[Congressional Record Volume 148, Number 59 (Friday, May 10, 2002)]
[Senate]
[Pages S4188-S4191]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      THE STATE OF SMALL BUSINESS

  Mr. BOND. Madam President, I rise to report on the state of small 
business and share with my colleagues, staff, and our constituents some 
of the concerns in the small business communities. The President 
declared this week Small Business Week and we have had small business 
activities all week talking about wonderful entrepreneurs who are 
making the economy grow and providing jobs as well as strengthening 
their communities.
  I don't think there is any question that small businesses are the 
foundation of our economy. They employ over half the private sector 
workforce. Two-thirds of all new jobs are created by small businesses. 
They constantly lead the way in innovative and creative solutions to 
the challenges that face us.
  Some very large businesses, obviously, started as small businesses. 
Others have chosen to remain small. This country's future will be 
determined by today's small businesses.
  With so much at stake, we have adopted the policy in the Committee on 
Small Business of doing something that was not traditional prior to 
1995 when we started going out and listening to the broad range of 
concerns of small business. I am proud to say on a bipartisan basis the 
Committee on Small Business over the last 7 years has not only listened 
to the needs of small business but done a very good job in responding 
to those needs. As the ranking member of the committee, I can say I 
have always learned when I have listened to the small businesses in my 
State and around the country.
  There is something now they are discussing that has moved to the top 
of their concerns, moved to the top of the ladder. Small business 
concerns used to be regulatory issues, tax issues, bundling issues, 
availability of the SBA credit assistance. The issue driving small 
business owners and their employees nuts is the issue of the cost of 
health care. Small businesses are saying they cannot get the kind of 
health care for themselves and their employees and families that a 
large business or a union or a government can provide.
  There are about 40 million people in this country without health 
insurance. We talk about that a lot. This is a serious concern. Madam 
President, 60 percent of those--24 million--are in the small business 
family. Of the 40 million without health insurance, 24 million are from 
small business. They are either workers in small business or members of 
the family of small business employees. Why? To a large extent in the 
past we have not given tax deductions for entrepreneurs, small business 
proprietors who buy health insurance for themselves.
  I started that battle in 1995 and by 2003 we finally get 100-percent 
deductibility. Now the problem is the cost of health insurance. Many 
individuals who are among the employed but uninsured work for small 
businesses that would like to provide health insurance but can't 
because in some instances it is too expensive; in other instances they 
cannot bargain with and get the kind of benefits they need. They are 
not talking about lavish benefits.
  We are trying to get basic health care for employees, their families, 
their children, mothers who need prenatal and postnatal care, children 
getting vaccinations. It does not matter how many mandates are passed 
regarding what States say to businesses, what they ought to do, health 
plans saying what they ought to do, or even a Patients' Bill of Rights. 
One basic right the small businesses don't have is the right to be able 
to purchase affordable health care.
  It seems to me the only solution to help the employed but uninsured 
is to allow small businesses across the country to pool together and 
access health insurance through their membership in a bona fide trade 
or professional organization. This should provide small businesses the 
same opportunities as other large insurance purchasers. The association 
health plans, or AHPs, would reduce cost, to spread the costs and risk, 
increase group bargaining power with large insurance companies, and 
generate more insurance options for small business.
  The principle underpinning AHPs is simple, the same principle that 
makes it cheaper to buy a soda by the case than in individual cans. 
Bulk purchasing is why large companies and unions get better rates for 
employees and small business. It is time we bring the same kind of 
Fortune 500-style employee health care benefits to the Nation's Main 
Street small businesses and their employees.
  AHPs are not a new idea. They have been talked about, argued about, 
compromised for almost a decade. During that period, what once was 
thought to be a manageable problem has become the crisis we have today. 
A bill has been introduced by my neighbor, my friend from Arkansas, 
Senator Hutchinson, that creates these AHPs. It is the Small Business 
Health Fairness Act of 2001. I cannot overstate the urgency of moving 
this legislation. The House has passed a similar bill. The President 
has strongly come out in support of AHPs. The President does not want 
small businesses to be health insurance islands under themselves. I 
agree. We must do this for small businesses, their employees, and their 
employees' families.
  Also, it is important we go ahead and make permanent the tax cuts we 
provided last year. More than 21 million businesses filed tax returns 
as individuals. These are nonfarm, sole proprietorships, partnerships 
and S Corporations. They had receipts of less than $1 million. And 92 
percent of all small businesses under $1 million are passthrough 
entities. The tax rate relief we gave last year means there will be 
more money to invest in the business, to invest in equipment, and to 
put more people to work. We need to make it permanent.
  We are not talking about rich ``fat cats'' here. According to 1999 
Census data, of the nearly 15 million full-time, self-employed people 
in 1999, median business earnings were $30,000 and 38 percent of them 
earned between $30,000 and $75,000.
  In addition, the former chief economist for the SBA's Office of 
Advocacy, testified last March before the Senate Finance Committee that 
``[e]very dollar of profit or tax relief tends to be re-invested in the 
[owner's] firm.'' With more of their tax dollars in hand, these small 
business owners will be able to reinvest in their businesses--purchase 
new and more efficient equipment. They will be able to expand their 
product lines and the services they render. And--most importantly--they 
will be able to continue creating more jobs in our home towns.

[[Page S4189]]

  But the tax bill did not stop at just cutting tax rates. It also 
dramatically changed the death tax, putting it on the road to 
extinction by 2010. Too often we have heard about the family-owned 
company that has had to be sold just to pay the death taxes. According 
to the SBA, more than 70 percent of all family businesses do not 
survive through the second generation and fully 87 percent do not make 
it to a third generation. That's an absurd result of the tax code.
  But we are forgetting an even greater problem caused by the estate 
tax. Thousands of small businesses in this country waste millions of 
dollars each year on estate planning and insurance costs just to keep 
the doors open if the owner should die.
  To put this into perspective, a survey of family owned businesses in 
Upstate New York revealed that average spending for tax planning, 
attorney and consultant fees, life insurance premiums, internal labor 
costs, etc., was nearly $125,000 per company over a 5 year period. 
That's even before any Federal estate taxes are counted.
  Just think what could be done with that kind of money in a small 
business if it didn't have to be paid to accountants, lawyers, and 
insurance companies. It could be used to create more jobs in our 
communities. In short, the estate tax can spell the end of a small 
business, but it is also a jobs killer in this country.
  With all of its strengths, however, the tax bill has one major flaw--
procedural rules in the Senate forced it to be limited to a ten-year 
life. So, while America's entrepreneurs can enjoy the benefits of the 
tax bill today and over the next several years, our work is not 
finished. We must make the tax cuts, and in particular the repeal of 
the estate tax, permanent. Otherwise, our success in reducing the tax 
burden will turn into the largest tax increase in American history come 
2011. That's a result I will strongly oppose and hope never to see.
  Of course, another of the primary issues that come to me is how to 
create more small businesses. Money and good management skills are keys 
to starting and running a successful small business. The federal 
government has demonstrated that it is capable of delivering help in 
both areas to small businesses through the Small Business 
Administration. Each year, over one million small business people and 
entrepreneurs receive help from the SBA's core management assistance 
programs: the Small Business Development Centers, SCORE, and the Women 
Business Centers.
  At the same time, SBA has demonstrated an ability to make loans and 
venture capital available to 40,000-50,000 small businesses annually. 
While the number of small businesses has exploded over the past decade, 
the SBA credit programs have not been able to keep pace with the 
demand. As many of my colleagues in the Senate know, SBA's credit 
programs are not designed to compete with the private sector; rather, 
they are supposed to meet the demand from small businesses that cannot 
otherwise obtain a regular commercial loan or investment capital.
  This demand is great; unfortunately, these programs are not meeting 
the growing small business demand, particularly from women-owned small 
businesses, which is the fastest growing small business segment. Much 
of the blame can be placed on career bureaucrats in the Office of 
Management and Budget who use unrealistically high default estimates to 
drive up the cost of the SBA's flagship 7(a) guaranteed business loan 
program. Just for next year, OMB's estimates are adding an unnecessary 
$100 million in appropriations to the cost to run the program. Since 
1992, OMB's estimates have caused the borrowers and lender to pay about 
$1.4 billion in excess fees. The excess fees and the pressure for 
higher appropriations have placed unnecessary and counterproductive 
limits on the growth of the 7(a) loan program.
  The other SBA credit programs have also experienced similar problems. 
The 504 Development Company Loan Program has paid excessive fees 
totaling over $400 million, and the Small Business Investment Company 
Program has paid in $500 million over the amount needed to run that 
program.
  To begin to correct this problem, last December Congress enacted S. 
1196, which included key provisions lowering the fees from the 7(a) and 
504 loan programs. These changes will go into effect on October 1, 
2002.
  Last fall, I introduced the Small Business Leads to Economic Recovery 
Act of 2001, S. 1493, which is designed to provide effective economic 
stimulus to small businesses in three distinct but complementary ways: 
increasing access to capital for the Nation's small enterprises; 
providing tax relief and investment incentives for our small firms and 
the self-employed; and directing one of the Nation's 
largest consumers--the Federal government--to shop with small business 
in America.

  Subsequently, Senator Kerry and I introduced S. 1499, which adopts 
the access to capital provisions from S. 1493. This bill is a 
bipartisan collaboration to devise one-time modifications to the 7(a) 
and 504 Loan Programs because the traditional approach to disaster 
relief will not address the critical needs of thousands of small 
businesses located at or around the World Trade Center, the Pentagon 
and in strategic locations throughout the United States. S. 1499 has 
passed the Senate and is waiting for action in the House of 
Representatives. In the near future, I am hopeful we can add this 
important bill to another must-pass bill so that it can be on the 
President's desk for his approval.
  The SBA has undertaken the first creative steps to reach more small 
business borrowers. I applaud their efforts and encourage the SBA 
management team led by Administrator Hector Barreto to do more. It is 
estimated there are as many as 25 million small businesses in the 
United States. Our Federal credit programs need to be able to reach 
many more small commercial borrowers. When I hear from women's business 
owners that they cannot obtain loans or investment capital, I want to 
know why the SBA programs are not serving this fast-growing segment of 
our Nation's business community. When minority entrepreneurs cannot 
obtain credit, I want to know what SBA is doing to correct this 
problem.
  As the ranking member of the Committee on Small Business and 
Entrepreneurship, I am in a position to take the battle to the OMB. But 
it is up to the SBA to work with our Nation's lenders and venture 
capitalists to find ways to expand existing programs and to create new 
ways to deliver credit assistance to help fuel the engine that drives 
the economy of the United States--the small business community.
  One thing that can sap the strength of that engine is the burden 
imposed on small businesses by regulations. The SBA Office of Advocacy 
has estimated that regulations cost businesses with less than 20 
employees almost $7000 per employee per year. This is nearly 60 percent 
higher than businesses with over 500 employees.
  Six years ago, Congress, without dissent in the Senate, took an 
historic step towards reigning in the federal government's regulatory 
machine and protecting the interests of small businesses. My Red Tape 
Reduction Act, what others call the Small Business Regulatory 
Enforcement Fairness Act, ensured that small businesses would be given 
a voice in the regulatory process at the time when it could make the 
most difference: before the regulation is published as a proposal.
  Without question, the Red Tape Reduction Act has yielded some 
remarkable results and provided small businesses with a greater voice 
and opportunity to have an impact in the rulemakings which threaten to 
do them the most harm. Perhaps the best known provision is the 
requirement that OSHA and EPA convene panels to receive comments from 
small businesses before their regulations are proposed. This gives 
these agencies the unique opportunity to learn up front what the 
problems with their regulation may be, and to correct these problems 
when it will cause the least difficulty. This has resulted in 
significant changes being made, and in one case, EPA abandoning a 
regulation because they recognized that the industry could deal with 
the issue more effectively on their own.
  Experience with this panel process has proven to be an unequivocal 
success. The former Chief Counsel for Advocacy of the Small Business 
Administration Jere Glover has stated that, ``Unquestionably, the 
SBREFA panel process has had a very salutary impact

[[Page S4190]]

on the regulatory deliberations of OSHA and EPA, resulting in major 
changes to draft regulations. What is important to note is that these 
changes were accomplished without sacrificing the agencies public 
policy objectives.''
  Unfortunately, however, there are still examples where agencies have 
not provided small businesses with the appropriate opportunity to 
participate, and have flouted the requirements of SBREFA through 
abusing the flexibility Congress provided to the agencies to determine 
how and when they would comply. It has become clear that these are more 
than mere isolated incidents and that the Red Tape Reduction Act itself 
needs to be amended to achieve the goal Congress had in mind when 
passing the original Regulatory Flexibility Act, and the subsequent Red 
Tape Reduction Act.
  This is why I introduced The Agency Accountability Act, S. 849 during 
last year's Small Business Week. This bill would further amend the 
Regulatory Flexibility Act and close some of the loopholes that 
agencies have exploited in their desire to pursue their regulatory 
agendas on the backs of small businesses by doing the following:
  It requires the agency to publish a summary of their economic 
analysis supporting the decision not to certify a regulation as not 
having ``a significant economic impact on a substantial number of small 
entities,'' and to make the full economic analysis available to the 
public so that interested parties will be able to evaluate whether the 
agency has met their burden to do adequate outreach and analysis in 
determining the impact of the regulation.
  It allows small entities to seek judicial review of 
this certification decision if they believe that the agency has not 
supported it with adequate data and analysis.

  It directs the Chief Counsel for Advocacy of the Small Business 
Administration to promulgate a regulation to define further the terms 
of ``significant economic impact'' and ``substantial number of small 
entities'' so that agencies can no longer define these terms themselves 
and claim that they were within the bounds of the law when their 
definitions allow them to avoid the requirements of SBREFA and the 
Regulatory Flexibility Act.
  Finally, it adds the Internal Revenue Service, the U.S. Forest 
Service, the National Marine Fisheries Service, and the Fish and 
Wildlife Service to the list of agencies that must conduct small 
business review panels before they can issue proposed regulations.
  Another area the agencies have failed at miserably is to supply the 
compliance assistance that is required by the Red Tape Reduction Act. 
GAO has issued a report that clearly indicates how agencies have 
ignored this requirement or made a complete botch of it when they have 
attempted to meet it. I will be introducing legislation to address this 
problem soon.
  My views are simple. I want an agency that intends to regulate how a 
business must conduct its affairs to do so carefully and only after it 
has taken every step to insure that it will impose on that small 
business the least amount of burden to achieve its stated objective. 
Once they do issue a regulation, they have an obligation to be able to 
explain what small businesses must do to comply with it. This is not 
about blocking agencies from promulgating regulations, it is about 
making sure they produce the best regulations possible with the least 
unnecessary burden on small businesses.
  Six years ago, the Senate said in a unanimous voice that it wanted 
agencies to treat small businesses fairly. That commitment to 
protecting this most vulnerable segment of our economy, at a time when 
the Federal government can literally determine if a business will 
survive as a result of the regulatory burden imposed on it, is still 
alive. It is time that we ensured agencies are accountable for their 
actions by enacting the Agency Accountability Act.
  On the positive side, the Federal Government can be and should be a 
reliable and committed purchaser of goods and services from small 
businesses. The Small Business Act says that small firms shall have the 
maximum practicable opportunity to compete for Federal contracts. This 
is good for small business, good for the purchasing agencies, and good 
for the taxpayer who pays the bills because when small business 
competes for contracts this lowers the prices and raises the quality.
  Small business benefits from having access to a stable revenue stream 
while they get up-and-running. The Small Business Act recognizes how 
government contracting can contribute to business development and 
economic renewal. For example, my HUBZone program provides contracting 
incentives for small firms to locate in blighted neighborhoods, helping 
them win Federal contracts and stabilize their revenues while they 
develop a nongovernmental customer base.
  The State of Small Business, on this front, is mixed. We finally 
succeeded in restoring funding for the HUBZone program, as SBA finally 
sent up a reprogramming request that the Appropriations Committee found 
acceptable. The mishap that occurred last year, of defunding the 
HUBZone program, has now been corrected.
  Moreover, SBA is on the verge of removing the biggest of the 
roadblocks currently holding the HUBZone program back. Contrary to 
express Congressional direction, the previous Administration had put 
the HUBZone and 8(a) contracting programs in competition with each 
other, by trying to give an automatic preference to 8(a) in all cases. 
We at the Small Business Committee had sought to avoid pitting these 
programs against each other, by mandating parity between the programs. 
Contracting officers would be equally obligated to carry out both 
programs.
  SBA disregarded the congressional will on this point, and contracting 
officers found the regulations confusing. SBA's noncompliance hurt both 
programs, because contracting officers did not know what to do.
  In January, SBA published proposed rules to correct this situation 
and to establish the parity that Congress intended. I am confident we 
are about to enter a new era in which the HUBZone program will finally 
live up to its potential.
  And not a moment too soon, either. This program will direct 
contracting dollars into the most chronically distressed areas of the 
nation. People who live in these areas, without jobs and often without 
hope, need the opportunities that the HUBZone program will provide. 
Finally, we are going to get serious about getting help to these folks 
who need it so desperately.
  Unfortunately, Federal government's performance in contracting with 
women-owned small businesses is less encouraging. Since 1994, when 
Congress enacted a goal of 5 percent of contract dollars for women-
owned firms, the Government has consistently fallen short. We have 
never met that goal. We have never come close.

  Last year, I received a report from the General Accounting Office on 
contracting participation by women-owned firms. The clear message was 
this: if the Government is to meet the 5 percent goal, the Department 
of Defense must meet its own 5 percent goal. DOD is the 800-pound 
gorilla in Federal procurement. Sixty-four percent of Federal 
contracting dollars come from the Pentagon. Without a full DOD 
commitment to the women-owned business goal, the rest of the Government 
does not handle enough contracting dollars to make up the shortfall.
  Similarly, DOD frequently uses the practice of bundling small 
contracts together so that small businesses are unable to bid on the 
work. In the words of President Bush ``Bundling effectively excludes 
small businesses.'' He understands this hurts small business and has 
asked OMB to look for ways to avoid this approach and for opportunities 
to break up bundled contracts to permit more participation by small 
business. I welcome the President's support in this cause.
  This week Senator Kerry and I offered a bill that would close 
loopholes in the definition. I appreciated working with him to develop 
this important measure. Increasingly, it looks like we are getting 
close to a meeting of the minds on this issue, and I am hopeful we can 
at long last do something serious to control contract bundling and 
ensure that the Federal government's contracting practices allow for 
the maximum possible participation by small business.
  Never has our country needed or relied upon small businesses as much 
as

[[Page S4191]]

now in the wake of the devastating attacks of September 11. Yesterday, 
my colleague Senator Kerry and I introduced a resolution, S. Res. 264, 
expressing the sense of the Senate that small business participation is 
vital to the defense and security of our Nation. On September 11, 2001, 
the people of the United States were subject to the worst terrorist 
attack in American history. Our nation's response has been truly 
astounding. And it should come as no surprise that small businesses are 
playing a vital role in that response.
  Small businesses have the unique ability to respond quickly and 
precisely, to emerging needs and conditions. Many of the most 
innovative solutions to our problems such as new technologies for 
defense readiness come from small firms. In fact, in October 2001, the 
Pentagon's technical support working group sent out an urgent plea, 
seeking ideas and technology to assist the military fight terrorism. In 
just two months, legions of small businesses responded to the 
Pentagon's call. Over 12,500 ideas poured into the Pentagon, most of 
them from small businesses. This remarkable response once again shows 
that small business remain the most innovative sector of the United 
States economy, accounting for the vast majority of new product ideas 
and technological innovations.
  Just last week I had the opportunity to acknowledge the volunteer 
efforts of three Missouri companies that are helping re-build over an 
acre-long section of the Pentagon's roof, which was damaged badly in 
the September 11 terrorist attacks.
  Frederic Roofing and Sheet Metal Company of St. Louis, Performance 
Roof Systems of Kansas City, and Watkins Roofing of Columbia, are 
participating in a massive effort to help repair part of the damage 
sustained by the Pentagon. These Missouri companies are independent, 
small businesses, modern-day Davids ready and willing to take on part 
of a Goliath-sized project. They have joined with roofing contractors 
from across country and the National Roofing Contractors Association to 
raise in excess of $500,000 worth of cash, materials, and labor toward 
this project. Their work reflects the enterprising spirit that makes 
small businesses such a potent force in our economy. They deserve our 
admiration for rolling up their sleeves and pitching in to help restore 
the Pentagon.
  To help raise awareness of small business innovation in the homeland 
defense area, on July 10, 2002, Senator Kerry and I will co-host an 
expo on Capitol Hill to showcase small businesses and their homeland 
security products. The Small Business Homeland Security Expo will 
provide an opportunity for small business owners to educate us here in 
Washington about their latest innovative products, technology, and 
research. I am excited to bring these hardworking entrepreneurs here to 
show us just how valuable their contributions are to our Nation's 
security and defense. These small businesses are a cross-section of 
America--they are women-owned, minority-owned, and often represent 
economically disadvantaged areas.
  Numerous small businesses have lined up to showcase their exciting 
products and services for homeland defense and the fight against 
terrorism. We intend to highlight these businesses at the Expo and in 
the accompanying book being prepared for the event. The work of small 
businesses toward this goal is a product of the same volunteer spirit 
that helped save lives, combat unthinkable disaster, and restore the 
nation's hope after the darkest hours of September 11.
  Madam President, I am happy to report to the Senate that the small 
business sector of our economy is thriving even though the challenges 
they face are stiff and numerous. The determination to be successful is 
a hallmark of small businesses as it has been the foundation of our 
nation throughout the years. Small businesses are at the forefront of 
new advances in technology, health care, environmental management, and 
virtually every industry possible. I have no doubt that small 
businesses will continue to lead the way.
  The big question I have is whether we will be able to help them. 
Small business wants the Federal government to be a friend, not an 
adversary. They want us to be their customer and advisor, not a 
competitor or intruder. In every action we take, we must always ask 
what the impact on small businesses will be, and make every effort to 
refrain from that action if we do not believe it will have a beneficial 
impact. The future of our country is tied to the future of small 
business and by enhancing the conditions that support small business, 
we will ensure a more prosperous future for all.
  I suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. BAUCUS. Mr. President, I ask unanimous consent the order for the 
quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Carper). Without objection, it is so 
ordered.

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