[Congressional Record Volume 148, Number 30 (Friday, March 15, 2002)]
[Senate]
[Pages S1974-S1981]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Mr. GREGG:
S. 2020. A bill to establish the Department of National Border
Security; to the Committee on Governmental Affairs.
Mr. GREGG. Madam President, I rise today to introduce a piece of
legislation which tries to address one of the oppressive problems we
have in confronting the issues of terrorism in our country as we move
forward; that is, checking our borders and making sure we have control
over the people who are coming into our country and how they can come
into our country.
As a nation, we have traditionally had very open borders, which is
something in which we take great pride. Unfortunately, people who wish
to cause us harm, people who wish to kill Americans, people who wish to
kill Americans by the thousands, and who have stated that their sole
purpose in life is to kill Americans, have taken advantage of that
openness. Certainly we saw on September 11 the situation that occurred.
We have 100,000 miles of coastline, 2,000 miles of land border with
Mexico, and 4,000 miles of land border with Canada. Last year, we had
127 million automobiles come across those borders, 11 million trucks, 2
million railcars, and 1 million commercial airplanes. More than 500
million people were admitted to the United States last year. You can
see that our borders are aggressively used.
There is great international commerce, which there should be, and we
want to continue that. But one of the problems we have is that the
agencies responsible for managing our borders have been disoriented,
dysfunctional, spread about, and uncoordinated. We have seen some
really horrendous instances of mismanagement. We have also seen
instances that have occurred as a result of failure of communication.
We have seen failures that have
[[Page S1975]]
occurred as a result of turf fights between different agencies. We have
seen agencies which have found their purpose to be unfocused in their
execution of the protection of the borders.
The most recent and startling and almost unbelievable example, of
course, was the delivery of visas to a Florida flight school just this
week for two people who committed the atrocities in New York. America
is outraged. Clearly, the President was shocked. All of us were shocked
that that would happen. That was a total example of an incredible
breakdown in the systems which are managing our borders; that is, the
INS.
What I propose today is to try to get some coherence into this
effort, to bring together the agencies which are responsible to protect
our borders, to put them all under one management structure, and to
create a new Cabinet-level Department, which would be called the
``Department of National Border Security.''
Under this Department, we would take the various agencies which have
responsibility for managing our borders and protecting our Nation and
put them into this Department so that they would be communicating with
each other and have a streamlined management and command process--
something which they do not have today.
Included in this Department would be, for example, the U.S. Customs
Service, the U.S. Coast Guard, large elements of the Immigration and
Naturalization Service, including, of course, Border Patrol, and
elements of the DEA which have responsibility for border security in
the area of drugs, and the Agriculture Quarantine Inspection Program,
which obviously controls food that comes into the country.
The result of putting all these groups together in one management
structure will be that there will be, hopefully, a coordinated approach
to managing our borders. It doesn't guarantee it. But it is very clear
that the system we have today, because of the lack of coordination,
because of the overlapping authority, because of the turf issues, and
because of the lack of centralized directional command is not working.
I happen to be ranking on a committee which has specific jurisdiction
over funding for the Justice Department and the State Department and
which has a large percentage of responsibility for our border
activities, especially the INS. I can tell you from my own experience
as the ranking member, and formerly as chairman, of that Subcommittee
on Commerce, Justice, State, and the Judiciary of the Appropriations
Committee, that unless we get these parties together functioning under
one umbrella of leadership, we are simply not going to get our borders
under control.
Is this the full answer to the problem--the reorganizing of these
Departments? Absolutely not. There also has to be the intention on the
part of the parties who are serving these Departments to accomplish the
goal. There has to be leadership on the part of the administration to
accomplish the goal of border security and making it more efficient.
But as a practical matter, without this first step I personally do
not think we are ever going to get the type of coordination that is
required in order for leadership in this area to be effective.
What we have today in this arena is that these various Departments
are spread across the Government. On top of it, we have each reporting
to a separate Department Secretary. On top of that, we have the
Homeland Security Director, of course. Overseeing all of it, we have
the President. As a result, even though everybody wants to go in the
same direction, it is like six or seven horses pulling in opposite
directions. By bringing them all under the same tent, we will have a
centralized activity.
We should not, for example, be housing the Customs Service in one
building, the Border Patrol in another building, the DEA in another
building, and have them not generally communicating with each other at
a border crossing point; or have the resources of one agency be in
surplus at one border crossing point while the resources of another
agency are strapped at the same crossing point and not having them be
able to work together to try to more effectively manage those resources
so that we get the most efficient use out of the people, the parties,
and the items involved.
All of that problem which exists today with tremendous
dysfunctionalism between these various agencies as they try to relate
to each other, all of that problem is a function of the fact that they
all report up separate stovepipes, and the only generally coordinating
event that occurs comes from the President and the new Homeland
Security Director. But that person, Governor Ridge, has no legislative
authority and no budget authority. Therefore, as a practical matter,
other than having the good will of the President behind him, he does
not have a whole lot of authority.
So when you have one Department over here--let's say, Treasury, with
Customs--and one Department over here--let's say, INS, with the Border
Patrol, and Justice heading that Department up--you tend to have people
who are functioning independent of each other, who, although they may
have the good intentions to communicate with each other, really do not
and do not work effectively as a result of that. We do not get the best
responsiveness.
So it is just logic, it is just good governance, and, for that
matter, good management--which I recognize maybe is anathema to
government--that all the people who are responsible for one function of
the Government, which is protecting our borders, be functioning under
the same leadership structure and, therefore, reading off of the same
page. That is what this new Department will create.
This new Cabinet level Department will set up a structure where
everybody who is responsible for the border will report to a single
Cabinet leader and, as a result, will be functioning off the same page
relative to the way the border is managed. Hopefully, then we will be
getting the most efficient and effective use of those people who are
making a genuinely good effort today but a lot of which is involving
just the spinning of wheels because of the lack of coordination. Then
we will get coordination into that good effort and, as a result, get
better border protection.
This is a thought which is not necessarily original to me. However,
it is obvious to me. As the ranking member and former chairman of the
committee which has jurisdiction over a chunk of this area of
responsibility, it is something I believe we need to do. I believe
there are other groups who have looked at the border who have agreed
with this approach.
The Third Annual Report to the President and the Congress of the
Advisory Panel to Assess Domestic Response Capabilities for Terrorism
Involving Weapons of Mass Destruction, which essentially was Governor
Gilmore's commission, came to the same conclusion: that there had to be
a better centralization. They did not do it in the terms of forming a
new Department, but they came to the same substantive conclusion that
there had to be a better coordination, collection, and organization of
the information coming into the country and of the tracking of people
coming into the country.
The Hart-Rudman Commission, Roadmap to National Security, Imperative
for Change, which reported on February 15, came to the exact conclusion
that I am proposing in the bill:
Steps must be taken to strengthen the three individual
organizations themselves.
They were talking here about Customs, Border Patrol, and the Coast
Guard.
We recommend the creation of an independent Homeland
Security Agency with responsibility for planning,
coordinating, and integrating various U.S. Government
activities involving homeland security.
This does not go completely to that point, but it goes a long way in
the area of border activity in that it creates a Centralized Border
Center. They also suggested that that group, which they called the
Homeland Security Agency, should include the Coast Guard, the Customs,
the Border Patrol, and it should have Cabinet level operational effect.
Even the White House has acknowledged there is a lack of coordination
in this area. It was interesting, in relation to that, Governor Ridge
made the statement: If you asked me today who is responsible for the
border, I would say to you, in response, what part of the border? The
borders remain disturbingly vulnerable to terrorism.
[[Page S1976]]
There is no direct line of accountability for agencies charged with
protecting them.
So I think Governor Ridge clearly sees the problem as I see it, which
is that we do not have a coordinated central management point for all
border crossing activity. It makes no sense to have Customs in
Treasury, INS in Justice and DEA in Justice, and the Coast Guard over
in Transportation with no coordinated central management point for all
border crossing activity. When these agencies serve to protect the
border as their primary responsibility, and with the threat of
terrorism that we confront today, they should clearly be together
managing the issue of protecting our border as a coordinated unit under
a Cabinet level Secretary.
That is what the legislation which I am introducing today does.
______
By Mr. ENZI:
S. 2021. A bill to amend the Packers and Stockyards Act, 1921, to
prohibit the use of certain anti-competitive forward contracts; to the
Committee on Agriculture, Nutrition, and Forestry.
Mr. ENZI. Mr. President, I appreciate this opportunity to speak this
morning. I will speak on a favorite topic of our area of the country,
the packer concentration. It is a huge problem for our ranchers in
keeping them from getting what they should be getting for raising the
livestock for this country. So I rise to introduce a bill that amends
the Packers and Stockyards Act to reform livestock formula price
contracts. This bill aims to rid the livestock industry of pricing
schemes which take advantage of hard-working ranchers. It requires
contracts to contain a fixed base price and to be traded in open public
markets.
Currently, there are four packers that slaughter 80 percent of the
cattle in the United States. They hold the supply of livestock captive
in a number of ways.
Captive supply is when packers either own livestock or contract to
purchase livestock more than 2 weeks before slaughter. Packers use
captive supply to ensure their slaughter lines have consistent
inventory. I will not argue with that original goal, for that goal.
Captive supply makes good business sense. All businesses want to
maintain a steady supply of inputs to ensure their production and
control costs.
But packers go beyond good organization and business performance to
market manipulation. I have been working on this problem for 5 years
and, so far, all we have been able to do is prove that there is a
packer concentration.
With captive supply, packers can purposefully drive down the market
price by refusing to buy in the open market. This deflates all
livestock prices and limits the market access of producers who have not
aligned with specific packers.
Most of us have not signed a formula price contract to sell a load of
livestock, but many of us have sold a house. To illustrate the
seriousness of this problem, and make it a little easier to understand,
let's explore how you would sell a house with a formula price contract
in a market structured like the current livestock market.
It is March, and you know you will be selling your home in July. As a
wise seller, you want to have a buyer for your home before that time.
Now, what if it turns out that the other people do not really buy homes
from each other anymore, and what if, in fact, you found out there were
only four main companies that handled over 80 percent of all of the
real estate transactions? You would have no choice but to deal with one
of those companies.
Now, one of them would offer you a contract stating that you will
receive $10,000 over the average price of what other similar homes are
selling for in your area in July. Sounds like a good deal, doesn't it?
To manage your risk and ensure a buyer, you have been practically
forced to sign a contract that does not specify how much you will
receive. It says you will receive $10,000 over the average price at
that time. There should be a tingle of fear in the pit of your stomach
and it will mature to full-fledged panic when you close the deal in
July. This is why. The four real estate companies have been planning.
They decide to pull away from the market so all the home selling in
July that is not contracted to these four companies floods the market
and the price for homes in your area drops $12,000.
What have you done? By trying to manage your risk in a limited
market, you sold your home for $2,000 less than what the average price
should have been, if there would have been a normal open market such as
we have in the housing market.
Livestock producers face that same problem. Yesterday there were
91,906 head of cattle arriving at packing plants for slaughter. Forty-
four percent of those were bought by a formula price marketing
arrangement. Now you know what that means.
Just like the housing example, the money that producers lose in
formula price contracts adds up over a year. When totaled, captive
supply costs producers an estimated average of $1 billion per year,
according to a study done by an Oregon State University professor.
I am sure you didn't notice when you went to the grocery store to buy
your beef that the price was lower because it is not. The packer
concentration controls the price at that end, too.
Another Senator from Wyoming faced the same concentration of market
power in the packing industry 80 years ago. A predecessor to the Senate
that held the seat I hold now, Senator John B. Kendrick, said:
[The packing industry] has been brought to such a high
degree of concentration that it is dominated by a few men.
The packers, so-called, stand between hundreds of thousands
of producers on one hand and millions of consumers on the
other. They have their fingers on the pulse of both the
producing and consuming markets and are in such a position of
strategic advantage they have unrestrained power to
manipulate both markets to their own advantage and to the
disadvantage of over 99 percent of the people of this
country. Such power is too great, Mr. President, to repose in
the hands of any men.
This great power Senator Kendrick talked about resides in the hands
of the packers once again.
My bill does two things to change the situation. It requires that
livestock producers have a fixed base price in their contracts. It also
puts these contracts up for bid in the open market where they belong.
Under this bill, livestock contracts must contain a fixed base price on
the day the contract is signed. This prevents packers from manipulating
the base price at the point of sale and time of sale.
You may hear allegations that this bill ends quality driven
production, but this bill does not prevent adjustments to the base
price for quality grade or other factors that are outside of the packer
control. It prevents packers from changing the base price based on
factors that they do control. You also may hear that this bill ends
traditional forward contracting. However, contracts that are based on
the futures market are also exempted from the bill's requirements
because the futures market is not controlled by the packers.
My bill also limits the size of contracts to the equivalent of a load
of livestock, meaning 40 cattle or 30 swine. It doesn't limit the
number of contracts that can be offered by an individual. This key
portion prevents small and medium-sized livestock producers from being
shut out of deals that contain thousands of livestock per contract.
In the past I have tried to get some transparency of reporting. The
packer concentration has influenced the rules so they didn't have to
report on the prices they are paying. You go into a market blind. We
thought we had the problem solved, and they helped to influence a
little 3/60 rule so if less than three packers or contracts were sold
in a day, or if more than 60 percent of the market was by one of them,
they didn't have to report. It virtually wiped out reporting in the
sheep industry. We have some changes in that, but some changes for
transparency need to be made.
There are a number of benefits accompanying this bill. It effectively
increases buyer competition without resorting to increasing buyer
numbers through a messy packer breakup. It gives fair access to all
producers to compete for contracts on a level playing field with big
producers. This bill encourages public and electronic trading of great
numbers of livestock, providing greater price transparency. That is
where we are trying to go on all of this.
Simply put, this bill makes packers and livestock producers bid
against
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each other to win a contract--no more secret deals. We know the packers
are engaging in secret deals.
Mr. President, I ask unanimous consent to print in the Record this
advertisement I have collected.
There being no objection, the material was ordered to be printed in
the Record, as follows:
[From Argus Leader, Sioux Falls, SD, Feb. 3, 2002]
Senator Johnson's Farm Bill Amendment Imperils the Job Security of His
Own Constituents and Would Destroy the Pork and Beef Industry
To The Argus Leader Editor and the People of Sioux Falls
and South Dakota: We want to call your attention to and
correct certain misleading and untrue statements that have
been made by or attributed to Senator Tim Johnson and
published in the Argus Leader on January 27, 2002 about
Smithfield Foods, John Morrell, and our plant in Sioux Falls.
senator tim johnson false statement number one
``The bipartisan Johnson-Grassley Amendment does not
negatively affect the John Morrell pork slaughter and
processing plant in Sioux Falls.''
Fact: The Johnson Amendment (S. Amdt. 2534) to the Senate
Farm Bill (S. 1731) prohibiting meat packers from owning
livestock farms or controlling livestock for more than 14
days would have a huge negative impact on the future of the
Morrell plant in Sioux Falls and its 3,200 employees. Our
company is both a meatpacker and a producer and we have made
major investments in our system to provide a healthy product
to consumers at the lowest possible price and to assure them
of food safety, uniformity, and consistency in those
products. The Johnson Amendment, if it becomes law, would
have a major negative impact on our company and the red meat
industry as it exists today. A clear choice for packers that
own livestock or contract for livestock would be to sell or
close facilities. The Sioux Falls plant, which is nearly 100
years old, and the oldest hog processing plant in our system
by far, would head the list of candidates. Critical to this
plant's future and continued operation is an assured and
stable supply of high-quality hogs grown to our demanding
specifications as to care, quality and food safety. Hogs
represent the ``fuel'' that drives the plant. Without an
assured and stable quality livestock supply, we cannot meet
the demands and requirements of our customers.
Restrictive laws such as the Johnson-Grassley-Wellstone
Amendment already have had a major negative impact on the
agri-business economy of South Dakota. As a result of the
state's restrictive farming practices (Amendment E), the hog
supply to our plant now comes 20% from South Dakota, 40% from
Minnesota, 20% from Canada, and the remaining 20% from other
midwestern states. As a result of unnecessary government
regulations such as Amendment E, hog production in South
Dakota declined 50% during the period 1995 to 2001.
Senator Johnson and his staff have offered no study or
analysis of the impact that his Amendment would have on the
agri-business economy not only of South Dakota but also on
the entire country. On the other hand, eight leading agri-
business economists from the country's leading land-grant
universities, led by Wayne Purcell (Alumni Distinguished
Professor of Agricultural and Applied Economics, Virginia
Tech University) and including Dillon Feuz (Professor of
Agricultural Economics, University of Nebraska), Glenn Grimes
(Emeritus Professor of Agricultural Economics, University of
Missouri), Marvin L. Hayenga (Professor of Economics, Iowa
State University), Stephen R. Koontz (Professor of
Agriculture and Resource Economics, Colorado State
University), John D. Lawrence (Professor of Economics and
Director ISU Beef Center, Iowa State University), Ted C.
Schroeder (Professor of Agricultural Economics, Kansas State
University), and Clement E. Ward (Professor of Agricultural
Economics, Oklahoma State University), have recently
published an independent study that concludes that the
Johnson Amendment would have disastrous effects on major
sectors of the agri-business economy.
Their study says that the amendment would actually lower
hog prices because of the great glut of supply that would
result from divestiture; that it would give back the
advantage and gain that the U.S. industry has made over the
last 15 years to foreign countries such as Argentina, Brazil,
Canada and Australia; that it would cause companies like ours
to essentially forfeit billions of dollars of investments
that we have made to move the U.S. to the forefront of the
industry; that it would have a major negative impact on
credit availability of farmers who would no longer be able to
rely on firm contracts with packers to use as security with
their bank lenders; and that it would give the efficient,
vertically-integrated poultry industry an even greater
competitive advantage over the pork and beef industries than
it now currently enjoys.
Had Senator Johnson bothered to conduct any study or
analysis, or reviewed any public USDA figures, he would have
found that in the last ten years, producers have been
profitable in 8 of those years, and the division of the pork
dollar shows retailers with the greatest share, producers
with the second greatest share, and the packers in a distant
third position.
Senator Tim Johnson False Statement Number Two:
``Johnson said he has been assured by Morrell and its
parent company, Virginia-based Smithfield Foods Inc., that
the Sioux Falls plant operates within the restrictions of the
amendment.''
Fact: This is a false statement and we are astonished that
Senator Johnson would place his name behind it. Senator
Johnson has never extended the courtesy or taken the time to
meet with senior officers of Smithfield Foods. In recent
years, I personally traveled to Washington, once with Richard
Poulson, another senior officer of Smithfield Foods, and on
another occasion with Patrick Boyle, president and chief
executive officer of the American Meat Institute, to meet
with Senator Johnson by prior scheduled appointment to
discuss issues in South Dakota. On both occasions, Senator
Johnson was ``too busy'' to meet with us and delegated a
junior staffer to attend the meeting in his stead.
Despite the fact that Senator Johnson has had no interest
in meeting with Smithfield officials, his staff was fully
advised of the precarious nature of the Sioux Falls plant
prior to his introducing his Amendment to the Farm Bill. Our
Sioux Falls plant manager traveled to Washington on December
28, 2001 to meet with Senator Johnson and his aides and told
them that the greatest negative impact of his Amendment would
be on his own constituents and that the Amendment in the end
will benefit no one but the poultry industry. Smithfield
Foods wants to make it quite clear to Senator Johnson that he
can take full credit for putting 3,200 jobs at peril by
causing South Dakota's third-largest employer to reconsider
it's prior decision to pursue a major renovation, update, and
expansion of the Sioux Falls plant, or to build a new, more
modern plant in South Dakota to take advantage of the strong
local work force and rural ethic that is so important to our
business.
Smithfield Foods will dedicate its resources and make its
future investments in states and countries where we are
welcomed by the elected and appointed state, federal or other
governmental officials. We consider Senator Johnson's actions
in pursuing his Amendment to be hostile to the survival of
the pork industry, Smithfield Foods, the Morrell plant, and
to our employees in Sioux Falls because he was made fully
aware of the consequences of his amendment before he
introduced it.
It is unfortunate that Senator Johnson would sponsor such
an ill-conceived piece of legislation even after the Senate
Agriculture Committee had voted it down in December by a vote
of 12-9. He doesn't seem to understand that his state's anti-
corporate farming laws have already delivered a near fatal
blow to South Dakota's hog growing industry and that his
current action is simply another nail in the coffin. One of
the more puzzling things about Senator Johnson's Amendment is
that he apparently seeks to destroy the red meat industry
while leaving the poultry industry untouched. For years the
poultry industry has taken major market share away from the
red meat industry because of its ability to own and control
by contract the quality of its livestock supply.
Background: Smithfield Foods' involvement with John Morrell
and the Sioux Falls Plant.
After all the other major industry players had for years
rejected the opportunity to buy John Morrell and to keep the
plants open, Smithfield Foods agreed to purchase the company
in 1995. The Sioux Falls plant was losing money at the time
Smithfield purchased it and would have closed had we not
purchased it. Today, the plant is profitable. It contributes
in excess of $1 billion a year to the South Dakota economy.
How did this transformation happen? The answer is quite
simple: Smithfield has invested over $65 million in the Sioux
Falls plant since 1995. Studies have shown that every new job
at John Morrell creates several additional new jobs in South
Dakota.
While the plant today is stable and profitable, we are
faced with the reality that we need to make improvements to
the nearly 100-year-old facility or to build a new plant in
Sioux Falls or elsewhere. Prior to Senator Johnson's ill-
conceived Amendment, our planning was focused on maintaining
the plant location in South Dakota. But we will not invest
our resources in states where we cannot have a responsible
relationship with elected and appointed officials.
Conclusion: We are not certain whose interests Senator
Johnson thinks he represents with his Amendment to the Farm
Bill. He certainly does not represent the interests of the
3,200 workers at our John Morrell plant. He has taken no
steps to acquaint himself with the true facts, nor has he
commissioned any studies to determine the true impact and
cost of his Amendment, and he has totally ignored the
considered decision and vote (12 to 9) of the Senate
Agriculture Committee not to approve his Amendment.
We want Senator Johnson to understand the true impact of
his ill-conceived Amendment and it is as follows:
If the Johnson Amendment becomes law, Smithfield Foods will
neither rebuild the Sioux Falls plant, or build a new plant
in South Dakota, nor will we make any further investment in
South Dakota, or for that
[[Page S1978]]
matter in any other state whose public officials are hostile
to our ongoing operations and our industry.
Very Truly Yours,
Joseph W. Luter III,
Chairman and Chief Executive Officer,
Smithfield Foods, Inc.
Mr. ENZI. This ad was run on February 3, 2002, in the Sioux Falls,
SD, newspaper, the Argus Leader, in response to an amendment banning
packer ownership of livestock that we did on the farm bill recently. It
was paid for by Smithfield Foods, Inc., a large hog producing and pork
processing company. The advertisement claims that the company wants
Senator Johnson to understand the true impact of his ill-conceived
amendment. I also supported his amendment and was a cosponsor, and I
voted for it along with 50 of my colleagues. The advertisement, as you
can see, from the Argus Leader, states:
If the Johnson amendment becomes law, Smithfield Foods will
neither rebuild the Sioux Falls plant, or build a new plant
in South Dakota, nor will we make any further investment in
South Dakota, or for that matter in any other state whose
public officials are hostile to our ongoing operations and
our industry.
If the packers are dealing fairly, why would they resort to scare
tactics such as this? Does this mean my State will be blacklisted, too?
Let me tell you what has happened in Wyoming. When we were doing this
amendment, people who had contracts were being called, saying, you are
going to lose 3 cents per pound on your beef if this goes through. They
are buying all the beef. They are paying the prices, and they are
setting them.
Packer ownership of livestock is only a small portion of the packer
captive supply problem. My bill would put an end to the rest of the
packers' manipulative power. What they are referring to there takes
care of 5 percent of the problem. It is the best we have been able to
do against the packers. What I am proposing will only take care of
another 35 percent of the problem. There is a long way to go.
Eventually the consumer should get the best prices and the people
taking the most risk ought to get a fair price.
It is important to remember why we are doing this. All producers
should have a fair chance to compete against each other in an honest
opportunity to get the highest price for their product. Cattle grown on
family ranches in Wyoming help to feed the entire United States. I
value the small and medium-sized producers' ability to provide quality
products for consumers. Big business may be more efficient, but it
lacks the loyalty to a locale that our small producers have. We can see
this in the advertisement I have just added to the Record.
The packers are threatening to leave an area that has been
economically dependent upon them for over 90 years. That isn't loyalty
to a community. That is the behavior of a bully. In Wyoming, we must
encourage our small producers to remain in business and compete. The
loyalty to small communities that our small and medium-sized businesses
have ensures they will continue to enrich our main streets.
Some of my colleagues may be wondering why this bill is needed after
we passed the amendment banning packer ownership of livestock. The ban
on packer ownership of livestock would address one small portion of the
captive supply problem--about 5 years--but it would not address the
large number of contracts based on the formula prices that I explained
using the housing market example. Formula contracts provide the packers
with monopolistic power over the livestock market.
I ask my colleagues to rid the livestock industry of pricing schemes
which take advantage of hard-working ranchers and farmers. I mentioned
that this amendment only affects 5 percent of the market. It is a very
important 5 percent of the market. It is a very important start. I am
hoping the people on the conference committee will make sure this
provision remains in the bill and makes a start toward fairness in the
livestock industry--fairness for the small producer versus the packing
concentration.
We need to end the secret deals and the unfair contracts. I ask my
colleagues to give your constituents the opportunity to compete on a
level playing field.
______
By Mr. BOND (for himself and Mr. Grassley):
S. 2022. A bill to amend the Internal Revenue Code of 1986 to modify
the unrelated business income limitation on investment in certain debt-
financed properties; to the Committee on Finance.
Mr. BOND. Mr. President, I rise today to introduce the Small Business
Investment Company Capital Access Act of 2002, whose purpose is to
increase the amount of venture capital available to small businesses. I
am pleased that my good friend from Iowa, Senator Grassley, the ranking
member on the Senate Finance Committee, has agreed to be the principal
cosponsor of this important bill.
During the past 18 months, there has been a significant contraction
of the private-equity market. During this same period, the Small
Business Administration's Small Business Investment Company program has
taken on a significant role in providing venture capital to small
businesses seeking investments in the range of $500,000 to $3 million.
Small Business Investment Companies, SBICs are government-licensed,
government-regulated, privately managed venture capital firms created
to invest only in original issue debt or equity securities of U.S.
small businesses that meet size standards set by law. In the current
economic environment, the SBIC program represents an increasingly
important source of capital for small enterprises.
While Debenture SBICs qualify for SBA-guaranteed borrowed capital,
the government guarantee forces a number of potential investors, namely
pension funds and university endowment funds, to avoid investing in
SBICs because they would be subject to tax liability for unrelated
business taxable income, UBTI. More often than not, tax-exempt
investors generally opt to invest in venture capital funds that do not
create UBTI. As a result, 60 percent of the private-capital potentially
available to these SBICs is effectively ``off limits.''
The Small Business Investment Company Capital Access Act of 2002
would correct this problem by excluding government-guaranteed capital
borrowed by Debenture SBICs from debt for purposes of the UBTI rules.
This change would permit tax-exempt organizations to invest in SBICs
without the burdens of UBTI record keeping or tax liability.
In 1958, Congress created the SBIC program to assist small business
owners in obtaining investment capital. Forty years later, small
businesses continue to experience difficulty in obtaining investment
capital from banks and traditional investment sources. Although
investment capital is readily available to large businesses from
traditional Wall Street investment firms, small businesses seeking
investments in the range of $500,000-$3 million have to look elsewhere.
SBICs are frequently the only sources of investment capital for growing
small businesses.
Often we are reminded that the SBIC program has helped some of our
Nations best known companies. It has provided a financial boost at
critical points in the early growth period for many companies that are
familiar to all of us. For example, when Federal Express needed help
from reluctant credit markets, it received a needed infusion of capital
from two SBA-licensed SBICs at a critical juncture in its development
stage. The SBIC program also helped other well-known companies, when
they were not so well-known, such as Intel, Outback Steakhouse, America
Online, and Callaway Golf.
What is not well known is the extraordinary help the SBIC program
provides to Main Street America small businesses. These are companies
we know from home towns all over the United States. Main Street
companies provide both stability and growth in our local business
communities. A good example of a Main Street company is Steelweld
Equipment Company, founded in 1932, which designs and manufacturers
utility truck bodies in St. Clair, Missouri. The truck bodies are
mounted on chassis made by Chrysler, Ford, and General Motors.
Steelweld provides truck bodies for Southwestern Bell Telephone Co.,
Texas Utilities, Paragon Cable, GTE, and GE Capital Fleet.
Steelweld is a privately held, woman-owned corporation. The owner,
Elaine Hunter, went to work for Steelweld in 1966 as a billing clerk
right out of high school. She rose through the ranks of
[[Page S1979]]
the company and was selected to serve on the board of directors. In
December 1995, following the death of Steelweld's founder and owner,
Ms. Hunter received financing from a Missouri-based SBIC, Capital for
Business, CFB, Venture Fund II, to help her complete the acquisition of
Steelweld. CFB provided $500,000 in subordinated debt. Senior bank debt
and seller debt were also used in the acquisition.
Since Ms. Hunter acquired Steelweld, its manufacturing process was
redesigned to make the company run more efficiently. By 1997,
Steelweld's profitability had doubled, with annual sales of $10 million
and 115 employees. SBIC program success stories like Ms. Hunter's
experience at Steelweld occur regularly throughout the United States.
In 1991, the SBIC program was experiencing major losses, and the
future of the program was in doubt. Consequently, in 1992 and 1996, the
Committee on Small Business worked closely with the Small Business
Administration to correct deficiencies in the law in order to ensure
the future of the program.
Today, the SBIC Program is expanding rapidly in an effort to meet the
growing demands of small business owners for debt and equity investment
capital. And it is important to focus on the significant role that is
played by the SBIC program in support of growing small businesses. When
Fortune Small Business compiled its list of 100 fastest growing small
companies in 2000, 6 of the top 12 businesses on the list received SBIC
financing during their critical growth year.
The Small Business Investment Company Capital Access Act of 2002 is
important for one simple reason: once enacted it paves the way for more
investment capital to be available for more small businesses that are
seeking to grow and hire new employees. According to the National
Association of Small Business Investment Companies, NASBIC, a
conservative estimate of the effect of this amendment would be to
increase investments in Debenture SBICs by $200 million from tax-exempt
investors in the first year and $400 million in the second year.
Government-guaranteed SBIC leverage commitments equal to $400 million
in year one and $800 million in year two would be added to the private
capital. Thus, total year one capital available for investment would
equal $600 million and total year two capital would equal $1.2 billion.
Data developed by Venture Economics for the period 1970-1999
indicates that one job is created for every $22,600 investment in a
small company. At that rate, this bill could be responsible for the
creation or support of as many as 62,000 jobs within the next two
years, whether within companies receiving investments directly or
within those firms benefiting indirectly through increased sales of
goods and services to the former companies.
And the cost? Industry experts estimate that if the change were
effective now, there would be less than a $1 million in lost tax
revenues. About $1.5 billion in private capital is invested in
Debenture SBICs. A NASBIC poll of Debenture SBICs indicates $30.3
million of that amount is from tax-exempt investors. For the previous
10 years, Debenture SBIC returns have averaged 7.78 percent. Applied to
the $30.3 million, that would result in lost taxable income of $2.36
million per year. If all of that were taxed at the top 39 percent rate,
the tax revenue loss would be $922,000 per year.
The cost is low and the potential for economic gain is great. Passage
of the bill will make the Government's existing SBIC program more
effective in providing growth capital for America's small business
entrepreneurs.
And most importantly, it will provide sorely needed capital for the
sector of our economy that provides about 75 percent of the net new
jobs, small businesses. That is a real stimulus that would cause new
investments to be made and the creation of critically needed new jobs.
Our economy is primed for this kind of support, and I urge my
colleagues to support this important bill.
I ask unanimous consent that the text of the bill be printed in the
Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 2022
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Investment
Company Capital Access Act of 2002''.
SEC. 2. MODIFICATION OF UNRELATED BUSINESS INCOME LIMITATION
ON INVESTMENT IN CERTAIN DEBT-FINANCED
PROPERTIES.
(a) In General.--Section 514(c)(6) of the Internal Revenue
Code of 1986 (relating to acquisition indebtedness) is
amended--
(1) by striking ``include an obligation'' and inserting
``include--
``(A) an obligation'',
(2) by striking the period at the end and inserting ``,
or'', and
(3) by adding at the end the following:
``(B) indebtedness incurred by a small business investment
company licensed under the Small Business Investment Act of
1958 which is evidenced by a debenture--
``(i) issued by such company under section 303(a) of such
Act, or
``(ii) held or guaranteed by the Small Business
Administration.''.
(b) Effective Date.--The amendments made by subsection (a)
shall apply to acquisitions made on or after the date of the
enactment of this Act.
______
By Ms. COLLINS (for herself, Mr. Bond, Mr. Hutchinson, and Mr.
Smith of Oregon):
S. 2023. A bill to amend the Internal Revenue Code of 1986 to provide
for an increase in expensing under Section 179; to the Committee on
Finance.
Ms. COLLINS. Mr. President, I rise today to introduce legislation to
benefit our Nation's small businesses--the backbone of our economy. I
am very pleased to be joined by several of my colleagues, including
Senator Bond, Senator Tim Hutchinson, and Senator Gordon Smith. All of
these Senators have been steadfast proponents and supporters of small
businesses throughout their Senate career. Today, we are introducing
legislation to allow small businesses to expense more of their
investments in equipment and property. In short, we are introducing
legislation to help small businesses grow.
The importance of small businesses to our economy cannot be
overstated. According to the Small Business Administration, small firms
account for three-quarters of our Nation's employment growth and almost
all of the net new jobs. That is certainly true in my home State of
Maine. These are good jobs, jobs that make our communities strong.
Mr. President, last Friday the Senate overwhelmingly passed a
critical piece of legislation designed to boost our economy. The
legislation extends benefits for an additional 13 weeks to an estimated
3 million unemployed workers who have exhausted, or will soon exhaust,
their regular unemployment benefits before being able to find new work.
This program will help put food on the table for an estimated 23,000
unemployed workers in Maine by providing money for extended benefits.
The economic recovery legislation also includes ``bonus
depreciation'' provisions that will encourage mostly larger firms to
invest in new property and equipment. Again, that is another provision
I support. It includes a number of other important proposals, including
one that is near and dear to me providing tax relief to teachers who
reach deep into their own pockets to buy supplies and materials for
their students. Yet my biggest regret about the economic recovery
package we passed last week is that it does very little for smaller
businesses. I think that is disappointing and I think that is wrong
because it is small businesses that tend to lead our economy out of
recession.
Often, I think we take smaller businesses for granted. When times are
good, we expect small businesses to create vast numbers of good, new
jobs for American workers, and when times are tough, we count on small
businesses to resuscitate our sluggish economy. Time and time again,
entrepreneurs lead the Nation down avenues of new economic opportunity,
and our expectations rise with each remarkable success story. But if we
expect so much from small businesses, if we count on them to this
degree, we owe it to them to create a climate that nurtures and rewards
entrepreneurship.
That is why we have come together to introduce this straightforward
legislation. Under section 179 of the Tax Code, a taxpayer with a
relatively small amount of annual investment may elect to deduct up to
$24,000 of the cost of qualifying property and equipment placed in
service in any given
[[Page S1980]]
year. The deduction is phased out for taxpayers who invest over
$200,000 per year.
Our bill would permit small businesses to expense their new equipment
purchases up to $40,000 per year. In other words, we would be
increasing the section 179 expensing limit from $24,000 to $40,000.
That is a fairly significant increase, but it should be; the last time
Congress increased the small business expensing limit was back in 1996.
An adjustment is well overdue.
Section 179 is critically important to small businesses. Direct
expensing allows a small employer to avoid the complexities of the
depreciation rules as well as unrealistic recovery periods for many
assets. For example, under current law, a computer must be depreciated
over 5 years. Now, all of us know that the useful life of most
computers is only 2 or 3 years, at best.
Expensing also addresses a top concern of small businesses that has
been exacerbated by the recent recession. The concern is access to
capital.
I served for a time as the New England Administrator of the Small
Business Administration, and I know there are so many small companies
where the owner of the company has a wonderful concept, a workable
business plan, yet lacks access to capital to get the business underway
or to grow it to the next level. The concern is access to capital,
which the Small Business Administration has called the ``greatest
economic policy challenge'' for rapidly growing businesses.
One indication of the need for additional financing is the amount of
venture capital invested into the United States. In the year 2000, a
record $103 billion was invested. But in 2001, that total fell by 65
percent, to $36.5 billion. When we see this decrease in access to
venture capital, inevitably, it seems, women-owned companies and
minority-owned firms are disproportionately affected and are shut out
of the capital market.
By raising the section 179 limit, our bill, in effect, will reduce
the cost of capital for small businesses nationwide and it will free up
additional capital for small businesses to purchase more plant and
equipment.
I have spoken to small business owners in my home State of Maine, and
they have told me time and again that an increase in the small business
expensing limit would make a real difference to them. It would allow
them to expand their businesses, thus create more good, new jobs.
Terry Skillins of Skillins Greenhouses is a fourth-generation Maine
family business founded in 1885. It is a good example of what I am
talking about. Skillins Greenhouses employs between 70 and 120
employees, depending on the season, in its landscaping, greenhouse, and
floral businesses. Terry told me the company is looking to expand but
that to do so takes money. From tractors, to conveyor belts, to
specialized machinery, the equipment needed to expand is expensive.
Terry said raising the small business expensing limit to $40,000 would
help tip the scales in favor of his proceeding with an expansion,
particularly if the increase were made permanent. Terry said his
business plan extends over a number of years and, hence, knowing the
expensing limit would be increased permanently, he could and would use
a significant multiyear savings to expand his business.
We offered a small business expensing amendment to the economic
recovery bill back in January. The amendment was offered by my
colleague from Missouri, Senator Bond, and myself. It included exactly
the same increases as I am proposing in the bill we are introducing
today. I point out that our amendment passed the Senate by an
overwhelming vote of 90 to 2. So, clearly, there is an understanding
among our colleagues that this tax change is long overdue and that it
would make a real difference to the small businesses in our country.
Today, I am inviting all of our colleagues to join us in cosponsoring
this bill, which is strongly supported and has been endorsed by the
National Federation of Independent Business, our Nation's largest small
business organization. In that regard, I ask unanimous consent that a
letter from Dan Danner, senior vice president of the NFIB, be printed
in Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
National Federation of
Independent Business,
Washington, DC, March 14, 2002.
Hon. Susan Collins,
U.S. Senate,
Washington, DC.
Dear Senator Collins: On behalf of the 600,000 members of
the National Federation of Independent Business (NFIB), I
commend you for introducing The Section 179 Small Business
Expensing Bill. The Collins-Bond-Hutchinson-Smith bill will
increase the amount of equipment purchases, allow small
businesses to expense each year from the current $24,000 to
$40,000 and most importantly, make this language permanent.
Many small businesses are currently struggling to cope with
the recession and the events of September 11th. Increasing
the expensing limit would provide small and growing firms
with the funds to make critical investments and keep their
firms running and growing, creating new jobs.
This legislation will also help small business by
eliminating burdensome record keeping involved in
depreciating equipment. And it adjusts the investment limit
on expensing from 200,000 to $325,000.
Small business is the major job generator for the economy.
Let's give them the tools to grow, hire more employees, and
lead this country out of recession.
Sincerely,
Dan Danner,
Senior Vice President, Public Policy.
Ms. COLLINS. Mr. President, this is a change that makes sense. I hope
we will adopt it this year. It is long overdue to change our tax policy
to reflect the modern-day realities of running a small business.
Mr. BOND. Mr. President, the bill offered by Senator Collins today is
intended to simplify the tax rules for small businesses as they
purchase new equipment to sustain and expand their businesses. I am
pleased to be the lead co-sponsor on this important small business
legislation.
The bill parallels the amendment that Senator Collins and I offered
to the economic-stimulus legislation considered on the floor in January
and makes the increase in the expensing limits permanent. The Bond-
Collins amendment was approved by the Senate by a vote of 90-2.
While some may think that small business is not that important, let's
be clear about the role they play in our economy. Small business:
represents 99 percent of all employers; employs 51 percent of the
private-sector workforce; provides about 75 percent of the net new
jobs; contributes 51 percent of the private-sector output; and
represents 96 percent of all exporters of goods.
In short, size is the only ``small'' aspect of small business.
Our bill would permit small businesses to expense their new equipment
purchases up to $40,000. The current annual limit is $24,000.
The bill also increases the limitation on the total amount of
property that a small business can place in service during a year
before triggering a phase-out of the annual expensing amount. Under the
amendment, a business would be able to claim the full $40,000 in
expensing if it purchased no more than $325,000 of property during the
year. Under current law, the phase-out limitation is only $200,000. To
the extent that a business exceeds the phase-out limit, the annual
expensing amount declines.
Direct expensing allows small businesses to avoid the complexities of
the depreciation rules as well as the unrealistic recovery periods for
most assets. For example, under current law a computer must be
depreciated over 5 years even though the useful life is most likely 2-3
years at best.
These provisions have several important advantages, especially in
light of the current economic conditions.
By allowing more equipment purchases to be deducted currently, we can
provide much needed capital for small businesses.
With that freed-up capital, a business can invest in equipment, which
will benefit the small enterprise and, in turn, stimulate other
industries.
In addition, that's more money available to keep employees working
and hopefully hire new employees.
Moreover, new equipment will contribute to continued productivity
growth in the business community, which Federal Reserve Chairman Alan
Greenspan has repeatedly stressed is essential to the long-term
vitality of our economy.
Finally, these modifications will simplify the tax law for countless
small businesses. Greater expensing means less equipment subject to the
onerous depreciation rules.
[[Page S1981]]
In short, the equipment-expensing change I propose are a win-win for
small businesses consumers, equipment manufacturers, and our national
economy as a whole.
Mr. SMITH of Oregon. Mr. President, I rise today to respond to the
urgent needs of small businesses in my home State of Oregon. Oregon
small businesses are in need of help as the state's economy deals with
poor growth and high unemployment.
In an effort to boost both small business and the Oregon economy I am
proud to introduce legislation with Senator Collins that will provide
tax relief for small firms, the section 179 small business expensing
bill.
Economic recovery must include job creation. In Oregon most new jobs
are created by the State's 270,000 small businesses. Small businesses
have a broad impact on Oregon's economy and are essential to its well-
being.
Oregon ranks third in the Nation in small businesses per capita.
Oregonians are independent and creative and much of this creativity
goes into the wide diversity of small businesses that exist in my
State. Therefore it is imperative that we bolster and strengthen the
small business community in Oregon.
One critical way in which we can help small firms is by raising the
threshold for expensing equipment purchases.
Currently, companies may expense equipment purchases up to $24,000 of
the cost of equipment and depreciate the remainder.
This legislation will increase the amount small businesses can
expense per purchase to $40,000 and increase the total investment from
the current $200,000 to $325,000 annually.
This limit of $325,000 on total purchases of equipment in a single
year applies to the smallest of companies.
Only the smallest of firms that are struggling to stay afloat and
seek to grow by buying equipment would be able to take advantage of
this expensing.
This would provide a greatly needed boost to small businesses in
Oregon, allowing them to move forward on job hiring and capital
investment plans that they have had to put aside during the downturn of
recent days.
This legislation is strongly supported by the National Federation of
Independent Businesses and I would like to enter into the Record a
letter from Dan Danner expressing the importance of this increase to
small businesses.
I believe these changes will ease the record-keeping burden of
depreciating such equipment and fill free up capital that can be used
to create and sustain new jobs, expand current small businesses, and
encourage the creation of new businesses as well.
All of these economic actions will boost the Oregon economy at a time
it is still sorely needed. Businesses will use the extra money to
purchase new equipment, which will help an economic expansion.
Creating new jobs for Oregonians who were laid off last year lessens
the burden on the State economy and puts unemployed Oregonians back to
work.
In conclusion, I would like you to know that this critical
legislation that would boost small businesses in Oregon was initially
part of the economic stimulus legislation that the Senate passed
overwhelmingly in January. I call on all of my colleagues to support
this legislation and swiftly give small businesses across the Nation
and in my State this important boost.
I ask unanimous consent that the letter to which I referred
previously be printed in the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
National Federation of
Independent Business,
Washington, DC, March 15, 2002.
Hon. Gordon Smith,
U.S. Senate,
Washington, DC.
Dear Senator Smith: On behalf of the 600,000 members of the
National Federation of Independent Business (NFIB), I commend
you for introducing The Section 179 Small Business Expensing
bill. Your bill will increase the amount of equipment
purchases, allow small businesses to expense each year from
the current $24,000 to $40,000 and most importantly, make
this language permanent.
Many small businesses are currently struggling to cope with
the recession and the events of September 11th. Increasing
the expensing limit would provide small and growing firms
with the funds to make critical investments and keep their
firms running and growing, creating new jobs.
This legislation will also help small business by
eliminating burdensome record keeping involved in
depreciating equipment. And it adjusts the investment limit
on expensing from $200,000 to $325,000.
Small business is the major job generator for the economy.
Let's give them the tools to grow, hire more employees, and
lead this country out of recession.
Sincerely,
Dan Danner,
Senior Vice President, Public Policy.
____________________