[Congressional Record Volume 146, Number 124 (Friday, October 6, 2000)]
[Extensions of Remarks]
[Pages E1699-E1703]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               H.R. 2392

                                 ______
                                 

                          HON. JAMES M. TALENT

                              of missouri

                        HON. NYDIA M. VELAZQUEZ

                              of new york

                    in the house of representatives

                       Thursday, October 5, 2000

  Mr. TALENT. Mr. Speaker, on behalf of myself and Ms. Velazquez, I 
submit the following Joint Statement of Managers relating to The Small 
Business Innovation Research Program Reauthorization Act of 2000 (H.R. 
2392).

   Joint Statement of Managers from the Committee on Small Business 
       regarding H.R. 2392, as considered pursuant to H. Res. 590


                                TITLE I

       The Small Business Innovation Research Program 
     Reauthorization Act of 2000 (H.R. 2392) was introduced on 
     June 30, 1999, and referred to the House Committees on Small 
     Business and Science. Both Committees held hearings and the 
     House Committee on Small Business reported H.R. 2392 on 
     September 23, 1999 (H. Rept. 106-329). In the interest of 
     moving the bill to the floor of the House of Representatives 
     promptly, the Committee on Science agreed not to exercise its 
     right to report the legislation, provided that the House 
     Committee on Small Business agreed to add the selected 
     portions of the Science Committee version of the legislation, 
     as Sections 8 through 11 of the House floor text of H.R. 
     2392. H.R. 2392 passed the House without further amendment on 
     September 27. The Science Committee provisions were explained 
     in floor statements by Congressmen Sensenbrenner, Morella, 
     and Mark Udall.
       On March 21, 2000, the Senate Committee marked-up H.R. 2392 
     and on May 10, 2000, reported the bill (S. Rept. 106-289). 
     The Senate Committee struck several of the sections 
     originating from the House Committee on Science and added 
     sections not in the House-passed legislation, including a 
     requirement that Federal agencies with Small Business 
     Innovation Research (SBIR) programs report their methodology 
     for calculating their SBIR budgets to the Small Business 
     Administration (SBA) and a program to assist states in the 
     development of small high-technology businesses. Negotiations 
     then began among the leadership of the Senate and House 
     committees on Small Business and the House Committee on 
     Science (hereinafter referred to as the three committees). 
     The resultant compromise text contains all major House and 
     Senate provisions, some of which have been amended to reflect 
     a compromise position. A section-by-section explanation of 
     the revised text follows. For purposes of this statement, the 
     bill passed by the House of Representatives is referred to as 
     the ``House version'' and the bill reported by the Senate 
     Committee on Small Business is referred to as the ``Senate 
     version.''
       Section 101. Short Title; Table of Contents. The compromise 
     text uses the Senate short title: ``Small Business Innovation 
     Research Program Reauthorization Act of 2000.'' The table of 
     contents lists the sections in the compromise text.
       Section 102. Findings. The House and Senate versions of the 
     findings are very similar. The compromise text uses the House 
     version of the findings.
       Section 103. Extension of the SBIR Program. The House 
     version extend the SBIR program for seven years through 
     September 30, 2007. The Senate version extend the program for 
     ten years through September 30, 2010. The compromise text 
     extends the program for eight years through September 30, 
     2008.
       Section 104. Annual Report. The House version provides for 
     the annual report on the SBIR program prepared by the SBA to 
     be sent to the Committee on Science, as well as to the House 
     and Senate Committees on Small Business that currently 
     receive it. The Senate version did not include this section. 
     The compromise text adopts the House language.
       Section 105. Third Phase Assistance. The compromise text of 
     this technical amendment is identical to both the House and 
     Senate versions.
       Section 106. Report on Programs for Annual Performance 
     Plan. This section requires each agency that participates in 
     the SBIR program to submit to Congress a performance plan 
     consistent with the Government Performance and Results Act. 
     The House and Senate versions have the same intent. The 
     compromise text uses the House version.
       Section 107. Output and Outcome Data. Both the House and 
     Senate versions contain sections enabling the collection and 
     maintenance of information from awardees as is necessary to 
     assess the SBIR program. Both the House and Senate versions 
     require the SBA to maintain a public database at SBA 
     containing information on awardees from all SBIR agencies. 
     The Senate version adds paragraphs to the public database 
     section dealing with database identification of businesses or 
     subsidiaries established for the commercial application of 
     SBIR products or services and the inclusion of information 
     regarding mentors and mentoring networks. The House version 
     further requires the SBA to establish and maintain a 
     government database, which is exempt from the Freedom of 
     Information Act and is to be used solely for program 
     evaluation. Outside individuals must sign a non-disclosure 
     agreement before gaining access to the database. The 
     compromise text contains each of these provisions, with 
     certain modifications and clarifications, which are addressed 
     below.
       With respect to the public database, the compromise text 
     makes clear that proprietary information, so identified by a 
     small business concern, will not be included in the public 
     database. With respect to the government database, the 
     compromise text clarifies that the inclusion of information 
     in the government database is not to be considered 
     publication for purposes of patent law. The compromise text 
     further permits the SBA to include in the government database 
     any information received in connection with an SBIR award the 
     SBA Administrator, in conjunction with the SBIR agency 
     program managers, consider to be relevant and appropriate or 
     that the Federal agency considers to be useful to SBIR 
     program evaluation.
       With respect to small business reporting for the government 
     database, the compromise text directs that when a small 
     business applies for a second phase award it is required to 
     update information in the government database. If an 
     applicant for a second phase award receives the award, it 
     shall update information in the database concerning the award 
     at the termination of the award period and will be requested 
     to voluntarily update the information annually for an 
     additional period of five years. This reporting procedure is 
     similar to current Department of Defense requirements for the 
     reporting of such information. When sales or additional 
     investment information is related to more than one second 
     phase award is involved, the compromise text permits a small 
     business to apportion the information among the awards in any 
     way it chooses, provided the apportionment is noted on all 
     awards so apportioned.
       The three committees understand that receiving complete 
     commercialization data on the SBIR program is difficult, 
     regardless of any reasonable time frame that could be 
     established for the reporting of such data. Commercialization 
     may occur many years following the receipt of a research 
     grant and research from an award, while not directly 
     resulting in a marketable product, may set the groundwork for 
     additional research that leads to such a product. 
     Nevertheless, the three committees believe that the 
     government database will provide useful information for 
     program evaluation.
       Section 108. National Research Council Reports. The House 
     version requires the four largest SBIR program agencies to 
     enter into an agreement with the National Research Council 
     (NRC) to conduct a comprehensive study of how the SBIR 
     program has stimulated technological innovation and used 
     small businesses to meet Federal research and development 
     needs and to make recommendations on potential improvements 
     to the program. The Senate version contains no similar 
     provision. The study was designed to answer questions 
     remaining from the House Committees' reviews of these 
     programs and to make sure that a current evaluation of the 
     program is available when the program next comes up for 
     reauthorization.
       The compromise text makes several changes to the House 
     text. The compromise text adds the National Science 
     Foundation to the agencies entering the agreement with the 
     NRC and requires the agencies to consult with the SBA in 
     entering such agreement. It also expands on the House 
     version, which requires a review of the quality of SBIR 
     research, to require a comparison of the value of projects 
     conducted under SBIR with those funded by other Federal 
     research and development expenditures. The compromise text 
     further broadens the House version's review of the economic 
     rate of return of the SBIR program to require an evaluation 
     of the economic benefits of the SBIR program, including 
     economic rate of return, and a comparison of the economic 
     benefits of the SBIR program with that of other Federal 
     research and development expenditures. The compromise text 
     allows the NRC to chose an appropriate time-frame for such 
     analysis that results in a fair comparison.
       The three committees believe that a comprehensive report on 
     the SBIR program and

[[Page E1700]]

     its relation to other Federal research expenditures will be 
     useful in program oversight and will provide Congress with an 
     understanding of the effects of extramural Federal research 
     and development funding provided to large and small 
     businesses and universities. The three committees understand, 
     however, that measuring the direct benefits to the nation's 
     economy from the SBIR program and other Federal research 
     expenditures may be difficult to calculate and may not 
     provide a complete portrayal of the benefits achieved by the 
     SBIR program. Accordingly, the legislation requires the NRC 
     also to review the non-economic benefits of the SBIR program, 
     which may include, among other matters, the increase in 
     scientific knowledge that has resulted from the program. The 
     paragraph in the compromise text calling for recommendations 
     remains the same as the House version, except that the bill 
     now asks the NRC to make recommendations, should there be 
     any.
       While the study is to be carried out within National 
     Research Council study guidelines and procedures, the 
     compromise text requires the NRC to take the steps necessary 
     to ensure that individuals from the small business community 
     with expertise in the SBIR program are well-represented in 
     the panel established for performing the study and among the 
     peer reviewers of the study. The NRC is to consult with and 
     consider the views of the SBA's Office of Technology and the 
     SBA's Office of Advocacy and to conduct the study in an open 
     manner that makes sure that the views and experiences of 
     small businesses involved in the program are carefully 
     considered in the design and execution of the study. 
     Extension of the SBIR program for eight years rather than the 
     five being contemplated when the House study provision was 
     initially written has necessitated some adjustments in the 
     study. The report is now required three years rather than 
     four years after the date of enactment of the Act and the NRC 
     is to update the report within six years of enactment. The 
     update is intended to bring current, any information from the 
     study relevant to the reauthorization of the SBIR program. It 
     is not intended to be a second full-fledged study. In 
     addition, semiannual progress reports by NRC to the three 
     committees are required.
       Section 109. Federal Agency Expenditures for the SBIR 
     Program. The Senate version requires each Federal agency with 
     an SBIR program to provide the SBA with a report describing 
     its methodology for calculating its extramural budget for 
     purposes of SBIR program set-aside and requires the 
     Administrator of the SBA to include an analysis of the 
     methodology from each agency in its annual report to the 
     Congress. The House version has no similar provision. The 
     compromise text follows the Senate text except that it 
     specifies that each agency, rather than the agency's 
     comptroller, shall submit the agency's report to the 
     Administrator. The three committees intend that each agency's 
     methodology include an itemization of each research program 
     that is excluded from the calculation of its extramural 
     budget for SBIR purposes as well as a brief explanation of 
     why the agency feels each excluded program meets a particular 
     exemption.
       Section 110. Policy Directive Modifications. The House 
     version includes policy directive modifications in Section 9 
     and the requirement of a second phase commercial plan in 
     Section 10. The Senate version includes policy directive 
     modifications in Section 6. The Senate version and now the 
     compromise text require the Administrator to make 
     modifications to SBA's policy directives 120 days after the 
     date of enactment rather than the 30 days contained in the 
     House version. The compromise text drops the House policy 
     directive dealing with awards exceeding statutory dollar 
     amounts and time limits because this flexibility is already 
     being provided administratively. Addressed below is a 
     description of the policy directive modifications contained 
     in the compromise text that were not included in both the 
     Senate version and the House version.
       Section 10 of the House version requires the SBA to modify 
     its policy directives to require the small businesses provide 
     a commercial plan with each application for a second-phase 
     award. The Senate version does not contain a similar 
     provision. The compromise text requires the SBA to modify its 
     policy directives to require that a small businesses provide 
     a ``succinct commercialization plan for each second phase 
     award moving towards commercialization.'' The three 
     committees acknowledge that commercialization is a current 
     element of the SBIR program. The statutory definition of 
     SBIR, which is not amended by H.R. 2392, includes ``a second 
     phase, to further develop proposals which meet particular 
     program needs, in which awards shall be made based on the 
     scientific and technical merit and feasibility of the 
     proposals, as evidenced by the first phase, considering among 
     other things the proposal's commercial potential * * *'', and 
     lists evidence of commercial potential as the small 
     business's commercialization record, private sector funding 
     commitments, SBIR Phase III commitments, and the presence of 
     other indicators of the commercial potential. The three 
     committees do not intend that the addition of a 
     commercialization plan either increase or decrease the 
     emphasis an agency places on the commercialization when 
     reviewing second-phase proposals. Rather, the 
     commercialization plan will give SBIR agencies a means of 
     determining the seriousness with which individual applicants 
     approach commercialization.
       The commercialization plan, while concise, should show that 
     the business has thought through both the steps it must take 
     to prepare for the fruits of the SBIR award to enter the 
     commercial marketplace or government procurement and the 
     steps to build business expertise as needed during the SBIR 
     second phase time period. The three committees intend that 
     agencies take into consideration the stage of development of 
     the product or process in deciding whether an appropriate 
     commercialization plan has been submitted. In those instances 
     when at the time of the SBIR Phase II proposal, the grantee 
     cannot identify either a product or process with the 
     potential eventually to enter either the commercial or the 
     government marketplace, no commercialization plan is 
     required.
       The compromise text also adds new provisions that were not 
     contained in either the Senate version or the House version. 
     Current law (Section 9(j)(3)(C) of the Small Business Act) 
     requires that the Administrator put in place procedures to 
     ensure, to the extent practicable, that an agency which 
     intends to pursue research, development or production of a 
     technology developed by a small business concern under an 
     SBIR
       The three committees are concerned that agencies sometimes 
     provide these follow-on activities to large companies who are 
     in incumbent positions or through contract bundling without 
     written justification or without the statutory required 
     documentation of the impracticability of using the small 
     business for the work. So that the SBA and the Congress can 
     track the extent of this problem, the compromise text 
     requires agencies to record and report each such occurrence 
     and to describe in writing why it is impractical to provide 
     the research project to the original SBIR company. 
     Additionally, the compromise text directs the SBA to develop 
     policy directives to implement the new subsection (v), 
     Simplified Reporting Requirements. This subsection requires 
     that the directives regarding collection of data be 
     designated to minimize the burden on small businesses; to 
     permit the updating the database by electronic means; and to 
     use standardized procedures for the collection and reporting 
     of data.
       Section 103(a)(2) of P.L. 102-564, which reauthorized the 
     SBIR program in 1992, added language to the description of a 
     third phase award which made it clear that the third phase is 
     intended to be a logical conclusion of research projects 
     selected through competitive procedures in phases one and 
     two. The Report of the House Committee on Small Business (H. 
     Rpt. 102-554, Pt. I) provides that the purpose of that 
     clarification was to indicate the Committee's intent that an 
     agency which wishes to fund an SBIR project in phase three 
     (with non-SBIR monies) or enter into a follow-on procurement 
     contract with an SBIR company, need not conduct another 
     competition in order to satisfy the Federal Competition in 
     Contracting Act (CICA). Rather by phase three the project has 
     survived two competitions and thus has already satisfied the 
     requirements of CICA, set forth in section 2302(2)(E) of that 
     Act, as they apply to the SBIR program. As there has been 
     confusion among SBIR agencies regarding the intent of this 
     change, the three committees reemphasized the intent 
     initially set forth in H. Rpt. 102-554, Pt. 1, including the 
     clarification that follow-on phase III procurement contracts 
     with an SBIR company may include procurement of products, 
     services, research, or any combination intended for use by 
     the Federal government.
       Section 111. Federal and State Technology Partnership 
     Program. This section establishes the FAST program from the 
     Senate version, which is a competitive matching grant program 
     to encourage states to assist in the development of high-
     technology businesses. The House version does not contain a 
     similar provision. The most significant changes from the 
     Senate version is the compromise text that are an extension 
     of the maximum duration of awards from three years to five 
     years and the lowering of the matching requirement for funds 
     assisting businesses in low income areas to 50 cents per 
     federal dollar, as advocated by Ranking Member Velazquez of 
     the House Small Business Committee. The compromise text 
     combines the definitions found in the Senate version of this 
     section and the mentoring networks section.
       Section 112. Mentoring Networks. The Senate version sets 
     forth criteria for mentoring networks that organizations are 
     encouraged to establish with matching funds from the FAST 
     program and creates a database of small businesses willing to 
     act as mentors. The compromise text, except for relocating 
     the program definitions to Section 111, is the same as the 
     Senate text. The House version did not contain a similar 
     provision.
       Section 113. Simplified Reporting Requirements. This 
     section is not in either the House or the Senate versions. It 
     requires the SBA Administrator to work with SBIR program 
     agencies on standardizing SBIR reporting requirements with 
     the ultimate goal of making the SBA;s SBIR database more user 
     friendly. This provision requires the SBA to consider the 
     needs of each agency when establishing and maintaining the 
     database. Additionally, it requires the SBA to take measures 
     to reduce the administrative burden on SBIR program 
     participants whenever possible including, for example, 
     permitting updating by electronic means.

[[Page E1701]]

       Section 114. Rural Outreach Program Extension. This 
     provision, which was not in either House or Senate versions, 
     extends the life and authorization for appropriations for the 
     Rural Outreach Program of the Small Business Administration 
     for four additional years through fiscal year 2005. It is the 
     intent of the three committees that this program be evaluated 
     on the same schedule and in the same manner as the FAST 
     program. Among other things, the evaluation should examine 
     the extent to which the programs complement or duplicate each 
     other. The evaluation should also include recommendations for 
     improvement to the program, if any.


                                TITLE II

       The purpose of Title II is to amend the general business 
     loan program at the Small Business Administration, commonly 
     known as the 7(a) loan program. Title II of H.R. 2392 
     contains a variety of technical and substantive changes to 
     improve the program and correct problems brought to the 
     Committee's attention through the oversight process and 
     originally passed by the House as H.R. 2616.
       Title II will increase the maximum guarantee amount of a 
     7(a) loan to $1 million from the current limit of $750,000 in 
     order to keep pace with inflation. The guarantee amount was 
     last increased in 1988. It also maintains a cap prohibiting 
     loans with a gross amount in excess of $2 million.
       The bill will also remove a provision which reduced SBA's 
     liability for accrued interest on defaulted loans since the 
     provision's intended savings failed to materialize.
       Title II also includes three changes designed to encourage 
     the making of smaller loans. The guarantee rate will be 
     expanded to 85 percent from loans under $100,000 to loans 
     under $150,000. Likewise, the two percent guarantee fee will 
     now apply to loans up to $150,000, which represent a 
     significant savings for these small borrowers.
       Finally, for small loans, Title II of H.R. 2392 includes a 
     provision allowing lenders to retain one quarter of the 
     guarantee fee on loans under $150,000 as an incentive to make 
     these loans.
       The last part of Title II modifies an SBA regulatory 
     restriction which prohibit loans for passive investment. 
     Title II will permit the financing of projects where no more 
     than 20 percent of a business location will be rented out 
     provided the small business borrower in question occupies at 
     least 60 percent of the business space.
       Section 201. Short Title.
       Section 202. Levels of Participation. Increases the 
     guarantee percentage on loans of $150,000 or less to 85 
     percent. The current guarantee level of 80 percent extends 
     only to loans of $100,000 or less. This guarantee increase is 
     one of the changes proposed to encourage the availability of 
     smaller loans.
       Section 203. Loan Amounts. This provision will increase the 
     maximum guarantee amount of $1 million. The maximum gross 
     loan amount will be capped at $2 million. The language would 
     prohibit SBA from placing a guarantee on any loan over $2 
     million regardless of the guaranteed amount. Consequently, 
     the largest loan available would be a $2 million loan with a 
     50 percent guarantee.
       The largest loan available at the maximum guarantee rate of 
     75 percent would be $1,333,333. The cap on loans over $2 
     million will effectively remove a number of large loans that 
     have been made with only a minimal guarantee, loans which use 
     up loan authority at a disproportionate rate. In 1998, 
     roughly thirty loans over $2 million were made.
       Section 204. Interest on defaulteld loans. This will remove 
     the provision that reduced SBA's liability for accrued 
     interest on defaulted loans. This provision was added to the 
     program in 1996 as a method of reducing the subsidy cost of 
     the program. It has come to the Committee's attention that 
     the expected savings have not materialized.
       Section 205. Prepayment of loans. This provision will 
     reduce the incentive for early prepayment of 7(a) loans. It 
     will assess a fee to the borrower for early prepayment of any 
     loan with a term in excess of 15 years. Early prepayment will 
     be defined as any prepayment within the first three years 
     after disbursement. The prepayment fee will be determined by 
     the date of the prepayment--5 percent in the first year, 3 
     percent in the second year, 1 percent in the third year. The 
     fee will be based on ``excess prepayment'' which is defined 
     as prepayment of more than 25 percent of the outstanding loan 
     amount. In the event of an excess prepayment the fee would be 
     assessed on the entire outstanding loan amount.
       Section 206. Guarantee fees. This section changes the 
     guarantee fee for loans of $150,000 or less to 2 percent. 
     Currently, the guarantee fee of 2 percent is only for loans 
     under $100,000. Loans over $100,000 currently have a 
     guarantee fee of 3 percent. The section also provides for an 
     incentive for lenders to make smaller loans (under $150,000) 
     by allowing them to retain \1/4\ of the guarantee fee.
       Section 207. Lease Terms. Under existing 7(a) rules, loan 
     proceeds may not be used for investment purposes. This 
     includes purchase or construction of property to be leased to 
     others. Currently, 7(a) loans may be used to construct 
     property which will be used solely by the borrower.
       In 1997, Congress modified this rule for the 504 program to 
     allow for projects where a small portion of a property might 
     be rented out permanently, but the borrower's main focus was 
     the construction of a permanent location. This provision 
     would allow the same authority for 7(a) loans. Borrowers 
     would be allowed to lease up to 20 percent of a property in 
     which they will occupy at least 60 percent of the business 
     space.


                               TITLE III

       The purpose of Title III of H.R. 2392 is to amend the Small 
     Business Investment Act to make changes in the Certified 
     Development Company (CDC) loan program at the Small Business 
     Administration (SBA), commonly known as the 504 loan program. 
     Title III is the substance of H.R. 2614 which passed the 
     House earlier this Congress and contains a variety of 
     technical and substantive changes to improve the program and 
     correct problems brought to the Committee's attention through 
     the oversight process.
       Title III will increase the maximum amount of a 504 loan, 
     and its underlying debenture, to $1 million from the current 
     limit of $750,000 in order to keep pace with inflation. The 
     maximum amount for loans with specific public policy purposes 
     (low-income, rural, and minority owned businesses) is 
     increased to $1,300,000. The loan amount was last increased 
     in 1988. Title III will also reauthorize the fees which 
     support the 504 program.
       Title III will also add women-owned businesses as a 
     specific public policy goal for the 504 program. Title III 
     will make permanent two pilot programs begun by SBA in 1997 
     in response to a Congressional mandate. The first pilot 
     program, the Liquidation Pilot Program, enables certain 
     qualified Certified Development Companies to liquidate their 
     own loans rather enduring the usual process of SBA controlled 
     liquidation. The second, the Premier Certified Lenders 
     Program, enables experienced CDCs to use streamlined 
     procedures for loan making and liquidation.
       Sec. 302. Women-Owned Businesses. Women-owned businesses 
     are added to the list of concerns eligible for the higher 
     debentures available for public policy purposes. Current 
     policy goals include lending to low-income and rural areas, 
     and loans to businesses owned by minorities.
       Sec. 303. Maximum Debenture Size. Maximum loan/debenture 
     size is increased from $750,000 to $1,000,000 for regular 
     debentures. Public policy loan/debentures are increased from 
     $1,000,000 to $1,300,000 for public policy debentures. This 
     increase is commensurate with inflation since the current 
     debenture levels were established.
       Sec. 304. Fees. Currently, the 504 program levies fees on 
     the borrower, CDC, and the participating bank. The bank pays 
     a one-time fee whereas the borrower and CDC pay a percentage 
     of the outstanding balance annually in order to provide 
     operational funding for the 504 program. Currently these fees 
     sunset on October 1, 2000. This legislation would continue 
     the fees through October 1, 2003.
       Sec. 305. Premier Certified Lenders Program. The Premier 
     Certified Lenders Program (PCLP) is granted permanent status. 
     The current demonstration program terminates at the end of FY 
     2000.
       Sec. 306. Sale of Certain Defaulted Loans. SBA is required 
     to give any certified lender with contingent liability 90 
     days notice prior to including a defaulted loan in a bulk 
     sale of loans. No loan may be sold without permitting 
     prospective purchasers to examine SBA records on the loan.
       Sec. 307. Loan Liquidation. Section 510 is added to the 
     Small Business Investment Act of 1958 in order to create a 
     program permitting CDCs to handle the liquidation of 
     defaulted loans. This program replaces the pilot program 
     authorized by PL 105-135, the Small Business Reauthorization 
     Act of 1997. A permanent program would permit OMB to score 
     savings achieved by the program when computing the subsidy 
     rate for the 504 program.
       In order to participate in the liquidation program, a CDC 
     must have made at least 10 loans per year for the past three 
     years and have at least one employee with 2 years of 
     liquidation experience or be a member of the Accredited 
     Lenders Program with at least one employee with 2 years of 
     liquidation experience. Both groups are required to receive 
     training. PCLP participants and current participants in the 
     pilot program automatically qualify.
       CDCs have the authority to litigate as necessary to 
     foreclose and liquidate, but SBA could assume control of the 
     litigation if the outcome might adversely affect SBA's 
     management of the program or if SBA has additional legal 
     remedies not available to the CDC.
       All Section 510 participants are required to submit a 
     liquidation plan to SBA for approval, and SBA has 15 days to 
     approve, deny, or express concern with the plan. Further SBA 
     approval of routine liquidation activities is not required.
       CDCs are able to purchase indebtedness with SBA approval, 
     and SBA is required to respond to such a request within 15 
     days. Likewise, CDCs are required to seek SBA approval of any 
     workout plan, and SBA must respond to that request within 15 
     days. With SBA approval, a CDC may compromise indebtedness. 
     Such approval must be granted, denied, or explained within 15 
     days of receipt of SBA.


                                TITLE IV

       The purpose of Title IV is to amend the Small Business 
     Investment Act (the Act) to make changes in the Small 
     Business Investment Company (SBIC) program at the SBA.

[[Page E1702]]

     Title IV contains the language from H.R. 3845 which passed 
     the House earlier this Congress and contains four technical 
     changes to improve the program and correct problems brought 
     to the Committee's attention through the oversight process.
       H.R. 3845 modifies the definition of control for SBIC 
     investment in small businesses, eliminating a cumbersome five 
     prong test and setting a clear statutory standard. H.R. 3845 
     will also modify the definition of long term investment under 
     the Act, changing it from five years to one year, in order to 
     harmonize that definition with accepted business practice and 
     the tax and banking laws. Third, the bill allows the 
     Administration to adjust the subsidy fee for the SBIC program 
     to maintain the subsidy rate of the program at zero. Finally, 
     the bill makes a change to the distribution language in the 
     Act, allowing SBICs more flexibility in making distributions 
     to their investors and will simplify the accounting and tax 
     procedures at SBICs.
       Sec. 401. Short Title.
       Sec. 402. Definitions. (a) Small Business Concern. Inserts 
     the following language in section 103(5)(A)(i) of the Small 
     Business Investment Act--``regardless of the allocation of 
     control during the investment period under any investment 
     agreement between the business concern and the entity making 
     the investment''. This phrase clarifies that a venture 
     capital investment agreement from an SBIC may cause a change 
     in control of a small business, but that such a change with 
     not affect the eligibility of the small business concern. The 
     Committee does not intend that SBICs become holding companies 
     hence the language references the period of the investment 
     agreement. Further, the Committee retains the authority for 
     SBA examinations to inquire into ``illegal control'' by 
     SBICs, though the committee expects such control to be that 
     exercised outside an investment agreement.
       (b) Long term. Inserts the following paragraph in section 
     103 of the Small Business Investment Act,
       ``(17) the term long term, when used in connection with 
     equity capital or loan funds invested in any small business 
     concern or smaller enterprise, means any period of time not 
     less than 1 year.'' The language changes the definition of a 
     long term investment to harmonize it with the tax and banking 
     laws.
       Sec. 403. Investment in SBICs. This provision allows 
     federal savings associations to invest in SBICs.
       Sec. 404. Subsidy Fees. This provision amends sections 
     303(b) and 303(g)(2) of the Small Business Investment Act to 
     allow the Administration to adjust the fee assessed on 
     debentures and participating securities up to a maximum of 
     one percent. The fee will be adjusted to keep the subsidy 
     cost of the programs at zero or as close as possible to zero.
       Sec. 405. Distributions. This section amends section 
     303(g)(8) of the Small Business Investment Act in order to 
     allow SBICs to make distributions at any time during a 
     calendar quarter based on the maximum estimated tax 
     liability.
       Sec. 406. Conforming Amendment.


                                TITLE V

       The purpose of Title V is to reauthorize the programs and 
     operations of the SBA. Title V contains the language from 
     H.R. 3843 which contained the authorization levels for SBA 
     for fiscal years 2001, 2002, and 2003. It contains no 
     technical or substantive changes to any of the programs. The 
     SBA provides a variety of services for small businesses--
     financial assistance, technical assistance, and disaster 
     assistance.
       Financial Assistance. The SBA provides approximately $11 
     billion in financing to small businesses annually. This 
     financing is made available through a variety of programs.
       SBA's largest financial program is the Section 7(a) general 
     business loan program. The 7(a) program offers loans to small 
     businesses through local lending institutions. These loans 
     are provided with an SBA guarantee of up to 80 percent and 
     are limited to a maximum of $750,000. The 7(a) program has a 
     subsidy rate of 1.16 percent for fiscal year 2000 and an 
     appropriation of $107 million, permitting $9.8 billion in 
     lending.
       The Section 504 loan program provides construction, 
     renovation and capital investment financing to small 
     businesses through CDCs. These CDCs are SBA licensed, local 
     business development organizations which provide loans of up 
     to $750,000 for small businesses, in cooperation with local 
     banks. CDCs provide 40 percent of the financing package, 
     while the bank provides 50 percent, and the small business 
     provides a 10 percent down payment. CDC funding is obtained 
     through issuance of an SBA guaranteed debenture. The 504 
     program currently operates at no cost to the taxpayer but 
     does require authorization.
       The microloan program provides small loans of up to $25,000 
     to borrowers in low-income areas. In fiscal year 1999 the 
     program provided $29 million in loans. In addition, the 
     program has a technical assistance aspect that provides 
     managerial and business expertise to microloan borrowers. 
     Microloans are made by intermediary organizations that 
     specialize in local business development. The program has a 
     subsidy rate of 8.54 percent.
       The Small Business Investment Company (SBIC) program 
     provides over $1.5 billion in long term and venture capital 
     financing for small businesses annually. SBICs are venture 
     capital firms that leverage private investment dollars with 
     SBA guaranteed debentures or participating securities. The 
     SBIC debenture program currently operates at a zero subsidy 
     rate and requires no taxpayer subsidy. The participating 
     securities program has a 1.8 percent subsidy rate.
       Technical Assistance. The SBA provides technical and 
     managerial assistance to small businesses through four 
     primary programs--Small Business Development Centers (SBDCs), 
     the Service Corps of Retired Executives (SCORE), the 7(j) 
     technical assistance program, and the Women's Business Center 
     program.
       SBDCs are located primarily at colleges and universities 
     and provide assistance through 51 center sites and 
     approximately 970 satellite offices. Through a formula of 
     matching grants and donations SBDCs offer small businesses 
     guidance on marketing, financing, start-up, and other areas. 
     The program currently receives $84 million in appropriations.
       SCORE provides small business assistance on-site through 
     the volunteer efforts of its members. SCORE volunteers are 
     retired business men and women who offer their expertise to 
     small businesses. SCORE volunteers are reimbursed for their 
     travel expenses and SCORE receives funding as well for a 
     website and offices in Washington, DC.
       The 7(j) program provides financing for technical 
     assistance to the minority contracting community primarily 
     through courses and direct assistance from management 
     consultants. In addition, the program provides assistance 
     participants to attend business administration classes 
     offered through several colleges and universities.
       The Women's Business Center program provides five year 
     grants matched by non-federal funds to private sector 
     organizations to establish business training centers for 
     women. Depending on the needs of the community, centers teach 
     women the principles of finance, management and marketing as 
     well as specialized topics such as government contracting or 
     starting home-based businesses. There are currently 81 
     centers in 47 states in rural, urban and suburban locations.
       Disaster Assistance. The Small Business Administration also 
     provides disaster loan assistance to homeowners and small 
     businesses nationwide. This program is a key component of the 
     overall Federal recovery effort for communities struck by 
     natural disasters. This assistance is authorized by section 
     7(b) of the Small Business Act which provides authority for 
     reduced interest rate loans. Currently the interest rates 
     fluctuate according to the statutory formula--a lower rate, 
     not to exceed four percent is offered to applicants with no 
     credit available elsewhere, while a rate of a maximum of 
     eight percent is available for other borrowers.


                      SECTION-BY-SECTION ANALYSIS

       Section 501. Short Title.
       Section 502. Reauthorization of Small Business Programs. 
     This section provides the authorized appropriation levels for 
     the following programs: Section 7(a) general business loans, 
     Section 504 Certified Development Company loans, direct 
     microloans, guaranteed microloans, microloan technical 
     assistance, Defense Transition (DELTA) loans, Small Business 
     Investment Company debentures, Small Business Investment 
     Company participating securities, Surety Bonds guarantees, 
     SCORE, disaster loans, and salaries and expenses.
       The following are the authorizations levels for the 
     financial programs:

------------------------------------------------------------------------
          (in millions)                2001         2002         2003
------------------------------------------------------------------------
7(a).............................      $14,500      $15,000      $16,000
504..............................        4,000        4,500        5,000
Microloan........................           60           80          100
Microloan TA.....................           45           60           70
Microloan gty....................           50           50           50
SBIC debentures..................        1,500        2,500        3,000
SBIC part. Securities............        2,500        3,500        4,000
Surety bonds.....................        4,000        5,000        6,000
------------------------------------------------------------------------

       This Title also authorizes the Service Corps of Retired 
     Executives (SCORE). SCORE will be authorized at 5, 6, and 7 
     million dollars for fiscal years 2001, 2002, and 2003, 
     respectively.
       Title V also contains provisions authorizing funding for 
     salaries and expenses at the Small Business Administration. 
     These authorizations are established as ``such sums as may be 
     necessary''.
       Section 503. Additional Reauthorizations.
       This section reauthorizes five programs:
       (a) SBDC funding--Increases the authorization from 
     $95,000,000 to $125,000,000.
       (b) Drug Free Workplace--Extends authorization through 
     fiscal year 2003 at $5,000,000 per year.
       (c) HUBZones--Authorizes appropriations of $10,000,000 per 
     year through fiscal year 2003.
       (d) National Women's Business Council--Increases 
     authorization to $1,000,000 per year and extends 
     authorization through fiscal year 2003.
       (e) Very Small Business Concerns--Extends authorization 
     through September 30, 2003.
       (f) SDB Certification--Extends authorization through 
     September 30, 2003.


                                Title VI

       Title VI contains several miscellaneous authorizations and 
     programs.
       Section 601. Loan Application Processing. This section 
     requires a study of the time required for SBA to process loan 
     applications.
       Section 602. Application of eligibility requirements. This 
     section clarifies that women-owned business, socially and 
     economically disadvantaged business, and veteran owned 
     business status is to be determined without regard for the 
     possible application of state community property laws.

[[Page E1703]]

     Certain SBA offices have been denying loan applications based 
     upon the possibility that qualified individuals may divorce 
     resulting in joint ownership of the small business.
       Section 603. HUBZone Eligibility. This section includes a 
     provision extending eligibility for HUBZone Small Business 
     Concerns for an additional year if they are located in areas 
     that recently were removed from HUBZone status.
       Section 604. Subcontracting Preference for Veterans. This 
     clarifies that the language included in subcontracting plans 
     for small business concerns owned and controlled by veterans 
     and used for the purpose of data collection also includes 
     small business concerns owned and controlled by service 
     disabled veterans. Apparently, there is confusion over the 
     fact that the group of veteran owned businesses also includes 
     service disabled veteran owned businesses.
       Section 605. Small Business Development Center funding. 
     This section reforms the formula for funding Small Business 
     Development Centers.
       Section 606. Surety Bond program. Reauthorizes the Surety 
     Bond financing program.

     

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