[Congressional Record (Bound Edition), Volume 149 (2003), Part 2]
[House]
[Pages 2727-2735]
[From the U.S. 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

[[Page 2728]]

     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.
  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

[[Page 2729]]

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, 
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

[[Page 2730]]

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 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.]

[[Page 2731]]




     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.
  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

[[Page 2732]]

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 positive proof 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.
  Ms. VELAZQUEZ. Mr. Speaker, I yield 3 minutes to the gentleman from 
Texas (Mr. Hinojosa).
  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

[[Page 2733]]

$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 
Nydia 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. 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.
  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

[[Page 2734]]

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.
  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

[[Page 2735]]

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.

                          ____________________