[Congressional Record Volume 149, Number 4 (Friday, January 10, 2003)]
[Senate]
[Pages S206-S207]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        7(a) CREDIT SUBSIDY RATE

  Mr. FRIST. Mr. President, I ask unanimous consent that the Senate 
proceed to the immediate consideration of S. 141, which was introduced 
earlier today by Senators Snowe, Bond, Kerry, and others.
  The PRESIDING OFFICER. The clerk will state the bill by title.
  The legislative clerk read as follows:

       A bill (S. 141) to improve the calculation of the Federal 
     subsidy rate with respect to certain small business loans, 
     and for other purposes.

  There being no objection, the Senate proceeded to consider the bill.
  Ms. SNOWE. Mr. President, I rise today in support of legislation that 
I introduced today to permit the Office of Management and Budget, OMB, 
and the Small Business Administration, SBA, to use a recently-completed 
econometric model to calculate the credit subsidy rate for the 7(a) 
small business loan guarantee program, the flagship loan program at the 
SBA. I am very pleased that Senators Bond, Kerry, Crapo, Bennett, Enzi, 
Burns, and Landrieu are original cosponsors of this important 
legislation.
  Our bill, once signed into law by President Bush, will allow the 7(a) 
loan program to meet the borrowing demands of our Nation's small 
businesses, which is approximately $10 billion for fiscal year 2003. 
Without this bill, the program would limit 7(a) loans to less than $5 
billion for FY 2003. Currently, the 7(a) program is operating at a very 
reduced capacity, with a loan size cap of $500,000, to avoid exceeding 
the program limitations.
  By limiting the 7(a) guaranteed small business loan program, we are 
unnecessarily hampering much-needed job growth in the United States. 
Just 2 days ago, we here in the Senate passed much-needed legislation 
to extend jobless benefits for 20 more weeks. These benefits are 
intended to help those persons who have already been unemployed for 6 
months. This is much too long for someone who is actively looking for a 
job. And we should be doing everything possible to support job creation 
opportunities.
  The SBA 7(a) small business loan program is just the answer. 
According to the SBA, the 7(a) program is its most efficient program 
for creating new jobs. Historically, the SBA maintains the ``job 
coefficient'' for the 7(a) loans is $32,382. The SBA ``job 
coefficient'' is the amount of an SBA-guaranteed 7(a) loan that leads 
to one job.
  Based on the SBA's ``job coefficient'' for the 7(a) program, the 
impact of the small business guaranteed loan program is staggering. 
According to the OMB, enactment of our bill and implementation of the 
econometric model will reduce the credit subsidy rate of the 7(a) 
program from 1.76 percent to 1.04 percent. This reduction will expand 
the size of the 7(a) program from $4.85 billion to $8.2 billion, an 
increase of nearly $3.5 billion. Based on the SBA 7(a) ``job 
coefficient,'' the increase in lending from our bill will result in 
nearly 21,000 more loans to small businesses that will support 103,690 
jobs. And no additional Federal Government spending will be needed to 
support this change.
  The good news about the expansion of the 7(a) small business loan 
program does not stop here. Part of our strategy to expand the 7(a) 
loans program is to reprogram leftover, no-year funds previously 
appropriated for the SBA's STAR terrorist disaster recovery loan 
program, which is set to expire on January 10, 2003. If the 
reprogramming is approved later this month as part of the Omnibus 
Appropriations bill, the leftover STAR funds would be used for the 
regular 7(a) loan program. At this time, there is approximately $20 
million remaining, which would support an additional 12,000 loans to 
small businesses totaling $1.92 billion, while assuming a credit 
subsidy rate of 1.04 percent established by the new econometric model. 
SBA-guaranteed loans to small businesses made with these funds would 
support 60,000 more jobs.
  Unlike many stimulus plans that project benefits that occur years 
after enactment of the proposal, the expansion of the SBA's 7(a) 
program makes a critical expansion of the jobs a ``today'' event rather 
than a promise in the future. Once our bill is enacted, the increased 
lending between now and September 30, 2003, will guarantee 21,000 small 
business loans that support over 103,000 jobs. And after the STAR 
reprogramming is approved, 12,000 loans can be made to small businesses 
that support another 60,000 jobs. That's over 163,000 more jobs between 
now and the end of fiscal year 2003. How incredible is that?

[[Page S207]]

  The ``econometric model'' is a significant reform in the way the SBA 
and OMB calculates the credit subsidy rate for the 7(a) loan program. 
Our bill provides that the OMB and SBA will adopt the new econometric 
model effective retroactively to October 1, 2002. Developed by the SBA 
and OMB, the econometric model will use far more comprehensive data 
about individual borrowers and loans when forecasting anticipated 
defaults and establishing loan reserves to cover them.
  Under the Credit Reform Act of 1990, the annual appropriation for the 
SBA must, in advance, provide sufficient funds to cover the cost of a 
Federal loan guarantee, after taking into consideration the fees paid 
by small business borrowers and lenders under the 7(a) program. This 
amount, referred to as the credit subsidy rate, is determined by the 
OMB prior to the submission of the President's annual budget request to 
the Congress.
  Critics of the credit subsidy rate for the 7(a) program have cited 
the use of historical loan performance data that pre-dates the 
enactment of the Federal Credit Reform Act as a major cause of a credit 
subsidy rate that greatly exceeds actual loan performance. The 
consequence is the use of the most conservative loan default rates, 
year-in and year-out, and the failure by the OMB and the SBA to adjust 
historical loan performance data to reflect 7(a) program changes, both 
statutory and regulatory, that have lead to real reductions in the 
default rates and improved program performance. According to an in-
depth analysis undertaken by the General Accounting Office (GAO), the 
excessively high credit subsidy rates have resulted in nearly $1 
billion in unnecessary fees being paid by small business borrowers and 
lenders to the U.S. Treasury.
  It is very unrealistic to believe that a 100 percent accurate credit 
subsidy rate estimate can be derived for the 7(a) loan program, or for 
any other Federal credit program. The econometric model, designed to 
calculate the 7(a) credit subsidy rate, is a major improvement over the 
``old'' model.
  Originally, the administration stated that the econometric model 
would not be available until FY 2004. After extensive discussions with 
the senior White House staff, the administration has agreed to 
accelerate their use of the model retroactive to October 1, 2002, the 
beginning of FY 2003. Their policy change is a very positive effort to 
help small businesses and promote job growth.
  Our bill is designed to waive a key provision of the Federal Credit 
Reform Act that prohibits the Congress from changing a credit subsidy 
rate estimate once it has been transmitted to the Congress as part of 
the President's annual budget submission. This may be the first time 
this provision has been waived since implementation of the act in FY 
1992.
  We would not be where we are today resolving this important matter 
without the tireless efforts of my colleagues in the Senate and the 
House of Representatives. Mr. Manzullo, chairman of the House Committee 
on Small Business, fought for this change every step of the way. The 
ranking member, Ms. Velazquez, was especially vigilant in her efforts. 
In the Senate, my friend and colleague from Massachusetts, John Kerry, 
has kept the committee focused on resolving this issue for the past 
year. We have all fought hard to resolve the credit subsidy rate 
controversy for the past year. We have all fought hard to resolve the 
credit subsidy rate controversy for FY 2003.
  Resolving the 7(a) credit subsidy rate issue is good for small 
businesses, is good for those seeking work and is good for America. It 
will mean more jobs, more opportunity and economic fuel for start-up 
companies. It will also be invaluable in growing small businesses. I 
urge each of my colleagues to vote a resounding ``aye'' for this 
important bill.
  Mr. FRIST. Mr. President, I ask unanimous consent that the bill be 
read a third time and passed, the motion to reconsider be laid upon the 
table, and that any statements regarding this matter be printed in the 
Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The bill (S. 141) was read a third time and passed, as follows:

                                 S. 141

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SUBSIDY RATE FOR SMALL BUSINESS LOANS.

       Notwithstanding section 502(5)(F) of the Federal Credit 
     Reform Act of 1990 and section 254(j) of the Balanced Budget 
     and Emergency Deficit Control Act of 1985, the Director of 
     the Office of Management and Budget, in calculating the 
     Federal cost for guaranteeing loans during fiscal year 2003 
     under section 7(a) of the Small Business Act (15 U.S.C. 
     636(a)), may use the most recently approved subsidy cost 
     model and methodology in conjunction with the program and 
     economic assumptions, and historical data which were included 
     in the fiscal year 2003 budget. After written notification to 
     Congress, the Small Business Administration shall implement 
     the validated, OMB-approved subsidy rate for fiscal year 
     2003, using this model and methodology. Such rate shall be 
     deemed to have been effective on October 1, 2002.

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