiction of Subcommittees
There will be four subcommittees as follows:
--Workforce, Empowerment and Government Programs
(seven Republicans and six Democrats)
--Regulatory Reform and Oversight (seven Republicans
and six Democrats)
--Tax, Finance and Exports (eight Republicans and
seven Democrats)
--Rural Enterprises, Agriculture and Technology (six
Republicans and five Democrats)
During the 108th Congress, the Chairman and ranking
minority member shall be ex officio members of all
subcommittees, without vote, and the full committee shall have
the authority to conduct oversight of all areas of the
committee's jurisdiction.
In addition to conducting oversight in the area of their
respective jurisdiction, each subcommittee shall have the
following jurisdiction:
WORKFORCE, EMPOWERMENT AND GOVERNMENT PROGRAMS
Oversight and investigative authority over problems faced
by small businesses in attracting and retaining a high quality
workforce, including but not limited to wages and benefits such
as health care.
Promotion of business growth and opportunities in
economically depressed areas. Oversight and investigative
authority over regulations and other government policies that
impact small businesses located in high risk communities.
Opportunities for minority, women, veteran and disabled-
owned small businesses, including the SBA's 8(a) program.
General oversight of programs targeted toward urban relief.
Small Business Act, Small Business Investment Act, and
related legislation.
Federal Government programs that are designed to assist
small business generally.
Participation of small business in Federal procurement and
Government contracts.
REGULATORY REFORM AND OVERSIGHT
Oversight and investigative authority over the regulatory
and paperwork policies of all Federal departments and agencies.
Regulatory Flexibility Act.
Paperwork Reduction Act.
Competition policy generally.
Oversight and investigative authority generally, including
novel issues of special concern to small business.
TAX, FINANCE AND EXPORTS
Tax policy and its impact on small business.
Access to capital and finance issues generally.
Export opportunities and oversight over Federal trade
policy and promotion programs.
RURAL ENTERPRISES, AGRICULTURE AND TECHNOLOGY
Promotion of business growth and opportunities in rural
areas.
Oversight and investigative authority over agricultural
issues that impact small businesses.
General oversight of programs targeted toward farm relief.
Oversight and investigative authority for small business
technology issues.
The adoption of the House Rules in the 94th through the
108th Congresses confirmed this action and continued the
process begun on August 12, 1941, when, by virtue of House
Resolution 294 (77th Congress, 1st 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 93rd Congress,
recognizing the importance of the work performed on behalf of
this nation's small businesses, provided that the Committee
should thereafter be established as a standing committee.
1.4 Disposition of Legislation Referred to the Committee
A total of 47 House bills and five Senate bills were
referred to the Committee on Small Business during the 108th
Congress. The Committee acted on 19 bills in some fashion, of
which three reports were filed. Eleven bills on which the
Committee acted upon were signed into law either individually
or as part of broader legislation. The House of Representatives
also passed one Committee-drafted resolution to commemorate the
50th anniversary of the Small Business Administration (SBA)
that did not require Senate passage or presidential signature.
For a more detailed summary of the Committee's legislative
activities, please refer to Chapter Three of this report.
The Committee expended most of its legislative time and
effort in attempting to reach an accommodation to pass a
historic and comprehensive SBA reauthorization bill (H.R.
2802). Unfortunately, despite unanimous passage in the
Committee on July 24, 2003, this normally non-controversial
legislation could not be brought to the House floor for a vote
due to several contentious provisions within H.R. 2802 that
were insisted upon by the minority. The Senate passed their
version of SBA reauthorization on September 26, 2003 (S. 1375)
but it was also not able to pass the House despite being held
at the desk (not formally referred to the Committee). Thus,
some of the legislative record of the Committee for the 108th
Congress consists of a series of temporary extensions of SBA
programs (Public Law 108-172, Public Law 108-205, part of
Public Law 108-217, and Public Law 108-306) during 2003 and
2004. SBA programs were again extended on September 30, 2004
and on November 20, 2004 in the overall continuing resolution
authored by the Appropriations Committee for all the non-
defense programs of the federal government (Public Law 108-309
and Public Law 108-416, respectively).
To provide a greater degree of certainty in the long-term
future of SBA programs, the Committee negotiated with the
Senate Small Business and Entrepreneurship Committee a common
SBA reauthorization bill. Both Chairman Donald Manzullo and
Senate Small Business & Entrepreneurship Committee Chair
Olympia Snowe introduced companion bills (H.R. 5108/S. 2821) on
September 21, 2004. This new compromise SBA reauthorization
bill contained key provisions of H.R. 2802, S. 1375, S. 2724
(declaring that the National Veterans Business Development
Corporation is a private, not governmental, entity), Section 6
of H.R. 205 (protecting the privacy rights of Small Business
Development Center clients) H.R. 4119 (reauthorization of the
Paul D. Coverdell Drug-Free Workplace Program), and H.R. 5260
(reauthorization of the Advisory Committee on Veterans Business
Affairs). About 80 percent of the provisions of H.R. 5108/S.
2821 were added to the Consolidated Appropriations Act, 2005
(H.R. 4818) as Division K with some further additions requested
by the Administration and the Senate. H.R. 4818 became Public
Law 108-447 when the President signed the bill on December 8,
2004. Also, the SBA appropriations section of Division B, Title
V of H.R. 4818 effectuated the core of H.R. 4853 into law by
allowing up to 48 percent of the funds in the Women Business
Center program to be reserved for sustainability grants in
Fiscal Year 2005.
The Committee is also proud of its legislative record in
twice rescuing the SBA's 7(a) loan program in the 108th
Congress, which had the practical effect of freeing up an
additional $3.8 billion in 2003 (Public Law 108-8) and $3
billion in 2004 (Public Law 108-217) for small business
lending. In addition, the Committee was able to work through
the technicalities of allowing qualified Certified Development
Companies (CDCs) under the Premier Certified Lender Program
(PCLP) within the 504 loan program to elect to use a risk-based
approach, as found in the private sector, to calculate their
loan loss reserve requirements (Public Law 108-232). Passage of
this legislation also had the practical effect of freeing up
more capital to lend to expanding small businesses while still
protecting the interests of the taxpayer. Finally, the
Committee was able to work with the Veterans Affairs Committee
to pass the Veterans Entrepreneurship Act (Public Law 108-183)
that provides discretionary authority to federal procurement
officials to set-aside contracts to service-disabled veteran-
owned small businesses. Further, Public Law 108-183 permits the
use of G.I. bill educational benefits for self-employment
training and allows states the right to approve various
entrepreneurial courses run by Small Business Development
Centers (SBDCs) and the National Veterans Business Development
Corporation.
The Committee also passed four bills that did not see
timely action by the Senate (H.R. 205, H.R. 1166, H.R. 1772,
and H.R. 4478). However, one key component of H.R. 205,
(Section 6) dealing with protecting the privacy rights of SBDC
clients, was incorporated into H.R. 5108/S. 2821, which was
subsequently folded into H.R. 4818 (Public Law 108-447). The
Committee also worked with the Government Reform Committee and
did not assert its jurisdiction in order to insure expeditious
passage of the Paperwork and Regulatory Improvements Act (H.R.
2432). However, H.R. 2432, now appended to H.R. 2728, also did
not see timely action in the Senate.
The Committee held one hearing on the Regulatory
Flexibility Improvements Act (H.R. 2345) but no further
legislative action was taken. The Committee was also very
active in gaining broad bi-partisan support and endorsements
for the Equal Access to Justice Reform Act (H.R. 2282) but no
formal legislative action was taken in time before the 108th
Congress adjourned.
Finally, the Committee was very active on other legislation
that was not directly referred to the Committee but had a large
impact upon small business. This included the Jobs and Growth
Reconciliation Act (Public Law 108-27), which accelerated the
2001 tax cuts to small businesses; the American Jobs Creation
Act of 2004 (Public Law 108-357), which provided nine percent
tax relief to manufacturers, regardless of size or
incorporation status; the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (Public Law 108-
173), which included Health Savings Accounts (HSAs); the Death
Tax Repeal Permanency Act (H.R. 8); the Small Business Health
Fairness Act, which creates Association Health Plans (H.R.
660); the HEALTH Act (H.R. 5) to reform our medical liability
system; the Federal Prison Industries Competition in
Contracting Act (H.R. 1829), which removed the mandatory
sourcing preference for FPI; the U.S. Patent & Trademark Fee
Modernization Act (H.R. 1561), which provided a lower fee
structure for small entities filing patents; and the Junk Fax
Prevention Act of 2004 (H.R. 4600) to reverse the Federal
Communications Commission (FCC) proposed rule that required
written consent prior to a business sending a fax to a
recipient. The key element of H.R. 1829 (permanently removing
FPI's mandatory source requirement) and almost all of H.R. 1561
were incorporated into the Consolidated Appropriations Act,
2005 (Public Law 108-447)
CHAPTER TWO
THE SMALL BUSINESS ADMINISTRATION
The Committee has both legislative and oversight
jurisdiction over the Small Business Administration (SBA),
which was created in 1953, inter alia, to provide opportunities
for entrepreneurship, inventiveness, and the creation and
growth of small businesses; to provide procurement assistance
to small businesses seeking to contract with the federal
government; to help assure the availability of capital to small
businesses; and to provide assistance to victims of disasters.
During the 108th Congress, the Committee held a number of
hearings and passed several bills that focused on the mission
and performance of the SBA. A review of the legislative
activities of the Committee appears in Chapter Five and a
synopsis of the hearings held by the Committee may be found in
Chapter Seven of this report.
The major programs of the SBA are briefly described below.
2.1 SBA Programs in General
SBA has approximately 5,310 employees in the field
(including 2,378 temporary disaster employees) with 721 at the
headquarters in Washington, D.C. There are currently 10
regional offices, 68 district and nine staffed branch offices,
two commercial loan servicing centers, one liquidation center,
one liquidation and guaranty purchase center, four disaster
home loan servicing centers, four disaster area offices and one
disaster operations center, six Government Contracting Area
Offices, and three loan processing centers. The SBA provides
small business loan guarantees, direct loans for physical
damage and economic injury to disaster victims, assistance to
small businesses who are seeking to compete in the federal
procurement arena and to obtain contracts, as a well as
management, marketing and technical assistance provided by
Small Business Development Centers (SBDCs) and the Senior Corps
of Retired Executives (SCORE). The SBA also administers a
surety bond program for small businesses that are not able to
obtain bonding elsewhere.
An independent entity within SBA, the Office of Advocacy,
headed by the Chief Counsel for Advocacy appointed by the
President and confirmed with the advice and consent of the
Senate, serves as an advocate for small businesses both in the
Legislative and Executive branches of government primarily in
the area of insuring that proposed rules and regulations do not
unduly harm small business. The SBA also oversees the
implementation of the Small Business Innovation Research (SBIR)
and Small Business Technology Transfer (STTR) programs that
provide research and development opportunities for small
businesses.
2.2 SBA Business Loans
One of the major purposes for SBA is to help assure that
capital is available to small businesses who cannot obtain
credit elsewhere and that demonstrate the ability to repay.
Subject to appropriations, loans are made for a wide variety of
purposes, e.g., plant acquisition, construction, conversion or
expansion, including acquisition of land, material, supplies,
equipment, and working capital. SBA administers three major
loan programs known as the 7(a), 504, and Microloan programs.
SBA's largest business loan guarantee program is the 7(a)
program. In Fiscal Year (FY) 2003, 67,306 7(a) loans were made
in the amount of approximately $10.49 billion and in FY 2004
there were 81,133 such loans made in the amount of $12.7
billion. Banks and other lending institutions make loans and
the SBA guarantees up to $1,000,000 \1\ of a private sector
loan of up to $2,000,000. Generally, the SBA guarantees up to
85 percent of loans of $150,000 or less and 75 percent of loans
greater than $150,000.
---------------------------------------------------------------------------
\1\ Between April 5, 2004 and September 30, 2004, the 7(a) loan
guarantee limit was temporarily raised to $1.5 million as part of the
rescue package that saved the 7(a) program in FY 2004 (Public Law 108-
217). A surcharge of 0.25 percent was added to the upfront borrower fee
on the amount of the guaranteed-portion of the loan above $1 million,
on top of the 3.5 percent upfront fee the borrower was already paying.
---------------------------------------------------------------------------
The Small Business Reauthorization and Manufacturing
Assistance Act of 2004 (H.R. 5108/S. 2821), most of which was
added to the Consolidated Appropriations Act, 2005 (Division K
of P.L 108-447) and signed into law on December 8, 2004,
stabilized and strengthened the popular 7(a) loan guarantee
program by maintaining current fee structure, thus eliminating
the need for federal subsidies, saving taxpayers between $70
million and $80 million. In addition, Public Law 108-447 raised
the maximum 7(a) loan guarantee level from $1 million to $1.5
million (with an accompanying 0.25 percent upfront front
borrower fee surcharge on the amount of the guarantee above $1
million) and raises the maximum loan amount from $250,000 to
$350,000 for paperwork-friendly SBA Express loans.
The 504 loan program was established to encourage economic
development, create and preserve job opportunities, and foster
growth and modernization of small businesses. A small business
may apply to a Certified Development Company (CDC), licensed by
SBA, to finance part of a proposed 504 project. The SBA
guarantees debentures of up to $1,000,000 ($1,300,000 where
certain economic redevelopment objectives are met). The
guarantees are for 100 percent of the debenture that represents
40 percent of the total project costs. The balance of the costs
is provided by a 10 percent or more contribution by the
borrower, and a private sector loan to finance the remaining 50
percent. There are currently 269 licensed CDCs. In FY 2003,
CDCs made 6,863 504 loans totaling $3.14 billion and in FY
2004, CDCs made 8,357 504 loans totaling $3.86 billion.
The Small Business Reauthorization and Manufacturing
Assistance Act of 2004--(H.R. 5108/S. 2821), that was added to
the Consolidated Appropriations Act, 2005 (Division K of P.L
108-447) also expanded the 504 loan program at no additional
expense to the taxpayer. Public Law 108-447 increased the
maximum loan debenture size in the 504 program to $1.5 million;
$2 million for projects where certain economic redevelopment
objectives are met; and $4 million for small manufacturers. It
also increased the job requirement test to $50,000 of guarantee
for every one job created or retains (up from $35,000);
$100,000 in the case of a project of a small manufacturer; and
$75,000 for areas generally considered to need greater economic
development.
The Microloan program is designed to provide capital to
very small enterprises that cannot be served even by the other
access to capital programs of the SBA. The program has two
types of loans: (1) direct and (2) guaranteed. SBA directly
provides loans to 169 intermediaries who in turn make loans of
up to $35,000 to small businesses. Also, SBA guarantees 100
percent of loans to the intermediaries by banks. SBA funds
grants to intermediaries and other qualified organizations to
provide marketing, management, and technical assistance to
borrowers. In FY 2003, intermediary lenders made 2,442 loans in
the amount of $29,000,000. In FY 2004, intermediary lenders
made 2,399 loans in the amount of $23,000,000.
2.3 Disaster Assistance Loans
Under the Disaster Assistance Program, SBA makes direct
loans rather than loan guarantees. There are three kinds of
disaster loans: (1) home disaster loans, (2) physical disaster
business loans, and (3) economic injury business loans. The
owner of a home may apply for a home disaster loan to cover
physical damage to his or her primary residence and personal
property, and those not owning their primary residence may
apply for a loan with respect to physical loss of their
personal property. Almost any business, non-profit entity, or
charity (big or small) whose real or personal property was
damaged in a declared disaster may apply for a physical
disaster business loan.
A small business located in a declared disaster area may
apply for an economic injury disaster loan, if the small
business has suffered a substantial economic loss as a direct
result of the disaster that has caused it to be unable to meet
its obligations as they mature or to pay its ordinary and
necessary operating expenses. A small business whose owner or
an essential employee is a Military Reservist or a member of
the National Guard may apply for an economic injury disaster
loan, if the small business has suffered or is likely to suffer
substantial economic injury as a result of the individual's
absence while on active duty during a period of a military
conflict.
After a series of devastating hurricanes struck Florida and
other states east of the Mississippi in the summer of 2004, the
108th Congress passed two emergency supplemental appropriations
statutes that provide a total of $16.475 billion to areas
stricken by the hurricanes and other natural disasters. As part
of the recovery effort, SBA received $929 million to cover the
cost and administration of SBA disaster loans.
In FY 2003, SBA approved 25,856 disaster loans totaling
$885,211,500. In FY 2004, SBA approved 28,510 disaster loans
totaling $883,490,400.
2.4 Small Business Investment Companies
SBA licenses and regulates venture capital companies that
specialize in investing in small businesses. These Small
Business Investment Companies (SBICs) provide equity capital or
long-term financing and may assist those small companies
invested in with technical and managerial advice.
Capital for investment has been raised traditionally by
investors in a SBIC and by debentures guaranteed as to both
principal and interest by SBA (which usually are equal to two
or three times the SBICs private capital). SBICs relying upon
debenture leverage primarily invest in debt securities of small
businesses that have cash flows sufficient to service the
outstanding debentures. SBA guaranteed $305.5 million in
debentures in FY2003, and $440.3 million in FY2004.
In 1992, legislation was enacted creating a new SBIC
participating securities program. SBA guarantees the principal
and pays the purchasers of participating securities the
interest as it comes due on behalf of a SBIC. When the SBIC
becomes profitable, the SBIC repays SBA the interest advanced
and a share of the profits. The participating securities
program permits investment in new enterprises that do not have
established records of profitability. Three hundred and
seventy-seven (377) new financings totaling $1.12 billion in
equity investments were made in FY 2003. Three hundred and
seven (307) new financings totaling $1.45 billion in equity
investments were made in FY 2004.
The New Markets Venture Capital (NMVC) program, enacted
into law in 2000, provides capital to small enterprises located
in low-income areas. SBA can enter into participation
agreements with newly formed venture capital companies and
guarantees securities to allow them to make equity investments
in small businesses located in low-income areas. In addition,
SBA can make grants to NMVC SBICs so that they can provide
managerial assistance to small businesses in which they have
invested. In FY2003, six NMVC companies received final approval
for a total of $2,694,164.
2.5 Procurement Assistance
SBA is tasked with the responsibility of helping small
businesses get their fair share of the total prime contract and
subcontracting dollars spent by federal agencies for goods,
services, property, and construction. By statute, small
business are required to receive at least 23 percent of the
total value of all prime contracts awarded for each fiscal
year. Other Government-wide minimum goals are established by
statute for small business concerns owned and controlled by
service-disabled veterans, three percent; qualified HUBZone
small business concerns, three percent; small business concerns
owned and controlled by socially and economically disadvantaged
(SDB) individuals, five percent; and, small business concerns
owned and controlled by women, five percent.
In FY 2003 (the latest data for this information), the
federal government exceeded its goals for small businesses
overall and SDBs (23.61 percent and 7.01 percent respectfully).
However, the goals for women-owned small businesses,
Historically Underutilized Businesses (HUB)Zones, and service-
disabled veterans were not met (2.98 percent, 1.23 percent, and
0.20 percent respectfully). Nevertheless, event though the
goals were not achieved, record amounts of prime contract
dollars went to these small businesses ($8.3 billion for women,
$3.4 billion for HUBZones, and $459 million for service-
disabled veterans).
SBA Procurement Center Representatives (PCRs), generally
located at federal agencies that have major procurement
activities, are tasked with the responsibilities of identifying
contacting opportunities for small businesses, attempting to
break up large requirements so that small businesses can
participate as prime contractors, and assisting small
businesses in competing for government contracts. SBA
Commercial Market Representatives (CMRs) are responsible for
assisting small businesses obtain subcontracts with prime
contractors who have signed subcontracting plans with federal
agencies. SBA certifies small businesses as eligible for the
8(a), SDB, and HUBZone programs. Also, SBA is authorized to
certify to a contracting officer that a small business is
competent to perform a particular government procurement (or
sale) contract.
In January 2004, the Procurement Marketing and Access
Network (PRONET) was integrated with the Department of
Defense's Central Contractor Registration (CCR) database. CCR
permits small businesses to list their capabilities on the
Internet and is the official database of firms certified under
the 8(a), SDB, and HUBZone programs. However, CCR does not
provide contracting opportunities directly to small businesses
listed. SBA sets size standards that define whether a business
entity is small and eligible under federal programs and
preferences reserved for small businesses. Size standards are
established for types of business activities, generally, under
the North American Industry Classification System (NAICS).
Business development assistance is provided under 7(j) of the
Small Business Act to small businesses owned and controlled by
economically and socially disadvantaged individuals.
2.6 Entrepreneurial Development
The SBA's economic assistance programs support those
seeking to start a business and those desiring to grow and
expand an existing small business by providing individual
counseling, management training, procurement and marketing
assistance with guidance materials and workshops. Assistance is
provided at service locations throughout the United States,
Puerto Rico, and the U.S. Virgin Islands, and electronically by
means of various Internet sites. The facilities that deliver
entrepreneurial development assistance include: approximately
1,100 SBDCs, 10,844 SCORE volunteers, 86 Business Information
Centers (BICs), nine Tribal Business Information Centers
(TBICs), four Veterans Business Outreach Centers, and 86
Women's Business Centers (WBCs).
SBDCs are funded by both federal and state appropriations.
SBA administers the program through grants generally to state
governments and agencies. Most SBDCs are affiliated with state
college and university systems. They assist small businesses
and aspiring entrepreneurs with business problems concerning
personnel, administration, marketing, sales, merchandizing,
finance, accounting, business management, and participation in
international markets. SBDCs may not charge a fee for
counseling services. Modest fees are charged for workshops and
business related training and courses. In FY 2003, SBDCs served
687,535 clients. In FY2004 SBDCs served an estimated 730,176
clients.
SCORE has 389 chapter locations (at least one in every
state) where volunteer counselors provide practical business
advice and training services to over 331,000 clients annually.
All counseling is provided free of charge to clients. Annual
congressional appropriations are used to reimburse counselors
for mileage and incidental expenses. E-mail counseling is
provided over the Internet.
The network of BICs is established through partnerships
between the SBA and for-profit entities, other agencies, and
non-profit organizations. BICs provide up-to-date computer
technology, hardware and software, and a large library of
business related publication and videos. On-site counseling in
many BICs are provided by SCORE volunteers and SBDC counselors.
In FY2004, BICs served 168,640 clients.
WBCs provide assistance and one-on-one counseling to women
entrepreneurs with respect to technology, financial and
management planning, problem-solving, access to capital,
marketing, business administration, and selling to the federal
government. The on-line Women's Business Center provides
around-the-clock Internet access to business information to
help start a business, resolve business problems, or grow an
existing enterprise through federal contracting or exporting
opportunities. In FY2004, WBCs counseled and trained 122,712
clients.
The National Women's Business Council is a source of
independent advice to the President, federal agencies, and
Congress with regard to entrepreneurship and the impact of
federal polices and programs upon women who want to start and
grow business enterprises. The council has focused on issues
involving the award of federal prime contracts and subcontracts
to women-owned small businesses and barriers to women
entrepreneurs obtaining access to credit and investment
capital.
Veterans Business Outreach Centers helped 10,811 veterans
from February 2004 through August 2004 with assistance in
gaining access to capital, resolving business and management
problems, and starting and growing small businesses. In
addition, SBA has entered into agreements with the Association
of Small Business Development Centers, the Department of Labor,
and works with the Department of Veterans Affairs to provide
outreach and needed business administration and entrepreneurial
services to veterans and service-disabled veterans.
The current Native American Initiative is not a replacement
for the TBIC Program. Rather, it is an initiative developed
because of an appropriation from Congress in FY 2003 and FY
2004. The SBA Entrepreneurial Development, Office of Native
American Affairs, implemented the new initiative in FY 2003 in
which SBA worked closely with American Indian tribal
governments, tribal colleges, Indian organizations, other
federal agencies and the private sector to supplement and
support the Indian nations' plan for economic stimulus in
Indian country. In FY04, SBA's resource partners assisted
18,438 Native American entrepreneurs through the SDBC, SCORE,
BIC, and WBC programs.
2.7 Surety Bond Guarantees
Small business contractors and subcontractors who seek
public and private construction contracts are often required to
furnish surety bonds guaranteeing the completion of the
contracted work. The SBA provides assistance to such
contractors by extending guarantees of up to 90 percent to
surety insurance companies. These guarantees enable small
contractors to obtain bonding more easily. The SBA's bonding
assistance 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 $2,000,000.
The SBA will pay a surety participating in the Prior
Approval Program 90 percent guarantee for SDBs and HUBZones
regardless of contract size up to $2 million, and 90 percent
guarantee for all contractors with contracts $100,000 or less.
Otherwise, SBA will pay a surety in an amount not to exceed an
administrative ceiling of 80 percent guarantee for all
contracts over $100,000 for small businesses other than SDBs
and HUBZones. Under the Preferred Surety Bond program, the
SBA's guarantee is limited to 70 percent of the bond for all
small businesses for all contracts and contractors regardless
of contract size. In FY 2003, SBA provided 8,974 bid and final
bond guarantees on contracts valued at $594 million. In FY
2004, SBA provided 7,803 bid and final bond guarantees on
contracts valued at $598 million.
The Small Business Reauthorization and Manufacturing
Assistance Act of 2004 (H.R. 5108/S. 2821), most of which was
added to the Consolidated Appropriations Act, 2005 (Division K
of P.L 108-447) and signed into law on December 8, 2004, also
amended the SBA's surety bond program. First, Public Law 108-
447 clarifies that the $2 million limit on surety bonds applies
to the bond guarantee and not to the contract size. It also
made the Preferred Surety Bond program permanent.
2.8 Technology and Innovation
It is the free enterprise system, and not government
programs, that make the United States the world leader in
innovation and technology. Small businesses are at the
forefront of research and development and have been more
prolific in creating new jobs through innovation and
technology.
However, there are two government programs, the Small
Business Innovation Research (SBIR) and the Small Business
Technology Transfer (STTR) programs, which have successfully
provided innovative research and developed products for
government and commercial use.
SBA's Office of Technology provides oversight, monitoring,
evaluation, and reporting for these programs. In FY 2004, SBA
awarded approximately 21 cooperative agreements in the amount
of $1,978,950 pursuant to the Federal and State Technology
Partnership (FAST) program. The grants are to provide technical
assistance to high-tech small businesses to enhance their
market competitiveness. In addition in FY 2004, SBA awarded
five cooperative agreements in the amount of $247,350 to
provide statewide outreach to small businesses in rural states
that have received few SBIR and STTR awards.
The SBIR program has been in existence since 1982. Unlike
the STTR program, the SBIR program does not require, but
permits, a cooperative venture between a for-profit small
business and a researcher from a university, federal laboratory
or a nonprofit research institution for the purpose of
developing commercially viable products. However, the project's
principal investigator must be employed by the small business.
A small business to be eligible must be: (1) independently
owned and operated and other than the dominant firm in the
field which it is proposing to carry out SBIR projects, (2)
organized and operated for profit, with 500 employees or less,
(3) the primary source of employment for the project's
principal investigator at the time of award and during the
period when the research is conducted, and (4) at least 51-
percent owned by U.S. citizens or lawfully admitted permanent
resident aliens.
Agencies that spend more than $100 million for external
research, and research and development must set aside 2.5
percent of their R&D budget for awards under SBIR. There are no
additional moneys appropriated to support this program. At
present, there are ten agencies that qualify for the program.
The agencies are: Department of Defense, Department of Energy,
National Aeronautics and Space Administration, National Science
Foundation, Department of Agriculture, Department of Commerce,
Department of Education, Environmental Protection Agency,
Department of Health and Human Services, and Department of
Transportation.
The ten agencies listed above designate research and
development topics for which small businesses may submit
proposals for project funding. The proposals are evaluated by
the agency based on (1) the qualifications of the small
business, (2) the value of the project to the agency and the
degree of innovation, and (3) the market potential of the
product to be developed. Once funded, a project goes through
three phases. Each phase is funded separately.
Phase I is the start-up portion of the project and may be
funded up to $100,000. This phase lasts approximately six
months and is for the purpose of exploring the scientific, and
technical aspects of the project. Phase II may last up to two
years and may be funded in an amount up to $750,000. During
this period, research and development continues and the
commercial potential explored. Only projects that successfully
complete Phase I can be considered for funding in Phase II.
Phase III is the point in the project that the idea moves from
the laboratory to the production facility to the market place.
No SBIR funds may be used to pay for Phase III. The funding
must come from the private sector or non-SBIR federal funding.
In FY2003, 4,465 Phase I funding agreements were awarded
totaling $455,386,000 and 1,759 Phase II funding agreements
were awarded totaling $1,214,714,000.
The STTR program is independent of the SBIR program with
which it is frequently confused. The STTR program requires a
cooperative venture between a for-profit small business and a
researcher from a university, federal laboratory, or a non-
profit research institution for the purpose of developing
commercially viable products from ideas spawned in a laboratory
environment. For a federal agency to participate in the
program, it must have an extramural budget for research or
research and development that exceeds $1 billion for any fiscal
year. Presently, there are five federal agencies that meet the
funding requirement. They are: Department of Defense,
Department of Energy, Department of Health and Human Services,
National Aeronautics and Space Administration, and National
Science Foundation.
To be eligible for an STTR award a small business must have
no more than 500 employees, and be independently owned and
operated with its principal place of business in the United
States. In addition, the small business may not be the dominant
entity in the field in which the project is contained and must
be primarily owned by U.S. citizens. To be eligible to
participate in the program, a research entity must be a non-
profit institution as defined by the Stevenson-Wyler Act of
1980 or a federally funded research and development center as
determined by the National Science Foundation under the
provisions of section 35(c)(1) of the Office of Federal
Procurement Policy Act.
The program requires that the research and development
project be conducted jointly by a small business and a research
institution in which not less than 40 percent of the work is
performed by the small business, and that not less than 30
percent of the work is performed by the research institution.
Though the venture is cooperative in nature, the small business
is responsible for the overall management and control of each
project.
The statute mandates that each award go though three
phases. Phase I is the start-up part of a particular project
and entails, as may be possible, a determination of the
scientific, technical, and commercial merits of the concepts
underlying a particular award. Phase II provides an opportunity
to further develop the concepts to meet the objectives of the
particular award. Only projects that successfully complete
Phase I can be considered for funding under Phase II. Phase III
is the point at which the project moves from the laboratory to
commercial application or further cooperative research and
development. No STTR funds may be used to pay for Phase III.
The funding must come from the private sector or non-STTR
federal funding. In FY 2003, 379 Phase I funding agreements
were awarded in the amount of $41,135,227 and Phase II funding
agreements were awarded totaling $50,676,227.
2.9 Export Assistance
SBA is authorized to promote increased participation of
small businesses in international trade. To assist small
businesses in exporting abroad, SBA works with the Department
of Commerce and other federal agencies to identify business
opportunities and to assist in financing the sale of U.S. made
products to foreign buyers. SBA works with the Department of
Commerce, the Export-Import Bank, Department of Agriculture, as
well as SBDCs and SCORE, in maintaining a network of 16 U.S.
Export Assistance Centers (USEACs) that provide information and
counseling with respect to export marketing and financing.
USEACs are SBA's primary outlet for delivering export services
to small businesses. Small businesses may obtain free
consultation through the Export Legal Assistance Network (ELAN)
program, which enables those 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 assistance has several loan programs,
depending upon the purpose for which the funds are to be used.
Exporters can obtain funds for fixed asset acquisitions during
startup or expansion and for general working capital needs
through the 7(a) loan program. Export Trading Companies can
qualify for SBA's business loan guarantee program, provided
that they are for profit entities and have no bank equity
participation. The Export Working Capital program authorizes
SBA to guarantee 90 percent of a private sector loan of up to
$750,000 for working capital. Loans made under this program
generally have a 12-month maturity but two one-year extensions
may be obtained.
The loans can be for single or multiple export sales and
can be expended for pre-shipment working capital and post-
shipment exposure coverage, but the proceeds cannot be used to
obtain fixed assets. Through the 7(a) loan program, the SBA can
provide export assistance by guaranteeing international trade
loans, that provide long-term financing to small businesses
engaged in international trade, as well as those businesses
adversely impacted by import competition. In FY 2003, SBA
guaranteed 1,679 export loans worth an estimated $398,109,334.
In FY 2004, SBA guaranteed 2,316 export loans in the total
amount of $562,191,362.
The Small Business Reauthorization and Manufacturing
Assistance Act of 2004 (H.R. 5108/S. 2821), most of which was
added to the Consolidated Appropriations Act, 2005 (Division K
of P.L 108-447) and signed into law on December 8, 2004, also
expanded the scope of the international trade loan programs at
the SBA. Public Law 108-447 authorizes the use of International
Trade (IT) Loans to refinance existing debt to make it
consistent with all other 7(a) loans. The provisions also allow
the findings by the International Trade Commission (ITC) or a
Trade Adjustment Assistance Center (TAAC) as proof that a small
business has been adversely affected by foreign imports.
Finally, Public Law 108-447 raises IT loan guarantee limit from
$1,250,000 to $1,750,000 and the Export Working Capital
guarantee limit from $750,000 to $1,250,000.
2.10 Office of Advocacy
The 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 of 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 federal
agencies for the purpose of enhancing small business
competitiveness.
The statutorily prescribed ``primary functions'' of the
Office of Advocacy include: (1) examining the role of small
business in the American economy; (2) assessing the
effectiveness of all federal subsidy and assistance programs
available to 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) evaluating federal and private
industry efforts to assist veterans and service-disabled
veterans.
In addition, there are 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 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 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 database to provide Congress and the
Executive with information on the economic condition of the
small business sector.
The statute prescribed 12 categories of data and required
an annual report on trends. Although none of these database
functions were expressly delegated to the Office of Advocacy by
statute, the SBA Administrator has historically assigned these
functions to the Office of Advocacy. 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.
The Office of Advocacy estimates that in 2003 (the latest
date for this information), their efforts saved small
businesses $6 billion in compliance costs by stopping or
changing potentially damaging regulations.
CHAPTER THREE
HEARINGS AND MEETINGS HELD BY THE COMMITTEE ON SMALL BUSINESS AND ITS
SUBCOMMITTEES, 108th CONGRESS
3.1 Full Committee
------------------------------------------------------------------------
Date Subject
------------------------------------------------------------------------
February 4, 2003........................... Roundtable: President's
Economic Stimulus
Proposal.
February 25, 2003.......................... Roundtable: The Burden of
Regulations on the Small
Business Community.
February 26, 2003.......................... Meeting to consider and
adopt Committee Rules and
Oversight Plan for the
108th Congress;
Washington, D.C.
February 26, 2003.......................... U.S. Small Business
Administration's Budget FY
2004.
March 4, 2003.............................. Roundtable: Federal
Regulatory Burden.
March 5, 2003.............................. Small Business Access and
Alternatives to Health
Care.
March 11, 2003............................. RESPA Reform and Economic
Effects on Small Business.
March 20, 2003............................. Changes to SBA Financing
Programs Needed for
Revitalization of Small
Manufacturers.
April 9, 2003.............................. Will We Have an Economic
Recovery Without a Strong
U.S. Manufacturing Base?
May 1, 2003................................ IRS Compliance with the
Regulatory Flexibility
Act.
May 7, 2003................................ Are Big Businesses Being
Awarded Contracts Intended
for Small Businesses?
May 14, 2003............................... The WTO's Challenge to the
FSC/ETI Rules and the
Effects on America's Small
Businesses.
June 4, 2003............................... The Visa Approval Backlog
and its Impact on American
Small Business.
June 11, 2003.............................. Revitalizing America's
Manufacturers: SBA
Business and Enterprise
Development Programs.
June 18, 2003.............................. The Globalization of White-
Collar Jobs: Can America
Lose These Jobs and Still
Prosper?
June 25, 2003.............................. Foreign Currency
Manipulation and its
Effect on Small
Manufacturers and
Exporters.
July 9, 2003............................... Saving the Defense
Industrial Base.
July 14, 2003.............................. Doctors as Small
Businesses, field hearing,
Frederick, MD.
July 23, 2003.............................. Assisting Small Businesses
Through the Tax Code,
Recent Gains and What
Remains to be Done.
August 25, 2003............................ Small Business Access to
Health Care.
September 2, 2003.......................... Roundtable: Opportunities
for Economic Growth and
Job Creation.
September 4, 2003.......................... Attracting Economic Growth
for Rural Economies.
September 10, 2003......................... The WTO's Challenge to the
FSC/ETI Rules and the
Effect on America's Small
Businesses.
September 17, 2003......................... National Small Business
Week: Small Business
Success Stories.
October 16, 2003........................... Is America Losing its Lead
in High Tech: Implications
for the US Defense
Industrial Base.
October 20, 2003........................... The Offshoring of High
Skilled Jobs.
October 29, 2003........................... Roundtable: End of Session
Review on the State of
U.S. Manufacturing.
November 20, 2003.......................... Lowering the Cost of Doing
Business in the United
States: How to Keep Our
Companies Here.
December 1, 2003........................... Increasing the
Competitiveness of U.S.
Manufacturers.
January 6, 2004............................ Real Estate Settlement
Procedure Act Regulations:
Working Behind Closed
Doors to Hurt Small
Businesses and Consumers.
January 21, 2004........................... Can U.S. Companies Compete
Globally Using American
Workers?
February 4, 2004........................... Roundtable: Are We Making
as Much Progress as We
Think?
February 11, 2004.......................... How Does the President's FY
'05 Budget Request Affect
Small Business?
February 17, 2004.......................... Availability of Capital and
Federal Procurement
Opportunities to Minority-
Owned Small Businesses,
field hearing, Chicago,
IL.
February 25, 2004.......................... Business Meeting to approve
the Committee's Budget
Views and Estimates on the
President's FY '05 Budget
Request.
March 10, 2004............................. Spike in Metal Prices--What
Does it Mean for Small
Manufacturers?
March 25, 2004............................. Spike in Metal Prices--Part
II.
May 5, 2004................................ Improving the Regulatory
Flexibility Act (H.R.
2345).
May 12, 2004............................... Women Entrepreneurship:
Successes and Challenges.
May 19, 2004............................... Red Tape Reduction:
Improving the
Competitiveness of
America's Small
Manufacturers.
June 2, 2004............................... Careers for the 21st
Century: How Education and
Worker Training Can Help
Small Business.
July 7, 2004............................... The Rebate of Value Added
Taxes at the Border and
the Competitive
Disadvantage for U.S.
Small Businesses.
July 14, 2004.............................. Trade Fairness: How to Make
Our Trade Laws Work for
America's Small
Businesses.
------------------------------------------------------------------------
3.2 Subcommittee on Workforce, Empowerment and Government Programs
------------------------------------------------------------------------
Date Subject
------------------------------------------------------------------------
April 1, 2003.............................. Joint Subcommittee hearing
with the Subcommittee on
Regulatory Reform and
Oversight, Improving and
Strengthening the SBA
Office of Advocacy.
April 28, 2003............................. Status of Small
Manufacturing in the
Midwest, field hearing,
St. Peters, MO.
May 6, 2003................................ Current and Future States
of the SBIR, FAST and MEP
Programs.
July 22, 2003.............................. Federal Procurement Policy:
Is the Federal Government
Failing Certain Industrial
Sectors?
August 25, 2003............................ The Rising Cost of Health
Care for Small Business
Owners.
September 2, 2003.......................... Opportunities for Economic
Growth and Job Creation,
field hearing, Newnan, GA.
October 1, 2003............................ Joint Subcommittee hearing
with the Subcommittee on
Tax, Finance and Exports,
Federal Prison Industry's
Effects on the U.S.
Economy and the Small
Business Environment.
February 26, 2004.......................... Union ``Salting'' of Small
Businesses.
March 18, 2004............................. Benefits of Health Savings
Accounts.
April 29, 2004............................. Would an Increase in the
Federal Minimum Wage Help
or Hinder Small Business?
May 20, 2004............................... Department of Labor's
Overtime Regulations
Effect on Small Business.
July 15, 2004.............................. Joint Subcommittee hearing
with the House Veteran's
Affairs Committee's
Subcommittee on Benefits,
Excellence in Action:
Government Support of
Disabled Veteran-Owned
Businesses.
------------------------------------------------------------------------
3.3 Subcommittee on Regulatory Reform and Oversight
------------------------------------------------------------------------
Date Subject
------------------------------------------------------------------------
April 1, 2003.............................. Joint Subcommittee hearing
with the Subcommittee on
Workforce, Empowerment and
Government Programs,
Improving and
Strengthening the SBA
Office of Advocacy.
May 15, 2003............................... The Cost of Regulations to
the Small Business
Community.
June 26, 2003.............................. CRS Regulations and Small
Business in the Travel
Industry.
July 15, 2003.............................. Contract Bundling and Small
Business Procurement.
July 18, 2003.............................. Joint Subcommittee hearing
with House Government
Reform's Subcommittee on
Energy Policy, Natural
Resources and Regulatory
Affairs, What is OMB's
Record in Small Business
Paperwork Relief?
October 30, 2003........................... Spam and its Effects on
Small Business.
November 17, 2003.......................... Increasing the
Competitiveness of U.S.
Manufacturers, field
hearing, Spartanburg, SC.
January 28, 2004........................... Joint Subcommittee hearing
with House Government
Reform's Subcommittee on
Energy Policy, Natural
Resources and Regulatory
Affairs, The
Administration's Record in
Relieving Burden on Small
Business.
March 1, 2004.............................. Challenges to Small
Business Growth, field
hearing, Augusta, GA.
April 22, 2004............................. Small Businesses Creating
Jobs and Protecting the
Environment.
May 20, 2004............................... Keep America's Small
Businesses Competitive.
June 17, 2004.............................. Department of Labor's
Enforcement Actions
Against Small Business.
July 20, 2004.............................. Joint Subcommittee hearing
with House Government
Reform's Subcommittee on
Energy Policy, Natural
Resources and Regulatory
Affairs, Small Business
Paperwork Relief Act
Implementation.
July 22, 2004.............................. Small Business Liability
Reform.
------------------------------------------------------------------------
3.4 Subcommittee on Tax, Finance and Exports
------------------------------------------------------------------------
Date Subject
------------------------------------------------------------------------
April 3, 2003.............................. President's Proposal to
Increase Expensing for
Small Businesses.
May 8, 2003................................ Overcoming Obstacles Facing
the Uninsured: How the Use
of Medical Savings
Accounts, Flexible
Spending Accounts and Tax
Credits Can Help.
June 12, 2003.............................. The Chilean Free Trade
Agreement: Opening Doors
to South American Markets.
August 27, 2003............................ Removing the Roadblocks to
Success: How Can the
Federal Government Help
Small Businesses
Revitalize the Economy?
August 28, 2003............................ Small Business Exporting
and the Southern
California Economy, field
hearing, Long Beach, CA.
October 1, 2003............................ Joint Subcommittee hearing
with the Subcommittee on
Workforce, Empowerment and
Government Programs,
Federal Prison Industry's
Effects on the U.S.
Economy and the Small
Business Environment.
October 8, 2003............................ August 2003 Blackout on
Small Businesses and
Possible Solutions.
July 8, 2004............................... H.R. 1818, the Workforce
Health Improvement Program
Act: Healthy Employees-
Healthy Bottom Line.
------------------------------------------------------------------------
3.5 Subcommittee on Rural Enterprises, Agriculture and Technology
------------------------------------------------------------------------
Date Subject
------------------------------------------------------------------------
April 8, 2003.............................. Litigating the Americans
with Disabilities Act.
May 15, 2003............................... The Impact of the Highway
Beautification Act on
Small Businesses Across
America.
July 17, 2003.............................. Endangered Farmers and
Ranchers: The Unintended
Consequences of the
Endangered Species Act.
September 25, 2003......................... The Future of Rural
Telecommunications: Is the
Universal Service Fund
Sustainable?
October 21, 2003........................... Challenges that Small
Businesses Face Accessing
Homeland Security
Contracts.
January 15, 2004........................... A Small Business Component
to the Federal Flight Deck
Officer Program: A Win-Win
Scenario, field hearing,
Paulden, AZ.
February 23, 2004.......................... The Endangered Species Act,
field hearing, St. Joseph,
MO.
May 6, 2004................................ The Benefits of Tax
Incentives for Producers
of Renewable Fuels and its
Impact on Small Businesses
and Farmers.
July 21, 2004.............................. Tax Incentives for Homeland
Security Related Expenses
(H.R. 3562).
September 22, 2004......................... Impact of High Natural Gas
Prices on Small
Manufacturers and Farmers.
------------------------------------------------------------------------
CHAPTER FOUR
PUBLICATIONS OF THE COMMITTEE ON SMALL BUSINESS AND ITS SUBCOMMITTEES,
108TH CONGRESS
4.1 Reports
------------------------------------------------------------------------
House Report Number Title and date
------------------------------------------------------------------------
108-153.................................... Report to accompany H.R.
923, To amend the Small
Business Investment Act of
1958 to allow certain
premier certified lenders
to elect to maintain an
alternative loss reserve;
June 12, 2003.
108-162.................................... Report to accompany H.R.
1772, To improve small
business advocacy; June
18, 2003.
108-325-Part I............................. Report to accompany H.R.
2802, To reauthorize the
Small Business Act and the
Small Business Investment
Act of 1958; October 21,
2003.
------------------------------------------------------------------------
4.2 Hearing Records
------------------------------------------------------------------------
Serial No. Date, title and committee
------------------------------------------------------------------------
108-1...................................... February 26, 2003, U.S.
Small Business
Administration's Budget FY
2004, Full Committee.
108-2...................................... March 5, 2003, Small
Business Access and
Alternatives to Health
Care, Full Committee.
108-3...................................... March 11, 2003, RESPA
Reform and Economic
Effects on Small Business,
Full Committee.
108-4...................................... March 20, 2003, Changes to
SBA Financing Programs
Needed for Revitalization
of Small Manufacturers,
Full Committee.
108-5...................................... April 1, 2003, Improving
and Strengthening the SBA
Office of Advocacy, Joint
Subcommittee hearing with
the Subcommittee on
Regulatory Reform and
Oversight and Subcommittee
on Workforce, Empowerment
and Government Programs.
108-6...................................... April 3, 2003, President's
Proposal to Increase
Expensing for Small
Businesses, Subcommittee
on Tax, Finance and
Exports.
108-7...................................... April 8, 2003, Litigating
the Americans with
Disabilities Act,
Subcommittee on Rural
Enterprises, Agriculture
and Technology.
108-8...................................... April 9, 2003, Will We Have
an Economic Recovery
Without a Strong U.S.
Manufacturing Base?, Full
Committee.
108-9...................................... April 28, 2003, Status of
Small Manufacturing in the
Midwest, field hearing by
the Subcommittee on
Workforce, Empowerment and
Government Programs, St.
Peters, MO.
108-10..................................... May 1, 2003, IRS Compliance
with the Regulatory
Flexibility Act, Full
Committee.
108-11..................................... May 6, 2003, Current and
Future States of the SBIR,
FAST and MEP Programs,
Subcommittee on Workforce,
Empowerment and Government
Programs.
108-12..................................... May 7, 2003, Are Big
Businesses Being Awarded
Contracts Intended for
Small Businesses?, Full
Committee.
108-13..................................... May 8, 2003, Overcoming
Obstacles Facing the
Uninsured: How the Use of
Medical Savings Accounts,
Flexible Spending Accounts
and Tax Credits Can Help,
Subcommittee on Tax,
Finance and Exports.
108-14..................................... May 14, 2003, The WTO's
Challenge to the FSC/ETI
Rules and the Effects on
America's Small
Businesses, Full
Committee.
108-15..................................... May 15, 2003, The Cost of
Regulations to the Small
Business Community,
Subcommittee on Regulatory
Reform and Oversight.
108-16..................................... May 15, 2003, The Impact of
the Highway Beautification
Act on Small Businesses
Across America,
Subcommittee on Rural
Enterprises, Agriculture
and Technology.
108-17..................................... June 4, 2003, The Visa
Approval Backlog and its
Impact on American Small
Business, Full Committee.
108-18..................................... June 11, 2003, Revitalizing
America's Manufacturers:
SBA Business and
Enterprise Development
Programs, Full Committee.
108-19..................................... June 12, 2003, The Chilean
Free Trade Agreement:
Opening Doors to South
American Markets,
Subcommittee on Tax,
Finance and Exports.
108-20..................................... June 18, 2003, The
Globalization of White-
Collar Jobs: Can America
Lose These Jobs and Still
Prosper?, Full Committee.
108-21..................................... June 25, 2003, The Effect
of Foreign Currency
Manipulation on Small
Manufacturers and
Exporters, Full Committee.
108-22..................................... June 26, 2003, CRS
Regulations and Small
Business in the Travel
Industry, Subcommittee on
Regulatory Reform and
Oversight.
108-23..................................... July 9, 2003, Saving the
Defense Industrial Base,
Full Committee.
108-24..................................... July 14, 2003, Field
Hearing, Doctors as Small
Businesses, Frederick, MD.
108-25..................................... July 15, 2003, Contract
Bundling and Small
Business Procurement,
Subcommittee on Regulatory
Reform and Oversight.
108-26..................................... July 17, 2003, Endangered
Farmers and Ranchers: The
Unintended Consequences of
the Endangered Species
Act, Subcommittee on Rural
Enterprises, Agriculture
and Technology.
108-27..................................... July 18, 2003, What is
OMB's Record in Small
Business Paperwork
Relief?, Joint
Subcommittee hearing with
Subcommittee on Regulatory
Reform and Oversight and
House Government Reform's
Subcommittee on Energy
Policy, Natural Resources
and Regulatory Affairs.
108-28..................................... July 22, 2003, Federal
Procurement Policy: Is the
Federal Government Failing
Certain Industrial
Sectors?, Subcommittee on
Workforce, Empowerment and
Government Programs.
108-29..................................... July 23, 2003, Assisting
Small Businesses Through
the Tax Code, Recent Gains
and What Remains to be
Done, Full Committee.
108-30..................................... August 25, 2003, Small
Business Access to Health
Care, Full Committee.
108-31..................................... August 25, 2003, The Rising
Cost of Health Care for
Small Business Owners,
Subcommittee on Workforce,
Empowerment and Government
Programs.
108-32..................................... August 27, 2003, Removing
the Roadblocks to Success:
How Can the Federal
Government Help Small
Businesses Revitalize the
Economy?, Subcommittee on
Tax, Finance and Exports.
108-33..................................... August 28, 2003, field
hearing, Small Business
Exporting and the Southern
California Economy, Long
Beach, CA, Subcommittee on
Tax, Finance and Exports.
108-34..................................... September 2, 2003, Field
hearing, Opportunities for
Economic Growth and Job
Creation, Newnan, GA,
Subcommittee on Workforce,
Empowerment and Government
Programs.
108-35..................................... September 4, 2003,
Attracting Economic Growth
for Rural Economies, Full
Committee.
108-36..................................... September 10, 2003, The
WTO's Challenge to the FSC/
ETI Rules and the Effect
on America's Small
Businesses, Full
Committee.
108-37..................................... September 17, 2003,
National Small Business
Week: Small Business
Success Stories, Full
Committee.
108-38..................................... September 25, 2003, The
Future of Rural
Telecommunications: Is the
Universal Service Fund
Sustainable?, Subcommittee
on Rural Enterprises,
Agriculture and
Technology.
108-39..................................... October 1, 2003, Federal
Prison Industry's Effects
on the U.S. Economy and
the Small Business
Environment, Joint
Subcommittee hearing with
the Subcommittee on
Workforce, Empowerment and
Government Programs and
the Subcommittee on Tax,
Finance and Exports.
108-40..................................... October 8, 2003, August
2003 Blackout on Small
Businesses and Possible
Solutions, Subcommittee on
Tax, Finance and Exports.
108-41..................................... October 16, 2003, Is
America Losing its Lead in
High Tech: Implications
for the US Defense
Industrial Base, Full
Committee.
108-42..................................... October 20, 2003, The
Offshoring of High Skilled
Jobs, Full Committee.
108-43..................................... October 21, 2003,
Challenges that Small
Businesses Face Accessing
Homeland Security
Contracts, Subcommittee on
Rural Enterprises,
Agriculture and
Technology.
108-44..................................... October 30, 2003, Spam and
its Effects on Small
Business, Subcommittee on
Regulatory Reform and
Oversight.
108-45..................................... November 17, 2003, field
hearing, Increasing the
Competitiveness of U.S.
Manufacturers,
Spartanburg, SC,
Subcommittee on Regulatory
Reform and Oversight.
108-46..................................... November 20, 2003, Lowering
the Cost of Doing Business
in the United States: How
to Keep Our Companies
Here, Full Committee.
108-47..................................... December 1, 2003,
Increasing the
Competitiveness of U.S.
Manufacturers, Full
Committee.
108-48..................................... January 6, 2004, Real
Estate Settlement
Procedure Act Regulations:
Working Behind Closed
Doors to Hurt Small
Businesses and Consumers,
Full Committee.
108-49..................................... January 15, 2004, field
hearing, A Small Business
Component to the Federal
Flight Deck Officer
Program: A Win-Win
Scenario, Paulden, AZ,
Subcommittee on Rural
Enterprises, Agriculture
and Technology.
108-50..................................... January 21, 2004, Can US
Companies Compete Globally
Using American Workers?,
Full Committee.
108-51..................................... January 28, 2004, What is
the Administration's
Record in Relieving Burden
on Small Businesses?,
Joint Subcommittee hearing
with Subcommittee on
Regulatory Reform and
Oversight and House
Government Reform
Committee's Subcommittee
on Energy Policy, Natural
Resources and Regulatory
Affairs.
108-52..................................... February 11, 2004, How Does
the President's FY '05
Budget Request Affect
Small Business?, Full
Committee.
108-53..................................... February 17, 2004, Field
Hearing on the
Availability of Capital
and Federal Procurement
Opportunities to Minority-
Owned Small Businesses,
Chicago, IL, Full
Committee.
108-54..................................... February 23, 2004, field
hearing, The Endangered
Species Act, St. Joseph,
MO, Subcommittee on Rural
Enterprises, Agriculture
and Technology.
108-55..................................... February 26, 2004, Union
``Salting'' of Small
Businesses, Subcommittee
on Rural Enterprises,
Agriculture and
Technology.
108-56..................................... March 1, 2004, field
hearing, Challenges to
Small Business Growth,
Augusta, GA, Subcommittee
on Regulatory Reform and
Oversight.
108-57..................................... March 10, 2004, Spike in
Metal Prices-What Does it
Mean for Small
Manufacturers?, Full
Committee.
108-58..................................... March 18, 2004, Benefits of
Health Savings Accounts,
Subcommittee on Workforce,
Empowerment and Government
Programs.
108-59..................................... March 25, 2004, Spike in
Metal Prices-Part II, Full
Committee.
108-60..................................... April 22, 2004, Small
Businesses Creating Jobs
and Protecting the
Environment, Subcommittee
on Regulatory Reform and
Oversight.
108-61..................................... April 29, 2004, Would an
Increase in the Federal
Minimum Wage Help or
Hinder Small Business?,
Subcommittee on Workforce,
Empowerment and Government
Programs.
108-62..................................... May 5, 2004, Improving the
Regulatory Flexibility Act
(HR 2345), Full Committee.
108-63..................................... May 6, 2004, The Benefits
of Tax Incentives for
Producers of Renewable
Fuels and its Impact on
Small Businesses and
Farmers, Subcommittee on
Rural Enterprises,
Agriculture and
Technology.
108-64..................................... May 12, 2004, Women
Entrepreneurship:
Successes and Challenges,
Full Committee.
108-65..................................... May 19, 2004 Red Tape
Reduction: Improving the
Competitiveness of
America's Small
Manufacturers, Full
Committee.
108-66..................................... May 20, 2004, Keep
America's Small Businesses
Competitive, Subcommittee
on Regulatory Reform and
Oversight.
108-67..................................... May 20, 2004, Department of
Labor's Overtime
Regulations Effect on
Small Business,
Subcommittee on Workforce,
Empowerment and Government
Programs.
108-68..................................... June 2, 2004, Careers for
the 21st Century: How
Education and Worker
Training Can Help Small
Business, Full Committee.
108-69..................................... June 17, 2004, Department
of Labor's Enforcement
Actions Against Small
Business, Subcommittee on
Regulatory Reform and
Oversight.
108-70..................................... July 7, 2004, The Rebate of
Value Added Taxes at the
Border and the Competitive
Disadvantage for U.S.
Small Businesses, Full
Committee.
108-71..................................... July 8, 2004, H.R. 1818,
the Workforce Health
Improvement Program Act:
Healthy Employees-Healthy
Bottom Line, Subcommittee
on Tax, Finance and
Exports.
108-72..................................... July 14, 2004, Trade
Fairness: How to Make Our
Trade Laws Work for
America's Small
Businesses, Full
Committee.
108-73..................................... July 15, 2004, Excellence
in Action: Government
Support of Disabled
Veteran-Owned Businesses,
Joint Subcommittee hearing
with the Subcommittee on
Workforce, Empowerment and
Government Programs and
the House Veteran's
Affairs Committee's
Subcommittee on Benefits.
108-74..................................... July 20, 2004, Small
Business Paperwork Relief
Act Implementation, Joint
Subcommittee hearing with
House Government Reform's
Subcommittee on Energy
Policy, Natural Resources
and Regulatory Affairs.
108-75..................................... July 21, 2004, Tax
Incentives for Homeland
Security Related Expenses
(H.R. 3562), Subcommittee
on Rural Enterprises,
Agriculture and
Technology.
108-76..................................... July 22, 2004, Small
Business Liability Reform,
Subcommittee on Regulatory
Reform and Oversight.
108-77..................................... September 22, 2004, Impact
of High Natural Gas Prices
on Small Manufacturers and
Farmers, Subcommittee on
Rural Enterprises,
Agriculture and
Technology.
108-A...................................... October 29, 2003,
Roundtable: End of Session
Review on the State of
U.S. Manufacturing.
108-B...................................... September 2, 2003,
Roundtable: Opportunities
for Economic Growth and
Job Creation, Newnan, GA.
108-C...................................... March 4, 2003, Roundtable:
Federal Regulatory Burden.
108-D...................................... February 4, 2003,
Roundtable: President's
Economic Stimulus
Proposal.
108-E...................................... February 25, 2003,
Roundtable: The Burden of
Regulations on the Small
Business Community.
108-F...................................... February 4, 2004,
Roundtable: Are We Making
as Much Progress as We
Think?
------------------------------------------------------------------------
CHAPTER FIVE
SUMMARY OF LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL BUSINESS,
108TH CONGRESS
5.1 H.R. 205--National Small Business Regulatory Assistance Act of
2003
Legislative History
1/7/2003: Referred to the House Committee on Small
Business.
4/8/2003 1:46pm: Mr. Manzullo moved to suspend the rules
and pass the bill.
4/8/2003 1:47pm: Considered under suspension of the rules.
4/8/2003 2:08pm: At the conclusion of debate, the Yeas and
Nays were demanded and ordered. Pursuant to the provisions of
clause 8, rule XX, the Chair announced that further proceedings
on the motion would be postponed.
4/8/2003 5:22pm: Considered as unfinished business.
4/8/2003 5:29pm: On motion to suspend the rules and pass
the bill Agreed to by the Yeas and Nays: (2/3 required): 417-4
(Roll no. 116)
4/8/2003 5:29pm: Motion to reconsider laid on the table
Agreed to without objection.
4/9/2003: Received in the Senate and Read twice and
referred to the Committee on Small Business and
Entrepreneurship.
Need for Legislation
During the past 20 years, the Federal Register--the
compendium of federal regulatory initiatives and changes--
almost doubled in size from 42,000 pages to a record 83,289
pages in 2000. This crush of federal dictates is particularly
troubling to small businesses that find it increasingly
difficult to meet these burgeoning regulatory requirements
while at the same time trying to successfully operate their
businesses in an expanding competitive global environment.
Often, small business owners do not learn about their failure
to comply with a regulation or that a new regulatory
requirement has been imposed until an inspector or auditor
walks through the door.
The result is neither beneficial to the small business
owner nor the federal government. Federal regulations exist to
achieve some statutory objective; noncompliance hinders the
reaching of these statutory goals. Small business owners
certainly would be more interested in complying with federal
regulations than paying penalties and fines. However, the
amount of information, including regulations and concomitant
guidance, simply overwhelms small firms.
In 1996, Congress took action in an effort to alleviate
this problem. The Small Business Regulatory Enforcement
Fairness Act provided that federal agencies are required to
produce plain-English compliance guides for any regulation that
would have a significant economic impact on a substantial
number of small businesses. Of course, if small business owners
do not know about the regulatory changes, the existence of such
compliance guides does little to assist them. Some mechanism
must exist to make small businesses more aware of their
regulatory obligations.
Even more important than making small businesses aware of
the regulations is providing them with assistance needed to
understand and comply with the regulations. A regulation may
only take up 10 or 11 pages of text, but the explanation for
what those 10 or 11 pages mean may encompass as much as 300
hundred pages of dense, triple-columned, single-spaced pages in
the Federal Register. Most small business owners do not have
the time to go through this dense prolixity. And even if they
did, they would not understand it unless they were
knowledgeable in the field. The Committee believes that greater
assistance must be provided to small business owners in helping
them comply with complex regulatory issuances. Otherwise, a
divide could develop between those businesses, usually large,
with the resources to comply and those, usually small, without
such resources. The small businesses will be at risk for
penalties, fines, and audits while large businesses will not. A
regulatory compliance assistance program operated through the
small business development centers could provide substantial
assistance in ensuring such a divide does not occur.
The Small Business Administration oversees a number of
mechanisms for delivering advice to small business owners. One
of the most effective is the Small Business Development Center
(SBDC) program. Operated in conjunction with colleges and
universities, the SBDCs assist small businesses in solving
problems concerning the operations, manufacturing, engineering,
technology, exchange and development, personnel administration,
marketing, sales, merchandising, finance, accounting, and
business strategy development. The SBDCs utilize the resources
and the expertise of colleges and universities. In addition,
the SBDCs, like the Agricultural Extension Service, also
provide a focal point for information retrieval, coordination
of federal and state government services, and referral to
experts. Historically, SBDCs have focused on financial,
management, and marketing activities of small businesses
despite the requirement that they also provide regulatory
compliance assistance.
SBDCs can provide an effective mechanism for dispensing
regulatory compliance information and advice. However,
regulatory compliance, unlike many of the other activities
undertaken by the small business development centers, has
significant legal consequences. Therefore, a program to examine
how the regulatory compliance assistance will operate in
selected SBDCs is a preferred strategy to simply providing an
authorization of additional funding so that SBDCs can provide
regulatory compliance assistance.
Section-by-Section Analysis
Section 1. Short title
Designates the bill as the ``National Small Business
Regulatory Assistance Act of 2001.''
Section 2. Purpose
This section expresses the purpose of the legislation--to
establish a pilot project within certain SBDCs to provide and
coordinate regulatory compliance assistance to small
businesses.
Section 3. Definitions
The definitions of the Small Business Act shall apply to
this pilot program unless a different definition is utilized in
the new Sec. 36 created by this Act. In those cases in which
the definition is different, the definitions in new Sec. 36
shall apply to the pilot program created by this Act.
Section 4. Small Business Regulatory Assistance Program
This section establishes the pilot program by creating a
new Section 36 of the Small Business Act.
Section 36(a)(1) defines the term ``Administrator'' as the
Administrator of the Small Business Administration.
Section 36(a)(2) defines the term ``Association'' to be the
association established pursuant to Section 21 of the Small
Business Act, which represents the majority of SBDCs. That
organization is the Association of Small Business Development
Centers.
Section 36(a)(3) defines the term ``Participating Small
Business Development Center'' as a SBDC selected to participate
in the pilot program established under this section.
Section 36(a)(4) defines the term ``Program'' as the
regulatory assistance program established under this section.
Section 36(a)(5) defines the term ``Regulatory Compliance
Assistance'' as assistance provided by a participating SBDC to
a small business concerning compliance with federal
regulations.
Section 36(a)(6) defines the term ``Small Business
Development Center'' means a small business development center
described in section 21 of the Small Business Act.
Section 36(a)(7) defines the term ``State'' to include all
fifty states and the District of Columbia, the Virgin Islands,
and Guam.
Section 36(b) authorizes the Administrator of the Small
Business Administration to establish a pilot program for
selected small business development centers to provide small
businesses with regulatory compliance assistance.
Section 36(c)(1) authorizes the Administrator to enter into
arrangements with SBDCs selected under this section for the
provision of regulatory compliance assistance.
The participating SBDCs are required to provide access to
information and resources on regulatory compliance, including
contact information for federal and state compliance and
technical assistance similar to those established under section
507 of the Clean Air Act Amendments of 1990. Numerous other
federal and state agencies have non-punitive compliance
assistance programs (such as the federal Occupational Safety
and Health Administration) and the Committee expects that the
participating SBDCs will maintain all necessary contact
information with those federal and state agencies. Furthermore,
the Committee expects that the quality of coordination of these
assistance resources will be a significant factor in selecting
the SBDCs for the pilot project.
Section 36(c)(1) also requires that the selected SBDCs
establish various training and educational activities. The
Committee expects that selected centers will utilize their
contacts with federal and state agencies to obtain compliance
pamphlets, videos, books, and any compliance guides issued
pursuant to the Small Business Regulatory Enforcement Fairness
Act. In addition, the Committee expects that participating
centers will hold lectures and seminars on regulatory
compliance including updates on compliance based on regulatory
changes. The Committee expects that the Administrator will
consider the quality of proposed educational programs in
determining which centers are selected to participate in the
pilot program.
Section 36(c)(1)(C) also mandates that the selected SBDCs
provide confidential counseling on a one-on-one basis at no
charge to small businesses seeking regulatory compliance
assistance. The Committee recognizes that compliance with
regulations inculcates legal rights and responsibilities of
small business owners. Therefore, section 36(c) prohibits any
regulatory compliance counseling that would be considered the
practice of law in the jurisdiction in which the SBDC is
located or in which such counseling is conducted. Furthermore,
the Committee supports efforts in which the participating
development centers establish contacts with lawyers in the
community willing to provide seminars and other consultative
service on regulatory compliance matters.
Section 36(c)(1) also requires the provision of technical
assistance. Such counseling may include the arrangement of
meetings with technical experts known to the participating
small business development centers as long as such counseling
again is done on a one-on-one basis at no charge to the small
business.
Section 36(c)(1)(E) makes explicit the Committee's concern
that small businesses are directed to those individuals who
have appropriate credentials and certifications to provide
regulatory compliance assistance. While the Committee fully
understands that many very successful businesses, including
Microsoft, Apple, and Dell Computer, started in garages and
those businessmen are quite capable of providing advice on
starting, financing, and marketing a business, they are not
necessarily qualified to provide guidance on compliance with
OSHA, EPA, or IRS regulations. In fact, due to the potential
legal consequences resulting from a small business owner
following incorrect guidance, the Committee determined that it
is necessary to make explicit the requirement that the
participating centers only refer businesses to individuals with
appropriate expertise in the regulatory compliance matter for
which advice is sought.
Section 36(c)(2) requires each participating center to file
a quarterly report with the Administrator. The report shall
provide a summary of the compliance assistance provided under
the pilot program. The report also must contain any data and
information obtained by the participating SBDC from a federal
agency concerning compliance that the federal agency intends to
be disseminated to small business concerns. The Committee
believes that this latter requirement will enable the
Administrator or the Chief Counsel for Advocacy to raise issues
of agency inconsistencies, to the extent that they exist, to
the appropriate decisionmakers.
Section 36(c)(2) requires that reports be filed with the
Administrator in an electronic format. The Committee expects
the Administrator to promulgate regulations that will provide
for a consistent format of the report. The Committee believes
that such consistency is necessary for the accurate compilation
of data and proper assessment of the effectiveness of the pilot
program.
Section 36(c)(2) also permits, but does not require,
participating SBDCs to make interim reports if such reports are
necessary or useful. For example, a participating SBDC may
receive inconsistent compliance information from a federal
agency. By alerting the Administrator prior to the issuance of
the quarterly report, the federal agency may be able to issue a
clarification that may eliminate confusion, save compliance
costs, and improve small business compliance.
One of the critical concerns to small businesses is that
discussions of compliance assistance could be revealed to
federal agencies, which would lead to fines and penalties.
Furthermore, the Committee is concerned that SBDCs have been
revealing the names of businesses, which seek their advice to
the Administrator for functions unrelated to the financial
auditing of SBDCs. The Committee believes that such behavior is
simply intolerable. Without any assurances of privacy, small
businesses will be less likely to use small business
development centers. And this would be especially true for
regulatory compliance assistance efforts. The Committee
recognizes the concern about revealing the names of businesses
that utilize the resources of SBDCs. Therefore, section
36(c)(1)(D) prohibits the disclosure of the names or addresses
of any concern receiving compliance assistance under this pilot
program unless the Administrator is ordered to make such
disclosure pursuant to a court order or civil or criminal
enforcement action commenced by a federal or state agency. The
Committee expects that participating SBDCs will only respond to
formal agency requests such as civil investigative demands,
subpoenas, requests from Administrator's Associate
Administrator for Small Business Development Centers when
performing a financial audit of the SBDC, or requests from the
Inspector General of the Small Business Administration. The
Committee expects the SBDCs will not provide information
concerning the identity of businesses simply upon the verbal
request of a federal or state agency.
Section 36(d) requires the Administrator to act as
repository of data and information submitted by the
participating SBDCs. Given the oversight role and importance of
the Associate Administrator for Small Business Development
Centers, section 36(d) requires that the functions of
maintaining the database be housed with the Associate
Administrator. The Committee believes that a central repository
is necessary in order to determine whether federal agencies are
providing consistent compliance information on a national
basis. However, the Committee expects that the information
received under this subsection be made available to other
offices within the Small Business Administration, particularly
the Chief Counsel for Advocacy and the Small Business and
Agriculture Regulatory Ombudsman so those offices can more
effectively carry out their mission of representing the
interests of small businesses before federal agencies.
Section 36(d) also requires that the Administrator to issue
an annual report to the President and the Committees on Small
Business of the Senate and the House Representatives. The
report will contain: (a) data on the types of information
provided by the participating SBDCs; (b) the number of small
businesses that contacted the participating SBDCs; (c) the
number of small businesses assisted by participating SBDCs; (d)
information on the outreach activities of the participating
SBDCs; (e) information regarding each case known to the
Administrator in which participating SBDCs provided conflicting
advice regarding compliance with federal regulation to one or
more small businesses; (f) and any recommendations for
improving the regulatory environment of small businesses. The
Committee believes that this information is necessary to
properly evaluate the utility of the pilot program. More
importantly, the report will reveal whether similarly situated
small businesses are receiving consistent regulatory compliance
assistance. In preparing the report, the Committee recognizes
that the Administrator may wish to consult with the Chief
Counsel for Advocacy and the Small Business and Agriculture
Regulatory Ombudsman. The Committee supports such consultative
efforts but notes that the Administrator may not delegate the
responsibility of preparing the report required by this
subsection to any office within the Small Business
Administration except the Associate Administrator for Small
Business Development Centers.
Section 36(e) limits participation in the pilot program
only to those SBDCs certified under Sec. 21(k)(2) of the Small
Business Act. The Committee is limiting participation in the
pilot program to those SBDCs selected are of the highest
quality. Some SBDCs have not completed their certification
programs. Nevertheless, some of these centers may be developing
or already have exceptional regulatory compliance assistance
programs. The Committee does not believe that such centers
should be prohibited from participating in the pilot program.
Therefore, Sec. 36(e)(2) authorizes the Administrator to waive
the requirement for certification if the center is making a
good faith effort to obtain such certification.
Section 36(f) requires the Administrator to select two
participating state programs from each of the Small Business
Administration's ten federal regions as those regions exist on
the date of enactment of this Act. The Administrator shall
consult with the Association and give the Association's
recommendations substantial weight. The Administrator is
required to complete the selection of the participating centers
within 60 days after the regulations to implement the pilot
program have been promulgated.
Section 36(g) ensures that no matching funds currently
allocated to the operation of the SBDCs will be utilized to
fund the pilot program. In order to ensure proper funding, the
Committee is authorizing a separate funding authorization for
the program.
Section 36(h) establishes the procedures for distributing
grants among the selected state programs. The formula is based
on the principle that a state that has a smaller population
also will have, in absolute terms, fewer small businesses than
a larger state. The formula therefore allocates funds according
to the relative size of each state. The Committee believes that
the minimum funds needed to initiate a state program will be
$200,000. Because the Committee has authorized $5,000,000, it
is making extra resources available to the larger states that
will require more resources to initiate the pilot project.
Section 36(i) requires the Comptroller General of the
United States to provide a report three years after the
establishment of the pilot program evaluating the effectiveness
of the program. The report also should contain any suggested
modifications to the pilot program. Finally, the Comptroller
General should provide its opinion concerning whether the
program should be continued and expanded to include more SBDCs.
The report shall be transmitted to the Committees on Small
Business of the Senate and House of Representatives. The
Committee expects that the pilot program will be sufficiently
successful to expand the program to other SBDCs.
Section 36(j) limits the operation of the pilot program
only to the funds appropriated in advance for the program.
Section 36(j) provides an authorization of appropriations of
$5,000,000 for fiscal year 2002 and each year thereafter.
Section 36(j) also prohibits the Administrator from using other
funds, including other funds made available for the operation
of SBDCs, to operate this pilot project. The Committee
authorized the additional appropriations because it determined
that funding of the regulatory compliance program should not
detract from the available funding for the delivery of other
SBDC programs.
Section 5. Promulgation of regulations
Section 5 authorizes the Administrator to promulgate
regulations to implement this pilot program no later than 180
days after the enactment of the Act. Such regulations only
shall be promulgated after the public has been given an
opportunity for notice and comment. The Committee believes that
the Administrator can and should accomplish the issuance of
regulations within the deadline set by statute. The Committee
considers this Act to be some other law for purposes of section
603 of Title 5 of the United States Code.
The regulations shall include the priorities for the type
of assistance to be provided, standards relating to the
educational, technical, and support services to be provided by
the Association to the participating centers, and standards for
work plans that the participating centers will provide to the
Administrator. The Committee believes that given the potential
interest in the program by SBDCs, it is appropriate for the
Administrator to have a set of standards by which it can
determine which state programs shall be chosen. More
importantly, the standards will provide an appropriate baseline
for the Comptroller General's evaluation of the pilot project.
Section 5 also requires the Administrator to develop
appropriate standards for ensuring the technical qualifications
of experts to whom small businesses will be referred. The
Committee does not intend that someone must have a college or
advance degree to qualify. For example, a contractor licensed
in a state with 20 years experience (who is a high-school
graduate) may be as well equipped to provide advice on
compliance with OSHA construction standards as a professor of
civil engineering. On the other hand, that same contractor
might not be an appropriate individual to provide tax
compliance advice. The Committee does not expect that this
aspect of the Administrator's regulations shall be all
encompassing, i.e., delineate every profession and the
appropriate qualifications. However, the Committee does expect
that the Administrator will recognize, as qualified, those
individuals certified by nationally-recognized accrediting
bodies (whose members must demonstrate substantial educational
and practical experience), meet educational and work standards
established by a federal agency, or are licensed to practice a
particular profession or job pursuant to state law. The
Committee expects that the regulations will provide
participating centers with enough information that the centers
can determine whether the person providing the advice is
competent in the field of regulation.
Section 6. Privacy requirements applicable to Small Business
Development Centers
Section 6 amends section 21 of the Small Business Act. The
Committee has been contacted on a number of occasions by SBDCs
that employees of the Small Business Administration have
attempted to obtain the names and addresses of businesses that
sought the services of SBDCs. The Committee believes that any
attempts by the Administrator or the employees of the Small
Business Administration to obtain the names and addresses of
persons seeking SBDC assistance is inappropriate because it
would act as a disincentive for small businesses to utilize the
centers.
Section 6 prohibits the Administrator, any other employee
of the Small Business Administration, or any agent of the
Administrator (including contractors) from obtaining the names
and addresses of businesses that sought assistance. The
Committee's bill provides for two exceptions: (1) if the
Administrator is ordered by a court in any civil or criminal
action initiated by federal or state agency; or (2) the
Administrator requires the information while undertaking a
financial audit of the SBDC.
To ensure that the Administrator does not unduly abuse the
second exception for disclosure, section 6 requires the
Administrator to promulgate regulations specifying when such
disclosures in an audit shall be made. The Committee expects
that the regulations will strictly limit disclosure during the
audit process and severely circumscribe those individuals who
will have access to the audit information during the audit. The
Committee recognizes that the information collected during the
audit may have to be retained for a variety of purposes, such
as management reviews by the Inspector General or Congressional
oversight. The Committee expects the Administrator's
regulations to cover who, if anyone, shall have access to the
raw data, including the names and addresses of the SBDCs'
users, after the audit is complete. The Committee does not
intend that information obtained during the audit concerning
identifiable individuals or businesses that are retained by the
Administrator shall be releasable pursuant to the Freedom of
Information Act.
5.2 H. Res. 368--Honoring the 50th Anniversary of the Small Business
Administration
Legislative History
9/16/2003: Referred to the House Committee on Small
Business.
9/16/2003 3:59pm: Mr. Manzullo moved to suspend the rules
and agree to the resolution.
9/16/2003 3:59pm: Considered under suspension of the
rules.
9/16/2003 4:21pm: On motion to suspend the rules and agree
to the resolution Agreed to by voice vote.
9/16/2003 4:21pm: Motion to reconsider laid on the table
Agreed to without objection.
Need for Legislation
H. Res. 368 supports the goals and ideals of National Small
Business Week, which began on September 15, 2003, and the
events surrounding the 50th anniversary of the founding of the
Small Business Administration (SBA). The resolution also
commends the SBA's Administrator and employees and reaffirms
that the SBA plays an important role in assisting small
businesses.
Section-by-Section Analysis
Whereas the Nation's economy is built on and draws its
strength from the creativity and entrepreneurship of its
people;
Whereas the Nation's 25 million small businesses employ
more than half of all private sector employees, pay 44.5
percent of the total United States private payroll, and
generate 60 to 80 percent of all net new jobs annually;
Whereas the men and women who own and operate the Nation's
small businesses make a vital contribution to the Nation's
prosperity through their ongoing work to create new
technologies, products, and services;
Whereas small businesses produce 13 to 14 times more
patents per employee than large patenting firms, and these
patents are twice as likely as large firm patents to be among
the 1 percent most cited;
Whereas the Small Business Administration was officially
established in 1953 and for the past 50 years has played a
vital role in ensuring that the door to the American Dream is
truly open to all entrepreneurs;
Whereas the mission and high calling of the Small Business
Administration is to champion the interests of the Nation's
entrepreneurs for the benefit of all Americans;
Whereas the Small Business Administration is marking its
50th anniversary by celebrating the accomplishments of small-
business owners across the country throughout the year; and
Whereas the President has designated the week beginning on
Monday, September 15, 2003, as ``National Small Business
Week'': Now, therefore, be it
Resolved, That the House of Representatives--
(1) supports the goals and ideals of National Small
Business Week, and the events surrounding the 50th anniversary
of the founding of the Small Business Administration;
(2) commends the Administrator and the employees of the
Small Business Administration for their work on behalf of the
Nation's small businesses; and
(3) reaffirms that the Small Business Administration,
through its loan, technical assistance, and entrepreneurial
development programs, plays an important role in assisting
small businesses to ensure a brighter, stronger future for this
Nation.
5.3 H.R. 923--Premier Certified Lenders Program Improvement Act of
2003, Public Law 108-232
Legislative History
2/26/2003: Referred to the House Committee on Small
Business.
5/22/2003: Committee Consideration and Mark-up Session
Held.
5/22/2003: Ordered to be Reported (Amended) by Voice Vote.
6/12/2003 3:35pm: Reported (Amended) by the Committee on
Small Business. H. Rept. 108-153.
6/12/2003 3:36pm: Placed on the Union Calendar, Calendar
No. 75.
6/24/2003 10:35am: Mr. Manzullo moved to suspend the rules
and pass the bill, as amended.
6/24/2003 10:36am: Considered under suspension of the
rules.
6/24/2003 10:48am: At the conclusion of debate, the Yeas
and Nays were demanded and ordered. Pursuant to the provisions
of clause 8, rule XX, the Chair announced that further
proceedings on the motion would be postponed.
6/24/2003 1:11pm: Considered as unfinished business.
6/24/2003 1:18pm: On motion to suspend the rules and pass
the bill, as amended Agreed to by the Yeas and Nays: (2/3
required): 416-3 (Roll no. 303).
6/24/2003 1:18pm: Motion to reconsider laid on the table
Agreed to without objection.
6/25/2003: Received in the Senate and Read twice and
referred to the Committee on Small Business and
Entrepreneurship.
5/18/2004: Senate Committee on Small Business and
Entrepreneurship discharged by Unanimous Consent.
5/18/2004: Passed Senate without amendment by Unanimous
Consent.
5/18/2004: Cleared for White House.
5/19/2004: Message on Senate action sent to the House.
5/20/2004: Presented to President.
5/28/2004: Signed by President.
5/28/2004: Became Public Law No: 108-232.
Need for Legislation
The purpose of this legislation is to amend the Small
Business Investment Act of 1958 to allow certain Premier
Certified Lenders (PCL) under the Small Business
Administration's (SBA) 504 Certified Development Company (CDC)
Program, to elect to maintain an alternative loss reserve. In
the 1990's, Congress made a variety of changes to SBA's 504 CDC
Program to lower the default rate and eliminate its annual
appropriation so that it operates solely on user-fees. The 504
CDC Program provides small businesses with long-term, fixed-
rate financing for the purchase of fixed assets such as land,
buildings, and equipment generally for business expansion
purposes. The loans are made by CDCs, usually non-profit
corporations organized to contribute to the economic
development of a particular community or region.
Unlike the SBA's other main flagship access to credit
program, the 7(a) general business loan guarantee program,
there is a job-creation component to every CDC project before
it is approved (usually, for every $35,000 guaranteed, one job
has to be created or retained). The SBA guarantees debentures
issued by a CDC for 40 percent of a project cost, up to $1
million (or up to $1.3 million in certain cases if the project
serves one of nine public policy goals). The debentures are
sold on the market to private investors.
To model a similar effort in the 7(a) program, Congress
also established a Premier Certified Lender Program (PCLP) that
gives discretion to certain qualified CDCs to approve 504 loans
subject to the borrower being eligible and available loan
authority. In return for this lower regulatory oversight, these
PCLP CDCs must maintain a higher loss reserve (the amount of
money set aside to cover bad loans) than regular CDCs.
Some PCLP CDCs believe that this amount of reserves is well
beyond what is prudently required because their vast experience
in making 504 loans has caused them to become sophisticated in
weeding out bad risks. Requiring PCLP CDCs to maintain
unnecessarily large loss reserve accounts reduces their ability
to serve additional small businesses and to attract new lenders
to join the program.
Section-by-Section Analysis
Section 1. Short title
The short title is the ``Premier Certified Lenders Program
Improvement Act of 2003.''
Section 2. Loss reserves of premier certified lenders temporarily
determined on the basis of outstanding balance of debentures
Paragraph (6) of section 508(c) of the Small Business
Investment Act of 1958 is amended by adding a new subparagraph
(B) that permits the Administrator of the SBA to allow PCLP
CDCs to withdraw from loss reserves amounts that are in excess
of 1 percent of the total outstanding balance of all the
debentures to which the loss reserve is applicable. However,
such withdrawal may not be made with respect to a debenture
before 100 percent of the contributions (in cash or letters of
credit) are made to the loss reserve attributable to that
debenture. The reduction based on outstanding balance is
temporary and is effective for a 2-year period beginning 90
days after enactment of the bill.
Section 3. Alternative Loss Reserve Pilot Program for Certain Premier
Certified Lenders
Subsection (c) of Section 508 of the Small Business
Investment Act of 1958 is amended by adding a new paragraph (7)
that creates a new alternative loss reserve which a qualified
high loss reserve PCL may elect to implement with respect to
any eligible calendar quarter. A qualified high loss reserve
PCL that makes an election with respect to any calendar
quarter, shall before the last day of such quarter, ensure that
its loss reserve is no less than the greater of $100,000 or the
loss reserve amount determined by an independent auditor to be
sufficient to protect the Federal Government from risk of loss.
Before the end of a calendar quarter for which an election
is in effect, the head of the PCL and the auditor must certify
to SBA that the loss reserve is sufficient to protect the
Federal Government from risk of loss. The form and content of
the certificate is to be established by the Administrator of
the SBA. At the end of each calendar quarter for which an
election is in effect, the Administrator may permit the
qualified high loss reserve PCL to withdraw from the loss
reserve any amounts in excess of the greater of $100,000 or the
auditor certified loss reserve.
In any subsequent quarter that the alternative loss reserve
does not apply, the qualified high loss reserve PCL must make a
contribution to its loss reserve as the Administrator shall
determine, but not in excess of the loss reserve that would
have been applicable had no election been made. The
contributions may be in one lump sum or a series of payments,
as the Administrator shall determine.
To be designated by the Administrator as a ``qualified high
loss reserve PCL,'' as defined in the Act, the PCL CDC must:
(1) have a loss reserve that is not less than $100,000; (2)
employ an established risk management system that analyses the
risk of loss associated with its portfolio of loans and grades
the risk of loss of each loan; and (3) meet or exceed 4 out of
the 5 ``specified risk management benchmarks,'' as defined in
the Act, i.e., currency rate, delinquency rate, default rate,
liquidation rate, and loss rate. If the qualified high loss
reserve PLC does not meet or exceed 4 out of 5 of the
management benchmarks, and noncompliance lasts for 180 days,
the PLC must make such payment(s) into the loss reserve to meet
the usual loss reserve requirements. The Administrator may
waive the requirement with respect to meeting the benchmarks.
Also defined for purposes of the Alternative Loss Reserve
Pilot Program are the terms ``qualified independent auditor,''
``PCLP loan,'' ``eligible calendar quarter,'' and ``calendar
quarter.'' A ``qualified independent auditor'' means an auditor
that is paid by the qualified high loss reserve PCL; is
independent of such PCL; and has been approved by the
Administrator during the preceding year. ``PCLP loan'' means
any guaranteed 504 loan. ``Eligible calendar quarter'' means
the first calendar quarter that begins after the end of the 90-
day period beginning with the date of enactment of the Act and
ending 7 succeeding calendar quarters thereafter. The term
``calendar quarter'' means; (1) the period which begins on
January 1 and ends on March 31 of each year; (2) the period
that begins on April 1 and ends on June 30 of each year; (3)
the period which begins on July 1 and ends on September 30 of
each year; and (4) the period which begins on October 1 and
ends on December 31 of each year.
The Administrator has 45 days to issue and implement final
regulations required to administer and perform oversight of the
Alternative Loss Reserve Pilot Program. The regulations shall
be published in the Federal Register and transmitted to
Congress. The regulations shall provide for, but not be limited
to, the requirements that auditors must meet to be approved and
the terms upon which a PCL may qualify for admittance to the
Program, including the effectiveness of the PCL's risk
management system.
The Act would create a bureau within SBA dedicated to
oversight of the Alternative Loss Reserve Pilot Program. The
``Bureau of PCLP Oversight'' is to be staffed by persons
presently employed by SBA. The Committee intends that the
persons assigned to the Bureau would have expertise in
oversight of 504 lending and be properly trained to perform the
functions required. No additional amounts are authorized to be
appropriated for this purpose. The Bureau is to be fully
operative 90 days after enactment. The SBA Office of Inspector
General is required to report to Congress on the preparedness
of the Bureau.
A qualified high loss reserve PCL must reimburse the
Federal Government for 15 percent (an increase from 10 percent)
of any loss attributable to a debenture issued by the company
during any period for which an election is in effect. A study
of the Alternative Loss Reserve Pilot Program is to be
performed by a Federal agency experienced in community
development lending and financial regulation or with a member
of the Federal Financial Institutions Examinations Council.
Members of the Council include: the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance
Corporation, the National Credit Union Administration, the
Office of the Comptroller of the Currency, and the Office of
Thrift Supervision. The study is to examine the extent to which
statutory requirements have caused overcapitalization in the
loss reserves maintained by CDCs participating in the PCLP.
Also to be studied are the alternatives for establishing and
maintaining loss reserves sufficient to protect the Federal
Government from loses associated with guaranteeing securities
issued under the PCLP. The study and report are to be completed
and transmitted to the Committee on Small Business of the House
of Representatives and the Committee on Small Business and
Entrepreneurship of the Senate within 90 days of enactment of
this Act. An amount not to exceed $75,000 is authorized for the
study and report.
5.4 H.R. 1166--To Amend the Small Business Act To Expand and Improve
the Assistance Provided by Small Business Development Centers
to Indian Tribe Members, Native Alaskans, and Native Hawaiians
Legislative History
3/6/2003: Referred to the House Committee on Small
Business.
3/31/2003 3:35pm: Mr. Shuster moved to suspend the rules
and pass the bill.
3/31/2003 3:36pm: Considered under suspension of the
rules.
3/31/2003 3:54pm: At the conclusion of debate, the Yeas
and Nays were demanded and ordered. Pursuant to the provisions
of clause 8, rule XX, the Chair announced that further
proceedings on the motion would be postponed.
3/31/2003 6:58pm: Considered as unfinished business.
3/31/2003 7:04pm: On motion to suspend the rules and pass
the bill Agreed to by the Yeas and Nays: (\2/3\ required): 378-
14 (Roll no. 94).
3/31/2003 7:04pm: Motion to reconsider laid on the table
Agreed to without objection.
4/1/2003: Received in the Senate and referred to the
Committee on Small Business and Entrepreneurship.
Need for Legislation
Approximately 60 percent of Indian tribe members and Native
Alaskans live on or in the immediate vicinity of Indian lands
and suffer from an average unemployment rate of 45 percent.
Presently, Indian tribe members and Native Alaskans own more
than 197,000 business enterprises and generate revenues in
excess of $34 billion.
The service industry, the largest sector, accounts for 17
percent of the Native American businesses, and 15.7 percent of
the total revenues. The second largest sector is construction,
which accounts for 13.9 percent of the businesses and 15.7
percent of the total revenues. The third largest sector, the
retail trades, accounts for 7.5 percent of the businesses and
13.4 percent of the total revenues.
The number of businesses owned by Indian tribe members and
Native Alaskans grew by 84 percent during the period from 1992
to 1997, while businesses, generally, grew by only seven
percent. During the same period, the gross receipts for Indian
tribe members and Native Alaskan business owners increased by
179 percent, in comparison with the business community, as a
whole, where the gross receipts for the same period grew only
by 40 percent.
In the past, the SBDC program with more than 1000 offices
throughout the United States has provided cost-effective
business counseling and technical assistance to small
businesses. For example, clients receiving long-term counseling
under the program in 1998 generated additional tax revenues of
$468 million, which was approximately six times the cost of the
program to the Federal government.
By using the existing infrastructure of the SBDC program,
it is anticipated that small businesses owned by Indian tribe
members, Native Alaskans, and Native Hawaiians, who receive
services under the Act, will have a higher survival rate than
the average small businesses not receiving such services.
Further, increased assistance through SBDC counseling has in
the past been able to reduce defaults under Small Business
Administration (SBA) lending programs.
The business counseling and technical assistance, provided
for under this Act, is critical on Indian land where, without
such assistance, similar services are scarce and expensive.
Past and current efforts by SBDCs to assist Native American
populations located on or along reservation lands have proven
difficult. In addition, the lack of resources makes it
difficult to raise an equal amount of matching funds to
specifically assist Native Americans.
Section-by-Section Analysis
Section 1. Findings and purposes
Subsection (a) states the findings of Congress that include
the fact that (1) the average unemployment rate for Indian
tribe members and Native Alaskans who live on or adjacent to
Indian lands is 45 percent, (2) Indian tribe members and Native
Alaskans own more than 197,000 businesses that generate more
than $34 billion in revenues, (3) for the period 1992-1997, the
number of businesses owned by Indian tribe members and Native
Alaskans grew by 84 percent and gross receipts grew by 179
percent, as compared with seven percent and 40 percent,
respectively, for businesses generally, (4) the SBDC program is
cost effective in that additional tax revenues generated by
businesses counseled under the program in 1998 were
approximately six times the cost of the program, (5) using the
existing SBDC infrastructure it is anticipated that those
receiving services under the Act will have a higher survival
rate than those not receiving such services, (6) business
counseling and technical assistance provided on Indian lands is
critical because such services are presently scarce and where
available are expensive, and (7) SBDC business counseling has
proven to be effective in reducing the default rate of
businesses who have received counseling and who participated in
one or more SBA loan program. The Committee believes that
because of the SBDC program's success and proven track record,
utilizing the existing SBDC network will enhance the success of
H.R. 2538.
Subsection (b) states the purpose of the Act which includes
assisting Indian tribe members, Native Alaskans, and Native
Hawaiians by: increasing jobs and enhancing economic
development on Indian lands; creating new small businesses and
expanding existing ones; providing management, technical, and
research assistance; seeking the advice of Tribal Councils on
where business development assistance is most needed; and,
ensuring full access under the Act to existing business
counseling and technical assistance available through the SBDC
program.
Section 2. Small Business Development Center Assistance to Indian tribe
members, Native Alaskans, and Native Hawaiians
Adding a new subsection providing for an additional grant
program to assist Indian tribe members, Native Alaskans, and
Native Hawaiians amends the Small Business Act. An SBDC,
located in an eligible State and funded by SBA, may apply for
an additional grant to be used solely for providing services,
as set forth in the Small Business Act with respect to the SBDC
program, to assist with outreach, development, and enhancement
on Indian lands of small business startups and expansions owned
by Indian tribe members, Native Alaskans, and Native Hawaiians.
Because the majority of Native Americans live on or
adjacent to Indian lands, where economic opportunities are
limited, the Committee expects the SBDCs to be located on or in
close proximity to Indian lands. Although Native Americans who
do not live on Indian lands may seek the assistance of these
centers, the Committee believes that assistance should go to
aid with outreach, development, and enhancement on Indian lands
of small business startups and expansions owned by Indian tribe
members, Native Alaskans, and Native Hawaiians. Native
Americans located near existing centers or sub-centers are
encouraged to continue to utilize those existing resources.
An eligible State is defined as a State that has a combined
population of Indian tribe members, Native Alaskans, and Native
Hawaiians that comprises at least one percent of the State's
total population, as shown by the most recent census. Each
applicant is required to complete a grant application that
shall include information as to: (1) the applicants ability to
provide training and services to a representative number of
Indian tribe members, Native Alaskans, and Native Hawaiians,
(2) the proposed location of the SBDC site, (3) the amount of
grant funds needed, and (4) the extent of prior consultation
with local Tribal Councils.
No applicant may receive more than $300,000 in any one
fiscal year, but no matching funds are required. Within 180
days after the Act is enacted, the Administrator is required to
issue final regulations with respect to the grant program
established by the Act. In promulgating the regulations, the
Administrator must provide notice of the proposed regulations
and an opportunity for public comment. In addition, the
Administrator must consult with the Association of Small
Business Development Centers. The regulation must establish
standards relating to (1) educational, technical, and support
services to be provided by SBDCs receiving grants, and (2) any
work plan that is required to be submitted by an applicant.
The Committee believes that setting standards will help
ensure that the grants will be awarded to the most qualified
State programs and provide a mechanism by which the
Administrator can evaluate the success of the program.
The section defines the following terms: ``Associate
Administrator,'' ``Indian Lands,'' ``Indian Tribe,'' ``Indian
Tribe Member,'' Native Alaskan,'' and ``Native Hawaiian.''
The section authorizes $7 million to be appropriated for
each of fiscal years 2002 through 2004. Funds appropriated for
the program created by the Act are in addition to funds
appropriated for the SBDC program generally and for other
particular SBDC programs. Monies specifically appropriated for
that purpose might only fund the program created under the Act.
Section 3. State consultation with Local Tribal Councils
This section amends section 21(c) of the Small Business Act
by adding a new subsection (9) that requires that a State
receiving grants under the program created by the Act shall
request the advice of local Tribal Councils on how best to
provide assistance to Indian tribe members, Native Alaskans,
and Native Hawaiians and where to locate satellite centers to
provide such assistance.
5.5 H.R. 1460--Veterans Entrepreneurship Act of 2003--Key Elements of
H.R. 1460 Were Incorporated Into H.R. 2297, Public Law 108-183
Legislative History
3/27/2003: Introductory remarks on measure.
3/27/2003: Referred to the Committee on Veterans' Affairs,
and in addition to the Committee on Small Business, for a
period to be subsequently determined by the Speaker, in each
case for consideration of such provisions as fall within the
jurisdiction of the committee concerned.
3/27/2003: Referred to House Veterans' Affairs.
4/24/2003: Referred to the Subcommittee on Benefits.
4/30/2003: Subcommittee Hearings Held.
5/7/2003: Subcommittee Consideration and Mark-up Session
Held.
5/7/2003: Forwarded by Subcommittee to Full Committee
(Amended) by Unanimous Consent.
5/15/2003: Committee Consideration and Mark-up Session
Held.
5/15/2003: Ordered to be Reported (Amended) by Voice Vote.
3/27/2003: Referred to House Small Business.
6/5/2003 2:54pm: Reported (Amended) by the Committee on
Veterans' Affairs. H. Rept. 108-142, Part I.
6/5/2003 2:56pm: House Committee on Small Business Granted
an extension for further consideration ending not later than
July 7, 2003.
6/23/2003 2:44pm: Mr. Smith (NJ) moved to suspend the
rules and pass the bill, as amended.
6/23/2003 2:44pm: Considered under suspension of the
rules.
6/23/2003 3:04pm: At the conclusion of debate, the Yeas
and Nays were demanded and ordered. Pursuant to the provisions
of clause 8, rule XX, the Chair announced that further
proceedings on the motion would be postponed.
6/24/2003 1:18pm: Considered as unfinished business.
6/24/2003 1:30pm: On motion to suspend the rules and pass
the bill, as amended Agreed to by the Yeas and Nays: (\2/3\
required): 421-0 (Roll no. 304).
6/24/2003 1:30pm: Motion to reconsider laid on the table
Agreed to without objection.
6/24/2003 1:30pm: The title of the measure was amended.
Agreed to without objection.
6/25/2003: Received in the Senate and Read twice and
referred to the Committee on Veterans' Affairs.
11/19/2003: H.R. 2297, which passed the House of
Representatives on October 8, 2003 by a vote of 399-0, laid
before Senate by unanimous consent.
11/19/2003: Passed Senate with an amendment, which included
Sections 2 and 3 of H.R. 1460 now Sections 305 and 308 of H.R.
2297, by Unanimous Consent.
11/19/2003: Message on Senate action sent to the House.
11/20/2003 2:57pm: Mr. Smith (NJ) moved that the House
suspend the rules and agree to the Senate amendment.
11/20/2003 3:22pm: On motion that the House suspend the
rules and agree to the Senate amendment Agreed to by voice vote
(text as House agreed to Senate amendment).
11/20/2003 3:22pm: Motion to reconsider laid on the table
Agreed to without objection.
11/20/2003: Cleared for White House.
12/5/2003: Presented to President.
12/16/2003: Signed by President.
12/16/2003: Became Public Law No. 108-183.
Need for Legislation
This legislation makes a variety of changes to veteran's
benefits, including promoting veteran small business
development. Key portions of H.R. 1460 were incorporated into a
more comprehensive veterans bill (H.R. 2297) to permit the use
of G.I. bill educational benefits for self-employment training;
allow states the right to approve various entrepreneurial
courses run by Small Business Development Centers (SBDCs) and
the National Veterans Business Development Corporation (NVBDC);
and grant discretion to federal contracting officers to set-
aside contracts up to $3 million ($5 million for manufacturers)
to service-disabled veteran-owned small businesses. The
government-wide three percent small business procurement goal
for service-disabled veterans passed into law in 1999 has never
been met (in 2003, only 0.20 percent of the value of government
contracts went to service-disabled veteran small business
owners). The purpose of Public Law 108-183 (as it relates to
the jurisdiction of the Small Business Committee) is to give
another tool to government contracting officers to reach the
three percent contracting goal for small businesses owned by
service-disabled veterans. On May 5, 2004, the Small Business
Administration (SBA) and the Federal Acquisition Regulatory
(FAR) Council issued an interim rule to immediately implement
the discretionary set-aside contract authority for service-
disabled veteran business owners. On October 21, 2004, the
President signed an Executive Order to require heads of federal
agencies to provide increased contracting and subcontracting
opportunities for service-disabled veteran small business
owners.
Relevant Section-by-Section Analysis
Section 1 would provide that this Act may be cited as the
``Veterans Entrepreneurship and Benefits Improvement Act of
2003.''
Section 2(a) (Section 305 in H.R. 2297) would amend section
3675 of title 38, United States Code, by adding a new
subsection authorizing a State Approving Agency to approve
entrepreneurship courses offered by a qualified provider of
entrepreneurship courses. This section would also define
``entrepreneurship course'' as a non-degree, non-credit course
of business education that enables or assists a person to start
or enhance a small business enterprise. Current law sections
3675(a) and 3675(b)(1) and (2) regarding approval of accredited
courses do not apply to an entrepreneurship course offered by a
qualified provider of entrepreneurship courses and a qualified
provider of entrepreneurship courses by reason of such provider
offering one or more entrepreneurship courses.
Section 2(b) would amend section 3471 of title 38, United
States Code, to provide that the Secretary shall not treat a
person as already qualified for the objective of a program of
education offered by a qualified provider of entrepreneurship
courses solely because such person is the owner or operator of
a business.
Section 2(c) would amend subsection (b) of section 3452 of
title 38, United States Code, by including entrepreneurship
courses offered by a qualified provider in the definition of
program of education.
Section 2(d) would amend subsection (c) of section 3452 of
title 38, United States Code, to include any qualified provider
of entrepreneurship courses in the definition of educational
institution.
Section 2(e) would further amend section 3452 by defining
the term ``qualified provider of entrepreneurship courses'' as
(1) a small business development center described in section 21
of the Small Business Act (15 U.S.C. 648) and (2) the National
Veterans Business Development Corporation (established under
section 33 of 15 U.S.C. 657(c)), insofar as the Corporation
offers or sponsors an entrepreneurship course (as defined in
section 3675(c)(2) of title 38, United States Code).
Section 2(f) would provide that the changes made by this
section shall apply to courses approved by State Approving
Agencies after the date of the enactment of this Act.
Section 3 (Section 308 in H.R. 2297) would amend the Small
Business Act (15 U.S.C. 631 et seq.) by redesignating section
36 as section 37 and by inserting after section 35 a new
section 36 establishing a procurement program for small
business concerns owned and controlled by service-disabled
veterans.
New section 36(a) would furnish contracting officers with
discretionary authority to award a sole source contract to any
small business concern owned and controlled by service-disabled
veterans if the following three criteria are met: (1) such
concern is determined to be a responsible contractor with
respect to performance of such contract opportunity and the
contracting officer does not have a reasonable expectation that
two or more small business concerns owned and controlled by
service-disabled veterans will submit offers for the
contracting opportunity; (2) the anticipated award price of the
contract (including options) will not exceed (A) $5,000,000, in
the case of a contract opportunity assigned a standard
industrial classification code for manufacturing; or (B)
$3,000,000, in the case of any other contract opportunity; and
(3) in the estimation of the contracting officer, the contract
award can be made at a fair and reasonable price.
New section 36(b) would furnish contracting officers the
discretionary authority to make contract awards on the basis of
competition restricted to small business concerns owned and
controlled by service-disabled veterans if the contracting
officer has a reasonable expectation that not less than two
small business concerns owned and controlled by service-
disabled veterans will submit offers and that the award can be
made at a fair market price.
New section 36(c) would require that not later than five
days after the date on which the Administrator is notified of a
contracting officer's decision not to award a contract
opportunity under this section to a small business concern
owned and controlled by service-disabled veterans, the
Administrator may notify the contracting officer of the intent
to appeal the contracting officer's decision, and within 15
days of such date the Administrator may file a written request
for reconsideration of the contracting officer's decision with
the Secretary of the department or agency head.
New section 36(d) would require that a procurement may not
be made from a source on the basis of a preference provided
under subsection (a) or (b) if the procurement would otherwise
be made from a different source under section 4124 or 4125 of
title 18, United States Code, or the Javits-Wagner-O'Day Act
(41 U.S.C. 46 et seq.).
New section 36(e) would require that with respect to
matters of enforcement and penalties, rules similar to the
rules of paragraphs (5) and (6) of section 8(m) shall apply for
purposes of this new section.
New section 36(f) would require that for purposes of this
section, the term ``contracting officer'' has the meaning given
such term in section 27(f)(5) of the Office of Federal
Procurement Policy Act (41 U.S.C. 423(f)(5)).
5.6 H.R. 1772--Small Business Advocacy Improvement Act of 2003
Legislative History
4/1/2003: Workforce Empowerment and Government Programs and
Regulatory Reform and Oversight joint subcommittee hearing on
``Improving and Strengthening the SBA Office of Advocacy.''
4/11/2003: Referred to the House Committee on Small
Business.
6/4/2003: Committee Consideration and Mark-up Session Held.
6/4/2003: Ordered to be Reported (Amended) by Voice Vote.
6/18/2003 5:19pm: Reported (Amended) by the Committee on
Small Business. H. Rept. 108-162.
6/18/2003 5:20pm: Placed on the Union Calendar, Calendar
No. 79.
6/24/2003 10:18am: Mr. Manzullo moved to suspend the rules
and pass the bill, as amended.
6/24/2003 10:19am: Considered under suspension of the
rules.
6/24/2003 10:35am: On motion to suspend the rules and pass
the bill, as amended Agreed to by voice vote.
6/24/2003 10:35am: Motion to reconsider laid on the table
Agreed to without objection.
6/25/2003: Received in the Senate and Read twice and
referred to the Committee on Small Business and
Entrepreneurship.
Need for Legislation
The purpose of this legislation is to amend the Small
Business Act to strengthen and improve the Office of Advocacy
within the Small Business Administration and to ensure that
there exists an entity in the executive branch that has the
statutory independence and adequate financial resources to
effectively advocate for and on behalf of small businesses.
There is abundant evidence, which has been the recurring focus
of hearings of this Committee, that the nation's small
businesses continue to be burdened by excessive regulations and
that this burden falls disproportionately upon small
businesses. In his speech to the Women's Entrepreneurship
Summit, held in Washington, D.C., March 19, 2002, President
George W. Bush underscored the complications encountered by
small businesses in doing business and the excessive costs that
needless regulations can place on small business concerns. In
this respect the President stated:
``There are a lot of federal regulations that complicate
the lives of small business people all across the country. The
SBA [Small Business Administration] has calculated that the
hidden costs of regulations to businesses with fewer than 20
workers . . . comes down to $7000 per worker. That's a lot of
money, particularly if you are trying to figure out ways to
expand the employment base. And this is a drag on our economy.
Hidden costs are a drag upon our economy.''
The President has pledged to reduce the regulatory burden
on small businesses. In line with this objective, an
independent office of small business advocacy will help to
ensure that federal agencies properly assess the impact of
proposed regulations on the small business community and comply
with the statutory obligations with respect to small business.
It is essential to Congress in performing its
constitutional duties and to the President in carrying out his
small business objectives that there is an office that acts as
an independent advocate for small businesses and can provide
unbiased views of present and proposed regulations, without
being restricted by the views or policies of the Small Business
Administration or any other federal executive branch agency.
To be effective, an office that acts as an advocate for
small businesses requires sufficient resources to conduct
creditable economic studies and research essential to an
accurate evaluation of the impact of regulations on small
businesses, the role of small business in the nation's economy,
and the barriers to the growth of small businesses. In the
past, the Office of Advocacy has not had the necessary
resources. This legislation helps to ensure that resources are
available to support the independence of the office and to
assure that the research, information, and expertise provided
by an independent office of advocacy is a valid source of
information and advice for Congress and the federal agencies
with which the office will advocate for small businesses.
Section-by-Section Analysis
Section 1. Short title
The short title is the ``Small Business Advocacy
Improvement Act of 2003.''
Section 2. Findings and purpose
Expresses the findings of Congress with respect to the
Office of Advocacy and the purposes for the legislation.
Section 3. Appointment of Chief Counsel for Advocacy
The Chief Counsel for Advocacy is to be appointed by the
President, with the advice and consent of the Senate, without
regard to political affiliation and solely on the grounds of
fitness to perform the duties of the office. An individual may
not be appointed who was employed by the Small Business
Administration during the 5-year period preceding the date of
such individual's appointment. A Chief Counsel may remain in
office, at the pleasure of the President, until a successor is
nominated, but in no instance longer than one year from the end
of the President's term.
Section 4. Primary functions of the Office of Advocacy
This section adds assistance to small business concerns
owned and controlled by women and small business concerns owned
and controlled by veterans as primary functions of the Office
of Advocacy. Assistance to small business concerns owned and
controlled by socially and economically disadvantaged
individuals, or minority enterprises, is already a primary
function of the Office of Advocacy.
As a new primary function, the Office of Advocacy is
required to make recommendations to Congress with respect to
issues and regulations affecting small businesses and the
necessity for corrective action by any federal agency or by
Congress.
Section 5. Additional functions
This section adds three additional functions to be
performed by the Office of Advocacy which are: (1) maintain
economic database and make information available to the
Administrator of the Small Business Administration and to
Congress; (2) carry out the responsibilities of the Chief
Counsel under the Regulatory Flexibility Act; and, (3) maintain
a memorandum of understanding with the Small Business and
Agriculture Regulatory Enforcement Ombudsman concerning
cooperation between the Ombudsman and the Office of Advocacy in
assisting small businesses resolve issues involving federal
agencies. All too often, people are confused between the two
roles of these offices. Generally, the Office of Advocacy
intervenes on behalf of small business prior to the adoption of
a final regulation. The SBA Ombudsman intervenes on behalf of
small businesses after a regulation has been adopted to insure
the application and enforcement of a regulation is fair and
reasonable to all parties. This MOU clarifies the two roles and
establishes procedures by which to refer small business
complaints that would be better handled by the other office.
The Chief Counsel is required to transmit to the Office of
Management and Budget (OMB), the Committee on Small Business of
the U.S. House of Representatives, the Committee on Small
Business and Entrepreneurship of the Senate, and the Committees
on Appropriations of the House and Senate the estimated
expenditures and proposed appropriations for the Office of
Advocacy. Further, each budget of the United States Government
shall include a separate statement of the amount of
appropriations requested for the Office of Advocacy. Each
budget will also include a statement of proportionality between
increases or decreases in the overall Small Business
Administration budget versus the Office of Advocacy line item.
Section 6. Principal Deputy Chief Counsel and regional advocates
The Chief Counsel may appoint one person to serve as
Principal Deputy Chief Counsel. The Chief Counsel may also
appoint 10 regional advocates, one in each of the Standard
Federal Regions, as appropriate. The duties of the regional
advocates shall include: (1) furthering the research efforts
concerning small businesses; (2) interfacing with federal
agencies that regulate or do business with small businesses;
(3) in coordination with the Small Business and Regulatory
Enforcement Ombudsman, assisting the functioning of regional
small business fairness boards, including, where requested,
helping small businesses helping to resolve matters that are
the subjects of complaints made to such boards with respect to
adverse federal agency action; (4) assisting and disseminating
information about programs and services that help small
business concerns; and, (5) performing such other duties as the
Chief Counsel may assign.
Section 7. Overhead and administrative support
The Administrator of the Small Business Administration is
required to provide the Office of Advocacy with all the
necessary office space, together with such equipment, office
supplies, communications facilities, and personnel and
maintenance services, as may be needed.
Section 8. Reports
The Chief Counsel is required, not less than annually, to
advise Congress and the Administrator of the Small Business
Administration on whether Federal agencies are complying with
the Regulatory Flexibility Act. The Chief Counsel may prepare
and publish other reports as deemed necessary.
Section 9. Authorization for appropriations
The amounts authorized to be appropriated are $10,000,000
for fiscal year 2003 and 2004, $12,000,000 for fiscal year
2005, and $14,000,000 for fiscal year 2006.
Section 10. Conforming amendments
This section makes conforming amendments as required by
changes in this Act to strengthen and improve the Office of
Advocacy. First, this section moves the Rural Tourism Training
Program from the Office of Advocacy to the SBA so the mission
of the office is not encumbered by this initiative more
properly housed within the SBA.
Second, this section codifies the requirement for the
Office of Advocacy and the SBA's Ombudsman to maintain a
Memorandum of Understanding between each office.
5.7 H.R. 2345--Regulatory Flexibility Improvements Act of 2003
Legislative History
6/5/2003: Referred to the Committee on the Judiciary, and
in addition to the Committee on Small Business, for a period to
be subsequently determined by the Speaker, in each case for
consideration of such provisions as fall within the
jurisdiction of the committee concerned.
6/5/2003: Referred to House Judiciary.
6/25/2003: Referred to the Subcommittee on Commercial and
Administrative Law.
6/5/2003: Referred to House Small Business.
5/5/2004: Committee Hearings Held.
Need for Legislation
H.R. 2345 strengthens and enhances the Regulatory
Flexibility Act (RFA) to further protect the interests of small
entities (small for-profit businesses; small non-profits; and
small municipalities) in the federal administrative process.
Federal agencies continue to interpret the RFA in a way to
avoid compliance. The President also has made it a goal, as per
his small business plan announced in 2002, to make sure that
agencies care that the RFA is on the books. H.R. 2345 also
gives the independent Chief Counsel at the Office of Advocacy
of the SBA more authority and tools to challenge ill-conceived
rules that would have a detrimental effect on small business.
Section-by-Section Analysis
Section 1. Short title
Provides that the short title of the bill shall be the
``Regulatory Flexibility Improvements Act of 2003.''
Section 2. Findings
Provides the findings of the Committees that the
legislation is needed because agencies continue to interpret
the Regulatory Flexibility Act (RFA) in a way to avoid
compliance.
Section 3. Clarification and expansion of rules covered by RFA
Extends coverage of the RFA to both direct and indirect
economic effects thereby overturning court interpretations
limiting the applicability of the RFA; requires agencies to
provide a detailed description of alternatives that will
minimize adverse economic impacts or maximize beneficial
economic impacts; adds tribal organizations to the list of
small governmental jurisdictions covered by the RFA; requires
Forest Service and Bureau of Land Management to comply with the
RFA when making modifications to land management plans for
which the agencies would prepare an environmental impact
statement; regulations concerning the internal revenue laws of
the United States must comply with the RFA if they are to be
codified in the Code of Federal Regulations and there is an
imposition of a record-keeping or reporting requirement without
regard to whether that requirement was imposed by statute;
amends the definition of small organization to comports with
the definition adopted in the Equal Access to Justice Act,
i.e., has fewer than 500 employees and a net worth of less than
$7 million; ensures that small labor organizations (such as
local unions) will not be considered affiliated with their
national union for purposes of Department of Labor compliance
with the RFA.
Section 4. Requirements for providing more detailed analyses
Mandates that regulatory flexibility analyses contain not
just a statement but a detailed statement of quantified effects
(unless quantification is not possible); adds a new requirement
to assess cumulative economic effects of the proposed and final
regulation, and requires agency to place analyses on their
website; requires agencies to specifically respond to comments
by the Chief Counsel (codifying an existing Presidential
Executive Order) and to comments on the certification.
Section 5. Repeal of procedure for waiver and delay
Repeals section 608 because agency can avoid compliance by
finding good cause to forgo notice and comment rulemaking.
Section 6. Procedures for gathering comments
Modifies the procedures for obtaining input from small
businesses prior to publication of proposed rule to give
greater control to the Office of Advocacy; adds the Internal
Revenue Service (IRS), Centers for Medicare and Medicaid
Services (CMS), and Federal Communications Commission (FCC) to
agencies covered by the prepublication input; and modifies the
trigger for prepublication input to incorporate the standards
determining a significant rule under the Congressional Review
Act.
Section 7. Periodic review of rules
Completely revises periodic review of rules by requiring
new plans for conducting such reviews and mandating that the
agency report on their reviews to Congress and the President.
Section 8. Judicial review of compliance with the RFA
Makes it easier to obtain judicial review of RFA compliance
when a statute mandates that the head of the agency revisit the
regulation in an administrative proceeding before small
entities can challenge the regulation in court.
Section 9. Establishment and approval of size standards by Chief
Counsel
Transfers authority to Chief Counsel from the Administrator
of the SBA to approve agency size standard of small entities
for purposes other than Small Business and Small Business
Investment Acts.
Section 10. Additional powers of the Chief Counsel
Chief Counsel must promulgate regulations that govern all
agencies' compliance with the RFA; authorize the Chief Counsel
to intervene in agency adjudications when a significant policy
issue is being decided.
5.8 H.R. 2802--Small Business Reauthorization and Manufacturing
Revitalization Act of 2003
Legislative History
7/21/2003: Referred to the House Committee on Small
Business.
7/24/2003: Committee Consideration and Mark-up Session
Held.
7/24/2003: Ordered to be Reported by Voice Vote.
10/21/2003 10:09am: Reported (Amended) by the Committee on
Small Business. H. Rept. 108-325, Part I.
10/21/2003: Referred sequentially to the House Committee on
Government Reform for a period ending not later than Oct. 31,
2003 for consideration of such provisions of the bill and
amendment as fall within the jurisdiction of that committee
pursuant to clause 1(h), rule X.
10/31/2003 3:25pm: House Committee on Government Reform
Granted an extension for further consideration ending not later
than Nov. 7, 2003.
11/7/2003 3:37pm: House Committee on Government Reform
Granted an extension for further consideration ending not later
than Nov. 21, 2003.
11/21/2003 3:01pm: House Committee on Government Reform
Granted an extension for further consideration ending not later
than Jan. 31, 2004.
1/31/2004 11:10am: House Committee on Government Reform
Granted an extension for further consideration ending not later
than March 2, 2004.
3/2/2004 10:01pm: House Committee on Government Reform
Granted an extension for further consideration ending not later
than March 8, 2004.
3/8/2004 5:33pm: Committee on Government Reform
discharged.
3/8/2004 5:33 pm: Placed on the Union Calendar, Calendar
No. 249.
10/5/2004: A motion was filed to discharge the Rules
Committee from consideration of H. Res. 800. H. Res. 800
provides for the consideration of H.R. 2802.
Need for Legislation
The purpose of H.R. 2802, the ``Small Business
Reauthorization and Manufacturing Revitalization Act of 2003''
(hereinafter the ``Act'') is to amend the Small Business
Investment Act of 1958 (SBIA) and the Small Business Act (SBA)
in order to provide greater efficiencies in the management of
various programs by the Small Business Administration
(``Administration'') and reorient programs authorized by the
SBIA and SBA to assist small manufacturers.
The SBA was enacted in 1953 to ensure a viable small
business sector of the economy. The SBIA was passed in 1958 to
authorize greater financial assistance to small businesses
through equity and debt securities backed by federal
guarantees. Both statutes have been amended many times creating
a jumbled statutory mass with program requirements that are
nearly indecipherable. As the SBA and SBIA were amended, their
underlying original purpose--to support America's small
business industrial base--became muddied.
The primary emphasis of H.R. 2802 is the streamlining of
Administration operations while increasing the support provided
to small manufacturers. H.R. 2802 accomplishes this goal in a
number of ways: (a) it provides for increasing financial
resources available to small manufacturers through amendments
in the SBIA; (b) streamlines operations of Administration
programs by transferring employees and requiring greater
accountability for achieving goals for raising the level of
financial assistance, counseling, and federal procurement
dollars for small business concerns; (c) modifies existing
Administration grant programs to provide greater oversight by
the Administrator; and (d) mandates improvements in government
contracting procedures to help small business concerns and
small manufacturers, in particular.
As the Committee began its intensive examination of
programs authorized by the SBA, the Committee came to the
realization that modification of the SBA alone would not
achieve the goal of providing greater assistance to small
manufacturers. The SBA was written 50 years ago and has never
been completely revised. Accretions have been made to the SBA
that creates internal inconsistencies. Even the Administration,
the agency implementing the SBA, does not fully understand it.
The Committee determined that a complete overhaul was
necessary.
For all of the foregoing reasons, the Committee determined
that simply accreting more requirements to the SBA would
continue the trend of bad drafting leads to worse government.
The Committee determined that it was appropriate to overhaul
the SBA.
Section-by-Section Analysis
TITLE I
Section 101. State defined
This section makes the definitions used in the SBA and SBIA
consistent.
Section 102. Small manufacturer defined
Adds a definition of small manufacturer to the SBIA.
Section 103. Maximum participating securities rate
Raises the participating security rate to 1.7 percent as a
result of changes in the 10-year Treasury bond rate.
Section 104. Maximum leverage for buying operations
Eliminates the indexing of maximum leverage available to
Small Business Investment Companies (SBICs) by increasing the
limits for single SBICs and those that are owned jointly.
Increases available leverage even further for SBICs that invest
primarily in manufacturers.
Section 105. Maximum aggregate amount of leverage
Makes technical changes necessitated by elimination of
existing indexed limits on leverage.
Section 106. Investments in smaller enterprises
Requires that SBICs invest 25 percent of their capital in
smaller enterprises.
Section 107. Actions of Administrator with respect to capital
impairment
Prevents the Administrator from seizing uninvested private
capital when a SBIC is declared to be capitally impaired.
Section 108. Conditions for distributions
Modifies the conditions for distributions in the
participating security program by requiring SBICs to distribute
income to its investors if there are outstanding priority
payments and mandates that the Administrator allocate payments
to reduction in principal before allocating distributions to
the profit payments.
Section 109. Modification of aggregate limits
Eliminates loans made pursuant to Sec. 7(a) of the Small
Business Act from the computation of maximum leverage.
Section 110. Notice and comment rulemaking
Codifies existing Administration regulations requiring the
use of the Administrative Procedure Act's Sec. 553 notice and
comment rulemaking for any regulations issued to implement the
SBIA.
Section 111. Low-Income geographic area definition
Amends the definition of low-income area in the New Market
Venture Capital Company (NMVCC) program (currently at 50
percent of median family income) to comport with the definition
of low-income area in the Internal Revenue Code (currently at
80 percent of median family income).
Section 112. Unmet equity investment needs of certain small
manufacturers
Adds small manufacturers to those small businesses eligible
for investment by NMVCCs.
Section 113. Participation agreement requirements
Requires that the Administrator approve a NMVCC that will
have at least 50 percent of its investments devoted to small
manufacturers.
Section 114. Final approval requirement
Lengthens to two years the time authorized by NMVCCs to
obtain final approval from the Administrator.
Section 115. Conditionally approved companies
Authorizes the Administrator to make operational assistance
grants of not more than $50,000 to NMVCCs that are in the
conditional stage of the program.
Section 116. Applications for new markets venture capital companies
Mandates that the Administrator reduce the amount of
paperwork required by a NMVCC applicant.
Section 117. Authorization of appropriations
Provides for an authorization of appropriations for the
NMVCC program including an extension of existing authorizations
through fiscal years 2004 and 2005.
Section 118. Repeal of lease guarantee authority
Eliminates the provisions authorizing the Administrator to
make lease guarantees under Title IV of the SBIA for
installation of pollution control equipment.
Section 119. Amendment of congressional findings relating to state
development companies
Adds the requirement that state and local development
companies (CDCs) must provide assistance to small
manufacturers.
Section 120. Qualification of state development companies
Modifies the definition of a rural area for purposes of
Title V of the SBIA to make it consistent with the definition
of a rural area elsewhere in the United States Code. This
necessitates expanding the definition in the SBIA to
populations of 50,000 or less. The section also authorizes that
loans to small manufacturers constitutes a public policy goal
under Title V.
Section 121. Job requirements
Raises the job requirement standard for CDC loans from one
job for every $35,000 in lending to one job for every $50,000
in lending except that for small manufacturers the job
requirement is one job for every $100,000 in lending. The
section also excludes from the portfolio requirement lending to
small manufacturers. Finally, the section authorizes the
Administrator to waive these requirements except as it relates
to small manufacturers.
Section 122. Small business concern loan limitations
Increases the loan limits for CDC loans to $2 million for
all projects, $2.5 million for projects that meet specified
public policy goals, and $4 million for the projects of small
manufacturers.
Section 123. Approval requirements
Mandates centralized processing of CDC loans. Prohibits the
Administrator from requiring that a CDC borrower owned by a
SBIC obtain the guarantee of the SBIC prior to the issuance of
a CDC loan.
Section 124. Effective date for termination of certain fees
Extends the authority of the Administrator to charge fees
to operate the CDC program for two years.
Section 125. Accredited lenders program
Revises the accredited lenders program by authorizing them
to make their own lending decisions if the Administration has
not done so within five business days. The provision also
alters the requirements for becoming an accredited lender based
on loan default rates. Finally, the Bureau of Premier Certified
Lenders will oversee compliance with the provisions of the
Accredited Lenders Program.
Section 126. Premier certified lenders program
Rewrites existing Sec. 508 of the SBIA through the
incorporation of H.R. 923. H.R. 923 alters the loan loss
reserve requirements for premier certified lenders and
establishes a Bureau of Premier Certified Lenders to oversee
the actions of premier certified lenders. The section alters
the provisions of H.R. 923 by making the program permanent and
makes the alternative loan loss provisions self-executing
rather than having to wait for the Administrator to establish
the Bureau of Premier Certified Lenders.
Section 127. Foreclosure and liquidation of loan losses
Authorizes CDCs to conduct their own foreclosures and loan
loss liquidations. Mandates that CDCs select every year whether
they are interested in conducting their own loss liquidations
for that year and requires them to submit plans on loan loss
liquidation to the Administrator. Prohibits the CDC from
committing the Administrator to purchase additional
indebtedness.
Section 127 also modifies the way the Administrator
conducts foreclosures of CDC loans by requiring that the
Administrator award contracts to outside parties. Payment would
be cost contract with certain bonus incentives.
Section 128. Additions to Title V
This provision adds three new sections to Title V of the
SBIA. New Sec. 511 requires the Administrator to develop a
short-form application for CDC loans. Section 512 creates a
centralized processing system in two loan processing centers
for handling CDC loans. Section 513 requires the Administrator
to report at least twice a year on the loans made under Title
V.
Section 129. Regulations to carry out amendments to the Loan Program
Sets forth the notice and comment requirements for
promulgating rules to implement the changes in Title V of the
SBIA.
Section 130. Conforming amendments
This section eliminates the statutorily undefined term
``certified'' from Title V and inserts in lieu the statutorily
defined term ``qualified State or local'' wherever the term
``certified'' appears in Title V.
Section 131. Development company affiliates
CDCs that are part of a larger holding company would not be
required to assign an individual to manage the CDC if the
management of the holding company is integrally involved in the
operations of the CDC.
TITLE II
Section 202. Findings, statements of policy
Revises the purposes of the SBA to include provision of
assistance to small manufacturers.
Section 203. Definitions
Added definitions of the following terms: ``contracting
officer'' (moved from existing section 31 of the SBA); ``small
business development center''; ``small manufacturer''; ``small
business lending company''; ``non-federally registered
lenders''; ``procurement center representative''; ``commercial
marketing representative''; and ``team.''
Requires that small businesses recertify their status once
every five years and permits a small business to expand beyond
established size standards in certain circumstances.
Makes technical changes to the definition of the term
``qualified Indian tribe.''
Eliminates all definitions of the term ``state'' found
elsewhere in the SBA and collects them in Sec. 3 of the Act.
Added the term ``acts of terrorism'' to the definition of a
disaster for purposes of loans made pursuant to Sec. 7(b) of
the SBA.
Modified the definition of ``contract bundling'' to include
any procurement performed under two or more separate contracts
combined into one contract in which the costs of the separate
contracts are lower than the costs of the proposed combination.
Significantly modified the definition of HUBZone to ensure
that economically disadvantaged businesses are eligible for the
preference. Section 203 also imposes new administrative
requirements to ensure that HUBZone qualifications are met by
businesses before they bid on contracts.
Section 204. Small Business Administration
Modifies and modernizes the power and structure of the
Small Business Administration. Eliminates out-dated provisions
such as the Loan Policy Board. Makes consistent references to
the Administrator rather than Administration.
Section 205. Financial management
Collects all of the Administrator's financial functions
into one section. Modernizes the terminology to make it
consistent with the rest of the SBA, SBIA, and the Federal
Credit Reform Act of 1990.
Imposes limits on the resale of disaster loans until three
years after the disaster loan was issued.
Authorizes the Administrator to pay its fiscal transfer
agent using the float from interest payments the agent controls
until they are turned over to the Treasury.
Section 206. Organization and staff
Section 206(a) amends existing Sec. 6 of the SBA to
incorporate provisions concerning the organizational structure
of the SBA and requirements to be met by various subsidiary
officials appointed by the Administrator. Subsection (a)
creates the general appointment and management authority of the
Administrator; subsection (b) establishes various associate
administrators; subsection (c) creates certain subsidiary
offices; subsection (d) grants subsidiary officials the power
to manage their respective offices subject to limitations in
the SBA; subsection (e) requires the Administrator to appoint a
general counsel; subsection (f) establishes various regional
offices; subsection (g) creates district offices and grants the
Administrator the power to appoint officials to perform
functions in the district offices; and subsection (h) grants
the Administrator significant powers to move personnel among
offices if they fail to meet specified statutory performance
benchmarks.
Section 207. Loan programs
Subsection 207 (a) makes changes to the business loan
program: (1) modifies the sound and secure requirement to
deemphasize adequate collateral; (2) increases the maximum loan
amount for international trade loans; (3) substitutes the term
``disabled'' for ``handicapped''; (4) adds service-disabled
veterans to those qualified to obtain loans at three percent;
(5) authorizes use of international trade loans for refinancing
debt and makes it easier to demonstrate economic injury; (6)
mandates that criteria for certified lenders be set forth in
the Code of Federal Regulations; (7) extends the reduction in
annual fee for two years; (8) requires the Administrator to
notify Congress when new pilot programs are created; (9)
imposes significant limits on the Administrator's discretion to
conduct pilot programs; (10) makes the low-documentation loan
program permanent; (11) amends existing statutory requirements
for designation as a preferred lender, including the creation
of a new national preferred lender; (12) mandates the
development of simplified forms for small guarantees; and (13)
establishes a new rule on affiliation solely for purposes of
making business loans to franchisees.
Subsections 207(b)-(c) amend the disaster loan program: (1)
outdated statutory rules governing disaster loans made during
the 1970s were deleted; (2) clarifies that losses should be
covered 100 percent (except to the extent reimbursable by
insurance); authorizes the Administrator to, when necessary,
extend the economic injury disaster loan beyond the declared
disaster area; (3) adopts a size standard of 500 employees for
disaster loans; (4) eliminates a statutory maximum for disaster
loans and imbues the Administrator with the discretion to
establish an appropriate amount; and (5) requires that
borrowers be notified when their disaster loans are sold.
Subsection (d) modifies the microloan program: (1) renamed
the welfare-to-work program as the welfare-to-entrepreneurship
program; (2) modifies the qualifications for serving as an
intermediary; (3) authorizes intermediaries to provide
technical assistance prior to the issuance of a loan; (4)
increases the size of the loans from $35,000 to $50,000; and
(5) makes minor changes in the Administrator's conduct of the
program.
Subsection (e) repeals portions of Sec. 7 that are no
longer operational including subsections 7(d), (h), (j) (moved
to Sec. 8), and (k). Subsection 207(f) extends the pre-disaster
mitigation program through the end of FY 2004. Subsection 207
(g) is a savings clause ensuring that the provisions only
effect loans made after the date of enactment.
Section 208. Government contracting and business development assistance
Subsection 208(a) amends subsections (a), (b), and (c) of
Sec. 8 of the SBA by making significant programmatic changes in
the contracting assistance provided to businesses eligible to
participate in the program established by Sec. 8. Those changes
include: (1) prohibits the Administrator from delegating
contracting responsibility to other federal agencies; (2)
mandates consultation between the Administrator and
subcontractors when responding to a federal procuring agency
solicitation; (3) modifies the definition of ``economically
disadvantaged'' to increase the survival rate of participants;
(4) alters the place where annual certifications of eligibility
must be sent; (5) authorizes change of ownership and control of
participants without loss of eligibility if the purchaser also
is eligible for the program; (6) eliminates the prohibitions on
removal of capital by owners; (7) enables expansion into
similar North American Industrial Classification System (NAICS)
codes when appropriate; (8) imposes the Administrative
Procedure Act standards for the conduct of hearings on removal
from the program; (9) mandates increased outreach efforts by
the Administrator and subsidiary officials to expand enrollment
in the program; (10) imposes additional requirements on the
Administrator's utilization and dissemination of participant
capability statements; (11) restricts the ability of
participants subject to a termination to obtain new
subcontracts; (12) alters and expands the type of managerial
assistance available to participants; and (13) establishes a
new contract-based technical assistance program for businesses
in the program.
Subsection 208(b) expands the range of activities performed
by a commercial marketing representative.
Subsection 208(c) amends the women's procurement program by
authorizing contracting officers to determine eligibility for
participation until the Administrator completes a study on
industries in which women-owned businesses are historically
underrepresented. In addition, the Office of Hearings and
Appeals is required to hear cases on challenges to eligibility
under the program.
Section 209. Training and assistance
Section 209 creates a new Sec. 12 in the SBA by collecting
the authority to provide technical and training assistance to
small businesses scattered elsewhere through the Act. In
particular, Sec. 209 improves the ability of the Service Corps
of Retired Executives and BusinessLINC programs to serve small
manufacturers.
Section 210. Contracting assistance
Section 210 amends Sec. 15 of the SBA to implement the
Committee's efforts to enhance the ability of all small
businesses, especially small manufacturers, to obtain federal
government contracts. In particular, section 210: (1) mandates
the Office of Management and Budget (OMB) decide contract
bundling disputes that arise between the Administrator and
federal procuring agencies; (2) creates an advocacy role for
the Administrator with respect to procurements under the
Javits-Wagner-O'Day Act; (3) expands the solicitation period
for bundled contracts; (4) modifies the way small business
procurement goals are calculated; (5) alters the annual federal
procurement reports issued by the Administrator; (6) increases
restricted competition limits from $100,000 to $1,000,000; (7)
alters the responsibilities and assignments of procurement
center representatives to make them more effective advocates of
small businesses; (8) requires that the Administrator and the
General Services Administration (GSA) create a data element
that captures the number of contracts awarded under the social
and disadvantaged small business program; (9) codifies
Administrator's regulations on the order of contracting
preferences; and (10) makes the very small business procurement
program permanent.
Section 211. Authorization of appropriations
Provides for authorization of appropriations for two years
and establishes levels for financing programs authorized by the
SBA and SBIA.
Section 212. Small Business Development Centers
Section 212 completely revises Sec. 21 of the SBA that
establishes the Small Business Development Center (SBDC)
program. The primary objective of the rewrite to was to make
the statutory language internally consistent and more readable.
In particular, the section establishes that the Administrator
will select grantees who will operate a series of small
business develop centers. The Administrator also is authorized
to negotiate the terms of service with the grantee and empowers
the Administrator to remove a grantee (after a hearing under
the provisions of the Administrative Procedure Act) if the
grantee has not met its obligations under the grant agreement.
The revisions also require that the Administrator actually
select (on advice of staff) and approve grantees. Finally,
Sec. 212 makes numerous technical and administrative changes in
the grantee's conduct under the grant agreements.
Section 213. Assignment of employees of the office of international
trade
Requires the Administrator to maintain the number of
Administration employees in the Office of International Trade
at January 1, 2003 levels.
Section 214. Supervisory and enforcement authority for Small Business
Lending Companies
Creates a new Sec. 23 in the SBA granting the Administrator
specific enforcement and supervisory authority (such as the
establishment of capital standards and the power to remove
directors) over Small Business Lending Companies and other
lenders not subject to regulation by a federal banking
overseer.
Section 215. Reauthorization of the Paul Coverdell Drug-Free Workplace
Program
Extends at reduced levels the authorization of the Drug-
Free Workplace Program.
Section 216. Women's Business Center Program
Section 216 amends the Women's Business Center Program by:
(1) extending its authorization; (2) modifying the program so
that it operates in a fashion similar to that of the SBDC
program (Administrator selects grantees that will operate
centers); (3) imposes more stringent performance standards on
grantees: and (4) eliminates sustainability and substitutes
applications for continued federal funding (up to five years
after initial grant ceases).
Section 217. HUBZone Program
Section 217 made changes the HUBZone price preference
contracting program: (1) eliminating the mandatory set-aside
requirement; (2) granting contracting officers the flexibility
to restrict competition among HUBZone firms; and (3)
terminating the special price preferences for Department of
Agriculture purchases of agricultural commodities.
Section 218. Other repeals and reorganizations
Makes technical and conforming changes necessitated by the
significant rewrite to the SBA. Revises the severability
provision to reflect the reenacted SBA. Repeals and reserves
for later use sections 19, 24, 25, 26, and 28 of the SBA.
Section 219. Rules of construction
Provides a catchall to ensure that the meaning of
references within the SBA do not change given the significant
rewrite.
Continues the effectiveness of existing Administrator
regulations until such time as they are changed.
Prohibits the Administrator from interpreting the rewrite
to include repeals by implication.
TITLE III
Section 301. Report regarding national database of small manufacturers
Requires SBDC grantees and the Administrator to determine
the cost of establishing a database that universities can use
to procure goods from small manufacturers.
Section 302. Workforce Transformation Plan
Empowers the Administrator (within the confines of the
changes made in Title II) to reorganize the operations of the
Administration. Requires any such transformation to demonstrate
that it will increase federal procurement dollars to small
businesses while reducing the overall cost of operating the
agency.
Section 303. Repeal of certain provisions of the Disaster Relief Act of
1970
Repeals Sec. 237 of the Disaster Relief Act because the
amendments made to Sec. 7(b) of the SBA provide the
Administrator with the authority set forth in the 1970 Act.
Section 304. Regulations on size standard on franchisees
Requires the Administrator to develop new affiliation
standards for franchisees so that franchisees will not be
considered large businesses due to interpretations of their
franchise agreements.
Section 305. Temporary Small Business Development Center assistance to
Indian Tribes
Creates pilot program for SBDC grantees from selected
states with substantial Native American populations to assist
Native American small business owners.
Section 306. Temporary Small Business Development Center assistance for
vocational and technical entrepreneurship development
Establishes a pilot program for SBDC grantees to teach
entrepreneurship education to students in secondary education
and post-secondary vocational and technical schools.
Section 307. Very small business concern contract data collection
Requires that the Administrator and the General Services
Administration create a new data element to capture contracts
awarded to very small businesses.
Section 308. Very Small Business Concern Pilot Program for home-based
businesses
Establishes a pilot program requiring that within the Very
Small Business program, at least one award per year be made to
a home-based business.
Section 309. Socially and economically disadvantaged business
Extends the price preference for socially and economically
disadvantaged businesses for two years.
Section 310. Study and report on effectiveness of aggregate limitations
on amount of assistance to any single enterprise
Requires the Administrator to study the impact on the
availability of capital to small manufacturers as a result of
SBICs being limited to investing 20 percent of their private
capital in one business.
Section 311. Study and report on coordination of New Market Venture
Capital Program with New Markets Tax Credit Program
Administrator is required to develop suggestions for
bolstering the utility of the NMVCC program based on the
changes to the definition of low-income area.
Section 312. Study and report on Premier Certified Lenders Program
Requires the Administrator to contract out a study on
whether premier certified CDC lenders are overcapitalized.
Section 313. Data collection
Requires the establishment of a data element to track
awards made to socially and economically disadvantaged
businesses.
Section 314. Resubmission of disaster loan applications for businesses
affected by September 11, 2001 terrorist attacks
Requires the Administrator to reopen the disaster loan
application process for businesses within the declared disaster
areas that were unable to operate as result of a government
order to remain closed.
Section 315. National Small Business Incubator Program
Creates a pilot program for the establishment of small
business incubators in abandoned factories and warehouses.
Incubators eligible for participation would have to provide
services only to high-technology businesses or small
manufacturers.
Section 316. Report regarding sale of disaster loans on borrowers
Mandates that the Office of Advocacy examine the economic
consequences of the Administrator's sale of disaster loans.
Section 317. Suspension and extension of certain disaster loans related
to the terrorist attacks of September 11, 2001
Requires the Administrator, after a finding of severe
economic injury, to suspend on a temporary basis, payment of
principal and interest on disaster loans issued to businesses
in the declared disaster areas and the adjacent counties of
Orange and Rockland in New York.
For more information on H.R. 2802, please refer to House
Committee Report No. 108-325, Part I.
5.9 H.R. 3915--To Provide for an Additional Temporary Extension of
Programs Under the Small Business Act and the Small Business
Investment Act of 1958 Through April 2, 2004, Public Law 108-
205
Legislative History
3/9/2004: Referred to the House Committee on Small
Business.
3/10/2004 7:43pm: Mr. Manzullo moved to suspend the rules
and pass the bill, as amended.
3/10/2004 7:43pm: Considered under suspension of the
rules.
3/10/2004 7:51pm: On motion to suspend the rules and pass
the bill, as amended Agreed to by voice vote.
3/10/2004 7:51pm: Motion to reconsider laid on the table
Agreed to without objection.
3/10/2004 7:51pm: The title of the measure was amended.
Agreed to without objection.
3/11/2004: Received in the Senate, read twice.
3/12/2004: Passed Senate without amendment by Unanimous
Consent.
3/12/2004: Message on Senate action sent to the House.
3/12/2004: Cleared for White House.
3/12/2004: Presented to President.
3/15/2004: Signed by President.
3/15/2004: Became Public Law No: 108-205.
Need for Legislation
The purpose of the legislation was to extend the
authorization of the programs of the SBA, which expired on
March 15, 2004, until April 2, 2004 while Congress still
attempted to work out a long-term, more comprehensive SBA
reauthorization bill. This legislation reauthorizes SBA
programs not covered by regular appropriations such as the
ability of the SBA to charge fees in the Certified Development
Company (CDC) or the 504 loan program; the Preferred Surety
Bond program; the price preference in the Small Disadvantaged
Business (SDB) program; SBA's co-sponsorship authority, which
enables the SBA to accept private donations to put on events or
print publications; the Women's Business Center Sustainability
pilot program; grants to SBDCs to implement part of the Paul D.
Coverdell Drug-Free Workplace program; the Very Small Business
Concerns pilot program; and the Pre-Disaster Mitigation pilot
program.
Section-by-Section Analysis
Section 1.--The authorization for any program, authority,
or provision, including any pilot program, which was extended
through March 15, 2004 by the previous extension (Public Law
108-172), is further extended through April 2, 2004, under the
same terms and conditions.
Section 2.--The ability of the SBA to charges fees in the
504 loan program was extended until May 21, 2004.
5.10 H.R. 4062--To Provide for an Additional Temporary Extension of
Programs Under the Small Business Act and the Small Business
Investment Act of 1958 Through June 4, 2004, and for Other
Purposes, Public Law 108-217
Legislative History
3/30/2004: Referred to the House Committee on Small
Business.
3/31/2004 10:22am: Mr. Manzullo moved to suspend the rules
and pass the bill.
3/31/2004 10:23am: Considered under suspension of the
rules.
3/31/2004 10:37am: On motion to suspend the rules and pass
the bill. Agreed to by voice vote
3/31/2004 10:37am: Motion to reconsider laid on the table.
Agreed to without objection.
3/31/2004: Received in the Senate, read twice.
4/1/2004: Passed Senate without amendment by Unanimous
Consent.
4/2/2004: Message on Senate action sent to the House.
4/2/2004: Cleared for White House.
4/2/2004: Presented to President.
4/5/2004: Signed by President.
4/5/2004: Became Public Law No: 108-217.
Need for Legislation
The purpose of the legislation was three-fold. First, the
authorization for the programs of the SBA was generally
extended from April 2, 2004 until June 4, 2004. These are SBA
programs not covered by regular appropriations such the
Preferred Surety Bond program; the price preference in the
Small Disadvantaged Business (SDB) program; SBA's co-
sponsorship authority, which enables the SBA to accept private
donations to put on events or print publications; the Women's
Business Center Sustainability pilot program; grants to SBDCs
to implement part of the Paul D. Coverdell Drug-Free Workplace
program; the Very Small Business Concerns pilot program; and
the Pre-Disaster Mitigation pilot program.
Second, the ability of the SBA to charge fees in the
Certified Development Company or 504 program was extended until
September 30, 2004. This provision allows the 504 program to
operate at a zero subsidy or at no cost to the taxpayer for a
relatively extended period of time.
Third, H.R. 4062 contained a short-term fix to the
temporary crisis in the SBA's 7(a) loan guarantee program by
increasing fees mainly upon the lenders that enabled the SBA to
immediately lift the restrictions imposed on the program in
January 2004, including a $750,000 loan cap and a ban on
``piggyback'' loans (combining commercial loans with
government-backed loans into one package). Specifically, these
fees:
1. Raised the annual on-going lender fee from 0.25
percent to 0.36 percent;
2. Allowed ``piggyback'' loans but charges an
additional fee on lenders of 0.70 percent to use them;
3. For loans under $150,000, the SBA will retain the
0.25 percent on-going lender fee (previously, banks who
serviced these smaller loans kept the fee);
4. Allowed lenders to make loans up to $2 million (an
increase from $250,000) under the SBAExpress program,
which has a lower 50 percent government guarantee rate
but banks can use their own paperwork; and
5. Raised the 7(a) guarantee limit from $1 million to
$1.5 million with an additional risk premium fee
charged to borrowers of 0.25 percent (over and above
the 3.5 percent that is currently charged for loans
above $700,000) on the loan amount over $1 million.
H.R. 4062 freed up $3 billion in extra 7(a) loan authority
for the rest of FY 2004 for a total program level of $12.5
billion, which allowed the SBA to guarantee an additional
30,000 7(a) loans to small employers that created or retained
as many as a half a million jobs.
Section-by-Section Analysis
Section 1. Additional temporary extension of authorization
Temporary authorizations are needed to ensure continued
operation of certain programs authorized by the Small Business
Act and Small Business Investment Act of 1958. This section
extends those programs until June 4, 2004 while the House and
Senate work out their differences on a broader reauthorization
package.
Section 2. Extension of certain fee authorizations
The qualified state and local development company
(otherwise known as ``certified development company'' or
``CDC'') program authorized by Title V of the Small Business
Investment Act of 1958 operates on fees charged by the
Administrator to lenders. Those fees need to be reauthorized to
prevent the program from ceasing operation. Given the
complexity of the financing arrangements loans made pursuant to
Title V, CDCs and small businesses need sufficient time to
develop the appropriate financing packages and submit
applications to the Administrator. To accommodate the needs of
lenders and borrowers under Title V, H.R. 4062 extended the fee
authorization through the end of the fiscal year (September 30,
2004). Furthermore, the sponsors of H.R. 4062 believe that if
the recent problems in the 7(a) loan program were resolved
through the end of this fiscal year, equity demands that CDCs
be able to operate unencumbered for the same period.
Section 3. Fiscal year 2004 purchase and guarantee authority under
Title III of the Small Business Investment Act of 1958
The Small Business Investment Company (``SBIC'') program
operates without the use of appropriated funds. Fees and
profits are used to cover the cost of the program, including
coverage of losses in investment portfolios. While the sponsors
of H.R. 4062 believe that the fees authorized for the purchase
of securities and debentures would allow the program to
continue full operation without modification to the
authorization levels, clarification to ensure that the program
could continue operations was an appropriate course of action.
To avoid any possible confusion or action by the Administrator
to curtail the operation of the program, the sponsors extended
the authorizations for both the purchase of participating
securities and guarantees of debentures at FY 2003 levels for
the rest of the fiscal year.
Section 4. Combination financing
For a number of years, the SBA authorized the use of so-
called piggyback financing when using the 7(a) loan program.
The SBA defines ``piggyback financing'' as a situation in which
``one or more lender(s) provides more than one loan(s) to a
single borrower at or about the same time, financing the same
or similar purpose, and where the SBA guarantees the loan
secured with a junior lien position.'' Small Business
Administration, Standard Operating Procedure 50-10(4)(E), at
20. Furthermore, the Administrator notes that the determination
of ``piggyback financing'' requires an assessment of both the
lien position and the commonality of purpose. Id.
Earlier in the year, the Administrator, presumably pursuant
to the authority set forth in Section 7(a)(24) of the Small
Business Act, made certain policy changes to the operation of
the guaranteed loan program. In particular, the Administrator
prohibited the use of piggyback financing.
The sponsors of H.R. 4062 believe that ``piggyback
financing'' plays a valuable role in the provision of capital
to small businesses. This is particularly the case for small
businesses requiring larger loans in cyclical sectors of the
economy. The financing technique is quite similar to that
statutorily authorized in Title V of the Small Business
Investment Act of 1958.
Section 4 creates, for the rest of fiscal year 2004, a
temporary combination-financing program by adding a new
paragraph (31) to Section 7 of the Small Business Act. The
provisions sunset at the end of the fiscal year (at the end of
the day on September 30, 2004).
The sponsors of H.R. 4062 adopted the more formal language
``combination financing'' rather than the term ``piggyback
financing.'' The sponsors define ``combination financing'' as a
loan consisting of both a commercial loan and a guaranteed
loan. A commercial loan is defined as one that has no portion
guaranteed by the government. The sponsors intend the term
``combination financing'' to have the same characteristics as
``piggyback financing'' as that term is used in the SBA's
Standard Operating Procedure already cited in this statement.
The authorization of combination financing is limited to
those situations in which the small business concern (borrower)
obtains both a guaranteed loan pursuant to Section 7(a) of the
Small Business Act and a commercial loan. Again the sponsors
intend that the provision should operate in a manner similar to
the SBA's determination that the commercial and guaranteed
loans are obtained for the same or similar purposes and the
loans are originated and disbursed (in whole or in part) at
about the same time.
To ensure that the public fisc is protected even when the
Administrator's lien is subordinate to the commercial loan,
H.R. 4062 restricts the size of the combination loan to that of
the guaranteed loan. In other words, there is a one-to-one
ratio between the commercial and guaranteed loans. While the
commercial loan cannot exceed the size of the guaranteed loan,
the sponsors do not intend to prevent a commercial loan from
being smaller than the guaranteed loan.
H.R. 4062 authorizes the commercial loan may be made by the
lender that is making the guaranteed loan. However, the
sponsors also permit the commercial loan to be made by a
different lender as long as the loans meet the simultaneity of
time and purpose already limned. In addition, the sponsors also
authorize lenders designated as ``Preferred Lenders'' by the
Administrator to make the commercial loan in such combination
financings.
H.R. 4062 also authorizes lenders designated as ``Preferred
Lenders'' by the Administrator to make the commercial loan in
combination financings. In order to expedite the processing of
combination financings in these circumstances, it is the
sponsors' intent that the Administrator process applications
for combination financings submitted by such ``Preferred
Lenders'' through the Preferred Lenders Program Processing
Center.
H.R. 4062 explicitly authorizes the commercial loan to be
secured by a lien senior to that of the guaranteed loan.
Nothing in this provision prevents the Administrator from
continuing or discontinuing this practice after September 30,
2004 unless directed otherwise by statute.
In normal commercial transactions, lenders that take a
subordinated lien position on an asset are compensated for the
additional risk through additional upfront fees or by a higher
interest rate. The Administrator did not require any additional
payments or modification of applicable interest rates for
taking a junior position in its ``piggyback financing.''
Section 4 requires the Administrator to charge an upfront fee
equal to 0.7 percent of the amount of the commercial loan as
reimbursement for the risk associated with taking a subordinate
lien position. The sponsors of H.R. 4062 expect that the lender
that is benefiting from senior lien position to pay the fee.
While lenders pay all fees charged pursuant to Section 7(a)
of the Small Business Act, some fees are recoverable from
borrowers. Lenders may obtain reimbursement of the upfront fees
mandated by Section 7(a)(18) of the Small Business Act from
borrowers but are prohibited from recovering from borrowers the
annual ongoing fee mandated by Section 7(a)(23) of the Small
Business Act. Since the ultimate beneficiary of the combination
financing as authorized by this section is the bank making the
commercial loan, the sponsors determined that the lender should
be prohibited from recovering that fee and imposed the
restriction set forth in Section 7(a)(23)(B) of the Small
Business Act on the payment of the commercial loan fee. The
cross-reference to the provision in Section 7(a)(23) ensures
that the lender will be unable to recoup the 0.7 percent from
the borrower.
The Administrator had procedures in place for combination
financing (styled in the Standard Operating Procedures as
``piggyback financing'') on October 1, 2003, and the
Administrator processed combination loan financings in the
normal course of business on October 1, 2003. To ensure that
the Administrator accept and process combination financing loan
applications, H.R. 4062 imposes a requirement that the
Administrator must process those loan applications as those
loans were processed under the ``piggyback financing''
procedures in effect on October 1, 2003.
The sponsors of H.R. 4062 did not believe that it would be
prudent to mandate the issuance of regulations to implement a
temporary program, which will sunset in about six months. In
fact, the sponsors were concerned that the promulgation process
would be sufficiently lengthy and the program would sunset
before any regulations were in place. The sponsors recognized
that the Administrator would be approving combination
financings under the rubric of ``piggyback financings'' in
accordance with already extant standard operating procedures.
The sponsors believe that these provisions are adequate for
immediate issuance of combination financing loans. H.R. 4062
therefore authorizes the Administrator to use the standards
already in existence upon enactment without the necessity of
formal rulemaking. The provision has the additional benefit
that industry is well aware of the procedures and standards for
business eligibility in the standard operating procedures.
H.R. 4062 recognizes that additional standards may be
necessary to determine business loan eligibility under this
section. H.R. 4062 authorizes the Administrator to adopt such
additional standards as may be necessary (in order to reduce
risk to the government and increase transparency to the private
sector) so long as those standards do not unreasonably restrict
the availability of combination financing as was available
prior to the issuance of any additional standards. Thus, the
sponsors of H.R. 4062 expect that the Administrator will make
reasonable decisions that may in some ways restrict the
availability of combination financing. However, standards that
prohibit or reduce by a significant number the combination
financings made after the adoption of additional standards
would not be within the intention of the sponsors of H.R. 4062.
The sponsors do not expect any new standards adopted by the
Administrator to impose significant restrictions on combination
financings. The 0.7 percent fee sufficiently compensates the
Administrator for the additional risk. Any additional standards
should focus on the procedures for processing combination
financings or resolving situations that are not adequately
addressed under current procedures for ``piggyback financing.''
Section 5. Loan guarantee fees
In late December of 2003 and early January of 2004, the
Administrator, in part pursuant to the Anti-Deficiency Act,
temporarily ceased lending under the loan program established
pursuant to Section 7(a) of the Small Business Act. Shortly
after the Administrator halted lending, funds were reallocated
enabling the program, but with a mandatory loan cap of
$750,000.
This restriction continues to impede the ability of small
businesses to obtain capital, expand their businesses, and
create jobs. The sponsors of H.R. 4062 recognized the need to
reopen the program to its fully authorized levels ($2 million
loan maximum with a guarantee up to $1 million). Two options
were available for doing this. The first would require
additional appropriations. The second would be to raise fees
associated with the lending program authorized by Section 7(a)
of the Small Business Act. Since the sponsors of H.R. 4062 were
not sanguine about the prospect of obtaining additional
appropriations for fiscal year 2004, they reluctantly turned to
the second option.
The approach adopted by H.R. 4062 raise, through the end of
fiscal year 2004, the annual ongoing fee charged to lenders.
The reduction was reauthorized in Pubic Law No. 107-100. The
statutory fee is currently set at a 0.5 percent but was reduced
temporarily, to encourage the creation of new jobs, in the last
SBA reauthorization bill to 0.25 percent. Section 5 raises that
level from 0.25 percent to 0.36 percent. The sponsors also
eliminate the authority of lenders to retain 0.25 percent of
the ongoing fee for loans of less than $150,000. According to
the SBA Administrator and the Office of Management and Budget
(OMB), these fee changes, along with other temporary
modifications, raise sufficient funds to operate a guaranteed
loan program at a $12.55 billion level without any restrictions
on combination financing or caps on loan size.
Section 6. Express loan provisions
Section 7(a)(25)(B) authorizes the SBA Administrator to
create pilot loan programs. In exercising that authority, the
Administrator created an ``Express Loan Pilot Program.'' The
program authorizes lenders to use their own forms in submitting
requests to the Administrator for the issuance of guarantees.
Two significant restrictions are imposed by the ``Express Loan
Pilot Program:'' (1) the guarantee cannot exceed 50 percent of
the loan and (2) the maximum loan amount is $250,000.
According to the Administrator and OMB, expansion of the
``Express Loan Pilot Program'' to authorize lenders to make
loans up to the statutory maximum of $2 million would
contribute to a significant reduction in the 7(a) subsidy rate.
H.R. 4062 adopts this concept to ensure that sufficient funds
were made available to reopen the program at expected loan
volumes.
Section 6 defines the term express lender as a lender
authorized to participate in the ``Express Loan Pilot
Program.'' The sponsors do not intend that the Administrator
need change any of the requirements for designation as an
express lender but is authorized to do so.
Section 6 defines an ``Express Loan'' as one in which the
lender utilizes, to the maximum extent practicable, its own
analyses of credit and forms. The sponsors of H.R. 4062 fully
expect that the conditions under which express loans are made
will not vary significantly from those conditions that
currently exist under the ``Express Loan Pilot Program.''
However, the sponsors recognize that the Administrator may want
to impose some additional conditions on the use of forms or
analyses for larger express loans. Nothing in H.R. 4062
prohibits the Administrator from imposing these additional
requirements.
Section 6 codifies the existing concept of the
Administrator's ``Express Loan Pilot Program.'' In other words,
the pilot program is one in which lenders utilize their own
forms and get a guarantee of no more than 50 percent.
Subsection 6(b) restricts the program, including the
increased loan amount, to those lenders designated as express
lenders by the Administrator. Designation as an express lender
does not limit the lender to making express loans if the lender
has been authorized to make other types of loans pursuant to
Section 7(a) of the Small Business Act. Although a lender may
only seek status as an express lender, this subsection was
included to ensure that the Administrator not limit the ability
of an express lender to seek other lending authority from the
Administrator. Nor is the Administrator permitted to change its
standards for designating an express lender in a manner that
only authorizes the lender to make express loans. To the extent
that the lending institution wishes to offer a full range of
loan products authorized by Section 7(a) and is otherwise
qualified to do so, the Administrator shall not restrict that
ability on the lender's status as an express lender.
Subsection 6(c) prohibits the Administrator from revoking
the designation of any lender as an express lender that was so
designated at the time of enactment. This prohibition does not
apply if the Administrator finds the express lender to have
violated laws or regulations or the Administrator modifies the
requirements for designation in a way that the express lender
cannot meet those standards. The sponsors of H.R. 4062 do not
expect that the Administrator will impose new requirements for
express lenders that prohibit them from making loans under
other loan programs authorized by the Small Business Act for
which they have approval from the Administrator.
Subsection 6(d) temporarily expands the Express Loan Pilot
Program to $2 million. After September 30, 2004, the sponsors
expect the Administrator to operate the Express Loan Pilot
Program according to the standards that were in effect prior to
the enactment. Since the Administrator had the authority to
modify or alter the pilot program prior to the enactment of
this Act, nothing in the Act restricts the Administrator from
taking appropriate regulatory action with respect to the
program after the authority vested in this Act terminates.
The President's FY 2005 budget request for the Small
Business Administration did not include any funding for the
loan programs authorized by Section 7(a) of the Small Business
Act. Administrator Barreto testified at a full Committee
hearing that the loan programs should be self-funding with a
subsidy rate of zero and, as a result, the Section 7(a) lending
programs would be on the same footing as the CDC and SBIC
programs. Administrator Barreto's suggested the mechanism for
achieving a zero subsidy rate was through a mandatory expansion
of the Express Loan Pilot Program to incorporate almost all
smaller loans (initially all loans under $250,000 but in
subsequent years could increase if needed to maintain a zero
subsidy rate). The mandatory nature of the proposal did not
garner much acceptance among members of the House or Senate
Small Business Committees.
Given Administrator Barreto's stated preference for
resolving the funding crisis associated with the Section 7(a)
lending programs through an expansion of express loans, the
sponsors are concerned that the Administrator will take
regulatory actions that unduly favor express lending over other
types of lending authorized by Section 7(a) of the Small
Business Act. As such, the sponsors determined that it was
appropriate to impose certain restrictions on the
Administrator's operation of the expanded Express Loan Pilot
Program in order to prevent actions that unnecessarily and
unduly favor express lending.
Any significant policy change in the operation of the
lending programs authorized by Section 7(a) of the Small
Business Act requires notification to the House and Senate
Small Business Committees. Subsection 6(e) does not limit the
restrictions imposed on the Administrator's regulatory
discretion to those matters that would require notification
pursuant to Section 7(a)(24) of the Small Business Act.
The most significant restriction is that the Administrator
cannot take any action that directly forces a lender to make an
express loan for any level. Thus, if a lender wishes to make an
express loan for $1.5 million dollars and is a designated
express lender, the lender may do so. If the same lender is
qualified to make other types of loans and wants to make a $1.5
million dollar loan at a 75 percent guarantee, the
Administrator may take no action that forces the lender to
select the 50 percent guarantee over the 75 percent guarantee.
One mechanism for demonstrating favoritism is to impose
conditions on loan programs other than express loans that have
the effect of coercing lenders to make express loans. Paragraph
(2) of subsection 6(e) ensures that the Administrator imposes
like terms and conditions on both express and other lending
programs authorized by Section 7(a) of the Small Business Act.
The sponsors intend that this requirement apply to all of the
terms and conditions of loans made pursuant to Section 7(a) of
the Small Business Act, including collateral and the likelihood
of repayment standards.
Even if the terms and conditions on the loans are
identical, the Administrator has other mechanisms for
demonstrating favoritism of express lenders over other types of
Administrator-designated lenders. For example, the
Administrator could delay processing of 75 percent guarantee
loans, i.e., loans other than express loans, such that lenders
would, for all practical terms, be required to do express
loans. Thus, paragraph (3) of subsection 6(e) prevents the
Administrator from making any personnel changes or altering the
application of resources (be it personnel, equipment, or
funding) that increases the loan processing and disbursement
times for all loans authorized by Section 7(a) of the Small
Business Act as those were in effect on October 1, 2003. For
example, if the time for disbursement of an express loan was
five days and the time for disbursement of a 75 percent
guaranteed loan was seven days, the Administrator may take no
action that increases the relative disparity between the
express loan and the 75 percent guarantee loan. Nothing in this
subsection shall be interpreted to prevent the Administrator
from improving the overall processing, approval, or
disbursement rates of all loans except that any such
improvements must affect all lenders and all lending programs
operating pursuant to Section 7(a) of the Small Business Act in
an identical manner.
To ensure that the sponsors' intent is clear that the
expansion of the express loan is optional and the Administrator
shall take no action that has the practical effect of making it
mandatory, H.R. 4062 incorporates a catchall requirement that
the Administrator not take action to create incentives that
would favor express loans over other types of loans. The
sponsors of H.R. 4062 believe that the determination of the
appropriate nature of a loan should not be made by regulatory
fiat but by the sound judgment of lenders, borrowers, and the
Administrator's commercial loan officers.
The dramatic expansion of the express loan program, even on
a temporary basis, may shed dramatic light on the purposes for
which such loans are made. That information will be critical in
resolving, on a long-term basis, the funding issues associated
with the Sec. 7(a) lending programs. Therefore, H.R. 4062
requests, to the extent practicable, monthly reports on the
types and purposes for express loans made in excess of the
current pilot program cap of $250,000.
Subsection 6(g) terminates the effectiveness of various
subsections after September 30, 2004. Subsection (d) has its
own internal sunset provision. No sunset is made on subsection
(a), as it simply codifies existing practice of the
Administrator with respect to definitions related to express
loans. Nothing in subsection (g) is intended to constitute a
permanent change in any program authorized pursuant to Section
7(a) of the Small Business Act.
Section 7. FY 2004 deferred participation standards
As already noted, the sponsors of H.R. 4062 are concerned
that regulatory or other administrative changes in loan
programs could have the practical implication of forcing
lenders to make express loans. H.R. 4062 freezes all terms and
conditions of loans as they existed on October 1, 2003 as a way
to deter favoritism for express lending. The sponsors of H.R.
4062 intend this provision to require, upon enactment, the
lifting of the cap on loans made pursuant to Section 7(a) of
the Small Business Act that are currently in place. Section (7)
does permit the Administrator to modify those terms and
conditions if needed to ensure continued operation of the
program within the amounts appropriated. Although the sponsors
of H.R. 4062, based on assertions by the OMB, believe that the
Administrator will have sufficient funds through the end of the
fiscal year to operate without any regulatory restraints, the
sponsors do not want to prevent the Administrator from taking
actions needed to prevent violations of the Anti-Deficiency
Act. In other words, the sponsors of H.R. 4062 fully expect the
terms and conditions of October 1, 2003 to apply unless unusual
and very unexpected consequences occur. Should such changes be
necessary, nothing in H.R. 4062 repeals, either implicitly or
explicitly, the notification requirements set forth in Section
7(a)(24).
Section 8. Temporary increase in loan limit
Access to capital is vital to the growth of small
businesses. Particularly for manufacturers and high technology
research and development businesses, typical amounts of capital
available under the loan programs authorized by Section 7(a) of
the Small Business Act often are inadequate. If these
manufacturers and high technology companies are investing to
increase their productivity, the job creation requirements of
Title V of the Small Business Investment Act may make it
difficult, if not impossible, to obtain that type of financing.
Therefore, the sponsors determined that it would be appropriate
to temporarily increase the amount of the loan guarantee from
$1 million to $1.5 million. No additional changes were made in
the overall statutory cap of a gross $2 million loan. The
sponsors of H.R. 4062 did not believe that was necessary
because any additional gaps in financing can be addressed using
combination financing, under the terms of this Act. Given the
fact that borrowers get an additional increment in loan
guarantees, H.R. 4062 requires an additional 0.25 percent fee
for the amount of guarantee in excess of $1 million. Thus, on
the amount of the guarantee between $1 million and $1.5
million, the upfront fee authorized pursuant to Section
7(a)(18) of the Small Business Act increases from 3.5 percent
to 3.75 percent. This is consistent with typical commercial
lending practices of charging fees that are commensurate with
the lenders' exposure to risk.
5.11 H.R. 4478--To Provide for an Additional Temporary Extension of
Programs Under the Small Business Act and the Small Business
Investment Act of 1958 Through July 23, 2004, and for Other
Purposes
Legislative History
6/2/2004: Referred to the House Committee on Small
Business.
6/3/2004 2:31pm: Committee on Small Business discharged.
6/3/2004 2:31pm: Mr. Manzullo asked unanimous consent to
discharge from committee and consider.
6/3/2004 2:31pm: Considered by unanimous consent.
6/3/2004 2:32pm: On passage Passed without objection.
6/3/2004 2:32pm: Motion to reconsider laid on the table
Agreed to without objection.
6/3/2004: Received in the Senate.
6/25/2004: Read twice and referred to the Committee on
Small Business and Entrepreneurship.
Need for Legislation
H.R. 4478 extends the general authorization for SBA
programs from June 4, 2004 until July 23, 2004 while Congress
continued to work on a more comprehensive SBA reauthorization
bill. This legislation reauthorizes SBA programs not covered by
regular appropriations such as the Preferred Surety Bond
program; the price preference in the Small Disadvantaged
Business (SDB) program; SBA's co-sponsorship authority, which
enables the SBA to accept private donations to put on events or
print publications; the Women's Business Center Sustainability
pilot program; grants to SBDCs to implement part of the Paul D.
Coverdell Drug-Free Workplace program; the Very Small Business
Concerns pilot program; and the Pre-Disaster Mitigation pilot
program. Without this bill, these programs, which are not
covered by a direct appropriation, would not be able to
function.
Section-by-Section Analysis
Section 1.--Additional temporary extension of authorization
of programs under the Small Business Act and the Small Business
Investment Act of 1958. The authorization for any program,
authority, or provision, including any pilot program, which was
extended through June 4, 2004 as per Public Law 108-217, is
further extended through July 23, 2004, under the same terms
and conditions.
Section 2.--Contains a technical amendment to insure that
the 504 Certified Development Company (CDC) program operates
under the same terms and conditions as it was at the beginning
of the fiscal year.
5.12 H.R. 5008--To Provide an Additional Temporary Extension of
Programs Under the Small Business Act and the Small Business
Investment Act of 1958 Through September 30, 2004, and for
Other Purposes. Public Law 108-306
Legislative History
9/7/2004: Referred to the House Committee on Small
Business.
9/13/2004 5:05pm: Mrs. Capito moved to suspend the rules
and pass the bill.
9/13/2004 5:05pm: Considered under suspension of the rules.
9/13/2004 5:27pm: On motion to suspend the rules and pass
the bill Agreed to by voice vote.
9/13/2004 5:27pm: Motion to reconsider laid on the table
Agreed to without objection.
9/14/2004: Received in the Senate, read twice, considered,
read the third time, and passed without amendment by Unanimous
Consent.
9/15/2004: Message on Senate action sent to the House.
9/16/2004: Cleared for White House.
9/16/2004: Presented to President.
9/24/2004: Signed by President.
9/24/2004: Became Public Law No: 108-306.
Need for Legislation
H.R. 5008 extends the general authorization for SBA program
until September 30, 2004 while Congress continued to work on a
more comprehensive SBA reauthorization bill. This legislation
reauthorizes SBA programs not covered by regular appropriations
such as the Preferred Surety Bond program; the price preference
in the Small Disadvantaged Business (SDB) program; SBA's co-
sponsorship authority, which enables the SBA to accept private
donations to put on events or print publications; the Women's
Business Center (WBC) Sustainability pilot program; grants to
SBDCs to implement part of the Paul D. Coverdell Drug-Free
Workplace program; the Very Small Business Concerns pilot
program; and the Pre-Disaster Mitigation pilot program. Because
the previous extension had not been able to pass the Senate
(H.R. 4478), these programs were not allowed to operate from
June 4 (the previous expiration date) until the day the
President signed this bill into law.
This temporary gap of authorization was particularly
burdensome to the WBC sustainability pilot program, which
allows the SBA to provide grants to established WBCs beyond
their five-year limit of eligibility. Grants in the WBC program
are generally awarded on July 1 and there could have been some
centers that closed because of a lack of funds due to the tough
economic climate that makes it hard for many of these centers
to raise sufficient funds from the private sector. The
appropriations were there for these WBCs but they had only
until the end of the fiscal year--or September 30, 2004--to be
able to take advantage of ``sustainability'' grants. Passage of
H.R. 5008 into law was particularly fortuitous at that point in
time for the WBC program, particularly since the Senate did not
take up the previous SBA temporary extension bill (H.R. 4478)
and there was a hiatus in SBA authorization from June 4, 2004
until September 24, 2004.
In addition, H.R. 5008 corrected a legal problem regarding
how the SBA pays fiscal transfer agents who provide a vital
role in the secondary market. For nearly 10 years, the SBA's
fiscal transfer agent has been paid by a float on interest on
the pools of securitized 7(a) guaranteed loans. In July, there
has been some confusion within the Administration as to whether
or not this practice violates the Anti-Deficiency Act. The SBA
proposed a fix to this problem and that solution is
incorporated in Section 3 of H.R. 5008, which essentially
codifies the existing practice. Passage of H.R. 5008 was needed
in order to prevent the crippling of the SBA's 7(a) loan
program because without the liquidity of the secondary market,
banks will not make as many 7(a) loans as in the past.
Section-by-Section Analysis
Section 1--Additional temporary extension of authorization
of programs under the Small Business Act and the Small Business
Investment Act of 1958. The authorization for any program,
authority, or provision, including any pilot program, which was
extended through June 4, 2004 as per Public Law 108-217, is
further extended through September 30, 2004, under the same
terms and conditions.
Section 2--Contains a technical amendment to insure that
the 504 Certified Development Company (CDC) program operates
under the same terms and conditions as it was at the beginning
of the fiscal year.
Section 3--Fixes the compensation of fiscal transfer agents
in the SBA's 7(a) general business loan guarantee program by
codifying into law existing practice--permitting a float on
interest while the fee is in the control of the fiscal agent
prior to when the fiscal agent is required to remit the fee to
the SBA.
5.13 H.R. 5108--Small Business Reauthorization and Manufacturing
Assistance Act of 2004 Key elements of H.R. 5108 were
incorporated into Division K of the Consolidated Appropriations
Act, 2005 (H.R. 4818--Public Law 108-447)
Legislative History
Related Bills: S.2821
9/21/2004: Referred to the House Committee on Small
Business.
11/20/04: Revised Section 102; revised Section 103; Section
104; Section 105; Section 106; Section 107; Section 108;
Section 109; Section 201; Section 202; Section 211; Section
212; Section 213; Section 214; Section 215; Section 401;
revised Section 402; Section 431; Section 432; Section 433;
Section 434; (Section 501 was no longer needed since SBA
committed to completing the women's procurement study by the
end of December 2004); Section 601; Section 603; and Section
604 of H.R. 5108 incorporated into Division K of H.R. 4818.
11/20/2004 12:18am: Conference report to accompany H.R.
4818 H. Rept. 108-792 filed.
11/20/2004: Conferees agreed to file conference report.
11/20/2004 2:31pm: Mr. Young (FL) brought up conference
report H. Rept. 108-792 for consideration under the provisions
of H. Res. 866.
11/20/2004 3:32pm: The previous question was ordered
without objection.
11/20/2004 4:01pm: On agreeing to the conference report
Agreed to by the Yeas and Nays: 344--51, 1 Present (Roll no.
542).
11/20/2004 4:01pm: Motions to reconsider laid on the table
Agreed to without objection.
11/20/2004: Conference papers: Senate report and manager's
statement and message on House action held at the desk in
Senate.
11/20/2004: Senate agreed to conference report by Yea-Nay
Vote. 65--30. Record Vote Number: 215.
11/20/2004: Held at desk. pending adoption of H.Con.Res.
528, as amended, by the House.
11/20/2004: Message on Senate action sent to the House.
12/6/2004 6:55pm: Pursuant to the provisions of H. Con.
Res. 528, enrollment corrections on H.R. 4818 have been made.
12/6/2004: Cleared for White House.
12/7/2004: Presented to President.
12/8/2004: Signed by President.
12/8/2004: Became Public Law No: 108-447.
Need for Legislation
The programs and the authorities for the Small Business
Administration (SBA) expired on September 30, 2003. The
Committee passed a comprehensive SBA reauthorization bill on
July 24, 2003 (H.R. 2802--H.Rept. 108-325 Part I) but was
unable to bring the bill up for floor consideration by the full
House of Representatives. The Senate passed their version of
SBA reauthorization on September 26, 2003 (S. 1375) but it was
also not able to pass the House. Since October 1, 2003, the SBA
functioned under a series of different short-term extensions,
continuing resolutions, and, for a time, without any ability to
offer programs not covered by appropriations. In the meantime,
the House and Senate Small Business Committees negotiated a
joint SBA reauthorization bill, which is reflected in the
compromise as contained in H.R. 5108/S. 2821. About 80 percent
of the provisions of H.R. 5108/S. 2821 were subsequently folded
into the Consolidated Appropriations Act, 2005 with a few other
provisions that were either Administration requests or further
additions from the Senate. This action was necessary in order
to insure continuation of operations of SBA programs and
authorities without interruption over the next two years and to
finally update and reform certain SBA programs.
Section-by-Section Analysis
DIVISON K OF H.R. 4818
TITLE I--SMALL BUSINESS REAUTHORIZATION AND MANUFACTURING ASSISTANCE
Section 1. Short title; table of contents
Subtitle A--Small Manufacturers Assistance
Sections 101 through 103 implements the 7(a) compromise
with the Administration and the lending community that allows
the 7(a) loan guarantee program to go to zero subsidy rate
(requiring no appropriations).
Section 101. Express loans
Loan limit size is raised in SBAExpress, in which in return
for allowing banks to use their own paperwork the guarantee
rate is lowered to 50 percent (not 75 percent for loans over
$150,000 or 80 percent for loans under $150,000), from $250,000
to $350,000 and insures that SBAExpress continues to be truly
an option, not a requirement, for banks.
Section 102. Loan guarantee fees
Section 102 sets the maximum fee levels for borrowers and
lenders and gives flexibility to the SBA to administratively
reduce fees. The fee structure is: 2 percent upfront borrower
fee for loans under $150,000; 3 percent upfront borrower fee
for loans between $150,000 and $700,000; 3.5 percent upfront
borrower fee for loans over $700,000; and for loans above $1
million to the new maximum guarantee limit of $1.5 million, an
extra risk premium of 0.25 percent upfront borrower fee is
added (on top of the 3.5 percent fee they already pay). The
maximum annual fee level for lenders at 0.55 percent (currently
it is 0.50 percent and is not expected to increase) but this
gives a small cushion to the SBA in order to keep the 7(a)
program operating at no cost to the taxpayer without requiring
legislation.
Section 103. Increase in guarantee amount and institution of associated
fee
Increases the maximum 7(a) loan guarantee limit from $1
million to $1.5 million (similar to how the 7(a) program
operated between April and September 2004).
Section 104. Debenture size
Increases the maximum loan debenture size to $1.5 million;
$2 million for projects involved in one or more of the Small
Business Investment Act public policy goals; and $4 million for
small manufacturers.
Section 105. Job requirements
Increases the job requirement test to $50,000 of guarantee
for every one job created or retains (up from $35,000);
$100,000 in the case of a project of a small manufacturer; and
$75,000 for areas generally considered to need greater economic
development.
Section 106. Report regarding national database of small manufacturers
The SBA shall conduct a study, in conjunction with the
association of small business development centers, to examine
the feasibility of creating a database of small manufacturers
for use by American higher education institutions in satisfying
their procurement needs.
Section 107. International trade
Authorizes the use of International Trade (IT) Loans to
refinance existing debt to make it consistent with all other
7(a) loans. Also authorizes that findings by the International
Trade Commission (ITC) or a Trade Adjustment Assistance Center
(TAAC) are proof that a small business has been adversely
affected by foreign imports. Raises IT loan guarantee limit
from $1,250,000 to $1,750,000, consistent with past practice to
have the IT guarantee loan limit $250,000 above the regular
7(a) guarantee loan limit, which, in Section 103, is scheduled
to be raised again to $1.5 million.
Subtitle B--Authorizations
Chapter 1--Program Authorization Levels and Additional Reauthorizations
Section 121. Program authorization levels
Disaster Mitigation Pilot Program--$15 million for
FY 05; $15 million for FY 06.
7(m) program--$75 million in technical assistance
grants and $105 million in direct loans for FY 05; $80 million
in technical assistant grants and $110 million in direct loans
for FY 06.
7(a) program--$16.5 billion for FY 05; $17 billion
for FY 06.
504 program--$6 billion for FY 05; $7.5 billion
for FY 06.
Small Business Investment Company (SBIC) program--
$4.25 billion in participating securities and $3.25 billion in
debentures for FY 05; $4.5 billion in participating securities
and $3.5 billion in debentures for FY 06.
SCORE program--$7 million for FY 05; $7 million
for FY 06.
Reauthorizes all other SBA programs for two years
at such sums as necessary unless specific authorization exists
elsewhere.
Section 122. Additional reauthorizations
Extends Drug-Free Workplace program assistance
until October 1, 2006.
Small Business Development Centers (SBDCs)--$130
million for FY 05; $135 million for FY 06. At least $1 million
of this authorization shall be reserved for eligible SBDCs in
economically challenged communities as a result of business or
government downsizing or closing.
Chapter 2--Paul D. Coverdell Drug-Free Workplace Program
Section 123. Paul D. Coverdell Drug-Free Workplace Program
authorization provisions
Provides a $1.5 million authorization level for FY 05 and
FY 06;
Section 124. Grant provisions
Reauthorizes grants to SBDCs under this program to provide
technical assistance to small businesses seeking to establish a
drug-free workplace.
Section 125. Drug-free communities coalitions as eligible
intermediaries
Permits drug-free communities coalitions to receive grants.
Section 126. Promotion of effective practices of eligible
intermediaries
Requires grantees to standardize their data in order to
have a better evaluation of the program.
Section 127. Report to Congress
Requires a study by the SBA to determine the effectiveness
of the program within 18 months.
Subtitle C--Administration Management
Section 131. Lender examination and review fees
Requires any 7(a) lender to pay the examination and review
fees of the SBA.
Section 132. Gifts and co-sponsorship authority
Extends the authorization and clarifies SBA's gift receipt
policy and co-sponsorship authority, which allows the SBA to
partner with the private sector to put on conferences or print
publications, until October 1, 2006.
Subtitle D--Entrepreneurial Development Programs
Chapter 1--Office of Entrepreneurial Development
Section 141. Service Corps of Retired Executives (SCORE) technical
corrections
Makes technical corrections to continue SBA payment and
housing of SCORE officers.
Section 142. Small Business Development Center Program
Protects the privacy rights of small business clients that
use Small Business Development Centers (SBDCs).
Chapter 2--Office of Veterans Business Development
Section 143. Advisory Committee on Veterans Business Affairs
Provides for authorization of the Advisory Committee on
Veterans Business Affairs extends until September 30, 2006.
Section 144. Outreach grants for veterans
Permits members of the Armed Forces Reserves to be eligible
for outreach grants for veterans.
Section 145. Authorization of appropriations
Provides authorization levels of $1.5 million for FY 05; $2
million for FY 06.
Section 146. National Veterans Business Development Corporation
Clarifies that the National Veterans Business Development
Corporation is a private entity and is not part of the U.S.
government.
Chapter 3--Manufacturing and Entrepreneurial Development
Section 147. Small Business Manufacturing Task Force
Creates a Small Business Manufacturing Task Force at the
SBA to examine what SBA can do better to meet the needs of
small manufacturers.
Subtitle E--HUBZone Program
Section 151. Streamlining and revision of HUBZone eligibility
requirements
Allows agricultural cooperatives to participate in the
HUBZone program.
Section 152. Expansion of qualified areas
Former military bases that were closed as part of the Base
Realignment and Closure process are automatically qualified as
HUBZones. Slightly lowers the unemployment rate necessary for
an area to be designated a HUBZone and also permits firms to
remain in the HUBZone program if the unemployment rate improves
slightly. Requires a study by the Office of Advocacy at the SBA
on the HUBZone program.
Section 153. Price evaluation preference
Price evaluation preference for purchases of agricultural
commodities by the United States Department of Agriculture
shall be 5 percent on the first portion of the contract to be
awarded that is not greater than 20 percent of the total volume
of each commodity being procured in a single bidding
opportunity.
Section 154. HUBZone authorizations
HUBZone program is authorized through 2006.
Section 155. Participation in federally funded projects
Clarifies that any small business that is certified or
meets the criteria of the 8(a) program shall not be required to
meet any additional criteria to participate in federal
government procurement opportunities as a small disadvantaged
business.
Subtitle F--Small Business Lending Companies
Section 161. Supervisory and enforcement authority for small business
lending companies
Grants SBA the regulatory authority to regulate 7(a)
lenders that are not already regulated by state or federal
banking authorities and are defined in section 162.
Section 162. Definitions relating to small business lending companies
Defines the terms ``small business lending company'' and
``non-federally regulated bank.''
TITLE II--MISCELLANEOUS AMENDMENTS
Section 201. Amendment to definition of equity capital with respect to
issuers of participating securities
Gives SBA the flexibility to define an ``equity security''
in the participating securities portion of the Small Business
Investment Company (SBIC) program.
Section 202. Investment of excess funds
Makes an investment of ``idle'' funds (funds temporarily
not used by an SBIC for investment in small business) more
reasonable while still mandating that the funds be insured.
Section 203. Surety bond amendments
Clarifies that the maximum surety bond guarantee to cover
the total work order (not just the contract limit). Changes the
audit frequency of surety bond companies from once a year to
once every three years. Makes the surety bond program
permanent.
Section 204. Effective date for certain fees
Grants permanent authority to the SBA to charge fees in the
504 CDC loan program.
5.14 S. 141--To Improve the Calculation of the Federal Subsidy Rate
With Respect to Certain Small Business Loans, Public Law 108-8
Legislative History
1/10/2003: Introduced in the Senate, read twice,
considered, read the third time, and passed without amendment
by Unanimous Consent.
1/27/2003 2:01pm: Received in the House.
1/27/2003: Message on Senate action sent to the House.
1/27/2003: Referred to the Committee on the Budget, and in
addition to the Committee on Small Business, for a period to be
subsequently determined by the Speaker, in each case for
consideration of such provisions as fall within the
jurisdiction of the committee concerned.
1/27/2003: Referred to House Budget.
1/27/2003: Referred to House Small Business.
2/11/2003 4:36pm: Mr. Nussle moved to suspend the rules
and pass the bill.
2/11/2003 4:36pm: Considered under suspension of the
rules.
2/11/2003 5:10pm: On motion to suspend the rules and pass
the bill Agreed to by voice vote.
2/11/2003 5:10pm: Motion to reconsider laid on the table
Agreed to without objection.
2/11/2003: Cleared for White House.
2/14/2003: Presented to President.
2/25/2003: Signed by President.
2/25/2003: Became Public Law No: 108-8.
Need for Legislation
S. 141 solved the subsidy rate calculation problem in the
Small Business Administration's (SBA) 7(a) general business
loan guarantee program by allowing the Office of Management and
Budget (OMB) to retroactively apply a more sophisticated
econometric model that SBA and OMB developed and approved for
application in the President's FY '04 budget request. OMB
cannot do this internally. There needed to be a change in the
law to allow OMB to ``open'' up the assumptions in the
President's FY '03 request that was already submitted to
Congress in February 2002. This new econometric model finally
corrected the subsidy rate calculation error in the 7(a)
program by dropping it 41 percent using this new formula--from
1.76 percent to 1.04 percent. This freed up $3.4 billion in new
lending authority for the SBA. Passage of S. 141, combined with
re-programming excess Supplemental Terrorist Activity Relief
(STAR) loan funds to the regular 7(a) program in the FY '03
Omnibus Appropriations bill, allowed SBA to rescind its October
1, 2002 policy notice, which prohibited guaranteeing 7(a) loans
above $500,000, on the day the President signed S. 141 into
law.
Section-by-Section Analysis
Section 1. Subsidy rate for small business loans
Notwithstanding the applicable provisions of the Federal
Credit Reform Act of 1990 and the Balanced Budget and Emergency
Deficit Control Act of 1985, the Director of the Office of
Management and Budget, in calculating the Federal cost for
guaranteeing 7(a) loans during fiscal year 2003, may use the
most recently approved subsidy cost model and methodology in
conjunction with the program and economic assumptions, and
historical data which were included in the fiscal year 2003
budget. After written notification to Congress, the Small
Business Administration shall implement the validated, OMB-
approved subsidy rate for fiscal year 2003, using this model
and methodology. Such rate shall be deemed to have been
effective on October 1, 2002.
5.15 S. 1895--A Bill to Temporarily Extend the Programs Under the
Small Business Act and the Small Business Investment Act of
1958 Through March 15, 2004, and for Other Purposes, Public Law
108-172
Legislative History
11/19/2003: Introduced in the Senate, read twice,
considered, read the third time, and passed without amendment
by Unanimous Consent.
11/20/2003: Message on Senate action sent to the House.
11/20/2003 10:05am: Received in the House.
11/20/2003 1:47pm: Held at the desk.
11/20/2003 6:55pm: Mr. Schrock asked unanimous consent to
take from the Speaker's table and consider.
11/20/2003 6:55pm: Considered by unanimous consent.
11/20/2003 6:56pm: On passage Passed without objection.
11/20/2003 6:56pm: Motion to reconsider laid on the table
Agreed to without objection.
11/20/2003: Cleared for White House.
11/25/2003: Presented to President.
12/6/2003: Signed by President.
12/6/2003: Became Public Law No: 108-172.
Need for Legislation
S. 1895 extends the general authorization for SBA programs
until March 15, 2004 while Congress continues to work on a more
comprehensive SBA reauthorization bill. This legislation
reauthorizes SBA programs not covered by regular appropriations
such as the Preferred Surety Bond program; the price preference
in the Small Disadvantaged Business (SDB) program; SBA's co-
sponsorship authority, which enables the SBA to accept private
donations to put on events or print publications; the Women's
Business Center (WBC) Sustainability pilot program; grants to
SBDCs to implement part of the Paul D. Coverdell Drug-Free
Workplace program; the Very Small Business Concerns pilot
program; and the Pre-Disaster Mitigation pilot program. Without
passage of S. 1895, these programs, which are not directly
covered by appropriations, would not be able to operate.
In addition, S. 1895 raised the fee range slightly in the
Small Business Investment Company (SBIC) program for the entire
Fiscal Year 2004 from 1.38 percent to 1.46 percent in order to
keep the SBIC program open for business and fully operating
without the need for any federal appropriation.
Section-by-Section Analysis
Section 1.--The authorization for any program, authority,
or provision, including any pilot program, under the Small
Business Act and the Small Business Investment Act of 1958 that
is set to expire on or after September 30, 2003 is extended
through March 15, 2004, under the same terms and conditions in
effect on September 30, 2003. The fees in the SBIC program are
changed from 1.38 percent to 1.46 percent.
CHAPTER SIX
SUMMARY OF OTHER LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL
BUSINESS
6.1 Committee Meetings
6.1.1 organizational meetings
On February 26, 2003 the Committee on Small Business held
an organization meeting. The purpose of this meeting was
threefold: (1) to consider and adopt the Committee rules for
the 108th Congress, (2) to consider and adopt the Committee's
oversight plan for the 108th Congress, and (3) approve the
subcommittee assignments for Members of the Committee. The
Committee rules, oversight plan, and organization of
subcommittees were adopted by voice vote. The text of the
Committee's oversight plan follows:
6.1.2 OVERSIGHT PLAN FOR THE COMMITTEE ON SMALL BUSINESS 108TH
CONGRESS
U.S. HOUSE OF REPRESENTATIVES
DONALD A. MANZULLO, CHAIRMAN
Rule X, clause 2(d)(1), 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 House Administration not later than February 15 of the first
session of the Congress.
The Oversight Plan of the Committee on Small Business includes
areas in which the Committee expects to conduct oversight activity
during the 108th Congress. However, this plan 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 all the major programs of
the Small Business Administration (SBA) to determine their
effectiveness and possible options for improvements, as a prelude to
reauthorization of the entire SBA to be completed by September 30,
2003.
FINANCIAL AND MANAGEMENT/TECHNICAL ASSISTANCE PROGRAMS
The Committee will conduct hearings on the effectiveness and
efficiency of the SBA's major programs. These include: 7(a) General
Business Loan Program, the Certified Development Company Program, the
Small Business Investment Company (SBIC) Program, the Microloan
Program, the Disaster Loan Program, Small Business Development Centers
(SBDCs), and New Markets Venture Capital Program. In particular, the
Committee will closely monitor the subsidy rate calculations for the
loan guarantee programs and take the necessary steps to ensure that the
programs are able operate during this economic downturn in the most
fiscally-prudent manner possible. In addition, the Committee will
oversee the Office of Government Contracting to ensure that other
Federal agencies meet the minimum threshold of various small business
goals in Federal government procurement.
The Committee will also examine on the ability of small businesses
to gain access to capital, focusing particularly on interest rates and
bank regulations.
ADVOCACY
The Office of Advocacy was created to provide small business with
an effective voice inside the Federal government. The Committee will
conduct hearings on how to strengthen this voice and make sure that the
Office of Advocacy continues to effectively represent the interests of
small business. As part of this process, the Committee will also
monitor the implementation of Executive Order 13272 regarding the
``Proper Consideration of Small Entities in Agency Rulemaking.''
(Spring 2003)
VETERANS
In the 106th Congress, Congress created a new office of Veterans
Business Development and the National Veterans Business Development
Corporation to enhance and improve small business services to our
nation's veterans. The Committee will continue to conduct hearings on
the implementation of the Veterans Entrepreneurship and Small Business
Development Act, including a review of the progress on achieving the
service-disabled veterans goal in procurement. (Summer, 2003)
TECHNOLOGY AND RESEARCH ASSISTANCE
Small Business Innovation Research program
The Small Business Innovation Research (SBIR) program aids small
businesses in obtaining federal research and development funding for
new technologies. In 2000, Congress reauthorized the SBIR program for
eight years. The Committee will investigate the implementation of the
changes to the SBIR program and, more particularly, the outreach effort
of the SBIR program to make sure that all areas of the country benefit
from the program.
Small Business Technology Transfer (STTR) program
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. In 2001, Congress reauthorized the STTR
program for eight years. The Committee will monitor agency
implementation of PL 107-50 particularly as the funding formula changes
in FY 2004. (Fall 2003)
FEDERAL PROCUREMENT
The Committee will examine needed changes in federal procurement.
The Committee will continue to monitor and highlight the practice of
creating bundled or consolidated mega-contracts that are too large for
small business participation. Additionally, the implementation of
Administration's strategy for increasing Federal contracting
opportunities for small business as released by the Office of Federal
Procurement Policy at the Office of Management and Budget in October
2002 will be closely scrutinized.
Because there is a direct correlation between the ability of an
agency to achieve its goals and contract bundling, the success of
Federal agencies in meeting all their small business goals will also be
assessed.
With the continued practice of contract bundling, more small
businesses will become subcontractors. In light of this, the Committee
will work to ensure fair treatment for subcontractors on Federal
contracts.
The Committee will also investigate the women's contracting program
to make sure the program is serving the needs of women-owned
businesses. (On-going)
GOVERNMENT COMPETITION
The Committee will examine the extent to which the Federal
government itself directly or indirectly competes with small business.
Our focus will include activities in both government practices and in
certain status given by the Federal government to non-governmental
entities. (On-going)
REGULATORY FLEXIBILITY
The Committee will continue its oversight of agency compliance with
the Regulatory Flexibility Act, as amended by the Small Business
Regulatory Enforcement Fairness Act. (Ongoing)
The Committee will oversee the implementation of the Truth in
Regulating Act. (Winter, 2003)
SBREFA
The Committee will be conducting oversight hearings on agency
implementation of the Small Business Regulatory Enforcement Fairness
Act (SBREFA), which was enacted during the 104th Congress. The
Committee will also examine the need to further amend and strengthen
SBREFA. (Ongoing)
PAPERWORK REDUCTION
The Committee will hold hearings and work to reauthorize the
Paperwork Reduction Act. (2003)
GOVERNMENT REGULATION
The Committee will continue to examine the regulatory activities of
various Federal agencies and assess the impact of regulations on the
small business community. (Ongoing)
TAXATION
The Committee will continue to conduct oversight hearings into ways
to reduce the tax burden on small business. These hearings will include
not only the monetary but also the paperwork burden of the Federal tax
system and Federal enforcement efforts on small business. (Ongoing)
ENERGY
The Committee will conduct oversight hearings on the potential
effects of any legislative changes in energy policy, including
examining the possible effects of deregulation of electricity on small
business. (Summer, 2003)
GOVERNMENT PERFORMANCE AND RESULTS ACT
The Committee will continue consultations with the SBA regarding
the preparation and implementation of strategic plans and performance
plans as required by the Government Performance and Results Act.
(Summer, 2003)
EMPOWERMENT
The Committee will conduct oversight hearings on regulations and
licensing policies that impact small businesses located in high risk
communities. The Committee will also examine the promotion of business
growth and opportunities in economically depressed areas, and will
examine programs targeted towards relief for low-income communities.
The challenges facing minority-owned businesses will continue to be
evaluated. (Ongoing)
The Committee will specifically look at agency implementation of
the New Markets Initiative Act and the Program for Investment in
Microentrepreneurs (PRIME) program. (Spring, 2003)
WORKFORCE
The Committee will examine issues related to the problems faced by
small businesses in attracting and retaining a high quality workforce.
Specifically, the Committee will investigate vocational education
programs, worker retraining programs, and wage and benefit issues.
(Ongoing)
HEALTH CARE
The Committee will examine ways on how to improve access and
increase affordability of high quality medical care for small business
owners and their employees. (Ongoing)
PENSION REFORM
The Committee will examine ways on how to enhance retirement
security for small business owners and their employees. (Ongoing)
E-COMMERCE AND TECHNOLOGY
The Committee will continue to conduct oversight hearings into ways
to reduce the ``digital divide'' in order to promote business growth
and opportunities in economically depressed areas. These hearings will
also examine ways to help the average small businessperson exploit the
vast potential of Internet commerce. (Ongoing)
TELECOMMUNICATIONS
The Committee will examine the impact of Telecommunications Act of
1996 on small business. First, the Committee will investigate whether
or not the broadest range of small businesses have benefited from more
competition in the telecommunications market through lower prices and
better service. Second, the Committee will investigate whether or not
small business telecommunication companies have benefited from the Act.
The Committee will explore alternatives to enhance the benefits of the
changes in telecommunications technology for small business. (Ongoing)
INTERNATIONAL TRADE
The Committee will continue to examine ways to expand export
opportunities for small business. The Committee will conduct oversight
hearings on Federal trade policy and export promotion programs to
insure that they serve the needs of small business exporters. (Ongoing)
SELF-EMPLOYED
The Committee will hold oversight hearings on how to reduce the
regulatory and tax burden on the self-employed, particularly those in
home-based businesses. (Ongoing)
MANUFACTURING
The Committee is gravely concerned that over 2 million jobs have
been lost in manufacturing over the past two years, much of which were
in small manufacturing businesses. The Committee will hold a series of
hearings to examine the causes of these problems and propose a series
of recommendations for both legislative and administrative changes.
(Spring, Summer 2003)
AGRICULTURAL/RURAL/FARM ISSUES
The Committee will examine ways to promote business growth and
opportunities in rural areas. The Committee will hold oversight
hearings on agricultural issues that impact small business. (Ongoing)
The Committee will hold oversight hearings on the impact of Federal
lands policy on small business. (Ongoing)
REVIEW OF SPECIFIC REGULATIONS
Pursuant to Rule X, cl. 2(d)(1), the Committee on Small Business is
required to submit to the Committee on Government Reform and the
Committee on House Administration an oversight plan that ``reviews
specific problems with Federal rules, regulations, statutes, and court
decisions that are ambiguous, arbitrary, or nonsensical, or that impose
severe financial burdens on individuals. . . .'' The following is a
summary of regulations that the Committee has so far identified for
review but should not be interpreted as limiting the Committee's review
of regulations issued by federal agencies that continue to impose
unnecessary burdens on small business. In part, this review is based on
the Committee's legislative jurisdiction to provide continuing
oversight of the Regulatory Flexibility Act pursuant to Rule X, cl.
1(o)(1).
1. Pathogen Reduction and Hazard Analysis of Critical Control
Points, 9 C.F.R. Parts 417 and 500: Federally inspected meat and
poultry processors are required to initiate a plan to control food
safety hazards. Rather than adopting procedures to assist small
businesses in developing these plans, USDA has imposed onerous
prescriptive regulatory requirements in contravention of the principles
elucidated by HACCP. This has imposed substantial costs on small
businesses without any concomitant benefit to consumers of meat and
poultry products.
2. Certificates of Medical Necessity, 42 U.S.C. Sec. 1395m(j)(2)
and Implementing Rules and Guidance: Suppliers of durable medical
equipment cannot obtain reimbursement unless they have a CMN from a
physician authorizing the use of the equipment. Carriers processing
such claims for the federal government often require much greater
detail imposing substantial record keeping and reporting burdens on
small equipment suppliers.
3. National Landscape Conservation System, proposed rule to
implement Antiquities Act: Department of Interior is developing rules
for creating land management plans for national monuments designated
under the Antiquities Act. Small businesses and nearby rural
communities are concerned that these plans will not properly assess the
economic impact of management decisions pursuant to the Regulatory
Flexibility Act.
4. Birth and Adoption Unemployment Compensation, 20 C.F.R. Part
604: Authorizes states to utilize unemployment compensation for funding
parental leave to care for newborns or newly adopted children. Forcing
small businesses to subsidize leave of employees from larger companies
when they are exempt under the Family and Medical Leave Act. This
imposes substantial economic burdens on small businesses without
providing any of them any benefits whatsoever.
5. Lead in Construction Standard, 29 C.F.R. Sec. 1926.62:
Establishes requirements to reduce exposures to lead in the
construction industry. For home remodelers working on homes constructed
after 1977, there is no possibility of exposure to lead-based paints
because they were banned for home use. Therefore, small businesses face
additional costs even though they face no hazard from exposure to lead.
6. Sling Standard, 29 C.F.R. Sec. 1910.184: Regulations establish
requirements for using slings to lift heavy loads. The regulations do
not conform to current industry practices, which are much safer and
impose disproportionate burdens on small businesses.
7. Record keeping for Work-Related Injuries, Illnesses and
Fatalities, 29 C.F.R. Part 1904: Regulations require employers to
record and report work-related injuries, illnesses, and fatalities. The
biggest problem with these regulations is the ambiguous definition of
work-related injuries and the problems that small entities face in
determining whether to record a particular injury. This imposes
substantial costs on small entities with little or no benefit to worker
protection.
8. Hours of Service for Commercial Motor Vehicles, 49 C.F.R. Parts
350, 390, 394-95, 398: The proposed rule would impose stringent
standards on the hours-of-service of operators of CMVs. Small
businesses, from soft drink distributors to tour bus companies, will
face substantial costs even though the recommended changes may not
improve road safety. In particular, the Committee is concerned that the
original proposal did not comply with the Regulatory Flexibility Act.
9. Hazardous Materials Training Requirements, 49 C.F.R.
Sec. 172.704 and 29 C.F.R. Sec. 1910.120: Both OSHA and the DOT require
training for employees handling hazardous materials. For small
businesses that transport hazardous materials, this is the type of
duplicative regulation that the Regulatory Flexibility Act was designed
to eliminate. Compliance with the RFA would have reduced regulation on
small businesses while still ensuring that workers understood how to
handle hazardous materials.
10. Monthly Tax Deposits, 26 C.F.R. Sec. 31.6302(g): Business with
more than $50,000 in aggregate employment taxes must make those
deposits by the 3d day after payment. Given inflation and the overall
rise in salaries, many small businesses are faced with making the
three-day payment whereas very small businesses have 15 days to make
payments. The universe of ``very small businesses'' to reduce burdens
on small businesses.
11. Definition of Solid Waste, 40 C.F.R. Sec. 261.2: Given the
current definition of waste under RCRA, recycled materials that are
used as feedstock in industrial processes still are considered waste.
This prevents manufacturers from using recycled materials as a
substitute for raw material feedstock thereby raising the cost of
production. The impact of this regulation falls unduly on small
businesses that do not have the margins of profits or the market share
that large firms have to absorb higher feedstock costs.
12. TRI Alternate Reporting Threshold (Form A), 40 C.F.R. Part 372:
Releases of toxic chemicals must be made to EPA pursuant to the
Emergency Planning and Community Right-to-Know Act (EPRCA). Form A is a
short form for small dischargers and EPA prevents small dischargers of
persistent bioaccumulative toxic chemicals from using Form A even
though there is no evidence that many metals are bioaccumulative. This
imposes unnecessary costs on small businesses.
13. TRI Lead, 40 C.F.R. Part 372: Rule lowered burdens for releases
of lead under EPRCA to 100 pounds even though science does not support
the lowering. This imposes substantial burdens on small businesses,
especially for thousands of businesses that have never even filed a TRI
report.
14. Concentrated Animal Feedlot Operations, Proposed Rule, 66 Fed.
Reg. 2959 (Jan. 12, 2001): Proposed rule would impose discharge
standards on thousands of new feeding operations (many of which are
small businesses) that were not previously considered subject to the
Clean Water Act's National Pollution Discharge Elimination permit
system. EPA's assessment of impacts under the RFA were substantially
inadequate.
15. Stormwater Construction General Permit, 40 C.F.R. Sec. 122.26:
Oil and gas exploration facilities are exempt from stormwater pollution
permitting requirements. Nevertheless, EPA is planning to issue a
general permit that would require oil and gas exploration facilities to
file a permit. Many small oil and gas exploration companies will face
significant costs in compliance.
16. Effluent Guidelines for Metal Products and Machinery, Proposed
Rule, 66 Fed. Reg. 424 (Jan. 3, 2001): Proposed rule would combine
numerous metal products into one classification for purposes of the
NPDES permit system. The RFA analysis did not adequately assess the
costs on small businesses and, in fact, assumes benefits based on
technology that is not achievable--a violation of the Clean Water Act.
17. Regulations Implementing the Real Estate Settlement Procedures
Act: HUD has proposed changes to the regulations governing the Real
Estate Settlement Procedures Act. Many small businesses are concerned
that the packaging of settlement costs by a single lender could force
many small businesses involved in the real estate settlement process
out of the business. Furthermore, many small businesses believe that
the regulatory flexibility analysis prepared by HUD was inadequate.
18. Commercial Mail Receiving Agencies, 39 C.F.R. Part 111: Final
rule requires all Commercial Main Receiving Agencies to use the
designation PMB or # in their address. Small businesses use CMRAs to
give a sense that they are actually larger or more sophisticated than
they appear because many businesses do not want to utilize home office
businesses. The evidence does not support the USPS rationale for the
rule--prevention of fraud--.
19. Policy Guidance on the Prohibition Against National Origin
Discrimination as it Affects Persons with Limited English Proficiency:
Guidance document requires physicians to provide translation services
to patients whose first language is not English. In many cases, the
reimbursement for Medicare/Medicaid patients may not cover the cost of
these translation services. And in certain rural areas, translators may
not be available. This is the type of guidance document that should
have been assessed under E.O. 12,866 and the RFA.
20. Excise Taxes and Definition of Highway Vehicles, Proposed Rule,
67 Fed. Reg. 38,913: IRS proposed rule would eliminate the exemption
for special mobile machinery from highway trust fund excise taxes. IRS
failed to comply with the RFA by not examining the impact of this
regulatory change on small businesses.
21. Triennial Review under the Telecommunications Act of 1996: FCC
could implement changes to existing regulatory requirements that would
affect the ability of competitors to challenge incumbents, particularly
in the small business market. Given the past history of FCC rulemaking,
it is conceivable that the FCC will not properly assess the impact of
the changes on small businesses.
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 2004
and 2005 budgets with respect to matters under the Committee's
jurisdiction.
6.2.1 fiscal year 2004 budget
The Committee on Small Business submits these views and
estimates on the FY 2004 budget submission on matters within
our jurisdiction in compliance with Rule X, clause (4)(f), of
the Rules of the House of Representatives. These views and
estimates are based on the outline supplied by the President's
Office of Management and Budget (OMB) for FY 2004 as well as
the Small Business Administration's (SBA) budget submission.
The President's proposed budget for FY 2004 emphasizes national
defense, homeland security, and economic vitality. A key part
of economic revitalization is creating jobs. Small businesses,
as job creators, have always led this nation out of economic
downturns and they will do so again.
The Committee believes that most of the provisions of the
President's budget request are sound and reasonable,
particularly as it applies to the SBA.
These views and estimates will be divided between two
areas: the impact of the proposed tax relief on small business
and SBA programs. Within the SBA, the views and estimates will
be further divided into five areas: (1) Financial Programs, (2)
Assistance Programs, (3) Disaster Assistance, (4) Salaries and
Expenses, and (5) Office of Inspector General.
(1) Small Business Tax Relief
The Committee again applauds the President for endorsing
further tax relief proposals, which will help revitalize the
economy. Key elements of the President's plan, as it impacts
small business, include:
Accelerating the bipartisan tax reductions
passed by Congress in 2001, including the individual
rate reductions, which help 85 percent of small
businesses that pay taxes on an individual, not
corporate, basis;
Making permanent these same tax cuts,
including the all-important estate or ``death'' tax
repeal scheduled to take full effect in 2010;
Dramatically increase small business
expensing--what small businesses can deduct immediately
off their taxes--from $25,000 to $75,000;
Abolish the double tax on dividends
benefiting many small ``C'' corporations that retain
corporate earnings because they will not face capital
gains taxes on the increase in the value of the firm
from retained earnings that could have been distributed
as dividends; and
Health care tax policies that will
facilitate individuals' purchases of health insurance
and health care, including long-term care, which would
provide further assistance to help the self-employed
purchase health insurance.
While welcoming the President's initiative, the Committee
believes the President's tax package could have contained more
small business tax relief including:
1. Accelerating depreciation schedules;
2. Increasing the business meal deduction; and
3. Setting a standard home office deduction.
These tax relief priorities would also boost long-term
growth that would help small businesses increase cash flow and
allow them to add jobs. The Committee will be working on these
and other common-sense small business tax relief and
simplification initiatives throughout the coming year.
(2) Small Business Administration Programs
The Committee supports the overall general spending level
at the SBA. The President's budget request proposes essentially
the same funding levels for the SBA as in last year's request--
$797.9 million. However, the Consolidated Appropriations
Resolution for FY 2003 (H.J. Res. 2) provided a total of
$736.46 million for the SBA. While many other domestic agencies
suffered budgetary cutbacks, keeping spending at the SBA at the
same level as in last year's request is an acknowledgment by
the Administration of the importance of small business in
leading the way in the economic recovery. However, there are
still several problems with the budget request, which are
discussed in further detail below.
(A) SBA financial programs
7(a) LOANS
SBA guarantee-backed lending is the largest single source
of long-term loans (those with maturities of three years or
longer) to small businesses. The 7(a) loan guarantee program
accounts for approximately 40 to 50 percent of all long-term
loans to small businesses. The President's budget submission
for FY 2004 lowers the subsidy rate for the 7(a) program from
1.76 percent to 1.02 percent thanks to the development of an
econometric model that more accurately predicts the future
performance of the loan portfolio, a long-standing goal of both
of our Committees. The President's budget proposes to spend
$94.86 million for the 7(a) loan program to support a $9.3
billion program level all without increasing fees on small
business borrowers or lenders.
While the Committee has concerns that the proposed $9.3
billion program level may not be sufficient to meet expected
demand as other outlets for capital have dried up for small
business during this economic downturn, as evidenced by the
heavy use of the 7(a) and the Supplemental Terrorist Activity
Relief (STAR) loan program during the last fiscal year, the
Committee recognizes the proposed funding level matches average
historical use of the 7(a) program due mainly to a more
accurate subsidy rate calculation. This achievement could not
have been achieved without the active support of the Budget
Committee, which this Committee is extremely grateful.
504 CERTIFIED DEVELOPMENT COMPANY (CDC) LOANS
Ever since 1996, the 504 loan program has operated at a
zero subsidy rate, which means that the program requires no
appropriations. This was accomplished through heavy fees that
were placed on borrowers and lenders--fees needed to offset a
severe increase in the subsidy rate. The Administration
proposes a $4.5 billion program authorization for the 504
program and the Committee concurs. The Committee is also
grateful that the President's FY 2004 budget request proposes
to decrease the annual fee charged each small business 504 loan
borrower from 0.425 percent to 0.393 percent.
While the Committee agrees that no appropriation should be
required for this program, the Committee is very concerned that
the subsidy estimates for the 504 program are overly
conservative and consequently keeps fees to borrowers
artificially high. Similar to the problem that faced the 7(a)
loan guarantee program, the subsidy rates for the 504 program
have not accurately reflected the actual performance of these
loan portfolios over the past several years. Instead of being a
prudent sinking fund, principally to purchase defaulted loans,
the subsidy rate has been continually overstated so as to be a
tax and not a responsible user fee. The average 504 loan
borrower overpays $10,000 in fees to keep the program operating
at no cost to the taxpayer. Budgetary re-estimates calculate
that the 504 program has returned more than $400 million to the
Treasury since 1997. High fees in the 504 program is one of the
main reasons why the 504 program has been underutilized at a
$2.5 billion program level each year even though it is
authorized at $4.5 billion.
In the progress report mandated by Public Law 107-77, the
SBA Administrator pledged to work on an interim calculation
method for the 504 program in FY 2004 with a final resolution
of the problem in FY 2005. However, in the President's FY '04
budget request, there is no interim model for the 504 program,
which could have reduced fees even lower than 0.393 percent,
and the econometric model for 504 is delayed yet another year
until FY 2006. In response, report language was added to the
Consolidated Appropriations Resolution for FY 2003 (H.J. Res.
2) directing the SBA to develop an econometric model for the
504 program this year to be ready for the next budget cycle, as
originally promised. Again, the Committee would welcome a
partnership with the Budget Committee in an effort to obtain a
more accurate cost-subsidy rate model for the 504 program.
SMALL BUSINESS INVESTMENT COMPANY PROGRAM
The Administration proposes the same program level for both
parts of the SBIC program, which is welcomed by the Committee.
The Administration requests a $3 billion program level for the
debenture program and a $4 billion program level for the
participating securities program. When added to the minimum
required private capital, this would make $10 billion in new
capital available for SBIC investments in small businesses.
Venture capital from SBICs fill a critical gap as other private
sector sources dries up during this economic downturn. In fact,
over 60 percent of all venture capital investments in FY 2002
came from SBICs.
The Administration requests no appropriations to fund
either the debenture or the participating securities program in
accordance with Public Law 107-100, which placed the entire
SBIC program on a zero subsidy or no cost to the taxpayer
basis. The Committee concurs with this aspect of the
President's budget request. The debenture fees are reduced from
0.887 percent to 0.855 percent while the participating security
fees increase from 1.311 percent to 1.454 percent. The
participating security fee increase will require a change in
the Small Business Investment Act by raising the prioritized
payment rate a minimum of 0.074 percent to keep the SBIC
program at a zero subsidy rate (currently, the rate is capped
at 1.38 percent).
NEW MARKET VENTURE CAPITAL COMPANIES
The Committee supports the New Markets Venture Capital
Companies (NMVCC) program, which make SBIC-type loans in Low
and Moderate Income (LMI) areas. The Committee strongly
supports the goal of increased lending in LMI areas. While
recognizing that NMVCCs received a one-time appropriation for
technical assistance, the Committee remains concerned about the
zeroing out the remaining funding for the program, which
happened in both H.J. Res. 2 and in the President's FY '04
budget request, that would have allowed SBA to identify an
additional seven New Market Venture Capital Companies to target
small business investments in low-income communities.
MICROLOAN PROGRAM
The President's FY 04 budget requests $1.63 million to
support a $19 million program level. The subsidy rate decreased
from 13.05 percent to 9.55 percent, which explains most of the
decrease from last year's level of $3.6 million. However, the
overall Microloan program level was cut too, which concerns the
Committee.
(B) Assistance Programs
Summary
The FY 2004 SBA budget submission essentially proposes the
same request on most its non-credit business assistance
programs as last year with a few exceptions. The Consolidated
Appropriations Resolution for FY 2003 (H.J. Res. 2) provided
for $137.58 million for the non-credit programs at the SBA
while the President's FY 04 request proposes a spending level
of $141 million. This request is welcome during this tight
budgetary environment where many other domestic programs in
other agencies are being cut, the SBA assistance programs are
kept at a slightly higher rate of funding than last year.
DRUG-FREE WORKPLACE
The Administration requests an appropriation of $3 million
in funding for this program, keeping it at last year's request
level. However, H.J. Res. 2 provided only $2 million for this
program. The Committee strongly supports the President's level
of funding for this initiative, which recognizes concrete and
significant efforts to improve the small business climate and
workplace conditions.
MICROLOAN TECHNICAL ASSISTANCE
The Administration is requesting this time $15 million in
technical assistance funds for the Microloan program, which is
the same level as provided for in H.J. Res. 2. However, this
represents a $2.5 million reduction from the President's FY '03
request. The Committee has concerns about this funding level,
noting that the number of firms helped and jobs created or
retained through the Microloan program is projected to decrease
to pre-2000 levels.
OFFICE OF ADVOCACY
Even though the Office of Advocacy does not receive a
direct line-item appropriation, the Committee strongly supports
a vigorous Office of Advocacy. The Office of Advocacy serves as
an independent voice for the interests of small business
through the federal regulatory process and through research
projects focused on the role small businesses play in the
economy. The President's budget request specifically contains
$1.1 million for the Office of Advocacy to support research and
economic analysis. All totaled, the cost of the Office of
Advocacy is approximately $7.7 million. Over the last few
years, the Office of Advocacy has lost staff through attrition.
Despite this handicap, the Office of Advocacy saved small
businesses $4.4 billion in regulatory costs in FY 2001 and $3.1
billion in regulatory costs in FY 2002 (not counting $18
billion in savings due to revising one Environmental Protection
Agency rule), which represents a handsome return on the very
modest investment. The Committee doubts that any other
government program can match this level of success. The budget
request proposes to fund the Office of Advocacy to support a 50
staff, which is the level prior to attrition loss. The
Committee strongly supports going beyond this proposal by
encouraging a higher spending level and a separate line item
for this function.
WOMEN'S BUSINESS PROGRAMS
The Administration proposes funding the Women's Business
Council at $750,000, which is the same level as last year's
request and in H.J. Res. 2. The Administration also proposes
level funding the Women's Business Centers at $12 million,
which is the same as last year's request but $500,000 less than
provided for in H.J. Res. 2. The Committee, at a minimum,
supports level funding for these programs.
BUSINESS INFORMATION CENTERS/U.S. EXPORT ASSISTANCE CENTERS
The Administration proposes level funding for BICs at
$475,000, which was the amount provided for in H.J. Res. 2.
However, no funding was provided for USEACs in H.J. Res. 2,
which is of great concern to the Committee. The Committee
supports the President's FY '04 budget request of $3.1 million
to pay for the SBA share of the USEAC program to help small
business exporters, a key concern of this Committee.
SMALL BUSINESS DEVELOPMENT CENTERS (SBDCS)
The Administration proposes the same request as last year
for the SBDC program at $88 million. However, H.J. Res. 2
provided an additional $1 million over the President's request
for a regulatory compliance simplification program to increase
coordination of environmental, Occupational Health and Safety
Administration (OSHA), and Internal Revenue Service (IRS)
compliance requirements and to avoid duplication among programs
for compliance assistance to small businesses. This initiative
is a down payment on a very similar idea to what the Committee
has been trying to do for many years in setting up pilot
programs around the country where selected SBDCs could provide
regulatory compliance counseling to small businesses.
Currently, this idea has been reintroduced as the National
Small Business Regulatory Assistance Act of 2003 (HR 205),
which the Committee strongly supports. Thus, at a minimum, the
Committee supports the same $89 million level of funding for
SBDCs as contained in H.J. Res. 2.
The Committee is once again pleased that this budget
request does not contain the proposal to require SBDCs to
charge counseling fees. The Committee has held numerous
hearings and has voted against this proposal in the past. The
Committee believes this budget request is the minimum level of
support that is needed for the SBDC program.
BUSINESS-LINC
This is a relatively new authorized program designed to
encourage large business to small business mentoring. The
Administration once again proposes to eliminate this program.
H.J. Res. 2 provides $2 million for this program in FY `03.
There are several Members of the Committee who take a personal
interest in this program because they believe the mentoring
received in this program is qualitatively different from other
SBA mentoring programs that are more focused around government
procurement opportunities. However, there are many companies
that already engage in this type of mentoring on their own.
Perhaps if the SBA made more of an effort to link up existing
private sector efforts with interested small businesses,
particularly from low- and moderate-income areas of our nation,
the Administration's proposal would be more acceptable to the
Committee.
PRIME
The Administration's budget proposes elimination of this
program. H.J. Res. 2 provides $5 million for PRIME Technical
Assistance. In previous views, the Committee expressed strong
reservations regarding this program and its potential for
duplication of existing SBA efforts. The legislation
authorizing this program was not the language approved by this
Committee to prevent such duplication; consequently the
Committee supports its elimination.
SERVICE CORPS OF RETIRED EXECUTIVES
The Committee welcomes the Administration proposal to fund
the SCORE program at $5 million, which was the same level as
requested in the President's FY 03 budget and as provided for
in H.J. Res. 2.
VETERANS BUSINESS DEVELOPMENT ASSISTANCE
The Committee supports this request for $750,000 to fund
implementation of the provisions of Public Law 106-50 that
still fall within the SBA, which is the same level as requested
in the President's FY `03 budget request and as provided for in
H.J. Res. 2. Even though the National Veterans Business
Development Corporation is formally out of the SBA's annual
budget request and is funded under a separate line item as an
independent agency, the Committee is still very much interested
in its work, particularly on monitoring its path towards
financial self-sufficiency. In keeping with the path outlined
in Public Law 106-50, the Administration has requested $2
million for the Corporation in 2004, which the Committee
supports, keeping the NVBDC on a glide-path towards not needing
any more federal appropriations.
NATIVE AMERICAN OUTREACH
The Committee remains concerned that a proposed $1 million
outreach to Native Americans, which was contained in the
President's FY 03 budget request, has now been rescinded,
particularly after Congress built on this proposal by including
$2 million for this initiative in H.J. Res. 2. This initiative
is expected to assist small business and economic development
only in the most disadvantaged tribal areas, particularly in
remote areas. In 2001, the House passed H.R. 2538, the Native
American Small Business Development Act, authored by a
Committee Member and will hopefully will soon be reintroduced,
which would funnel grants to existing state Small Business
Development Centers (SBDCs) to establish training programs and
services unique to Native Americans. The Committee believes
this is a better and more comprehensive approach to help Native
American small business development, working through an
established network of experts in the field to help advance the
goal of assisting only the most disadvantaged tribes as
envisioned by H.J. Res. 2.
GOVERNMENT CONTRACTING
For FY 2004, the President's budget request proposes the
same level as in the previous FY 2003 request. However, H.J.
Res. 2 made several changes to the President's FY `03 funding
proposal--7(j) Technical Assistance was cut by more than half
to $1.5 million; and funding for some other programs such as
Small Business Innovation Research (SBIR) Technical Assistance
and HUBZones were eliminated altogether. The Committee supports
the President's FY `04 requests for these programs,
particularly the $2 million for the HUBZone program.
WHITE HOUSE AND STATE CONFERENCES
Last year, the Administration's budget request contained a
new proposal to spend $1.5 million to fund a series of state
and federal conferences to celebrate the success of small
business over the past 50 years and to highlight the emerging
issues that face small business owners in anticipation of
passage of legislation to authorize these conferences. Congress
did not pass this legislation last year and no funds were
appropriated for such a purpose in H.J. Res. 2, thus, there is
no request for funding this year. The Committee supports this
change.
(C) Disaster Assistance
With the various supplemental appropriations added to the
regular appropriation for the SBA disaster loan in response to
the terrorist attacks of September 11, 2001, the President's FY
2004 budget request for disaster loans is reasonable. The
budget proposes $89 million (with $10 million in carry-over
from prior years) to support funding $760.3 million in disaster
loans, based on a five-year average at a 11.72 percent subsidy
rate, which is a decrease from 13.98 percent. Unlike previous
requests, there is no proposal to raise interest rates on
disaster loans for anyone. It continues to remain the view of
the Committee that during a time of natural disaster, our
government should not compound an already difficult recovery
period by imposing higher interest rates on small business
borrowers. Also, the Administration plans to develop a more
accurate subsidy-rate cost model for the disaster loan program,
which could produce an even lower subsidy rate. The Committee
supports this endeavor.
(D) Salaries and Expenses
For FY 2004, the Administration requests essentially the
same level as last year--$362 million for SBA's operating
budget. Also, the President's budget request anticipates no
change in the total employment levels at the SBA from this
fiscal year to the next. However, the Consolidated
Appropriations Resolution for FY 2003 (H.J. Res. 2) included
$314.46 million for the salaries and expenses account of the
SBA. In addition, there is some confusion between the Full Time
Equivalent (FTE) numbers provided in the SBA budget submission
(3,927) versus the FTE numbers provided in the budget documents
provided by the Office of Management and Budget (3,802).
Included in SBA's operation budget proposal is $21 million
for initiatives designed to improve the operational efficiency
and service to its customers; $11 million to support
Electronic-SBA initiatives (E-SBA); $4 million to modernize and
streamline SBA internal processes; and $500,000 for
``outsourcing'' analyses. While many of these objectives of
these initiatives are commendable, they are similar to requests
proposed last year that were rejected in H.J. Res. 2. The
Committee remains skeptical as the need for all these
initiatives yet the employment levels will still remain the
same at SBA.
The Committee also encourages the SBA to begin to focus on
the problem of reversing ``institutional memory loss'' at the
agency, as it will soon lose a significant portion of its
senior career FTEs over the next decade because of retirements.
(E) Office of Inspector General
The President FY 2004 budget request proposes $14.5 million
for the Office of Inspector General and $500,000 transferred
from the administrative expenses of the disaster loan program
for a total of $15 million. The Consolidated Appropriations
Resolution for FY 2003 (H.J. Res. 2) provided $12.4 million for
the Inspector General of the SBA to be supplemented by an
additional $500,000 from the disaster loan account. The
Committee supports the President's budget request for the
Inspector General to protect the interests of the taxpayer and
the integrity of the programs of the SBA.
Conclusion
Overall, the President's budget request for small business
can be supported, with modest exceptions, both in terms of his
tax relief proposals and the SBA budget. In particular, the
SBA's FY 2004 budget does not repeat most of the mistakes from
previous budget requests. The Committee acknowledges the
Administration for changing these prior contentious proposals
on behalf of all small businesses. There is only one major item
of contention, and the Committee on Small Business looks
forward to working with you again, Chairman Nussle, to help
resolve the subsidy rate calculation problem in the 504 loan
program at its relationship to the Federal Credit Reform Act of
1990.
6.2.2 fiscal year 2005 budget
The Committee on Small Business submits these views and
estimates on the Fiscal Year 2005 budget submission on matters
within our jurisdiction in compliance with Rule X, clause
(4)(f), of the Rules of the House of Representatives. These
views and estimates are based on the outline supplied by the
President's Office of Management and Budget (OMB) for FY 2005
as well the Small Business Administration's (SBA) budget
submission. The President's proposed budget for FY 2005
emphasizes winning the war on terrorism, securing our homeland,
and strengthening our economy. A key part of strengthening our
economy is to continue the strong pro-growth policies that
create jobs and opportunities for the American people. Small
businesses, as job creators, have always led this nation out of
economic downturns and they will do so again. Over the past 10
years or so, small businesses have provided between two-thirds
to three-quarters of the net new jobs in this country; account
for just over half of our Gross Domestic Product (GDP); and
contribute roughly 42 percent of tax receipts to the U.S.
Treasury. Helping small businesses start, grow, and thrive is
critical to strengthening the economy and bringing down the
budget deficit.
The Committee believes generally that the President's
proposed FY 2005 budget request is helpful to small business
owners. Given the budgetary constraints, with a few exceptions,
small businesses should be pleased. The Committee is troubled
by the deficit and wishes that the rest of the federal
government emulated the example of the SBA, which has
experienced more than a 20 percent reduction in its real
funding level since FY 01. However, at the same time, the SBA
serves more small businesses than ever before. If the Budget
Committee accepts the President's FY 2005 budget request for
the SBA without change when determining the overall 370
budgetary account level, it would represent another five
percent real reduction in funding from FY 04 levels (not
counting carry-overs from previous fiscal years). It should be
clear to the Budget Committee that the SBA is not contributing
to the problem of the growing deficit; in fact, it has
demonstrated how to do more with less. From the Committee's
perspective, it would have been better if the President's FY
2005 budget request for the SBA mirrored the general average
spending growth of 0.5 percent for the rest of non-defense,
non-homeland security federal spending. Nevertheless, if small
businesses through the SBA are asked to do their part to
contribute to deficit reduction, then other constituencies
through their agencies should bear a similar load.
These views and estimates will be divided between two
areas: the impact of the overall budget proposal on small
business and, then, separately, on SBA programs. Within the
SBA, the views and estimates will be further divided into five
areas: (A) Financial Programs, (B) Assistance Programs, (C)
Disaster Assistance, (D) Salaries and Expenses, and (E) Office
of Inspector General.
(1) Effect of Overall Budget Proposal on Small Business
The Committee again applauds the President for endorsing
small business tax relief proposals; regulatory relief for
small business; increased access to affordable and quality
health care for small businesses and their employees; and
continued access to the federal government procurement
marketplace for small businesses. All these actions will help
strengthen the small business sector of our economy, which, in
turn, helps provides the receipts to the government.
Already, the bipartisan tax reductions passed by Congress
in 2001 and accelerated in 2003 provided the roughly 23 million
small business owners with tax relief averaging more than
$2,850 through individual rate reductions (85 percent of small
businesses pay taxes on an individual, not corporate, basis);
quadrupling the expensing provision to $100,000; raising the
expensing phase-out threshold to $400,000; and augmenting the
first year ``bonus'' depreciation deduction from 30 to 50
percent. In fact, small business owners receive 79 percent--
about $9.7 billion--of the benefit of the tax relief from
accelerating the individual rate reduction, from 2006 to 2003,
in the top income bracket to 35 percent. The passage of Health
Savings Accounts (HSAs) last year will also enable more small
businesses to cover workers for major medical problems.
Key elements of the President's FY 05 budget plan (outside
of the SBA) of interest to the committee, as it affects small
business, include:
Making permanent these same tax cuts,
including the confiscatory and punitive estate or
``death'' tax repeal scheduled to take full effect in
2010;
Establishing an on-line single-point-of-
access to help small businesses comply with federal
regulations and access information
(www.businesslaw.gov);
Health care policies that will further
increase access to affordable and quality health care
for small businesses and their employees, including the
creation of Association Health Plans that allow
multiple small businesses to pool together to purchase
health insurance at lower rates charged to large
companies and labor unions and popularizing HSAs
through a tax deduction of the premiums.
While welcoming the President's initiatives, the Committee
believes the President's budget package could have contained
more small business tax relief including:
4. Accelerating depreciation schedules;
5. Allowing the deduction of health insurance costs
of self-employed individuals be used in determining the
self-employment tax;
6. Increasing the business meal deduction; and
7. Setting a standard home office deduction.
These tax relief priorities also would boost long-term
growth that will help small businesses increase cash flow and
allow them to add jobs. The Committee will be working on these
and other common-sense small business tax relief and
simplification initiatives throughout the coming year.
(2) Small Business Administration Programs
The Committee supports the overall general spending level
at the SBA. The President's FY 05 budget request proposes to
spend $678.4 million on the SBA, a decrease of $39.9 million
from the $718.3 million level appropriated for in the
Consolidated Appropriations Act, 2004 (not counting carry-over
spending from previous fiscal years). The President's FY 05
request is a departure from the two previous requests, which
generally kept the overall funding level for the SBA frozen at
the previous year's level. The difference in this request is
that most of the decrease can be attributed to the
Administration's proposal to have a zero subsidy rate for the
SBA's flagship 7(a) program, which the Committee supports in
concept (but not in the specifics by which to achieve that
goal). While the Committee supports the overall spending level,
there are still several problem areas within the budget request
for the SBA, which are discussed in further detail below. Many
of these problem areas could have been averted if the
President's FY 05 funding request for the SBA was 0.5 percent
over the FY 04 level.
(B) SBA Financial Programs
7(A) LOANS
SBA guarantee-backed lending is the largest single source
of long-term loans (those with maturities of three years or
longer) to small businesses. The 7(a) loan guarantee program
accounts for approximately 40 to 50 percent of all long-term
loans to small businesses. However, as the Committee and
industry predicted, the 7(a) program experienced a ``cash
flow'' crunch in January 2004 and is currently hobbling along
with restrictions that do not live up to the full expectations
of the use of the program as contained in the law.
While the Committee is grateful that the Administration
recognizes the value of the 7(a) program by proposing a 30
percent increase in its program level, the Committee has two
concerns: first, the $12.5 billion program level may still not
be enough, particularly after the reforms contained in the SBA
reauthorization bill (HR 2802) aimed at helping small
manufacturers become law, and second, the practical effect of
the 7(a) proposal will increase fees on small businesses
seeking to borrow less than $700,000.
The Committee supports in concept the goal of a zero
subsidy rate for the 7(a) program, which means that no
appropriations will be required, saving the taxpayer about $100
million from FY 04 levels. The new econometric model that this
Committee and your Committee fought so hard to get into place
has proved to be a much more accurate predictor of the future
performance of the 7(a) program. As evidence, the budget re-
estimates for SBA business loans made in 2002 and 2003 are near
to zero as statistically possible, as compared with past high
re-estimates. Having a zero subsidy will produce much more
predictability and stability into the 7(a) program in order to
avoid pitfalls like what happened in January 2004.
However, the Committee believes there is a better way to
achieve a zero subsidy rate without having to raise fees by as
much as 50 percent on the smallest loan borrower, which
translates into an average of $1,500 for a $100,000 loan.
Congress passed this temporary fee reduction in 2001 precisely
because the nation was in the midst of a recession and small
businesses were being denied access to capital. The SBA
reauthorization bill extends the 7(a) fee reductions targeted
at smaller borrowers for another two years because jobs are
still not being created at an acceptable rate. Raising 7(a)
fees as high as proposed, particularly as the President's FY 05
budget request also proposes to eliminate the Microloan
program, is counterproductive. Thus, the Committee opposes the
fee-raising proposal as contained in the President's FY 05
budget request. The Committee will continue to explore ways in
which to achieve a zero subsidy rate without undue restrictions
in the program to meet expected program demand in both FY 04
and FY 05.
504 CERTIFIED DEVELOPMENT COMPANY (CDC) LOANS
Ever since 1996, the 504 loan program has operated at a
zero subsidy rate, which means that the program requires no
appropriations. This was accomplished through heavy fees that
were placed on borrowers and lenders--fees needed to offset a
severe increase in the subsidy rate. The Administration
proposes a $4.5 billion program authorization for the 504
program and the Committee concurs. The Committee is also
grateful that the President's FY 2005 budget request again
decreases the annual fee charged each small business 504 loan
borrower from 0.39 percent to 0.29 percent, reflecting the new
econometric model developed by the SBA.
High fees in the 504 program is one of the main reasons why
the 504 program has been underutilized at $2.5 billion even
though it is authorized at $4.5 billion. A more accurate cost-
subsidy rate model hopefully will lead to greater use of the
program as fees are reduced as is evidenced in 7(a) lending.
SMALL BUSINESS INVESTMENT COMPANY PROGRAM
The Administration proposes the same program level for both
parts of the SBIC program, which is welcomed by the Committee.
The Administration requests a $3 billion program level for the
debenture program and a $4 billion program level for the
participating securities program. When added to the minimum
required private capital, this would make $10 billion in new
capital available for SBIC investments in small businesses.
Venture capital from SBICs fill a critical gap as other private
sector sources have dried up. In fact, over 59 percent of all
venture capital investments in 2003 came from SBICs.
The Administration requests no appropriations to fund
either the debenture or the participating securities program in
accordance with Public Law 107-100, which placed the entire
SBIC program on a zero subsidy or no cost to the taxpayer
basis. The Committee concurs with this aspect of the
President's budget request. The debenture fees are increased by
just 16 basis points but the practical effect of this increase
is negligible--it will raise the likely interest paid for FY
2005 leverage from approximately 5.73 percent per year to
approximately 5.746 per year.
However, the President's FY 05 budget request proposes a
variety of structural changes to the participating security
part of the SBIC program that could severely damage the long-
term operation of the SBIC program in the future. The Committee
understands the current financial problems with the
participating securities component of the SBIC program and
recognizes that changes need to be made. But a compromise has
to be reached between industry and the Administration in order
to protect the interests of the taxpayer and also to keep a
viable participating securities program. This issue will be
addressed as the Committee proceeds with the SBA
reauthorization process.
NEW MARKET VENTURE CAPITAL COMPANIES
The President's FY 05 budget request again does not include
funding for the New Markets Venture Capital Companies (NMVCC)
program, which makes SBIC-type loans in Low and Moderate Income
(LMI) areas. The Committee strongly supports the goal of
increased lending in LMI areas. In 2003, about 43 percent of
small businesses assisted by the regular SBIC program were
located in LMI areas and 23 percent of the dollar amount in the
regular SBIC program went to LMI areas. While recognizing that
NMVCCs received a one-time appropriation for technical
assistance in 2000, the Committee still has concerns about how
the funding for the NMVCC program was abruptly rescinded mid-
stream in early 2003 even before an evaluation of the program
could be started. Through the end of FY 03, only six NMVCC
funds have been created that have disbursed a total of $2.1
million in investments and $1.3 million in technical assistance
to smaller businesses in LMI areas all east of the Mississippi.
If the program lived up to its full potential, at least seven
additional New Market Venture Capital Companies in more
communities throughout the entire United States would have been
created to target further small business investments in low-
income communities and create additional jobs.
MICROLOAN PROGRAM
The President's FY 05 budget requests proposed to end
funding for the Microloan program, which would save $20.98
million in direct subsidies and $14.84 million in technical
assistance costs. The Microloan program provides loans of up to
$35,000. SBA claims that every dollar lent in the Microloan
program cost the taxpayers 97 cents. SBA's cost-benefit
analysis shows that these loans could be made through the 7(a)
program with the help of the various technical assistance
programs that already exist (such as Small Business Development
Centers (SBDCs), Women Business Centers (WBCs), or SCORE).
While this may be accurate in the abstract, the analysis does
not recognize that the Microloan program has a special niche
and serves a unique marketplace, which is very different from
the typical 7(a) marketplace. Most Microloan borrowers would
probably not qualify for a 7(a) loan. On top of this, as
mentioned earlier, the President's FY 05 budget request
proposes to double fees on 7(a) borrowers seeking $150,000 or
less in capital and, as will be mentioned later, the other
technical assistance programs at the SBA are basically kept
frozen at FY 04 levels. So, it is difficult for the Committee
to understand how the typical Microloan borrower will be better
served by this proposal if (1) the Microloan program is
abolished; (2) fees in the 7(a) program are doubled; and (3)
technical assistance spending in the SBDC, WBC, and SCORE is
not even increased by $1 to accommodate these new clients.
Unless the Administration can better explain its rationale and
develop a transition plan, the Committee opposes terminating
the Microloan program at this present juncture. Perhaps if
further thought was given to addressing the concerns raised
here, the Committee could better understand the rationale for
this request.
(B) Assistance Programs
Overview
The FY 2005 SBA budget submission essentially proposes to
cut $30.4 million from the non-credit business assistance
programs from FY 04 levels. The cuts come from primarily
eliminating or reducing funding in 12 specific program areas--
7(j) Technical Assistance; Business Information Centers (BICs);
HUBZones; Microloan Technical Assistance; Native American
Outreach; New Market Venture Capital; PRIME Technical
Assistance; SBDCs grants; the Small Business Innovative
Research (SBIR) Federal and State Technology (FAST) partnership
program; SBIR Technical Assistance; the SBA contribution to its
share of participating in the U.S. Export Assistance Center
(USEAC) network; and WBCs grants. Also, the President's FY 05
budget proposal contained no request for programs that were
funded in FY 03 but were not funded in FY 04, such as
BusinessLinc. Very few of the other non-credit programs at SBA
received any additional funding and most of those increases
were extremely modest.
SBA believes it can provide a full range of technical
assistance more effectively by using its core national delivery
programs to meet the needs of all small businesses. However,
even some of these core programs received cuts under the
President's FY 05 budget proposal, such as the SBDC and the WBC
network. The Committee understands the frustration of the SBA
when Congress has been inconsistent in funding many of these
programs over the years and that many of these individual
programs require a specific infrastructure and delivery
mechanism. Many on this Committee have valiantly fought to have
these programs fully funded and work collaboratively with other
SBA programs. However, the Committee might be more sympathetic
to the rationale of the Administration if it shifted resources
from these line-items to the core programs rather than keep
them at last year's level or, in some cases, slightly reduced
funding, before asking these core programs to pick up the slack
that will be left behind if many of these non-credit programs
have their funding eliminated.
Specifically, the Committee has several concerns in the
non-credit area. First, the Native American Outreach program
was unveiled with great fanfare by the SBA in their FY 03
request, mainly in response to the Committee's effort to target
additional grants to existing state SBDCs to establish training
programs and services unique to Native Americans through House
passage of the Native American Small Business Development Act
(HR 1166 in the 108th Congress). The Committee still believes
this is a better and more comprehensive approach to help Native
American small business development, working through an
established network of experts in the field, rather than
creating a separate infrastructure and delivery mechanism. It
also fits in line with current rationale of the SBA in
justifying many of their proposed cuts in the non-credit
programs. Nevertheless, Congress supported this Native American
Outreach initiative with nearly $2 million in funding in both
FY 03 and FY 04. However, now the President's FY 05 budget
request proposes to eliminate funding for this program. It
would be better if the SBA supported HR 1166 and also
transferred the $2 million to the SBDC program in order to
carry out the objectives of this initiative.
The Committee also is concerned about the fate of SBA's
$3.1 million annual contribution to the U.S. Export Assistance
Center (USEAC) network. In the early 1990's Congress uncovered
many unmet needs in export promotion programs plus waste and
duplication of existing services. Congress then created the
Trade Promotion Coordinating Committee (TPCC) to expand and
streamline the delivery of export promotion of services. Key to
this concept was co-locating several export promotion agencies
together across the nation in order to provide a local one-stop
shop for taxpayers. Pulling SBA out of the USEAC network
essentially will make the vast majority of these centers
adjuncts of the Department of Commerce and could lead to the
repetition of the mistakes that led to the creation of the TPCC
in the first place. SBA offers some unique programs,
particularly to those small businesses new to exporting, which
might not be replicated in a Commerce-run USEAC system. In
addition, many of the core non-credit programs within the SBA
do not have the level of expertise to deal with the unique
needs of small business exporters. This is a function that is
not easily transferred and, again, none of the other core SBA
programs have received any increase to deal with these new
specialized clients. Plus, each $1 appropriated to SBA's export
finance specialists in the USEACs since 1999 has supported
loans generating over $200 in export sales--a sound return on
any investment. The Committee encourages the Budget Committee
to allocate more resources to enable the SBA to continue to
participate in the USEAC network.
Finally, the Committee is concerned about the level of
spending on the HUBZone program. The Committee understands and
supports the rationale for absorbing the $2 million line-item
for HUBZones within the overall Government Contracting and
Business Development budget. However, it appears from the FY
2005 budget request, overall HUBZone funding will be reduced
from $7.1 million in FY 04 to $6.6 million in FY 05 even though
every other SBA program designed to help small businesses
access federal procurement opportunities (except the 7(j)
program) receives an increase. There was no accompanying
explanation for this discrepancy even though the SBA claims to
treat every small business procurement goal equally.
If the President's FY 05 budget request for the SBA equaled
the average given to other non-defense, non-homeland security
federal agencies (receiving a 0.5 percent increase over FY 04
levels), many of these non-credit programs probably could have
been funded, thus ameliorating the Committee's concerns.
OFFICE OF ADVOCACY
For the first time, a line-item of $7 million was included
in the President's budget request for the Office of Advocacy,
which the Committee supports. The Office of Advocacy serves as
an independent voice for the interests of small business
through the federal regulatory process and through research
projects focused on the role small businesses play in the
economy. The President's FY 05 budget request also contains
$1.1 million for the Office of Advocacy to support research and
economic analysis. In FY 2003, the Office of Advocacy saved
small businesses $6.3 billion in regulatory costs, which
represents a handsome return on the very modest investment. The
Committee doubts that any other government program can match
this level of success. The Committee strongly supports going
beyond this proposal by encouraging a higher spending level and
a separate line item in the annual appropriations bill for this
function.
VETERANS BUSINESS DEVELOPMENT ASSISTANCE
The Committee supports this request for $750,000 to fund
implementation of the provisions of Public Law 106-50 that
still fall within the SBA, which is the same level as requested
in the President's FY 04 budget request and as provided for in
FY 04. Even though the National Veterans Business Development
Corporation is formally out of the SBA's annual budget request
and is funded under a separate line item as an independent
agency, the Committee is still very much interested in its
work, particularly on monitoring its path towards financial
self-sufficiency. The President's FY 05 budget request also
includes $2 million for the Corporation, which the Committee
supports, keeping the NVBDC on a glide-path towards not needing
any more federal appropriations.
GOVERNMENT CONTRACTING
While the Committee observes that the budget for
contracting assistance by the SBA has a slight overall increase
of nearly $2.5 million, the Committee has concerns that there
is not sufficient funding to implement the President's
contracting plan. In particular, the Committee has concerns
about how these increases are allocated, particularly with the
Prime Contract Program. The SBA reauthorization bill (HR 2802)
places a strong emphasis on increasing Procurement Center
Representatives (PCRs) in order for them to advocate on behalf
of small businesses throughout major federal buying centers in
the United States. However, the FY 05 budget request actually
decreases funding for PCRs by $517,000 from the previous year's
level. The Committee opposes this decrease and encourages the
Administration to achieve a better allocation of resources to
meet the anticipated demand for the Prime Contract Program.
(C) Disaster Assistance
The President's FY 05 budget request for disaster loans is
reasonable. The budget proposes $78.9 million (with $13 million
in carry-over from prior years) to support funding $792.3
million in disaster loans, based on a five-year average at a
12.86 percent subsidy rate, which is an increase from 11.72
percent. The Committee is again grateful that the
Administration has not proposed to raise interest rates on
disaster loans for anyone. It continues to remain the view of
the Committee that during a time of natural disaster, our
government should not compound an already difficult recovery
period by imposing higher interest rates on small business
borrowers. Also, the Administration is working on a more
accurate subsidy-rate cost model for the disaster loan program,
which could produce an even lower subsidy rate and greater
savings for the taxpayer. The Committee supports this endeavor.
(D) Salaries and Expenses
For FY 2005, the President's budget request proposes
$326.26 million for salaries and expenses at the SBA. The S & E
levels for the SBA contained in the Consolidated Appropriations
Act, 2004 (H.R. 2673) is $325.75 million. The President's FY 05
budget request anticipates no change in the total employment
levels at the SBA from this fiscal year to the next. The number
of full-time equivalents (FTEs) at the SBA total 3,786 in both
FY 04 and FY 05.
Included in SBA's operation budget proposal is $3 million
to continue implementation of the SBA's ongoing efforts to
modernize the delivery of its products and services. The SBA
also requests a total of $1.1 million for e-government
initiatives and $2 million for program evaluations. The
Committee applauds many of these initiatives, particularly on
e-government, to streamline delivery of services to small
businesses yet remains concerned that employment levels will
still remain the same at SBA, particularly after SBA increased
employment by 124 FTEs between FY 03 and FY 04.
(E) Office of Inspector General
The President's FY 05 budget request proposes $14.5 million
for the Office of Inspector General and $500,000 transferred
from the administrative expenses of the disaster loan program
for a total of $15 million, an increase of $1.5 million from FY
04 levels. The Committee supports the President's budget
request for the Inspector General to protect the interests of
the taxpayer and the integrity of the programs of the SBA.
Conclusion
While the Committee does not have strenuous objections to
the President's FY 05 budget request, it would have been better
if the President's FY 05 budget request for the SBA mirrored
the general average spending growth of 0.5 percent for the rest
of non-defense, non-homeland security federal spending. Then,
many of the concerns about SBA programs that were cut or
terminated could have been more properly funded, thus
ameliorating the Committee's concerns in trying to stretch the
limited federal dollars to help the maximum number of small
businesses.
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 Rule X, clause 2(d)(1), of the Rules of the
House of Representatives, the Committee on Small Business
adopted, on February 26, 2003, an oversight agenda for the
108th Congress. (For a discussion of the Committee's
consideration of the oversight agenda refer to section 6.1.1 of
this report.) The House rule 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 Chapter Seven, the provisions
of the oversight agenda are addressed in the hearing summaries
of the Committee and its subcommittees. A summary of each
hearing conducted by the full Committee appears in section 7.2
of this report and summaries of each subcommittee hearing
appear in sections 7.3 through 7.7 of this report. An overview
of the Committee's legislative activities appears in Chapter
Five of this report.
7.2 Summaries of the Hearings Held by the Full Committee on Small
Business
7.2.1 the sba fy 2004 budget
Background
On Wednesday, February 26, 2003, the Committee on Small
Business held a hearing that focused on the Administration's
proposed FY 2004 budget for the U.S. Small Business
Administration (SBA). As brief background, the SBA provides a
variety of services for small businesses--financial assistance,
technical assistance, federal government contracting
assistance, and disaster relief. The budget request was
designed to help the SBA achieve the goals of improving the
delivery of its services to small business owners and
prospective entrepreneurs.
Summary
The panelists were the Hon. Hector Barreto, Administrator,
United States Small Business Administration, Washington, DC;
Anthony R. Wilkinson, President, National Association of
Government Guaranteed Lenders, Stillwater, OK; Mr. Donald
Wilson, President and Chief Executive Officer, Association of
Small Business Development Companies, Burke, VA; Mr. Zach Gast,
Policy and Research Manager, Association for Enterprise
Opportunity, Arlington, VA; Mr. Lee Mercer, President, National
Association of Small Business Development Companies,
Washington, DC; and Christopher Crawford, Executive Director,
National Association of Development Companies, McLean, VA.
Administrator Barreto requested the Committee's support for
the President's FY 2004 budget. The President's plan proposed a
total fiscal year appropriation of $797.9 million or level
funding with FY 2003 budget. According to the Administrator, it
would provide adequate levels of credit, capital, procurement,
and entrepreneurial development assistance to small businesses.
In addition, the budget request also incorporated $16.5 million
for transformation of the agency in order to satisfy the
President's management agenda for all federal agencies.
Mr. Wilkinson first thanked the Committee for efforts to
resolve certain administrative issues with the 7(a) loan
guarantee program. Mr. Wilkinson then attacked the inadequacy
of the FY 2004 budget that only would provide approximately
$9.3 billion in guaranteed loans. According to bankers involved
in the program, that level is about 25 percent below the
previous fiscal year's levels and below the pace of lending
expected throughout the 2004 fiscal year.
Mr. Wilson noted that small businesses are the key cogs in
economic growth. Despite this significance, the budgets needed
to provide technical assistance to these entrepreneurs
continues to deteriorate. Adequate funds are needed to support
small business development centers because they provide
assistance to 1.5 million small business owners and prospective
entrepreneurs. Mr. Wilson noted that level funding of the small
business development center program would actually constitute a
cut in their ability to provide service. Mr. Wilson concluded
that being pennywise could be pound foolish in the case of the
small business development center program.
Mr. Gast echoed the concerns of Mr. Wilson. Microenterprise
development provides assistance to the smallest entrepreneurs--
ones who often are unable to obtain even conventional SBA-
guaranteed loans. The average loan size is $15,000 or enough to
create one new job according to SBA estimates. Mr. Gast noted
that the funding levels for microloans are integrally tied to
the ability of intermediaries to provide technical assistance.
The proposed FY 2004 budget cuts technical assistance and thus
limits the number of loans that the intermediaries can make to
the smallest entrepreneurs.
Mr. Mercer supported the President's budget request. The
budget would make $4 billion available in participating
security leverage and $3 billion in debenture leverage
available to small business investment companies (SBICs). Mr.
Mercer then noted that the provision of leverage requires no
funding from the government but is paid for by fees collected
by the federal government and profits earned by the individual
SBIC.
Mr. Crawford expressed frustration with the SBA's failure
to expend money to revise the subsidy model used to calculate
fees paid by certified development companies (CDCs). Such delay
will force CDCs to pay an additional $100 million in fees over
the life of loans made during FY 2004. Mr. Crawford then noted
that the budget only provides for $4.5 billion in lending
authority even though demand was running higher. He suggested
that, at a minimum, CDC lending authority should be set at $5
billion. Mr. Crawford also testified that the economic
assumptions underlying the subsidy model were not correct and,
despite ongoing discussions with the SBA, changes have not been
made in the program that would provide greater assistance to
CDCs.
In sum, the committee concluded that the President's FY 04
budget request for the SBA was adequate but could be improved
upon the margins. For further information, please refer to
Committee publication #108-1
7.2.2 small business access and alternatives to health
care
Background
On Wednesday, March 5, 2003, the Committee held a hearing
to address the concerns of small business owners as they
struggle to provide health insurance to their families and
employees. As Congress has discussed the issue of how to
provide coverage to the uninsured, small business concerns have
been notably absent from the debate. Yet roughly 60 percent of
the uninsured are small business owners, their employees and
their families. This hearing served as a forum to discuss and
promote innovative solutions to help small businesses meet
their health care needs.
This hearing also focused on HR 660, the Small Business
Health Fairness Act of 2003, introduced by the Hon. Ernie
Fletcher (R-KY) and the Hon. Cal Dooley (D-CA). This
legislation is designed to make association health plans a
viable alternative for small businesses. In addition, Medical
Savings Accounts and other tax credits were discussed.
Summary
The hearing consisted of two panels of witnesses. The first
panel consisted of: the Hon. Ernie Fletcher (R-KY) and the Hon.
Sen. Jim Talent (R-MO), former Chairman of the House Small
Business Committee. The second panel consisted of: the Hon.
Elaine Chao, Secretary, United States Department of Labor,
Washington, DC; the Hon. Hector Barreto, Jr., Administrator,
United States Small Business Administration, Washington, DC.
The third panel included: Skip Trotter, Trotter Machine Inc.,
Rockford, IL; Robert Hughes, President of the National
Association of the Self-Employed, Washington, DC; Steven Appel,
Vice President, American Farm Bureau Federation, Washington,
DC; John Hartnedy, Chief Deputy Commissioner, Arkansas
Department of Insurance, Little Rock, AR; Karen Kerrigan,
Chairwoman, Small Business Survival Committee, Washington, DC;
and Harry C. Alford, President of the National Black Chamber of
Commerce, Washington, DC.
Representative Fletcher spoke about HR 660, the Small
Business Health Fairness Act of 2003, that he has introduced
along with Representative Dooley that will allow small
businesses to band together and pool their resources in order
to access health insurance through their membership with trade
or professional associations.
Senator Talent spoke of his long support for AHP
legislation when he chaired the House Committee on Small
Business and now in the Senate where he will be a sponsor of
this legislation introduced by Senator Olympia Snowe (ME),
Chair of the Senate Small Business Committee. During questions,
he stated that he believed the opposition of Blue Cross and
Blue Shield stemmed from not wanting to compete for business
since they dominate the current insurance industry within many
states.
Labor Secretary Chao testified of the Bush Administration's
support for AHPs, tax credits to purchase healthcare, and
Medical Savings Accounts. She also stated that the Department
of Labor stood ready to administer, certify and provide
oversight necessary for implementation of this legislation.
Already, the Department of Labor administers the Employee
Retirement Income Security Act (ERISA), protecting
approximately 2.5 million private, job-based health plans and
131 million workers, retirees and their families. Administrator
Barretto testified to a study commissioned by SBA that found
that small businesses face significantly higher administrative
costs on their health care costs. Across the board all
businesses have experienced rises in health care premiums, but
small businesses have faced disproportionate spikes in their
costs. Lack of affordable healthcare has forced many small
businesses to stop offering healthcare altogether to their
employees.
All of the witnesses in the third panel unanimously voiced
their support for Association Health Plans as well as tax cuts
because they believed that it would allow many more small
businesses to provide healthcare for their employees. While
supporting AHPs, John Hartnedy, Chief Deputy Commissioner for
Arkansas did state that he felt the solvency provisions of the
legislation should be more stringent.
Karen Kerrigan also spoke to the need for MSAs, which are
simply savings account controlled by the insured individual to
be used to pay for routine health care expenses and a high-
deductible (catastrophic) insurance policy to cover more
substantial health care needs. Robert Hughes also raised the
issue of the need for our nation's 16 million self-employed
business owners to deduct their health insurance expenses when
calculating their payroll taxes, which consists of payments to
Social Security and Medicare.
AHPs passed the House of Representatives on June 19, 2003
and the new version of MSAs--called Health Savings Accounts
(HSAs)--passed Congress as part of the Medicare Prescription
Drug bill and became law on December 8, 2003.
For more information on this hearing please refer to
Committee publication 108-2.
7.2.3 respa reform and the economic effects on small
business
Background
On Wednesday, March 11, 2003, the Committee on Small
Business held a hearing to examine the Department of Housing
and Urban Development's (HUD) compliance with the Regulatory
Flexibility Act (RFA) in the development of proposed rules
modifying the implementation of the Real Estate Settlement
Procedures Act (RESPA). RESPA was enacted in 1974 with the
intention of providing purchasers of residential estate greater
clarity in the settlement process. Six years later, Congress
enacted the RFA that requires federal agencies to examine the
impact of their proposed rules on small businesses.
After many years of controversy and significant litigation,
HUD determined that it was appropriate to modify the
regulations implementing RESPA. The primary points of the
proposal were the requirement to provide a good faith estimate
of the closing costs that the purchaser will face and the
option to offer a guaranteed mortgage package (including a
fixed interest rate) that would be protected under the ``safe
harbor'' provisions of section 8 of RESPA.
Summary
The first panel consisted of the Honorable Mel Martinez,
Secretary, Department of Housing and Urban Development,
Washington, DC. He was accompanied by a number of HUD staff,
including the Honorable John Weicher, Assistant Secretary for
Housing, Department of Housing and Urban Development and John
Kennedy, Esq., Associate General Counsel.
The members of the second panel were: Mr. Gregory Kosin,
Secretary, H.S. Wilkinson Land Title Company, Galena, Illinois;
Mr. Eugene Hummel, SRA, Chief Executive Officer, Iowa
Residential Appraisal Co., West Des Moines, Iowa; Mr. Peter
Birnbaum, President, Attorney's Title Guaranty Fund, Inc.,
Chicago, Illinois; Mr. Gary Acosta, President, SDF Realty, San
Diego, California; Mr. Neill Fendly, Government Affairs Chair
and Past President, National Association of Mortgage Brokers,
McLean, Virginia; Ms. Catherine Whatley, Buck & Buck Realty,
Jacksonville, Florida; and Terry Clemans, Executive Director,
National Credit Reporting Association, Bloomingdale, Illinois.
Secretary Martinez commenced his testimony by summarizing
the need for changes in the rules governing RESPA. He then
outlined the steps that HUD took to obtain input including the
meetings with affected entities and the preparation of 30
specific questions in the proposed rule. Secretary Martinez
then gave the Committee his commitment to ensure full
compliance with the RFA. The Secretary went on to note that he
fully recognizes the importance that small businesses play in
the real estate settlement process. However, that significance
should not override, in his view, the primary goal of RESPA--
reduction in settlement costs to consumers.
Mr. Kosin, on behalf of the American Land Title
Association, noted that the proposal would affect title
insurers and abstractors--the vast majority of which are very
small businesses. Mr. Kosin went on to testify that the
guaranteed mortgage packaging proposal would limit consumer
access to and choice of settlement service providers. He then
explained that a guaranteed mortgage package incorporating a
guaranteed interest rate only could be packaged by lending
institutions that have the financial wherewithal to undertake
protective hedge transactions in the commodity markets. He
concluded that the losses estimated by HUD would drive
suppliers out of business thereby creating an oligopolistic
national market of big businesses for a service that typically
was performed by a local small business.
Mr. Hummel testified that the HUD proposal works against
its own intentions. According to Mr. Hummel, allowing the
lenders to select the appraiser could result in the retention
of appraisers that provide the result sought by the lender
rather than an objective result of an unbiased third party. Mr.
Hummel concluded his testimony by suggesting that the appraisal
not be made part of any guaranteed mortgage package.
Mr. Birnbaum testified on behalf of the National
Association of Bar-Related Title Insurers. The organization
consists of 20,000 law firms, almost all of which are small
businesses. Mr. Birnbaum asserted that HUD failed to examine
the impact that the regulation would have on these firms. He
emphasized that his reading of the proposal would enable banks
to receive kickbacks (something RESPA was enacted to prevent)
but no other players in the settlement process. By allowing
kickbacks, Mr. Birnbaum testified that the proposal would not
lower costs to consumers. He concluded by noting that thousands
of small businesses would close if the rule was adopted as
proposed.
Mr. Acosta testified on behalf of the National Association
of Hispanic Real Estate Professionals. Mr. Acosta thanked
Secretary Martinez for his efforts to increase home ownership
among the Hispanic community. His organization's primary view
is that consumers should have access to the lowest rate
possible and be given the maximum choice of mortgage products
and services. The proposal rule undercuts that principle
because it requires an individual mortgage broker to disclose
costs while hiding those costs in a package created by a bank.
He concluded his testimony by noting that more revisions were
needed to ensure continued participation by Hispanics in the
real estate business.
Mr. Fendly first explained the operation of the proposal
and the adverse consequences it would have on mortgage brokers.
He then claimed that HUD did not comply with the RFA because
it: (1) underestimated the impact on small business; (2) failed
to consider alternatives would reduce adverse impact on
mortgage brokers; and (3) miscalculated the recordkeeping and
reporting costs associated with the proposed rule. Mr. Fendly
concluded his testimony by requesting that HUD delay further
implementation until it has prepared an accurate initial
regulatory flexibility analysis as required by the RFA.
Ms. Whatley, testifying on behalf of the National
Association of Realtors, noted that they support reformation of
the RESPA rules to simplify the process for home purchasers.
She then laid out the position of the Realtors that the
proposed guaranteed mortgage package would hurt small
businesses. As others already had noted, packages only would be
available from lenders because of the fixed interest rate
requirement. Lenders also would not be required to disclose the
contents of the package--just the final price. And without
knowing what is in the package, consumers would be unable to
shop services to other small businesses thereby potentially
putting them out of business if packaging became the mainstay
of the settlement industry. She concluded her testimony by
requesting that HUD delay issuance of the final rule until it
examined the unintended consequences of the proposed rule.
Mr. Clemans testified that there are about 300 firms in the
United States that specialize in mortgage credit reporting.
These businesses provide millions of credit reports to lenders
and almost all of them would be considered small under any
measure. Mr. Clemans concurred with other witnesses that
Secretary Martinez was correct in tackling the problems
associated with RESPA. However, that is where Mr. Clemans
parted company with HUD. Specifically, Mr. Clemans complained
about the failure to assess the impact of the proposal on small
mortgage credit reporting agencies. Secondly, Mr. Clemans
believes that it is inappropriate to include the credit report
in the guaranteed mortgage package because without a credit
report showing the adequacy of the consumer's ability to repay,
no settlement occurs. By finding the cheapest solution, the
lenders may not get the most accurate credit report or the most
unbiased. Mr. Clemans concluded his statement by noting that a
delayed credit report could result in banks putting in higher
interest rates as part of the guaranteed mortgage package.
In sum, the Committee concluded that HUD's proposed rule to
change RESPA would have a devastating negative effect upon
thousands of small businesses involved in the real estate
settlement process. For further information, please refer to
Committee publication #108-3.
7.2.4 changes to sba financing programs needed for
revitalization of small manufacturers
Background
On Wednesday, March 20, 2003, the Committee on Small
Business held a hearing that focused on the Small Business
Administration (SBA) financing programs and any changes needed
to help small manufacturers obtain necessary capital to stay
competitive in a global marketplace. The SBA provides over $22
billion in financial assistance to small businesses. SBA's
large financial program is the 7(a) general business loan
guarantee program. The program offers guarantees of up to 80
percent of commercial loans made through local banks and other
lending institutions. The 504 lending program provides
construction, renovation, and capital investment financing to
small businesses through qualified state and local development
companies, better known as certified development companies
(CDCs). The Microloan program provides small loans of up to
$35,000 to borrowers in low-income areas. Intermediaries that
make loans also must provide managerial and business expertise
to borrowers. Small business investment companies (SBICs)
provide long term and venture capital financing to small
businesses. SBICs are venture capital firms that leverage
private investment dollars with SBA guaranteed debentures or
participating securities. The program, like the 504 program,
operates at a zero subsidy requiring no appropriation to
provide funds.
Summary
The panelists were Mr. Ronald Bew, Associate Deputy
Administrator for Capital Access, Small Business
Administration, Washington, DC; Mr. John Phelps, Executive
Director, Rockford Local Development Company, Rockford, IL; Mr.
David Bartram, President, SBA Division, U.S. Bank, San Diego,
CA; Mr. L. Ray Moncrief, Chief Operating Officer, Kentucky
Highlands Investment Corp., London, KY; and Mr. Robert Finkel,
President, Prism Capital, Chicago, IL.
Mr. Bew testified that the primary objective of the SBA was
to maximize the economic impact of its financial assistance
programs. He noted that achieving this goal led to the
utilization of smaller loans because they were economically
more productive in creating jobs. Nevertheless, SBA provided
over $2.7 billion in financial assistance (primarily through
the 504 and SBIC programs) to small manufacturers. Mr. Bew
expressed a willingness to work with the Chairman and other
members of the committee to develop creative solutions for
small manufacturers.
Mr. Phelps first noted that the subsidy rate model for the
CDC program was outdated and needed revision. He then cited a
National Association of Manufacturers (NAM) study, which found
that 43 percent of small manufacturers faced increased capital
cost despite record low interest rates. His specific
recommendations to assist small manufacturers included: update
the definition of rural area; permit CDCs to lend money for
refinancing; enable CDCs to combine 504 loans with those issued
under the 7(a) loan program; provide a special debenture for
small manufacturers; and permit small manufacturing debentures
to be issued on the basis of one job for every $100,000 dollars
in financing.
Mr. Bartram testified that loan demand was running
significantly ahead of the proposed $9.3 billion set forth in
the SBA's FY 2004 budget. He then noted that small
manufacturers could obtain loans for plant and equipment,
working capital, and to fund exports. If loan caps were to be
imposed because the SBA ran out of money to fund the program,
it would act to the detriment of small manufacturers.
Mr. Moncrief urged reauthorization of the new market
venture capital company program (NMVCC). The NMVCC program was
created, according to Mr. Moncrief, because venture capital was
not distributed to low-income communities throughout rural
America. Mr. Moncrief's company, Kentucky Highlands, invested
over $100 million in businesses in the Appalachian region of
Kentucky creating 8,000 jobs. As the only program targeting
low-income rural communities, the NMVCC program should be fully
and adequately funded.
Mr. Gast testified that microloans could not be replaced
with conventional bank financing because borrowers often are
not bankable clients. For example, some borrowers do not even
have bank accounts. Mr. Gast then requested that legislation be
enacted enabling intermediaries to make long-term loans which
would empower borrowers to more easily start home-based
manufacturing enterprises. In fact, a small manufacturer that
started with a microloan by working out of his home and now had
enough work for five employees accompanied Mr. Gast to the
hearing.
Mr. Finkel provided data showing that SBICs invested $737
million in 434 small manufacturing companies in 41 states. This
constituted about 28 percent of available SBIC funds and
supported 60,000 jobs. Mr. Finkel suggested that the SBIC
program be modified to permit individual companies to exceed
the existing leverage cap if they invest in manufacturing.
Large SBICs would be able to redirect more of their funds to
small manufacturers if they were not required to invest a
portion of their funds in smaller enterprises. Finally, Mr.
Finkel requested clarification of the rules on capital
impairment in order to prevent the SBA from accessing
uninvested private capital as collateral.
In sum, the committee concluded that many of the programs
of the SBA can be redirected to help struggling small
manufacturers. For further information, please refer to
Committee publication #108-4.
7.2.5 will we have an economic recovery without a strong
u.s. manufacturing base?
Background
On April 9, 2003, the Committee on Small Business held a
hearing on whether the U.S. will have an economic recovery
without a strong domestic manufacturing base. The purpose of
the hearing is to explore the problems facing U.S.
manufacturers (95 percent of all manufacturers are small- and
medium-sized enterprises) and demonstrate that the economy will
not recover unless its manufacturing base is firmly
reestablished. The hearing addressed the following: (1) what
effect the loss of over 2 million manufacturing jobs in the
last two years has had on the economy and the potential for
recovery; (2) how such job loss will affect the ability of
Americans to purchase because of the loss of well paying jobs;
and (3) what caused such devastating losses.
Summary
The witnesses were: the Hon. Tim Ryan (D-OH); the Hon.
Grant Aldonas, Undersecretary of Commerce for International
Trade, United States Department of Commerce, Washington, DC;
Mr. Jerry Jasinowski, President, National Association of
Manufacturers, Washington, DC; Mr. Richard Trumka, Secretary-
Treasurer, AFL-CIO, Washington, DC; Mr. Michael Czinkota,
Ph.D., Professor, McDonough School of Business, Georgetown
University, Washington, DC; Mr. Ronald Harbour, President,
Harbour and Associates, Troy, MI; Mr. Paul Freedenberg, Vice
President, The Association for Manufacturing Technology,
McLean, VA; Mr. David Sandy, Vice President, MS Willett, Inc.,
Cockeysville, MD; and Mr. Eric Anderberg, General Manager, Dial
Machine, Inc., Rockford, IL.
The participants all testified to the fact that domestic
manufacturing is in a downward spiral. The Chairman's opening
statement outlined a number of facts regarding the impact the
loss of manufacturing jobs and orders is having on the economy.
All panel members identified similar issues that are hurting a
manufacturing recovery. Those issues included overvaluation of
the dollar in China, unhelpful regulations regarding export/
import of goods, the rising cost of health care, and an
inability to compete on labor rates with foreign imports.
Each panelist was asked for recommendations they believe
the government could implement that would assist in aiding this
sector. The recommendations are as follows:
Export trade policies--takes too long for
foreign customers to get visas to come to U.S. to
inspect potential purchases;
Access to capital--too many banks are
withdrawing working-capital loans. Asset-backed loans
are getting harder to obtain due to the devalued market
for used equipment;
China has undervalued its currency by 40%
compared to the U.S. dollar;
Pass a manufacturing tax credit to replace
FSC;
Strengthen Buy American provisions for Dept.
of Defense;
Focus on nontariff barriers in trade with
China, Japan, and EU; and
Export promotion activities.
For further information on this hearing, refer to Committee
publication 108-8.
7.2.6 irs compliance with the regulatory flexibility act
Background
On Wednesday, May 1, 2003, the Committee on Small Business
held a hearing to examine the Internal Revenue Service's (IRS)
compliance with the Regulatory Flexibility Act (RFA) as amended
by the Small Business Regulatory Enforcement Fairness Act
(SBREFA). The RFA requires federal agencies to examine the
economic impact of their proposed and final rules on small
entities. If the impact is significant on a substantial number
of such businesses, the agency is required to assess less
burdensome alternatives. From its enactment in 1980 until the
passage of SBREFA in 1996, the IRS asserted that its
regulations were interpretative and thus not subject to the
strictures of the RFA. SBREFA eliminated that rationale when it
made the RFA applicable to interpretative rules implementing
the internal revenue laws of the United States. One would not
be surprised to then learn that the IRS developed a new
interpretation that it only was required to examine proposed
and final rules if they resulted in a new collection of
information requirement not attributable to some requirement in
the Internal Revenue Code. Significant regulations of the IRS,
ones that cost small businesses hundreds of millions of dollars
a year, are not examined under the RFA.
Summary
The panelists were the Hon. Pamela Olson, Assistant
Secretary for Tax Policy, Department of Treasury, Washington,
DC; the Hon. John Graham, Ph.D., Administrator, Office of
Information and Regulatory Affairs, Office of Management and
Budget, Washington, DC; the Hon. Thomas Sullivan, Chief Counsel
for Advocacy, United States Small Business Administration,
Washington, DC; the Hon. Andy Ireland (Ret.), Zeliff, Ireland &
Associates, Washington, DC; Frank Swain, Esq., Partner, Baker &
Daniels, Washington, DC; and Daniel Mastromarco, Esq.,
President, The Argus Group, Arlington, VA.
Assistant Secretary Olson testified that the Service was
restructured to serve specific constituencies. One such group
was established to serve small businesses and the self-
employed. The division, according to the Assistant Secretary,
plays a critical role in reviewing the impact of regulations on
small businesses. The Assistant Secretary then testified that
the Service does not make law but rather uses tax regulations
to make compliance with the laws Congress passes more
understandable to small businesses. She concluded her testimony
by noting that the IRS fully complies with the RFA by closely
examining the impact of information collections that it (as
opposed to the ones Congress) imposes on small businesses.
Administrator Graham testified on the role that his office
plays in ensuring compliance with the RFA and the Paperwork
Reduction Act (PRA). In particular, Dr. Graham provided
substantial detail on the definition of a ``collection of
information'' requirement under the PRA. As Dr. Graham
testified, compliance with the ``collection of information''
requirement in the PRA is the linchpin on which rests IRS
compliance with the RFA. Dr. Graham expatiated on the
procedures that his office utilizes in ensuring agency
compliance with the PRA.
Chief Counsel Sullivan first explained that his office is
tasked with monitoring agency compliance with the RFA. He then
praised the accessibility of Assistant Secretary Olson and Dr.
Graham. The Chief Counsel went on to question the IRS
interpretation of the RFA because it limits the scope of the
analysis rather than acting as a trigger for performing the
analysis. In support of this thesis, the Chief Counsel cited
the statements of the Judiciary Committee Chairman when SBREFA
was passed. The Chief Counsel then cited examples of regulatory
matters in which the IRS was not constrained by the Internal
Revenue Code to structure a regulation in a certain manner.
As one of the original authors of the RFA, former
Congressman Ireland noted that the RFA has been in effect for
nearly a quarter of a century. Despite this, the one major
issue that remains is IRS compliance with the RFA. The
Congressman then testified about regulations on reporting of
interest income by banks was cited as another example of a
change in IRS regulations that was not mandated by any change
in the Internal Revenue Code for which no analysis was done
under the RFA.
The former Chief Counsel for Advocacy, Frank Swain,
testified on yet another regulatory change that would have a
significant impact on small business that was not necessitated
by any change in the law. The IRS was modifying the definition
of highway vehicle without conducting an analysis under the
RFA. Most galling to Mr. Swain was the fact that the IRS
requested a study of the economic impact of the change from the
Department of Transportation but did not either cite the
availability of such study in the proposed rule or recognize
that it should have complied with the RFA.
Mr. Mastromarco testified on his more than 15 years
experience with the IRS failure to comply with the RFA. He
noted that the Department of Treasury continues to issue
parsimonious interpretations of the RFA in an effort to avoid
examining the impact of its regulations on small businesses.
Mr. Mastromarco used the proposed modification to the interest
income reporting requirements to explain the IRS decision-
making process and how those procedures are used to avoid
compliance with the RFA. Mr. Mastromarco concluded his
testimony by asking the Committee to close the existing
loopholes that permits the IRS to avoid compliance with the
RFA. Such compliance, according to Mr. Mastromarco, will result
in less controversy for the IRS and better compliance by
taxpayers.
In sum, the committee concluded that the IRS could do much
more to comply with the letter and the spirit of the RFA. For
further information, please refer to Committee publication
#108-10
7.2.7 are big businesses receiving contracts that were
intended for small businesses
Background
On Wednesday, May 7, 2003, the Committee on Small Business
held a hearing concerning the serious allegation that big
businesses are receiving contracts that were intended for small
businesses.
On January 15, 2003, an article appeared in the Los Angeles
Times that stated: ``Large companies are improperly getting
billions of dollars in government contracts meant for small
businesses.'' The article attributed part of the problem to
federal agencies in making contract awards relying upon faulty
databases maintained by the Small Business Administration (SBA)
and the General Services Administration (GSA). Apparently,
these databases had not been routinely updated to reflect a
change in a business' size and have improperly listed entities
as small businesses that were in fact large businesses. The
article cited went on to state: ``Small businesses have long
complained that loopholes in federal law, sloppy government
record-keeping, and, in some cases, outright fraud can result
in large corporations getting federal contracts that Congress
meant to go to small businesses.'' There may be other causes.
The Committee was concerned that, if the allegations were true,
federal small business contracting programs were at risk and
achievement of federal socioeconomic goals would be undermined.
Summary
The hearing was comprised of the following witnesses: the
Hon. Angela Styles, Administrator, Office of Federal
Procurement Policy, Office of Management and Budget,
Washington, DC; Lloyd Chapman, Microcomputer Industry Suppliers
Association, Novato, CA; Fred C. Armendariz, Associate Deputy
Administrator for Government Contracting, United States Small
Business Administration, Washington, DC; Felipe, Mendoza,
Associate Administrator, Office of Small Business Utilization,
General Services Administration, Washington, DC; Kenneth W.
Robinson, President and CEO, Kenrob and Associates, Inc.,
Leesburg, VA; Steven L. Schooner, Professor of Law, George
Washington University, Washington, DC; and, David E. Cooper,
Director, Acquisition Sourcing Management, General Accounting
Office, Washington, DC.
An Executive Branch official expressed the view that the
federal government should take the steps necessary to ensure
that contracts intended for small businesses were not obtained
by large businesses and that business opportunities for small
businesses are increased. Instances were found where agencies
were acting on inaccurate or misleading data in making contract
awards. One corrective step taken by OFPP was to notify the
four executive agencies offering government-wide acquisition
contracts (GWACs) for information technology of OFPP's
intention to require annual certification of size status by
businesses listed as small on each GWAC. Without such annual
certification a business could be identified as small well
after it became a large business. The gravity of bundling
contract requirements as an issue was emphasized as well as the
importance to small businesses of agencies being required to
unbundle contracting opportunities.
Mr. Armendariz reported that SBA had removed from PRO-Net
over 600 companies that had initially been listed as small
businesses, but that were in fact large businesses. The
accuracy of reports concerning the size of prime contractors as
well as subcontractors as small or large businesses was
questioned. Also, Mr. Armendariz reported that in FY2002 there
were 383 size determination protests filed with SBA, that 110
were dismissed on procedural grounds, and that 85 resulted in
finding that the business was other than small.
Mr. Armendariz expressed the view that the major source of
complaints that large businesses are getting contracts intended
for small businesses stemmed from the GSA Multiple Award
Schedule program, including Federal Supply Schedule or other
multiple award and GWACs contracts. A rule was proposed by SBA
for comment to require annual certification of small business
status for multiple award and GWACs contracts. The rule would
change the present practice of permitting an initial
certification to last the life of the contract. This could be
as long as 20 years even though the size of a business had
changed from small to large. Mr. Mendoza reported that GSA was
requiring for multiple-award schedule contracts and other
multiple-award contracts that re-certification occur prior to
exercising an option period.
Lax enforcement of laws and regulation intended to help
small businesses has deterred small businesses from competing
in the federal marketplace. Professor Schooner reported that
the 23 percent goal of contract dollars going to small business
was not met in the past two fiscal years, however, the share
going to small businesses was above the 20 percent level during
this period. GAO found that the major cause of misreporting
small business participation in federal procurement was
regulations permitting a company to be considered small over
the life of a contract even though during that period its size
had changed. Another important cause of misreporting was the
use of bad or confusing data. Efforts were underway by SBA,
OFPP and GSA to resolve some of the issues presented.
For further information on this hearing, refer to committee
publication 108-12.
7.2.8 the wto's challenge to the fsc/eti rules and the
effect on america's small businesses
Background
On May 14, 2003, the Committee on Small Business held a
hearing to examine the World Trade Organization's challenge to
the Foreign Sales Corporation (``FSC'') and Extraterritorial
Income Exclusion (``ETI'') rules of the Internal Revenue Code
and the effect this challenge will have on America's small
business owners.
Like many other countries, the United States has long
provided export-related benefits under its tax laws. For most
of the last two decades in the United States, these benefits
were provided under the FSC tax rules. In 2000, the European
Union (``EU'') succeeded in having the FSC regime declared a
prohibited export subsidy by the WTO. In response to this
ruling, the United States repealed the FSC rules and enacted
the ETI tax rules. The EU immediately challenged the ETI regime
in the WTO and, on January 14, 2002, a WTO appellate body held
that the ETI regime constituted a prohibited export subsidy
under the relevant trade agreements. During August of 2002, a
WTO arbitration panel determined that the EU was entitled to
over $4 billion of annual countermeasures against the United
States for failure to repeal its ETI rules. At the time of the
hearing, the EU had not yet imposed sanctions against U.S.
exports but strongly suggested it would if the ETI regime was
not repealed before the end of 2003.
In order to bring the U.S. into compliance with the WTO
ruling, Chairman Manzullo, together with Rep. Crane (R-IL) and
Rep. Rangel (D-NY), introduced on April 11, 2003, H.R. 1769,
the Job Protection Act of 2003. In summary, the Crane-Rangel-
Manzullo bill would replace the current-law ETI benefit with an
exclusion from tax of up to 10 percent of the income
attributable to domestic production.
Summary
The first panel consisted of the Hon. Philip M. Crane (R-
IL) and the Hon. Charles B. Rangel (D-NY). Representatives
Crane and Rangel outlined the provisions included in H.R. 1769,
the Job Protection Act of 2003, including the repeal of ETI
benefits, transition rules for current ETI recipients and the
phase-in of a new permanent tax deduction for U.S. companies
based on their domestic manufacturing and production
activities.
The second panel consisted of Dr. Clyde C. Hufbauer, the
Reginald Jones Senior Fellow at the Institute for International
Economics, Washington, DC; Ms. Thea Lee, Assistant Director for
International Economics, AFL-CIO, Washington, DC; Mr. Doug
Parsons, President and CEO of Excel Foundry and Machine, Pekin,
IL; and Mr. Wayne Fortun, President and CEO of Hutchinson
Technology, Inc, Hutchinson, MN.
Dr. Hufbauer reviewed the tortured history of the WTO
challenge to the FSC/ETI rules. He also reviewed some of the
competing solution advanced to address this challenge. He
concluded that among the exiting ETI reform proposals, H.R.
1769 ``best serves the American economy.'' Ms. Lee testified
that U.S. manufacturing is in crisis and pointed out that for
the past 33 months, manufacturing jobs in the U.S. had
declined, the longest such stretch since the Great Depression.
She also praised the approach embodied in H.R. 1769 and stated
that the AFL-CIO has publicly endorsed the bill.
Mr. Parsons and Mr. Lee emphasized the impact the repeal of
the ETI rules would have on domestic manufacturing, absent an
adequate replacement. Mr. Lee pointed out that H.R. 1769 would
provide an effective corporate rate reduction of 3.5 percent,
thereby allowing his company to recoup a portion of the loss
resulting from a repeal of ETI benefits.
For further information on this hearing, refer to committee
publication 108-14.
7.2.9 the visa approval backlog and its impact on american
small business
Background
On June 4, 2003, the Committee on Small Business held a
hearing at to investigate the impact that significant delay in
the issuance of business visas is having on the ability of
American exporters to reach their customers. Many small
business and manufacturers in particular have lost sales
opportunities because their potential customers have found it
difficult to obtain a visa to visit the United States.
Summary
The hearing was comprised of one panel made up of: Janice
L. Jacobs, the Deputy Assistant Secretary for Visa Services,
United States Department of State, Washington, DC; Robert J.
Garrity, Deputy Assistant Director, Federal Bureau of
Investigation, Washington, DC; Mr. Gary Shapiro, President &
CEO, Consumer Electronics Association, Arlington, VA; Mr. Chip
Storie, Vice President, Aerospace Sales, Cincinnati Machine
Inc., Cincinnati, Ohio; Mr. William J. McHale, Vice President,
Sales for Kanawha Scales & Systems, Inc., Poca, WV; Ms. Palma
R. Yanni, the President-elect, America Immigration Lawyers
Association, Washington, DC; and Mr. William A. Reinsch,
President of the National Foreign Trade Council, Inc,
Washington, DC.
The hearing testimony and questions focused particularly on
the State Department's efforts to adapt to the new security
requirements and the impact of ongoing procedural delays on the
business climate. Ms. Jacobs testified that while in certain
respects and for some applicants, obtaining a US visa has
become a lengthier process, it is also true that in virtually
all of these cases delays have been the result of our efforts
and those of other federal agencies to increase the security of
our borders and of our homeland. So too, Jacobs stated that the
Department is making changes to increase automation with the
creation of an interagency network known as OSIS, i.e. Open
Source Information System. The DOS pledged to spend close to $1
million over the next year to eliminate telegrams from overseas
posts as the vehicle for disseminating cases to other federal
agencies in the security advisory opinion process. The hope is
that the State Department will use real-time data-share and
eliminate virtually all manual manipulation of routine data.
Mr. Garrity testified that the FBI is working diligently
with the Department of State toward the common goal of
improving the expediency and efficiency of the visa clearance
process. Since September 11, 2001 the number of name checks
submitted to the FBI has grown by more than 300 percent. This
has proved to be a big challenge for the bureau.
Mr. Reinsch argued that the federal agencies appear to have
lowered the bar of what qualifies as a security threat, with
the result that applications for individuals who were never
previously considered threats have become subject to lengthy
delays, compromising the ability of the interagency process to
provide a speedy and thorough response.
Ms. Yanni focused her testimony on the existing backlog and
stated that many applications that not along ago were
considered easily approvable are now denied, invoking an appeal
process that in itself can take one year or more. Further, she
maintained that many of the applications now being denied are
similar, on the exact same facts and law, as requests that had
approved a couple of years ago. These denials seem to happen
most often to small businesses. Mr. McHale testified about the
problems with his foreign employees, existing clients, and
prospective future customers face when trying to obtain travel
visas to the U.S for the purpose of business discussions,
design liaison meetings, employee training, plant and equipment
inspections. He was especially concerned about delays for
customers in China.
Mr. Storie claimed that the visa delays certainly do not
help promote trade and may in fact be driving potential
customers to our European and Japanese competitors.
Mr. Shapiro, testifying for the CEA and the International
Association for Exhibition Management, expressed serious
concerns that the delay in the issuance of business visas and
the resulting injury to America's reputation as the leading
location for industry trade fairs. He argued that this climate
is forcing many events to consider moving their exhibitions
overseas.
In summary, the committee concluded that improvements need
to be made to streamline the process of processing applications
and that special efforts may be needed immediately to allow
bona fide business travelers to receive expedited processing of
their applications. This might include providing special times
for face-to-face interviews or other accommodations. For
further information on this hearing, refer to Committee
publication #108-17.
7.2.10 revitalizing america's manufacturers: sba business
and enterprise development programs
Background
On Wednesday, June 11, 2003, the Committee on Small
Business held a hearing to evaluate what changes might be made
in the Small Business Administration's (SBA) non-financial
programs to assist small manufacturers. The SBA provides
government procurement, technical, and managerial assistance to
small businesses and would-be entrepreneurs.
Procurement assistance is provided through a number of
avenues. Foremost, the SBA acts as an advocate of small
business capabilities during major government procurements.
Second, the SBA oversees the operation of a number of programs
designed to ensure maximum contract opportunities to small
businesses, small businesses located in low-income areas, and
small businesses owned and controlled by women or minorities.
Technical and managerial assistance is provided through
four primary programs. Small business development centers
(SBDCs) are located primarily at colleges and universities and
provide marketing, financing, start-up, and other assistance at
more than 1,000 sites. The Service Corps of Retired Executives
or SCORE provides small business assistance through the
volunteer efforts of its members, the vast majority of whom are
retired businessmen and women who offer their expertise and
experience to small business owners. The 7(j) technical
assistance program provides financing for technical assistance
to the minority contracting community primarily through courses
taught at universities and direct assistance from management
consultants contracted by the SBA. The Women's Business Center
(WBC) program provides business training for women by teaching
women the principles of finance, management, and marketing.
There are about 93 centers scattered throughout the United
States.
Summary
The hearing consisted of two panels. The first panel
examined the SBA's procurement assistance programs and the
second examined the technical assistance programs.
The members of the first panel were: Mr. Daryl Hairston,
Deputy Associate Deputy Administrator, Office of Government
Contracting and Business Development, Small Business
Administration, Washington, DC; Mr. Anthony Robinson,
President, Minority Business Enterprise Legal Defense and
Education Fund, Lanham, MD; Mr. Lonnie Sanders, President, C&S
Trading, LLC, Washington, DC; and Ms. Alba Aleman, President,
Cairo Corp., Manassas,VA.
The members of the second panel were: Ms. Kaaren J. Street,
Associate Deputy Administrator, Office of Entrepreneurial
Development, Small Business Administration, Washington, DC; Ms.
Kersten Hostetter, Executive Director, Microbusiness
Development Corp., Denver, CO; Ms. Susan R. Whitfield,
Director, McHenry County College Small Business Development
Center, Crystal Lake, IL; Ms. Hedy Ratner, Co-President,
Women's Business Development Center, Chicago, IL; and Mr. Lee
Smith, Director, Southern Arizona BusinessLINC, Tucson, AZ.
Mr. Hairston testified about the operations of the
individual government contracting assistance programs. He cited
a number of changes in those programs including: the launch of
a series of nationwide procurement matching conferences;
implementation of the President's anti-bundling strategy;
automation of applications to participate in the 8(a)
government contracting assistance program; simplification of
SBA size standards; and development of a procurement academy
under the 7(j) technical assistance program. Finally, Mr.
Hairston testified about the integration of the SBA's
government contracting database with that run by the Department
of Defense.
Mr. Robinson testified that there were major disconnects
between the manufacturing sector and the minority procurement
programs operated by the federal government. The first
disconnect is that if a business owner exceeds a net worth of
$250,000, they must exit the 8(a) program. For small
manufacturers with a significant investment in plant and
equipment, participation simply is not possible. Second, the
support programs for small manufacturers, in particular the
Manufacturing Extension Partnership (MEP) program, have done
little outreach to small manufacturers in the minority
community. Finally, Mr. Robinson testified about the delegation
of the SBA's responsibilities under the 8(a) program to other
federal agencies.
Mr. Sanders testified about his experiences as a HUBZone
contractor with the Department of Agriculture. He criticized
the Department for not recognizing that he was ineligible to
participate until after he made a significant commitment of
time and resources. Second, he requested that the Committee
modify the requirements in the HUBZone program to permit the
Department of Agriculture to purchase commodities from
wholesalers.
Ms. Aleman first noted that the procedures for obtaining
certification under the 8(a) program are extremely burdensome,
invasive, and time-consuming. She then testified that it took
over two years to obtain her first 8(a) contract. Since her
company is relatively new and without a strong track record,
she cannot rely on large prime contractors providing her with
subcontracts. Thus, in order to grow her business, Ms. Aleman
opined that she needed prime contracts and the 8(a) program is
a vitally significant route in obtaining those contracts. She
testified about the disparities between the 8(a) and HUBZone
and requested that the Committee examine ways to remove the
disparities to enable 8(a) contractors to operate on a level
playing field with HUBZone firms.
Ms. Street testified about the SBA's commitment to serving
America's entrepreneurs. She noted that the SBA was reforming
its entrepreneurial development programs to ensure better
coordination among them. In particular, the SBA wanted to
transform those programs into a more client-based system
without regard to the center from which the business seeks
assistance. She then went on detail changes that are being made
in each of the programs to enhance their attractiveness to
small business owners.
Ms. Hostetter noted that the vital role that
microenterprise development can play in economic growth. For
example, in Colorado, there are 412,000 microenterprises
generating nearly 20 percent of the state's employment. But
that role is hindered by a lack of capital and technical
assistance. She testified that the PRIME program provides
important technical advice to microenterprises and should
receive an increase in funding by at least $5 million.
Mrs. Whitfield testified about the typical day faced by a
SBDC. Such a day might include a breakfast meeting with the
local chamber of commerce and a discussion with prospective
business owners about their plans for construction of a
building. Then it was to answering hundreds of e-mails. Small
businesses would then show up for free counseling. In addition,
the staff at a SBDC must maintain active surveillance on dozens
of federal programs and changes in regulations. For
manufacturers, the SBDC staff would visit facilities to better
understand the manufacturing processes and help them with any
questions they might have. She ended her testimony by noting
that SBDCs generate $2.09 for every dollar invested by the
taxpayer.
Ms. Ratner noted that her WBC provides bilingual advice to
both men and women in metropolitan Chicago. She then noted the
importance of women entrepreneurs in today's economy. Women
business owners, according to Ms. Ratner, continue to need
information, guidance, and training that often are only
available from WBCs. Her center alone counseled over 35,000
women during its existence. She concluded her testimony with a
plea for continued and expanded funding of WBCs.
Mr. Smith testified about the operation of the BusinessLINC
program in expanding opportunities for America's manufacturers.
He noted that the Southern Arizona BusinessLINC program created
a database of large manufacturing facilities in Sonora, Mexico
that could be supplied by small American manufacturers.
Furthermore, the Southern Arizona BusinessLINC program found
small American suppliers for a Bombardier plant in Ireland. He
concluded his testimony by noting that the governor of Arizona
is making supply chain development a top initiative.
In sum, the committee took away many positive suggestions
on how to reform the non-finance programs at the SBA to further
help struggling small manufacturers. For further information,
please refer to Committee publication #108-18.
7.2.11 globalization of white-collar jobs
Background
A recent Business Week article highlighted what it called,
``The New Global Job Shift.'' The cover read, ``IS YOUR JOB
NEXT? A new round of GLOBALIZATION is sending upscale jobs
offshore. They include chip design, engineering, basic
research--even financial analysis. Can America lose these jobs
and still prosper?'' That is the question.
With more and more manufacturing being done overseas, we
continue to see the erosion of a domestic manufacturing base.
Prevailing economic theory suggests that it is good for America
and good for the world for blue-collar jobs to be done
elsewhere while we concentrate on keeping and developing
highly-skilled, white-collar jobs here. In theory it sounds
fine, but we are now seeing these very same highly-skilled jobs
(i.e. architecture, engineering, software development) being
done offshore.
Since July 2000 the manufacturing sector has lost 2.6
million jobs. What most people do not understand is how closely
the service sector is tied to the manufacturing sector. Every
$1 million in manufacturing sales equates to fourteen jobs, six
of which are in the service sector. According to Forrester
Research, 3.3 million white-collar jobs and nearly $140 billion
in white-collar wages will shift from the U.S. to other
countries in the next 12 years.
On June 18, 2003, the Committee on Small Business held a
hearing to discuss the impact of outsourcing of white-collar
jobs to the American economy and what role, if any, should the
federal government play in helping to improve the global
competitiveness for white-collar jobs.
Summary
The witnesses for the hearing were: the Hon. Nancy Johnson
(R-CT); the Hon. Bruce Mehlman, Assistant Secretary for
Technology Policy, United States Department of Commerce,
Washington, DC; Mr. Pete Engardio, Business Week Magazine, New
York, NY; Mr. Ron Hira, Ph.D., P.E., Chair, Research and
Development Policy Committee, Institute of Electrical and
Electronics Engineers, Washington, DC; Mr. John Challenger,
CEO, Challenger, Gray & Christmas, Inc., Chicago, IL; Mr. John
Palatiello, Administrator, Council on Federal Procurement of
Architectural & Engineer Services, Reston, VA; Mr. Christopher
Kenton, Cymbic, Inc., San Francisco, CA; and Mr. Paul Almeida,
President, Department of Professional Employees, AFL-CIO,
Washington, DC.
Rep. Johnson said Congress needs to reevaluate guest worker
visa programs. H1B visas were increased in 1999 for Y2K
preparation. Currently, however, the shortage has vanished, and
it is no longer necessary or prudent to allow companies to
funnel foreign workers into the United States with no annual
limits. Further, L1 Visa rules should also be examined. Non-
dependency companies are given much more leeway than dependant
companies.
Assistant Secretary Bruce P. Mehlman testified that
America's future lies in education and ``sustained
innovation.'' Ever advancing technologies continue to
accelerate the process of ``creative job destruction,'' making
former tasks and procedures obsolete. In an effort to employ
more Americans, we must focus on improving math and science
education. Also, tax and trade regulations, in addition to
infrastructure protection should remain central to government
efforts to remedy developing outsourcing problems. He warned,
however, that the United States continues to export
approximately 7.9 billion dollars of IT services each year, and
it would be unwise to stop buying from elsewhere and begin a
process that might harm our economy further.
Pete Engardio, a senior editor from Business Week, believes
the outsourcing problem is in part caused by a mismatch between
the skills being taught at various schools and the skills
required on the job. On the other hand, the problem is complex,
and may, in part, be due to a painful transition caused not
merely by skill shortages. Nevertheless, government should
continue to focus on education.
Ron Hira, representing IEEE-USA, stated that further
research and timely information regarding current outsourcing
is necessary (i.e. information about which jobs are being
lost). Because of stricter immigration regulations following
the September 11th tragedy, companies are finding it easier to
outsource jobs than move employees to the United States. He
recommended that the World Trade Organization's agencies on
trade and services should be followed closely.
John Challenger, CEO of Challenger, Gray, and Christmas,
Inc., said the education system in the United States must be
improved to meet current workforce needs and the changing job
paradigm. Lifelong education continues to remain essential in
the United States where individuals may very well find
themselves working for six or more companies in the course of a
lifetime. The government should pursue tuition reimbursement
and skills training programs to help individuals focus on
effective job transitions. Tax credits for re-education is a
possible suggestion, along with awarding contracts to small
companies with local workforces.
John Palatiello, Administrator for the Council on Federal
Procurement of Architectural and Engineering Services,
identified several issues of national interest. First, for
security purposes, the United States' Government cannot
continue to allow outsourcing of sensitive intelligence related
projects (for example, blueprints for state of the art nuclear
power plant facilities and the like should not be drawn by
architects in foreign countries). Second, the Prevailing Wage
Act and the Service Contract act should also be investigated
because they only apply to work performed within the United
States. Third, Federal Prisons ability to compete for lucrative
contracts is problematic. Finally, taxes, litigation, and
healthcare costs make it ever difficult to hire in the United
States.
Christopher Kenton, CEO of Cymbic, Inc., testified that the
Federal government should continue promoting innovation and
investigating regulatory policies to level the playing field
among nations.
Paul Almeida, President of the Department for Professional
Employees, AFL-CIO, indicated that tax policy should be
consistent at national, state, and local levels, and companies
should not be given relief if they do not provide local jobs.
He recommended that more research should be done regarding the
role our trade policies play in global outsourcing.
The hearing concluded with the Chairman's call for action
on several of these issues. For further information on this
hearing, refer to Committee publication 108-20.
7.2.12 foreign currency manipulation and its effect on
small manufacturers and exporters
Background
On June 25, 2003, the Small Business Committee held a
hearing to discuss the impact of foreign currency manipulation
and its effect on small manufacturers and exporters across the
country. The U.S. has lost over two million manufacturing jobs
during the recession. Our biggest Asian trading partners have
implemented a strategy of currency under-valuation in order to
gain a competitive advantage for their exports by making them
cheaper. It is estimated that the actions by China, Taiwan,
South Korea, and Japan have essentially given their exporters a
15 to 40 percent reduction, which in turn acts as a tax by the
same percentage on U.S. manufacturers and exporters. Japan has
systematically intervened in the currency markets to reduce the
value of the yen. Manipulation of exchange rates for the
purpose of achieving an unfair competitive advantage is illegal
under international protocols.
Since 1994, the Chinese government has kept its currency
pegged at 8.2 yuan to the dollar. China has experienced
economic growth, gains in productivity, a large export sector,
and increased foreign investment, all factors that would cause
its currency to appreciate if it were allowed to freely move.
It is estimated by many economists that the yuan is undervalued
by as much as 40 percent.
Summary
There was one panel consisting of Dr. C. Fred Bergsten,
Director, Institute for International Economics, Washington,
DC; Robert A. Blecker, Professor of Economics, American
University and Research Associate, Economic Policy Institute,
Washington, DC; Steve Yagle, President Reliable Machine,
Rockford, IL; Jay Bender, President, Falcon Plastics Inc.,
Brookings, SD; George Jones, President, Seaman Paper Company of
Massachusetts, Inc., Otter River, MA; Edward M. Tashjian, Vice
President, Marketing, Century Furniture, Hickory, NC; Paul
Freedenberg, Director of Government Relations, Association for
Manufacturing Technology, McLean, VA; and Cass Johnson, Senior
Vice President, American Textile Manufacturers Institute,
Washington, DC.
Dr. Bergsten testified that to date, the dollar has fallen
by about 30 percent against the euro but only about 15 percent
against the yen and not at all against the Chinese renminbi. He
explained that it is imperative for China to let its currency
start to rise in the exchange markets in order to contribute
directly to the needed U.S. adjustment and to permit other East
Asian currencies (including the yen) to rise more extensively
as well.
Dr. Blecker testified that East Asian countries have
amassed reserves of well over $1 trillion U.S. dollars as a
result of their efforts to keep their own currencies
undervalued and maintain their artificial competitive
advantages in the U.S. market. The tangible effects of this
are: (1) a loss of three-quarters of a million U.S.
manufacturing jobs; (2) a decline in profits on U.S.
manufacturing operations of about $100 billion per year; and
(3) a reduction in capital expenditures at U.S. manufacturing
plants of over $40 billion annually.
Steve Yagle testified that the Chinese government
manipulates the value of its currency, which artificially
lowers the prices of Chinese goods in the U.S. while making his
products more expensive in China. An Illinois Manufacturing
Extension Center Survey reported that over 60 percent of the
manufacturers surveyed reported that they are experiencing
severe competition from China and have lost market share.
Moreover, 46 percent of all respondents said they expected
competition from China to reduce their sales by an average of
about 16 percent in 2003 with more losses expected in the next
few years.
Jay Bender testified that for the past several years,
American manufacturing lost almost 2.5 million jobs and
industrial production has stagnated. During this same period,
Falcon Plastics, owned by Mr. Bender, has gone from employing
over 300 people to just 200. American manufacturers compete
against Chinese companies that have access to a vast low-wage
labor pool. These Chinese companies have minimal health,
environmental and safety standards that are far below that of
the United States, in addition to an undervalued Chinese
currency that makes its products even cheaper to buy.
George Jones testified that U.S. manufactured paper and
wood products are being disadvantaged in the U.S. and global
marketplaces due to Chinese currency manipulation and
government subsidization of new manufacturing capacity. The
Chinese government has intentionally kept the value of its
currency abnormally low to create a competitive advantage for
their products at the expense of U.S. produced goods.
Edward Tashjian testified to the negative effect of the
undervalued Chinese currency on his industry by saying that a
Chinese furniture manufacturer can sell identical furniture for
significantly less because of cheap labor costs, few
regulations on labor and the environment, and the currency
issue. He went on to say that because furniture is a ``big
ticket'' item, when a U.S. furniture manufacturer loses a sale
to his Chinese competition, it is many years before that
company gets another shot at the customer.
Paul Freedenberg testified that for the machine tooling
industry that orders are off more than 60 percent since their
peak in 1997. Import penetration has increased more than 40
percent in the past four years, due, in large part, to an
overvalued U.S. dollar, which has only recently receded from
its heights in relation to European currency. But these same
countries continue to allow anti-competitive subsidies, which
further add to our competitive problems. More than 30 machine
tool companies have closed their doors in the past 18 months,
representing nearly 10 percent of the companies in the entire
industry.
Cass Johnson testified to the state of the textile
industry, reminding the Committee that when China cut the value
of its currency by about 40 percent in 1994, it was followed
three years later by a similar collapse in the currency values
of China's more direct Asian competitors. So, it should not be
a surprise that the U.S. manufacturing sector suffers from its
worst recession since the Great Depression. As Chinese and
other Asian currencies have been devalued, prices for textile
and apparel products from these countries have fallen by as
much as 38 percent, further compounding the problem.
In sum, the Committee concluded that Congress and the Bush
Administration needed to act quickly and decisively to stop
foreign governments, particularly those in East Asia, from
undermining the value of their currency at the expense of the
U.S. dollar if we are to have a small manufacturing base in
this country. For further information on this hearing, refer to
Committee publication #108-21.
7.2.13 saving the defense industrial base
Background
On Wednesday, July 9, 2003, the Committee on Small Business
held a hearing that focused on preserving America's defense
industrial base.
On May 22, 2003, the Office of Management and Budget
released its Statement of Administration Policy (SAP) raising
concerns about various sections of the House version of the
National Defense Authorization Act for FY 2004 (HR 1588).
Specifically, the Administration objected ``strongly'' to the
enhanced ``Buy American'' provisions of HR 1588 (Title VIII
Subtitle B) because they were ``burdensome, counterproductive,
and have the potential to degrade U.S. military capabilities.''
In addition, the SAP readily admitted that the U.S. is no
longer on the leading edge of some critical technologies
crucial to our defense needs by claiming that the ``Buy
American'' provisions of HR 1588 ``will unnecessarily restrict
the Department of Defense's ability to access non-U.S. state-
of-the-art technologies and industrial capabilities.'' The
purpose of the hearing was to have the Administration explain
in more detail the rationale for their position on the ``Buy
American'' provisions in HR 1588 and to discuss what can be
done to recover America's lost edge in certain high technology
products, many of which are produced by small businesses.
Summary
The panelists were: the Honorable Suzanne D. Patrick,
Deputy Undersecretary, for Industrial Policy, Department of
Defense; the Honorable Mathew S. Borman, Deputy Assistant
Secretary for Export Administration, Department of Commerce;
Timothy G. Rupert, President and Chief Executive Officer, RTI
International Metals, Inc., representing the Specialty Metals
Coalition; Matthew B. Coffey, President, National Tooling and
Machining Association (NTMA); Chip Storie, Vice President for
Aerospace Sales, Cincinnati Machine, representing the
Association for Manufacturing Technology (AMT); Olav Bradley,
Tooling Division, PM Mold Company, representing the American
Mold Builders Association (AMBA).
It was the view of Ms. Patrick of the Pentagon that the
downturn in the U.S. economy had no significant impact on the
defense industrial base since the defense aerospace industries
return on invested capital was higher than the average for the
S&P 500. In her opinion, there is no need to revitalize the
defense industrial base nor is vulnerability caused by
dependence upon foreign products or technology.
Mr. Borman stated that the Department of Commerce believed
that there was a crisis in manufacturing: however, the
Department of Defense was of the view that the defense
industrial base is secure. The Pentagon was also of the view
that the ``Buy American'' provisions of HR 1588 severely
restricted the ability of the military to develop new weapon
systems because of the need for foreign participation and
technologies.
However, the small manufacturing representatives on the
panel had a different perspective. Over 2.7 million of jobs
have been lost in the U.S. manufacturing sector since July
2000. In the 1950s, 48 percent of the U.S. Gross Domestic
Product (GDP) was attributable to manufacturing. This figure
has now dropped to 14 percent. The multinational corporations
that dominate the defense industry seek the lowest costs for
items with little concern for the defense industrial base and
the survival of sectors essential to manufacturing, e.g., the
machine tool industry which is presently in crisis. Though the
machine tool industry has been an important part of the defense
industrial base for over a century, a number of innovative
machine tool companies, including tool & die and industrial
mold makers, have gone out of business in recent years. This
situation weakens the industrial base and creates dependency
upon foreign sources.
The private sector panelists believed that steps must be
taken to create a level playing field to keep basic
manufacturing skills in this country. Correcting the currency
imbalance issue with China is one such step as are the
elimination of offsets in defense trade (as an informal
condition of purchasing a U.S. weapon system, the foreign
country requires that a large U.S. defense contractor buy or
market a certain amount of goods made in the particular foreign
country in the U.S., usually at a higher value than the cost of
the weapon system) and the establishment of fair trading rules.
The small manufacturers concluded that when we give away our
ability to make things by losing the machine tool industry,
this nation is also losing the innovation and creativity that
goes with manufacturing.
For further information about this hearing, please refer to
hearing report #108-23.
7.2.14 doctors as small businesses, field hearing,
frederick, maryland
Background
On Monday, July 14, 2003, the Small Business Committee held
a field hearing to examine America's approaching a national
doctor crisis--a shortage of qualified private practice doctors
who will spend the quality time to care for our nation's sick.
Burdensome regulations and delays in payment both from the
private and public sectors make it very difficult for doctors
and other medical professionals to operate as a business.
Doctors are caught in the middle of fee for service schedules
set by government and private health insurance carriers and
rapidly increasing malpractice insurance premiums.
Summary
There were two panels that testified during this hearing.
The first panel consisted of: Dr. and Mrs. Camilo Toro,
Frederick Neurology, LLC, Frederick, MD; Elizabeth Chong,
Practice Administrator, Frederick, MD; Dr. Michelle Thomas,
Mitchellville, MD; and Dr. James Pendleton of Bryan Athyn, PA.
The second panel included Greg Scandlen, Galen Institute,
Alexandria, VA; Dr. Chris Unger of Bethesda, MD; Linwood
Rayford, Assistant Chief Counsel, Office of Advocacy, United
States Small Business Administration, Washington, DC; and
William A. Sarraille, Esq., Sidley Austin Brown & Wood LLP,
Washington, DC.
Dr. and Mrs. Camilo Toro testified that they increasingly
spend less time caring for patients because of the overwhelming
nature of insurance reimbursement and Medicare reimbursement
paperwork. Dr. Toro's wife, who is the office manager of her
husband's practice, stated that insurance and Medicare only
reimburse 20 percent to 50 percent of the claims that are
submitted.
Elizabeth Chong testified that her husband's practice has
absorbed $28,570 in losses due to worker compensation claims
that weren't reimbursable (not including insurance or
Medicare). Increasingly, greater blocks of time are spent on
diminishing returns.
Dr. Michelle Thomas testified that curbing frivolous
lawsuits is necessary to preserve the economic viability of
physician practice. She further stated that in 1995 there were
14 companies underwriting medical malpractice insurance. Today,
in Maryland, there are now just three companies providing
insurance. She stated that the time spent on administrative
paperwork is approaching 40 percent to 50 percent of the
workday for small practices.
Dr. James Pendleton spoke of the many burdens small
practices face saying that it is very difficult for small
practices to survive. He stated that some hospitals have closed
trauma and emergency centers because of spikes in medical
liability insurance. Dr. Pendleton expressed his strong support
for medical liability reform to curb these costs. He also spoke
of his strong support for Medical Savings Accounts, but feels
that currently they are too hamstrung by government regulation.
Greg Scandlen spoke of the four main obstacles small
physicians face with their practice: (1) inadequate
reimbursement; (2) excessive regulations; (3) burdensome
administrative requirements; and (4) an out of control tort
system. He strongly advocated a consumer driven health care
system.
Christopher Unger spoke of the growing shortages in the
medical field from nurses and primary care givers; from
surgeons and hospitals due to the increasingly regulated nature
of healthcare, which constrains healthcare providers from their
primary duty, patients. Additionally, more regulations will
drive up the cost of healthcare even further.
Linford Rayford spoke of the increased regulations that
medical professionals must operate under, particularly from the
Department of Health and Human Services (DHS) and the Centers
for Medicare and Medicaid Services (CMS), as well as from
legislation including the Health Insurance Portability and
Privacy Act (HIPPA) and Privacy Rule. SBA's Office of Advocacy
has challenged several mandates by DHS and CMS, hoping that
changes will reduce the burdens small doctor practices face.
William Sarreille testified that compliance with payment
structures and government regulation produce a great hardship
on individual or small doctor practices. Financial threats,
regulatory burdens, and other challenges overwhelm physicians
to the point that many practicing doctors are looking at early
retirement and fewer students are encouraged into medicine. A
decline of doctors is happening and it will lead to a shortage
of physicians in the future.
In sum, the Committee concluded that the federal government
needs to remember that most medical professionals are small
businesses and that too much regulation, no matter how well
intentioned, could cause a shortage of health care in the very
near future as physician practices close because of basic
economics. For more information, please refer to Committee
publication, #108-24.
7.2.15 assisting small businesses through the tax code:
recent gains and what remains to be done
Background
On July 23, 2003, the Committee on Small Business held a
hearing to highlight recent changes to the U.S. tax code
benefiting small business owners and to solicit from small
business advocacy groups additional tax reform proposals for
further assisting small businesses.
On May 28, 2003, President Bush signed into law H.R. 2, the
Jobs and Growth Reconciliation Act of 2003 (Pub. Law 108-27).
This bill provides $320 billion in net tax relief to American
taxpayers over 10 years. Relief granted in the bill that
particularly benefits small businesses included the lowering of
individual income tax rates and an increase in small business
expensing to $100,000 annually.
Summary
The hearing consisted of one panel: the Hon. Thomas M.
Sullivan, Chief Counsel for Advocacy, United States Small
Business Administration, Washington, DC; the Hon. Nina E.
Olson, Taxpayer Advocate, Internal Revenue Service, Washington,
DC; Daniel R. Mastromarco, Esq., Principal, Argus Group,
Arlington, VA; Ms. Dena Battle, Manager, Legislative Affairs,
National Federation of Independent Business, Washington, DC;
Mr. Thomas C. Pitrone, CFP, Principal, Integrity Group,
Cleveland, OH; Mr. Roy Quick, Jr., Principal, Quick Tax &
Accounting Service, St. Louis, MO; and Ms. Janet K. Poppen,
CPA, Poppen & Associates, P.C., St. Louis, MO.
The Honorable Thomas M. Sullivan reviewed the tax benefits
for small businesses contained in H.R. 2, the Jobs and Growth
Tax Relief Reconciliation Act of 2003. He highlights three
provisions: (1) the increase in small business expensing from
$25,000 to $100,000 (effective through 2005), (2) bonus
depreciation permitting taxpayers to expense 50 percent of
qualified investments (generally effective through 2004), and
(3) acceleration of the scheduled reduction in individual
income tax rates (effective the beginning of 2003). Mr.
Sullivan also emphasizes the need for tax simplification and
the danger of too much change in the tax code. Lastly, he urged
Congress to make permanent (1) small business expensing and (2)
death tax repeal and recommended the repeal of the alternative
minimum tax for individuals.
The Honorable Nina E. Olson testified in behalf of a number
of recommendations gleaned from past National Taxpayer Advocate
Reports including permitting self-employed taxpayers to deduct
the cost of health insurance in calculating payroll taxes (H.R.
1873), liberalizing the election of S-corporation status, and
providing a de minimus exception to the passive loss rules,
among others.
Mr. Mastromarco summarizes the findings of a report he
prepared for the National Small Business Association entitled,
``The Internal Revenue Code--Unequal Treatment Between Large
and Small Firms.'' The report concluded that the tax code is
replete with provisions that either expressly discriminates, or
have the economic effect of discriminating, against small
businesses in both intended and unintended ways.
During April 2003, the National Federation of Independent
Business released its annual report entitled, ``Top 10 Ways
Congress Can Help Overtaxed Small Businesses.'' Ms. Dena Battle
included a copy of this release in her testimony for the record
and highlighted three recommendations in particular: (1)
permitting the deductibility of health insurance premiums in
calculating payroll taxes by passing H.R. 1873, the Self-
Employed Health Care Affordability Act; (2) providing an annual
standard home office deduction of $2,500 (indexed for
inflation); and (3) liberalizing the rules governing the
depreciation of automobiles by allowing automobiles to be
expenses.
On behalf of the U.S. Chamber of Commerce, Mr. Roy M. Quick
testified in favor of a number of tax reform proposals to
assist small businesses including permitting self-employed
taxpayers to deduct health insurance premiums in calculating
payroll taxes, permitting the full deductibility of business
meals, and making small business expensing permanent.
On behalf of Women Impacting Public Policy, Ms. Janet
Poppen highlighted the need to permit self-employed taxpayers
to deduct health insurance premiums in calculating payroll
taxes. Her testimony also advocated additional relief by
permitting a 100 percent deduction for medical expenses of
individuals (not just limited to health insurance premiums).
She also advocated other changes such as increasing the
contribution limit to SIMPLE 401(k) plans, providing graduated
corporate tax rates for Professional Corporations, and
permitting the full deductibility of business meals.
For further information about this hearing, please refer to
hearing report #108-29.
7.2.16 small business access to health care
Background
On August 25, 2003, the Committee on Small Business held a
hearing to examine small business access to health care in the
state of West Virginia. The field hearing was held in
Buckhannon, West Virginia along with Representative Shelley
Moore Capito who also serves on the Small Business Committee.
The hearing addressed the rising cost of health care to small
businesses. Of the 43 million Americans without health
insurance, 62 percent are either small business owners and
their families or small business employees and their families.
The problem of the uninsured is very clearly an issue of small
business access to health care at reasonable prices. Well
intentioned reformers in the states and in Congress, over the
last decade, have managed to dramatically increase the cost of
health care and have practically destroyed the small group
market. This has led many companies to drop out of the small
group market in states including West Virginia. In states where
there is no competition for the small business dollar, prices
will continue to rise. The National Association for the Self-
Employed reported in a survey that seven out of ten small
businesses do not provide health coverage to their employees
mainly because of high costs.
Summary
The hearing consisted of the following witnesses: Cynthia
B. Jones, Esq., West Virginia State Chamber of Commerce,
Charleston, WV; Mr. Brian Elliot, Vice President, McGraw-Elliot
Media Group, Elkins, WV; Ms. Jean Hawks, Owner, Fort Hill Child
Development Center, Charleston, WV; Mr. Robert L. Williams,
Executive Secretary, West Virginia Farm Bureau, Buckhannon, WV;
and Mr. James N. Butch, President, Eagle Research Corp., Scott
Depot, WV.
Ms. Jones related the state's history of premium increases
for small businesses and projected that a small business
providing health insurance to an employee with a family in 2007
would have to pay $16,272 on average, compared to half that
cost in 2001. She urged Congress to enact legislation to make
health care more affordable to small business. Mr. Williams
described the plight of the family farm and the difficulty of
getting insurance for a small family. Attempts by the state
farm bureau to purchase group policies for their members were
all ended by the insurance carriers because of profitability.
Ms. Hawks, Mr. Elliot, and Mr. Butch all shared their
experiences in securing health insurance for their small
business' employees and the fact that their premiums had
doubled over the past few years. All called for federal
intervention to improve the small business health market in
West Virginia. During questions the witnesses agreed that
Health Savings Accounts, Association Health Plans, and tax
credits for the uninsured would improve their options and the
cost of health insurance in West Virginia.
For further information on this hearing, refer to the
Committee publication #108-30.
7.2.17 attracting economic growth in rural america
Background
On September 4, 2003, the Committee on Small Business held
a hearing to hear testimony on attracting economic growth for
the rural economy and whether the federal government is
adequately supporting a policy of growth in rural portions of
the country.
Census reports confirm that the slowest population growth
in the country is occurring in rural states and in some areas
population is even declining. A large part of this loss is the
lack of opportunities available. As a key jobs producer, small
business needs a good business climate in order to thrive and
provide job opportunities to those living in rural areas.
Without a healthy employment market workers and their families
will continue to leave rural areas and settle in metropolitan
areas. The transportation infrastructure of roads and airports
built to serve the rural areas will be largely wasted, and the
transportation modes in metropolitan areas will be strained
beyond capacity.
The areas they leave behind deteriorate in many ways.
Schools close down and consolidate; resulting in larger
districts and longer commutes for children. Housing prices
fall, affecting the wealth of homeowners. The property tax base
is reduced that produces a cycle of cutbacks in social
services, which results in the exodus of working age adults and
their children from rural areas. This in turn stimulates still
more of those able to move to do so, and the cycle is
reinforced.
Summary
The panel of witnesses were: the Hon. Thomas Dorr,
Undersecretary for Rural Development, United States Department
of Agriculture, Washington, DC; the Hon. David Sampson,
Assistant Secretary for Economic Development, United States
Department of Commerce, Washington, DC; Mr. Gernard Ungar,
Director of Government Business Operations Issues, General
Accounting Office, Washington, DC; Mark Drabenstott, Vice
President, Federal Reserve Bank of Kansas City, Kansas City,
MO; and Mr. David Freshwater, Ph.D., Professor of Agricultural
Economics, University of Kentucky, Lexington, KY.
Mr. Dorr testified that he is in charge of administering
over 40 programs designed to increase economic opportunity and
improve the quality of life for people living in rural areas.
The RDA has a portfolio of $86 billion in outstanding loans. He
estimated that in 2003 the RDA's programs created or saved
350,000 rural jobs. In his view, the rural economy is beginning
to head in the right direction. President Bush's initiatives on
tax cuts, business growth and energy are all vital parts of
this equation.
Mr. Sampson spoke on the background of his agency, the EDA,
since its founding in 1965. Since that time the EDA has
invested over $12 billion to help distressed rural areas create
environments conducive to job growth and economic opportunity.
There are no inherently low-tech industries, only low-tech
companies that have not yet fully and effectively applied
technologies. Deployment of modern technology, even in old-line
industries, can open new doors of economic opportunity in rural
America.
Mr. Ungar testified about the update to a study he prepared
in 2001 regarding agency compliance with the Rural Development
Act (RDA). Since its inception in 1972 the RDA has not resulted
in many federal facilities being built in rural areas. His
agency has found very little evidence that personnel involved
in decision-making even considered rural areas in citing their
facilities. However, all GAO recommendations contained in their
2001 report have been incorporated by the agencies with one
minor exception. In 1989, 12 percent of federal employees were
located in rural areas. In 2000, this figure was still 12
percent--meaning the RDA had no bottom line impact in
percentage of federal jobs relocating to rural areas.
Mr. Drabenstott testified that the 30 years since the
passage of the RDA have redrawn the rural landscape. The role
of agriculture has diminished. Services have become a much
bigger part of the rural economy, although rural areas have
struggled to capture high-skill, high-wage service jobs. In the
past, rural America relied heavily on manufacturing. Factories
are the single biggest source of income to rural families, and
often offer the highest wages in the area. Many of these
factories moved to rural areas in the past in search of
inexpensive land, labor and taxes. However these advantages are
now being challenged by foreign locations that are still less
expensive. Nearly 200 factories closed down in rural areas in
2002. Many of these opened up again in foreign countries.
Professor Freshwater spoke on rural manufacturing. He
stated that manufacturing is crucial to most non-metropolitan
counties east of the Mississippi, but these counties are facing
limited success with their old development model. The Internet
has had both positive and negative influences on rural America
by allowing work to flow out as well as in. Internet
booksellers for example have eliminated many small bookstores
in rural areas but provided a way for users of high technology
to relocate to more pastoral settings. Rural America is at the
same time the least developed part of the industrialized world
and the most developed part of the developing portion of the
global economy. Federal policy cuts both ways. For example,
electricity deregulation promises to equalize electricity rates
across the nation, but low electricity rates were a critical
factor in economic development in rural areas. Without that
advantage attracting business will be more difficult.
For further information on this hearing, refer to Committee
publication 108-35.
7.2.18 the wto's challenge to the fsc/eti rules and the
effect on america's small businesses
Background
On September 10, 2003, the Committee on Small Business held
a hearing to examine the World Trade Organization's (WTO)
challenge to the Foreign Sales Corporation (``FSC'') and
Extraterritorial Income Exclusion (``ETI'') rules of the
Internal Revenue Code and the effect of this challenge on
America's small business owners. This hearing followed an
earlier hearing by the Committee on the same subject on May 14,
2003.
Like many other countries, the United States has long
provided export-related benefits under its tax laws. For most
of the last two decades in the United States, these benefits
were provided under the FSC tax rules. In 2000, the European
Union (``EU'') succeeded in having the FSC regime declared a
prohibited export subsidy by the WTO. In response to this
ruling, the United States repealed the FSC rules and enacted
the ETI tax rules. The EU immediately challenged the ETI regime
in the WTO and, on January 14, 2002, a WTO appellate body held
that the ETI regime constituted a prohibited export subsidy
under the relevant trade agreements. During August of 2002, a
WTO arbitration panel determined that the EU was entitled to
over $4 billion of annual countermeasures against the United
States for failure to repeal its ETI rules. At the time of the
hearing, the EU had not imposed sanctions against U.S. exports
but strongly suggested it would if the ETI regime was not
repealed before the end of 2003.
In order to bring the U.S. into compliance with the WTO
ruling, Chairman Manzullo, together with Representatives Crane
(R-IL) and Rep. Rangel (D-NY), introduced on April 11, 2003,
H.R. 1769, the Job Protection Act of 2003. In brief summary,
the Crane-Rangel-Manzullo bill would replace the current-law
ETI benefit with an exclusion from tax of up to 10 percent of
the income attributable to domestic production.
Summary
The first panel consisted of: the Hon. Philip M. Crane (R-
IL) and the Hon. Sander M. Levin (D-MI). Representatives Crane
and Levin contrasted H.R. 1769, the Job Protection Act of 2003,
with H.R. 2896, the American Jobs Creation Act (introduced by
the Hon. William M. Thomas (R-CA) on July 25, 2003). The
witnesses praised H.R. 1769 as the appropriate response to the
WTO challenge.
The second and final panel consisted of Ms. Kathryn Kobe,
Chief Economist, Joel Popkin and Co., Washington, DC; E. Leon
Trammell, Chairman, Tramco, Inc., Wichita, KS; Mr. Brian
Doolittle, Vice President, Morton Metalcraft Co., Morton, IL;
Mr. Owen Herrnstadt, Director of Trade and Globalization,
International Association of Machinists and Aerospace Workers,
Washington, DC; and Mr. Lloyd Falconer, Secretary, Seward Screw
Products, Seward, IL.
Ms. Kobe summarized the state of U.S. manufacturing as a
sector struggling for survival. The number of manufacturing
jobs declined by 2.4 million between March 2001 and August 2003
(over 70 percent of the 3.3. million jobs lost in the private
sector during that time period).
Mr. Trammel characterized U.S. manufacturing as ``on life
support.'' He quantified the loss of FSC/ETI benefits to his
company and urged the Congress to enact legislation similar to
H.R. 1769. Mr. Doolittle stated that his company, Morton
Metalcraft, is not a significant recipient of FSC/ETI benefits.
Nevertheless, as a supplier to larger companies that utilize
FSC/ETI such as Caterpillar Inc., he emphasized that what is
good for the health of his customers is good for his company.
He decried the loss of U.S. manufacturing jobs and praised H.R.
1769.
As with other witnesses on the panel, Mr. Herrnstadt spoke
of the crisis in U.S. manufacturing. He described H.R. 1769 as
``making a great deal of sense'' and criticized a rival bill,
H.R. 2896, as containing ``a myriad of corporate tax cuts that
will encourage U.S. jobs to move overseas.'' Mr. Falconer
opined that public policy should promote the export of
products--not jobs. H.R. 1769 is a step in the right direction
because it attempts to maintain the U.S. manufacturing base.
For further information on this hearing, refer to Committee
publication #108-36.
7.2.19 national small business week: small business
success stories
Background
On September 17, 2003, the Committee on Small Business held
a hearing to examine small business success stories. Each year
for the past 40 years, the President of the United States has
issued a proclamation calling for the celebration of Small
Business Week. The celebration honors the estimated 25 million
small businesses in America that employ more than half the
country's private work force, create three of every four new
jobs, and generate a majority of American innovations. In
recognition of National Small Business Week and the 50th
Anniversary of the U.S. Small Business Administration, the
Committee conducted a hearing focusing on several small
businesses that embody the spirit of entrepreneurship.
Summary
The hearing was comprised of one panel of witnesses
including: Maria Thompson President & CEO, T/J Technologies
Inc., Ann Arbor, MI; Lurita Doan, President & CEO, New
Technology Management, Reston, VA; Jordan Glazier, General
Manager, Ebay Business, San Jose, CA; John Collins, CEO,
Fortel, Inc., Washington, DC; Erica Kalick, President, Erica's
Rugelach & Baking Co., Brooklyn, NY; Dave Nenna, Administrator,
Tule River Tribe, Porterville, CA; Randall D. Evans, President,
AccounTeks Business Services, Silver Spring, MD; and Brendan
Walsh, Co-Founder and Vice President, FedBid.com, Fairfax, VA.
Witnesses, in addition to sharing information about their
businesses, discussed the importance of the Small Business
Innovation Research (SBIR) and the Small Business Technology
Transfer (STTR) programs to fostering innovation, the
importance of Small Business Administration (SBA) 7(a) lending
and the Microloan program to providing the capital necessary
for small business formation and growth, small business
contributions to homeland security through new technologies and
creativity, and the power of federal procurement when small
businesses are allowed to compete fairly.
For further information on this hearing, refer to the
Committee publication #108-37.
7.2.20 is america losing its lead in high-tech:
implications for the u.s. defense industrial base
Background
The Advisory Group on Electron Devices (AGED) was
constituted in 1945 to advise the Director of the Defense
Research and Engineering (DDR&E) of the Department of Defense
on investment strategy and analysis of selected issues. AGED is
comprised of Army, Navy, Air Force, Defense Advanced Research
Projects Agency (DARPA), National Aeronautics and Space
Administration (NASA) and other agency representatives as well
as Office of Secretary of Defense appointed industry and
academic consultants.
On September 24, 2002, AGED held a forum with top
Department of Defense (DOD) officials to inspect the loss of
U.S. leadership in manufacturing and technology.
Microelectronics was used as a case study to impute the more
serious general findings on the state of manufacturing and
technology in the United States. The forum revealed two key
findings that nucleated wide spread consensus: (1) U.S.
technology leadership is in decline, and (2) over the last
decade, profound changes in the R&D base are adversely
affecting cutting edge electronics for warfighter superiority
and may potentially slow the engine for economic growth.
Summary
The hearing, held on October 16, 2003, had one panel
comprised of three witnesses: Mr. Thomas Hartwick, Ph.D.,
Chairman, Advisory Group on Electron Devices, Snohomish, WA;
Thomas R. Howell, Esq., DeweyBallatine, LLP, Washington, DC;
and Mr. Ronald Sega, Director, Defense Research and
Engineering, United States Department of Defense, Washington,
DC.
Dr. Sega told the Committee that ``[a]dvanced electronics
are critical to the Department. In fact, it is one of the 12
major elements of the Defense technology area plan and one of
the ten major research areas of the basic research plan.''
Dr. Hartwick testified that offshore movement of
intellectual capital and industrial capability, particularly in
microelectronics, has impacted the ability of the U.S. to
research and produce the best technologies and products for the
nation and the warfighter. Further, the movement of
manufacturing plants offshore breaks up enterprise clusters and
destroys the infrastructure for new business and new products.
Mr. Howell elaborated on extensive research he conducted on
what governments outside the United States are doing to promote
their high technology industries, with a particular focus on
the semiconductor industry, and the challenges these government
measures pose for us. One example is the shift of global
shipped consumption. By 2005, the U.S. share of semiconductor
devices being put into high-tech systems is going to shrink to
18 percent (from 33 percent in 1997) and Asia Pacific's share
will grow to 40 percent and is accelerating.
The hearing concluded with the Chairman's request of the
parties to help the Committee develop a leadership strategy on
several of these issues. For further information on this
hearing, refer to Committee publication 108-41.
7.2.21 the offshoring of high-skilled jobs: part ii
Background
The purpose of this hearing, held on October 20, 2003, was
to highlight the fact that although the U.S. economy has
recovered from the most recent recession, it has largely been a
jobless recovery. Even when jobs are created, they tend to be
low-paying service sector jobs. Concurrently, we have a sharp
rise in productivity, but behind the veil we find that much of
it can be attributed to a sharp rise in offshoring of both
manufacturing and high-tech service jobs. The discussion
focused on the types of jobs being offshored, as well as the
degree to which companies will go to replace high-skilled U.S.
workers with foreign workers. Further, according to a recent
report by the Federal Reserve Bank of New York, what we are
experiencing are permanent structural shifts in the
distribution of workers throughout the economy, which has
contributed significantly to the sluggishness in the job
market.
Summary
There were four witnesses on the panel: Mr. Harris Miller,
President, Information Technology Association of America,
Arlington, VA; Mr. Ron Hira, Ph.D., P.E., Chair, Research and
Development Policy Committee, Institute of Electrical and
Electronics Engineers, Washington, DC; Ms. Natasha Humphries,
Santa Clara, CA; and Mr. Robert Dupree, Vice President,
American Textile Manufacturers Institute, Washington, DC.
All members of the panel agreed that the U.S. faces
unprecedented challenge regarding the types of jobs open to
global competition. The advent of high-speed Internet has
changed the nature of competition for talent. One panelist,
Natasha Humphries, went further. She testified that as a senior
technology professional for a major high tech firm she was
forced to train less qualified technicians in India to do her
job. Shortly after the training was complete, the company fired
her. Additional discussion focused on the fact that U.S.
workers in manufacturing and high tech are finding that no
matter how well they hone their skills, additional education
and training are no competition for the significantly lower-
costs of cheap foreign labor. Panelists agreed that more
support for displaced workers was needed, along with more
government support for collaboration between industry,
academia, workers, and governments to identify policies to meet
these global challenges.
For further information about this hearing, please refer to
committee publication #108-42.
7.2.22 lowering the cost of doing business in the united
states: how to keep our companies here
Background
The purpose of this hearing, held on November 20, 2003, was
to consider the strains placed on U.S. businesses that rely on
domestic visa policies to aid their ability to export goods and
services. Generally, the visa restrictions implemented since 9/
11 could be changed administratively in a very short period of
time, without legislation, so as to ease the way for foreign
nationals to do business with and spend money in the United
States without threatening our national security. Currently,
the United States is needlessly losing tens of millions of
dollars in lost business due to burdensome visa requirements
and significant backlogs in applicant processing.
Summary
There were four witnesses for the panel: Mr. Robert Kapp,
President, U.S.-China Business Council, Washington, DC; William
Norman, President and CEO, Travel Industry Association of
America, Washington, DC; Randel Johnson, Vice President, United
States Chamber of Commerce, Washington, DC; and Palma Yanni,
President, American Immigration Lawyers Association,
Washington, DC.
All members of the panel expressed frustration with the
slowness and difficulties of working with the various executive
agencies responsible for reviewing and approving visa
applications. Each member stated that there are approximately
21 different agencies involved in the process and not one knows
what the other is doing. They also complained that this cloud
of confusion makes it impossible to identify any one person or
agency that can resolve these issues. With numerous meetings
between the organizations represented by the panelists and the
various agencies since 9/11, the testimony was unanimous that
very little improvement has been made in the speed of
processing visas or the transparency of the process within
executive agencies. They urged Congress to appropriate more
money for additional resources to the State Department to
handle the increased responsibilities. They also requested that
Congress relieve the State Department of several deadlines that
will be extremely difficult to meet and only cause even greater
delays.
Finally, the Chairman proposed the creation of a multi-
entry business class visa for Chinese visitors. This would
alleviate the hassle of forcing previously approved business
visitors from China to reapply and re-interview every time they
want or need to come here to buy or inspect American-made
goods.
For further information about this hearing, please refer to
committee publication #108-46.
7.2.23 increasing the competitiveness of u.s.
manufacturers in pennsylvania
Background
On December 1, 2003, the Committee on Small Business held a
hearing to examine ways to increase the competitiveness of
domestic manufacturers in Pennsylvania. The field hearing was
held in Altoona, Pennsylvania, along with Rep. Bill Shuster, a
member of the Committee. Issues that impact the competitiveness
of manufacturers include producing a skilled workforce;
identifying and mitigating harmful regulations; reforming the
tax code to encourage retention, fostering innovation; and
enforcing trade agreements. By December 2003, 2.8 million
manufacturing jobs had been lost in the previous 38 months.
Efforts to try to encourage domestic manufacturing included
additional government procurement of American made goods
through ``Buy America'' provisions in legislation; enactment of
tax relief to domestic manufacturers; stopping foreign
governments from manipulating their currencies, and reducing
the cost of health care and regulatory compliance to employers.
Summary
The hearing was comprised of one panel of witnesses: Mr.
William Yankovich, Plant Manager, General Cable Corp., Altoona,
PA; Mr. Edward Silvetti, Executive Director, Southern
Alleghenies Planning and Development Commission, Altoona, PA;
Mr. Michael McLanahan, President, McLanahan Corp.,
Hollidaysburg, PA; Mr. Ben Stapelfeld, Chairman of the Board,
New Pig Corp., Tipton, PA; Mr. John Showalter, Mill Manager,
Appleton Papers Corp., Roaring Spring, PA; and Mr. Timothy,
President, Reliance Savings Bank, Altoona, PA.
Mr. Showalter discussed the difficulties in the paper
industry and the effects of foreign competition. Competitors in
Asia for the same business do not have the billions in added
cost to the industry of environmental, health, and safety
regulations. Foreign governments also aid their domestic
industries with land seizures, forgiveness of defaulted loans,
and low wages. To assist the U.S. paper industry and
manufacturing in general he outlined several recommendations:
enacting a lower tax rate for manufacturers; allowing for full
and immediate depreciation for capital investments; providing
tax credits for incremental hiring; providing tax credits for
training and retraining workers; instituting higher health,
environment, and safety tariffs for developing countries; and
strengthening ``Buy America'' provisions in federal
procurement.
Mr. Sissler described the changing environment in Blair
County. Manufacturing in the county has gone from representing
half of the local economy to just fewer than 18 percent of all
economic activity. He discussed the stigma attached to
traditional ``blue collar'' work and the transformation in
manufacturing to high-skilled now dubbed ``gold collar'' jobs.
Addressing the rising costs of health care, and ensuring a
level playing field in the international arena top his list of
recommendations.
Mr. Yankovich explained the challenges to manufacturers of
wire and cable. Issues critical to his business include the
passage of an energy bill to ensure stable energy prices;
making permanent the tax cuts to provide certainty in planning;
and removing the steel tariffs that dramatically increase the
cost of raw material inputs for his products. Mr. Stapelfeld
and Mr. Silvetti both described challenges unique to their
areas of expertise and called on Congress to reduce the cost of
doing business in the United States.
For further information on this hearing, refer to the
Committee publication #108-47.
7.2.24 real estate settlement procedure act regulations:
working behind closed doors to hurt small
businesses and consumers
Background
On Tuesday, January 6, 2004, the Committee on Small
Business held a hearing to examine the Department of Housing
and Urban Development's (HUD) compliance with the Regulatory
Flexibility Act (RFA) in the development of proposed rules
modifying the implementation of the Real Estate Settlement
Procedures Act (RESPA). RESPA was enacted in 1974 with the
intention of providing purchasers of residential estate greater
clarity in the settlement process. Six years later, Congress
enacted the RFA, which requires federal agencies to examine the
impact of their proposed rules on small businesses.
After many years of controversy and significant litigation,
HUD determined that it was appropriate to modify the
regulations implementing RESPA. The primary points of the
proposal were the requirement to provide a good faith estimate
of the closing costs that the purchaser will face and the
option to offer a guaranteed mortgage package (including a
fixed interest rate) that would be protected under the ``safe
harbor'' provisions of RESPA.
Since the Committee's last hearing on this topic, HUD
transmitted for review by the Office of Management and Budget
(OMB) a draft final regulation on December 18, 2003 adopting
modifications to its RESPA rules despite promises to Congress
that HUD would not finalize the RESPA rule while Congress was
out of session. Thus, a second hearing was called to bring
attention to this matter once again.
Summary
The hearing consisted of one panel. The Hon. Alphonso
Jackson, Acting Secretary, Department of Housing and Urban
Development, Washington, DC was invited to testify. He declined
but a place at the table was left open for him if he decided to
appear. The other members of the panel were: the Hon. John
Graham, Ph.D., Administrator, Office of Information and
Regulatory Affairs, Office of Management and Budget,
Washington, DC; Mr. Marc Savitt, Eastern Regional Vice
President, National Association of Mortgage Brokers, McLean,
VA; Mr. Stanley Friedlander, President, Continental Title
Agency, Cleveland, OH; Mr. Walter McDonald, Owner, Walter
McDonald Real Estate, Riverside, CA; Mr. R. Michael Menzies,
Sr., President and CEO, Easton Bancorp, Easton, MD; and Ms.
Regina Lowrie, President and CEO, Gateway Funding Diversified
Mortgage Services, Fort Washington, PA.
Dr. Graham testified about the procedures that the Office
of Information and Regulatory Affairs (OIRA) used to implement
Executive Order 12,866. He explained that OIRA has up to 90
days to review the regulation but does not necessarily utilize
the entire time period. Dr. Graham also noted that he was
willing to meet with interested parties concerning OIRA's
review of the regulation as authorized by the Executive Order.
Dr. Graham also testified that, in reviewing the final package,
his office would pay close attention to compliance with a
letter his office sent to HUD after release of the proposed
rule concerning modifications to the initial regulatory
flexibility analysis and the underlying economic analysis.
Mr. Savitt first qualified his testimony (as did all the
other witnesses) by noting that no one had seen the final draft
submitted to OIRA. Thus, his testimony (as was all other
witnesses) based on his assessment of the proposed rule. Mr.
Savitt explained the operation of the proposal and the adverse
consequences it would have on mortgage brokers. He then claimed
that HUD did not comply with the RFA because it: (1)
underestimated the impact on small business; (2) failed to
consider alternatives would reduce adverse impact on mortgage
brokers; and (3) miscalculated the record-keeping and reporting
costs associated with the proposed rule. Mr. Savitt concluded
his testimony by hoping that the OIRA review process will
protect small businesses such as mortgage brokers
Mr. Friedlander, on behalf of the American Land Title
Association (ALTA), noted that the proposal would affect title
insurers and abstractors--the vast majority of which are very
small businesses. Mr. Friedlander went on testify that the
guaranteed mortgage packaging proposal would limit consumer
access to and choice of settlement service providers. He then
explained that a guaranteed mortgage package incorporating a
guaranteed interest rate only could be packaged by lending
institutions that have the financial wherewithal to undertake
protective hedge transactions in the commodity markets. He
concluded that the board of ALTA authorized litigation if the
final rule was sufficiently similar to the proposed rule that
none of the deficiencies were cured.
Mr. McDonald, testifying on behalf of the National
Association of Realtors, noted that they support reformation of
the RESPA rules to simplify the process for home purchasers. He
then laid out the position of the Realtors that the proposed
guaranteed mortgage package would hurt small businesses.
Packages only would be available from lenders because of the
fixed interest rate requirement. Lenders also would not be
required to disclose the contents of the package just the final
price. And without knowing what is in the package, consumers
would be unable to shop services to other small businesses
thereby potentially putting them out of business if packaging
became the mainstay of the settlement industry. Mr. McDonald
also noted that marketplace changes occurred resulting in the
offering of settlement packages with fixed interest rates.
Given the significance of the proposal and the changes in the
marketplace, Mr. McDonald concluded that HUD should table the
draft final rule and issue a new proposed rule.
Mr. Menzies, testifying on behalf of the Independent
Community Bankers Association, suggested that a significant
change between the proposed and final rule should result in the
reissuance of the draft final rule as a new proposed rule so
that HUD has the benefit of industry input. Mr. Menzies does
not believe a small bank has the resources to provide a
guaranteed mortgage package with a fixed interest rate. He
noted that HUD did not accurately assess the impact of the
proposal on small banks such as Easton Bancorp. Mr. Menzies
suggested that Congress take appropriate action, if necessary,
as permitted under the Congressional Review Act to overturn a
final rule that is similar to the proposed rule.
Ms. Lowrie, testifying on behalf of the Mortgage Bankers
Association, noted that the draft final rule represented the
most fundamental change ever to occur in the mortgage finance
industry. While the association supports reform, the proposal
issued by HUD is flawed and a new proposal should be published
rather than rushing to judgment on a bad final regulation. In
particular, Ms. Lowrie raised concerns that the final rule may
contain exemptions and ``safe harbors'' under section 8 of
RESPA that would create serious loopholes; the most problematic
of these are kickback payments and referral fees. Ms. Lowrie
concluded her testimony by reiterating her request for a new
proposed rule rather than ill-thought actions may damage
consumers, small businesses, and undermine the vitality of the
residential real estate market.
In sum, the Committee concluded that the proposed RESPA
rule should not have been transmitted for review by OMB as the
next to last step in the regulatory finalization process but
instead should either be reworked and reissued as a new
proposed rule or be abandoned altogether because of the rules'
negative effect upon small real estate settlement providers. On
March 22, 2004, HUD voluntarily withdrew their RESPA proposal
from further consideration by OMB. For further information,
please refer to Committee publication #108-48.
7.2.25 can u.s. companies compete globally using american
workers?
Background
Although the U.S. has seen growth in the economy with signs
of an improving manufacturing sector, there is still something
missing: high-value jobs. In search of ever cheaper yet equally
qualified foreign labor, corporations leave behind the very
American workers that built them. The argument cited most often
is that these companies must compete globally; but cannot do so
with expensive American labor.
As a result of increasing pressure from Wall Street to meet
or beat quarterly earnings estimates, corporations continually
find themselves focused on short-term costs versus long-term
value. The end result has been a slew of corporate accounting
scandals, all to artificially boost stock value. More pressing,
however, is how this myopic style of management has negatively
impacted small business, particularly manufacturers. Small
manufacturers are being cut out of the supply chain of large
companies, which are going overseas in droves. With the loss of
2.8 million jobs, almost all in manufacturing, the purpose of
the hearing was to demonstrate that companies must think
differently about using American workers to win business
globally.
Summary
This hearing, held on January 21, 2004, brought together
top minds on the subjects of shareholder value, corporate
governance, and long-term strategic thinking to bring into
focus the negative impact of short-term decision-making. The
topics discussed included what it means to the American economy
and what role, if any, should the federal government play in
helping to improve global competitiveness.
The hearing consisted of two panels. Panel one was
comprised of Mr. Allan Kennedy, Management Consultant, Boston,
MA; Ms. Constance Bagley, Esq., Associate Professor of
Business, Harvard Business School, Cambridge, MA; and Ms.
Laurie Bassi, Ph.D., CEO and Managing Partner, McBassi and Co.,
Washington, DC. The second panel had one witness, Mr. Anthony
Wilkinson, President and CEO, National Association of
Government Guaranteed Lenders, Inc. of Stillwater, OK.
Mr. Kennedy briefly chronicled the history of business,
evolving from small family-owned shops run by family leadership
into larger ones, while professional managers more beholden to
increasing the value of the company than the long-term survival
of the family business. They are financially oriented, because
it is easy to measure finances short-term, because most
managers have a fairly short-term perspective, unlike family
members or family run firms. This short-term pressure leads
managers to adopt techniques such as downsizing, re-
engineering, outsourcing techniques to increase the short-term
earnings of the business, often at the expense of the long-term
viability of the business.
Ms. Bagley began her testimony by stating that we have been
assailed with the mantra that corporate directors must maximize
value for the shareholders, even if that means laying off long
time employees and shutting down company towns. Ms. Bagley also
touched on the actions of the Delaware Supreme Court regarding
shareholder value. In short, the Court decided that businesses
directors may choose to do anything in the name of the
shareholders even if it imposes costs on others without their
consent, but they are not legally required to do so.
Dr. Bassi concluded the first panel by discussing the
difference between the pursuit of the highest quarterly
earnings and investing in the education and training of their
employees. Despite the assumption that investing on training
can sometimes reduce quarterly earnings, Dr. Bassi showed
evidence that investing heavily in employee training showed
better stock results than not doing so. Dr. Bassi also
suggested that Congress should follow the lead of other
industrialized nations and require the appropriate federal
agencies to begin to systematically study what it will take to
transform our industrial-era accounting system, which
recognizes people only as costs, into a knowledge-era
accounting system that recognizes people as investments.
Mr. Wilkinson was the lone witness on the second panel. Mr.
Wilkinson focused his testimony on the vibrancy of the Small
Business Administration's (SBA) 7(a) program, which was off the
topic of the hearing. He focused particularly on the caps
imposed by the SBA on loan amounts to keep the 7(a) program
functional until the beginning of the new fiscal year.
In sum, the Committee learned that businesses can and will
thrive by adopting long-term plans versus a myopic fixation on
meeting of beating quarterly estimates. For further information
about this hearing, please refer to Committee publication #108-
50.
7.2.26 the president's proposed budget for the small
business administration fy 2005
Background
On February 11, 2004, the Committee on Small Business held
a hearing on the President's proposed FY 2005 budget as it
affected small business. The Congressional Budget Act of 1974
requires the Committee to recommend budget levels and report
legislative plans within the Committee's jurisdiction to the
Committee on Budget.
The hearing focused on whether the proposed budget
adequately addressed the needs of the small businesses of this
nation. The Committee was interested in determining if the
Administration's proposed budget adequately addressed the needs
of the small business community, while taking into account real
budgetary constraints. In addition, the Committee was
particularly interested in a solution proposed by the
Administrator of the Small Business Administration (SBA),
Hector Barreto, to restore the 7(a) business loan guarantee
program to its full statutory level such that it does not
involve raising borrower fees, requiring more appropriations,
or reprogramming accounts within the SBA. Overall the Committee
was seeking views concerning SBA's past performance and how the
delivery of services by SBA, to this nation's small businesses,
could be improved in the future.
Summary
The hearing was comprised of two panels. The first panel
had one witness, the Hon. Hector Barreto, Administrator, United
States Small Business Administration, Washington, DC. On the
second panel was Mr. Lee Mercer, President, National
Association of Small Business Investment Companies, Washington,
DC; Mr. Donald Wilson, President and CEO, Association of Small
Business Development Centers, Burke, VA; Mr. Chris Crawford,
Executive Director, National Association of Development
Companies, McLean, VA; Anthony Wilkinson, President, National
Association of Government Guaranteed Lenders, Stillwater, OK;
Phil Pegg, Jr., CEO, 4D Solutions, Inc., Boyertown, PA; David
Pilcher, CFO, Ted R. Sanders Moving and Storage, Nashville, TN;
John Sprague, Managing Partner, Everglades Adventures, Pahokee
City, FL; and Elliot Moses, CEO, Daco Enterprises, Inc, Sandy,
UT.
SBA announced that their plan to restructure the 7(a)
lending program to a zero subsidy rate could effectively return
the program to its statutory levels and adds additional lending
capacity. Administrator Barreto asserted that if the SBA fix
were to be implemented, it would constitute a tremendous
savings to the American taxpayers by avoiding the need for
increased budgetary authority in order to ensure the solvency
of this crucial loan program. Moreover, SBA plans to strengthen
core service delivery systems to better serve the growing needs
of the small business community. The proposal includes
investing $88 million for small business development centers,
$5 million for the Service Corps of Retired Executives, $12
million for women's business centers, $750,000 for National
Women's Business Council, $750,000 for Veteran's outreach, and
$1.5 million for 7(j) technical assistance.
Donald Wilson testified that the SBA budget, proposed by
the Administration, is too small compared to the growing needs
of the small business community. Similarly, Anthony Wilkinson,
David Pilcher, and Phil Pegg Jr., all expressed strong support
for the 7(a) loan program, and added that there exists a
desperate need for the program to receive adequate funding.
Moreover, caps on loan sizes could prove detrimental to many
small businesses that utilize the program productively. Lee
Mercer stated in his testimony that the Small Business
Investment Company (SBIC) initiative badly needs restructuring,
and that the SBA ought to consult with small businesses before
making changes to ensure negative consequences are mitigated.
Mr. Mercer also pointed out that the proposed SBA fix would not
solve the problems currently plaguing the program. Chris
Crawford stressed the need for the SBA Reauthorization Bill (HR
2802) to pass in order for the 504 program to maintain solvency
since the fee structure, which funds the program, must be
reauthorized in the bill for it to continue.
For further information on this hearing refer to Committee
Publication 108-52.
7.2.27 availability of capital and federal procurement
opportunities to minority-owned small businesses,
field hearing, chicago, il
Background
On Tuesday, February 17, 2004, the Committee on Small
Business held a field hearing in Chicago, Illinois to learn
from small business owners, especially minority-owned firms,
about problems that they were facing in obtaining access to
capital and in finding contracting opportunities in the federal
government.
This oversight hearing provided an opportunity for small
businesses to express their views as to the success or failure
of the private and public sectors to meet the capital needs of
small businesses in the Chicago area, especially the needs of
African-American and other minority-owned small businesses. The
hearing also provided oversight of SBA's and other federal
agencies' efforts to assist small businesses in finding real
federal procurement opportunities.
Summary
The hearing was comprised of two panels. The first panel
was: Mr. Obie Wordlaw, Chairman & CEO, JERO Medical Equipment &
Supplies, Chicago, IL; Ms. Neli Vazquez-Rowland, M.Y.S.
Interiors, Mt. Prospect, IL; Ms. Charlotte Harrison, President
and CEO, Millennium Data Systems, Chicago, IL; Mr. Frankie
Redditt, President and CEO, Ashley's Quality Care, Inc.,
Chicago, IL; Mr. Bruce Montgomery, President, Montgomery &
Company, Chicago, IL; and Mr. Emmett Vaughn, Chief, National
Diversity Sourcing Relations, Albertsons, Inc., Boise, ID. The
second panel was comprised of: Ms. Judith Roussel, District
Director, United States Small Business Administration, Chicago,
IL; Ms. Linda Oliver, Deputy Director, Small and Disadvantaged
Business Utilization, Department of Defense, Washington, DC;
Mr. Sean Moss, Director, Small and Disadvantaged Business
Utilization, United States Department of Transportation,
Washington, DC; Ms. Patricia Bamford, Chief of the Acquisition
and Assistance Branch, Resource Management Division, United
States Environmental Protection Agency, Washington, DC; Mr.
Scott Denniston, Director, Small and Disadvantaged Business
Utilization, United States Department of Veterans Affairs,
Washington, DC; Ms. Tracye Smith, Executive Director, Chicago
Minority Business Development Council, Chicago, IL; Mr. Eric
Dobyne, Regional Director, Minority Business Development
Agency, United States Department of Commerce, Chicago, IL; Mr.
James Handley, Regional Administrator, General Services
Administration, Chicago, IL; and Mr. William Leggett,
President, Collectors Training Institute, Chicago, IL.
Mr. Wordlaw expressed the view that private and public
agencies had failed to provide procurement opportunities and
meet the capital needs of African-American small businesses. It
was suggested, as one remedy, that the Small Business
Administration (SBA) initiate a new program of direct loans
rather than relying on the present 7(a) loan program where the
local banks loan the money and the SBA guarantees repayment of
a portion of the amount borrowed. Ms. Rowland, representing the
Greater Illinois 8(a) Procurement Association, disagreed with
the policy to delegate out to other agencies the 8(a) program
functions that used to be preformed by the SBA. She recommended
that the SBA be a party to the agreement with the contracting
agency and should assist 8(a) businesses with preparing
proposals, as well as negotiating and administrating contracts.
Ms. Harrison felt that the employees of the SBA did care
about creating a fair and level playing field in the federal
procurement arena, but that SBA lacked the enforcement
authority to see that small businesses are in fact fairly
treated. Ms. Redditt expressed the view that slow payment by
government agencies inhibits the growth of small businesses and
their ability to access capital, even with the assistance and
backing of SBA. Mr. Montgomery cited the fact that African-
Americans have started businesses at a faster pace in the past
ten years, despite the fact that they were unable to gain ready
access to equity capital or capital markets. It was suggested
that more thought be given to opening the capital markets and
sources of venture capital to African-Americans aspiring to
start or grow small businesses. Mr. Vaughn attributed a
significant portion of the investment in the African-American
small business community to the SBA.
Ms. Roussel underscored the recent announcement that ``SBA
guaranteed a record number of loans last year, with double
digit increases in the percentage of loans to women, Hispanics,
African Americans and Asian Americans.'' Ms. Oliver pointed to
the fact that DOD had not met the procurement goal for service-
disabled veterans but that a new law had provided the needed
tool for turning the number around by permitting agencies to
set-aside contracts for service-disabled veterans. Sean Moss
stated that over the past three years DOT had awarded $3.476
billion to small businesses, including women-owned and
disadvantaged small businesses, which represented 42 percent of
DOT's total prime contract dollars. In addition, last year,
almost 20 percent of the DOT small business dollars went to
women and minority owned small businesses. Ms. Bamford reported
that in FY2003 EPA awarded over 31 percent of its net
obligations to small businesses and in the same fiscal year,
EPA Region 5, which includes Chicago, awarded over 34 percent
of its net obligations to small businesses.
Mr. Denniston reported that the VA consistently exceeds the
statutory small business and small disadvantaged business
goals, and that it is one of the few agencies that meets the 3
percent goal set for HUBZone small businesses. Further, he
stated that last year the VA spent $2.6 billion with small
business and that accounted for about 30 percent of VA's
purchases. Ms. Smith observed that the ``SBA 7[a] and 504 loan
programs are working fine.'' It was suggested that what was
needed was working capital for small businesses already
established. Mr. Dobyne stated that the MBDA, an agency within
the Department of Commerce, had shifted its emphasis with
respect to its strategic growth initiative to minority business
enterprises that were growing rapidly or were in high growth
industries. MBDA had set a goal of securing $36 million in
financial and procurement opportunities for minority businesses
within the region that includes the city of Chicago. Mr.
Handley reported that a top priority of the Bush Administration
was to maintain the prosperity of the small business community
and that in FY2003 GSA spent $6 billion for goods and services
purchased from small businesses out of the $15 billion it had
to spend. Mr. Leggett was concerned that small businesses were
not obtaining the access to capital necessary for sustained
growth.
In sum, the Committee concluded that while much progress
has been made in increasing access to capital and federal
procurement markets for minority entrepreneurs, much work
remains to be done. For further information about this hearing,
please refer to Committee publication #108-53.
7.2.28 spike in metal prices: what does it mean for small
manufacturers?
Background
The lifting of the steel tariffs in December of 2003 should
have triggered a drop in steel prices for U.S. manufacturers
that had experienced up to 50 percent cost increases during the
18-month tariff period. Instead, steel prices surged following
the end of the tariffs. According to one industry source, scrap
steel was selling for $100 to $120 a ton at the end of 2003. In
January, it spiked to $210 a ton and increased another $50 to
$60 by the end of February.
Many in the industry attribute the spikes to intense demand
from the People's Republic of China (PRC). Some estimate that
exports of scrap are up more than 60 percent from two years
ago. The massive industrialization of China has also increased
demand, and thus the prices, for other metals.
The goal of the hearing, held on March 10, 2004, was to
discover what caused various metals prices to rise so high and
so fast, and also what affect it has had on U.S. small
manufacturers. In the case of steel, domestic prices were
expected to decrease or at least remain the same, as the U.S.
marketplace was open again to full competition from abroad
after the tariffs were lifted. In fact, the opposite happened.
Summary
The hearing consisted of one panel: Mr. Wilbur Ross,
Chairman of International Steel Group, Inc., New York, NY; Mr.
Emanuel Bodner, President, Bodner Metal and Iron Corporation,
Houston, TX; Mr. Wayne Atwell, Managing Director, Morgan
Stanley, New York, NY; Ms. Barbara Hemme, Corporate Secretary
and Comptroller, Youngberg Industries, Belvidere, IL; Mr.
William Hickey, Jr., President, Lapham-Hickey Steel
Corporation, Chicago, IL; Mr. Kyle Martinson, Director of
Purchasing, Revcor, Inc., Carpentersville, IL; Mr. Robert
Stevens, CEO, Impact Forge, Inc, Columbus, IN; Mr. Les Trilla,
President, Trilla Steel Drum Corp., Chicago, IL.; and Mr.
William J. Klinefelter, Legislative and Political Director,
United Steelworkers of America, Washington, DC.
Mr. Ross began the testimony by explaining that steel
prices have gone up due, in large part, to the bankruptcy
shutdown of the LTV and Acme facilities, roughly 10 percent of
the American industry. Mr. Ross also cited the President's
imposition of temporary tariffs as a secondary (albeit less
crucial) cause of the spike. Despite the increased price for
their product, Mr. Ross explained that steel companies are not
reaping the benefits, as shown through the large number of
bankruptcies and the fact that most steel companies had been
unprofitable in nearly each quarter since 2000.
Scrap, the primary raw material used in mini-mills to
produce steel, has also seen a significant run up in price. Mr.
Bodner, owner of a scrap metal yard in Houston, Texas,
testified that scrap is an internationally traded commodity.
Because of this status, wide variations in the price of scrap
are commonplace. He also pointed out that many experts,
including some steel producers, blame the additional costs of
energy, coking coal, and transportation as major contributors
to the recent rise in price.
Mr. Atwell also provided other factors causing the price
spike. Primary among them is the sharp economic growth in China
and corresponding weak U.S. dollar. The weak U.S. dollar has
driven up the cost of imports, which has provided a pricing
umbrella over the domestic steel industry, surmised Mr. Atwell.
Additionally, Mr. Atwell testified that China's steel
consumption has grown much faster than anticipated and has put
a strain on the global raw-material industry.
Mr. Stevens pointed out the strong correlation between
rising steel prices and rising scrap prices. He suggests that
steel scrap exports from the U.S. increased due to surging
foreign demand and, at the same time, other countries limit or
prohibit their own scrap exports. To correct this fundamental
market imbalance, Mr. Stevens advocates the temporary
imposition of export restrictions by the U.S. Secretary of
Commerce on domestic scrap steel. To date, Mr. Stevens' group,
the Emergency Steel Scrap Coalition, has yet to file the
necessary paperwork with the Department of Commerce to initiate
such actions.
Messers. Hickey, Trilla, and Martinson, as well as Ms.
Hemme all testified as to how these spikes are affecting each
of their businesses. Each offering varying degrees of prices,
all of which were significantly higher than the same period a
year earlier, as well as shortages in material. Each stated
that lay-offs or worse could occur at each of their businesses
if prices do not fall back to normal in short order.
Mr. Klinefelter testified that these price increases would
be, in all likelihood, temporary, due to a number of factors
including rising input costs, reduced inventories, reduced
steel-making capacity, and the decline of the U.S. dollar. He
also testified that after the events of the last six years, the
recovery in steel prices is necessary if the industry is to
provide a return for shareholders and workers, attract capital
investment, and continue to grow so that it may remain a
reliable low-cost supplier for the manufacturing sector.
In sum, the Committee concluded that the federal government
must pay closer attention to this growing problem or risk
losing the small metal-bending manufacturing base in this
country. For further information about this hearing, please
refer to Committee publication #108-57.
7.2.29 spike in metal prices--part ii
Background
On March 10, 2004, the Committee held a hearing examining
the sudden and unexpected rise in the price of steel.
Unfortunately, this phenomenon is not limited to steel alone,
as other metals such as copper, nickel, and aluminum are also
seeing severe price increases. For example, the price of copper
soared to an eight-year high of nearly $3,000 a metric ton
during the third week in February and the price of nickel has
more than doubled in the last year.
The goal of the hearing, held on March 25, 2004, was to
discover what caused non-ferrous metal prices to rise so high
and so fast, and also what affect it has had on U.S. small
manufacturers. The hearing also discussed possible remedies to
help alleviate the crisis in the rapid increase in the price of
all metals for small manufacturers.
Summary
The hearing consisted of one panel: Ms. Constance Holmes,
Senior Economist and Director of International Policy, National
Mining Association, Washington, DC; Mr. Ed Cowan, Vice
President for Manufacturing, Beck Aluminum Corp., Cleveland,
OH; Mr. Joseph Rupp, President and CEO, Olin Corp., Norwalk,
CT; Mr. John Lindstedt, President, Artistic Plating, Inc.,
Milwaukee, WI; Ms. Charlotte Vincer, Owner and Sales Manager,
Riverside Spring Co., Rockford, IL; and Mr. Patrick Loftus,
President, High Steel Structures, Inc., Lancaster, PA.
Ms. Holmes began the discussion explaining the need for a
national policy on mining and the need to streamline the
process in which mining companies apply for and obtain the
necessary permits to explore, develop, and operate mining
related facilities. Ms. Holmes testified that world production
of metals and raw materials has not increased appreciably over
the last five years as price levels, reacting to a surplus,
have been low enough to discourage investment in exploration
and development activities that must precede an increase in
metals and minerals production.
Mr. Cowan focused his testimony on the aluminum market,
where prices had risen approximately 22 cents per pound over
the previous two years. Mr. Cowan suggested that the most
glaring reason for the price increase was the Chinese duty on
imported primary metal, which makes the cost of primary
aluminum in China artificially high and allows Chinese
customers to substitute scrap in some applications at higher
prices than can be afforded by other world consumers.
Mr. Rupp centered his testimony on the copper industry.
China, Mr. Rupp surmised, has an insatiable demand for copper
scrap, copper-alloy scrap, and copper cathode that it cannot
satisfy from its indigenous reserves. This intensity is seen in
the high prices and immediate cash payment offered by Chinese
agents to U.S. scrap dealers. Mr. Rupp testified that the
Chinese government's manipulation of their currency, the Value
Added Tax (VAT) rebate Chinese importers receive from their
government and various other subsidies make it next to
impossible for American firms to compete.
Mr. Rupp testified on behalf of the Copper and Brass
Fabricators Council, which following this hearing, filed a
short supply petition with the Department of Commerce which
requested that the government exercise its legal authority by
temporarily monitoring and restricting U.S. exports of copper
scrap and copper-alloy scrap. The petition was denied because
the Commerce Department found no adverse affect on the American
economy as the rapid price increases reached a plateau during
the spring.
Mr. Lindstedt's testimony focused on the nickel industry,
which Mr. Lindstedt has seen a 300 percent increase from 2002
through March 2004. Mr. Lindstedt suggested a regulatory change
that would be beneficial to his industry. Under the current
regulatory framework for managing the nation's industrial
waste, Mr. Lindstedt estimates that the average metal finishing
facility throws away and estimated $40,000 to $50,000 annually
in metals. The U.S. Environmental Protection Agency (EPA) is
working on a rule to address this issue for several years and
Mr. Lindstedt requested Congressional help in moving this rule
along.
Ms. Vincer and Mr. Loftus were invited to the hearing to
provide additional information on the price of steel.
Unfortunately, no relief had occurred prior in the few weeks
between the Committee's two hearings, and Ms. Vincer and Mr.
Loftus re-hashed several on the problems facing her company
that were brought to light during the Committee's March 10,
2004 hearing.
In sum, the Committee concluded that the Bush
Administration should explore the viability of the following
possible solutions:
(1) Continue to fight unfair trade practices,
including illegal government currency manipulation;
(2) Pass H.R. 3716, authored by Representative Phil
English of Pennsylvania, to allow U.S. petitioners to
file countervailing duty trade cases against non-market
economies like China to combat illegal government
subsidies of private industry;
(3) Consider export controls on scrap steel or, if
the Administration decides against this initiative,
draft a plan on how to negotiate lifting the current
export restrictions on scrap steel and coking coal
exports from Russia, the Ukraine, China, and Venezuela;
(4) Review all existing anti-dumping and
countervailing duty orders placed on foreign imports of
steel into the U.S. to see if they are warranted
considering the tightened markets in America;
(5) Lower energy costs for U.S. steel and metal
producers by urging the Senate to pass the
comprehensive energy bill (H.R. 6);
(6) Have the Department of Defense and the Bureau of
Industry and Security at the Department of Commerce
examine whether the steel and metal shortages in
America will have an adverse affect on our Defense
Industrial Base and our national security; and
(7) Have the Department of Commerce or the U.S.
International Trade Commission (ITC) through a Section
332 investigation examine the shortages of scrap steel
and coking coal to determine the effects they have had
on production problems and the overall competitiveness
of U.S. industry.
For further information about this hearing, please refer to
Committee publication #108-59.
7.2.30 improving the regulatory flexibility act--h.r. 2345
Background
On Wednesday, May 5, 2004, the Committee on Small Business
held a hearing to examine H.R. 2345, the Regulatory Flexibility
Improvements Act. The Regulatory Flexibility Act (RFA) requires
federal agencies to examine the economic impact of their
proposed and final rules on small entities. If they impact is
significant on a substantial number of such businesses, the
agency is required to assess less burdensome alternatives. When
it was first enacted in 1980, the RFA had a number of pitfalls
that detracted from full agency compliance. The RFA was amended
in 1996 to address some of those pitfalls. While some problems
were eliminated, such as boilerplate certification statements,
agencies found new interpretations of the RFA to reduce its
effectiveness. H.R. 2345 was introduced to eliminate, to the
extent possible in legislation, all of the interpretive
legerdemain practiced by federal agencies in order to avoid
their obligations under the RFA.
Summary
The first panel consisted of two cosponsors of H.R. 2345--
the Hon. Lee Terry (R-NE) and the Hon. Mike Pence (R-IN). The
second panel members were: the Hon. Thomas Sullivan, Chief
Counsel for Advocacy, United States Small Business
Administration, Washington, DC; Frank Swain, Esq., Partner,
Baker & Daniels, Washington, DC; Jere Glover, Esq., Of Counsel,
Brand & Frulla, Washington, DC; and Mr. Jim Morrison, Ph.D.,
President, Small Business Exporters Association, Washington,
DC.
Representatives Terry and Pence both expressed strong
support for H.R. 2345. Representative Terry, as a member of the
Committee on Energy and Commerce, has seen significant
regulatory actions taken by federal agencies that have
deleterious effects on small businesses and could be easily
remedied if the agencies first thought through their regulatory
actions. Representative Pence noted that he chaired the
Regulatory Reform Subcommittee of the Small Business Committee
in the 107th Congress and saw first hand how federal agencies
failed to comply with the RFA. Both concurred that H.R. 2345
would go a long way toward bringing rationality back into the
agency rulemaking process and thus remained strong proponents
of passage.
All of the witnesses on the second panel also strongly
endorsed H.R. 2345. Three of the panelists are or were Chief
Counsels for Advocacy so they had first hand experience
monitoring agency compliance with the RFA. From that vantage
point, Mssrs. Sullivan, Swain, and Glover knew of the loopholes
in the RFA and agreed that H.R. 2345 closed many of the
loopholes that agencies used to avoid compliance. Chief Counsel
Sullivan strongly endorsed the position that his office should
write government-wide regulations on the RFA. He recommended
that the panel procedures be extended to all agencies and the
Office of Advocacy be given concurring authority in the setting
of other agency regulatory size standards rather than primary
responsibility. Mr. Glover, in addition to supporting H.R.
2345, strongly urged Congress to give the Office of Advocacy
independent budget authority. Mr. Swain focused his remarks on
the importance of analyzing indirect effects. Finally, Dr.
Morrison, although not a Chief Counsel for Advocacy, was a
staffer on Capitol Hill during the development of the RFA in
1979 and 1980. He strongly supported H.R. 2345's emphasis on
paralleling the National Environmental Policy Act (NEPA)
because the original author of the legislation, Senator Culver
(D-IA), intended the RFA to be the equivalent of an economic
equivalent of the environmental impact statements mandated by
NEPA.
In sum, the Committee concluded that H.R. 2345 should be
passed into law to help small businesses deal with the growing
federal regulatory burden.
For further information about this hearing, please refer to
Committee publication #108-62.
7.2.31 red tape reduction: improving the competitiveness
of america's small manufacturers
Background
On Wednesday, May 19, 2004, the Committee on Small Business
held a hearing to examine the Office of Information and
Regulatory Affairs (OIRA) review of regulations affecting
manufacturers. Regulatory compliance costs impose a burden on
manufacturers that has the potential to lower the viability and
competitiveness of American manufacturers. According to at
least one study, manufacturing bears the highest total
regulatory burden of any sector in the American economy. The
same study pointed out that environmental regulations created
the most significant monetary impact on manufacturers. OIRA
instituted a process to obtain suggestions on regulations
affecting manufacturers that should be reviewed because the
benefits of the rules do not exceed the costs of compliance.
Once it obtained the recommendations from the public, OIRA
planned to assess those recommendations for possible rescission
based on an analysis of those rules under the framework of
Executive Order 12,866 (the mandate under which OIRA reviews
all proposed and final rules before publication in the Federal
Register).
Summary
The panelists were: the Hon. John Graham, Ph.D.,
Administrator, Office of Information and Regulatory Affairs,
Office of Management and Budget, Washington, DC; Mr. B.J.
Mason, President, Mid-Atlantic Finishing, Capitol Heights, MD;
Mr. Andrew Bopp, Director of Public Affairs, Society of Glass
and Ceramic Decorators, Alexandria, VA; and Mr. John Arnett,
Government Affairs Counsel, Copper & Brass Fabricators Council,
Inc., Washington, DC.
Administrator Graham briefly reviewed the genesis of OIRA's
manufacturing reform initiative. Dr. Graham, in particular,
noted that the cumulative effect of regulation on small
manufacturers was significant. He then explained the process
that would be used in obtaining recommendations on
manufacturing regulations that need to be reviewed. The
Administrator concluded his testimony with a peroration on the
procedures that would be used in determining which regulations
should be reviewed in greater detail.
Mr. Mason, as did all the other industry witnesses,
commenced his testimony with an explanation of his business. As
did the other members of industry, Mr. Mason made
recommendations on specific rules that should be examined by
OIRA. In particular, he suggested that OIRA examine: the metals
product and machinery rule; the wastewater pretreatment rule;
granting exemptions from federal permitting requirements if
state requirements are more stringent; and find ways to
encourage recycling of treatment sludge. Mr. Mason concluded
with concerns about the Occupational Safety and Health
Administration's (OSHA) proposed rule requiring reductions in
exposures to chromium.
Mr. Bopp strongly urged Administrator Graham to reexamine
the reporting requirements imposed on ceramic and glass
decorators by amendments to the toxic release inventory forms.
Mr. Bopp argued that the costs associated with compliance
outweighed the negligible amounts of lead that ceramic and
glass decorators emit into the atmosphere.
Mr. Arnett recommended that OIRA consider: elimination of
unnecessary testing for pollutants in water discharges when the
probability of a release is zero; remove from a list of
volatile organic compounds those chemicals that are not
volatile; focus enforcement of oil spill prevention and control
on facilities that represent significant risk of spills both
from an amount and a probability of a spill; incorporate cost
effective practices for controlling storm-water runoff; permit
the concentration of hazardous wastes through evaporative
dryers; and permit the use of ship or spiral stairs instead of
rung ladders in certain manufacturing situations. Mr. Arnett
also recommended increased transparency in the review process
to ensure that parties involved in making suggestions to OIRA
knew the outcome of the review.
In sum, the Committee concluded that there were many
federal regulations on the books that could be amended or
eliminated that would further help to revitalize the U.S. small
manufacturing while still protecting workplace safety and the
environment. For further information about this hearing, please
refer to Committee publication #108-64.
7.2.32 careers for the 21st century: the importance of
education and worker training for small business
Background
On Wednesday, June 2, 2004 the full Committee held a
hearing on the importance of worker training and retraining to
maintain this nation's leadership in science and technology.
Also, the hearing explored the role of education in keeping
industry in this country, especially small manufacturers,
competitive in a global economy. There are many training and
educational programs in existence that must be tailored to meet
the present and future industrial needs of this nation.
To maintain this country's competitiveness in world markets
requires a workforce trained and available in those skills
needed in an increasingly technology-centered and computer-
based industrial environment. Equally important to playing a
leadership role in the world economy is the education and
foresight of those who manage and direct U.S. businesses,
especially small manufacturers. The education and training that
was good enough for yesterday will surely not be sufficient to
sustain job growth in an increasingly competitive and global
economy. Job training, retraining, and education at all levels
must be a national priority, if this Nation is to sustain
worldwide competitiveness and domestic job growth. In the past
few years, technological innovation has changed the way
business is done throughout the world, a continuing challenge
that this nation's industry must successfully respond to in the
21st Century. A dynamic world economy requires businesses here
in the United States to stay on the cutting edge of technology
and to create abundant and challenging job opportunities.
Summary
The hearing was comprised of two panels. On the first panel
were: the Hon. Emily Stover DeRocco, Assistant Secretary of
Labor for Employment and Training, United States Department of
Labor, Washington, DC and the Hon. Edward G. Lewis, Chairman of
the Board of Directors, National Veterans Business Development
Corp., Washington, DC. The second panel was comprised of: Ms.
Beth B. Buehlmann, Ph.D., Vice President and Executive Director
of the Center for Workforce Preparation, United States Chamber
of Commerce, Washington, DC; Mr. Brian A. McCarthy, Chief
Operating Officer, Computer Technology Industry Association,
Oakbrook Terrace, IL; Mr. Roger Joyce, Vice President of
Engineering, National Association of Manufacturers, Washington,
DC; Mr. Ernest Volgenau, Ph.D., Chairman and CEO, SRA
International, Fairfax, VA; Mr. Matthew Coffey, President and
Chief Operating Officer, National Machining and Tooling
Association, Fort Washington, MD; Mr. Randolph Peers, Vice
President for Economic Development, Brooklyn Chamber of
Commerce, Brooklyn, NY; and Mr. Michael Caslin, Executive
Director and CEO, National Foundation for Teaching
Entrepreneurship, New York, NY.
Assistant Secretary DeRocco pointed out that the Department
of Labor provided a broad range of employment and training
programs through a network of approximately 2,000 one-stop
centers and 1600 affiliated entities. The object is to bring
together high quality, well-trained workers and industries in
need of these workers. The Assistant Secretary of Labor
identified education and skills development as important
factors in maintaining this Nation's ability to compete in
international markets. The Department of Labor was tasked by
the President to identify those industries producing the most
jobs and to concentrate on providing persons with skill levels
necessary to fill those jobs. Assistant Secretary DeRocco
identified American manufacturing as an economic sector in need
of skilled workers to operate high-tech manufacturing plants.
Chairman Lewis advocated life-long education and training.
As Chairman of the Veterans Corporation, he was of the view
that veterans should be provided with the resources necessary
to build and grow small businesses. The Veterans Corporation is
presently working on providing entrepreneurial education
courses that a veteran can pay for with Montgomery G I Bill
benefits. Chairman Lewis was of the opinion that to be
successful the Veterans Corporation must provide effective
services and programs. As a comment with respect to education
in the United States generally, Chairman Lewis was of the
opinion that emphasis should be placed on basic subjects, i.e.,
reading, writing and arithmetic.
Ms. Buehlmann reported that a survey of small and medium
sized businesses conducted over a three-year period found that
there was a shortage of needed workers with requisite skills.
Also, a number of businesses were concerned that the skills of
their workforce kept pace with innovation. In 1950, the
overwhelming majority of the jobs (80 percent) were classified
as unskilled and presently most of the jobs are in the skilled
category. Mr. McCarthy was of the view that fundamental changes
were taking place with respect to the workforce due to the
advances in the field of information technology. He cited data
from the Department of Labor that 92 percent of those who were
classified as companies that did not specialize in information
technology employed information technology professionals and of
that number 80 percent were employed by small businesses.
Computing Technology Industry Association, the organization Mr.
McCarthy represented, had developed specialized initiatives and
public/private partnerships to assist small businesses in
training and certifying employees as information technology
professionals.
Mr. Joyce, an executive of a family-owned small business
and representing the National Association of Manufacturers,
reported that skill shortages still existed in the
manufacturing sector, despite the fact that approximately 2
million manufacturing jobs had been lost in recent years. New
technologies were raising skill requirements for manufacturers,
but there was a perception, which needed to be changed, among
younger people that employment in manufacturing was not an
attractive career. Mr. Volgenau, Chairman and CEO of SRA
International, appearing on behalf of the Information
Technology Association of America, was of the view that the
workforce needs have changed as the nation has goon from
domestic to a global information economy. Small businesses
played a vital role in the new global economy, providing
innovation, entrepreneurial dynamics, and employment
opportunities.
Mr. Coffey was of the view that there were an abundant
number of federal training programs, but there was no
significant improvement in the quality of job applicants for
employment in the tool, die, precision machining, and special
machine-building industries. He was of the opinion that federal
training programs were in need of overall coordination and
should be geared to specific industries. Mr. Peers reported
that 42 percent of Brooklyn businesses indicated a willingness
to hire additional workers this year, but that there was
difficulty in finding skilled and professional workers.
Businesses were not inclined to look to public funded training
and recruitment assistance, and small businesses were least
likely to do so. Mr. Caslin expressed the opinion that youth
are not being effectively told about the opportunities to
participate in the economy as entrepreneurs. He reported that
the organization he represents, the National Foundation for
Teaching Entrepreneurship, had as its mission bringing the code
of business and wealth creation to the youth of this nation,
especially those from low income families.
For further information concerning this hearing, refer to
Committee publication 108-68.
7.2.33 the rebate of value-added taxes at the border and
the competitive disadvantage for u.s. small
businesses
Background
On July 7, 2004, the Committee on Small Business held a
hearing to examine the effect on U.S. small businesses of
international trade rules administered by the World Trade
Organization (WTO) that permit the rebate of value-added taxes
at the border while denying comparable treatment for other
types of taxes such as income taxes.
European countries impose value-added taxes (VAT) as high
as 25 percent depending on the specific country. These taxes
are imposed whether the goods are manufactured in Europe or
imported from abroad. However, the VAT is rebated at the border
when goods are exported from Europe. In contrast, current trade
rules administered by the WTO do not properly recognize the
ability to rebate other types of taxes, such as income taxes,
at the border. Because the United States does not impose value-
added taxes, goods exported from the United States to Europe
bear the full brunt of U.S. income taxes and the VAT in Europe
while goods exported from Europe to the United States enjoy a
full rebate of VAT at the border.
Summary
The hearing consisted of one panel with the following four
witnesses: Mr. Gary Hufbauer, the Reginald Jones Senior Fellow
at the Institute for International Economics, Washington, DC;
Mr. Claude Barfield, Resident Scholar and Director of Science
and Technology Policy Studies, American Enterprise Institute,
Washington, DC; Mr. Bill Jones, Chairman, Cummins-Allison
Corp., Mt. Prospect, IL; and Ms. Maya MacGuineas, Director of
the Fiscal Policy Program, New America Foundation, Washington,
DC.
Mr. Hufbauer rejected the classical economic theory that
exchange rates will adjust to eliminate any advantage from VAT
rebates. He proposed a joint Congressional resolution calling
upon the WTO to abolish the preferential border tax adjustment
rules for VAT rebates. If this fails, he advocates scraping the
corporate income tax and replacing it with a border adjustable
business tax (such as a VAT).
Mr. Barfield reviewed the WTO decisions that held FSC/ETI
to be an illegal export subsidy and the tortured trade law
history leading up to those decisions. He concluded that WTO
trade law is flawed in four respects: (1) WTO rules reach
inappropriately into national sovereignty and domestic policy,
(2) the WTO functions as an incompetent world tax court, (3)
WTO trade penalty measurements need to be reformed, and (4) WTO
settlement system needs to be reformed.
Mr. Jones explained to the Committee what the border
adjustability of VAT taxes means for his business. He views the
rebate of value-added taxes by foreign countries to his
overseas competitors as an unfair advantage. The playing field
needs to be leveled by revising the trade laws.
The final panelist, Ms. MacGuineas, agreed with the other
witnesses that VAT border adjustability provides inappropriate
benefits to overseas firms. She pointed out that the current
FSC/ETI legislation before the House and Senate (H.R. 4510 and
S. 1637) does little to assist small businesses, is full of
special interest provisions, and is detrimental to the
country's fiscal picture. She further advocated using the money
from FSC/ETI repeal for financing tax reform along the lines of
the 1986 Tax Reform Act (which lowered individual and corporate
tax rates and eliminated tax loopholes and subsidies).
Alternatively, she advocated adopting a progressive consumption
tax.
For further information concerning this hearing, refer to
Committee publication 108-70.
7.2.34 how we can make our trade laws work for america's
small business
Background
On July 14, 2004, the Committee on Small Business held a
hearing to examine possible improvements to trade laws to help
businesses faced with foreign competition that may be due to
unfair foreign government practices.
Witnesses in two panels discussed problems faced by small
businesses from import competition and what can be done to
``level the playing field.'' They offered ideas on how to
ensure the full benefits of our trade agreements and to lower
barriers by improving and enforcing US trade laws.
Summary
The hearing consisted of two panels. On the first panel
were: the Hon. Phil English (R-PA) and the Hon. Artur Davis (D-
AL). The second panel's witnesses were: Mr. Frank Vargo, Vice
President for International Economic Affairs, National
Association of Manufacturers, Washington, DC; Mr. John Bassett,
III, President and CEO, Vaughn-Bassett Furniture, Galax, VA;
Mr. F. Tom Hopson, President and CEO, Five Rivers Electric
Innovations, Greenville, TN; Mr. Wallace Smith, President, E&E
Manufacturing Co., Inc., Plymouth, MI; Mr. Douglas Bartlett,
Owner, Bartlett Manufacturing Co., Inc., Cary, IL; and Mr.
William J. Klinefelter, Legislative and Policy Director, United
Steel Workers of America, Washington, DC.
Representatives English and Davis testified on their
legislation (H.R. 3716) to allow sanctions on China for keeping
a fixed exchange rate policy (as doing so offers a competitive
advantage for its exports) under current trade remedy law to
offset foreign government subsidies. HR 3716 would allow
countervailing duty (CVD) law to also apply to non-market
economies such as China--just as present antidumping trade
remedy law already allows.
In the second panel, six private-sector witnesses, who all
supported HR 3716, mostly discussed shortcomings in U.S. trade
law remedies and gave a wide range of recommendations.
Mr. Frank Vargo was most optimistic. He concluded that
trade laws are ``pretty complete, with one exception addressed
by English's bill'' and that ``the Executive Branch has
constructed a significant set of mechanisms designed to help
smaller companies understand and utilize their trade rights.
These have recently been improved with added funding that the
Congress has provided.''
The other witnesses however cited their difficulties with
utilizing U.S. trade law remedies, such as in getting
information and other government assistance, and especially
bemoaned the expense and the long times it takes for action.
Mr. Bassett discussed his industry's recent successful
anti-dumping case on Chinese wooden furniture and recommended
that Commerce needs to better inform petitioners, beef up its
investigative staff, let petitioners have a say in who is
investigated, shorten the time to address the issue, and
require cash deposits, rather than bonds, to be posted during a
review.
Mr. Hopson's company is the only U.S.-owned television
(mainly projection TVs) manufacturing company left in America,
discussed how his industry was decimated by foreign (primarily
Chinese) competition and the recent successful anti-dumping
case on Chinese television imports.
Mr. Smith, owner of a metal-die stamping and fastener
family business, testified that as a steel consumer, he is
still suffering from the unintended consequences of higher
steel prices due to the steel tariffs imposed in 2002 and then
lifted in late 2003. He recommends some consideration of the
total, especially ``downstream,'' effects of trade decisions,
that consumers should have equal standing with petitioners,
that non-U.S. items or items in short supply should be exempt
from trade remedies and complains that trade remedies review
takes too long.
Mr. Bartlett, head of a printed circuit manufacturer,
testified that the United States electronics manufacturing
industry is rapidly being destroyed, and that there are vital
national defense consequences at stake. Contrary to most
analysts, he blames not the bust of the telecom bubble, but
predatory trade practices (mostly government subsidies) in
China along with ``Washington's indifference and sometimes
encouragement'' for why he cannot be competitive with Chinese
products priced at half of his. He stated he is not aware of
any U.S. trade laws (with minor exceptions) that has or could
actually benefit his industry, and that he, like other small
companies, cannot afford to litigate trade cases, and does not
know his options. His main recommendations are that safeguard
law be made simpler and expedited, that all taxpayer funded
circuit board purchases be made here, that trade action on this
situation be taken soon regardless of World Trade Organization
(WTO) considerations, and that bilateral United States-China
trade should be balanced.
Mr. Klinefelter stated that current trade laws need
dramatic reform because massive trade deficits (especially with
China) and outsourcing show that there are barriers to exports.
He proposed that the Untied States Trade Representative not
discuss changing trade remedy laws at the WTO, that trade help
be expanded as trade laws are very expensive to use, that there
be assurances that trade actions won't be reversed as in steel,
and that the export subsidy provided by the European Value-
Added Tax be eliminated.
In sum, the Committee concluded that there should be
additional changes to our trade remedy laws in order to level
the playing field for our nation's small manufacturers against
global competitors to insure true free trade, particularly in
the passage of H.R. 3716. For further information about this
hearing, please refer to Committee publication #108-72.
7.3 Summaries of the Hearings Held by the Subcommittee on Workforce,
Empowerment and Government Programs
7.3.1 improving and strengthening the sba office of
advocacy
Background
On April 1, 2003, the Subcommittee on Workforce,
Empowerment and Government Programs held a joint hearing with
the Subcommittee on Regulatory Reform and Oversight on the
topic of strengthening the Office of Advocacy at the Small
Business Administration (SBA) mainly through the creation of a
separate line item in the federal budget for the office (H.R.
1772). This idea originally proposed in ``Small Business
Advocacy Improvement Act of 2002'' later passed the House
unanimously on May 21, 2002 during the 107th Congress but
unfortunately did not pass the Senate.
Summary
The hearing consisted of two panels. The first panel
consisted solely of the Hon. Thomas Sullivan, Chief Counsel for
Advocacy, United States Small Business Administration,
Washington, DC. The second panel consisted of Mr. Giovanni
Coratolo, Director, Small Business Programs, United States
Chamber of Commerce, Washington, DC; Mr. Allen Neece, Small
Business Legislative Counsel, Washington, DC; and Mr. Andrew
Langer, Manager, Regulatory Policy, National Federation of
Independent Business, Washington, DC.
The Chief Counsel explained that the two bedrock principles
that underlie the Office of Advocacy's ability to represent
small businesses effectively are independence and flexibility.
The office is able to present the views of small entities to
lawmakers and policymakers irrespective of the views of the
U.S. Small Business Administration (SBA) and the rest of the
Executive Branch. The office has broad statutory authority that
gives it the flexibility to be both reactive and proactive on
matters of concern to small entities. The legislation brought
to light in the hearing would make the Office of Advocacy more
autonomous thus allowing it to more effectively agitate for
small business independent of agency or administration
influence and hold government accountable without fear of
reprisal.
The non-governmental witnesses which followed, in the
second panel, conveyed the common theme that a budget line-item
for the entire office would give the Office of Advocacy most of
the tools it needs to carry out its mission of keeping the
federal government's regulatory tendencies in check. It was
felt, though, that ultimately, the office would need more
funds, as well, for the staff to keep up with it's increased
abilities once more autonomous. Also, the ``sneak-peak''
provision of H.R. 1772, in which the relevant committees of
Congress would receive a copy of the Chief Counsel's budget
submission to the Office of Management and Budget (OMB) prior
the finalization of the President's formal budget request
submitted to Congress every February, would protect the Office
of Advocacy from budget meddling by OMB.
Following this hearing, H.R. 1772 (Small Business Advocacy
Improvement Act of 2003) unanimously passed committee on June
4, 2003 and unanimously passed the House on June 24, 2003.
For further information on this hearing, refer to Committee
publication 108-5.
7.3.2 status of small business manufacturing in the
midwest, field hearing, st. peters, mo
Background
On April 28, 2003, the Subcommittee on Workforce,
Empowerment and Government Programs held a field hearing in St.
Peters, Missouri, presided over by Subcommittee Chairman, the
Hon. W. Todd Akin (R-MO) and the Hon. Kenny Hulshof (R-MO) to
address the status of the small business industrial base
throughout the Midwest.
Summary
The hearing consisted of one panel made up of four
witnesses. The Subcommittee heard from Mr. Daniel P. Mehan,
President & CEO, Missouri Chamber of Commerce and Industry,
Jefferson City, MO; Ms. Sheelah R. Yawitz, President, Missouri
Merchants & Manufacturers Association, Chesterfield, MO; Mr.
Mike Mittler, President, Mittler Brothers Machinery, Foristell,
MO; and Mr. Dan Wainwright, President and CEO, Wainwright
Industries, St. Peters, MO.
The panel sent a consistent message that Missouri needs
assistance, arguably more so than any other state in the union.
The state lost more than 77,700 jobs in 2002 and Missouri led
the nation in job loss according to the U.S. Department of
Labor. Missouri lost 15,000 more jobs as compared to the next
state that experienced the greatest job loss, Ohio. However,
Ohio's population, 11.3 million, is twice that of Missouri's
population, which is 5.5 million.
The Subcommittee also heard more first-hand examples of the
need for increased Congressional attention by the two local
small businesses in attendance. They explained the integral
role of the tooling and machining industry. These witnesses
demonstrated the tool and die industry is the basic building
blocks of manufacturing. All mass manufactured objects begin at
the hands of a tool and die maker.
Mr. Mittler voiced the position of the witnesses when he
stated, ``Nearly every manufacturing company in the country, in
the world, does business with our industry. The U.S. tooling
and machining industry employs close to 450,000 people
nationwide and accounted for shipments in excess of $43
billion. The metalworking industry includes precision
machinists, die makers, and mold makers, as well as tool and
die designers. Without them, the mass production of
manufactured goods would not be possible.''
As a result of this and other hearings, the tool and die
industry has remained one of the foremost priorities for Small
Business Committee. After the hearing, Chairman Donald
Manzullo, in partnership with the Hon. Tim Ryan (D-OH), founded
the Manufacturing Caucus, which has unified members in an
effort to promote the tool and die industry as well as related
industries in the manufacturing sector.
For further information on this hearing, refer to Committee
publication 108-9.
7.3.3 hearing on the current and future states of the
sbir, fast and mep programs
Background
On Tuesday, May 6, 2003, the Subcommittee on Workforce,
Empowerment and Government Programs of the Committee on Small
Business held a hearing to examine the current state and future
of the Small Business Innovation Research program (SBIR),
Federal and State Technology (FAST) partnership program, and
the Manufacturing Extension Partnership (MEP) program.
Under the SBIR program, a percentage of federal research
dollars from certain qualifying agencies (not all agencies with
research budgets are included in the SBIR program) are reserved
for award to small businesses (those with less than 500
employees). The program is specifically aimed at the start-up,
developmental, and early commercialization phase of innovative
research conducted by small businesses.
The FAST program works in conjunction with the SBIR
program. States are awarded competitive grants to supply
various support services to SBIR recipients. Grantees are
selected based on a variety of criteria but primarily on the
ability of the grantee to meet the unmet needs of small
business innovators in the state.
The Small Business Administration oversees the operation of
the SBIR and FAST programs. The MEP operates out of the
Department of Commerce's National Institute of Standards and
Technology. Approximately 350 centers located throughout the
United States provide expertise and services to meet the needs
of America's manufacturers.
Summary
The hearing consisted of two panels. The first panel's sole
witness was Mr. Darryl Hairston, Deputy Associate Administrator
for Government Contracting and Business Development, United
States Small Business Administration, Washington, DC. The
witnesses for the second panel were: Michael Nichols, Ph.D.,
Director, Missouri Federal and State Partnership Program,
Columbia, MO; Mr. Rolf Albers, Chairman and CEO, Albers
Manufacturing Co., O'Fallon, MO; and Ms. Barbara Stoller,
Director, SBIR Outreach, Technology Ventures Corp.,
Albuquerque, NM.
Deputy Associate Administrator Hairston first noted that
the SBIR, FAST, and MEP programs have the resources that would
be useful for strengthening America's small manufacturers. Mr.
Hairston noted that the SBIR and FAST programs are particularly
beneficial to small businesses during the critical
commercialization phase. Mr. Hairston concluded his testimony
by noting that Administrator was committed to improving
coordination with federal agencies to ensure the future success
of the SBIR and FAST programs.
Dr. Nichols first introduced an invention of a Missouri
physician that kills ticks and mosquitoes. But, according to
Dr. Nichols, that physician had no business plan and no way to
commercialize the invention. The inventor contacted the
University of Missouri which operates the Missouri FAST
program. The program assisted the inventor in filing an
application for a SBIR grant and provided other technical
assistance. Dr. Nichols concluded that the FAST program is
needed because, in its absence, new technology from America's
entrepreneurs would stay locked behind closed doors.
Mr. Albers first noted that his business employs 35 people
in the manufacture of electrical equipment. He then noted that
his business relied on the MEP program to obtain an enterprise
resource planning software package designed for small
businesses. MEP consultants also assisted in the implementation
of ISO 9000 for his company. Modifications to factory layouts
also were accomplished through MEP assistance. Mr. Albers
concluded his testimony by expressing support for full funding
of the MEP program.
Ms. Stoller testified that many in the scientific and
technical community do not know about the SBIR program and many
that do are leery of interacting with the federal government.
Ms. Stoller noted that the FAST program is designed to remedy
those problems. She then highlighted four businesses that
received SBIR assistance as a result of intervention by the New
Mexico FAST program. She then testified that the FAST program
was rapidly expanding knowledge about the SBIR program
throughout the state of New Mexico. She ended her testimony
with the rhetorical question of how many businesses would not
receive assistance if FAST program monies were excised from the
budget.
For further information on this hearing, refer to Committee
publication 108-5.
7.3.4 federal procurement policy: is the federal
government failing certain industrial sectors?
Background
On July 22, 2003, the Subcommittee on Workforce,
Empowerment and Government Programs held a hearing to discuss
the plight of American small technology businesses that are
collapsing because the federal government has gone overseas to
meet its procurement needs. The hearing sought ways to
strengthen these American businesses, explore ways to provide
more incentives for the Federal Government to contract with
American businesses and highlight the security risk that is
entailed by not having these American businesses involved in
crucial sectors of the technology industry.
Summary
The hearing consisted of two panels, with a total of six
witnesses. The first panel consisted of two representatives of
the Executive Branch. Ms. Deirdre Lee, Director, Defense
Procurement and Acquisition Policy, Department of Defense,
Washington, DC and Ms. Jody Falvey, Director, Office of Small
Business Development, United States Department of Treasury,
Washington, DC. The second panel consisted of Mr. Sivalingam
Sivananthan, Ph.D., President EPIR Technologies Ltd.,
Bolingbrook, IL; Mr. William Jones, Chairman, Cummins-Allison
Corp., Mt. Prospect, IL; Mr. Alan Tonelson, Research Fellow,
United States Business and Industry Council, Washington, DC;
and Mr. John Pallatiello, Executive Director, Management
Association for Private Photogrammetric Surveyors, Reston, VA.
The governmental representatives of the first panel did not
recognize the need to address the gross imbalance of federal
dollars being spent overseas as opposed to domestically on
sensitive material. It was not felt that there was a threat
being formed economically or strategically.
The four members of the second panel testified with the
overwhelming consensus that, as Dr. Sivananthan stated, ``the
practice of outsourcing [sensitive technology] manufacturing
has resulted in there being no US suppliers. Moreover, there is
no domestic source of [sensitive technology]. Everyone must buy
substrates from Japan and put them in reactors made in France.
In addition, we find ourselves in a situation that we must look
offshore for trained scientists to operate these reactors.''
The second panel pushed for stricter enforcement of
enhanced Buy America laws, a tightening of technology sharing
and much better monitoring & enforcement of international trade
agreements covering government procurement practices.
For further information on this hearing, refer to Committee
publication 108-28.
7.3.5 the rising cost of health care for small business
owners, field hearing, charleston, sc
Background
On August 25, 2003, the Subcommittee held this hearing to
focus on obstacles to healthcare coverage for small businesses
and their employees. Of the 43 million Americans without health
insurance, 62% are either small business owners and their
families or small business employees and their families. The
problem of the uninsured is very clearly a problem of small
business access to health care at reasonable prices. The
hearing explored the following points: problems of access to
small group coverage as well as solutions, consumer-driven
health care solutions and high costs of medical liability
insurance.
Summary
The hearing consisted of six witnesses: Mr. Ernest Csiszar,
Director of Insurance, State of South Carolina, Columbia, SC;
Mr. Larry C. Marchant, Jr., Executive Director, South Carolina
Managed Care Alliance, Columbia, SC; Ms. Evelyn Perry,
President, Carolina Sound Communications, Inc., Charleston, SC;
Mr. John Kulze, MD, Charleston, SC; and Mr. Vincent Degenhart,
M.D., Columbia, SC; and Mr. Doug Moreland, Founder,
BenefitFocus.com Inc, Mt. Pleasant, SC.
The witnesses explained that the typical American wage
earner brings home a salary of roughly $25,000/year, less than
that in South Carolina, closer to $20,000/year. The average
monthly charge for health insurance is about $220/month (prior
to rate increases this year). This is more than 10% of the take
home salary. Yet premiums continue to go up 15-20% per year.
Pretty soon the average worker can no longer afford health
insurance for himself or his family. There are 41 million
uninsured, roughly one in seven Americans. Across the nation
doctors are facing a similar crisis with runaway costs for
their malpractice insurance. Only the numbers are much higher
and the increases are staggering. Obstetricians/Gynecologists
in Florida average $143,000 to 203,000/year for malpractice
premiums.
They went on to explain that approximately half of the
people without insurance work for small businesses with up to
99 employees (restaurants, retail stores, auto repair shops,
beauty salons). Small businesses often operate on tighter
budgets and are therefore more vulnerable to premium changes
resulting in coverage being dropped altogether or increase in
the share of insurance premium workers must pay.
For further information on this hearing, refer to Committee
publication 108-31.
7.3.6 opportunities for economic growth and job creation,
field hearing, newnan, ga
Background
On September 2, 2003, the House Small Business Committee's
Subcommittee on Workforce, Empowerment and Government Programs
held a field hearing entitled ``Opportunities for Economic
Growth and Job Creation'' in Newnan, Georgia. The hearing was
chaired by Subcommittee Chairman, the Hon. Todd Akin (R-MO) and
the Hon. Phil Gingrey (R-GA) was in attendance.
The purpose of this hearing was to discuss the prospect of
economic growth and job creation in the southern part of
Georgia's 11th district. With the recent plant closings in the
area, the subcommittee investigated the needs of the area's
small business owners.
Summary
Chairman Akin opened by expressing the subcommittee's
concern for the local economy and pointed out Congressman
Gingrey's commitment to the economic stability and success of
Georgia as illustrated in his constant efforts to: support tax
reduction, reform medical malpractice and do away with the
``death tax.'' Chairman Akin also pointed out how Mr. Gingrey
had also worked hard for the passage of Association Health
Plans and fought the government when it wanted to raise
overtime pay for its bureaucrats.
This hearing consisted of one seven-witness panel: the Hon.
Keith Brady, Mayor, Newnan, GA; Mr. Kip Purvis, President,
Meriwether County Development Authority, Meriwether County, GA;
the Hon. Nancy Jones, Chairperson, Meriwether County Board of
Commissioners, Meriwether County, GA; the Hon. Rubye Byrd,
Mayor, Greenville, GA; Mr. Mike Gaymon, President, Chamber of
Commerce, Columbus, GA; Ms. Betsy Hueber, President, Chamber of
Commerce, Thomaston-Upton County, Thomaston, GA; and Mr. Ed
Bell, Councilman, Thomaston, GA.
The witnesses spoke on the economic hardships of the area
and told of the continued need for federal government reform
and involvement. Mr. Purvis pointed out that his county has
been suffering from a consistent decline in the number of small
businesses that can remain open in the area, pointing out that
Mead Westvaco, which operated a sawmill employing approximately
150, had recently closed its doors. Chairperson Jones also
mentioned the impact of Mead Westvaco's departure and pointed
out restaurateurs, tradesmen, gas stations, and corner
grocery's feel a negative impact when such a significant
employer folds. Chairperson Jones pointed out that an added
factor for Meriwether County's ``stagnant and declining
economy'' was the fact that a mere seven percent of its
residents have a bachelors degree.
Mr. Gaymon of the Columbus Chamber of Commerce pointed out
that even his corner of the globe feels the harsh effects of
imbalanced trade. His area had most recently lost a sawmill due
to a lack of tariffs or taxes on competing foreign goods. He
went on to express that area has enough challenges to work
through without the added hurdle of preferred competition from
abroad.
Mr. Purvis and Mayor Byrd refused to dwell on the
negatives. Mayor Byrd pointed out that her city had annexed
``approximately 150 acres of land for developers to build new
housing ranging from $85,000 to $150,000. We assisted an
outside entity in securing a $500,000 grant to build a gated
multi-family community, which will include a swimming pool,
computer lab, and a clubhouse.'' She also pointed out that due
to Greenville's location, approximately 75 miles from downtown
Atlanta and 65 miles from the Atlanta Airport, the city is
poised for growth. Greenville has the added benefit of a
constant increase in population because of migration from
Coweta, Troup, and Muscogee counties. President Purvis
explained that Meriwether County had, ``recently raised over
$225,000 to assist in the construction of a work force
development center. The workforce development center will be
located in Greenville and will help our citizens develop better
job skills and hopefully make our community more competitive
for quality economic growth.''
After the member's questions were sufficiently answered,
Chairman Akin adjourned the hearing. In sum, the Subcommittee
concluded that while this region of Georgia has its share of
struggles, it is poised for growth and small businesses will
play a leading role in that effort.
For any further information on this hearing, please refer
to Committee publication #108-34.
7.3.7 federal prison industries effects on the u.s.
economy and the small business environment, joint
subcommittee hearing with the subcommittee on
workforce, empowerment and government programs and
the subcommittee on tax, finance and exports
Background
On October 1, 2003, the Subcommittees held this hearing to
draw attention to the negative impact Federal Prison Industries
(FPI) has had on the U.S. economy and in particular, the
nation's small businesses. At the time of the hearing, FPI
retained its mandatory source status for the vast majority of
federal agencies. The Subcommittees strongly believed that, at
the very least, FPI should not have this mandatory source
status and should have to compete for its federal contracts,
just like every other business in the country.
Summary
The hearing consisted of two panels. Panel one was
comprised of the Hon. Peter Hoekstra (R-MI). Mr. Harley G.
Lappin, Director, Federal Board of Prisons, Washington, DC; Mr.
John Palatiello, Executive Director, Management Association for
Private Photogrammetric Surveyors, Reston, VA; Mr. Christopher
Fay, Director, Milton Eisenhower Foundation, Washington, DC;
Ms. Rebecca Boenigk, CEO, Neutral Posture, Inc., Bryan TX; and
Ms. Angie McClure, Vice President, Habersham Metal Products,
Cornelia, GA comprised the second panel.
Representative Hoekstra provided an update as to the
progress of his legislation, H.R. 1829, the ``Federal Prison
Industries Competition in Contracting Act of 2003,'' stating
that the House Committee on the Judiciary had recently filed
its report on the bill by a bipartisan roll call vote of 19 to
8. Mr. Hoekstra continued to outline the major provisions of
the bill, such as requiring FPI to compete for federal contract
opportunities rather than simply being able to take them as
they can now.
Mr. Lappin stood fast to the philosophy that FPI is an
essential component of the Bureau of Prisons' efforts to
prepare inmates to successfully reenter society. He also stated
that FPI is ready, willing an able to work with Congress to
find an equitable solution to the problems raised.
Mr. Palatiello echoed Mr. Hoekstra's statements, suggesting
that FPI's mandatory source status must be revoked in order to
ensure a true free-market arena. This is necessary not only
because it will provide better value for taxpayers, but also
provide hundreds, if not thousands of small businesses across
the country opportunities to provide the federal government
with needed goods and services.
In his capacity as Director of the Milton Eisenhower
Foundation, Mr. Fay works intensively with former inmates to
reduce their likelihood of returning to prison following their
release. Mr. Fay noted that while FPI does have its merits,
when it comes to training the inmate in marketable skills that
can be transferred to the outside world, it falls sadly short.
Both Ms. McClure and Ms. Boenigk are intimately involved in
the government contracting aspects of their respective small
businesses. Both cited examples of their businesses being
squeezed out of the contracting process by FPI. Ms. Boenigk
also stated that she has been told by various Federal agencies
that they would like to purchase products from her, but can not
because of FPI's mandatory source status.
On November 6, 2003, the House of Representatives passed
H.R. 1829 by an overwhelming bipartisan margin of 350 to 65.
For further information about this hearing, please refer to
Committee publication 108-39.
7.3.8 union salting of small business worksites
Background
The term ``salting'' is used for the act of deliberately
inserting a union member into a non-union company (of which the
vast majority are small businesses) with the goal of eventually
unionizing that non-union company. This paid union organizer
aims to establish a wellspring of support for the union effort
within the company. Fellow employees often do not know that
their new co-worker is also a paid union organizer. In an
effort to curb this practice, the Hon. Jim DeMint (R-SC)
introduced H.R. 1793, the ``Truth in Employment Act of 2003.''
This legislation, as well as the detrimental effects salting
can have on small businesses, was discussed thoroughly at
hearing held by the Subcommittee on February 26, 2004.
Summary
Panel one was comprised of the Hon. Jim DeMint (R-SC). The
second panel was made up of Clyde Jacob, Esq., Jones Walker,
LLP, New Orleans, LA; Mr. Jason Krause, Manager, Human
Resources, Brubacher Excavating, Inc., Bowmansville, PA;
Jonathan Newman, Esq., Partner, Sherman, Dunn, Cohen, Lafer,
and Yellig, Washington, DC; Mr. and Mrs. Leonard Cloninger,
Owners, Construction Electric, Helena, MT; and Mr. Mark Mix,
President, National Right to Work Committee, Springfield, VA.
Representative DeMint spoke on behalf of his legislation,
H.R .1793, the ``Truth in Employment Act.'' Mr. DeMint
recounted the downfall of the Yuasa Excide battery plant after
being targeted by the Industrial Division of the Communications
Workers of America. Union ``salts'' infiltrated the plant, and
when employees there did not unionize, the union retaliated by
sabotaging product, causing work slowdowns, making verbal
threats, threatening phone calls, and even putting nails in
people's tires. Union leaders threatened to shut down the plant
and 650 people were laid off because Yuasa Excide plant could
not afford the increased cost of business resulting from the
salting.
H.R. 1793 aims to prevent more salting abuse. The bill
amends the National labor Relations Act (NLBA) to make clear
that an employer is not required to hire any person who seeks a
job in order to promote interests unrelated to those of their
employer. Under the bill, employees will continue to enjoy
their right to organize. The bill merely seeks to alleviate the
legal pressures imposed upon employers to hire individuals
whose overriding purpose for seeking the job is to disrupt the
employers' workplace.
Mr. Jacob began the second panel by further explaining
salting's destructive consequences, particularly in the legal
arena and through the National Labor Relations Board (NLRB).
Mr. Jacob testified that the labor unions that employ the
salting tactic contend that a company faced with unlawful of
possibly unlawful activity can discipline the worker, file a
complaint with the NLRB, or notify law enforcement authorities.
Experience has shown that an employer who responds by failing
to hire, by discipline or by dismissal, will be faced with
unfair labor practice charges filed with the NLRB and the
expense of defending these charges, regardless of the
legitimacy of its actions.
Mr. Krause and Mr. and Mrs. Cloninger both detailed the
difficulties they have faced when confronted with salting
campaigns. While Mr. Krause's employer, Brubacher Excavating,
has been fortunate enough to survive these campaigns,
Construction Electric has since been put out of business.
Although it could no longer aid them, the Cloningers expressed
the utmost support in favor of H.R. 1793. Mr. Mix also
expressed strong support for H.R. 1793 while detailing two
cases similar to Mr. Krause and the Cloningers.
The dissenting view came from Mr. Newman who believes that
H.R. 1793 would deprive union organizers of the protection of
the NLRA and permit employers to engage in what has been deemed
unlawful discrimination. Mr. Newman maintained that salting is
a legitimate organizing tool and that salts understand that
when they apply for work that they will be expected to fulfill
the employer's legitimate employment expectations. This view
was in stark contrast to Representative DeMint's recount of the
Yuasa Excide case, and the numerous examples put forth by all
other witnesses.
In sum, the Subcommittee concluded that passage of H.R.
1793 was necessary to protect the rights of small business
owners. For further information about this hearing, please
refer to Committee publication #108-55.
7.3.9 the benefits of health savings accounts
Background
The House Small Business Committee's Subcommittee on
Workforce, Empowerment and Government Programs held a hearing
entitled ``The Benefits of Health Savings Accounts'' on March
18, 2004. The purpose of this hearing was to discuss Health
Savings Accounts (HSAs). An HSA is a tax-free account that can
be used to pay for medical expenses.
Under the recently passed Medicare prescription drug bill
(P.L 108-173), consumers can make pre-tax contributions into an
HSA account up to their deductible. The HSA earns interest tax-
free, and unused funds can be rolled over year to year. As long
as the account is used for qualified medical expenses, it can
be withdrawn tax-free. The individual, employer or family
member can make pre-tax contributions. Individuals between the
ages of 55 and 65 can make pre-tax ``catch-up'' contributions,
which they can use for non-covered Medicare expenses, such as
their Medicare premiums. Because the individual owns the
account, he may take it with him to another job. Upon death,
the HSA can be transferred to a family member.
Summary
The hearing consisted of two panels. The first panel
consisted of the Hon. Philip Crane (R-IL). The second panel's
witnesses were: Ms. Kate Sullivan, Director, Health Care
Policy, United States Chamber of Commerce, Washington, DC; Mr.
David Alders, Owner, Carizo Creek Corp., Nacogdoches, TX; Mr.
Daniel Perrin, Executive Director, HSA Coalition, Washington,
DC; Ms. Victoria Braden, President, Braden Benefits Strategies,
Norcross, GA; and Ms. Linda Blumberg, Ph.D., Senior Research
Associate, The Urban Institute, Washington, DC.
Representative Crane spoke in support of HSAs. He opened up
by declaring that he and several other members introduced H.R.
3901, the HSAs for the Uninsured Act of 2004, which will
promote the use of health savings accounts throughout the
country, by offering a tax deduction for premiums paid for
HSAs.
Four witnesses on the second panel spoke in support of
HSAs, explaining how small businesses previously shutout of
consistently being able to supply health insurance to their
employees, would now be able to as a result of competition
created by HSAs. One witness opposed HSAs.
Ms. Sullivan explained that HSAs hold the promise of
reviving the largely moribund but costly small business
insurance market. The current insurance market is stagnant,
stemming from state mandates on health plans, which have taken
away health plans' ability to differentiate themselves in the
marketplace and compete for customers by offering benefits
tailored to meet their needs. This lack of competition has
forced many insurers out of the marketplace, sending small
business scrambling for new providers in a panic.
Mr. Alders added that, ``micro-business owners are unable
to offer the extensive employment packages that large companies
give to new employees.'' He went on to add that, ``. . . with
the creation of HSAs, employers can contribute annually to
their employees' health costs. Micro-business owners who have
been unable in the past to offer a health benefit to their
employees, now have a valuable benefit to offer current
employees or potential employees.''
Mr. Perrin explained his group is a coalition of non-profit
groups that advocate for HSAs. He went on to point out that the
most consumer friendly form of health insurance is affordable
health insurance, and HSAs are affordable.
The eighth member of the second panel was Linda Blumberg of
the Urban Institute. Ms. Blumberg opposed HSAs. She stated that
HSAs included in the Medicare prescription drug legislation
increase the problems faced by small businesses and their
employees and ``increase administrative costs, further segment
individuals according to health care risk, and subsidize the
highest income purchasers the most.'' Ms. Blumberg also pointed
out how the scope of the health insurance problems facing small
employers and their workers would be compounded by the
implementation of HSAs.
In sum, the Subcommittee concluded that HSAs were a
positive but not the complete solution to the health care
access crisis facing small business owners and their employees.
Further work could be done to expand the popularity and use of
HSAs by small businesses, including providing a tax deduction
for HSAs (H.R. 3901).
For any further information on this hearing, please refer
to Committee publication #108-58.
7.3.10 would an increase in the federal minimum wage help
or hinder small business?
Background
The Fair Labor Standards Act of 1938 fixed in law a federal
minimum wage of $0.25 an hour for most workers. From 1939 to
1997 the minimum wage was raised 19 times. Currently, the basic
minimum wage is $5.15 an hour, with a lower wage for tipped
employees, certain new hires under the age of 20, and full-time
students who work part-time. There are currently several pieces
of legislation before the 108th Congress that would raise the
minimum wage to various levels. The purpose of the hearing,
held on April 29, 2004, was not to debate the merits of any
particular minimum wage increase bill but to discuss the
general effect of raising the minimum wage on the small
business community.
Summary
The hearing consisted of one panel: Mr. Paul Kersey,
Bradley Visiting Fellow, Heritage Foundation, Washington, DC;
Mr. Graig Garthwaite, Director of Research, Employment Policies
Institute, Washington, DC; Mr. Todd McCracken, President,
National Small Business Association, Washington, DC; Mr. Mike
Fredrich, President and Owner, Manitowoc Custom Molding, LLC,
Manitowoc, WI; and Mr. Jared Bernstein, Ph.D., Senior
Economist, Economic Policy Institute, Washington, DC.
Mr. Kersey began his testimony by presenting evidence
conducted by the Heritage Foundation that showed of the 7.8
million Americans currently earning less than $6.55 an hour,
only 15 percent are living in poverty and over half belong to
families earning double the poverty level. Mr. Kersey testified
that increasing the minimum wage would have a negative net
effect on the unskilled entry-level jobs that typically pay the
minimum wage.
Mr. Garthwaite echoed Mr. Kersey's testimony, pointing to a
1998 survey by economists at Stanford University, Princeton
University, and the Massachusetts Institute of Technology
stating that the average economist believes a 10 percent
increase in the minimum wage will lead to a 2.1 percent
decrease in effective employment. That by itself, Mr.
Garthwaite testified, is a strong argument against raising the
minimum wage. However, to further exacerbate this potential
problem, the job loss would be concentrated on the least
skilled employees, the very individuals supporters of a minimum
wage increase attempt to help.
Both Messers. McCracken and Fredrich illustrated practical
examples of the effect of a minimum wage increase on employers.
Mr. McCracken, speaking on behalf of his members, suggested
that increasing the minimum wage would have an inflationary
effect on all wages, so that small employers with approximately
15-20 employees could potentially face an additional cost of
$40,000 or $50,000 a year. Mr. McCracken testified that that
these additional labor costs could often mean the difference
between a small company staying open or closing doors forever.
Mr. Fredrich's testimony was similar to Mr. McCracken's,
explaining that raising the minimum wage would be devastating
to his business. Currently, Mr. Fredrich assumes 80 percent of
his employees' health care costs. By forcing him to pay
additional labor costs, his only alternative to stay viable
would be to lower that ratio, forcing his employees to bear
more of their health care costs. Mr. Fredrich also testified
that should he be forced to pay additional labor costs, he
might consider outsourcing some of his production overseas.
Dr. Bernstein offered dissenting views to all previous
panelists. Because it is not indexed to inflation, Dr.
Bernstein suggests, the buying power of the minimum wage
declines unless our nation's leaders enact an increase. When
adjusted for inflation, the current minimum wage is 30 percent
below its peak level in 1968 and 14 percent below its level in
1997 when it was last increased.
In sum, the Subcommittee concluded that raising the minimum
wage would have a negative impact on small business.
For further information about this hearing, please refer to
Committee publication #108-61.
7.3.11 the department of labor's overtime regulations
effect on small business
Background
On April 23, 2004, the Department of Labor issued final
regulations under the Fair Labor Standards Act implementing the
exemption from overtime pay for executive, administrative,
professional, outside sales and computer employees. These
exemptions are often referred to as the ``white collar''
exemptions. To be considered exempt, employees must meet
certain minimum tests related to their primary job duties and,
in most cases, must be paid on a salary basis at not less than
minimum amounts as specified in pertinent sections of these
regulations.
This is the first comprehensive update of overtime
regulations in half a century. Many businesses found the old
overtime rules vague, outdated and confusing. The lack of
clarity in the regulations made it difficult to know if
business owners were making correct decisions about who gets
overtime and who does not. That confusion often led to costly
litigation, draining resources away from our businesses--
slowing our economic growth and costing jobs. On May 20, 2004,
the Subcommittee held a hearing to examine the impact of the
new overtime rules on small businesses.
Summary
Panel one was comprised of Mr. Alfred Robinson, Deputy
Administrator, Wage and Hour Division, United States Department
of Labor, Washington, DC. Panel two was comprised of Mr. Neill
Fendly, President and CEO, Mortgage Defense, Inc., Scottsdale,
AZ; Mr. John Fitch, Senior Vice President, National Funeral
Directors Association, Washington, DC; Mr. Ronald Bird, Ph.D.,
Chief Economist, Employment Policy Foundation, Washington, DC;
and Mr. Ross Eisenbrey, Vice President and Policy Director,
Economic Policy Institute, Washington, DC.
Mr. Robinson led off the hearing with an overview of the
regulations and a status update. Mr. Robinson testified that
under the new regulations, workers earning less than $23,660
per year (or $455 per week) are guaranteed overtime protection.
This new minimum salary level for exemption triples the current
minimum salary of only $8,060 per year, and strengthens
overtime rights for 6.7 million Americans. Additionally, the
regulations strengthen overtime protection for licensed
practical nurses, police officers, fire fighters, paramedics,
and similar public safety employees, and blue-collar workers,
such as construction workers, manual laborers, and employees on
factory lines. Such employees will not be affected by the new
regulation.
Mr. Robinson continued in his testimony, as well as in the
question and answer portion of the hearing, that by and large,
these regulations will require more overtime being paid to
employees. Despite the additional cost to employers, the
regulations have the overwhelming support of the business
community. Mr. Robinson stated that currently, businesses are
losing resources to the legal system attempting to sort out
which employees are entitled to overtime. Mr. Robinson
surmised, that in the long run, the legal and administrative
cost savings garnered by the new regulations far outweighs the
additional pay.
On the second panel, Messrs. Fendly and Fitch, along with
Dr. Bird all testified in support of the regulations, citing
red-tape reduction, easier use, and fairness as reasons why
they and their parent organizations support the regulations.
However, each stated that the primary reason for support is the
expected reduction in litigation.
Mr. Eisenbrey testified against implementation of the
regulations. Finding perceived flaws in the language, Mr.
Eisenbrey focused on what the regulations do not cover, such as
employees deemed as ``team leaders.'' Because this particular
employee is not delineated within the regulations, employers
will face the same problems they currently have under the old
system. Additionally, Mr. Eisenbrey pointed out that because of
this and other flaws, employers will find ways to circumvent
the system by giving new titles and tasks to individual
employees to avoid paying them overtime.
In sum, the Subcommittee concluded that the Department of
Labor's new overtime regulations are beneficial to small
business.
For further information about this hearing, please refer to
Committee publication #108-67.
7.3.12 excellence in action: government support of
disabled veteran-owned businesses, joint
subcommittee hearing with the subcommittee on
workforce, empowerment and government programs and
the house veterans' affairs committee's
subcommittee on benefits
Background
The purpose of this hearing, held on July 15, 2004, was to
discuss federal department and agency initiatives that would
increase the use of discretionary set asides and restricted
authorities (established in Public Law 108-183) in contracting
with service-disabled veteran-owned businesses (SDVOSBs).
Section 502 of Public Law 106-50, the Veterans
Entrepreneurship and Small Business Act of 1999, established
that, annually, three percent of all federal contracts and
subcontracts should be awarded to SDVOSBs. For the first two
fiscal years after enactment of Public Law 106-50, less than
one-half of one percent of such contracts had been awarded to
service disabled veteran-owned businesses. In order to provide
the federal agencies with the necessary tools to meet the three
percent goal, Congress and President Bush enacted Public Law
108-183 into law on December 16, 2003. Section 308 of this new
law provides additional statutory authority for contracting
officers to make it easier to meet the three percent goal.
Summary
The hearing consisted of two panels: Panel one was
comprised of Ms. Allegra McCoullough, Associate Deputy
Administrator for Government Contracting and Business
Development, United States Small Business Administration,
Washington, DC; Mr. Frank Ramos, Director, Office of Small and
Disadvantaged Business, Department of Defense, Washington, DC;
Mr. Bradley Scott, Regional Administrator, General Services
Administration, Kansas City, MO; Mr. Scott Denniston, Director,
Office of Small Business and Center for Veterans Enterprise,
Department of Veterans Affairs, Washington, DC; and Ms. Nina
Rose Hatfield, Deputy Assistant Secretary for Business
Management and Wildland Fire, Department of the Interior,
Washington, DC. The second panel consisted of Mr. John Lopez
and Mr. Rick Weideman, Co-Chairmen of the Task Force for
Veterans Entrepreneurship, Silver Spring, MD; Mr. Steven
Schooner, Associate Professor of Law and Co-Director of the
Government Procurement Law Center, George Washington
University, Washington, DC; Mr. Joseph Forney, President,
Vetsource, Inc., Hesperia, CA; and Mr. James Hudson, Marketing
Director, Austad Enterprises, Inc., Centennial, CO.
Ms. McCoullough detailed the interim final rule published
by the SBA and the Federal Acquisition Regulatory Council on
May 5, 2004. Additionally, Ms. McCoullough detailed efforts
such as outreach training and other policy program initiatives
specifically for SDVOSBs.
Mr. Ramos described three areas of focus to improve the
Department of Defense's (DOD) performance in meeting the three
percent goal. First, the DOD is developing a strategy to
increase service-disabled veteran supplier pool in order to
augment contract amounts to these businesses. The second area
is training DOD personnel in small business-related courses to
help them better recognize and support small business concerns.
The third area is raising the profile of service-disabled
veterans within the DOD.
Mr. Scott detailed ``Operation Fast Break,'' the General
Services Administration's (GSA) two pronged approach aimed at
creating and improving GSA's external and internal offerings to
their federal customers, and to SDVOSBs. The broad goals of
Operation Fast Break are first to identify, recruit, train, and
assist SDVOSBs to get on GSA's multiple-award schedule program.
And second, it is to inform client agencies of the new law and
the opportunity contained therein to streamline the ability to
access SDVOSBs.
Mr. Denniston detailed the efforts of the Center for
Veterans' Enterprise. Created in 2001, the Center's principal
mission is to promote business ownership and expansion for
veterans and service-connected disabled veterans. Mr. Denniston
testified that on February 24, 2004, the Department of Veterans
Affairs issued an information letter instructing all staff to
immediately begin implementing the new set-aside provisions
contained in Public Law 108-183 prior to the issuance of
regulations.
Ms. Hatfield articulated her support for the changes made
by Public Law 108-183 and expressed the Department of the
Interior's enthusiastic outreach efforts in this regard. Ms.
Hatfield detailed the Department's outreach efforts via open
houses, forums, and direct contact to ensure SDVOSBs realize
the changes and have the capabilities to participate fully.
Mr. Lopez, who expressed concerns regarding federal agency
implementation of Public Law 108-183, led off the second panel.
Mr. Lopez was grateful of the efforts of Congress, but
suggested yet still many agencies fail to meet the three
percent goal. Additionally, Mr. Lopez lamented that the
commitment of the private sector prime contractors lags behind
the substandard federal effort.
Mr. Schooner testified that, while expressing his reverence
for service-disabled veterans, establishing an arbitrary goal
of federal contract dollars is not the most efficient mechanism
to increase participation by any segment of the small business
community. He based his concerns on uncertainty in the
procurement system, the potential to create infighting between
SDVOSBs, the difficult nature of oversight and accountability,
and finally, the burden it would place on the federal
acquisition workforce.
Mr. Hudson expressed concerns similar to Mr. Lopez. Mr.
Hudson is an SDVOSB and in addition maintains a database of
SDVOSBs. He testified that he has corresponded with and spoken
to approximately 400 SDVOSBs in the past few years and knows
only a handful who have successfully entered the federal
marketplace. Mr. Hudson requested that the federal government
establish a case-managed approach to service-disabled veterans,
as they need more follow-along and more intensive service.
Mr. Forney concluded the hearing with more concerns
regarding federal agency efforts to meet the goal. Mr. Forney,
a SDVOSB, testified that repeated efforts by him have yielded
no results. Citing as examples, a letter he received from the
Department of Agriculture stating that the three percent goal
is discretionary, not mandatory, and no return calls from the
Department of Veterans Affairs following several attempts by
him.
In sum, the Subcommittees concluded that much more
oversight is needed to insure that federal agencies
aggressively use the new statutory tools provided them in
Public Law 108-183 so that more contracts can flow to well-
deserving SDVOSBs.
For further information about this hearing, please refer to
Committee publication #108-73.
7.4 Summaries of the Hearings Held by the Subcommittee on
Regulatory Reform and Oversight
7.4.1 improving and strengthening the sba office of
advocacy
Please refer to the hearing summary set forth in part
7.3.1, supra.
For further information on this hearing, refer to Committee
publication 108-5.
7.4.2 federal agency treatment of small business
Background
On May 15, 2003, the Subcommittee on Regulatory Reform and
Oversight held a hearing to examine federal agency treatment of
small business. The participants examined current efforts to
take small businesses into account when federal agency rules
are drafted as well as future regulatory reform initiatives.
Each group also identified individual agencies and regulations
that had been particularly sensitive to small business
interests and those that had not been following their
obligations under the Regulatory Flexibility Act as amended by
the Small Business Regulatory Enforcement Fairness Act.
Summary
The hearing was comprised of two panels of witnesses
including: Mr. Michael Barrera, Regulatory Enforcement
Ombudsman, United States Small Business Administration,
Washington, DC; the Hon. Nina Olson, Taxpayer Advocate,
Internal Revenue Service, Washington, DC; Ms. Kristie Darien,
Director of Government Affairs, National Association for the
Self Employed, Washington, DC; and M. Dorothy Wood, President
and CEO, J.D. & W, Inc., Virginia Beach, VA.
Mr. Barrera discussed his office's work to resolve small
business regulatory enforcement complaints and has found high
degrees of cooperation from most agencies. His regulatory
fairness board hearings are now regularly attended by the
National Taxpayer Advocate of the IRS and often lead to on site
resolution of small business problems. Ms. Olsen shared the
work of her outreach efforts to small businesses. The office is
attempting to market its services better to small business
owners especially in the area of payroll tax compliance because
of the potential for stiff fines. In her 2002 Report to
Congress, Ms. Olsen identified some of the most serious
problems for small business including navigating the IRS, long
delays to handle settlements of cases, handling IRS
collections, employment tax deposits, and obtaining Employer
Identification Numbers.
On the second panel, Dorothy Wood discussed the challenge
of compliance with the Health Insurance Portability and
Accountability Act and the Occupational Safety and Health
Administration (OSHA) workplace regulations as a small
businesswoman. She also described the harsh treatment she
received by OSHA inspectors at her worksite. Kristie Darien of
the National Association for the Self-Employed described
improvements by the IRS in its treatment of micro-businesses,
but ask for the agency and Congress to urgently address the
definition of independent contractor. Ms. Darien also called
for increasing tax simplification and paperwork reduction.
In sum, the subcommittee discovered that while there was
progress being made in how federal agencies treated small
businesses, there was still much more work needed to be done.
For further information on this hearing, refer to the
Committee publication #108-15.
7.4.3 crs regulations and small business in the travel
industry
Background
On June 26, 2003, the Subcommittee on Regulatory Reform and
Oversight held a hearing to examine U.S. Department of
Transportation's (DOT) Computer Reservation System (CRS)
regulations and their impact on small businesses in the travel
industry. The rulemaking included an inadequate Regulatory
Flexibility Analysis (RFA) that failed to account for its full
impact on small businesses in the airline travel industry and,
most specifically, small travel agents. The hearing explored
the Department's compliance with the RFA and its potential
effects on the subsequent rulemaking.
Summary
The hearing was comprised of one panel of witnesses
including: the Hon. Thomas Sullivan, Chief Counsel Office of
Advocacy, United States Small Business Administration,
Washington, DC; Mr. Richard A. Cooper, President, National
Travel Systems, Lubbock, TX; Paul M. Ruden, Esq., Senior Vice
President, Legal and Industry Affairs, American Society of
Travel Agents, Alexandria, VA; Norma R. Pratt, President,
Rodgers Travel, Inc., Philadelphia, PA; David Schwarte, Esq.,
Executive Vice President & General Counsel, Sabre Holdings
Corp., Southlake, TX; and Mr. David L. Rojahn, President, DTR
Travel, Inc., Englewood, CO.
Chief Counsel Sullivan reviewed the role of SBA's Office of
Advocacy in ensuring RFA compliance by the Department of
Transportation (DOT) and other agencies. Advocacy reviewed the
Notice of Proposed Rulemaking (NPRM) and became concerned about
its incomplete analysis of impacts on small travel agencies.
Advocacy requested that DOT publish a supplemental Initial
Regulatory Flexibility Analysis (IRFA) before it moved to final
rule stage.
Mr. Ruden walked the subcommittee through the entire
rulemaking process and a description of the economics of the
travel agent industry. Many small travel agents rely on the
income stream of productivity pricing and incentives provided
by Computer Reservation Systems (CRS) to make their already
difficult business more profitable. Many small travel agents
closed in the post 9/11 environment because of the reduction in
travel and the ending of fees paid from the airlines to agents.
Mr. Schwarte of Sabre discussed the importance of allowing CRSs
to make and define the terms of contracts between themselves
and travel agents. Mr. Cooper, Mr. Rojahn, and Ms. Pratt echoed
the concerns of Mr. Ruden and Mr. Schwarte and described the
difficult economic consequences that their small travel
businesses would face if DOT's current proposed rules were
allowed to go into effect.
In sum, the subcommittee concluded that the Department of
Transportation did not perform an adequate IRFA analysis and
urged that agency to do a better job prior to final adoption of
the CRS rule.
For further information on this hearing, refer to the
Committee publication #108-22.
7.4.4 contract bundling and small business procurement
Background
On July 15, 2003, the Subcommittee on Regulatory Reform and
Oversight held a hearing to examine federal contract
opportunities for small business and the use of bundling by
agencies that combines smaller contracts into one larger
contract that reduces the total number of procurement
opportunities. Many of these larger bundled contracts are so
large that small businesses are ineligible to compete as prime
contractors. According to the Office of Management & Budget
(OMB), the number and size of bundled contracts have reached
record levels. The Subcommittee wished to examine this trend
and the diminishing number of contract opportunities for small
businesses. In March of 2002, the President laid out his small
business agenda, which included increasing small business
opportunities in federal procurement. Several departments were
reviewed for their compliance with the President's bundling
policy including the Departments of Defense, Housing & Urban
Development (HUD), Energy, Transportation, and the National
Aeronautics and Space Administration (NASA).
Summary
The hearing was comprised of two panels of witnesses
including: Ms. Jo Baylor, Director, Office of Small
Disadvantaged Business Utilization, United States Department of
Housing and Urban Development, Washington, DC; Mr. Sean M.
Moss, Director, Office of Small Disadvantaged Business
Utilization, United States Department of Transportation,
Washington, DC; Ms. Linda Oliver, Deputy Director, Office of
Small Disadvantaged Business Utilization, Department of
Defense, Washington, DC; Mr. Ralph C. Thomas III, Assistant
Administrator, Office of Small Disadvantaged Business
Utilization, National Aeronautics and Space Administration,
Washington, DC; Ms. Theresa A. Speake, Director, Office of
Small Disadvantaged Business Utilization, Department of Energy,
Washington, DC; Mr. Dave Sterling, Vice President, VIRTEXCO
Corp., Norfolk, VA; and Mr. Jorge Lozano, President/CEO,
Condortech Services, Inc., Annandale, VA.
Ms. Baylor described the success HUD has had in unbundling
contracts and creating opportunities for small business and
announced that 50 percent of its prime contracts went to small
businesses. Mr. Moss detailed DOT's successes in contracting
over $3.6 billion in prime contracts to small business
representing over 44 percent of the agency's total contracting
dollars. Ms. Oliver at the Department of Defense and the
largest government procurer pointed to the department's success
in increasing the total number of small business prime
contractors to 33,936 from 24,130 the previous year and the
number of bundled contracts at DOD to date being six. Mr.
Thomas reflected on NASA's work to increase small business
contracting from $2.5 to $3.6 billion annually with the same
total contracting budget and its ability to triple the number
of dollars going to minority and woman owned businesses. Ms.
Speake described the difficulties her agency has in contracting
out substantial amounts of work to small businesses because the
vast majority of its procurement is in large scale maintenance
and operation contracts for the national laboratories. Efforts
continue to break out portions of existing and future contracts
for small business contracting.
Mr. Sterling and Mr. Lozano described their experiences as
small business owners with contract bundling. Both argued that
despite some positive news from government agencies, the
procurement officials in charge of contracting continue to
attempt to bar the smallest companies from doing business by
bundling smaller contracts or unfairly raising the
qualifications to bid.
In sum, the subcommittee concluded that while some efforts
were underway to help small businesses obtain more federal
contacts, contract bundling or consolidation still presented a
significant hurdle to small businesses.
For further information on this hearing, refer to the
Committee publication #108-25.
7.4.5 what is omb's record in small business paperwork
relief?
Background
On July 18, 2003, the Subcommittee held the first of three
joint hearings with the Subcommittee on Energy Policy, Natural
Resources and Regulatory Affairs of the Committee on Government
Reform to examine the Administration's record in paperwork
reduction and burden relief for small businesses. The Small
Business Paperwork Relief Act of 2002 required the Office of
Management and Budget (OMB) to take certain actions by June 28,
2003, including to: (a) publish the first annual list of all
compliance assistance resources available to small businesses;
(b) have each agency establish one point of contact to act as a
liaison between small businesses and the agency regarding
paperwork requirements; and, (c) report to Congress on the
findings of an interagency task force, chaired by OMB. The
hearing concluded that OMB's two June 27th published documents
were incomplete and unsatisfactory, its task force report was
unresponsive, and its track record in small business paperwork
reduction was dismal.
Summary
The hearing was comprised of three panels of witnesses. The
first panel consisted of the Hon. Senator George V. Voinovich
(R-OH) and the Hon. Donald A. Manzullo (R-IL). Panel two's lone
witness was the Hon. John D. Graham, Ph.D., Administrator,
Office of Information and Regulatory Affairs, Office of
Management and Budget, Washington, DC. Panel three consisted
of: Ms. Karen Kerrigan, Chairman, Small Business Survival
Committee, Washington, DC; and Mr. Andrew Langer, Manager,
Regulatory Policy, National Federation of Independent Business,
Washington, DC.
Senator Voinovich and Representative Manzullo shared their
concerns on how the Small Business Paperwork Relief Act (SBPRA)
was being implemented. The list of compliance assistance
resources was haphazard and incomplete; the meetings of the
task force did not seem to accomplish much; and the draft
report of the task force included the presumption that agencies
collect the minimum amount of paperwork necessary to comply
with statutory or regulatory obligations. Mr. Manzullo decried
this mindset and had hoped that the task force would review
opportunities for elimination of unnecessary or duplicative
paperwork. The over reliance on e-government solutions to
reduce the paperwork burden was also noted by Mr. Manzullo.
Dr. Graham defended the Bush Administration's and OIRA's
record on implementation of SBPRA and in reducing government
paperwork. He described how the President's e-government
initiatives would assist in consolidating information
collection requirements, publishing an organized searchable
list of data collections, and implementing electronic
submissions. He highlighted the opportunities in the Business
Compliance One Stop Initiative that would incorporate elements
of the task force report and could be the platform for
consolidating and harmonizing federal paperwork requirements.
Ms. Kerrigan and Mr. Langer described the difficulties of
their small business members in complying with federal
regulatory and paperwork requirements. Ms. Kerrigan praised the
Administration's e-government initiatives but stated that it
should not supercede the central objective of the Paperwork
Reduction Act and SBPRA, which was to actually eliminate
unnecessary paperwork.
In sum, the subcommittee concluded that much more work was
needed in order for the Executive Branch to comply with the
mandates Congress set out in SBPRA.
For further information on this hearing, refer to the
Committee publication #108-27.
7.4.6 spam and its effects on small business
Background
On October 30, 2003, the Subcommittee on Regulatory Reform
and Oversight held a hearing to examine the impact of
unsolicited commercial e-mail or spam on small businesses. It
is estimated that unsolicited commercial e-mail accounts for 45
percent of all e-mails; roughly 15 billion messages a day.
Worldwide, spam costs businesses a total of $20 billion a year
in lost productivity and technology expenses. However, many e-
mail marketers execute their campaigns legally, and many
businesses rely on commercial e-mail to communicate with
existing customers. Members of the House of Representatives and
the Senate introduced seven competing bills attempting to
eliminate e-mail spam. Several proposals would have adverse
impacts on small businesses including some individual state
legislation that would ultimately be pre-empted by a federal
spam law.
Summary
The hearing was comprised of two panels of witnesses
including: Mr. J. Howard Beales, III, Director, Bureau of
Consumer Protection, Federal Trade Commission, Washington, DC;
Mr. Jerry Ceresale, Senior Vice President for Government
Affairs, Direct Marketing Association, Washington, DC; Mr.
Bruce Goldberg, President, Weatherman Records, Farmer's Branch,
TX; Mr. John Rizzi, CEO, e-Dialog, Inc., Lexington, MA; Mr.
Shane Ham, Senior Policy Analyst, Progressive Policy Institute,
Washington, DC; Ms. Catherine Giordano, President/CEO,
Knowledge Information Systems, Virginia Beach, VA; and Mr.
Wayne Crews, Director of Technology Studies, CATO Institute,
Washington, DC.
Mr. Beales addressed the economic impact of spam on small
businesses. Although an individual spam e-mail has a de minimis
cost, the cumulative economic damage can be enormous. Estimates
put the cost of spam to consumers and businesses at between $10
billion and $87 billon a year. The flood of fraudulent and
offensive spam messages also removes the benefit of e-mail as a
marketing tool to legitimate small businesses. The FTC put
together consumer education material to help prevent
unsuspecting small businesses from having their e-mails
harvested or their servers overloaded with spam. The FTC has
also aggressively pursued enforcement actions against spammers
that already break the law. Mr. Beales discussed the various
legislative proposals to combat spam and outlined the FTC's
principles for a bill that would help small businesses.
Mr. Ceresale and Mr. Rizzi cautioned that Congress not make
legitimate e-mail marketing and customer retention e-mails
illegal under a spam enforcement regime. Business developed
through legitimate use of e-mail tops $7 billion annually. Mr.
Rizzi specifically described how some state legislation might
put his small business in serious legal jeopardy. Mr. Goldberg
and Ms. Giordano described their experiences in dealing with
spam as recipients of spam and as small business owners. Mr.
Goldberg lost countless amounts of business by being unable to
identify legitimate customer e-mails to his website from spam.
Mr. Crews cautioned that no legislative solution can truly end
spam but that almost any legislation might cause legitimate
companies serious trouble and economic harm. He suggested that
the marketplace and technology could ultimately be used to
solve the problem by forcing the costs of spam back on the
senders of unsolicited e-mail. Mr. Ham argued that legislation
was long overdue and that any downsides of legislation were far
outweighed by the cost and inconvenience associated with spam
e-mail.
In sum, the subcommittee concluded that the problem of e-
mail spam is complex from a small business perspective and that
Congress should avoid ``solutions'' with unintended
consequences for small business.
For further information on this hearing, refer to Committee
publication #108-44.
7.4.7 increasing the competitiveness of u.s.
manufacturers, field hearing, spartanburg, sc
Background
On November 17, 2003, the Subcommittee on Regulatory Reform
and Oversight held a roundtable to discuss ways to increase the
competitiveness of U.S. manufacturers. This field hearing was
held in Spartanburg, South Carolina along with Representative
Jim DeMint, a valuable Member of the Small Business Committee.
Issues that impact the competitiveness of manufacturers include
producing a skilled workforce; identifying and mitigating
harmful regulations; reforming the tax code to encourage job
retention; fostering innovation; the high cost of health
insurance; and enforcing trade agreements. By November 2003,
2.8 million U.S. manufacturing jobs had been lost in the
previous 38 months.
Summary
The hearing was comprised of two panels of witnesses
including: the Hon. Grant Aldonas, Undersecretary for
International Trade, United States Department of Commerce,
Washington, DC; Mr. Daniel Young, CecD, Managing Director,
Business Development Division, South Carolina Department of
Commerce, Columbia, SC; Ms. Deborah Moore, Spartanburg, SC; Ms.
Phyllis Eisen, Vice President, Manufacturing Institute,
National Association of Manufacturers, Washington, DC; and Ms.
Barbara League, Corporate Secretary, GF League Manufacturing,
Greenville, SC.
Mr. Aldonas noted that our manufacturing firms are facing
an increasingly competitive global marketplace and we must
create an environment in which domestic firms can succeed. The
President's manufacturing initiative was discussed with a focus
on ``keeping our side of the street clean'' or removing
barriers to competitiveness and reducing the cost of doing
business in the United States. Items on the list of barriers
include higher energy costs, higher medical and pension costs,
as well as higher insurance and tort costs. On the trade side,
elimination of tariff and non-tariff barriers, fair and market-
based currency valuations, and the vigorous enforcement of
current trade laws are also components of the Administration's
manufacturing initiative.
Mr. Young testified to the current state of manufacturing
in South Carolina. Over 90,000 manufacturing jobs had been lost
in the last five years, and the textile industry alone lost
nine percent of its employment over the last year. The South
Carolina Department of Commerce aggressively recruits new
industries and businesses to make up for the changing landscape
of jobs in the state. Tax credits for job creation and worker
retention are used with other incentives to encourage companies
to view the state as friendly to new business.
On the second panel, Deborah Moore, described her story
from being gainfully employed as a textile worker for 25 years
to now being out of work with no transferable skills. Through
government job retraining programs, she attended a local
technical college, and has found a new career in college
financial aid. Ms. League described the experience of her
company and the difficulty in competing with companies in
countries like China. Ms. Eisen discussed the need to ``re-
brand'' manufacturing employment and make it more palatable to
our nation's students. The perception of manufacturing
employment is leading to fewer young people viewing it as a
good career choice or as working on a dirty factory floor and
so high skilled, high paying manufacturing jobs often go
unfilled.
In sum, the subcommittee concluded that the manufacturing
climate is rough in the United States, particularly in formerly
textile-dependent South Carolina, but if the federal and state
governments redouble efforts to further strengthen our nation's
overall competitiveness, the slide can be stopped.
For further information on this roundtable, refer to
Committee publication #108-45.
7.4.8 what is the administration's record in relieving
burden on small business?--part i
Background
On January 28, 2004 the Subcommittee on Regulatory Reform
and Oversight held its second of three joint hearings with the
Government Reform Subcommittee on Energy, Natural Resources,
and Regulatory Affairs to examine the Administration's record
in paperwork reduction and burden relief for small businesses.
The Small Business Paperwork Relief Act of 2002 (SBPRA)
required the Office of Management and Budget (OMB) to take
certain actions by June 28, 2003 and others by December 31,
2003.
The hearing reviewed: (a) OMB's still incomplete listing of
each agency's single point of contact to act as a liaison
between small business and the agency; (b) OMB's still
incomplete listing of agency compliance assistance resources
available to small businesses; (c) the incomplete initial
agency enforcement reports (due December 31st); and (d)
additional significant (over 100,000 hours each) paperwork
reduction accomplishments and plans to benefit small business.
In addition, the three key regulatory agencies--the Departments
of Labor (DOL) and Transportation (DOT) and the Environmental
Protection Agency (EPA)--discussed their track record in
relieving enforcement burdens on small business. The
Subcommittee sent extensive post-hearing questions to OMB and
DOL.
Summary
The hearing was comprised of three panels of witnesses.
Panel one's only witness was the Hon. John D. Graham, Ph.D.,
Administrator, Office of Information and Regulatory Affairs,
Office of Management and Budget, Washington, DC. Panel two
consisted of: the Hon. Patrick Pizzella, Assistant Secretary
for Administration and Management, United States Department of
Labor, Washington, DC; the Hon. Jeffrey Rosen, General Counsel,
United States Department of Transportation, Washington, DC; and
the Hon. Kimberly T. Nelson, Assistant Administrator for
Environmental Information, Environmental Protection Agency,
Washington, DC. The third panel's members were: Mr. Harold
Igdaloff, President, Sungro Chemicals, Inc., Los Angeles, CA
and Mr. Andrew Langer, Manager, Regulatory Policy, National
Federation of Independent Business, Washington, DC.
Dr. Graham again defended the administration's and OIRA's
record on implementation of SBPRA and in reducing government
paperwork. He continued to highlight the e-government
initiative, the Business Gateway, and the upcoming SBPRA second
task force report. Mr. Pizzella, Mr. Rosen, and Ms. Nelson all
testified to specific paperwork reductions and enforcement
actions against small businesses. Each defended their records
on small business fairness and elimination of some paperwork
burdens.
Mr. Igdaloff and Mr. Langer described the difficulties of
their small business members in complying with federal
regulatory and paperwork requirements and especially of the
heavy hand of federal enforcement actions. Mr. Igdaloff
described his experiences with EPA as a small producer of
agricultural pesticides. Problems with EPA's Toxic Release
Inventory program were also discussed.
In sum, the subcommittees concluded that much more work
needed to be done by the administration in order to comply with
the legislative mandates set-forth in the SBPRA.
For further information on this hearing, refer to the
Committee publication #108-51.
7.4.9 challenges to small business growth, field hearing,
augusta, ga
Background
On March 1, 2004, the Subcommittee on Regulatory Reform and
Oversight held a hearing to discuss ways to increase the
competitiveness of U.S. manufacturers. This field hearing was
held in Augusta, Georgia along with Representative Max Burns,
who represents Augusta as part of the 12th District of Georgia.
Witnesses identified solutions to increase the competitiveness
of small businesses in Georgia. Topics included: actively
working to produce a skilled workforce; identifying and
mitigating harmful regulations; reforming the tax code;
fostering innovation; and removing other barriers to
entrepreneurship, all in service of helping businesses in the
state to produce the kind of economic growth that Georgia and
the nation needs.
Summary
The hearing was comprised of one panel of witnesses
including: Ms. Nuby Fowler, Regional Administrator, United
States Small Business Administration, Atlanta, GA; Mr. Randy
Griffin, President, CSRA Business Lending, Augusta, GA; Mr.
Terry Elam, President, Augusta Technical College, Augusta, GA;
Mr. Patrick Wilbanks, Entrepreneur Services Coordinator,
Economic Development Institute of Georgia Tech and the Georgia
Rural Economic Development Center, Swainsboro, GA; Mr. Ed
Presnell, President, Augusta Metro Chamber of Commerce,
Augusta, GA; and Mr. Henry H. Logan, State Director, Small
Business Development Center, University of Georgia, Athens, GA.
Ms. Fowler testified to the changing nature of the SBA
workforce and its increased ability to offer more direct
relationships with customers and resource partners. She further
discussed the growth of the SBA loan programs from 59,563 to
over 76,000 loans in Fiscal Year 2003. Also discussed were the
Microloan program and the new Rural Business Investment Company
(RBIC) program, which was passed into law as part of the 2002
Farm bill.
Mr. Griffin described the paperwork burden associated with
the SBA's 504 guaranteed lending program and urged the agency
to come up with a low document option in the program. He also
urged the Chairman to not support a zero subsidy rate for the
7(a) loan program and suggested that small rural lenders and
users will be hardest hit. Mr. Elam helps to run a small
business incubator that provides low rent, and college staff to
provide assistance and support in strategic business planning,
management, market research, loan packaging, technical
consulting, and legal advice through local attorneys.
Additional services that assist a newly developing small
business are high speed internet access, telephone lines, photo
copying, conference rooms, and kitchen facilities. The
incubator at Augusta Technical College has 10 start-up
companies.
Henry Logan of the SBDC at the University of Georgia
described his centers offering of assistance to small
businesses through consulting tools and training programs. Pat
Wilbanks of the Economic Development Institute at the Georgia
Institute of Technology argued for more support for innovation,
higher loan volumes in the SBA 7(a) program, continued tax
relief, youth entrepreneurship, and minority enterprise
development programs.
In sum, the subcommittee concluded that there are still
many issues that still needed to be worked on in Washington to
help entrepreneurs in small communities like Augusta, Georgia
prosper and thrive.
For further information about this hearing, refer to the
Committee publication #108-56.
7.4.10 small businesses creating jobs and protecting the
environment
Background
On April 22, 2004, the Subcommittee on Regulatory Reform
and Oversight held a hearing to examine innovative small
businesses that are creating jobs and protecting the
environment. Among the innovative and fast growing small
business sector, many businesses are dramatically increasing
the efficiency and productivity of our natural resources.
Whether creating technologies to reduce pollution, increasing
recycling and recovery, or leaving a smaller footprint on the
environment, these job creators are also creating environmental
benefits. This hearing explored the market driven contributions
to the environment of small businesses nicknamed ``green
gazelles.''
Summary
The hearing was comprised of one panel: Mr. William
Farland, Ph.D., Acting Deputy Assistant Administrator for
Science, Office of Research and Development, United States
Environmental Protection Agency, Washington, DC; Mr. Mark H.
Clevey, Vice President, Entrepreneurial Development, Small
Business Association of Michigan, Lansing, MI; Mr. Craig H.
Lindell, President, Aquapoint, New Bedford, MA; Mr. Scott
Seydel, President, EvCo Research, Atlanta, GA; and Phil Catron,
President, NaturaLawn of America, Frederick, MD.
Dr. Farland testified that innovative technologies lead to
more cost-effective environmental protection and growth and
jobs in the economy. He said that there are particularly
promising technologies in reducing pollution at its source,
increasing recycling and recovery, and finding less costly ways
to treat or remediate pollutants. EPA's Small Business
Innovation Research (SBIR) grants focused on waste minimization
and pollution prevention. EPA also has a number of other
programs that support innovative small businesses such as their
Science to Achieve Results (STAR) research grants.
Mr. Clevey discussed the attempts of the Small Business
Association of Michigan to assist and encourage the development
of more ``green gazelles.'' They assist in connecting
entrepreneurs with SBIR grants and other technical assistance.
Mr. Lindell, Mr. Seydel, and Mr. Catron each described the
efforts of their small business to find ways to conserve
resources, increase recycling, and lower their environmental
impact. Each discussed the need for partnership with government
to make these innovations, jobs, and environmental improvements
possible.
In sum, the subcommittee concluded that the free market--
primarily led by innovative small businesses--could provide
environmental solutions to difficult problems while, at the
same time, create economic opportunity and jobs.
For further information about this hearing, refer to the
Committee publication #108-60.
7.4.11 reforming regulation to keep america's small
businesses competitive
Background
On May 20, 2004, the Subcommittee on Regulatory Reform and
Oversight held a hearing to discuss ways to reform the
regulatory system to keep America's small businesses
competitive. In 2002, the Code of Federal Regulations required
over 75,000 pages to record every executive agency rule and if
laid down next to each other the volumes would extend 19 feet.
From 1991 to 2000, the Code of Federal Regulations increased by
28 percent and showed no signs of stopping in 2002 when 4,167
rules were codified. A report authored by Drs. Crain and
Hopkins for the Small Business Administration's (SBA's) Office
of Advocacy calculated the cost of regulations to our economy
at $843 billion per year or $8,164 for every household. Small
businesses face a regulatory burden that is 60 percent higher
per employee than large businesses. The authors estimated that
the average small business is burdened with almost $7,000 per
employee in regulatory compliance costs. The hearing reviewed
several approaches to reform of the regulatory process.
Summary
The hearing was comprised of two panels of witnesses. The
Honorable J.D. Hayworth (R-AZ) was the sole witness for the
first panel. Ms. Susan Dudley, Director, Regulatory Studies
Program, Mercatus Center, Arlington, VA; Mr. James Gattuso, Roe
Institute for Economic Policy Studies, The Heritage Foundation,
Washington, DC; and Mr. Raymond Arth, President, Phoenix
Products of Avon Lake, Ohio.
Representative Hayworth discussed his proposed legislation
for regulatory reform. His proposal, H.R. 110, would require
that all new regulations promulgated by agencies have an up or
down vote of the Congress. Mr. Hayworth testified that Congress
has ceded far too much of its lawmaking authority to
unaccountable, unelected employees in the Executive Branch. He
believes this is the only way to get regulation under control
and restore common sense to the regulatory process.
Ms. Dudley reviewed the state of our regulatory system by
the over 75,000 pages in the Federal Register, the $28 billion
in costs to fund regulatory agencies, the over $93 billion cost
to the regulated community of water regulation, and the fact
that in 2000 U.S. manufacturers paid an average of $2.2 million
per firm to comply with federal workplace regulation. On her
reform agenda was examining the possibility of a regulatory
budget, post analysis of regulation after implementation, and a
congressional office of regulatory review and analysis. Mr.
Gattuso's suggestions for reform included developing mini-
Office of Information and Regulatory Affairs (OIRA's) within
each regulatory agency to review legacy regulation, designating
regulatory reform czars at each agency, and requiring
independent agencies to submit their regulation to the Office
of Management and Budget (OMB) for analysis. Mr. Arth discussed
his own small business experience with regulatory agencies and
suggested passing several pieces of legislation to make SBA's
Office of Advocacy more independent, to examine regulatory
budgeting, and to make some reforms of adjudication process of
the Occupational Safety and Health Administration (OSHA) at the
Department of Labor.
In sum, the subcommittee heard many positive suggestions on
how to improve the regulatory process for small business and
concluded that many of these items deserved implementation.
For further information on this hearing, refer to the
Committee publication #108-66.
7.4.12 department of labor's enforcement actions against
small business
Background
On June 17, 2004, the Subcommittee on Regulatory Reform and
Oversight held a hearing to discuss the Department of Labor's
enforcement program and enforcement actions against small
businesses. In the previous fiscal year, the Department of
Labor conducted enforcement actions against 143,000 businesses.
Small businesses accounted for almost 66,000 of those actions.
In 2001, the National Federation of Independent Business (NFIB)
released a survey of their members which described some 82
percent of the respondents as discovering regulations in the
normal course of business or when an enforcement action has
begun. Under the Small Business Regulatory Enforcement Fairness
Act (SBREFA), each agency must establish a policy to provide
for the reduction or waiver of civil penalties for violations
of statutory or regulatory requirements by a small business.
The enforcement policies and compliance assistance programs of
the Department of Labor were reviewed.
Summary
The first panel consisted of Mr. Robert C. Varnell, Deputy
Solicitor, United States Department of Labor, Washington, DC.
The second panel members were: Ms. Anita Drummond, Director of
Legal and Regulatory Affairs, Associated Builders and
Contractors, Arlington, VA; Mr. Perry A. Bennett, Jr., Health
Safety and Environmental Director, Molded Fiber Glass
Companies, Ashtabula, OH; and Ms. Patricia H. Lee, President &
CEO, National Institute for Urban Entrepreneurship, Washington,
DC.
Mr. Varnell described the Department of Labor's emphasis on
compliance assistance. He quoted Labor Secretary Elaine Chao
from a compliance assistance conference who said, `` The reason
we care about compliance assistance is that it is a powerful
additional tool to help us protect workers.'' He reviewed the
policies and programs of the Occupational Safety & Health
Administration (OSHA) and the Wage & Hour Division of the
Department and their compliance with the Small Business
Regulatory Enforcement Fairness Act.
Ms. Drummond praised the Department of Labor's partnership
program but said that OSHA still has some distance to travel
before developing the trust of small businesses in the
construction industry. She also pointed to the misallocation of
resources on worker safety away from more serious problems such
as preventing falls, struck by, caught in/between, and
electrical shocks and to less serious problems like silica and
ergonomics. Mr. Bennett described his company's experiences
dealing with OSHA and the fact that some standards enforced by
the agency include 1969 standards that have been subsequently
updated by the National Fire Prevention Association. Thus,
companies that are in compliance with more recent up-to-date
standards will be out of compliance with OSHA. Ms. Lee
described the perils of new entrepreneurs in trying to navigate
the regulatory process governing workplace regulation. She
urged recognition of the opportunity cost of regulations and
the cost in jobs. In addition, she recommended improving the
Equal Access to Justice Act (EAJA) and giving a hard look at
overly zealous enforcement programs.
In sum, the subcommittee concluded that while progress has
been made on compliance assistance at the Department of Labor,
more work needs to be done to help small business.
For further information on this hearing, refer to the
Committee publication #108-69.
7.4.13 what is the administration's record in relieving
burden on small business?--part ii
Background
On July 20, 2004 the Subcommittee on Regulatory Reform and
Oversight held its last of three joint hearings with the
Government Reform Subcommittee on Energy, Natural Resources,
and Regulatory Affairs to examine the Administration's record
in paperwork reduction and burden relief for small businesses.
The Small Business Paperwork Relief Act of 2002 required the
Office of Management and Budget (OMB) to take certain actions
by June 28, 2003, others by December 31, and others by June 28,
2004.
The hearing reviewed: (a) OMB's still incomplete listing of
each agency's single point of contact to act as a liaison
between small business and the agency; (b) OMB's still
incomplete listing of agency compliance assistance resources
available to small businesses; (c) the still incomplete agency
enforcement reports; (d) the second report of an OMB-chaired
interagency task force (due June 28, 2004); and (e) additional
significant (over 100,000 hours each) paperwork reduction
accomplishments and plans to benefit small business. The
hearing concluded that OMB's June 2003 and June 2004 task force
reports were unresponsive to Congressional specifications and
intent, and its track record in small business paperwork
reduction remained dismal. The Subcommittees sent extensive
post-hearing questions to OMB, Treasury, and the General
Services Administration (GSA).
Summary
The first panel consisted of: the Hon. John D. Graham,
Ph.D., Administrator, Office of Information and Regulatory
Affairs, Office of Management and Budget, Washington, DC; the
Hon. Jesus Delgado-Jenkins, Acting Assistant Secretary for
Management and Budget & Chief Financial Officer, United States
Department of Treasury, Washington, DC; and Mr. Felipe Mendoza,
Associate Administrator, Office of Small Business Utilization,
General Services Administration, Washington, DC. The third
panel's members were: Mr. Joseph Acker, President, Synthetic
Organic Chemical Manufacturers Association, Washington, DC; Ms.
Anita Drummond, Director of Legal and Regulatory Affairs,
Associated Builders and Contractors, Inc., Arlington, VA; and,
Mr. John DiFazio, Assistant General Counsel--Legal/Regulatory
Affairs, Consumer Specialty Products Association, Washington,
DC.
Dr. Graham catalogued paperwork reduction efforts including
RCRA changes at EPA that could save 929,000 hours and $120
million annually, OSHA changes, and HHS CLIA regulations that
could save over 400,000 hours. He said they would continue to
monitor agency compliance and pay special attention to further
reducing the paperwork burden on small businesses with fewer
than 25 employees. Mr. Delgado-Jenkins and Mr. Mendoza
discussed efforts by the Department of Treasury and the GSA to
comply with SBPRA and provide reductions in real paperwork
burden for small businesses.
Mr. Acker and Mr. DiFazio shared the experiences of small
specialty chemical manufacturers with federal regulation and
paperwork requirements. Mr. Acker described a typical small
manufacturer that does not have dedicated employees for health,
environment, and safety like large corporations but must
``double hat'' employees to perform multiple roles like
regulatory compliance. Each added layer of regulation or
paperwork burden comes directly out of time that employees
could spend producing value for the company. Ms. Drummond
provided the experience of the construction industry in
regulatory compliance. The greatest difficulty, she said, is
just trying to figure out what rules apply to an individual
business. Compliance assistance efforts at the Department of
Labor were praised.
For further information on this hearing, refer to the
Committee publication 108-74.
7.4.14 small business liability reform
Background
On July 22, 2004, the Subcommittee on Regulatory Reform and
Oversight held a hearing to discuss small business liability
reform. The cost of tort liability for small businesses in
America is $88 billion a year. Small businesses bear a
disproportionate share of the total tort liability burden.
Although taking in only 25 percent of business revenue, they
face 68 percent of the tort costs. The average liability cost
for small businesses is $15 per $1,000 of revenue, while large
corporations average $5.39 per $1,000 of revenue. The hearing
examined several approaches to making small businesses more
competitive through reforms of the tort liability system.
Summary
The hearing was comprised of two panels of witnesses
including: The Hon. Steve Chabot (R-OH) was the sole witness on
the first panel. The second panel consisted of: Ms. Jo Wagner,
President, CTO, Inc., Harlingen, TX; Ms. Lisa A. Rickard,
President, United States Chamber of Commerce Institute for
Legal Reform, Washington, DC; Mr. Victor Schwartz, General
Counsel, American Tort Reform Association, Washington, DC; Mr.
Chris Cavey, Owner, Cavey Insurance, Hampstead, MD; and Ms.
Joanne Doroshow, Executive Director, Center for Justice &
Democracy, New York, NY.
Representative Chabot described the high cost of tort
liability to small businesses. He described his legislation,
H.R. 2813, the Small Business Liability Reform Act, which would
limit punitive damages and would eliminate joint and several
liability for non-economic losses for businesses employing
fewer than 25 people. It would also protect product sellers and
distributors of goods they did not manufacture from liability
when the seller was not negligent, or did not breach an express
warranty.
Ms. Rickard shares the state of liability costs to large
and small businesses. She discussed the high cost to small
businesses, 44 percent of who pay all their tort costs out of
pocket and not from insurance. She discussed and commended
legislation in Congress to address class action lawsuits,
asbestos lawsuits, medical malpractice, food consumption,
``loser pays'' for frivolous claims, and small business
liability reform. Ms. Wagner described her harrowing experience
as a small business contractor who was caught up in a legal
action against all contractors on a school project. Even though
she had no negligence on her part, the trial attorneys sought
damages from everyone on the project. Mr. Cavey described his
experience as an insurance agent and the small businesses that
he has helped get liability coverage. He also has seen
frivolous lawsuits on the part of ``injured'' plaintiffs almost
destroy family owned small businesses even though they were not
negligent.
Ms. Doroshow suggested that tort liability costs to small
businesses were inflated and that tort reform was a boon to big
business. Mr. Schwartz reviewed the state of the legal
profession in torts and suggested that the most important
change to the system would be to improve Rule 11, which helps
to compensate a defendant if a plaintiff brings a frivolous
lawsuit. He argues that if lawyers and plaintiffs were more
fearful of losing a judgment and having to pay the costs of the
other party, there would be more self-regulation.
In sum, the subcommittee concluded that our tort system is
out of control and something needs to be done to help small
businesses deal with frivolous lawsuits.
For further information on this hearing, refer to the
Committee publication #108-76.
7.5 Summaries of Hearings Held by the Subcommittee on Tax, Finance and
Exports
7.5.1 small business asset expensing
Background
The Subcommittee on Tax, Finance, and Exports conducted
this hearing to draw attention to potential changes in Section
179 of the Internal Revenue code. Section 179 deals with the
expensing of depreciable business assets. At the time of the
hearing, small businesses could only expense the first $25,000
spent on new equipment in a given year. The remainder (if any)
was depreciated under current cost recovery rules. The
threshold for this tax subsidy was capped at $200,000. In
effect, this rule gives firms an incentive to invest no more
than $225,000 by substantially increasing their cost of capital
above the threshold range.
Increasing the expensing limit to various levels have been
included in each of President Bush's major economic recovery/
tax relief plans (Public Laws 107-16, 107-147), and the current
Fiscal Year 2004 budget request.
Summary
The hearing, held on April 3, 2003, consisted of two
panels. Panel One was comprised of Mr. Gregg Jenner, Deputy
Assistant Secretary and Senior Advisor for Tax Policy,
Department of Treasury, Washington, DC. Panel Two was comprised
of: Mr. Martin Regalia, Ph.D., Chief Economist and Vice
President of Tax Policy, United States Chamber of Commerce,
Washington, DC; Ms. Dena Battle, Legislative Affairs Manager,
National Federation of Independent Businesses, Washington, DC;
Mr. Leslie Shapiro, President, Padgett Business Services,
Washington, DC; and Mr. Brian Harvey, President of H&C, Inc.
Heating & Cooling, Laurel, MD.
Mr. Jenner focused on President Bush's proposal to increase
the Section 179 expensing limit contained in the Bush
Administration's FY04 Budget Request. The proposal would, among
other things, triple the maximum dollar amount that may be
expensed to $75,000 (from $25,000) for qualifying property
placed in service in 2003 and thereafter; index annually for
inflation the amount that can be expensed each year (beginning
in 2004); increase to $325,000 from $200,000 the point at which
the benefits of section 179 begin to phase out, effective for
qualifying property placed in service in 2003 and thereafter
(and index such amount annually for inflation); include off-
the-shelf computer software as qualifying property; and permit
taxpayers to make or revoke expensing elections on amended
returns without the consent of the Commissioner. Mr. Jenner
also commented briefly on other aspects of the President's
economic growth plan, including ending the double taxation of
dividends.
Dr. Regalia and Ms. Battle echoed Mr. Jenner's support for
the President's proposal, indicating that any increase in the
limit would spur growth, create jobs, and boost the economy,
citing numerous statistics for each positive aspect. Mr.
Shapiro also testified in favor of increasing the expensing
limit, however, he did not place as much emphasis on increasing
the limit as previous witnesses. He commented on an alternative
proposal where, in lieu of an automatic increase, small
businesses would be able to ``carry-over'' unused expensing
allowances from year to year, allowing them to build a surplus
for those years they make significant purchases.
Mr. Harvey concluded the testimony by attesting that any
significant increase in the expensing limit would allow him to
immediately grow his business by purchasing new trucks, and
probably at least one new employee.
On May 28, 2003, President Bush signed H.R. 2, the ``Jobs
and Growth Tax Act of 2003,'' into law (Public Law 108-27).
Public Law 108-27 increases the Section 179 expensing limit
from $25,000 to $100,000 and increases the upper threshold
limit from $200,000 to $400,000 for Fiscal Years 2003-2005.
For further information about this hearing, please refer to
Committee publication 108-6.
7.5.2 overcoming obstacles facing the uninsured
Background
The Subcommittee on Tax, Finance, and Exports conducted
this hearing to examine the role tax-advantaged mechanisms can
have in decreasing the distressingly high number of uninsured
Americans, which currently stands at approximately 43 million.
About 60 percent of those Americans without health insurance
are either small business owners, or employees of small
business owners. The Subcommittee believes that removing
current restrictions on and expanding the use of Medical
Savings Accounts (MSAs), Flexible Spending Accounts (FSAs), and
increased tax relief focused specifically toward the purchase
of health insurance can help alleviate many of these problems.
FSAs are employer-established benefit plans, which first
began in the 1970s, that reimburse employees for specified
expenses. MSAs are tax-advantaged individual savings accounts
that can also be used for unreimbursed expenses that became
available under a demonstration that began in 1997. President
Bush's FY 2004 budget proposed changes to FSAs and a permanent
extension and substantial expansion of MSAs that are identical
to President Bush's FY 2003 budget proposal.
Summary
The hearing, held on May 8, 2003, was composed of two
panels. Panel one consisted of the Hon. Donald Manzullo (R-IL),
Chairman of the House Committee on Small Business. The second
panel was composed of Mr. Tom Miller, Director of Health Policy
Studies, CATO Institute, Washington, DC; Mr. Edwin Hall, Senior
Health Policy Analyst, Center on Budget and Policy Priorities,
Washington, DC; Mr. Kim Snyder, Chairman, Lehigh Valley Chamber
of Commerce, Bethlehem, PA; and Mr. Keith Hall, CPA, Houston,
TX.
Chairman Manzullo's testimony focused on legislation he
recently introduced with Congresswoman Nydia Velazquez, the
Ranking Member of the House Small Business Committee. This
legislation, H.R. 1873, the ``Self-Employed Health Care
Affordability Act of 2003,'' seeks to provide small business
with the same opportunity for success as big business in
affording quality health coverage. Specifically, H.R. 1873
would allow self-employed business owners to deduct their
health care expenses from their payroll taxes (Social Security
and Medicare) as well as their individual income taxes. Self-
employed workers pay a 15.3 percent payroll tax on top of their
individual income tax. Allowing them to deduct their health
care expenses from their payroll taxes would effectively reduce
their health care costs by 15 percent. Mr. Hall also focused on
this legislation.
Mr. Miller and Mr. Park expressed differing views on
expanded use of MSAs and FSAs. Mr. Miller testified in support
of removing or redesigning restrictions on the availability of
each one of them would help reduce the number of uninsured
individuals and families. Mr. Miller also stated that
significant progress could be achieved by providing broader
parity in the tax treatment of health insurance financing for
all purchasers; reducing artificial tax and regulatory barriers
to market-based, value-maximizing choices; and empowering all
health care consumers to match their own needs and preferences
to a wider variety of affordable options. Mr. Snyder of the
Lehigh Valley Chamber of Commerce echoed these views.
Mr. Park expressed concerns regarding the expanded use of
MSAs and FSAs. Chief among them, Mr. Park noted that such
expansions could undermine the current traditional employer-
based health insurance system through which the vast majority
of Americans obtain their health insurance and place workers'
access to affordable and comprehensive health insurance at
risk.
For further information about this hearing, please refer to
Committee publication 108-13.
7.5.3 the chilean free trade agreement: opening doors to
south american markets
Background
On June 12, 2003, the Subcommittee on Tax, Finance, and
Exports conducted this hearing to emphasize the importance of
free trade agreements for the American economy, and
particularly America's small businesses. The Chilean Free Trade
Agreement (CFTA) represents a significant step forward in
America's return to the free trade agreement arena. Not only
was it one of the first pacts Congress will have a chance to
vote on under the newly re-established Trade Promotion
Authority (Public Law 107-210), it was also the first agreement
with a South American nation.
Talks on a free trade agreement with Chile began in
December 2000. Following 14 rounds of negotiations, the
Agreement was declared final on June 6, 2003, which cleared the
way for a vote on implementing legislation in the 108th
Congress.
Summary
The hearing was composed of two panels. The first panel
consisted of two witnesses: Mr. Christopher Padilla, Assistant
United States Trade Representative for Intergovernmental
Affairs and Public Liaison, Office of the United States Trade
Representative, Washington, DC and Mr. Manuel Rosales,
Assistant Administrator, Office of International Trade, United
States Small Business Administration, Washington, DC. The
second panel consisted of Mr. Willard Workman, Senior Vice
President for International Affairs, United States Chamber of
Commerce, Washington, DC; Mr. James Morrison, President, Small
Business Exporters Association, Washington, DC; Mr. Arland
Schantz, Owner/Operator, Evergreen Farms, Zionsville, PA; and
Mr. Larry Wesson, President and CEO of Aurora Instruments,
Ambler, PA.
Both administration witnesses were in complete support of
the agreement, citing numerous statistics detailing the
negative impact of not having a free trade agreement with Chile
has had on our economy. In addition, it was mentioned that
America has been forced away from the Chilean market by
recently completed free trade agreements reached between Chile
and several other countries including Canada, Mexico, and the
European Union. Both Administration witnesses cited several
examples of American small businesses that would benefit from
expanded trade with Chile.
Mr. Padilla focused on numerous technical aspects of the
agreement, contrasting it with the other 150 or so agreements
currently on record across the globe. Specifically, Mr. Padilla
stressed the agreement's comprehensive nature, promotion of
transparency, modern composition, and its innovative approach
that supports and promotes respect for environmental protection
and worker rights.
Mr. Rosales focused on his efforts as Assistant
Administrator at the Small Business Administration's Office of
International Trade in preparation of the historic agreement.
Mr. Rosales stated that in 2002, the SBA had entered into a
cooperative agreement with its Chilean counterparts, the
Technical Cooperation Service of Chile (SERCOTEC) and the
Chilean Economic Development Agency (CORFO) to initiate
institutional cooperation to promote and support the
development, growth, stability, and global competitiveness of
small and medium enterprises (SMEs), and promote trade
opportunities for SMEs in each country. Additionally, Mr.
Rosales detailed the technical assistance and loan programs
available to small businesses wishing to become involved, or
further involved in exporting.
Similar to the first panel, all four of the witnesses on
the second panel were in complete support of the CFTA. Mr.
Workman and Mr. Morrison commented on the economic benefits and
employment increases on tap for the United States should
Congress finalize the agreement.
Mr. Schantz focused on the CFTA's impact on the American
agricultural sector, citing specific benefits for America's
wheat, oilseeds, edible vegetable oils and sugar producers. Mr.
Schantz testified that within 12 years, the agreement would
eliminate the price band system used by Chile to protect its
producers from lower-priced imports. Additionally, Mr. Schantz
commented on the significant progress that was made during the
negotiations with Chile to break down the walls of the sanitary
and phytosanitary barriers on U.S. agricultural imports without
a scientific basis, which rendered exportation impossible.
According to Mr. Schantz, these changes will undoubtedly result
in increased exports of U.S. fruits, beef, lamb and pork, as
well as dairy products to Chile.
Mr. Wesson stated that the CFTA would immediately and
dramatically improve his company's bottom line. Aurora
Instruments is the sole producer of portable fully automatic
fusion splicers in the Western Hemisphere. In 1997, Aurora
Instruments maintained a 74 percent market share in Chile. By
2002, Aurora's market share had dropped to zero. Mr. Wesson
stated that the absence of a U.S.-Chile free trade agreement
was a major cause for this decline because many of his
distributors elected to go with the less expensive European
manufactured fusion splicers. Mr. Wesson believes that final
approval of the CFTA will dramatically help his business by
allowing him to re-establish ties with his distributors in
Chile.
The U.S.-Chile Free Trade Agreement passed the House by a
strong bipartisan margin of 270 to 156 on July 24, 2003 and was
signed into law by the President on September 3, 2003 (Public
Law 108-77).
For further information about this hearing, please refer to
Committee publication, #108-19.
7.5.4 removing roadblocks to success: how can the federal
government help small businesses revitalize the
economy?, field hearing, denver, co
Background
America's small businesses are the backbone of our nation's
economy. They represent 99 percent of all employers; more than
half of all U.S. employees work for small firms; and they
generate between 60 and 80 percent of all new jobs in America.
Small businesses can and will be the leaders in our economic
recovery and our elected officials must do all they can to
foster, not hinder, their growth.
Unfortunately, some of our elected officials have been fond
of passing new laws and imposing mandates and regulations on
business. Congress has been working in recent years to diminish
that burden with legislation such as the Paperwork Reduction
Act, the Small Business Paperwork Relief Act, and most recently
the Jobs and Growth Tax Relief Reconciliation Act of 2003.
However, even with the passage of these bills, federal
regulatory, tax, and compliance burdens continue to be cited by
many owners as the most significant problems facing their
businesses.
Summary
The hearing, held on August 27, 2003, consisted of one
panel: Mr. Jim Henderson, Regional Advocate, Office of
Advocacy, United States Small Business Administration, Denver,
CO; Mr. Rick O'Donnell, Executive Director, Department of
Regulatory Agencies, State of Colorado, Denver, CO; Ms. Rebecca
Hea, Psy. D., Senior Administrator, Denver Children's Home,
Denver, CO; Mr. Patrick Hilleary, Director of Operations,
Brookfield Properties, Denver, CO; Mr. Robert Piper, Owner,
Piper Electric, Inc., Arvada, CO; Ms. Susan Cirocki Trujillo,
President/Owner, Arrow Sheet Metal Products, Denver, CO; Mr.
Cedric Tyler, President, Business Genetics, Englewood, CO; Mr.
Bert Weston, President and CEO of the Inner-City Community
Development Corporation, Denver, CO; and Mr. John Zeigler,
Chairman of Jackson's Sports Gril, Englewood, CO.
As small business owners and operators, Messrs. Zeigler,
Tyler, Piper, and Hillary, along with Ms. Trujillo, each
recounted numerous instances where the federal government
imposed specific tax and regulatory burdens or has failed to
examine and fix looming problems such as health care
affordability or tort reform.
Mr. Henderson stressed the positive changes that have taken
place over the past few years. He stated that efforts such as
the Regulatory Flexibility Act, the Small Business Regulatory
Enforcement Fairness Act, and the Jobs and Growth Tax Relief
Reconciliation Act are welcome and necessary changes for
America's small business community. Mr. Henderson did, however,
fully recognize that greater efforts are necessary to ensure an
optimum small business environment, citing continued tax reform
and regulatory relief.
Mr. O'Donnell focused on regulatory burdens and stated that
the State of Colorado has recently passed a law similar to the
Federal Regulatory Flexibility Act in addition to creating a
new website allowing small businesses in Colorado to sign up
for e-mail alerts regarding specific regulations pertinent to
their small business. Mr. O'Donnell noted that response to both
of these measures has been positive.
Noting that federal burdens also impact the non-profit
arena, Dr. Hea and Ms. Weston noted that they too face numerous
challenges complying with federal regulations. Dr. Hea
mentioned that Medicaid regulations are becoming increasingly
burdensome. She stated that the Denver Children's Home needs
three extra clinicians and one additional clerical assistant
simply to keep up with the paperwork.
For further information about this hearing, please refer to
Committee publication 108-32.
7.5.5 small business exporting and the southern california
economy, field hearing, long beach, ca
Background
Small and medium manufacturers make up 93 percent of all
exporters in the nation, provide 9.5 million jobs, and account
for 30 percent of total U.S. growth since 1989. Our federal,
state, and local governments must continue to work toward
fostering an environment where small and medium exporters can
grow and prosper. In 2002 Congress passed and President Bush
signed the Trade Promotion Authority Act, which is essentially
an agreement between the President and Congress on how market-
opening trade negotiations will be conducted and agreements
approved. The large number of countries that have lined up
seeking to enter free trade negotiations with our country
demonstrates the success and need for trade promotion
authority.
Just prior to the hearing, Congress passed and President
Bush signed both the Chilean and Singapore Free Trade
Agreements into law. This is welcome news to our nation's
export community. However, it is often difficult for small and
medium ``would-be'' exporters to become involved. Government
assistance programs from, among others, the Small Business
Administration (SBA), the Overseas Private Investment
Corporation (OPIC), the Export-Import Bank of the United States
(Ex-Im), and the Department of Commerce are essential to our
nation's small businesses looking to become involved, or more
involved, in trade.
Summary
The hearing, held on August 28, 2003, consisted of two
panels: Panel one was comprised of Mr. Howard Shatz, Ph.D. and
Mr. Jon Haveman, Research Fellows, Public Policy Institute of
California, San Francisco, CA. The second panel was made up of:
Mr. Adalberto Quijada, Deputy District Director, United States
Small Business Administration, Los Angeles, CA; Ms. Julie Anne
Hennesy, Director, West Los Angeles Export Assistance Center,
United States Department of Commerce, Los Angeles, CA; Mr.
Lawrence Spinelli, Ph.D., Director of Communications, Overseas
Private Investment Corporation, Washington, DC; Mr. Greg Davis,
Director of Economic Development, Office of the Governor of
California, Sacramento, CA; Mr. David Josephson, Western
Regional Director, Export Import Bank, Long Beach, CA; and Ms.
Patricia Unangst, Executive Director, Workforce Investment
Network Board, Carson, CA.
Both Drs. Shatz and Haveman detailed numerous statistics on
the current slate of free trade agreements, including the
completed Chilean and Singapore Free Trade Agreements, as well
as those currently being negotiated, such as the Free Trade
Area of the Americas and the Central American Free Trade
Agreement. By and large, both gentlemen noted that free trade
agreements were good for our national economy, but less so for
California and Southern California in particular.
All of the witnesses on the second panel, with the
exception of Ms. Unangst, documented the specific programs
available through their agencies designed to help small
businesses become involved in exporting. All government
witnesses stayed following the hearing to answer any questions
from the audience regarding any programs mentioned to help
maintain an open dialogue with the community. In her testimony,
Ms. Unangst offered three suggestions to help ensure fair and
equitable trade: (1) the federal government must work better
with state and local agencies to coordinate services; (2) when
considering trade policy, Congress must consider the impact on
local employment; and (3) funding needs to be available to
agencies to deal with various issues affecting the workforce.
For further information about this hearing, please refer to
Committee publication #108-33.
7.5.6 federal prison industries effects on the u.s.
economy and the small business environment, joint
subcommittee hearing with the subcommittee on
workforce, empowerment and government programs and
the subcommittee on tax, finance and exports
Please refer to the summary set forth in 7.3.7, supra.
For further information about this hearing, please refer to
Committee publication 108-39.
7.5.7 the august 14, 2003 blackout: effects on small
business and potential solutions
Background
By far, the worst blackout in our nation's history, hitting
numerous areas of the Northeast and Midwest of the United
States and Canada, this blackout served as a stark reminder of
the importance of electricity in our society. This
unprecedented event posed severe threats to the public health,
safety, and economy of several states and two nations. The
consequences go far beyond the personal inconvenience of
lights, refrigerators, and air conditioning. Emergency services
were disrupted, sensitive security systems were knocked off-
line, and the general disarray that followed was a severe cause
of concern for the general public's safety. The Subcommittee
held this hearing to examine the effects of this blackout on
small businesses and examine what changes might be made to
avoid future blackouts.
According to a preliminary federal report, the blackout
cost Americans anywhere between $4 and $6 billion in total.
Among those hardest hit were America's small businesses. The
problems caused were not simply lost perishable merchandise and
loss of sales. Although for a small business, these troubles
alone are not simply a blip on the revenue sheet, but numerous
other problems continued to plague small business. For example,
the interruption of business activity resulted in the loss of
millions of dollars of economic activity that will not be fully
recouped through private insurance and state and federal
programs, if at all.
Summary
This hearing, held on October 8, 2003, consisted of one
panel: Ms. Patricia Orzano, Owner, 7-11 Massapequa, NY; Mr. Tom
Leonard, Vice President for Research, Progress and Freedom
Foundation, Washington, DC; and Mr. Douglas Voda, Senior Vice
President and General Manager, Automation Technologies Division
of ABB, Inc., Allentown, PA.
As a small business owner, Ms. Orzano detailed the
difficulties she faced both during the ``complete bedlam'' in
the store immediately following the blackout, to the problems
she was facing this day, nearly two months following. Ms.
Orzano stated that 3% of her entire inventory was destroyed.
Initially, the 7-11 corporation indicated that the company
would cover the costs through their own blanket liability
insurance. However, several days following the blackout, the 7-
11 Corporation informed her that the insurance would not cover
the food spoilage. At best, she claimed, the 7-11 Corporation
would file a claim on her behalf in a future class action
lawsuit against her energy companies.
Mr. Leonard focused his testimony on policy that would
ensure greater reliability in our electricity grids. By moving
toward a more competitive, more flexible electricity market,
costs will drop and reliability will increase.
Mr. Voda stated in his testimony that ABB, Inc., along with
several other power technology companies, have produced
technology that could have limited the impact of the blackout
to a more local area. That technology, known as Wide Area
Measurement Systems (WAMS), utilizes Global Positioning System
satellite signals to very accurately create measurement
information and perform analysis on system conditions and
indicate if system instability conditions are beginning to
occur. The technology also allows operators to monitor
neighboring grids, giving them additional minutes to react to
prevent the disturbance from spreading.
Although the technology is relatively inexpensive, Mr. Voda
stated that power companies are reluctant to install WAMS
because there is no real incentive for them to do so as they
face no real repercussions for blackouts. Additionally, Mr.
Voda suggested that the threat of legal action could also be
hampering distribution of WAMS because voluntarily shutting
down a power grid due to a perceived problem nearby, when no
such shutdown was warranted, could leave the power companies
open to lawsuits.
For further information about this hearing, please refer to
Committee publication #108-40.
7.5.8 h.r. 1818, the workforce health improvement program
act: healthy employees, healthy bottom line
Background
Sixty percent of all Americans are physically inactive, and
that contributes significantly to the growth in our Nation's
obesity rate to where it is today, near epidemic proportions.
The Centers for Disease Control and Prevention, the Rand
Corporation, the Surgeon General and countless other experts
consistently document that obesity, often exacerbated by this
lack of physical activity, is in fact, the number one health
problem in the United States today.
The Workforce Health Improvement Program Act, (the WHIP
Act), introduced on April 11, 2003 by Congressman Patrick
Toomey, aims to take a significant step towards encouraging the
use of fitness centers, which in turn would lead to a healthier
population, which would in-turn decrease health care costs,
reduce government spending, and help prevent debilitating
illnesses.
The approach the WHIP Act takes is prevention. Under
current federal tax law, the value of on-premises athletic
facilities that are provided by employers to their employees
are not counted as employee income. However, if an employer
does not have the resources to build facilities on premises,
but instead provides health club services to employees at an
off-site facility, the value of that benefit is included as
taxable income to the employee. The WHIP Act would stipulate
that this wellness benefit would be excluded and not considered
taxable income for the employee.
Summary
The hearing, held on July 8, 2004, consisted of one panel
comprised of: Mr. John McCarthy, Executive Director,
International Health, Racquet, and Sportsclub Association,
Boston, MA; Edwin Foulke, Esq. Jackson Lewis, LLP, Greenville,
SC.; Mr. John Brinson, Owner, Lehigh Valley Racquet and Fitness
Centers, Allentown, PA; Mr. David Fehrmann, Director, Brand
Standards and Operating Systems, USA Management, Inc.,
Washington, DC; and Ms. Karen Silberman, Executive Director,
National Coalition for Promoting Physical Activity, Washington,
DC.
Mr. McCarthy was up first and provided an overview of the
WHIP Act and stated that healthcare costs are spiraling out of
control, driven in large part by the unhealthy lifestyles of
many Americans. Mr. McCarthy argued that the tax code creates
an unleveled playing field for employees working for small
businesses who cannot provide an on site fitness facility.
Mr. Foulke focused on the benefits of this legislation on
employers, as they are not unaffected by a ``heavy'' workforce.
Extra pounds are having serious ramifications relating to
health care costs, productivity, absenteeism, workplace
injuries, morale, and potential employee discrimination. Mr.
Foulke estimated that employers lose approximately $12.7
billion per year because of poor lifestyle choices by
employees. Direct costs of obesity include higher medical
insurance rates, hospitalization, physician visits, outpatient
testing/treatment, lab work and medication.
Mr. Brinson centered his testimony on the legislation's
effect on the relationships fostered between small and medium
sized companies and fitness centers. Specifically, the added
hassle and paperwork associated with providing the additional
wellness benefit, citing the 1099 form that must be provided to
employees to fill out their tax return. On several occasions,
Mr. Brinson noted, that he had started working relationships
with small and medium businesses to have their employees work
out at his centers, however, once Mr. Brinson informed the
employer he must provide the additional forms, the employer
decided against forming a partnership with Mr. Brinson's
business, simply because of the hassle it could cause.
Mr. Fehrmann is in the hospitality business and his
company, USA Management, Inc., has several offices and
restaurants all of the Washington, DC metro area. Even if they
could provide an on-site facility for their employees, the
location would be difficult for some employees to get to. USA
Management currently provides a wellness benefit for its
employees as they feel that because of the frenetic pace of the
hospitality industry, a healthy and fit employee serves the
company better than an unfit employee.
Ms. Silberman focused health benefit of the WHIP Act,
citing the alarming rate of obesity, chronic disease and
inactivity in the United States. Ms. Silberman surmised that
one of the best delivery systems to incorporate physical
activity into a lifestyle is through the workplace. Although
not a cure-all, the WHIP Act provides flexibility and incentive
to both employers and employees to make physical activity a
part of their daily routine.
For further information about this hearing, please refer to
Committee publication 108-71.
7.6 Summaries of the Hearings Held by the Subcommittee on Rural
Enterprises, Agriculture and Technology
7.6.1 litigating the americans with disabilities act
Background
On April 8, 2003, the Rural Enterprise, Agriculture and
Technology Subcommittee held a hearing to discuss the concerns
of small business owners as they struggle fully understand and
comply with the confusing provisions of the Americans with
Disabilities Act (ADA).
In 1990, Congress overwhelmingly passed this landmark
legislation. Because of the vagueness in the way this
legislation was written, it has opened up a wave of lawsuits.
According to the CATO Institute, employers prevailed in over 90
percent of Title I cases. The hearing also focused on H.R. 728,
the ADA Notification Act, introduced by Representative Mark
Foley. HR 728 allows a 90-day grace period for businesses to
correct and become ADA compliant before a civil suit can be
filed. Many businesses have thought they were fully ADA
compliant only to find themselves the victims of a lawsuit for
a small infraction that could easily be corrected.
Summary
The hearing consisted of two panels. The first panel
consisted of the Hon. Mark Foley (R-FL). The second panel
included: Mr. Ron Richard, Owner, Carl Richard Bowling Centers,
Joplin, MO; Mr. Robert L. Fleckenstein, President, Summit
Contractors, Inc., Jacksonville, FL; Mr. Kevin Maher, Vice
President for Government Affairs, American Hotel and Lodging
Association, Washington, DC; Mr. Brendan Flanagan, Legislative
Representative, National Restaurant Association, Washington,
DC; Mr. Steven Rattner, DDS, College Park, MD; and Mr. John E.
Garber, President & CEO of Garber & Associates, LLC,
Harleysville, PA.
Representative Foley spoke of a rash of lawsuits that have
hit Florida, California and Hawaii by a handful of lawyers or
``drive-by lawsuits'' targeting small businesses that believe
they have complied with ADA structural rules and then are hit
by lawsuits. While ADA does not allow plaintiffs to win
damages, it does award legal fees to attorneys and unscrupulous
attorneys have used this vehicle to ``shake down'' businesses.
Representative Foley cited several cases including the case of
a wheelchair store whose owners were both handicapped. Rather
than just have a few handicapped parking spaces, the owners
decided to make all the parking places handicapped and were
sued for not having the correct color paint to designate
handicapped parking spaces.
All the witnesses supported the goal of the Americans with
Disability Act and agreed that businesses that intentionally
did not comply with this legislation should be punished. The
first four witnesses on the second panel all testified to the
confusion surrounding structural compliance with ADA, saying
that most small businesses make every effort to be in
compliance, but that state and local codes are not themselves
compliant with federal ADA regulations. Ron Richards testified
that he knew of bowling alleys that were sued because the ramps
were a degree or two off regulation. Robert L. Fleckenstein
stated that his company was being sued because they were
building multi-family residential units that were built to the
specifications of the engineer, but yet under the statute his
company is held partially responsible. Both Kevin Maher and
Brendan Flanagan explained that members of their associations
have been hard hit by lawsuits while trying to comply with ADA
because of the vagueness of the statute.
Dr. Rattner disagreed with any weakening of the Americans
with Disabilities Act as it was originally passed in Congress,
saying that it had been 13 years since it had become law and
businesses had had enough time to comply with the statute.
Mr. Garber testified that ADA protects individuals with
disabilities from discrimination in the workplace. Under the
ADA, a recovering or rehabilitated drug or alcohol abuser is
covered as an individual with a record of impairment, and thus
protected; however, the current use of alcohol or illegal drugs
is not. Organizations, therefore, can have policies that
prohibit the possession of drugs and alcohol in workplace.
There is much confusion for employers trying to comply with
state and federal employment laws; much of which concerns the
intersection of various laws and the myriad legal remedies
available to disgruntled employees.
For further information on this hearing, refer to Committee
publication #108-7.
7.6.2 traversing the twists and impacts of the highway
beautification act upon small businesses
Background
The Rural Enterprise, Agriculture and Technology
Subcommittee held a hearing on Thursday, May 15, 2003, to
discus the impact of the Highway Beautification Act on small
businesses across America. The Highway Beautification Act of
1965 (HBA) was passed by Congress and signed into law by
President Lyndon Johnson in order ``to insure effective control
of billboards along our highways.'' This law controls outdoor
advertising along Interstate and federal-aid primary highways.
HBA does allow for billboards in commercial and industrial
areas as zoned, but mandates a state compliance program
including the development of state standards and promotes the
removal of illegal signs. States and localities are free to
enact stricter standards than the federal regulations. However,
this law failed to take into account its affect on small
business, particularly in rural areas that rely heavily on
billboard advertising. Additionally, in rural areas, billboard
advertising is the most economically efficient advertising
available to small businesses.
Summary
There was one panel of witnesses who testified: Ms. Sarah
Kothe, Owner, House of Os Bed & Breakfast, Salisbury, MO; Mr.
Charles R. Taylor, Ph.D., Professor of Marketing, Villanova
University, Villanova, PA; Mr. Chris Byrns, Counsel, Defenders
of Property Rights, Washington, DC; Mr. David Gorin, President,
David Gorin and Associates, McLean, VA; Mr. John P. Eck, Owner,
Servicetown Travel Plaza, Fredericksburg, VA; Mr. Joe Martin,
Owner/Operator, Best Western Mark Motor Hotel, Hampton Inn &
Suites, Stillwater, OK; and Ms. Meg Maguire, President, Scenic
America, Washington, DC.
Sarah Kothe testified that she had placed a small outdoor
sign to advertise her bed and breakfast in rural Missouri. She
was later ordered to remove the sign and told that because her
business was in a rural area with no commercial zoning and the
sign was not on contingent land, she could not advertise with
an outdoor sign. Because she has no means of advertising her
business has been dramatically reduced.
Professor Charles Taylor testified regarding his expertise
in the area of advertising and explained that billboards
produce great results for rural small businesses. In his
studies of billboard advertising, 80 percent of businesses that
utilize billboards to advertise say they would experience a
significant loss of business if they were forced to remove
these signs.
Chris Byrns testified to his organizations concern over the
loss of property rights to the government through the HBA ban
on outdoor billboard advertisements. He cited the vital link
between the freedom to advertise and a free-market economy.
David Gorin testified that billboard advertisement is the
most effective source of advertising that the members of the
National Association of RV Parks and Campgrounds have
experienced. He further stated that in the travel industry, 80
percent of travel is on U.S. highways and travelers select
stopping places for stays and meals 30 to 60 minutes prior to
stopping.
John Eck testified to the significance of billboard
advertisement for the travel plaza industry, citing statistics
from owners who use billboards, that the removal of billboard
advertisement causes a 15 percent to 25 percent decrease in
business. Travel plazas rely heavily on billboard advertisement
as their main advertising vehicle.
Joe Martin representing the American Hotel and Lodging
Association also spoke of how heavily individual hotel and
motels relied on billboard adverting to draw in travelers.
Meg Maguire testified as the witness for the minority that
while the HBA was passed and restricted billboard
advertisement, billboards have actually proliferated through
the years since passage of this legislation. She further stated
that this legislation should be properly enforced and
strengthened to preserve the intent of it and to ensure
American highways are littered with ``junk signs.''
In sum, the Subcommittee learned that rural small
businesses--particularly those in the travel and tourism
industry--rely heavily upon billboard advertisements.
Regulators should examine the impact upon small business and
propose alternative solutions that will mitigate the affect
upon small business prior to removing a billboard to comply
with the HBA.
For further information on this hearing, refer to Committee
publication #108-16.
7.6.3 endangered farmers and ranchers: the unintended
consequences of the endangered species act
Background
On July 17, 2003, the Rural Enterprise, Agriculture and
Technology Subcommittee held a hearing on to discuss the plight
of small farmers and ranchers as they struggle comply with
provisions of the Endangered Species Act (ESA), particularly
the designation of ``critical habitat.'' The Endangered Species
Act took effect in 1972 to protect animals like the bald eagle.
Today there are over 1,200 species that have the protection of
federal law. However, only 25 species have ever been de-listed.
Many farmers and ranchers have become victims of this law
because they cannot fully utilize their land due to
restrictions imposed on them by ESA.
Summary
There were three panels that testified before the
Subcommittee. The first panel consisted of the Hon. Richard
Pombo (R-CA). The second panel consisted of the Hon. Harold
Manson, Assistant Secretary for Fish, Wildlife and Parks,
Department of Interior, Washington, DC; and the Hon. Thomas
Sullivan, Chief Counsel for Advocacy, United States Small
Business Administration, Washington, DC. The third panel
included: Mr. Tom Waters, Orrick, MO; Mr. John V. Hays, Owner,
Rouse Bros. Ranch, Unity, OR; Mr. Robert Gordon, Director,
National Wilderness Institute, Washington, DC; and Mr. Michael
J. Bean, Attorney, Environmental Defense, Washington, DC.
Representative Pombo testified that he supported revisions
to the Endangered Species Act. He further told of his own
experience trying to build a ranch on acres of property he
already owned in California that was classified as critical
habitat.
Harold Manson testified that in 30 years of implementing
the ESA, the Fish and Wildlife Service (FWS) has found that the
designation of statutory critical habitat provides little
additional protection to most listed species, while consuming
significant amounts of conservation resources. The Service's
present system for designating critical habitat is driven by
litigation rather than biology, limits its ability to fully
evaluate the science involved, consumes enormous agency
resources, and imposes huge social and economic costs.
Thomas Sullivan testified of his concern that the FWS is
the proposed designation of critical habitat for the pygmy owl
published by the Service on November 27, 2002. He explained
that the FWS had introduced critical habitat restrictions
without affording small entities notice and an opportunity to
comment as required by law.
His office conducted outreach after the proposal and
learned that the Service had not incorporated the concerns of
small ranchers, miners, homebuilders, and others into its
threshold analysis as to whether the rule would affect small
businesses.
Tom Waters testified that privately owned lands provide
habitat for approximately 76 percent of all species listed
under the Endangered Species Act. He further stated that if the
FWS believes a farmer's basic agricultural practices have
disturbed an endangered or threatened species, he could face
fines or imprisonment. With its prohibitions against ``taking''
a species or disturbing habitat, the ESA often results in
restrictions on what farmers and ranchers can do on their
private lands.
John Hays told of meeting with the U.S. Forest Service
(USFS) to discuss the future of his grazing allotment and that
he was concerned his animal unit months (AUMs) would be
severely reduced due to an endangered species, the Canadian
lynx. However, the lynx had never been found on his allotment
and did not even reside within his geographic area of the
state. He explained that the USFS Resource Staff Advisor stated
that parts of his allotment had been determined to be lynx
habitat, even though the USFS ``did not think there were any
lynx in the area, but that they are required to manage for lynx
anyway.''
Robert Gordon spoke of the disincentives that the
Endangered Species Act has fostered and stated that it is a
bureaucratic machine and its fruits are paperwork, court cases
and fines, not conserved and recovered endangered species. In
the 30 years the Endangered Species Act has been in on the
books, it has almost never brought about the recovery and de-
listing of an endangered species. He further stated a prejudice
that species are far more likely to be listed as endangered if
they reside in the western part of the country than in the
eastern United States.
Michael Bean spoke of his support for safe harbor
agreements that allow landowners to enhance, restore, or create
habitat for endangered species without incurring new or
additional regulatory restrictions, citing successful cases in
North Carolina and Texas. Further, he stated that the FWS
should make it far easier for landowners to enter into these
agreements.
For further information on this hearing, refer to Committee
publication 108-26.
7.6.4 the future of rural telecommunications: is the
universal service fund sustainable?
Background
On September 25, 2003 the Subcommittee held a hearing to
discuss the future of rural telecommunications. The concept of
universal phone service for rural America was one of the
bedrocks of the telecommunications industry and first
introduced in the Communications Act of 1934. When Congress
passed the 1996 Telecommunications Act, it re-affirmed its
support for universal service for rural America, providing for
quality and affordable telecommunications services that are
comparable with urban areas. The underpinnings of the 1996 Act
are competition and universal service. The Rural Incumbent
Local Exchange Carriers (ILECs) have delivered universal
service to rural consumers and provide the infrastructure and
high-quality telecommunications service to remote, sparsely
populated areas that for these very reasons cost considerably
more than urban areas. The FCC established the Universal
Service Fund (USF) for the purpose of cost recovery for high-
cost carriers.
In the 1996 Act, the Universal Service Fund (USF) was
codified into law and allowed for more than one local carrier
through the designation of an Eligible Telecommunications
Carrier (ETC) and also would be eligible for universal service
support. While the 1996 Act expected ``competitive
neutrality,'' critics claim that there are no established rules
or regulations defining the level of service an ETC must
provide, or when it is the public interest to have competition,
or whether every area can support more than one carrier. Since
1999, there have been numerous ETC designations that allow for
these companies to access the USF. This hearing examined
whether sufficient mechanisms were in place to allow for the
long-term sustainability of the USF.
Summary
There were two panels of witnesses that testified. The
first panel consisted of the Hon. Kathleen Abernathy,
Commissioner, Federal Communications Commission, Washington,
DC. The second panel included: Mr. Robert Williams, Owner,
Oregon Farmers Mutual Telephone Company, Oregon, MO; Mr. Tom
Attar, Vice President for Corporate Development, Highland
Cellular, Inc., Beckley, WV; Mr. Brian Staihr, Ph.D., Senior
Regulatory Economist, Sprint Corp., Kansas City, MO; Mr.
Michael Balhoff, Managing Director Telecommunications Research,
Legg Mason, Baltimore, MD; and Glenn Brown, President, McLean
and Brown, Sedona, AZ.
Commissioner Abernathy spoke of the goals of the
Telecommunications Act of 1996 that were high-quality
telecommunications services to all Americans at affordable
rates. The 1996 Act directed the FCC to promote two key goals
that at times appear to be in tension with one another: opening
local markets to competition and preserving universal service.
To help rural areas, Universal Service Fund was created.
Because federal universal service contributions under existing
rules are assessed only on interstate revenues from end-user
telecommunications services, this shrinking of the applicable
revenue base has contributed to a steady rise in the
contribution factor over time--it has increased by more than
six percentage points over the last six years.
Bob Williams testified that the high-cost universal service
program has been put at great risk largely due to ill-advised
decisions made by federal and state regulators governing
eligibility for high-cost support. He further stated that
Congress needs to exercise vigilant oversight of the process
for designating Eligible Telecommunications Carriers (ETCs) in
areas served by rural telephone companies in order to ensure
the long-term sustainability of the Universal Service Fund.
Tom Attar stated that the landline industry has reaped the
benefits of the Universal Service Fund (USF) for decades. At
the same time the wireless industry has been contributing to
the fund for over six years and has only started receiving
money out of the fund in the past couple years. He further
stated that his company believes that these smaller communities
have a critical need for coverage within small towns, a need
which will not be met by national providers focused on
metropolitan areas.
Dr. Staihr stated that sustainability of the fund is most
directly affected by who pays into the fund, and what those
payments are based on; and by a determination of who can draw
out of the fund, and what those payments support. The current
mechanism for paying into the fund is broken and must be fixed.
The federal universal service fund was designed to co-exist
with competition. One cannot be sacrificed in favor of the
other. Competitive neutrality is a necessary component of any
proposed ``fix'' to the contribution mechanism of the federal
universal service fund.
Michael Balhoff testified that the current contribution
system appears to be precariously overextended. He stated that
the introduction of USF payments that began in 2001, to
carriers other than the incumbent local telephone company, are
creating many problems. He stated there exists an uneven
playing field between the incumbent carrier and the wireless
carriers due to the reduced set of obligations for the wireless
compared with those imposed on the incumbent.
Glenn Brown testified Eligible Telecommunications Act (ETC)
designation is being too easily designated to wireless carriers
which allows them to access the Universal Service Fund and yet
they do not have to meet the same criteria as incumbent local
carriers. Further he stated that wireless carriers have built
networks in rural areas, but generally along main highways
where it is less expensive and not throughout all rural areas.
As more wireless companies access these funds, it is placing a
stress on a limited resource and could well bankrupt the system
if it isn't remedied.
For further information, please refer to committee
publication #108-38.
7.6.5 challenges that small businesses face accessing
homeland security contracts
Background
On October 21, 2003, the Subcommittee on Rural Enterprises,
Agriculture and Technology held a hearing to discuss the
challenges that small businesses encounter trying to secure
contracts with the Department of Homeland Security. Annually,
the federal government spends over $200 billion on goods and
services purchased from the private sector. The Department of
Defense is by far the largest federal marketplace accounting
for over $120 billion in prime contract awards or more than 60
percent of federal procurement dollars. Historically, small
businesses have faced many barriers accessing federal
procurement contracts. Congress has set statutory goals for all
agencies that 23 percent of all prime contracts must be given
to small businesses, yet that benchmark has not always been
achieved.
On January 24, 2003 the Department of Homeland Security
(DHS) became a reality. However, there have been concerns that
many of these contracts are awarded to large corporations and
that many small businesses have been shut out of the process.
Historically, small business has been more productive and
technologically innovative than their large business
counterparts. Additionally, small business has frequently been
able to provide better goods and services at lower prices then
their larger competitors.
More procurement opportunities for small business has also
been a goal of the President. He said in a speech to women
entrepreneurs in 2002, ``. . . whenever possible, we are going
to break down large federal contracts so that small business
owners have got a fair shot at federal contracting.''
Summary
There were two panels that testified before the
Subcommittee. The first panel consisted of Mr. Michael Barrera,
Acting Associate Deputy Administrator for Government
Contracting and Business Development, United States Small
Business Administration, Washington, DC and Kevin Boshears,
Director, Office of Small and Disadvantaged Business
Utilization, Department of Homeland Security, Washington, DC.
The second panel included: Mr. Daniel Lane, CEO, EMCOM Project,
Independence, MO; Mr. Benjamin M. Brink, CEO, Data Search
Systems, Inc. St. Louis, MO; Mr. Tim May, CEO, Advanced
Interactive Systems, Seattle, WA; Ms. Patricia Driscoll,
Frontline Defense Systems, Washington, DC; and Ms. Marian
Sabety, President and CEO, Flywheel Group, Washington, DC.
Michael Barrera explained to the Subcommittee that the SBA
works with all federal agencies to assist them in meeting the
23 percent prime contracting goals for small business,
including the Department of Homeland Security. He stated that
DHS has proposed an aggressive subcontracting goal of 40
percent for small business.
Kevin Boshears testified that DHS was committed to the
President's small business agenda including efforts to avoid
unnecessary contract bundling or contract consolidation. He
further stated that in his position as Director of the Office
of Small and Disadvantaged Business Utilization, he was
committed to maximizing opportunities for small business. He
also stated that DHS was establishing several non-traditional
small business goals.
Daniel Lane testified that his company Emcom has produced a
communications device that interfaces with every other
communication device from cell phone to pagers and others that
could be used to alert people about emergencies, particularly
first responders. Emcom has numerous contracts with state and
local governments, but despite their repeated attempts, he has
not been able to set up meetings with officials in DHS with
regard to his product.
Ben Brink testified that while his company had not pursued
contracts with DHS, his past experience with government
contracting was not good. He explained the difficulty a small
business has dealing with government contracting, particularly
being paid on time.
Tim May illustrated the difficulties that small business
subcontractors face. Even though they successfully fulfilled
their commitment to DHS through a large prime vendor, they had
very little contact with DHS so that it did not help them in
their marketing for future contracts.
Patricia Driscoll testified that while her business has had
numerous contracts with high levels of government with very
sensitive security clearances, they have had enormous
difficulty securing a contract from DHS, despite their track
record.
Marian Sabety testified to the problems she has encountered
with the Transportation Security Administration (TSA). Despite
having several contracts with DHS, her company submitted a
proposal to TSA following their request for new technologies.
Her company repeatedly made follow up attempts, but have heard
nothing back. Additionally, she noted that TSA is exempted from
following the 23 percent small business contracting goals,
making it even more difficult for a small business to secure a
contract with them.
In sum, the Subcommittee concluded that small businesses
still have difficulty in selling to the Department of Homeland
Security and encouraged representatives from DHS and SBA to
follow-up on the complaints heard at the hearing. For more
information, refer to Committee publication #108-43.
7.6.6 a small business component to the federal flight
deck officer program--it's a win-win scenario,
field hearing, paulden, az
Background
The Rural Enterprise, Agriculture and Technology
Subcommittee held a field hearing on Thursday, January 15, 2004
at the Gunsite Academy, Inc. in Paulden, Arizona. The purpose
of this hearing was to hold a forum to discuss full
implementation of the Federal Flight Deck Office (FFDO) program
to include a small business component. The Transportation
Safety Administration (TSA) announced its plan for
implementation of the FFDO program with no private sector
contributions. However, there are private training facilities
that can provide crucial knowledge and expertise to TSA that
should be utilized. Small businesses can play a critical role
in the goal of increasing the number of commercial and cargo
pilots trained as FFDOs.
TSA currently faces a backlog of training an estimated
35,000 pilots. Private training facilities could play an
invaluable role in assisting TSA and should be incorporated
into their program and particularly their re-certification
program. By increasing the number of facilities eligible to
train Federal Flight Deck Officers, we will ensure that pilots
who choose to protect themselves and their aircraft from
potential terrorists threats have the ability to do so. The
FFDO program could serve as an example of how the government
can work with small business to protect our nation in the War
on Terrorism. It's a win-win scenario.
Summary
There was one panel that consisted of Mr. Owen Mills,
President & CEO, Gunsite Academy, Paulden, AZ; Captain Stephen
Luckey, Chairman, National Security Committee, Air Line Pilots
Association, International, Washington, DC; Mr. Terry Sapio,
Pilot, Southwest Airlines; and Mr. Dean Roberts, Security
Committee Chairman, Southwest Pilots Association.
Owen Mills testified that his facility, Gunsite Academy,
had the ability to train airline pilots taking part in the
Federal Flight Deck Officer (FFDO) program. He stated that he
believed a great deal of the training in the FFDO program could
be done by the private sector and could be done more
economically and efficiently. He further stated that Gunsite
Academy already trains many law enforcement officers and
military personnel each year, including Special Forces and Navy
Seals.
Captain Luckey testified that the Air Line Pilots
Association was the first organization to call for the creation
of the Federal Flight Deck Officer (FFDO) Program. He applauded
the TSA for their creation of the FFDO program. He also called
on the TSA to continue to refine the FFDO program in order to
best utilize pilots to keep our skies and our country safe from
terrorists.
Captain Terry Sapio stated that he believed that the
current FFDO program did not have enough participating pilots
to operate as a deterrence that was envisioned by Congress. He
stated that the FFDO program was severely hindered by the way
that TSA had implemented the program and that many pilots who
would otherwise take part in the program are not.
Dean Roberts spoke of his experience going through the
first FFDO class and being dropped from the program one hour
prior to graduation by TSA without being given a reason. He
felt that TSA never wanted to implement this program and was
taking steps to minimize pilot participation.
In sum, the Subcommittee concluded that by having private
sector participation in the training of pilots to carry
firearms, it would produce benefits for both homeland security
and small business. For more information, please refer to
Committee publication #108-49.
7.6.7 the endangered species act's impact on small
businesses and farmers, field hearing, st. joseph,
mo
Background
On February 23, 2004, the Subcommittee on Rural
Enterprises, Agriculture, and Technology held a field hearing
in St. Joseph, Missouri, to examine the devastating economic
impact the Endangered Species Act (ESA) has had on small
businesses and farmers. When the Endangered Species Act was
passed in 1973, 109 species were listed as endangered.
Currently there are over 1,200 species listed as endangered and
250 more considered ``candidates'' for ESA listing. On December
16, 2003, the U.S. Fish and Wildlife Service (USF&WS) issued
their Biological Opinion on the Missouri River, which would end
its commercial usefulness due to the mandated spring rise and
split navigation season because of the concern over the fate of
the piping plover, pallid sturgeon, and interior least tern.
This decision will have a large impact on the people and
businesses that rely on the river for day-to-day operations.
The Army Corps of Engineers estimates economic losses of at
least $7 million dollars to commercial navigation and grain
terminals as a result of flows declining to below minimum
navigation service levels.
Summary
The hearing was made up of two panels. The first panel
consisted of: Mr. Larry Cieslik, Deputy Director, Civil Works
and Management and Chief, Missouri River Basin Water
Management, Army Corps of Engineers, Omaha, NE; Mr. Dale Hall,
Director, Southwest Region, United States Fish & Wildlife
Service, Albuquerque, NM; Mr. Mike Wells, Chief of Water
Resources, Missouri Department of Natural Resources, Jefferson
City, MO; and Mr. Kevin Keith, Chief Engineer, Missouri
Department of Transportation, Jefferson City, MO. The second
panel included Mr. Blake Hurst, Vice President, Missouri Farm
Bureau, Jefferson City, MO; Mr. Dick DeShon, Chairman, St.
Joseph Regional Port Authority, St. Joseph, MO; Mr. Chad Smith,
Director, Nebraska Field Office, American Rivers, Lincoln, NE;
Mr. Bruce Hanson, MFA, Inc., Columbia, MO; and Mr. Paul Davis,
Operator, Interstate Marine Terminals, Inc, Boonville, MO.
Larry Cieslik testified that the Corps built and maintain
six dam and reservoir projects on the Missouri River. He also
said that in accordance with the ESA the Corps must (in
consultation with the USF&WS) insure that any action taken by
them on the Missouri River must not jeopardize the existence of
any endangered or threatened species. The Corps entered into
formal consultation with the USF&WS, which culminated in the
Missouri River Biological Opinion. This opinion concluded that
the Corps' proposed action jeopardized the pallid sturgeon,
piping plover, and the interior least tern, which are listed as
endangered or threatened species. Because of this finding, the
2003 Amended Biological Opinion (BiOp) calls for a spring rise
and for a low summer release.
Dale Hall testified that USF&WS is the primary federal
agency responsible for implementing the ESA. In 2000, the
USF&WS provided the Corps with a Biological Opinion on the
Corps' operation of dams on the Missouri River, saying their
proposed operation would jeopardize the existence of three
species. In 2003 the Corps requested to remove the requirements
for the spring rise and low flows based on new data for the
terns and plovers, as well as designation of critical habit for
the plovers. While the piping plover and least tern had
improved, the pallid sturgeon has not recovered.
Mike Wells of the Missouri Department of Natural Resources
testified that physical habitat restoration projects could be
accomplished that would alleviate the need for drastic flow
changes in the river. He further stated that the low summer
flows had halted Missouri barge traffic, impacted water
facilities that provide drinking water, and caused power plants
that used the river for cooling to decrease their capabilities.
Over half of the population of Missouri get their drinking
water from the Missouri River. Additionally, the mandated
spring rise could potentially flood low-lying communities and
river bottom farmers.
Kevin Keith of the Missouri Department of Transportation
testified that both the Missouri River and the Mississippi
River are vital to the state's economy. Further, what happens
on the Missouri River impacts the Mississippi River. The river
has historically been used as a navigational system and
communities have built infrastructure and made business
decisions based on these assumptions. The mandated spring rise
and low summer flows have decimated barge traffic on the
Missouri River, which was used to primarily transport
agricultural products. These products must now be shipped on
highways or by railroads, increasing the cost, as well as
placing stress on these other transportation systems and
causing more air pollution.
Blake Hurst stated that he believed the ESA is broken and
needs to be fixed. In his estimation, when an animal is
considered threatened or endangered, the government acts
without any regard or in consultation with those who own the
land or depend on the land. The current plan for spring pulse
(or prescribed flood) and low summer flows because of three
species is at a great cost to all of Missouri. Instead of such
draconian measure, the USF&WS should try and bring the
stakeholders together to find a solution that all can live
with.
Dick DeShon testified that in 2002, the St. Joseph Regional
Port Authority opened a new barge facility on the Missouri
River. They expected to quadruple the barge traffic in 2003,
but due to the initial river mandates, barge traffic decreased
significantly. The ESA mandates have completely closed barge
traffic on the river for 2004.
Chad Smith supported the measures recommended by the USF&WS
saying that the health of the Missouri River was in dire
straits. The spring rise and low summer flows are meant to
mimic the natural flow of the river before it was extensively
dammed. He suggested that this was an opportunity to develop
tourism centered on the river.
Bruce Hanson testified that barge traffic closure on the
Missouri River would cost Missouri over $22 million. Over two-
thirds of inbound fertilizer is moved by barge. In the spring,
fertilizer moves upstream and in the summer and fall, crops are
shipped downstream for distribution.
Paul Davis talked of how barge traffic along the river has
ground to a halt because a federal judge ordered the Corps to
reduce river flows from July to September, 2003, after
environmentalists brought suit. He stated that ESA in its
current form has resulted in few resources being spent by
USF&WS to save animals because the resources go to litigation.
He further stated that the way ESA does not give incentives to
landowners to save species, but to remove or diminish their
habitat in order to be out from under intrusive and capricious
regulation.
In sum, the Subcommittee concluded that the ESA needs
reform to promote more input from the local community to avoid
situations that bans barge traffic on the Missouri River, which
has devastating negative effects upon many local small
businesses. For more information, please refer to Committee
publication #108-54.
7.6.8 the benefits of tax incentives for producers of
renewable fuels and its impact on small businesses
and farmers
Background
On May 6, 2004, the Subcommittee on Rural Enterprises,
Agriculture, and Technology held a hearing to explore the value
of renewable fuels and the role they play in a comprehensive
energy policy, in our economy, and in our national security.
The purpose of this hearing was to hold a forum to discuss the
positive impact that renewable fuels have on our economy and
our nation's energy security and what can be further done to
increase domestic production of renewable energy sources.
Beginning with Organization of Petroleum Exporting Countries
(OPEC's) oil embargo of the 1970s, American reliance on
imported energy has caused a re-examination of energy policies.
Energy security, a major driver of federal renewable energy
programs, came back into play as oil and gas prices rose late
in 2000. The terrorist attack of September 11, 2001, and the
Iraq war of 2003 have led to heightened concern about energy
security, energy infrastructure vulnerability, and the need for
alternative fuels. Further, the 2001 electricity shortages in
California, the high natural gas prices in 2003, the Northeast-
Midwest blackout of 2003 and current gas prices have brought a
new emphasis to the role that renewable energy may play in
producing electricity, displacing fossil fuel use, and curbing
demand for power transmission equipment.
Currently, the market for ethanol, which utilizes 10
percent of the nation's corn crop, is heavily dependent on
federal incentives and regulations. A major impetus to the use
of ethanol has been the exemption that it receives from the
motor fuels excise tax. Regarding bio-diesel, there are
proposals that would provide a tax credit of up to $1.00 per
gallon for the production of bio-diesel. Additionally, the
Energy bill (H.R. 6) includes a renewable fuel standard (RFS)
that would require the blending of 2.7 billion gallons of
renewable fuel with gasoline in 2005. Most of this would be met
with ethanol, but other renewable fuels, including bio-diesel,
would qualify.
Summary
The hearing panel consisted of Mr. Brooks Hurst, Missouri
Soybean Association, Tarkio, MO; Mr. Charlie Hurst, Golden
Triangle Energy, Craig, MO; Mr. Duane Adams, Cosmos, MN; Mr.
Bob Dinneen, President, Renewable Fuels Association,
Washington, DC; Mr. Joe Jobe, Executive Director, The National
Biodiesel Board, Jefferson City, MO; Mr. Phillip Lampert,
Executive Director, National Ethanol Vehicle Coalition,
Jefferson City, MO; and Ms. Carol Werner, Executive Director,
Environmental and Energy Study Institute, Washington, DC.
Mr. Brooks Hurst testified that the excise tax exemption
for biodiesel is probably the single most important legislative
initiative in the history of the soybean industry. He expressed
his desire for biodiesel to become a major commercial fuel,
which would translate into approximately $148 million in
additional farm income just in Missouri. He contends it helps
clean the air we breathe and is better for the environment than
petroleum-based fuel. Lastly, he testified biodiesel lessens
the nation's dependence on foreign oil because U.S. farmers can
grow 100 percent of the renewable fuel on their farms in
environmentally beneficial ways.
Mr. Charlie Hurst testified in support of the federal
exemption of 5.2 cents per gallon of ethanol, stating it
expands the ethanol industry and reduces the need to import
expensive oil from the Middle East. He added that the subsidy
is needed in order for ethanol to be a viable renewable energy
source and would not be a drain on federal resources as
offsetting savings in the federal farm program.
Mr. Duane Adams supported the current ethanol and renewable
energy programs, but saw problems in both. He stated that there
is no energy bill yet, and any attempts to push such have been
met with a run-around on the Hill. He testified that
legislators need to do their job and pass an effective energy
bill so he may go about his job of raising his crops.
Mr. Bob Dinneen's argument was in support of Congress
extending the ethanol tax incentive, passing H.R. 3119, the
Volumetric Ethanol Excise Tax Credit (VEETC), and by making
modifications to the small ethanol producer tax credit. He also
emphasized the importance of enacting the Renewable Fuels
Standard (RFS), which would be helpful to growing the domestic
renewable fuels industry. He believed these steps would provide
an economic stimulus to small business across rural America, as
well as a step toward a more sustainable energy future for
Americans.
Mr. Joe Jobe also believes the passage of the VEETC and RFS
will have a positive impact on the ethanol industry, as well as
the biodiesel industry, both to improve our nation's energy
security and economy. He believed, as many of the other panel
participants, in the importance of biodiesel as an alternative
fuel to our nation's economy at this time of all-time highs in
oil prices.
Mr. Phillip Lampert addressed the U.S. government's
dominant usage of petroleum in the world market, and the
attempts to modify this behavior to advance alternative fuel
use. He outlined Executive Order 13149 issued by the Clinton
administration calling federal agencies to reduce petroleum
consumption by 20 percent by 2005 from their 1999 baseline, and
the lack of effort to follow this directive. He called on the
government to set an example to reduce petroleum use and find
alternatives.
Ms. Carol Werner testified about the three critical drivers
fundamental to national concerns: rural economic development,
national energy security through reduction of oil use and oil
imports, and environmental protection through reduction of
greenhouse gas emissions that contribute to global climate
change. She addressed the importance of a bio-based economy
made up of bioenergy, biobased products, and biofuels like
ethanol and biodiesel, to lessen our dependence on foreign oil
and reduce or eliminate the use of toxic substances harmful to
human health and the environment.
In sum, the Subcommittee concluded that this nation needs
alternative sources of energy and small rural agricultural
producers can be one large part of the overall solution. For
more information, please refer to Committee publication #108-
63.
7.6.9 tax incentives for homeland security related
expenses
Background
On Wednesday, July 21, 2004, the Rural Enterprise,
Agriculture and Technology Subcommittee held a hearing to
discuss various tax incentives for homeland security related
expenses. The purpose of this hearing was to discuss the
concerns of small business owners as they struggle to ensure
that their businesses are adequately safeguarded. In the post-
9/11 world, numerous companies have had to make substantial
investments in security devices to safeguard their businesses,
employees and products from those who would use it to harm
others. The hearing focused on H.R. 3562, ``The Prevent Act,''
which was introduced by Representative Bill Shuster of
Pennsylvania. This legislation would allow businesses a tax
credit for installation of security devices or security
assessments for ``building security.''
Summary
There was one panel of witnesses that consisted of: Mr.
James Hyslop, President, Standing Stone Consulting, Huntingdon,
PA; Mr. Richard Chace, Executive Director, Security Industry
Association, Alexandria, VA; Mr. Ken Ducey, Markland
Technologies, Ridgefield, CT; and Mr. Peter R. Orszag,
Brookings Institution, Washington, DC.
The first three panelists strongly endorsed Representative
Shuster's bill that would allow tax credits for the
installation of security devices or for security assessments,
saying that this would help promote private sector security
enhancement. It was noted that many small businesses did not
fully understand the steps that were necessary to secure their
business and ensure the safety of their employees after 9/11.
Peter Orszag advocated a mix between tax credits and government
mandates as an appropriate response to increase private sector
security enhancements.
In sum, the Subcommittee concluded that something more
needed to be done to encourage small business to be better
prepared for emergencies. For more information, please refer to
Committee publication #108-75.
7.6.10 the impact of high natural gas prices on small
farmers and manufacturers
Background
On Wednesday, September 22, 2004, the Rural Enterprise,
Agriculture and Technology Subcommittee held a hearing to
discuss the impact of high natural gas prices on small farmers
and manufacturers. There are 60 million homes, farms,
businesses and industries that are dependent on natural gas.
While supplies are abundant, the supply chain has been
significantly disrupted causing prices to be two to three times
above historic averages. Shortages began in mid-2000 and by
some estimates prices have increased over 80 percent. Consumers
have been hit hard by these costs because half of all homes
rely on natural gas. Businesses and agricultural interests have
also been severely impacted. When energy prices go up, so do
the costs of manufacturing, farming, transportation and all
goods and services.
Natural gas accounts for more than 40 percent of commercial
energy consumption. Our government encouraged many industries
to turn to natural gas as an inexpensive way to comply with
clean air regulations but now they are being squeezed by high
costs. The manufacturing sector has been hardest hit by the
recession and while it is slowly turning around, soaring energy
prices threaten its recovery. High natural gas prices have
increased the cost of producing important fertilizers that
farmers rely on for their crops. Fertilizer producers have had
to turn to foreign imports causing prices to skyrocket. Farmers
have been forced to decrease production by 25 percent causing
adverse financial damage to the industry and to the economy.
Summary
The Subcommittee heard from two panels. The first panel
consisted of the Hon. Steve King (R-IA) and the Hon. John
Peterson (R-PA). The second panel consisted of: Mr. Hal Swaney,
Platte City, MO; Mr. Brent Rockhold, Arbela, MO; Mr. J.
Fletcher Smoak, Chairman & CEO, Old Virginia Brick, Inc.,
Madison Heights, VA; Mr. Billy Willard, President, Willard
Agri-Service, Frederick, MD; Mr. Peter Huntsman, Huntsman LLC,
Houston, TX; and Mr. Bill Prindle, Deputy Director, American
Council for an Energy Efficient Economy, Washington, DC.
Representative King spoke of high natural gas prices
permeating all areas of rural and agricultural economies, from
the cost of fertilizer, which is comprised primarily of natural
gas, to fuel costs for heating livestock and processing crops.
Representative Peterson stated that he personally believes the
high cost of natural gas is one of the biggest factors
contributing to the decline in the manufacturing sector.
Hal Swaney of the Missouri Farm Bureau and Brent Rockhold
of the National Association of Corn Growers both spoke of the
difficulties that farmers experience because fertilizer prices
have spiked due to the fact that natural gas is the primary
ingredient in nitrogen fertilizer. They also spoke of the
number of fertilizer makers have closed their doors and no
longer produce fertilizer.
Fletcher Smoak cited the difficulties that his business,
Old Virginia Brick, Inc., has encountered due to high natural
gas prices. He encouraged the Subcommittee to look into the
allegation that speculators have influenced the cost of natural
gas on the New York Mercantile Exchange (NYMEX) market.
Peter Huntsman, CEO of Huntsman Chemicals, strongly
advocated that there should be ``stops'' in the trading of
natural gas on the NYMEX to decrease the volatility in natural
gas trading. He further stated that he believes there was not
enough transparency in the market, citing that several large
firms had been fined for illegal trading. All of the
participants on the panel encouraged further exploration and
drilling of natural gas; building a natural gas pipeline; and
support of clean coal technologies.
Bill Prindle who testified for the American Council for an
Energy Efficient Economy encouraged energy efficiency as the
best strategy for moderating natural gas prices and providing
stability in the market.
In sum, the Subcommittee concluded that there is a problem
in rising natural gas prices, which hurts small agricultural
producers and manufacturers, and that the federal government
has a role to play in mitigating this crisis. For more
information, please refer to Committee publication #108-77.