[Congressional Record Volume 141, Number 124 (Friday, July 28, 1995)]
[Extensions of Remarks]
[Page E1540]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


        INTRODUCTION OF THE SMALL BUSINESS TRANSFER ACT OF 1995

                                 ______


                           HON. DAVID DREIER

                             of california

                    in the house of representatives

                        Thursday, July 27, 1995
  Mr. DREIER. Mr. Speaker, one of the goals of the new Republican 
majority in Congress is to evaluate the performance and objectives of 
all federal programs and agencies. In undertaking such evaluations, I 
believe two fundamental questions need to be answered:
  First, what aspects of the program or agency continue to serve a 
beneficial public policy purpose?
  Second, how can we redesign the program or agency to perform the 
useful functions in a cost-effective manner?
  Today, Representative Joel Hefley, vice chairman of the Committee on 
Small Business, and I have introduced H.R. 2125, the Small Business 
Administration Transfer Act, which addresses these two questions in a 
positive way. In conversations with small business owners and their 
representatives here in Washington about the role of the Small Business 
Administration, I am told consistently that the two areas where the 
Federal Government can be helpful are in providing access to capital 
and a voice at the highest levels of government. The remaining 
functions of the Small Business Administration have little to do with, 
or actually hinder, small business growth.
  The Small Business Transfer Act strengthens the programs that matter 
most to small business while saving taxpayers $3 billion over 5 years. 
Under the legislation, the present Small Business Administration, with 
its outdated and heavily bureaucratic regional, district, and field 
structure, would cease to exist on October 1, 1996. An Office of Small 
Business Advocacy would be established in the Executive Office of the 
President. This office, which would function in a manner similar to the 
SBA's Office of Advocacy, will give small business a voice inside the 
White House.
  The bill also establishes an Office of Small Business Lending in the 
Department of Treasury. The office would consist of an Under Secretary, 
Deputy Under Secretary, and no more than 200 auditors who would 
administer a small business general loan guarantee program. All other 
SBA credit programs and revolving funds would be transferred to this 
office for servicing and liquidation.
  The guaranteed loan program would function like the current Preferred 
Lenders Program, whereby the lender would have the complete authority 
to make close, service and liquidate loans. Maximum loan amounts would 
remain the same, but the guaranteed portion may not exceed 75 percent 
of the financing outstanding at the time the loan is made. No direct or 
immediate participation loans could be made.
  To be eligible for a guaranteed loan, a business must meet:
  First, the credit elsewhere test, denied credit by two lending 
institutions; second the definition of a small business; and third, the 
requirements of Sec. 7(a)(6) of the Small Business Act that all loans 
be of such sound value or so secured as reasonably to assure repayment.
  For lenders to be eligible to participate in the program, the lender 
must maintain at least a 6-percent capital-to-asset ratio. The bill 
contains language explicitly subjecting lender loan portfolios to an 
annual compliance review conducted OSBL auditors. As an option, this 
could be done as part of an institution's overall compliance review 
conducted by the appropriate bank regulator.
  The bill also contains language capping taxpayer exposure with excess 
or above historic average losses on each lender's portfolio. For 
example, if the lender's portfolio is 10 percent above the industry's 
historic loss average, the guarantee on loans originated by the lender 
would fall by 10 percent--from 75 percent to 68.5 percent.
  The Treasury Secretary would be required to collect a minimum 
guarantee fee of \1/2\ of 1 percent of the amount of the deferred 
participation share of any guaranteed loan. The lender would be 
permitted to finance the guarantee fee as part of the loan. The 
Treasury Secretary would be required to adjust the guarantee fee, 
subject to the normal reporting requirements, to ensure a guarantee 
fund that is self-financing.
  The reforms made to the loan guarantee program respond to a December 
1992 General Accounting Office study of Housing and Community 
Development issues. The study made the following observations:

       There has been no recent assessment of what sector of small 
     business, if any, would receive financial assistance if SBA 
     did not exist. Nor has there been a recent
      assessment of the economic impact that has resulted from 
     billions of dollars in Federal guarantees that SBA has 
     provided to small businesses. Yet in fiscal year 1992, SBA 
     almost doubled the value of the business loans that it 
     guaranteed--from $3.8 billion in fiscal year 1991 to $6.4 
     billion in fiscal year 1992. Our work has shown that SBA's 
     loss rate is greater than that of private lenders and that 
     SBA has not adequately overseen the operations of lenders 
     receiving government loan guarantees.

  Mr. Speaker, the reason the GAO's assessment of the SBA is so 
negative is that the agency's mission statement is faulty. In 1985, 
then OMB Director David Stockman called the SBA a billion-dollar 
waste--a rathole. Ten years later, the agency has undergone numerous 
reorganizations and credit reforms that have brought down default rates 
and improved the operations of credit programs. But the agency is still 
a failure because of the faulty premise that Government can create 
private sector jobs. Even if the Government could create private sector 
jobs, the SBA's programs are inconsistent with that mission.
  Instead, what we have is an agency that reallocates credit to the 
least credit worthy; provides noncompetitive contracts to millionaire 
minorities at the expense of small business; plants trees at a cost of 
up to $1,200 per tree; and provides $70 million a year in grants to 
universities, which is the last place a small business person goes for 
advice.
  In his book ``The Effective Executive'' Peter Drucker, my professor 
at the Claremont Graduate School, referred to an order by President 
Johnson that all Government agencies adopt program reviews to weed out 
obsolete and unproductive work. ``This is a good first step, and badly 
needed,'' Drucker said. ``But it will not produce results as long as we 
maintain the traditional assumption that all programs last forever 
unless proven to have outlived their usefulness. The assumption should 
rather be that all programs outlive their usefulness fast and should be 
scrapped unless proven productive and necessary. Otherwise, modern 
Government, while increasingly smothering society under rules, 
regulations, and forms, will itself be smothered in its own fat.''
  Mr. Speaker, the Small Business Administration has clearly outlived 
its usefulness. While I also question whether a guaranteed loan program 
remains productive and useful, there are legitimate concerns that 
excessive Government regulation of lending institutions has made it 
cost-prohibitive to lend to many legitimate small businesses. Until 
those regulations can be eased, a case can be made for maintaining a 
loan guarantee program.
  The Small Business Transfer Act offers a unique opportunity to make 
Government more effective by expanding small business capital, reducing 
taxpayer risk, and giving small business an antitax and antiregulatory 
voice at the highest level of Government. For these reasons, Mr. 
Speaker, I urge my colleagues to join us in cosponsoring H.R. 2125.


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