[Congressional Record Volume 149, Number 25 (Tuesday, February 11, 2003)]
[House]
[Pages H354-H361]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
IMPROVING CALCULATION OF FEDERAL SUBSIDY RATE
Mr. NUSSLE. Mr. Speaker, I move to suspend the rules and pass the
Senate bill (S. 141) to improve the calculation of the Federal subsidy
rate with respect to certain small business loans, and for other
purposes.
The Clerk read 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.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Iowa (Mr. Nussle) and the gentleman from South Carolina (Mr. Spratt)
each will control 20 minutes.
The Chair recognizes the gentleman from Iowa (Mr. Nussle).
general leave
Mr. NUSSLE. Mr. Speaker, I ask unanimous consent that all Members may
have 5 legislative days within which to revise and extend their remarks
on S. 141.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Iowa?
There was no objection.
Mr. NUSSLE. Mr. Speaker, I yield myself as much time as I may
consume.
Mr. Speaker, 2 years ago, the gentleman from Illinois (Mr. Manzullo),
the very distinguished Committee on Small Business chairman, my
neighbor and friend, brought to me a problem of the government
overestimating SBA loan defaults and thereby excessively limiting the
total number of small business loans made to small businesses in this
country, brought that to my attention.
This was happening because OMB and SBA, the Office of Management and
Budget and Small Business Administration, were insisting on using old
data predating recent SBA loan reforms. We have been working together
with the gentleman from Illinois (Mr. Manzullo) to resolve this problem
ever since.
Over a year ago, language was included in the fiscal year 2002
Treasury appropriations conference report requiring OMB and SBA to
report to us on how and when the problem was going to be fixed. That
report indicated that the problem would be addressed in the 2003 budget
with the development of new economic models, which it was not.
Last year, the SBA subsidy rate problem was not fixed. The gentleman
from Illinois (Mr. Manzullo) and I wrote to OMB Director Daniels
requesting that the 2003 calculation be reviewed and that the subsidy
rate be resubmitted to reflect a more accurate projection of the
anticipated costs. Again, they were not.
Now, with the subsidy rate still not fixed, we offer this legislation
as the solution, together with our colleagues in the other body. It
will require that a new, better econometric model already developed by
SBA and approved by OMB be implemented for the current fiscal year 2003
for calculating the 7(a) subsidy rate. This effectively requires OMB to
follow through with their promise on a new model once and for all.
This model should now provide a more accurate estimate of defaults in
the past, present, and future loan portfolio performance to better
estimate the true cost to the government of guaranteeing these
important loans to our small business community. This is a detriment
because the Credit Reform Act of 1990 requires any and all losses from
expected borrower defaults to be covered by the government in advance
with an up-front appropriation. Therefore, a lower default rate means
that the same amount of money goes out a lot further and covers many
more loans due to the multiplier effect.
I am sure there are many small business people in our districts that
have been contacting us about this. For me, I have a small business
friend of mine, Bill Werger from Manchester, Iowa, who helped highlight
this issue for me as he continues to struggle to open small businesses
and provide economic development to a small town in Iowa.
I believe that if this is done correctly, the gentleman from Illinois
(Mr. Manzullo) and I expect that this result will be in the billions of
dollars of additional loans being made to the small businesses of this
country. This is critical because this program will help many of those
small businesses during this economic recovery with cautious lenders
still limiting access to capital to very willing borrowers.
The SBA 7(a) program attacks this problem by guaranteeing these
borrowers between 50 and 85 percent of the loans, as high as $2
million, for virtually every business purpose.
Equally important to me as the chairman of the Committee on the
Budget, however, this bill will not do this without directing the
budgetary scoring of this correction; or in other words, it will
require the problem be fixed by correcting the process and not by
predetermining the outcome illegitimately. It does this by allowing the
use of the most recently approved subsidy cost model and methodology
but with the program and economic assumptions and the historical data
which we included in the President's original fiscal year 2003 budget
submission.
In other words, the Manzullo-Nussle-Snowe bill that we have before us
today fixes the small business subsidy rate problem, thereby greatly
increasing the number of loans to small businessmen and small
businesswomen without compromising the process that OMB calculates the
real cost to the Federal Government of providing these subsidies.
Mr. Speaker, in closing, let me thank the very distinguished chairman
of the Committee on Small Business. He has been tenacious in bringing
this issue to the forefront, not only of my committee, the Committee on
the Budget, but also to the attention of the Congress. He is a real
champion of small business, and he is somebody that I am honored to
have worked with very hard on this process. So I want to commend him on
the bill that we have before us.
Mr. Speaker, I reserve the balance of my time.
Mr. SPRATT. Mr. Speaker, I yield myself such time as I may consume.
[[Page H355]]
I congratulate the chairman of the Committee on Small Business; the
gentlewoman from New York (Ms. Velazquez), the ranking member; and my
colleague, the gentleman from Iowa (Mr. Nussle), for facilitating the
legislation before us. This is not only good, but necessary,
legislation. I am glad to see us move it.
S. 141, this bill before us, would allow the Office of Management and
Budget, OMB, to change its 2003 technical assumptions regarding the SBA
general business program. Without this change, everybody should
understand this, SBA will have to reduce the 2003 loan volume supported
by this program by about 50 percent, 50 percent below the 2002 level of
$9.3 billion.
{time} 1645
This legislation was referred to our committee, the Committee on the
Budget, because it required an exception to the usual strictures of the
Balanced Budget and Emergency Deficit Control Act that bind OMB to one
set of assumptions throughout a budget year. That is why it is
necessary for us to bring it to the floor. I guess we could call this
directed scorekeeping, but in this case it is justifiable scorekeeping.
OMB has had chronic problems with overestimating the credit subsidy
rate for general business loans, the so-called 7(a) program and related
programs. As a result, SBA has historically underestimated the volume
of loans that can be supported by a given level of appropriations.
Starting with the 2004 budget, this problem should be corrected because
OMB has developed a much more sophisticated and accurate model for
estimating the subsidy rates. For this fiscal year, 2003, however, the
President declined to request sufficient appropriations to maintain the
program level for general business loans, given this existing estimate
of the subsidy rate.
Consequently, SBA is now on the horns of a dilemma. It can either
reduce the maximum size of loans made to individuals or it can suspend
the program once it runs out of authority before the end of this fiscal
year. Neither of those is an attractive option, especially not now, in
the midst of a very, very slack economy. We are struggling to get back
on our feet and get people back to work. This legislation is
proemployment legislation because, with the adjustment we make by this
legislation, SBA will be able to support a 2003 loan volume of about
$8.2 billion, which is close to its historic standard of $9 to $10
billion.
I enthusiastically support this legislation and I urge everyone to
give it their support. It could create and should create additional
jobs. It will certainly iron out a problem for small business borrowers
and the SBA for the balance of this fiscal year, something we need to
do and should do, and it is good legislation to boot. I urge everyone
to support it.
Mr. Speaker, I yield the balance of my time to the gentlewoman from
New York (Ms. Velazquez), the distinguished ranking member of the
Committee on Small Business, and I ask unanimous consent that she be
given the ability to allocate that time.
The SPEAKER pro tempore (Mr. Whitfield). Is there objection to the
request of the gentleman from South Carolina?
There was no objection.
Mr. NUSSLE. Mr. Speaker, I yield myself such time as I may consume,
and I wish to thank the gentleman from South Carolina (Mr. Spratt) for
his bipartisan approach to this bill. It truly is a bipartisan bill.
Mr. Speaker, I yield the balance of my time to the gentleman from
Illinois (Mr. Manzullo), the very distinguished chairman of the
Committee on Small Business, and ask unanimous consent that he be
allowed to allocate the time accordingly.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Iowa?
There was no objection.
Mr. MANZULLO. Mr. Speaker, I yield myself such time as I may consume,
and I want to thank again the chairman of the committee, the gentleman
from Iowa (Mr. Nussle), for his leadership. And I also want to thank,
in particular, the gentlewoman from New York (Ms. Velazquez) for the
tremendous work that she has put into this. If there is any name to be
placed on this bill, her name should have a prominent place on it.
Mr. Speaker, small businesses are having a tough time obtaining
credit around the nation. The Small Business Administration's 7(a) and
504 loan guaranty programs are a vital source for nearly $13.5 billion
of new capital to small businesses every year. Over 48,000 small
businesses are served each year by these programs. In fact, the 7(a)
program alone provides 40 to 50 percent of all the long-term financing
that goes to small businesses, which have led to the creation of
thousands of small firms, contributing to job creation and economic
growth.
However, last October, the SBA cut back both the amount of loans made
and the maximum loan size under the 7(a) Loan Guaranty Program. This
hurts companies like Ryden Heavy Hauling of Woodstock, Illinois, which
is caught in a credit limbo while we try to fix this problem.
Initially, Ryden sought an SBA guaranteed loan of $1 million to
generate eight new full-time and part-time jobs and sustain the jobs of
the 16 employees already working at Ryden. However, Ryden has been
caught in a credit squeeze, and it could only apply for a loan of
$500,000, creating serious ramifications that impact their future
growth. We need to pass S.141 as one step in the process to lift the
SBA-imposed loan caps.
Mr. Speaker, I submit for the Record a letter I received from Ryden
Heavy Hauling in this regard.
Ryden Heavy Hauling Inc.
Woodstock, IL, February 7, 2003.
Congressman Don Manzullo,
181 North Virginia Ave.
Crystal Lake, IL.
Congressman Manzullo: Ryden Heavy Hauling provides
transportation services for persons or companion looking to
haul heavy equipment. Major customer segments include the
Construction, Utility and Manufacturing industry.
The mission of Ryden Heavy Hauling, Inc. is to be the most
reliable heavy hauling company servicing the midwest. Ryden
Heavy Hauling prides itself in hiring the best drivers,
competitive pricing and updating and maintaining equipment to
insure the highest level of safety for our customer's
equipment.
We strive to support the economy by expanding and creating
additional jobs to stimulate the business community.
We presently are applying for an SBA backed loan in the
amount of $500,000.00 dollars. Originally we asked for $1
Million but the cap for the SBA guarantee was dropped to
$500,000.00 dollars. This decision has created serious
ramifications that impact our future growth.
Our projected program will generate 8 new full-time and
part-time positions as well as retain the existing 16 jobs in
our work force.
Therefore it is in the interest of the business community
to reinstate the original limit of $2,000,000.00 so companies
like Ryden Heavy Hauling can survive.
Respectfully,
Leonard R. Ryden,
President.
Mr. Speaker, how did we get in this situation in the first place? In
December 2001, the President signed into law a provision to reduce fees
charged to borrowers in the 7(a) program, starting on October 1, 2002.
The 7(a) program has netted the government handsome profits every year,
taxing small businesses more than $1.4 billion over the last 10 years
beyond the cost of operating the program.
This is all because of an overly conservative credit subsidy
calculation model used by SBA and the Office of Management and Budget
that requires charging more fees than is necessary to cover potential
bad loans. This model simply averages the annual default rate going
back to 1986, even though Congress dramatically changed the 7(a) Loan
Guaranty Program in the 1990s that made the program more safe and
secure for the taxpayer. Yet current small business borrowers are now
penalized, in their ability to access one of the few remaining sources
of credit, for old mistakes in a program that have been changed.
This is the worst possible time for these actions. Small businesses
create over three-quarters of the new jobs in the U.S. S.141 begins to
correct the problem. The bill simply authorizes OMB to adopt a new
economic model for calculating the 7(a) program subsidy rate to take
effect this fiscal year, beginning October 1 of 2002. The General
Accounting Office has long advocated this approach. SBA has already
developed and OMB has approved an econometric model for the 7(a)
program in the 2004 budget cycle. OMB pledged to use this model for
2003.
Mr. Speaker, I submit for the Record, a letter dated November 14,
[[Page H356]]
2002 from OMB Director Daniels and addressed to me regarding this
subject matter.
executive Office of the President, Office of Management
and Budget,
Washington, DC, November 14, 2002.
Hon. Donald A. Manzullo,
Chairman, Committee on Small Business, U.S. House of
Representatives, Washington, DC.
Dear Mr. Chairman: Thank you for your letter of November
12, regarding the subsidy rate for small business loans.
As you know, the Administration is committed to improving
the Small Business Administration's (SBA) ability to more
accurately estimate the cost of subsidizing small business
loans. This will enable the agency to allocate its resources
more effectively, determine program risk more precisely, and
increase its ability to target loan programs to the most
deserving recipients.
In accordance with the commitment that the Administration
one year ago, the Office of Management and Budget has just
approved SBA's 7(a) econometric subsidy model to calculate
its fiscal year 2004 resource requirements. Further, in light
of the fact that this improved subsidy calculation procedure
is now available, the Administration would support
legislation that allows us to implement the econometric model
for fiscal year 2003 as well. Applying the econometric model
would produce a subsidy rate of 1.04 percent rather than 1.76
percent submitted in the FY 2003 budget.
Please let us know if you need any more information.
Sincerely,
Mitchell E. Daniels, Jr.,
Director.
The subsidy rate using an econometric model in 2003 dramatically
drops from 1.76 percent to 1.04 percent, a 41 percent reduction.
S. 141 allows SBA to guarantee $3.4 billion in new lending to the
small businesses. Congress must now act to increase access for small
business lending. To its credit, the administration was the first to
recognize the problem and begin to work on solutions within a few
months of taking office. Their willingness to retroactively use the
econometric model for 2003 in the 7(a) program is another example of
their openness to finally correct this festering problem.
However, OMB cannot change the assumption in the President's 2003
budget request on their own after its proposal has already been sent to
Congress. That is why we are here today for a legislative remedy.
The same cooperation should also extend to the 504 program. The
subsidy rate calculation error in the 504 is proportionately a bigger
problem than the 7(a). There is some question as to whether or not S.
141 would cover the Supplemental Terrorist Activity Relief loan
program, known as STAR. STAR loans have always been viewed by the SBA
as a subset within the 7(a) program.
Mr. Speaker, I include for the Record two SBA procedural notices and
a copy of the statutory language creating the STAR loan program.
SBA Procedural Notice
To: To All Employees.
Subject: Guidelines for Implementation of the Fee Reduction
on Loans to Small Business Adversely Affected by the
Terrorist Activities of September 11, 2001.
SBA Procedural Notice 5000-775 provided information
regarding the 7(a) program fee reduction authorized in the
Defense Appropriations Act of 2002 which was signed into law
on January 11, 2002. The purpose of this notice is to provide
more detailed guidance on the implementation of that fee
reduction. In order to distinguish loans made under the
Defense Appropriations Act from other 7(a) loans made during
the same period, loans with the fee reduction will be known
as ``Supplemental Terrorist Activity Relief'' (``STAR'')
loans.
1. background information on SBA's Annual Fee
Section 7(a)(23) of the Small Business Act authorizes SBA
to collect an annual fee on each outstanding SBA guaranteed
loan equal to 0.5 percent (50 basis points) of the guaranteed
share of the outstanding balance of the loan. The Defense
Appropriations Act authorized a reduction in that fee from
0.5 percent to 0.25 percent (25 basis points) for loans made
to small businesses adversely affected by the September 11th
attacks. This reduced fee will apply for the life of the
loan. Both the original and temporarily reduced fees are
subject to the provisions of Section 7(a)(23)(B) which states
that this fee is ``. . . payable by participating lender and
shall not be charged to the borrower.''
2. period of applicability
The reduction in the annual fee is effective for eligible
loans approved (funded) by SBA between January 11, 2002, and
January 10, 2003, or until the approximate $4.5 billion
program level provided for this initiative has been used up,
whichever occurs first.
Any 7(a) loan approved before January 11, 2002, will
continue to be subject to the 50 basis points fee, subject to
the following exception. If the lender finds that a borrower
that had its 7(a) loan approved prior to January 11, 2002,
was adversely affected by the terrorist actions, AND, if the
loan is fully undisbursed; the lender may cancel the approved
loan and submit a new application which will then meet the
criterion of having been approved after January 10, 2002. If
SBA approves the new loan, a new loan number must be issued.
3. definition of ``adversely affected'' small business
As indicated in the previous notice, for purposes of the
STAR program, the term ``adversely affected small business''
means a small business that suffered economic harm or
disruption of its business operations as a direct or indirect
result of the terrorist attacks perpetrated against the
United States on September 11, 2001. Some examples of
economic harm are: difficulty making loan payments on
existing debt; difficulty in paying employees or vendors;
difficulty in purchasing materials, supplies, or inventory;
difficulty in paying rents, mortgages, or other operating
expenses; and, difficulty in securing financing. As
previously noted, SBA does not intend that this list be
considered all-inclusive. The Agency anticipates that
there will be other circumstances that are appropriate for
use to illustrate that a business has suffered economic
harm or a disruption of its business operations. Agency
guidance should not be construed as limiting eligibility
to any particular geographic area or to any specific
type(s) of business. A loan to a start-up business may
qualify for the STAR program if, for example, the business
planned to commence operations earlier, but its ability to
do so was hampered by the terrorist actions and their
aftermath.
SBA believes that a high percentage of businesses finding
it necessary to seek SBA-guaranteed financing may be found to
have been adversely affected by the terrorist actions. In
order to qualify for the reduced fee, however, the lender
must: (1) find that the loan applicant was adversely affected
by the terrorist events of September 11, 2001; and, (2)
prepare and maintain in its loan file a write up summarizing
its analysis and its conclusion that the loan is eligible for
the STAR program. A lender will not be found to have met its
responsibility for determining that a borrower was adversely
affected if the lender statement merely states that
conclusion, but does not provide a narrative justification
demonstrating the basis for the conclusion.
4. Steps Required for Lender to Submit a STAR program Application
In order for a loan to qualify as a loan under STAR, the
SBA lender must:
(a) Determine that the applicant business was ``adversely
affected'' by the terrorist activity of September 11, 2001,
and must document the basis for this conclusion in its loan
file. This documentation must be available for review by SBA,
but need not be submitted to SBA.
(b) Indicate that the loan is being submitted under the
STAR program by writing ``STAR Loan'' at the top of the SBA
Form 4-I, ``Lender's Application for Guaranty or
Participation,'' or 4-L, ``Application for LowDoc Loan,'' as
applicable.
(c) Amend the loan authorization provision-regarding the
on-going fee to be paid to SBA on the loan to indicate that
the fee will be 0.25 percent per annum.
5. Collection of the Reduced Fee
Lenders will submit to Colson Services, Inc. (Colson), the
0.25 percent fee using the same SBA Form 1502 process as it
uses for other SBA loans. SBA will provide Colson with a list
of loans that are subject to the lower fee. As with all other
fee collections, Colson will work with a lender to make any
necessary corrections to the fee and reporting submissions.
6. PLP/SBAExpress/Community Express
The PLP center will provide additional direction to PLP
lenders regarding STAR program requirements.
7. Processing STAR Loan Requests
The SBA Loan Accounting Tracking System (LATS) has been
modified to provide a STAR program indicator to track STAR
loans. Data must be entered into this indicator field as
follows: (1) An ``S'' must be entered for any loan submitted
by the lender under the STAR program; and, (2) An ``N'' (for
``no'') must be entered for any non-STAR loan. This data
must be completed for each loan (including a 504 loan)
even if the loan is not STAR eligible.
When the STAR Indicator is filled in with an ``S'', it will
mean that:
(a) The lender has informed SBA that the loan is eligible
for the STAR program;
(b) The lender will be charged the reduced 0.25% annual
fee;
(c) The loan will be subject to the STAR program subsidy
rate; and
(d) The loan will be funded out of the separates STAR loan
fund.
There are four sets of circumstances that may occur in
connection with a loan that is potentially eligible for the
STAR program. The attachments to this Notice (described
below) provide instructions for SBA's data input under each
of these circumstances.
a. new loan application submitted by a lender after the effective date
of this notice
The Star program Indicator field shown on LAS001 must be
completed as part of the
[[Page H357]]
data input for all new loan applications. For any loan
designated by a lender as a STAR loan, the ``S'' designation
must be entered. For any non-STAR loan the ``N'' designation
must be entered. [Attachment A provides instructions for
processing a STAR-qualified loan submitted to SBA by a lender
after the effective date of this notice.]
b. re-classification of a Loan after Submission, but prior to sba
approval
If a loan was originally input as a non-STAR loan, but
prior to SBA's approval, the lender provides a written
request to SBA to reclassify the loan as a STAR loan, the SBA
processing office must use the LSA005 Screen to input an
``S'' in the STAR program indicator field. [Attachment B
provides instructions for re-classifying a loan as a STAR-
qualified loan after SBA's initial data input, but prior to
SBA approval.]
c. re-classifying a loan as a star loan after approval but before
disbursement
For any loan approved by SBA on or after January 11, 2002,
that was not initially classified as a STAR loan; if,
subsequent to SBA approval and prior to any disbursement, the
lander provides a written request to SBA to reclassify the
loan as a STAR loan, the SBA field office servicing the loan
must:
1. Verify that the loan is fully undisbursed;
2. Prepare a SBA Form 327 action to support cancellation of
the regular 7(a) funded loan and re-instatement of the loan
as a STAR loan;
3. Cancel the existing loan, thus returning the regular
7(a) funds to the regular 7(a) program account; and,
4. Wait at least one business day after completing step 3
and reinstate the loan and enter an ``S'' in the STAR
Indicator on LAB00 screen.
[Attachment C provides instructions for re-classifying a
fully undisbursed loan as STAR-qualified after approval by
SBA.]
d. re-classifying a loan as a STAR loan after full or partial
disbursement
If a loan was approved by SBA on or after January 11, 2002,
and is partially or fully disbursed when the lender makes a
written request that the loan be reclassified as a STAR loan,
two additional steps must be taken. First, SBA must reverse
the amount disbursed to show a loan balance of zero. Then,
after the proper classification is entered, SBA must re-enter
the amount disbursed to return the loan to its actual
condition. [Attachment D provides instructions for re-
classifying a partially or fully disbursed loan as a STAR
loan.]
9. post approval modifications
Any increases to an existing STAR loan or reclassifications
of a non-STAR to a STAR loan must be completed prior to
January 10, 2003, or before the use of all available funds,
whichever occurs first. After expiration of the STAR program
authority, any additional required funding will require a new
loan application processed under the regular 7(a) program.
For small increases, lenders may want to establish separate
side notes.
10. referrals from the disaster program
As you are aware, after the September 11th attacks, SBA
published regulations that expanded the availability of the
Agency's Economic Injury Disaster Loan (EIDL) program to
small businesses which have suffered substantial economic
injury as a direct result of the terrorists attacks and
certain related Federal action. See 66 Federal Register 53329
(October 22, 2001). Despite this program expansion, however,
there may be some circumstances where a small business that
is found ineligible for an EIDL loan may be found to qualify
for a STAR loan. Therefore, when appropriate, the Office of
Disaster Assistance (ODA) will advise a business that it may
qualify for other SBA assistance, and may refer such business
to the appropriate SBA field offices. Field staff should be
prepared to discuss SBA's loan programs, including STAR, with
the businesses, and should also make referrals for assistance
to one of the Agency's management and technical assistance
partners, when appropriate.
11. questions
Lenders should contact their loan SBA field office for more
information regarding the STAR program. Field staff with
questions on how to input data to classify a loan as a STAR
loan should contact David Kimble at (202) 205-6299. SBA staff
with questions on any other issues related to STAR should
contact A. B. McConnell, Jr. at (202) 205-7238.
Jane Palsgrove Butler,
Associate Administrator
for Financial Assistance.
____
SBA Procedural Notice
To: All SBA Employees.
Subject: Reduced Fee for New 7(a) Loans Made to Businesses
Adversely Affected by September 11th Terrorist Attacks.
The Defense Appropriations Act, signed by President Bush on
January 10, 2002, reduces the ongoing fee charged to the
lender on new 7(a) loans made to small businesses that were
``adversely affected'' by the September 11, 2001, terrorist
attacks and their aftermath. The legislation makes no other
changes to 7(a) program fees, or to the 504 loan program.
Under the new law, the on-going fee for eligible 7(a) loans
is reduced from 0.5 percent (50 basis points) of the
outstanding balance of the guaranteed portion of the loan to
0.25 percent (25 basis points). This fee reduction is
effective for the full term of eligible loans approved by SBA
during the 1 year period beginning January 11, 2002 and
ending January 10, 2003, or until the funds available for
this purpose are expended, whichever occurs first.
SBA has received an appropriation that will allow the
Agency to fund up to approximately $4.5 billion in eligible
loans. Since the fee income received by SBA on loans made
under this provision will be different from that received on
regular 7(a) loans, these loans will have a different subsidy
rate and will be tracked separately for subsidy rate
purposes.
Eligibility
For purposes of implementation of this legislative
provision, the term ``adversely affected small business''
means a small business that has suffered economic harm or
disruption of its business operations as a direct or indirect
result of the terrorist attacks perpetrated against the
United States on September 11, 2001. Some examples of
economic harm are: difficulty in making loan payments on
existing debt; difficulty in paying employees or vendors;
difficulty in purchasing materials, supplies, or inventory;
difficulty in paying rents, mortgages, or other operating
expenses; and, difficulty in securing financing. SBA does not
intend that this list be considered all-inclusive. The Agency
anticipates that other circumstances can illustrate that a
business has suffered economic harm or a disruption of its
business operations.
Special Requirements
Each lender making a reduced fee 7(a) loan under the
provisions of the new law is responsible for determining that
the loan is being made to a small business that was adversely
affected by the terrorist attacks of September 11, 2001. For
each such loan, the lender must prepare, place, and keep in
its loan file, a short written statement documenting the
basis for its conclusion that the loan is eligible for
inclusion under this provision.
All other existing SBA 7(a) loan requirements, including
credit requirements, apply to loans made under the provisions
of the new law.
Loans made under this statutory provision must be
identified with a special code that will alert SBA and the
SBA Fiscal and Transfer Agent (Colson Services Corp.) to
calculate the appropriate on-going fee.
A follow-up Procedural Notice will be issued shortly with
additional guidance for implementation of these special
requirements.
additional information
Field offices should provide this notice to all
participating lenders immediately.
Lenders and other interested parties should contact their
local SBA field offices for more information. SBA field staff
should contact James Hammersley, Director, Loan Programs
Division, at (202) 205-7505.
Jeanna M. Sclater,
Acting Associate Deputy
Administrator for Capital Access
____
P.L. 107-117--Division B, Section 203
Sec. 203. Notwithstanding any other provision of law, the
limitation on the total amount of loans under section 7(b) of
the Small Business Act (15 U.S.C. 636(b)) outstanding and
committed to a borrower in the disaster areas declared in
response to the September 11, 2001, terrorist attacks shall
be increased to $10,000,000 and the Administrator shall, in
lieu of the fee collected under section 7(a)(23)(A) of the
Small Business Act (15 U.S.C. 636(a)(23)(A)), collect an
annual fee of 0.25 percent of the outstanding balance of
deferred participation loans made under section 7(a) to small
businesses adversely affected by the September 11, 2001,
terrorist attacks and their aftermath, for a period of 1 year
following the date of enactment and to the extent the costs
of such reduced fees are offset by appropriations provided by
this Act.
These documents make it clear that STAR loans have been made under
the umbrella of the SBA 7(a) loan program. The only reasonable
interpretation is that S. 141 apply its econometric model to STAR loans
made since October 1, 2002. This would also provide an additional $1.1
billion in guaranteed lending to small businesses.
Mr. Speaker, I am pleased that the Committee on Small Business,
working in close partnership with the chairman of the House Committee
on the Budget, which has legislative jurisdiction over the issues of
the Credit Reform Act, was able to bring S. 141 up on the floor in such
an expeditious manner.
I want to particularly thank the staffs of both committees for
working together to bring the bill to the floor. I also want to commend
my Senate counterparts, Senators Snowe and Kerry, and particularly the
former chairman of the Senate Small Business Committee, Senator Kit
Bond of Missouri, for all their hard work on the matter. We would not
be here today without these diligent bipartisan efforts.
Mr. Speaker, I urge my colleagues to vote ``yes'' on sending S. 141
to the President's desk for signature.
Mr. Speaker, I reserve the balance of my time.
[[Page H358]]
Ms. VELAZQUEZ. Mr. Speaker, I yield myself such time as I may
consume.
I rise in strong support of S. 141. This legislation is long overdue.
Today, more than ever, small businesses struggle to find avenues of
capital. This is only reinforced by the fact that in our day and age,
the number one rate for entrepreneurs to finance their great idea is
through credit cards. Oftentimes, these carry prohibitively high
interest rates, weighing small businesses down with insurmountable debt
even before they get off the ground.
Filling this financing vacuum are the SBA loan programs. Through
public-private partnerships that share the lending risk, small
businesses are able to tap into capital that is both affordable and
accessible. In these programs last year, $20 billion in capital,
accounting for 40 percent of all long-term small business lending, was
provided to this Nation's entrepreneurs.
Unfortunately, at a time when we need these programs the most, they
are blocked from fulfilling their true potential because of policies
that place the Federal Treasury's bottom line above this Nation's small
business bottom line. Over the last decades, both lenders and small
businesses receiving SBA loans have been overcharged by a whopping $1.5
billion. This is nothing more than a tax on small business that should
have been put to rest long ago.
S. 141 will help to change this inequity by requiring the
administration to more accurately report the cost of these programs to
taxpayers. The move will begin to turn the tide of this unfair tax, and
coupled with the pending fiscal year 2003 omnibus appropriations bill,
entrepreneurs will finally have the access to capital they need.
I urge my colleagues to join me in calling on the President to follow
through on our actions today and put capital where it belongs, in the
hands of small business owners.
Mr. Speaker, for almost 6 months now, this administration has limited
access to capital for the small business sectors by placing a cap of
$500,000 on SBA loans. This move is tantamount to credit rationing.
Because of these actions, entrepreneurs have been blocked from
accessing billions of dollars. These funds could have been used to
create economic growth and jobs, two important components to aid us in
our climb out of the current economic doldrums.
With the passage of this measure, the SBA and the administration will
no longer have an excuse to withhold these funds from small businesses,
and they must lift this cap.
While this legislation offers some remedy, it is only a very minor
move in terms of what truly needs to happen to give the small business
community the fairness it deserves. With this bill's implementation we
will see the first significant reduction in the subsidy rate governing
the program. But even with the passage of S. 141, small businesses and
lenders are still paying too much, and that must change.
Even more importantly, this legislation does nothing to address the
most egregious practice of taxing small business, the overcharging of
those entrepreneurs who use the 504 loan program.
The average small business owner today, receiving a 504 loan, can
expect to pay an additional $15,000. That is the difference between
hiring a part-time employee and a full-time employee, providing health
care benefits or purchasing new equipment that will add jobs. This is
shameful. But the fact that the administration is aware of this and
their current budget refuses to fix it is without conscience. I am not
going to stand for this. Small business owners are not going to stand
for it either. And this body should not stand for it.
Mr. Speaker, S. 141 is the first step in helping Main Street America,
but there is still a lot of work to be done before small firms receive
fair and equal treatment. One of our mantras in the Committee on Small
Business is ``Access to capital is access to opportunity.'' With the
passage of this legislation, we will be a little closer to making it
possible for thousands of individuals to realize the American dream of
business ownership. I urge the adoption of this legislation
Mr. Speaker, I reserve the balance of my time.
{time} 1700
Mr. MANZULLO. Mr. Speaker, I reserve the balance of my time.
Ms. VELAZQUEZ. Mr. Speaker, I yield such time as he may consume to
the gentleman from New Jersey (Mr. Pascrell).
Mr. PASCRELL. Mr. Speaker, I would like to commend the gentleman from
Illinois (Mr. Manzullo), and working in concert with the ranking member
is proof positive that we can address the problems facing the Congress
in a bipartisan way. The gentleman has not just talked about it, he has
done it. It is nice to talk about these things, but we do not see it
too much around here.
I would also like to congratulate the gentleman from Iowa (Mr.
Nussle), and I want to associate myself with the remarks of the
chairman and the ranking member, but this goes beyond subsidy rates as
I perceive it. It is heartening to know that on this particular day we
can pause from debating which deficit-exploding tax cut for the wealthy
should be enacted and instead actually do something for the small
businessman instead of just talking about it.
After 2 years of economic malaise, we are now in the weakest level of
economic growth in 50 years. I think the gentleman from Illinois (Mr.
Manzullo) has pointed out, if we are ever going to make this change and
address it, now is the time to do it when there is an economic
downturn. People are working harder for less. Household income for the
bottom 95 percent of wage earners has fallen. Too many Americans are
searching long and hard for work, work they cannot find; and consumer
confidence is at its lowest point in a decade. Businesses throughout my
district, the Eighth Congressional District of New Jersey, are hurting.
If we truly want to propel ourselves from this downturn, we must
realize that small businesses are fundamental components to our
economic infrastructure. Entrepreneurs have been and will continue to
be the backbone of our great economy. It is absolutely critical that we
provide those entrepreneurs with some relief, not just pay them lip
service. So passage of S. 141 will be the first in what I hope will be
many steps in a bipartisan way to address the problems of small
businesses.
This bill expands the size of the Small Business Administration's
7(a) loan program as I see it. This program is the largest effort
within SBA to help smaller companies obtain loans from bank and other
conventional sources. Lending programs such as this are critical for
small business start-up. Access to capital is access to opportunity.
Unfortunately, according to a variety of sources, not least of which
is the GAO, current policies have resulted in overcharging the 7(a)
loan program's lenders and borrowers by $1.5 billion over the last 10
years. Who paid that?
This legislation is aimed at forcing the administration to use a
subsidy rate model that accurately reflects the cost of small business
and small business loan programs to the taxpayer. It aims to improve
the calculation of the Federal subsidy rate for small business lending.
It will provide a new cost calculation, as has been pointed out
graphically here, which is expected to reduce the subsidy rate from
1.76 percent to 1.04 percent, thereby expanding the program itself by
$4.9 billion to $8.2 billion, which will be available which is not
available now. That will happen just by changing that rate.
But there are other things that need to be done. As the ranking
member has pointed out, in the 504 lending program, this is critical.
This is small business taxation which is unnecessary. The failures of
this administration to adjust problems with the 504 program have left
small businesses paying $15,000 for each loan, and I think the average
loan is about $200,000. The gentleman from Illinois (Mr. Manzullo) and
the ranking member, the gentlewoman from New York (Ms. Velazquez), have
spoken about this time and time again. We cannot accept that. It is
unacceptable. That money could be used to expand the very program that
we are here trying to address today.
Mr. Speaker, I want to conclude with this. This will go into effect
October 1, 2002, so it will be retroactive to the very beginning of
this fiscal year. I commend the gentleman from Illinois (Mr. Manzullo)
and the ranking member for doing this very well.
[[Page H359]]
Ms. VELAZQUEZ. Mr. Speaker, I yield 3 minutes to the gentleman from
Texas (Mr. Hinojosa).
(Mr. HINOJOSA asked and was given permission to revise and extend his
remarks.)
Mr. HINOJOSA. Mr. Speaker, I commend the gentleman from Illinois (Mr.
Manzullo) and the gentlewoman from New York (Ms. Velazquez) for their
leadership in the Committee on Small Business. I rise today in strong
support of S. 141 as introduced by Senator Snowe and passed by the
Senate. Small businesses are the backbone of our economy, especially in
times of financial crisis, and this bill is important because it would
help to reduce the cost of small businesses throughout the United
States.
S. 141 would encourage the administration to use a 7(a) subsidy rate
model that would more accurately reflect the true cost of the small
business loan programs to the taxpayer. The current model has resulted
in overcharges of $1.5 billion over the last 10 years, according to the
GAO study. The measure authorizes the Office of Management and Budget
to adopt a new econometric model for calculating the program subsidy
rate. The change would enable the SBA to boost 7(a) lending authority
from $4.8 billion to $8.2 billion for fiscal year 2003 by significantly
reducing the 7(a) credit subsidy rate.
The bill's projected impact on small business lending should result
in near 21,000 more loans to small firms with a potential to support at
least 103,000 new jobs. Moreover, implementing the new econometric
model will not require any increase in Federal spending.
Mr. Speaker, S. 141 simply requires SBA to use the new econometric
model a year earlier than planned and thus enable small businesses to
benefit from the lower subsidy rate immediately. The new model will
reduce the cost to both the lender and the borrower. The change
combined with reprogramming of unused STAR funds will yield a 7(a)
program level of $9 million below the demand, but it is sufficient to
lift the current administration-imposed cap that has hurt small
businesses since October 2002.
Mr. Speaker, I wish to commend Chairman Manzullo and Ranking member
Nydic Velazquez for their leadership in the Small Business Committee!
I rise today in strong support of S. 141, as introduced by Senator
Snowe and passed by the Senate. Small businesses are the backbone of
our economy, especially in times of financial crisis, and this bill is
important because it would help to reduce the costs to small businesses
in the United States. S. 141 would encourage the Administration to use
a 7(a) subsidy rate model that would more accurately reflect the true
cost of the small business loan programs to the taxpayer. The current
model has resulted in overcharges of $1.5 billion over the last 10
years, according to a GAO Study.
The measure authorizes the Office of Management and Budget (OMB) to
adopt a new econometric model for calculating the program's subsidy
rate. The change would enable the SBA to boost 7(a) lending authority
from $4.8 billion to $8.2 billion for Fiscal Year 2003 by significantly
reducing the 7(a) credit subsidy rate.
The bill's projected impact on small business lending should result
in nearly 21,000 more loans to small firms--with the potential to
support at least 103,690 new jobs. Moreover, implementing the new
econometric model will not require any increase in federal spending.
Currently, the 7(a) Program is operating at a reduced capacity from
previous years, with the size of loans capped at $500,000. The
shortfall in lending authority leaves many small firms nowhere to go
for money to maintain or expand their operations in a slow economy.
Each year, 40,000 or more small business concerns that cannot obtain
comparable credit elsewhere turn to the 7(a) program for critically-
needed financing.
To combat this problem, the SBA contracted with the Office of Federal
Housing Enterprise Oversight (OFHEO) to construct an econometric model
that considers additional factors with the goal of representing a more
accurate cost. Developed by the SBA and the 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.
SBA has finished the review and plans for the implementation of the
new model in FY04. This delayed implementation would leave the current
model in place for FY03. The difference in the two models is
approximately 70 basis points, 1.07 v. 1.77, which is roughly a $1,000
difference annually per loan.
Each year, the Office and Management and Budget (OMB) calculates the
federal cost of guaranteeing small business loans administered by the
Small Business Administration.
Critics of the current method of calculating those costs argue that
it does not take into account historical data and recent statutory and
regulatory changes that have improved default rates and program
performance. Critics therefore contend that the current federal cost,
expressed in the form of a subsidy rate, is over-estimated, which, in
turn, limits the amount of loans that can be guaranteed. Again, a
recent General Accounting Office report supports this contention.
S. 141 simply requires SBA to use the new econometric model a year
earlier than planned and thus enables small businesses to benefit from
the lower subsidy rate immediately. The new model will reduce the cost
to both the lender and the borrower. The change, combined with
reprogramming of unused STAR Funds, will yield a 7(a) program level of
$9 billion below the demand, but it is sufficient to lift the current
Administration imposed cap that has hurt small businesses since October
of 2002.
For these reasons, I rise in strong support of passage S. 141 and
urge my colleagues to support it.
Ms. VELAZQUEZ. Mr. Speaker, I yield 2 minutes to the gentlewoman from
Ohio (Mrs. Jones), an alumna of the Committee on Small Business and the
newest member of the Committee on Ways and Means.
(Mrs. JONES of Ohio asked and was given permission to revise and
extend her remarks.)
Mrs. JONES of Ohio. Mr. Speaker, although no longer on the Committee
on Small Business, I am still here to fight on behalf of small
businesses, and I am pleased to join my colleagues today as we
celebrate this piece of legislation coming to the floor.
The passage of S. 141 is an important step that can be taken by
Members to help small businesses. Over the past 4 years when I served
on the Committee on Small Business, we worked hard to see that
legislation that would assist small businesses would get to the floor
and pass. It is wonderful that I will be able to say to my
constituents, yes, one more time we have done something for small
business. It is the first crucial step this body can take to provide
the necessary infusion of capital to small businesses and help them
retain and create jobs and provide a needed boost to our economy.
In my congressional district, there are a number of people who are
not counted in that number of unemployed because they have not been
seeking a job because there are no jobs available to them. This is a
wonderful step. The 7(a) program is very important, and it can make a
difference for a lot of our entrepreneurs.
While this is a first step in the right direction, it just begins to
address some of our concerns. Among those is the issue of opening up
the SBA 7(a) program to more credit unions. I have been working with
credit unions across this country trying to make that available to
them.
Mr. Speaker, I am glad to have the opportunity to come to the floor
and say to the chairman and ranking member, let us keep it up. I join
my colleagues in support of this resolution.
Mr. Speaker, I am pleased to see the House of Representatives
considering this legislation today. As we are too painfully aware, our
economy is in a state of disarray, and among the many consequences of
this is the struggle by many small businesses to stay in existence in
these uncertain times. Passage of S. 141 is one important step that can
be taken by Members of this body to help those small businesses that
contribute so much to our economy, our entrepreneurial spirit, and our
national well-being continue to thrive and grow.
Small business is in fact big business, accounting for over 75
percent of the jobs held in this country and an equally large
percentage of the gross national product. For small businesses to grow
and create jobs, infusions of capital are critical. Yet recent actions
by the Administration do little to increase the bottom line of
America's small business, with less than 3 percent of the President's
economic stimulus plan being targeted at small businesses. By focusing
on such narrow concerns as eliminating dividend taxes, the
Administration has left small businesses out of the equation for
stimulating the economy. (Pause) The Administration has left a creator
of 75 percent of the country's jobs out of the equation for stimulating
the economy . . . focusing instead on incentives for investing in the
stock market when incentives for investing in the job market are what
is needed for a much needed stimulus.
[[Page H360]]
S. 141 is the first crucial step this body can take to provide that
necessary infusion of capital to our small businesses, help small
businesses retain and create jobs, and provide a needed boost to our
economy. This bill will work to reverse the practice of taxing small
businesses through use of a subsidy rate model that will more
accurately reflect the cost of SBA loan programs, accelerate the use of
this new subsidy rate, and allow the SBA to lift imposed lending caps
to small businesses. Without this bill, small businesses will be left
with the burden of overpaying an average of $15,000 for some of the
loans they need to run and expand their businesses.
And while this bill is a major step in the right direction, it just
begins to address some of the concerns arising out of small business
loan programs provided by the SBA. Among those is the issue of opening
up the SBA 7(a) program to more credit unions, an action that the SBA
Administrator's discretionary authority allows, an action that would
give credit unions the same authority to offer SBA guaranteed loans
enjoyed by other federally insured lenders.
I am voicing my support for S. 141 because it will provide immediate
relief for entrepreneurs in search of capital to finance their
companies. And as these entrepreneurs are able to grow and thrive, so
too will our economy. Remember, small business is big business and
small business focuses on the ``market'' that matters--the job market.
I thank my colleagues for joining me in supporting S. 141.
Mr. MANZULLO. Mr. Speaker, I yield myself such time as I may consume.
In closing, let me say that we are going to miss the gentlewoman from
Ohio (Mrs. Jones) on the committee, and request a waiver from the
Democratic leadership that she be on the Committee on Ways and Means
and the Committee on Small Business at the same time.
Mr. Speaker, I yield back the balance of my time.
Ms. VELAZQUEZ. Mr. Speaker, I yield myself the balance of my time.
S. 141 is a good start. It is time to stop finger-pointing and get to
work. The administration needs to lift the loan cap and get this
critical capital where it is needed most, in the hands of small
businesses.
Mr. ISSA. Mr. Speaker, I rise today in support of S. 141, a bill
authorizing the Office of Management and Budget to adopt a new
econometric model for calculating the 7(a) Guaranteed Loan Program's
subsidy rate.
The subsidy rate for the 7(a) program has not accurately reflected
the actual performance of these loan portfolios since the passage of
the Credit Reform Act in 1990.
The continuous over statement of the subsidy rate resulted in the
Small Business Administration cutting back both the amount of loans and
the maximum loan size under its highly effective Section 7(a) loan
program. The SBA has reduced the maximum 7(a) loan size they can
guarantee from $1 million to $500,000. The 7(a) loan program is a vital
source for nearly $11 billion of new capital for small businesses every
year.
Passage of S. 141 and the adoption of the new econometric model will
enable the SBA to boost 7(a) lending authority from $4.8 billion to
$8.2 billion for Fiscal Year 2003. This model will reduce the 7(a)
credit subsidy rate, and should prevent any further economic damage
from cuts to the largest federal assistance program for small
businesses.
Mr. Speaker, as we look to small businesses to restore economic
growth, we must allow the Office of Management and Budget to modernize
its credit subsidy calculation model. I thank you for the opportunity
to speak and urge my colleagues to support this bill.
Ms. MILLENDER-McDONALD. Mr. Speaker, I rise this evening to offer my
support for S. 141, long overdue legislation that will require the
Office of Management of Budget to use a new subsidy rate model for the
Small Business Administration's 7(a) loan program. This new model will
more accurately reflect the true cost of this federal loan program to
American taxpayers.
As a Ranking Member of the House Committee on Small Business, this
issue is of vital importance to the hard-working entrepreneurs of my
district, the 37th District of California.
Over the past few years, the House Committee on Small Business has
held a number of hearings to address this issue, as small firms have
been levied excessive fees for participating in the 7(a) loan program.
Recent estimates tell us that as much as 1.5 billion dollars over the
past ten years has been returned to the Treasury of the United States
at the expense of hard-working small business owners.
While the SBA currently has an alternative model, they have delayed
its implementation until Fiscal Year 2004.
The passage of S. 141 will force the new model to be used
immediately, allowing SBA to lift a lending cap imposed on the 7(a)
program last year and provide small businesses long-awaited relief for
entrepreneurs in search of capital to finance and expand their
companies.
Small businesses are fundamental players in lifting the American
economy out of its current doldrums and without investment resources
this cannot and will not occur.
Passage of S. 141, will be the first step in correcting this wrong
and I urge all of my colleagues to vote for passage of this important
piece of legislation.
Ms. ROYBAL-ALLARD. Mr. Speaker, I rise in support of S. 141, a bill
to improve the calculation of the federal subsidy rate with respect to
small business loans of the Section 8(a) program.
As a member of the Commerce-Justice-State Subcommittee of the House
Appropriations Committee which has funding jurisdiction for the Small
Business Administration and its loan portfolio, I know that this is an
issue we have wrestled with from year to year. I am pleased to see that
we are finally acting affirmatively on behalf of small businesses.
Everyone recognizes that small businesses represent the engine of U.S.
economic growth.
The issue has to do with credit subsidies for small business loans.
Unfortunately, the Office of Management and Budget has refused to
modernize its credit subsidy calculation models. A recent General
Accounting Office study reported that OMB's models do not take into
account historical data and recent statutory and regulatory changes
that have improved default rates and program performance. As a result,
OMB over-estimates the current subsidy rate that, in turn, limits the
level of loans that can be guaranteed.
SBA loan programs are especially critical in California, and I was
contacted by a number of large banks in Los Angeles County about the
detrimental impact that these poor calculations would have meant to
small business start-up loans. The Section 7(a) program provides more
than 50% of the long-term credit that goes to small businesses in
California. Our costs are higher than many other states, so a 50% cut
in loan levels required by OMB's policies hit California and other
high-cost states disproportionately.
Last October, I was pleased to work with Rep. Darrell Issa and the
California Bankers Association in organizing a letter to Speaker
Hastert pointing out this problem and the severe impact it would have
on California's small businesses. Over 30 of my California colleagues,
both Democrats and Republicans, joined us in signing and sending the
letter to Speaker Hastert. I am pleased to see that Speaker Hastert has
responded to our concerns and the concerns of other states to place
this bill before the House today.
This legislation directs the Office of Management and Budget to
calculate the federal costs of guaranteeing small business loans. OMB
would be required to use the most recently approved subsidy cost model
and methodology in conjunction with the program, economic assumptions,
and historical data which were included in the president's FY 2003
budget request. More importantly, the Small Business Administration
would implement the new subsidy rate and deem it to have been in effect
since October 1.
The bill is intended to provide a new cost calculation methodology,
which is expected to reduce the subsidy rate from 1.76% to 1.04%,
thereby expanding the size of the program from $4.9 billion to $8.2
billion.
That is good news for small businesses in my congressional district,
in California, and across the Nation.
I urge my colleagues to support this important bill. This bill will
give a big lift to small businesses, and they, in turn, will help lift
our economy out of its current slump.
Mrs. CHRISTENSEN. Mr. Speaker, I rise today in support of S. 141 to
improve the calculation of Federal subsidy rate with respect to 7(a)
loans.
The 7(a) loan program is one of the two Small Business
Administration's primary lending programs and is a major source of
capital for our nation's small businesses. Lending through the SBA loan
programs currently represents 40-percent of all small business lending.
Last year, the SBA lent a record 20 billion dollars of which 12 billion
was in the 7(a) loan program.
While Congress fights to increase appropriations for the 7(a)
program, our efforts are frustrated by a miscalculated subsidy rate. It
is estimated that since 1995, 7(a) lenders and borrowers have over paid
by some $400 million plus dollars for using the program. This
overcharging is simply another name for small business tax. Passage of
S. 141 will be the first step in correcting the SBA lending problems
plaguing our nation's small businesses. This legislation would force
the Administration to use a subsidy rate model that accurately reflects
the cost of the small business loan programs to the taxpayer. The
change will provide immediate relief for entrepreneurs in search of
capital to finance and expand their companies.
[[Page H361]]
I urge the passage of S. 141.
Mr. DAVIS of Illinois. Mr. Speaker, I rise in support of S. 141 to
improve the calculation of the federal subsidy rate with respect to
certain small business loans.
Although, each year the Office of Management and Budget calculates
the federal cost of guaranteeing small business loans administered by
the Small Business Administration. Many analysts believed the current
method of calculating those costs does not take into account historical
data and recent statutory and regulatory changes that have improved
default rates and program performance. Therefore, they contend that the
current federal cost, expressed in the form of a subsidy rate, is over-
estimated, which, in turn, limits the amount of loans that can be
guaranteed.
The bill S. 141 would authorize the Director of the Office of
Management and Budget (OMB) to calculate the Federal cost for
guaranteeing small business loans under the Small Business Act during
FY 2003 and to use the most recently approved subsidy cost model and
methodology that would take into account economic assumptions and
historical data included in the FY 2003 budget. The bill is intended to
provide a new cost calculation methodology, which is expected to reduce
the subsidy rate from 1.76 percent to 1.04 percent, thereby expanding
the size of the program from $4.9 billion to $8.2 billion.
I urge my colleagues to support S. 141.
Ms. VELAZQUEZ. Mr. Speaker, I yield back the balance of my time.
The SPEAKER pro tempore (Mr. Whitfield). The question is on the
motion offered by the gentleman from Iowa (Mr. Nussle) that the House
suspend the rules and pass the Senate bill, S. 141.
The question was taken; and (two-thirds having voted in favor
thereof) the rules were suspended and the Senate bill was passed.
A motion to reconsider was laid on the table.
____________________