[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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