[House Report 105-849]
[From the U.S. Government Publishing Office]




                                                 Union Calendar No. 490

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105th Congress                                                   Report
2d Session               HOUSE OF REPRESENTATIVES               105-849
_______________________________________________________________________




 
                         SUMMARY OF ACTIVITIES

                               __________

                                A REPORT

                                 of the

                      COMMITTEE ON SMALL BUSINESS

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS






January 2, 1999.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                               --------

                    U.S. GOVERNMENT PRINTING OFFICE                    
69-006                     WASHINGTON : 1999




                      COMMITTEE ON SMALL BUSINESS

                     JIM TALENT, Missouri, Chairman

LARRY COMBEST, Texas                 NYDIA VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JOHN LaFALCE, New York
DONALD MANZULLO, Illinois            NORMAN SISISKY, Virginia
ROSCOE BARTLETT, Maryland            GLENN POSHARD, Illinois
LINDA SMITH, Washington              JESSE JACKSON, Jr., Illinois
FRANK LoBIONDO, New Jersey           JUANITA MILLENDER-McDONALD, 
SUE KELLY, New York                      California
MARK SOUDER, Indiana                 DANNY K. DAVIS, Illinois
STEVE CHABOT, Ohio                   ALLEN BOYD, Jr., Florida
JIM RYUN, Kansas                     CAROLYN McCARTHY, New York
VINCE SNOWBARGER, Kansas             BILL PASCRELL, Jr., New Jersey
MICHAEL PAPPAS, New York             RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania           DONNA CHRISTIAN-GREEN, Virgin 
DAVID McINTOSH, Indiana                  Islands
JO ANN EMERSON, Missouri             ROBERT BRADY, Pennsylvania
RICK HILL, Montana
JOHN E. SUNUNU, New Hampshire
JOSEPH R. PITTS, Pennsylvania

                   Harry J. Katrichis, Chief Counsel
                  Michael Day, Minority Staff Director



                         STANDING SUBCOMMITTEES

                              ----------                              

                      Subcommittee on Empowerment

                   MARK E. SOUDER, Indiana, Chairman

FRANK A. LoBIONDO, New Jersey        JESSE JACKSON, Jr., Illinois
STEVE CHABOT, Ohio                   JUANITA MILLENDER-McDONALD, 
PHIL ENGLISH, Pennsylvania               California
JO ANN EMERSON, Missouri             DANNY K. DAVIS, Illinois
JOSEPH R. PITTS, Pennsylvania        WILLIAM PASCRELL, Jr., New Jersey
                                     RUBEN HINOJOSA, Texas

                                 ------                                

           Subcommittee on Government Programs and Oversight

                  ROSCOE BARTLETT, Maryland, Chairman

DONALD MANZULLO, Illinois            GLENN POSHARD, Illinois
LINDA SMITH, Washington              ALLEN BOYD, Jr., Florida
RICK HILL, Montana                   CAROLYN McCARTHY, New York
JOHN E. SUNUNU, New Hampshire        DONNA CHRISTIAN-GREEN, Virgin 
                                         Islands

                                 ------                                

       Subcommittee on Regulatory Reform and Paperwork Reduction

                    SUE KELLY, New York, Chairwoman

LARRY COMBEST, Texas                 DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey        NORMAN SISISKY, Virginia
JIM RYUN, Kansas                     ALLEN BOYD, Florida
DAVID McINTOSH, Indiana
JO ANN EMERSON, Missouri

                                 ------                                

               Subcommittee on Tax, Finance, and Exports

                  DONALD MANZULLO, Illinois, Chairman

LINDA SMITH, Washington, Vice Chair  JUANITA MILLENDER-McDONALD, 
VINCE SNOWBARGER, Kansas                 California
MICHAEL PAPPAS, New Jersey           RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania           DONNA CHRISTIAN-GREEN, Virgin 
JOSEPH R. PITTS, Pennsylvania            Islands



                         LETTER OF TRANSMITTAL

                              ----------                              

                     U.S. House of Representatives,
                               Committee on Small Business,
                                   Washington, DC, January 2, 1999.
Hon. Jeff Trandahl,
Clerk, U.S. House of Representatives,
Washington, DC.
    Dear Mr. Trandahl: On behalf of the Committee on Small 
Business of the U.S. House of Representatives, I am pleased to 
transmit the attached Summary of Activities of the Committee on 
Small Business for the 105th Congress.
    This report is submitted in compliance with the 
requirements of Rule XI, clause 1(d), of the Rules of the House 
of Representatives with respect to the activities of the 
Committee, and in carrying out its duties as stated in the 
Rules of the House of Representatives.
    The purpose of this report is to provide a reference 
document for Members of the Committee, the Congress and the 
public which can serve as a research tool and historic 
reference outlining the Committee's legislative and oversight 
activities conducted pursuant to Rule X, clauses 1(o), 2(b)(1) 
and 3(g), of the Rules of the House of Representatives. This 
document is intended to serve as a general reference tool, and 
not as a substitute for the hearing records, reports and other 
Committee files.
            Sincerely,
                                         James M. Talent, Chairman.



                            C O N T E N T S

                              ----------                              
                                                                   Page
Chapter I--Introduction..........................................     1

    1.1 Historical Background....................................     1
    1.2 Extracts from the Rules of the House of Representatives..     2
    1.3 Number and Jurisdiction of Subcommittees.................     3
    1.4 Disposition of Legislation Referred to the Committee.....     4
Chapter II--The Small Business Administration....................     7
    2.1 SBA Programs in General..................................     7
    2.2 SBA Business Loans.......................................     7
    2.3 Disaster Assistance Loans................................     8
    2.4 Small Business Investment Companies......................     8
    2.5 The 8(a) Program.........................................     9
    2.6 Surety Bond Guarantees...................................     9
    2.7 Small Business Development Programs......................    10
    2.8 Small Business Innovation Research.......................    10
    2.9 Small Business Technology Transfer.......................    11
    2.10 Export Assistance.......................................    11
    2.11 Office of Advocacy......................................    12
Chapter III--Hearings and Meetings Held by the Committee on Small 
  Business and its Subcommittees, 105th Congress.................    15
    3.1 Full Committee...........................................    15
    3.2 Subcommittee on Empowerment..............................    16
    3.3 Subcommittee on Government Programs and Oversight........    16
    3.4 Subcommittee on Regulatory Reform and Paperwork Reduction    17
    3.5 Subcommittee on Tax, Finance, and Exports................    17
Chapter IV--Publications of the Committee on Small Business and 
  its Subcommittees, 105th Congress..............................    19
    4.1 Reports..................................................    19
    4.2 Hearings Records.........................................    19
Chapter V--Summary of Legislative Activities of the Committee on 
  Small Business, 105th Congress.................................    23
    5.1 H.R. 852, The Paperwork Elimination Act of 1997..........    23
    5.2 H.R. 2261, Reauthorization of the Small Business Act.....    27
    5.3 H.R. 3412, The Small Business Investment Companies 
        Technical Corrections Act of 1998........................    43
    5.4 H.R. 3853, The Drug-Free Workplace Act of 1998...........    45
    5.5 H.R. 4078, Women's Small Business Expansion Act of 1998..    47
Chapter VI--Summary of Other Legislative Activities of the 
  Committee on Small Business....................................    49
    6.1 Committee Meetings.......................................    49
        6.1.1 Organizational Meetings............................    49
    6.2 Budget Views and Estimates...............................    51
        6.2.1 Fiscal Year 1998 Budget............................    51
        6.2.2 Fiscal Year 1999 Budget............................    51
Chapter VII--Summary of Oversight, Investigations, and Other 
  Activities of the Committee on Small Business..................    53
    7.1 Summary of Committee Oversight Plan and Implementation...    53
    7.2 Summaries of the Hearings held by the Committee on Small 
        Business.................................................    53
        7.2.1 Small Business Administration's Budget Request For 
            FY 1998..............................................    53
        7.2.2 Empowering Our Nation's Low Income Communities.....    54
        7.2.3 Tax Burdens Facing Small Businesses, Field hearing 
            St. Peters, MO.......................................    56
        7.2.4 Proposed Rewrite of Part 15 of The Federal 
            Acquisition Regulations..............................    57
        7.2.5 Relieving The Tax Burden On Our Small Family and 
            Home-Based Businesses................................    59
        7.2.6 Small Business Regulatory Enforcement Act (SBREFA).    60
        7.2.7 OSHA's Safety and Health Program Standard..........    62
        7.2.8 7(a) and 504 Subsidy Rates.........................    63
        7.2.9 Reauthorization of the Small Business 
            Administration's Financial Programs..................    65
        7.2.10 Fairness in Regulatory Enforcement, Field 
            Hearing--Kansas City, MO.............................    67
        7.2.11 OSHA's Proposed Revision on Occupational Injury 
            and Illness Recording and Reporting Requirements.....    68
        7.2.12 The Effectiveness of 7(a) and 504 Programs........    70
        7.2.13 SBA Implementation of the Government Performance 
            and Results Act......................................    71
        7.2.14 The SAFE Act: How Third Party Consultations Have 
            Worked Where OSHA Has Failed.........................    73
        7.2.15 Federal Agency Compliance With Section 610 Of The 
            Regulatory Flexibility Act...........................    75
        7.2.16 Reducing America's Small Business Tax Burden......    76
        7.2.17 Small Business Administration's Fiscal Year 1999 
            Budget Submission....................................    78
        7.2.18 H.R. 3412, A bill to amend and make technical 
            corrections in title III of the Small Business 
            Investment Act.......................................    80
        7.2.19 Small Business Administration's Fiscal Year 1999 
            Budget Submission Regarding The Proposed Increase In 
            Disaster Loan Interest Rates.........................    81
        7.2.20 The Expected Impact on Small Businesses and 
            Farmers of the Kyoto Treaty on Global Climate Change, 
            Malden, MO...........................................    83
        7.2.21 H.R. 3865, The American Community Renewal Act 
            (ACRA)...............................................    85
        7.2.22 Oversight Hearing on the Kyoto Protocol: The 
            Undermining of American Prosperity...................    87
        7.2.23 Y2K, The Year 2000 Computer Problem...............    88
        7.2.24 Kyoto II..........................................    90
        7.2.25 Project Labor Agreements..........................    91
        7.2.26 Revitalizing America's Economically Distressed 
            Communities..........................................    93
        7.2.27 H.R. 3659, The Farm and Ranch Risk Management Act.    95
    7.3 Summaries of the Hearings held by the Subcommittee on 
        Empowerment..............................................    96
        7.3.1 Urban Empowerment..................................    96
        7.3.2 Rural Empowerment..................................    97
        7.3.3 Impact of Tax Proposals............................    99
        7.3.4 From Dependency To Self-Sufficiency, Lancaster, PA.   100
        7.3.5 Urban Problems and Community Self-Renewal, Ft. 
            Wayne, IN............................................   101
        7.3.6 Federal Tax Policy and Federal Programs Impacting 
            Small Business Owners, Meadville, PA.................   102
        7.3.7 H.R. 3241, The Charitable Giving Partnership Act...   103
        7.3.8 Promising Efforts Taking Place In Urban Education..   104
        7.3.9 How to Best Obtain a Drug-Free Workplace...........   105
        7.3.10 Empowerment Education.............................   107
        7.3.11 Programs Empowering Businesses and Communities in 
            Southern New Jersey, Mays Landing, NJ................   108
        7.3.12 Teen Pregnancy....................................   110
    7.4 Summaries of the Hearings held by the Subcommittee on 
        Government Programs and Oversight........................   112
        7.4.1 Joint Oversight Hearing--Federal Agency Compliance 
            With The Regulatory Flexibility Act: Are Federal 
            Agencies Using ``Good Science'' In Their Rulemaking?.   112
        7.4.3 How Patent Term & Patent Application Disclosure 
            Issues Effect Small Businesses.......................   114
        7.4.4 Small Business Technology Transfer Pilot Program...   115
        7.4.5 The Impact of SBA and Other Federal Programs to 
            Create Jobs and To Stimulate Economic Growth, 
            Cumberland, MD.......................................   117
        7.4.6 Joint hearing with the Subcommittee on Regulatory 
            Reform and Paperwork Reduction on H.R. 96, the Small 
            Business Regulatory Assistance Act of 1997...........   118
        7.4.7 Focus on Women Business Enterprise.................   121
        7.4.8 Making the Federal Government User Friendly, 
            Frederick, MD........................................   123
        7.4.9 Joint hearing with the Subcommittee on Regulatory 
            Reform and Paperwork Reduction on Unequal Regulatory 
            Burden Borne By Small Businesses: The Small Business 
            Regulatory Enforcement Act Of 1996 (SBREFA) And The 
            Panel Process As A Forum For Preventing Needless 
            Regulation Of Small Entities.........................   124
        7.4.10 Small Business Innovation Program Research 
            Oversight............................................   126
        7.4.11 Joint Hearing with the Subcommittee on Benefits of 
            the House Veteran's Affairs Committee with respect to 
            the SBA Programs to Assist Veteran's Businesses......   127
        7.4.12 HUBZone Program...................................   128
        7.4.13 SBA Proposed New Automated Loan Monitoring System.   129
        7.4.14 Secondary Market for Guaranteed Portions of 7(a) 
            Loans................................................   130
    7.5 Summaries of the Hearings held by the Subcommittee on 
        Regulatory Reform and Paperwork Reduction................   131
        7.5.1 Joint Oversight Hearing--Federal Agency Compliance 
            With The Regulatory Flexibility Act: Are Federal 
            Agencies Using ``Good Science'' In Their Rulemaking?.   131
        7.5.3 Congressional Review Act and Its Impact on Small 
            Business.............................................   133
        7.5.4 The Impact of Federal Regulations on Small Business 
            in the Hudson Valley, Mt. Kisco, NY..................   135
        7.5.5 Joint hearing with the Subcommittee on Government 
            Programs and Oversight on H.R. 96, The Small Business 
            Regulatory Assistance Act of 1997....................   138
        7.5.6 The Impact of Federal Regulations on Small 
            Businesses in Montana, Missoula, MT..................   140
        7.5.7 The First Report To Congress By The Small Business 
            and Agriculture Regulatory Enforcement Ombudsman.....   143
        7.5.8 Joint hearing with the Subcommittee on Regulatory 
            Reform and Paperwork Reduction on Unequal Regulatory 
            Burden Borne By Small Businesses: The Small Business 
            Regulatory Enforcement Act Of 1996 (SBREFA) And The 
            Panel Process As A Forum For Preventing Needless 
            Regulation Of Small Entities.........................   147
        7.5.9 Restructuring the Electric Utility Industry and the 
            Impact on Small Business.............................   148
    7.6 Summaries of the Hearings held by the Subcommittee on 
        Tax, Finance, and Exports................................   152
        7.6.1 Why Exports Matter.................................   152
        7.6.2 Does OPIC Help Small Business Exporters?...........   153
        7.6.3 The Impact of Estate Taxes on Small and Family-
            Owned Businesses.....................................   155
        7.6.4 Does Ex-Im Help Small Business Exporters?..........   156
        7.6.5 The First Step: Death Tax Reform...................   158
        7.6.6 IRS Accountability to Small Business and Self-
            Employed Taxpayers, Vancouver, WA....................   159
        7.6.7 Reducing the Tax Burden on Small Business Owners, 
            Topeka, KS...........................................   161
        7.6.8 Export Resources for Small Businesses, Overland 
            Park, KS.............................................   163
        7.6.9 Effect of the Estate Tax on Central New Jersey 
            Farms and Small Businesses, Blawenburg, NJ...........   165
        7.6.10 Pension Reform for Small Business.................   166




105th Congress                                                   Report
  2d Session            HOUSE OF REPRESENTATIVES                105-849

=======================================================================



                         SUMMARY OF ACTIVITIES

                            ______________


 January 2, 1999.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed


Mr. Talent of Missouri, from the Committee on Small Business, submitted 
                             the following

                              R E P O R T

                         SUMMARY OF ACTIVITIES

                              CHAPTER ONE

                              INTRODUCTION

    This is the twelfth summary report of the standing 
Committee on Small Business. The action by the House of 
Representatives in adopting House Resolution 988 on October 8, 
1974, providing that the Committee be established as a standing 
committee, and upgrading the Permanent Select Committee on 
Small Business by giving the Committee legislative jurisdiction 
over small business matters in addition to the oversight 
jurisdiction it had historically exercised.
    The adoption of the House Rules in the 94th through the 
104th Congresses confirmed this action and continued the 
process begun on August 12, 1941, when, by virtue of House 
Resolution 294 (77th Congress, 1st session), the Select 
Committee on Small Business was created. In January 1971, the 
House designated the Select Committee as a Permanent Select 
Committee; and, on October 8, 1974, the 93rd Congress, 
recognizing the importance of the work performed on behalf of 
this nation's small businesses, provided that the Committee 
should thereafter be established as a standing committee.

1.1  Historical Background

    The history of the Select Committee on Small Business from 
its inception in 1941 during the 77th Congress through 1972, 
the end of the 92nd Congress, may be found in House Document 
93-197 (93rd Congress, 2nd session), entitled ``A History and 
Accomplishments of the Permanent Select Committee on Small 
Business.''
    The Committee is bipartisan recognition that the nation's 
small business people represent a major segment of our business 
population and our nation's economic strength. This Committee, 
continuing its vital oversight responsibilities, serves as the 
advocate and voice for small business as well as the focal 
point for small business legislation.
    In recognition of the importance of the Committee, the 
House of Representatives has established the Committee's 
membership at 35 Members. The following Members were named to 
constitute the Committee in the 105th Congress:
    Republicans included:
        Jim Talent (MO), Chairman; Larry Combest (TX); Joel 
        Hefley (CO); Donald Manzullo (IL); Roscoe Bartlett 
        (MD); Linda Smith (WA); Frank LoBiondo (NJ); Sue Kelly 
        (NY); Walter B. Jones (NC) (resigned April 15, 1997); 
        Mark Souder (IN); Steve Chabot (OH); Jim Ryun (KS); 
        Vince Snowbarger (KS); Michael Pappas (NY); Phil 
        English (PA); David McIntosh (IN); Jo Ann Emerson (MO); 
        Rick Hill (MT); John E. Sununu (NH); and, Joseph R. 
        Pitts, (PA) (named July 23, 1997).
    Democrats included:
        Nydia Velazquez (NY) (named Ranking Minority Member 
        February 28, 1998); John LaFalce (NY); Ike Skelton (MO) 
        (resigned March 11, 1997); Norman Sisisky (VA); Floyd 
        Flake (NY) (resigned November 15, 1997); Glenn Poshard 
        (IL); William P. Luther (MN) (resigned March 21, 1997); 
        John Baldacci (resigned March 27, 1998); Jesse Jackson, 
        Jr. (IL); Juanita Millender-McDonald (CA); Robert 
        Weygand (RI) (resigned July 31, 1997); Danny K. Davis 
        (IL); Allen Boyd, Jr. (FL); Carolyn McCarthy (NY); Bill 
        Pascrell, Jr. (NJ); Virgil Goode, Jr. (VA) (resigned 
        June 24, 1998); Ruben Hinojosa (TX) (named on May 14, 
        1997); Marion Berry (AR) (named on May 14, 
        1997)(resigned in May, 1998); Donna Christian-Green 
        (VI) (named May 19, 1998); Robert Brady (PA) (named in 
        June, 1998).

1.2  Extracts From the Rules of the House of Representatives

                          EXTRACT FROM RULE X,

                 RULES OF THE HOUSE OF REPRESENTATIVES

                                ------                                

                                 RULE X

         ESTABLISHMENT AND JURISDICTION OF STANDING COMMITTEES

                 The Committees and Their Jurisdiction

    1. There shall be in the House the following standing committees, 
each of which shall have the jurisdiction and related functions 
assigned to it by this clause and clauses 2, 3, and 4; and all bills, 
resolutions, and other matters relating to subjects within the 
jurisdiction of any standing committee as listed in this clause shall 
(in accordance with and subject to clause 5) be referred to such 
committees, as follows:
          * * * * * * *
(o) Committee on Small Business
(1) Assistance to and protection of small business, including financial 
            aid, regulatory flexibility and paperwork reduction.
(2) Participation of small-business enterprises in Federal procurement 
            and Government contracts.

                   GENERAL OVERSIGHT RESPONSIBILITIES

    2. (b)(1) Each standing committee (other than the Committee on 
Appropriations and the Committee on the Budget) shall review and study, 
on a continuing basis, the application, administration, execution, and 
effectiveness of those laws, or parts of laws, the subject matter of 
which is within the jurisdiction of that committee and the organization 
and operation of the Federal agencies and entities having 
responsibilities in or for the administration and execution thereof, in 
order to determine whether such laws and the programs thereunder are 
being implemented and carried out in accordance with the intent of the 
Congress and whether such programs should be continued, curtailed, or 
eliminated. In addition, each such committee shall review and study any 
conditions or circumstances which may indicate the necessity or 
desirability of enacting new or additional legislation within the 
jurisdiction of that committee (whether or not any bill or resolution 
has been introduced with respect thereto), and shall on a continuing 
basis undertake future research and forecasting on matters within the 
jurisdiction of that committee. Each such committee having more than 
twenty members shall establish an oversight subcommittee, or require 
its subcommittees, if any, to conduct oversight in the area of their 
respective jurisdiction, to assist in carrying out its responsibilities 
under this subparagraph. The establishment of oversight subcommittees 
shall in no way limit the responsibility of the subcommittees with 
legislative jurisdiction from carrying out their oversight 
responsibilities.
    (c) Each standing committee of the House shall have the function of 
reviewing and studying on a continuing basis the impact or probable 
impact of tax policies affecting subjects within its jurisdiction as 
described in clauses 1 and 3.

                      SPECIAL OVERSIGHT FUNCTIONS

        *        *        *        *        *        *        *        
    3. (g) The Committee on Small Business shall have the function of 
studying and investigating, on a continuing basis, the problems of all 
types of small business.

1.3  Extracts From the Rules of the Committee on Small Business

                                ------                                

              11. NUMBER AND JURISDICTION OF SUBCOMMITTEES

    There will be four subcommittees as follows:
    --Empowerment (six Republicans and five Democrats)
    --Government Programs and Oversight (six Republicans and five 
Democrats)
    --Regulatory Reform and Paperwork Reduction (six Republicans and 
five Democrats)
    --Tax, Finance and Exports (six Republicans and five Democrats)
    During the 105th Congress, the Chairman and ranking minority member 
shall be ex officio members of all subcommittees, without vote, and the 
full committee shall have the authority to conduct oversight of all 
areas of the committee's jurisdiction.
    In addition to conducting oversight in the area of their respective 
jurisdiction, each subcommittee shall have the following jurisdiction:

                              EMPOWERMENT

    Promotion of business growth and opportunities in 
economically depressed areas.
    Oversight and investigative authority over regulations and 
licensing policies that impact small businesses located in high 
risk communities.
    General oversight of programs targeted toward urban relief.
     General promotion of business opportunities.

                   GOVERNMENT PROGRAMS AND OVERSIGHT

    Small Business Act, Small Business Investment Act, and 
related legislation.
    Federal Government programs that are designed to assist 
business generally.
    Small Business Innovation and Research Program.
    Participation of small business in Federal procurement and 
Government contracts.
    Opportunities for minority and women-owned businesses, 
including the SBA's 8(a) program.
    Oversight and investigative authority generally.

               REGULATORY REFORM AND PAPERWORK REDUCTION

    Oversight and investigative authority over the regulatory 
and paperwork policies of all Federal departments and agencies.
    Regulatory Flexibility Act.
    Paperwork Reduction Act.
    Competition policy generally.

                        TAX, FINANCE AND EXPORTS

    Tax policy and its impact on small business.
    Access to capital and finance issues generally.
    Export opportunities and promotion.

1.4  Disposition of Legislation Referred to the Committee

    A total of 25 House bills and 1 Senate bill were referred 
to the Committee on Small Business during the 105th Congress. 
The Committee reported five bills to the House, four of which 
passed the House, and three of which were enacted in whole or 
in part as part of broader legislation. For a summary of the 
Committee's legislative activities, please refer to Chapter 
five of this report.
    During the first session of the 105th Congress, the 
Committee continued to consolidate related measures by 
reauthorizing and amending certain provisions of the Small 
Business Act and Small Business Investment Act with omnibus 
legislation. The major legislative effort of the first session 
of the 105th Congress was H.R. 2261, the Small Business 
Programs Reauthorization and Amendments Acts of 1997. H.R. 2261 
passed the House and was referred to the Senate, where it was 
added to S. 1139. After negotiations between the House and 
Senate, S. 1139 was passed by both bodies, and the President 
signed the final legislation on December 2, 1997 as Public Law 
105-135. A summary of H.R. 2261 can be found in section 5.2 of 
this report.
    Early in the first session of the 105th Congress, the 
Committee considered legislation to further reduce the 
paperwork burdens imposed on small business by the Federal 
government. The Committee considered and favorably reported by 
unanimous consent H.R. 852, the Paperwork Elimination Act of 
1997, on March 6, 1997. The House passed the bill on March 13, 
1997 by a vote of 395 to 0. The legislation was received in the 
Senate and referred to the Senate Committee on Governmental 
Affairs. On October 15, the Senate passed by unanimous consent 
S. 2107, the Government Paperwork Elimination Act. This 
legislation contained one provision similar to one that was 
included in the House-passed version of H.R. 852. The 
provisions of S. 2107 were subsequently included in H.R. 4328, 
the Omnibus Appropriations Act, which was signed by the 
President on October 21, 1998 and became Public Law No. 105-
277. Accordingly, the provision of H.R. 852, which required the 
Director of the Office of Management and Budget to provide 
direction and oversee the Federal government's acquisition and 
use of information technology, including alternative 
information technologies that provide for electronic 
submission, maintenance, or disclosure of information as a 
substitute for paper, was signed into law. A complete summary 
of H.R. 852 can be found in section 5.1 of this report.
    Early in the second session of the 105th Congress, the 
Committee considered legislation to make technical amendments 
to the Small Business Investment Company program. The Committee 
considered and favorably reported H.R. 3412, the Small Business 
Investment Company Technical Corrections Act of 1998, on March 
17, 1998. The House passed the bill on March 24, 1998 by a vote 
of 407 to 0. The legislation was received in the Senate and 
referred to the Senate Committee on Small Business. H.R. 3412 
was subsumed into broader legislation and was passed by the 
Senate. That Senate-passed legislation did not reach the House 
until late in the second session and included legislative 
matter not acceptable to the House. Consequently, it was not 
further considered. A summary of H.R. 3412 can be found in 
section 5.3 of this report.
    In June of 1998, the Committee on Small Business met to 
consider H.R. 3853, the Drug-Free Workplace Act of 1998. The 
Committee reported this bill favorably with several amendments 
on June 11, 1998 by voice vote. It subsequently passed the 
House on June 23, 1998 by a vote of 402-9. H.R. 3853 was sent 
to the Senate, where on September 15, 1998 the Senate Committee 
on Small Business ordered it reported. On September 25, 1998, 
H.R. 3853 was placed on the Senate calendar. It was 
subsequently incorporated into H.R. 4328, the Omnibus 
Appropriation Act for 1999, and was signed into law as Public 
Law No. 105-277 on October 21, 1998. A summary of H.R. 3853 can 
be found in section 5.4 of this report.
    In June of 1998 the Committee also considered H.R. 4078, 
the Women's Small Business Expansion Act of 1998. The bill was 
referred to the Committee on Small Business on June 18, 1998. 
It was considered and a mark-up session was held on June 25, 
1998. H.R. 4078 was ordered reported on the same day. 
Unfortunately, there was no further action on H.R. 4078 in the 
105th Congress.
                              CHAPTER TWO

                   THE SMALL BUSINESS ADMINISTRATION

    The Committee on Small Business has both legislative and 
oversight jurisdiction over the Small Business Administration 
(SBA), an independent Federal agency chartered in 1953 to 
``aid, counsel, assist and protect the interests of small 
business.''
    During the 105th Congress, the Committee conducted a series 
of legislative and oversight hearings following up on the 
comprehensive review implemented in the 104th Congress. These 
hearings resulted in passage of a comprehensive reauthorization 
bill and a number of significant reforms in the basic 
operations of the SBA. This legislation is described in Chapter 
5 of this report.
    The major programs administered by the SBA are briefly 
described below.
2.1  SBA Programs in General
    The SBA operates through 10 Regional offices, 85 District 
and Branch offices and has a staff of approximately 3,300 
permanent employees and a varying number of temporary disaster 
employees (as many as 1,600 in 1997). It provides loans and 
loan guarantees, both for business purposes and disaster 
recovery; assistance to small business in obtaining government 
contracts; and management and technical assistance through paid 
and volunteer staff. It also administers a surety bond program 
for contractors unable to obtain bonds, which are a 
prerequisite to bidding for, or performing, certain contracts. 
The SBA also serves as an advocate for all small businesses, 
conducts economic research, and monitors the implementation of 
small business legislation and programs at other agencies, such 
as the Regulatory Flexibility Act and the Small Business 
Innovation Research Program. The SBA administers a portfolio of 
more than 463,000 loans for more than $35.2 billion of which 
$6.9 billion involve loans to disaster victims.
2.2  SBA Business Loans
    A major function of the SBA is to make capital available 
for small businesses at terms and conditions that are more 
favorable than they can normally secure in the private sector. 
In addition to its general business loan program the SBA also 
has specialized loan programs designed to help small businesses 
with equity, long-term asset-based, and forms of specialized 
financing.
    Most SBA financial assistance is provided in the form of 
guarantees of commercial loans. Such guarantees can be for as 
much as 80 percent of loans up to $100,000 or 75 percent of 
loans up to the statutory maximum of $750,000. (Guarantees of 
up to $1 million can be approved for certain fixed-asset 
financings that promote public policy objectives set forth in 
the Small Business Act.) The interest rates on guaranteed loans 
are negotiated between the borrower and lender subject, in most 
cases, to a maximum of 2.75 percent above the prime rate. In 
fiscal year 1996, SBA approved 45,845 7(a) guaranteed loans 
totaling $7.7 billion and 6,884 504 program loans totaling $2.4 
billion; in fiscal year 1997 the agency approved 45,288 7(a) 
guaranteed loans totaling $9 billion and 4,131 504 program 
loans totaling $1.4 billion; and in fiscal year 1998 the SBA 
approved 42,268 7(a) loans totaling $8.53 billion and 4,930 504 
program loans totaling $1.77 billion.
    Certain applicants who could not obtain commercial loans, 
even with a government guarantee, were eligible to apply for 
SBA direct loans. Between October 1, 1985 and September 30, 
1994, eligibility for this type of assistance was limited to 
qualified businesses owned by individuals with low incomes or 
located in areas of high unemployment, Vietnam-era or disabled 
veterans, the handicapped or organizations employing them, 
business certified under the minority business capital 
ownership development program and certain non-profit 
intermediary microlenders.
    Beginning on October 1, 1994, funding for direct loans was 
limited to the handicapped and intermediary microlenders as 
part of the Administration's budget request. Funds for loans to 
the handicapped were eliminated in 1996 at the Administration's 
request. The Microloan program was made permanent in 1997 and 
currently includes over 110 intermediaries. Intermediaries 
normally borrow approximately $1 million and relend it in 
amounts not to exceed $25,000. Microloan intermediaries 
received 31 loans totaling $14.5 million dollars in FY1998.
2.3  Disaster Assistance Loans
    The SBA provides loan assistance to disaster victims, 
including homeowners, businesses and non-profit institutions. 
When a disaster strikes it is important that damaged property 
be replaced or repaired and businesses be provided with 
adequate working capital to facilitate their recovery as 
quickly as possible. SBA disaster loans serve this purpose and 
minimize disruptions to jobs, business revenues, and taxes. In 
so doing, they play a vital role in restoring the economic 
health of disaster stricken communities. Often making the 
difference in the survival of businesses necessary to that 
recovery. During fiscal year 1997, 49,515 disaster loans were 
approved for $1.138 billion dollars to businesses, homeowners 
and others affected by hurricanes, tornadoes, floods and other 
disasters. During fiscal year 1998, 30,154 disaster loans were 
approved for $728.1 million.
2.4  Small Business Investment Companies
    There is a continuing need for venture capital for new and 
growing small businesses. Small businesses have historically 
been the origin for new technological developments and 
expansion. An important source of this venture capital has been 
the SBA's Small Business Investment Company (SBIC) Program.
    SBICs supply equity capital and long-term financing to 
small firms for expansion, modernization and initial equity 
financing of their operations. SBICs also often provide 
sophisticated technical and managerial advice. They are 
licensed, regulated and, in part, financed by the SBA through 
government backed debentures. An SBIC finances small firms in 
two general ways--through straight business loans or through 
venture capital equity type investments. In fiscal year 1997, 
300 SBICs, with private capital of $5.1 billion, provided their 
small business clients with $2.4 billion in 2,733 financing. 
Duringfiscal year 1998, 319 SBICs with $6.3 billion in private 
capital provided $3.2 billion in 3,456 financing.
    The SBA also administered the Specialized Small Business 
Investment Company (SSBIC) Program, which was similar to the 
SBIC program. SSBICs agree to make investments solely in small 
business concerns owned by socially or economically 
disadvantaged individuals. However, the SSBIC program suffered 
from heavy losses and legislation was passed in the 104th 
Congress to restructure the SSBIC program. In fiscal year 1997, 
the SSBIC program was merged into the overall SBIC program and 
all existing SSBICs became SBICs. Under the combined program 
each SBIC, regardless of its size, will be required to invest 
at least 20% of its aggregate dollar investments in ``smaller 
enterprises''--a small business with a net income of $2 million 
or less and a net worth of $6 million or less. This will enable 
SBICs to cover the same markets as SSBICs but from a more 
stable and financially sound basis. A reserve of debenture 
funding will also be available for smaller SBICs in lieu of the 
funding mechanism for SSBICs.

2.5  The 8(a) Program

    In addition to financial programs available to businesses 
owned by socially and economically disadvantaged individuals 
the SBA also administers a business development program for 
such concerns, the Minority Small Business and Capital 
Ownership Development program. Participants in this program are 
eligible for the preferential award of Federal contracts under 
the authority of section 8(a) of the Small Business Act, under 
which SBA acts as a ``conduit'' by channeling selected federal 
contracts to firms owned and operated by socially and 
economically disadvantaged individuals. In fiscal year 1997, 
4,733 prime contracts with a value of $3.7 billion were awarded 
to 8(a) firms. When option years on previous contracts are 
included the total amount rises to $6.3 billion. In 1998, the 
Administration released new regulations designed to expand 
eligibility in the 8(a) program to more individuals, including 
women. While this action was taken by the Administration in 
hopes of curing Constitutional questions surrounding the 8(a) 
program further legal challenges are expected.

2.6  Surety Bond Guarantees

    Small business contractors and subcontractors who seek 
public and private construction contracts are often required to 
furnish surety bonds guaranteeing the completion of the 
contracted work. The SBA provides assistance to such 
contractors by extending guarantees of up to 90 percent to 
surety insurance companies. These guarantees enable small 
contractors to obtain bonding more easily. The SBA's bonding 
assistance is accomplished through the Prior Approval Program 
or the Preferred Surety Bond Program. Bid bonds as well as 
performance and/or payment bonds may be guaranteed on contracts 
up to $1,250,000. The SBA will pay a surety participating in 
the Prior Approval Program 90 percent of a loss incurred if: 
(1) the total amount of the contract is $100,000 or less; and 
(2) the bond was issued on behalf of a small business owned and 
controlled by socially and economically disadvantaged 
individuals. Otherwise, SBA will pay a surety in an amount not 
to exceed an administrative ceiling of 80 percent of a loss on 
bonds issued to other than disadvantaged concerns in excess of 
$100,000. Under the Preferred Surety Bond program, the SBA's 
guarantee is limited to 70 percent of the bond for all small 
businesses on contracts that do not exceed a face value of 
$1,250,000. In fiscal year 1997, 12,292 bid bond guarantees 
produced 4,021 final bond guarantees for a total contract 
amount of over $818 million. In fiscal year 1998, 10,445 bid 
bond guarantees produced 2,860 final bond guarantees, resulting 
in total bond guarantees of $531 million.

2.7  Small Business Development Programs

    The SBA's economic development assistance programs support 
SBA loan recipients and other small business owners and 
managers through individual counseling, management training and 
guidance materials. These programs are keyed to furthering the 
establishment, growth and success of small business. It is 
estimated that managerial deficiencies cause nine out of ten 
business failures.
    SBA programs can identify management problems, develop 
solutions and help implement and expand business plans. In 
addition to its own business development officers, SBA relies 
heavily on national organizations such as the 13,000 member 
Service Corps of Retired Executives (SCORE) to expand its 
capacity for individual counseling.
    An important component of SBA's management assistance 
capabilities is the Small Business Development Center (SBDC) 
program. The SBDC program is a cooperative effort by 
universities, the Federal government, State and local 
governments and private sector organizations to provide 
specialized management and technical assistance to small 
businesses. Originating as a pilot program at one university in 
1976, the SBDC program has expanded to include 56 operating 
SBDCs in all 50 states, Puerto Rico and the Virgin Islands. 
There are over 900 branch centers located throughout the States 
at colleges, universities, and local government offices. In 
fiscal year 1997, the SBDC program received $73.1 million in 
Federal funds; and in fiscal year 1998, the SBDC program 
received $77.8 million.

2.8  Small Business Innovation Research

    The Small Business Innovation Development Act of 1982, 
signed into law on July 22, 1982, provides for the 
establishment of Small Business Innovation Research grants 
programs at each of the Federal agencies with extramural 
research budgets in excess of $100 million. The Act also 
requires the establishment of annual goals for small business 
research awards in all agencies with R&D budgets in excess of 
$20 million. The funding level of SBIR programs is derived from 
statutorily fixed percentages of an agency's R&D budget.
    Through the SBIR program nearly $1 billion was awarded to 
small firms in fiscal year 1997. For fiscal year 1998, SBIR 
awards from the 11 participating agencies exceeded $1 billion.
    The SBIR program is highly competitive and provides funds 
for the feasibility testing of innovative ideas with Phase I 
and Phase II funding grant levels of $100,000 and $750,000 per 
grant, respectively. Third phase SBIR encourages the 
commercialization ofinnovative technology using private follow 
on funding or government contracts when appropriate. Roughly 40 percent 
of all SBIR projects result in commercially successful products. The 
SBA Office of Innovation, Research and Technology monitors the 
implementation of the program at each participating agency.

2.9  Small Business Technology Transfer

    The Small Business Technology Transfer (STTR) program was 
established by Title II of Public Law 102-564, the Small 
Business Research and Development Enhancement Act of 1992, and 
authorized for an initial three year demonstration, beginning 
in 1994. Building upon the established model of the SBIR 
program, the STTR program provides the basis for structured 
collaboration between small technology entrepreneurs and non-
profit research institutions, such as universities and 
Federally-funded Research and Development Centers (FFRDCs) to 
foster commercialization of the results of Federally-sponsored 
research. The STTR program was made permanent in 1997 as part 
of the Small Business Act Reauthorization and Amendments Act of 
1997.
    The STTR program seeks to stimulate technological 
innovation and increase private-sector commercialization of 
innovations derived from basic research as well as mission-
oriented advanced research and development undertaken by 
Federal agencies. The program assures that small business is 
not excluded from the extramural research and development (R&D) 
activities conducted by Federal agencies, those undertaken by 
private sector sources and often dominated by Federally-
supported institutions such as universities and FFRDCs.
    To assure a baseline of small business participation and to 
maintain stable funding for technology commercialization, like 
the SBIR program the STTR program requires a participating 
Federal agency to reserve a small percentage of its external 
R&D budget for the program. The STTR program also uses the 
highly competitive three stage process designed to identify and 
nurture only the most promising technology innovations, seeking 
to move them to full commercialization under the technical and 
entrepreneurial leadership of small business owners. Unlike the 
SBIR program, however, the STTR program requires a small 
business to collaborate with a non-profit research institution.

2.10  Export Assistance

    The SBA is authorized to promote the increased 
participation of small businesses in international trade. To 
offset some of the inherent disadvantages to successful small 
business participation in international trade, the SBA, the 
Department of Commerce, other government agencies and private 
associations work together to identify, inform, motivate and 
provide access to financial assistance for the small businesses 
seeking to enter into business transactions abroad. The goal of 
the SBA's program is to continue to facilitate financial 
assistance and other appropriate management and technical 
assistance to small business concerns that have the potential 
to become successful exporters.
    The SBA's export counseling and training includes one-on-
one counseling through SCORE volunteers with significant 
international trade expertise, access to university and 
counseling, assistance from professional international trade 
management consulting firms, referral to other public or 
private sector expertise, free consultation through the Export 
Legal Assistance Network (ELAN) program, which enables small 
businesses interested in starting export operations to consult 
with international trade attorneys from the Federal Bar 
Association, and access to publications on international trade 
and export marketing.
    The SBA's financial export assistance includes several loan 
programs depending upon the purpose for which the funds are to 
be used. Exporters may obtain funds for fixed asset 
acquisitions during start-up or expansion and for general 
working capital needs through the general 7(a) loan program. 
Export Trading Companies (ETCs) can qualify for SBA's business 
loan guaranty program, provided that they are for-profit ETCs 
and have no bank equity participation.
    The Export Working Capital Program (EWCP) allows a 
guarantee on private sector loans of up to $750.000 for working 
capital. The guarantee percentage for loans is 90 percent. 
Loans made under the EWCP program generally have a 12 month 
maturity, subject to two twelve-month renewal options. The 
loans can be for single or multiple export sales and can be 
extended for pre-shipment working capital and post-shipment 
exposure coverage, although the proceeds cannot be used to 
acquire fixed assets. In fiscal year 1997, the SBA approved 400 
guaranteed loans under the EWCP, totaling $140.3 million; in 
fiscal year 1998, the agency approved 413 loans for a total of 
$158 million.
    Through the 7(a) program, the SBA also offers export 
assistance through guarantees of international trade loans, 
which provide long-term financing to small businesses engaged 
in international trade, as well as those businesses adversely 
affected by import competition. The SBA can guarantee loans up 
to $1.25 million. In fiscal year 1997, the SBA made 48 
international trade loans totaling $18.1 million; in fiscal 
year 1998, 18 international trade loans were approved for a 
total of $11.1 million.

2.11  Office of Advocacy

    The SBA Office of Advocacy was created in 1976, pursuant to 
Title II of Public Law 94-305, with various stated ``primary 
functions'' and other ``continuing'' duties. The law provides 
for the President to appoint a Chief Counsel of Advocacy, 
subject to the advice and consent of the Senate. The mandated 
mission of the Office of Advocacy is to represent and advance 
small business interests before the Congress and other Federal 
departments and agencies for the purpose of enhancing small 
business competitiveness.
    The eleven statutorily prescribed ``primary functions'' of 
the Office of Advocacy are: (1) examining the role of small 
business in the American economy; (2) assessing the 
effectiveness of all Federal subsidy and assistance programs 
for small business; (3) measuring the cost and impact of 
government regulations on small business and making legislative 
and non-legislative recommendations for the elimination of 
unnecessary or excessive regulations; (4) determining the 
impact of the tax structure on small business and making 
legislative and other proposals for reform of the tax system; 
(5) studying the ability of the financial markets to meet the 
credit needs of small business; (6) determining availability 
and delivery methods of financial and other assistance to 
minority enterprises; (7) evaluating the efforts of Federal 
departments and agencies, business and industry to assist 
minority enterprises; (8) recommending ways to assist the 
development andstrengthening of minority and other small 
businesses; (9) recommending ways for small business to compete 
effectively and to expand, while identifying common causes for small 
business failures; (10) developing criteria to define small business; 
and (11) advising and consulting with the Chairman of the 
Administrative Conference of the United States on the amount of fees 
and other expenses awarded during the fiscal year by the Federal 
government to plaintiffs who prevail in administrative proceedings 
before Federal departments and agencies.
    The law also prescribes a number of ``continuing'' duties 
of the Office of Advocacy, which include: (1) serving as a 
focal point for receiving complaints and suggestions regarding 
Federal agency policies and activities that affect small 
business; (2) counseling small businesses on problems in their 
relationships with the Federal government; (3) proposing 
changes in policies and activities of all Federal departments 
and agencies to better fulfill the purposes of the Small 
Business Act; (4) representing small business before other 
Federal departments and agencies whose policies and activities 
may affect small business; and (5) enlisting the cooperation of 
others in the dissemination of information about Federal 
programs that benefit small business.
    In 1980, the Regulatory Flexibility Act (Public Law 96-354) 
enlarged the responsibilities of the Office of Advocacy to 
include the monitoring of Federal departments' and agencies' 
compliance with the Act's requirements, performing regulatory 
impact analyses, and making annual reports to Congress. Also in 
1980, Public Law 96-302 required the SBA Administrator to 
establish and maintain a small business economic database to 
provide Congress and the Admininstration with information on 
the economic condition of the small business sector. The 
statute prescribed twelve categories of data and required an 
annual report on trends. Although none of these database 
functions were expressly delegated to the Office of Advocacy by 
statute, they have historically been assigned to the Office of 
Advocacy by the SBA Administrator.
    The Office of Advocacy also has Regional Advocates who 
monitor small business and regulatory activities at the State 
level and disseminate relevant information about small business 
issues. In fiscal year 1997, the Office of Advocacy had a 
budget of $3.7 million to carry out its statutory duties and 
other activities; in fiscal year 1998, its budget was $4.5 
million.
                             CHAPTER THREE

 HEARINGS AND MEETINGS HELD BY THE COMMITTEE ON SMALL BUSINESS AND ITS 
                     SUBCOMMITTEES, 105th CONGRESS

3.1  Full Committee

------------------------------------------------------------------------
                  Date                         Subject and location
------------------------------------------------------------------------
February 13, 1997.......................  Committee Organizational
                                           Meeting, Washington, DC.
March 6, 1997...........................  Hearing: Small Business
                                           Administration's Budget
                                           Request for FY 1998;
                                           Washington, DC.
March 6, 1997...........................  Markup: H.R. 852, The
                                           Paperwork Elimination Act of
                                           1997, was passed favorably by
                                           voice vote; Washington, DC.
March 11, 1997..........................  Meeting: To Approve the
                                           Adoption of the Views and
                                           Estimates of the Small
                                           Business Administration's
                                           Budget for Fiscal Year 1999
                                           for Submission to the
                                           Committee on the Budget;
                                           Washington, DC.
March 12, 1997..........................  Hearing: Empowering Our
                                           Nation's Low Income
                                           Communities; Washington, DC.
April 3, 1997...........................  Hearing: Tax Burdens Facing
                                           Small Businesses; St. Peters,
                                           MO.
April 10, 1997..........................  Hearing: Proposed Rewrite of
                                           Part 15 of the Federal
                                           Acquisition Regulations;
                                           Washington, DC.
April 23, 1997..........................  Hearing: Relieving the Tax
                                           Burden on our Small Family
                                           and Home-Based Businesses;
                                           Washington, DC.
June 5, 1997............................  Hearing: Small Business
                                           Regulatory Enforcement Act;
                                           Washington, DC.
June 26, 1997...........................  Hearing: OSHA's Safety and
                                           Health Program Standard;
                                           Washington, DC.
July 16, 1997...........................  Hearing: 7(a) and 504 Subsidy
                                           Rates; Washington, DC.
July 17, 1997...........................  Hearing: Reauthorization of
                                           the Small Business
                                           Administration's Financial
                                           Programs; Washington, DC.
July 30, 1997...........................  Markup: H.R. 2261, The Small
                                           Business Programs
                                           Reauthorization Amendments
                                           Act of 1997, was passed
                                           favorably by voice vote, as
                                           amended; Washington, DC.
August 19, 1997.........................  Hearing: Entrepreneurship in
                                           America: Fairness in
                                           Regulatory Enforcement;
                                           Kansas City, MO.
September 17, 1997......................  Hearing: OSHA's Proposed
                                           Revision on Occupational
                                           Injury and Illness Recording
                                           and Reporting Requirements;
                                           Washington, DC.
October 22, 1997........................  Hearing: The Effectiveness of
                                           7(a) and 504 Programs;
                                           Washington, DC.
October 29, 1997........................  Hearing: SBA Implementation of
                                           the Government Performance
                                           and Results Act; Washington,
                                           DC.
January 29, 1998........................  Hearing: The SAFE Act: How
                                           Third Party Consultations
                                           Have Worked Where OSHA Has
                                           Failed; Washington, DC.
February 12, 1998.......................  Hearing: Federal Agency
                                           Compliance with Section 610
                                           of the Regulatory Flexibility
                                           Act; Washington, DC.
February 25, 1998.......................  Hearing: Reducing America's
                                           Small Business Tax Burden;
                                           Washington, DC.
March 3, 1998...........................  Hearing: Small Business
                                           Administration's Fiscal Year
                                           1999 Budget Submission;
                                           Washington, DC.
March 12, 1998..........................  Hearing: H.R. 3412, a bill to
                                           amend and make technical
                                           corrections in Title III of
                                           the Small Business Investment
                                           Act; Washington, DC.
March 12, 1998..........................  Markup: H.R. 3412, a bill to
                                           amend and make technical
                                           corrections in title III of
                                           the Small Business Investment
                                           Act, was passed favorably by
                                           voice vote; Washington, DC.
March 19, 1998..........................  Hearing: Small Business
                                           Administration's Fiscal Year
                                           1999 Budget Submission
                                           Regarding the Proposed
                                           Increase in Disaster Loan
                                           Interest Rates; Washington,
                                           DC.
April 16, 1998..........................  Hearing: The Expected Impact
                                           on Small Businesses and
                                           Farmers of the Kyoto Treaty
                                           on Global Climate Change;
                                           Malden, MO.
May 19, 1998............................  Hearing: H.R. 3865 The
                                           American Community Renewal
                                           Act (ACRA); Washington, DC.
June 4, 1998............................  Hearing: Oversight Hearing on
                                           the Kyoto Protocol: The
                                           Undermining of American
                                           Prosperity; Washington, DC.
June 11, 1998...........................  Markup: H.R. 3853, The Drug-
                                           Free Workplace Act of 1998,
                                           passed favorably by voice
                                           vote; Washington, DC.
June 25, 1998...........................  Markup: H.R. 4078, a bill to
                                           increase funding for the
                                           Women's Business Center
                                           Program, passed favorably by
                                           voice vote; Washington, DC.
July 15, 1998...........................  Hearing: Y2K, The Year 2000
                                           Computer Problem; Washington,
                                           DC.
July 27, 1998...........................  Hearing: Kyoto II; Washington,
                                           DC.
August 6, 1998..........................  Hearing: Project Labor
                                           Agreements; Washington, DC.
September 16, 1998......................  Hearing: H.R. 3659, The Farm
                                           and Ranch Risk Management
                                           Act; Washington, DC.
------------------------------------------------------------------------

3.2  Subcommittee on Empowerment

------------------------------------------------------------------------
                  Date                         Subject and location
------------------------------------------------------------------------
May 13, 1997............................  Hearing: Urban Empowerment;
                                           Washington, DC.
May 20, 1997............................  Hearing: Rural Empowerment;
                                           Washington, DC.
July 24, 1997...........................  Hearing: Impact of Tax
                                           Proposals; Washington, DC.
September 12, 1997......................  Hearing: From Dependency to
                                           Self-sufficiency; Lancaster,
                                           PA.
September 19, 1997......................  Hearing: Urban Problems and
                                           Community Self-Renewal; Ft.
                                           Wayne, IN.
October 27, 1997........................  Hearing: Federal Tax Policy
                                           and Federal Programs
                                           Impacting Small Business
                                           Owners; Meadville, PA.
March 19, 1998..........................  Hearing: H.R. 3241, The
                                           Charitable Giving Partnership
                                           Act; Washington, DC.
March 26, 1998..........................  Hearing: Promising Efforts
                                           Taking Place in Urban
                                           Education; Washington, DC.
May 14, 1998............................  Hearing: How to Best Obtain a
                                           Drug-Free Workplace;
                                           Washington, DC.
May 21, 1998............................  Hearing: Empowerment
                                           Education; Washington, DC.
June 22, 1998...........................  Hearing: Programs Empowering
                                           Businesses and Communities in
                                           Southern New Jersey; Mays
                                           Landing, NJ.
July 16, 1998...........................  Hearing: Teen Pregnancy;
                                           Washington, DC.
------------------------------------------------------------------------

3.3  Subcommittee on Government Programs and Oversight

------------------------------------------------------------------------
                  Date                         Subject and location
------------------------------------------------------------------------
April 15, 1997..........................  Joint Hearing: Federal Agency
                                           Compliance with the
                                           Regulatory Flexibility Act:
                                           Are Federal Agencies Using
                                           ``Good Science'' in their
                                           Rulemaking?; Washington, DC.
April 17, 1997..........................  Joint Hearing: Federal Agency
                                           Compliance with the
                                           Regulatory Flexibility Act:
                                           Are Federal Agencies Using
                                           ``Good Science'' in their
                                           Rulemaking?; Washington, DC.
April 24, 1997..........................  Hearing: How Patent Term &
                                           Patent Application Disclosure
                                           Issues Affect Small
                                           Businesses; Washington, DC.
May 22, 1997............................  Hearing: Small Business
                                           Technology Transfer Pilot
                                           Program; Washington, DC.
July 2, 1997............................  Hearing: How SBA and Other
                                           Federal Programs Create Jobs
                                           and Stimulate Economic
                                           Growth; Cumberland, MD.
September 11, 1997......................  Joint Hearing: H.R. 96, The
                                           Small Business Regulatory
                                           Assistance Act of 1997;
                                           Washington, DC.
October 8, 1997.........................  Hearing: Focus on Women
                                           Business Enterprise;
                                           Washington, DC.
November 20, 1997.......................  Hearing: Making the Federal
                                           Government User Friendly;
                                           Frederick, MD.
March 18, 1998..........................  Joint Hearing: The SBREFA
                                           Panel Process; Washington,
                                           DC.
April 22, 1998..........................  Hearing: Small Business
                                           Innovation Research Program;
                                           Washington, DC.
May 20, 1998............................  Hearing: SBA Programs to
                                           Assist Veteran's Businesses;
                                           Washington, DC.
June 24, 1998...........................  Hearing: HUBZone Program;
                                           Washington, D.C.
July 16, 1998...........................  Hearing: SBA's Proposed New
                                           Automated Loan Monitoring
                                           System; Washington, DC.
September 23, 1998......................  Hearing: Secondary Market For
                                           Guaranteed Portions of 7(a)
                                           Loans; Washington, DC.
------------------------------------------------------------------------

3.4  Subcommittee on Regulatory Reform and Paperwork Reduction

------------------------------------------------------------------------
                  Date                         Subject and location
------------------------------------------------------------------------
April 15, 1997..........................  Joint Hearing: Federal Agency
                                           Compliance with the
                                           Regulatory Flexibility Act:
                                           Are Federal Agencies Using
                                           ``Good Science'' in their
                                           Rulemaking?; Washington, DC.
April 17, 1997..........................  Joint Hearing: Federal Agency
                                           Compliance with the
                                           Regulatory Flexibility Act:
                                           Are Federal Agencies Using
                                           ``Good Science'' in their
                                           Rulemaking?; Washington, DC.
July 10, 1997...........................  Hearing: Congressional Review
                                           Act and Its Impact on Small
                                           Businesses; Washington, DC.
July 21, 1997...........................  Hearing: The Impact of Federal
                                           Regulations on Small
                                           Businesses in the Hudson
                                           Valley; Mt. Kisco, NY.
September 11, 1997......................  Joint Hearing: H.R. 96, The
                                           Small Business Regulatory
                                           Assistance Act of 1997;
                                           Washington, DC.
October 15, 1997........................  Hearing: The Impact of Federal
                                           Regulations on Small
                                           Businesses in Montana;
                                           Missoula, MT.
March 4, 1998...........................  Hearing: The First Report to
                                           Congress by the Small
                                           Business and Agriculture
                                           Regulatory Enforcement
                                           Ombudsman; Washington, DC.
March 18, 1998..........................  Joint Hearing: The SBREFA
                                           Panel Process; Washington,
                                           DC.
July 22, 1998...........................  Hearing: Restructuring the
                                           Electric Utility Industry:
                                           The Impact on Small Business;
                                           Washington, DC.
------------------------------------------------------------------------

3.5  Subcommittee on Tax, Finance, and Exports

------------------------------------------------------------------------
                  Date                         Subject and location
------------------------------------------------------------------------
May 1, 1997.............................  Hearing: Why Exports Matter;
                                           Washington, DC.
May 15, 1997............................  Hearing: Does OPIC Help Small
                                           Business Exporters?
                                           Washington, DC.
June 12, 1997...........................  Hearing: The Impact of Estate
                                           Taxes on Small and Family-
                                           Owned Businesses; Washington,
                                           DC.
July 15, 1997...........................  Hearing: Does Ex-Im Help Small
                                           Business Exporters?;
                                           Washington, DC.
March 25, 1998..........................  Hearing: The First Step: Death
                                           Tax Reform; Washington, DC.
May 15, 1998............................  Hearing: IRS Accountability to
                                           Small Businesses and Self-
                                           employed Taxpayers;
                                           Vancouver, WA.
June 1, 1998............................  Hearing: Reducing the Tax
                                           Burden on Small Business
                                           Owners; Topeka, KS.
June 1, 1998............................  Hearing: Export Resources for
                                           Small Businesses; Overland
                                           Park, KS.
June 2, 1998............................  Hearing: The Effect of the
                                           Estate Tax on Central New
                                           Jersey Farms and Small
                                           Businesses; Blawenburg, NJ.
September 16, 1998......................  Hearing: Pension Reform for
                                           Small Business; Washington,
                                           DC.
------------------------------------------------------------------------

                              CHAPTER FOUR

 PUBLICATIONS OF THE COMMITTEE ON SMALL BUSINESS AND ITS SUBCOMMITTEES 
                             105TH CONGRESS

4.1  Reports

------------------------------------------------------------------------
           House report number                    Title and date
------------------------------------------------------------------------
105-7 (Part 1)..........................  Report to accompany H.R. 852,
                                           The Paperwork Elimination Act
                                           of 1997; March 6, 1997.
105-246.................................  Report to accompany H.R. 2261,
                                           The Small Business Programs
                                           Reauthorization and
                                           Amendments Act of 1997;
                                           September 8, 1997.
105-450.................................  Report to accompany H.R. 3412,
                                           The Small Business Investment
                                           Company Technical Corrections
                                           Act of 1998; March 17, 1998.
105-462 (Part 1)........................  Report to accompany H.R. 3310,
                                           The Small Business Paperwork
                                           Reduction Act Amendments of
                                           1998; March 24, 1998.
105-584.................................  Report to accompany H.R. 3853,
                                           the Drug-Free Workplace Act
                                           of 1998; June 18, 1998.
------------------------------------------------------------------------

4.2  Hearing Records

------------------------------------------------------------------------
                                                    Date, Title, and
      Serial no.                Held by                 Location
------------------------------------------------------------------------
105-1.................  Full..................  March 6, 1997, Small
                                                 Business
                                                 Administration's Budget
                                                 Request For Fiscal Year
                                                 1998; Washington, DC.
105-2.................  Full..................  March 12, 1997,
                                                 Empowering Our Nation's
                                                 Low Income Communities;
                                                 Washington, DC.
105-3.................  Full..................  April 3, 1997, Tax
                                                 Burdens Facing Small
                                                 Businesses; St. Peters,
                                                 MO.
105-4.................  Full..................  April 10, 1997, Proposed
                                                 Rewrite of Part 15 of
                                                 The Federal Acquisition
                                                 Regulations;
                                                 Washington, DC.
105-5.................  Government &            April 15 and 17, 1998,
                         Regulatory.             Federal Agency
                                                 Compliance With The
                                                 Regulatory Flexibility
                                                 Act: Are Federal
                                                 Agencies Using ``Good
                                                 Science'' In Their
                                                 Rulemaking?;
                                                 Washington, DC.
105-6.................  Full..................  April 23, 1997:
                                                 Relieving The Tax
                                                 Burden on our Small
                                                 Family and Home-Based
                                                 Businesses; Washington,
                                                 DC.
105-7.................  Government............  April 24, 1997, How
                                                 Patent Term & Patent
                                                 Application Disclosure
                                                 Issues Effect Small
                                                 Businesses; Washington,
                                                 DC.
105-8.................  Tax...................  May 1, 1997: Why Exports
                                                 Matter; Washington, DC.
105-9.................  Empowerment...........  May 13, 1997: Urban
                                                 Empowerment;
                                                 Washington, DC.
105-10................  Tax...................  May 15, 1997: Does OPIC
                                                 Help Small Business
                                                 Exporters?; Washington,
                                                 DC.
105-11................  Empowerment...........  May 20, 1997, Rural
                                                 Empowerment;
                                                 Washington, DC.
105-12................  Government............  May 22, 1997, Small
                                                 Business Technology
                                                 Transfer Pilot Program;
                                                 Washington, DC.
105-13................  Full..................  June 5, 1997, Small
                                                 Business Regulatory
                                                 Enforcement Act;
                                                 Washington, DC.
105-14................  Tax...................  June 12, 1997, The
                                                 Impact of Estate Taxes
                                                 on Small and Family-
                                                 Owned Businesses;
                                                 Washington, DC
105-15................  Full..................  June 26, 1997, OSHA's
                                                 Safety and Health
                                                 Program Standard;
                                                 Washington, DC.
105-16................  Government............  July 2, 1997, How SBA
                                                 and Other Federal
                                                 Programs Create Jobs
                                                 and Stimulate Economic
                                                 Growth; Cumberland, MD.
105-17................  Regulatory............  July 10, 1997,
                                                 Congressional Review
                                                 Act and Its Impact on
                                                 Small Businesses;
                                                 Washington, DC.
105-18................  Tax...................  July 15, 1997, Does Ex-
                                                 Im Help Small Business
                                                 Exporters?; Washington,
                                                 DC.
105-19................  Full..................  July 16, 1997, 7(a) and
                                                 504 Subsidy Rates;
                                                 Washington, DC.
105-20................  Full..................  July 17, 1997,
                                                 Reauthorization of the
                                                 Small Business
                                                 Administration's
                                                 Financial Programs;
                                                 Washington, DC.
105-21................  Empowerment...........  July 24, 1997, Impact of
                                                 Tax Proposals;
                                                 Washington, DC.
105-22................  Regulatory............  July 21, 1997, The
                                                 Impact of Federal
                                                 Regulations on Small
                                                 Businesses in the
                                                 Hudson Valley; Mt.
                                                 Kisco, NY.
105-23................  Government &            September 11, 1997, H.R.
                         Regulatory.             96, The Small Business
                                                 Assistance Regulatory
                                                 Act of 1997;
                                                 Washington, DC.
105-24................  Empowerment...........  September 12, 1997: From
                                                 Dependency To Self-
                                                 Sufficiency; Lancaster,
                                                 PA.
105-25................  Full..................  September 17, 1997,
                                                 OSHA's Proposed
                                                 Revision on
                                                 Occupational Injury and
                                                 Illness Recording and
                                                 Reporting Requirements;
                                                 Washington, DC.
105-26................  Full..................  August 19, 1997,
                                                 Entrepreneurship in
                                                 America: Fairness in
                                                 Regulatory Enforcement;
                                                 Kansas City, MO.
105-27................  Empowerment...........  September 19, 1997,
                                                 Urban Problems and
                                                 Community Self-Renewal;
                                                 Ft. Wayne, IN.
105-28................  Government............  October 8, 1997, Focus
                                                 on Women Business
                                                 Enterprise; Washington,
                                                 DC.
105-29................  Regulatory............  October 15, 1997, The
                                                 Impact of Federal
                                                 Regulations on Small
                                                 Businesses in Montana;
                                                 Missoula, MT.
105-30................  Full..................  October 22, 1997, The
                                                 Effectiveness of 7(a)
                                                 and 504 Programs;
                                                 Washington, DC.
105-31................  Empowerment...........  October 27, 1997,
                                                 Federal Tax Policy and
                                                 Federal Programs
                                                 Impacting Small
                                                 Business Owners;
                                                 Meadville, PA.
105-32................  Full..................  October 29, 1997, SBA
                                                 Implementation of the
                                                 Government Performance
                                                 and Results Act;
                                                 Washington, DC.
105-33................  Government............  November 20, 1997,
                                                 Making the Federal
                                                 Government User
                                                 Friendly; Frederick,
                                                 MD.
105-34................  Full..................  January 29, 1998, The
                                                 SAFE Act: How Third
                                                 Party Consultations
                                                 Have Worked Where OSHA
                                                 Has Failed; Washington,
                                                 DC.
105-35................  Full..................  February 12, 1998,
                                                 Federal Agency
                                                 Compliance with Section
                                                 610 of the Regulatory
                                                 Flexibility Act;
                                                 Washington, DC.
105-36................  Full..................  March 3, 1998, Small
                                                 Business
                                                 Administration's Fiscal
                                                 Year 1999 Budget
                                                 Submission; Washington,
                                                 DC.
105-37................  Regulatory............  March 4, 1998, The First
                                                 Report to Congress by
                                                 the Small Business and
                                                 Agriculture Regulatory
                                                 Enforcement Ombudsman;
                                                 Washington, DC.
105-38................  Full..................  February 25, 1998,
                                                 Reducing America's
                                                 Small Business Tax
                                                 Burden; Washington, DC.
105-39................  Full..................  March 12, 1998, H.R.
                                                 3412, a bill to amend
                                                 and make technical
                                                 corrections in Title
                                                 III of the Small
                                                 Business Investment
                                                 Act; Washington, DC.
105-40................  Government &            March 18, 1998, The
                         Regulatory.             SBREFA Panel Process;
                                                 Washington, DC.
105-41................  Tax...................  March 25, 1998, The
                                                 First Step: Death Tax
                                                 Reform; Washington, DC.
105-42................  Full..................  March 19, 1998, Small
                                                 Business
                                                 Administration's Fiscal
                                                 Year 1999 Budget
                                                 Submission Regarding to
                                                 The Proposed Increase
                                                 in Disaster Loan
                                                 Interest Rates;
                                                 Washington, DC.
105-43................  Empowerment...........  March 19, 1998, H.R.
                                                 3241, The Charitable
                                                 Giving Partnership Act;
                                                 Washington, DC.
105-44................  Empowerment...........  March 26, 1998,
                                                 Promising Efforts
                                                 Taking Place in Urban
                                                 Education; Washington,
                                                 DC.
105-45................  Empowerment...........  May 14, 1998, How to
                                                 Best Obtain a Drug-Free
                                                 Workplace; Washington,
                                                 DC.
105-46................  Full..................  April 16, 1998, The
                                                 Expected Impact on
                                                 Small Businesses and
                                                 Farmers of the Kyoto
                                                 Treaty on Global
                                                 Climate Change; Malden,
                                                 MO.
105-47................  Government............  April 22, 1998, Small
                                                 Business Innovation
                                                 Research Program;
                                                 Washington, DC.
105-48................  Full..................  May 19, 1998, H.R. 3865,
                                                 The American Community
                                                 Renewal Act (ACRA);
                                                 Washington, DC.
105-49................  Government............  May 20, 1998, SBA
                                                 Programs to Assist
                                                 Veteran's Businesses;
                                                 Washington, DC.
105-50................  Empowerment...........  May 21, 1998,
                                                 Empowerment Education;
                                                 Washington, DC.
105-51................  Tax...................  May 15, 1998, IRS
                                                 Accountability to Small
                                                 Business and Self-
                                                 employed Taxpayers;
                                                 Vancouver, WA.
105-52................  Tax...................  June 2, 1998, The Effect
                                                 of the Estate Tax on
                                                 Central New Jersey
                                                 Farms and Small
                                                 Businesses; Blawenburg,
                                                 NJ.
105-53................  Full..................  June 4, 1998, Oversight
                                                 Hearing on the Kyoto
                                                 Protocol: The
                                                 Undermining of American
                                                 Prosperity; Washington,
                                                 DC.
105-54................  Tax...................  June 1, 1998, Reducing
                                                 the Tax Burden on Small
                                                 Business Owners;
                                                 Topeka, KS.
105-55................  Tax...................  June 1, 1998, Export
                                                 Resources for Small
                                                 Businesses; Overland
                                                 Park, KS.
105-56................  Government............  June 24, 1998, HUBZone
                                                 Program; Washington,
                                                 DC.
105-57................  Empowerment...........  June 22, 1998, Programs
                                                 Empowering Businesses
                                                 and Communities in
                                                 Southern New Jersey;
                                                 Mays Landing, NJ.
105-58................  Full..................  July 15, 1998, Y2K, The
                                                 Year 2000 Computer
                                                 Problem; Washington,
                                                 DC.
105-59................  Government............  July 16, 1998, SBA's
                                                 Proposed New Automated
                                                 Loan Monitoring System;
                                                 Washington DC.
105-60................  Empowerment...........  July 16, 1998, Teen
                                                 Pregnancy; Washington,
                                                 DC.
105-61................  Government............  July 22, 1998,
                                                 Restructuring the
                                                 Electric Utility
                                                 Industry: the Impact on
                                                 Small Business;
                                                 Washington, DC.
105-62................  Full..................  July 29, 1998, Kyoto II;
                                                 Washington, DC.
105-63................  Full..................  August 6, 1998, Project
                                                 Labor Agreements;
                                                 Washington, DC.
105-64................  Full..................  August 19, 1998,
                                                 Revitalizing America's
                                                 Economically Distressed
                                                 Communities;
                                                 Washington, DC.
105-65................  Tax...................  September 16, 1998,
                                                 Pension Reform for
                                                 Small Business;
                                                 Washington, DC.
105-66................  Full..................  September 16, 1998, H.R.
                                                 3659, The Farm and
                                                 Ranch Risk Management
                                                 Act; Washington, DC.
105-67................  Government............  September 23, 1998,
                                                 Secondary Market for
                                                 Guaranteed Portions of
                                                 7(a) Loans; Washington,
                                                 DC.
------------------------------------------------------------------------

                              CHAPTER FIVE

  SUMMARY OF LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL BUSINESS

    During the 105th Congress, 28 House bills and one Senate 
bill were referred to the Committee on Small Business. The 
Committee reported 5 five bills to the House, four of which 
passed the House. The Committee's major piece of legislation, 
the reauthorization of the Small Business Act, was enacted into 
law. Another of these bills, the Paperwork Elimination Act of 
1997, was partially enacted into law as part of broader 
legislation. A third bill, on which the Committee waived 
legislative jurisdiction, amending the Small Business 
Technology Transfer & Research (STTR) program, was also enacted 
into law.
5.1  H.R. 852, (S. 2107 and H.R. 4328); Public Law No. 105-277, The 
        Paperwork Elimination Act of 1997

                           Legislative History
------------------------------------------------------------------------
                  Date                                Action
------------------------------------------------------------------------
H.R. 852:
February 26, 1997.......................  Referred to the Committee on
                                           Small Business.
February 26, 1997.......................  Referred to the Committee on
                                           Government Reform and
                                           Oversight.
February 28, 1997.......................  Referred to the Subcommittee
                                           on National Economic Growth,
                                           Natural Resources, and
                                           Regulatory Affairs of the
                                           Committee on Government
                                           Reform and Oversight.
March 6, 1997...........................  Committee on Small Business
                                           Consideration and Mark-up
                                           Session Held.
March 6, 1997...........................  Ordered to be Reported by
                                           Unanimous Consent.
March 6, 1997...........................  Committee on Government Reform
                                           and Oversight Waived
                                           Jurisdiction and Deferred to
                                           the House Committee on Small
                                           Business.
March 6, 1997...........................  Reported to House by House
                                           Committee on Small Business
                                           Report No. 105-7 (Part I).
March 11, 1997..........................  House Committee on Rules
                                           Resolution H. Res. 88
                                           Reported to the House.
March 11, 1997..........................  House Committee on Rules
                                           Granted a Open Rule Providing
                                           One Hour of General Debate
                                           Divided Equally between the
                                           Chairman and Ranking Minority
                                           Member of the Committee on
                                           Small Business; Giving
                                           Amendments Preprinted in the
                                           Record Priority in
                                           Recognition for
                                           Consideration; Providing One
                                           Motion to Recommit, With or
                                           Without Instructions.
March 13, 1997..........................  Rule H. Res. 88 Passed House.
March 13, 1997..........................  Called up by House by Rule.
March 13, 1997..........................  Passed House by Yea-Nay Vote:
                                           395-0 (record Vote No. 50).
March 17, 1997..........................  Received in the Senate.
March 17, 1997..........................  Read Twice and Referred to the
                                           Senate Committee on
                                           Governmental Affairs.
S. 2107:
May 21, 1998............................  Read Twice and Referred to the
                                           Committee on Commerce,
                                           Science and Transportation.
June 17, 1998...........................  Subcommittee on Communications
                                           Hearings Held.
July 15, 1998...........................  Committee on Commerce, Science
                                           and Transportation, Hearings
                                           Held.
July 29, 1998...........................  Committee on Commerce, Science
                                           and Transportation
                                           Consideration and Mark-Up
                                           Session Held.
July 29, 1998...........................  Ordered to be Reported
                                           (Amended) by Voice Vote.
September 17, 1998......................  Reported to Senate (Amended)
                                           by Committee on Commerce,
                                           Science and Transportation
                                           Report No. 105-335.
September 17, 1998......................  Placed on Senate Legislative
                                           Calendar under General
                                           Orders. Calendar No. 581.
October 15, 1998........................  Measure Laid before Senate by
                                           Unanimous Consent.
October 15, 1998........................  Passed Senate (Amended) by
                                           Unanimous Consent.
October 21, 1998........................  Referred to House Committee on
                                           Government Reform and
                                           Oversight.
H.R. 4328 (Omnibus Appropriations Act):
October 19, 1998........................  Conferees Agreed to File
                                           Conference Report.
October 19, 1998........................  Conference Report H. Rep. 105-
                                           825 Filed in House.
October 20, 1998........................  Conference Report Passed House
                                           by Yea-Nay Vote: 333-95 (Roll
                                           No. 538)
October 21, 1998........................  Conference Report Passed
                                           Senate by Yea-Nay Vote: 65-29
                                           (Record Vote No. 314)
October 21, 1998........................  Cleared for White House.
October 21, 1998........................  Presented to President.
October 21, 1998........................  Signed by President.
October 21, 1998........................  Became Public Law No. 105-277.
------------------------------------------------------------------------

                         Reason for Legislation

H.R. 852:
    The Federal Government is lagging behind the rest of the 
nation in using new technologies to meet its information needs. 
Individuals and small businesses can now send and receive mail, 
accomplish personal banking transactions, and even read a 
newspaper from a personal computer or phone. Individuals and 
businesses should be able to conduct much of their business 
with the government electronically, as well. Legislation is 
needed to seize the opportunity which the Information Age and 
new information technologies present to reduce the huge 
cumulative burden of meeting the Federal government's 
information demands.
    In response to this need, the Paperwork Elimination Act was 
developed. The legislation amends the Paperwork Reduction Act 
of 1995 (44 U.S.C. 35), by requiring all Federal agencies to 
provide the option of electronic submission of information, 
electronic compliance with regulations, and electronic 
disclosure of information to all who are required to comply 
with Federal regulations. While the legislation certainly 
encourages the use of electronic transmission of data, it 
stresses that opportunities for the public to use electronic 
technologies for data submission should be optional. The bill 
in no way hinders the ability of small businesses and 
individuals without access to computers and modems to comply 
with Federal paperwork requirements. It merely requires Federal 
agencies to consider and provide the option to those who wish 
and are able to use the technology.
S. 2107:
    This legislation would require Federal agencies to make 
electronic versions of their forms available online and would 
allow individuals and businesses to use electronic signatures 
to file these forms electronically. The intent of the bill is 
to provide a framework for reliable and secure electronic 
transactions with the Federal government, while remaining 
``technology neutral'' and not inappropriately favoring one 
industry over another.
    While the main focus of S. 2107 deals with the use of 
electronic signatures, which are methods of signing an 
electronic message so that it identifies and authenticates a 
particular person, it does contain one provision that is nearly 
identical to a provision of H.R. 852. Both pieces of 
legislation require the Director of the Office of Management 
and Budget, in implementing his or her responsibilities under 
the Paperwork Reduction Act (44 U.S.C. 35), to provide 
direction and oversee the Federal government's acquisition and 
use of information technology, including alternative 
information technologies that provide for electronic 
submission, maintenance, or disclosure of information as a 
substitute for paper.

                                Hearings

    Although there were no hearings held by the Committee on 
Small Business on H.R. 852 during the 105th Congress, the 
legislation does have a significant legislative history that 
was developed during the 104th Congress, when virtually 
identical legislation (H.R. 2715) was considered and passed by 
the House of Representatives. In light of the record that was 
developed during the 104th Congress, the Chairman of the 
Committee on Small Business, in consultation with the 
Committee's Ranking Minority Member, decided to move forward 
with the consideration of the legislation without any 
additional hearings.

                         Summary of Legislation

Purposes

    Section 2 of H.R. 852 stresses the intention of this 
legislation to advance the use of alternative information 
technologies and, in so doing, decrease paperwork demands by 
the Federal government. The intended beneficiaries of this 
legislation are small businesses, educational and nonprofit 
institutions, Federal contractors, state and local governments, 
and others. Of particular importance are the small businesses 
who face a disproportionate burden in complying with Federal 
regulations. Alternative technologies suggested as substitutes 
for paper include electronic maintenance, submission, or 
disclosure of information. The Paperwork Elimination Act of 
1997 intends to assist Federal agencies in fulfilling the 
purposes and goals of the Paperwork Reduction Act.

Authority and Functions of the Director of the Office of Management and 
        Budget

    Section 3(a) of H.R. 852 describes the authority and 
responsibility of the Director of the Office of Management and 
Budget (OMB) in providing direction and oversight of the 
acquisition and use of new information technology. It compels 
the Director to consider alternative information technologies 
when developing a strategy to reduce paperwork. Section 3(b) 
directs the Director of OMB to promote the use of electronic 
submission, maintenance, and disclosure of information as an 
option for entities complying with the regulatory information 
needs of Federal agencies. The provision is added to 
Sec. 3504(h) of the Paperwork Reduction Act which outlines the 
Director's obligations to advance the use of information 
technology.

Assignment of Tasks and Duties

    Section 4 of H.R. 852 supplements Sec. 3505(a)(3) of the 
Paperwork Reduction Act by requiring the Director of OMB, in 
consultation with the General Services Administration (GSA), 
National Institute of Standards and Technology (NIST), National 
Archives and Records Administration (NARA), and Office of 
Personnel Management (OPM), to develop and maintain a 
government-wide strategic plan for information resources 
management. H.R. 852 amends this section by inserting the 
requirement to include in this plan a progress report on the 
extent to which the paperwork burden on small businesses and 
individuals has been relieved as a result of the use of 
electronic submission, maintenance, or disclosure of 
information as a substitute for paper.

Federal Agency Responsibilities

    Section 5(a) of H.R. 852 requires Federal agencies, when 
appropriate, to provide respondents with the option of 
maintaining, submitting, or disclosing information 
electronically when complying with Federal regulations. Section 
5(b) requires each Federal agency to certify and report to the 
Director of OMB on the extent to which it has relieved the 
burden of paperwork, particularly on small businesses and 
individuals, by allowing the maintenance, submission, and 
disclosure of information electronically. Section 5(c) amends 
Sec. 3506(c)(3)(J) of the Paperwork Reduction Act to specify 
that, when certifying and reporting on alternative technologies 
used to collect information, Federal agencies must also 
consider the ability of respondents to electronically maintain, 
submit and disclose information. The intent is to reduce 
burden, improve data quality, and make agencies more efficient 
and responsive.

Public Information Collection Activities; Submission to Director; 
        Approval and Delegation

    Section 6 of H.R. 852 prohibits agencies from collecting 
information until they have first published a notice in the 
Federal Register describing how the information may, if 
appropriate, be electronically maintained, submitted, or 
disclosed by a respondent.

Response to Congress

    Section 7 of H.R. 852 requires that when responding to 
Congress annually or at other times, the Director of OMB must 
report on how the collection of information by electronic means 
has affected regulatory burdens on small businesses and other 
persons. This report must specifically include any instance in 
which the maintenance, submission, or disclosure of information 
electronically, as opposed to with paper, increased the 
regulatory burden on small business. It should also 
specifically identify instances referring to the information 
required from small businesses by the Internal Revenue Service 
(IRS).

Effective Date

    The provisions of H.R. 852 would take effect on October 1, 
1998.

                           Final Legislation

    The Omnibus Appropriations Act (P.L. 105-277) included the 
provisions of S. 2107. Accordingly, the provision of H.R. 852 
which required the Director of the Office of Management and 
Budget to provide direction and oversee the Federal 
government's acquisition and use of information technology, 
including alternative information technologies that provide for 
electronic submission, maintenance, or disclosure of 
information as a substitute for paper, was signed into law.

5.2  H.R. 2261 (S. 1139), Small Business Reautorization Act of 1997

                           Legislative History
------------------------------------------------------------------------
                  Date                                Action
------------------------------------------------------------------------
H.R. 2261:
July 25, 1997...........................  Referred to the House
                                           Committee on Small Business.
July 30, 1997...........................  Committee Consideration and
                                           Mark-up Session held.
September 8, 1997.......................  Ordered to be Reported
                                           (Amended) by Voice Vote.
September 8, 1997.......................  Reported to House (Amended) by
                                           House Committee on Small
                                           Business Report No. 105-246.
September 8, 1997.......................  Placed on Union Calendar,
                                           Calendar No. 142.
September 29, 1997......................  Called up by House Under
                                           Suspension of The Rules.
September 29, 1997......................  Passed House (Amended) by
                                           Recorded Vote: 397-17 (Roll
                                           No. 463).
September 29, 1997......................  S. 1139 Called Up by Unanimous
                                           Consent, House Struck All
                                           After Enacting Clause and
                                           Inserted Text of H.R. 2261 In
                                           Lieu Thereof.
September 29, 1997......................  Laid on Table in House.
                                          For Further Action See S.
                                           1139.
S. 1139:
June 26, 1997...........................  Ordered Reported by the Senate
                                           Committee on Small Business
                                           As An Original Measure.
August 19, 1997.........................  Placed on Senate Calendar.
August 19, 1997.........................  Original Measure Reported to
                                           Senate. Senate Report No 105-
                                           62.
September 9, 1997.......................  Measure Laid Before Senate.
September 9, 1997.......................  Measure (With Amendment)
                                           Agreed to in Senate by
                                           Unanimous Consent.
September 10, 1997......................  Measure Sent to House.
September 29, 1997......................  Measure Passed House with
                                           Amendment. (House Struck All
                                           After Enacting Clause and
                                           Inserted Text of H.R. 2261 In
                                           Lieu Thereof.
October 23, 1997........................  House Amendment Received in
                                           Senate.
October 31, 1997........................  Senate Agreed to House
                                           Amendment with an Amendment.
November 9, 1997........................  House Agreed to Senate
                                           Amendment Under Suspension of
                                           the Rules.
November 17, 1997.......................  Enrolled Measure Signed in
                                           House.
November 18, 1997.......................  Enrolled Measure Signed in
                                           Senate.
November 21, 1997.......................  Measure Presented to the
                                           President.
December 2, 1997........................  Became Public Law 105-135.
------------------------------------------------------------------------

                          Need for Legislation

    Certain of the SBA's programs require reauthorization, 
including the important Section 504 loan program, the Small 
Business Technology Transfer or STTR program and the Microloan 
program. While several other programs could continue without 
reauthorization, the majority of the agency's efforts require 
this legislation.
    S. 1139, as amended, contains a number of important 
provisions which, while not a part of the House version, H.R. 
2261, have widespread support. In particular, the bill contains 
a provision regarding the practice of bundling federal 
contracts. This language provides protection for small business 
from misuse of this contracting procedure which has become a 
matter of increasing concern for small businesses operating in 
the federal arena.
    Finally, the bill contains the HUBZone program authored by 
Senator Bond, which is designed to encourage small businesses 
to locate and hire from areas of high unemployment. This 
language was the subject of much negotiation prior to its 
acceptance but now represents a program that the SBA can soon 
begin to implement, with the assistance of additional funding 
approved by the Committee on Appropriations. However, to fully 
implement the program, SBA may need an additional increase in 
funding, possibly $10 to $20 million.

                         Summary of Legislation

                        Title I: Authorizations

    The bill authorizes appropriations for SBA's several 
business loan programs for fiscal years 1998, 1999, and 2000. 
Included are the section 7(a) loan guarantees, the section 504 
program, Microloans, and Small Business Investment Company 
debentures and participating securities. Also included is 
language authorizing the appropriations of such sums as are 
necessary for disaster loans and the attendant salaries and 
expenses. The authorization levels are set forth below:

                           Program Levels for SBA Reauthorization As Passed in S. 1139
                                              [Amounts in millions]
----------------------------------------------------------------------------------------------------------------
                                                   FY 1997      FY 1997               Authorized level
                    Program                       appropri-     authori-  --------------------------------------
                                                    ations       zation        1998         1999         2000
----------------------------------------------------------------------------------------------------------------
7(a)...........................................      $10,300      $13,100      $12,000      $13,000      $14,500
504............................................        2,650        3,250        3,000        3,500        4,500
SBIC:
    Debentures.................................          300          300          600          700          800
    Participating securities...................          410          900          700          800          900
Microloan:
    Technical assistance.......................           13           98           40           40           40
    Direct loans...............................           24          250           60           60           60
    Guaranteed loans...........................           19           40           40           40           40
DELTA 7a/504...................................      48/49.6        3,250        1,000        1,000        1,000
Surety Bond Guarantee:
    General program............................        1,800        1,350        1,350        1,350        1,350
    Preferred program..........................  ...........          650          650          650          650
SCORE..........................................          3.3          3.9            4          4.5            5
SBDC Base Closure Assistance...................            2           15           15           15           15
Women's Business Centers.......................            4            4            8            8            8
----------------------------------------------------------------------------------------------------------------

                Title II: Financial Assistance Programs

Section 201. Microloan Program

    The bill makes the direct microloan program, including 
technical assistance grants, a permanent program. It also 
extends the guaranteed microloan program through the year 2000.
    The bill also makes the following changes to the microloan 
program:
          (1) Increases the loan limit from $2,500,000 to 
        $3,500,000 per intermediary.
          (2) Changes the loan loss reserve requirement for 
        experienced microloan intermediaries to the greater of 
        twice the historic loss rate or 10 percent of the 
        outstanding loan balance;
          (3) Increases from 15 percent to 25 percent the 
        percentage of technical assistance grants 
        intermediaries may use to assist prospective borrowers;
          (4) Authorizes up to 25 percent of the technical 
        assistance grants to be used for contracting out to 
        assist microloan borrowers.

Section 202. Welfare-to-Work Microloan Initiative

    Establishes a three year initiative to test the feasibility 
of providing supplemental grants to existing microloan 
intermediaries specifically targeted at helping some 
individuals leave public assistance and establish their own 
businesses. The bill requires an annual evaluation of the 
effectiveness of the initiative.
    The bill also authorizes supplemental grants to be used, at 
the discretion of the intermediary or technical assistance 
provider to reimburse all or part of the child care or 
transportation costs of individuals participating in this 
initiative. These funds are to be provided only to the extent 
they do not duplicate funds already made available through 
state programs. Microloan intermediaries are expected to 
coordinate these reimbursements with appropriate state 
agencies.
    The bill authorizes the SBA to fund the supplemental 
microloan technical assistance grants solely through transfers 
from other federal departments or agencies which have 
appropriated funds for the purpose of moving individuals from 
public assistance to work. The SBA is authorized to receive $3 
million for fiscal year 1998, $4 million for fiscal year 1999, 
and $5 million for fiscal year 2000.

         Subtitle B--Small Business Investment Company Program

Section 211. Five Year Commitments for SBICs

    The bill gives the Administrator of SBA authority to make 
five year leverage commitments for SBICs. This new authority is 
designed to assist SBICs in raising private capital, which is 
matched with government guaranteed capital and invested in 
small businesses. By allowing SBA to approve five year 
commitments, an SBIC will be able to obtain leverage 
commitments based on its typical investment pattern, which 
normally allows for all investments to be made during the first 
five years of the SBIC's life-cycle.

Section 212. Fees

    The bill includes a provision to permit SBA to collect fees 
from applicants for a license under the SBIC Program. It 
permits SBA to retain these funds to offset overhead resulting 
from SBA's conducting reviews of each applicant.

Section 213. Small Business Investment Company Reform

            (a) Bank Investments
    This subsection modifies the Small Business Investment Act 
of 1958 to allow banks to continue to invest in SBICs, whether 
the SBIC is organized as a corporation, partnership, or limited 
liability company. This provision expressly permits banks to 
invest in entities, such as affiliates, established to invest 
solely in SBICs, with no requirement that such entities be 
registered investment companies.
            (b) Leverage Cap
    Section 213 continues the $90 million cap on leverage to an 
individual SBIC or multiple SBICs under common control but 
allows an adjustment annually for inflation. Under this 
subsection, recipients of leverage in excess of $90 million 
would agree to invest all of that excess leverage obtained 
above this cap in ``smaller businesses,'' which are defined as 
small businesses having $2 million or less in revenues and $6 
million or less in net worth.
            (c) Tax Distributions
    Because the majority of the SBICs are partnerships, this 
subsection permits SBICs to make quarterly distributions to its 
investors (i.e., partners) to meet the investors' tax 
obligations. This quarterly distribution is designed to cover 
the situation where investors are making quarterly tax payments 
to the Federal government. If the SBIC's tax liability is not 
as great as estimated, the quarterly tax distributions are 
applied to the following tax year.
            (d) Leverage Fee
    Under this subsection, SBICs will be required to pay a 1 
percent commitment fee at the time SBA makes a commitment for 
leverage, and the balance of 2 percent will be paid on the 
amount of leverage as it is periodically drawn down by the 
SBIC. If SBA made no prior commitment to the SBIC for leverage, 
the entire 3 percent fee is paid at the time that leverage is 
drawn by the SBIC.
            (e) Periodic Issuance of Guarantees and Trust Certificates
    Subsection (e) will permit SBA to pool and sell debentures 
to investors not less than every six months. This is a change 
from current law which requires SBA to pool and sell debentures 
not less than every three months. Current law has caused 
difficulties for SBA in producing sufficiently large and 
diverse pools of debentures that are most attractive to 
investors. This change will allow for larger pools, which 
should generate greater investment interest and more favorable 
interest rates for SBICs. Under this subsection, SBA will 
retain the discretion to pool and sell debentures more 
frequently, if there is sufficient demand.

Section 214. Examination Fees

    This section permits SBA to collect fees from SBICs to 
defray costs for SBA's periodic examinations of SBICs. It is 
the intention of the Conferees that these funds be available to 
SBA solely to cover the costs of the examinations and other 
related oversight activities.

           Subtitle C--Certified Development Company Program

Section 221. Loans for Plant Acquisition, Construction, Conversion, and 
        Expansion

    The bill changes the statute to confer on borrowers the 
flexibility to lease up to 20 percent of the project property 
to one or more tenants. This will allow 504 borrowers to 
attract tenants and create complementary business activity. The 
bill also permits sellers of property to finance the borrower's 
required equity position. This is allowed if the seller 
subordinates their interest to the SBA's interest in the 
property.

Section 222. Development Company Debentures

    The bill reauthorizes SBA's collection of a fifteen-
sixtenths of 1 percent fee from all 504 borrowers. This fee is 
the major component in keeping the subsidy rate for the 504 
program at zero. The bill also reiterates that the fee should 
be maintained by SBA at a rate not greater than that necessary 
to keep the program at a zero subsidy, and should be reduced 
promptly whenever possible.

Section 223. Premier Certified Lenders Program

    This section expands the participation in the Premier 
Certified Lenders Program (PCLP) by repealing the current 15 
participant limit. The responsibilities of PCLP participants 
are also expanded to include authorizing, closing, litigating 
and liquidating loans in their portfolio. The bill recognizes 
that the SBA has a duty to oversee conduct of the PCLP 
borrowers, and may monitor their litigation activities but 
monitoring should not be construed broadly and does not include 
any management or control of the litigation.
    Congress expects that the SBA will remain informed about 
PCLP litigation activities but not intervene except in cases of 
first impression, or in matters of a significant precedent 
setting nature. The purpose of the PCLP program is to 
substantially reduce SBA involvement in the 504 loan process 
allowing them to act autonomously. SBA is reminded that this 
privilege is to be allowed latitude. The agency is also 
reminded that they can exercise best discretion by controlling 
admission to the PCLP program rather than by tightly overseeing 
the daily activities of PCLP participants.
    In addition, the bill extends eligibility for the PCLP 
Program once a CDC has been an active participant in the 
accredited lenders program during the 12 month period preceding 
the date the CDC submits its application. The bill also 
modifies current law that requires the premier lender to 
maintain a loss reserve of 10 percent of the CDCs exposure. SBA 
is directed to review CDCs on a regular basis to confirm that 
those with loan loss rates greater than 10 percent do not 
expose the Federal government to an unusual risk of loss.
    The bill permits the premier lenders to maintain their loss 
reserves using segregated funds on deposit in federally insured 
institutions, or they can provide irrevocable letters of credit 
in a format acceptable to the SBA. If a loss has been sustained 
by the SBA, and funds are disbursed from the loss reserve to 
reimburse SBA for the CDC's share of the loss, the CDC must 
replenish the reserve account within 30 days.
    The bill extends the program through October 1, 2001 and 
provides that each premier lender is to establish a goal of 
processing not less than 50 percent of their loan applications 
under the PCLP. With respect to the processing goal, the 
Congress intends the goal as a target only, and expects 
Development Companies to use prudent judgment at all times in 
determining which applications are appropriate for processing 
under the streamlined PCLP procedures. This judgment should not 
be influenced by the 50 percent goal. The bill also requires 
SBA to promulgate regulations to carry out these changes within 
120 days of enactment of this bill. Within 150 days after the 
date of enactment of this bill, SBA is to issue program 
guidelines and fully implement changes contained in this 
section.

                  Subtitle D--Miscellaneous Provisions

Section 231. Background Check of Loan Applicants

    The bill authorizes SBA to conduct background ``name'' 
checks on all prospective 7(a) and 504 borrowers using the best 
available means possible, including the Federal Bureau of 
Investigation, National Crime Information Center (NCIC), 
computer system if it is available. Although the presence of a 
criminal record does not act as an absolute bar to 
participation in the SBA's loan programs, the Congress is 
concerned that persons convicted of fraud, embezzlement, and 
similar crimes may have access to SBA loans. Congress is also 
concerned that, in conducting these checks, undue delay in loan 
approvals will be detrimental to small business borrowers and 
to the programs' viability. In implementing this authority, the 
SBA should explore the effectiveness of a sampling methodology 
provided that all prospective borrowers are required to provide 
the information necessary to enable such a check to be 
conducted.

Section 232. Report on Increased Lender Approval, Servicing, 
        Foreclosure, Liquidation and Litigation of 7(a) Loans

    The bill directs SBA to undertake a study on its efforts to 
increase lender approval, servicing, foreclosure, litigation, 
and liquidation of 7(a) loans and to report to the Congress 
within six months of enactment of this Act. This effort has 
been a key piece of the Administration's budget proposal for 
modernization and streamlining the agency, and the Congress 
wishes to remain fully apprised of the SBA's progress.

Section 233. Completion of Planning for Loan Monitoring System

    The bill includes a requirement that SBA submit a detailed 
report to the Congress and the General Accounting Office on its 
plans for installation of a computerized financial tracking and 
loan monitoring system. SBA is directed to report on its 
progress to the House and Senate Committees on Small Business 
and the General Accounting Office within six months of the 
enactment of this Act. The Congress intends that the 
prohibition on spending apply solely to the actual ultimate 
purchase of the system, not preliminary planning or consulting 
activities. It would defeat the purpose of the reporting 
requirement if the SBA were prevented from planning and such a 
construction would defy common sense. Congress notes that, 
unfortunately, since the initial submission of the system as a 
part of the 1998 budget, no planning has taken place.

                Title III: Women's Business Enterprises

    Title III addresses the non-credit programs that serve 
women who own or seek to start their own business.

Section 301. Interagency Committee Participation

    The bill provides that each designee to the Interagency 
Committee report directly to the head of their respective 
agency on the status of the Interagency Committee's activities. 
The bill does not authorize appropriations to support the 
activities of the Interagency Committee. Instead, agencies and 
departments on the Interagency Committee are to allocate 
existing personnel and resources to support participation on 
the Interagency Committee.

Section 302. Reports

    The bill directs the Interagency Committee to transmit its 
annual report to Congress and the President through the SBA. 
This section deletes the requirement that the Interagency 
Committee's report include recommendations from the National 
Women's Business Council and requires that the report address 
the Committee's efforts to meet its statutory duties.

Section 303. Duties of the National Women's Business Council

    In order to remove an inconsistency in current law, the 
bill directs the National Women's Business Council to submit 
its recommendations and reports to the Administrator of the SBA 
through the Assistant Administrator for the Office of Women's 
Business Ownership. The bill requires the Council to report 
annually to Congress and the President. This report should 
include a status report on the Council's efforts to fulfill its 
duties under sections 406 (a) and (d) of the Women's Business 
Ownership Act.

Section 304. Council Membership

    Under the bill, the SBA Administrator is to appoint the 
Council members after reviewing the recommendations of the 
Chairmen and Ranking Minority Members of the Committees on 
Small Business in the Senate and House of Representatives. This 
is to enhance the Council's ability to fulfill its role as an 
independent advisory body to the Congress, the President, and 
the Administrator through the Assistant Administrator of the 
Office of Women's Business Ownership. The bill establishes 
staggered terms for the Council members.
    The bill expands the Council to 14 members, plus a chair 
who should be a prominent business woman appointed by the 
President. Under current law, there are nine members (four 
business owners and five women's business organizations' 
representatives). The bill increases the number of women 
business owners to eight and increases the number of 
representatives of women's business organizations to six and 
includes language expressly recognizing that this category is 
to include representatives of local Women's Business Centers. 
The bill removes the word ``national'' as a qualifier for the 
type of organizations that can be represented on the Council. 
The bill also directs the SBA Administrator to give appropriate 
consideration to rural versus urban diversity when selecting 
Council members.

Section 305. Authorization of Appropriations

    The bill authorizes the appropriation of $600,000 for 
Fiscal Years 1998 through 2000 with $200,000 targeted for 
research on women's procurement and finance issues as 
authorized in section 306 and 307. Funds appropriated under 
this section are solely for the activities and duties of the 
Council, and the Council shall review and approve its operating 
and research budget each year.

Section 306. National Women's Business Council Procurement Project

    The bill authorizes the National Women's Business Council 
to conduct a study of issues related to Federal procurement 
opportunities for businesses controlled and owned by women.
    Although women-owned business now represent over one-third 
of all businesses, they receive a minute share of Federal 
procurement dollars. In 1994, the Federal Acquisition 
Streamlining Act (FASA) established a modest government-wide 
goal of 5 percent for Federal contracts being awarded to women-
owned businesses; but they actually received only 2.3% in 1994. 
The purpose of the study directed by this bill is to gain a 
greater understanding of the Federal government's poor 
performance in working with this growing sector. Specifically, 
the National Women's Business Council is to conduct a study of 
the Federal government's procurement history in attracting and 
awarding contracts to women-owned business using existing data 
collected by agencies. The bill also requires the National 
Women's Business Council to prepare a report on the best 
procurement practices of the Federal government and the 
commercial sector and to recommend policy changes.
    The bill provides contract authority to the Council to 
carry out the research initiatives and resulting reports 
authorized under sections 306 and 307. All contracts shall be 
awarded in accordance with the Federal Acquisition Regulations.

Section 307. Studies and Other Research

    The Council is also authorized to conduct other research 
relating to the award of Federal prime contracts and 
subcontracts to women-owned businesses, and access to credit 
and investment capital by women entrepreneurs, as the Council 
determines to be appropriate.

Section 308. Women's Business Centers

    The bill increases the authorization for Women's Business 
Centers (previously called Women's Business Demonstration 
Sites) from $4 million per year to $8 million per year. 
Grantees awarded funds under this section will be eligible to 
receive funds for five years rather than three years as 
provided under current law. Changes to the matching funds 
requirement as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Year 1                  Year 2                  Year 3                 Year 4                 Year 5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current law........................  1 non-Federal; 2        1 non-Federal; 1        2 non-Federal; 1       No funds.............  No funds
                                      Federal.                Federal.                Federal.
Reauthorization....................  1 non-Federal; 2        1 non-Federal; 2        1 non-Federal; 1       1 non-Federal; 1       2 non-Federal; 1
                                      Federal.                Federal.                Federal.               Federal.               Federal
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The bill provides that grantees conducting a three year 
program as of the day before the effective date of this bill 
may apply to SBA to receive funds for two additional years. 
Such Centers that were in year 3 of a 3 year project on 
September 30, 1997 and that are approved to receive funds in 
years 4 and 5 will be subject to the matching requirements 
applicable to year 5 under this bill. The Congress intends that 
Centers which have a demonstrated need and a history of 
successful operation in this program receive funds to continue 
for years four and five.
    The bill includes language defining ``women's business 
center site'' and includes a list of duties and 
responsibilities of the Assistant Administrator for the Office 
of Women's Business Ownership, and upgrades this position to 
the Senior Executive Service.
    The bill includes language to codify the practice of 
allowing Women's Business Center grant recipients to pursue 
other sources of Federal funds. Accordingly, funds received 
from other Federal agencies do not qualify as non-Federal funds 
under the matching funds requirement of this section. In 
addition, the performance of other Federal contracts shall not 
hinder the ability of the Women's Business Center grantee from 
fulfilling its obligations under this section.
    The bill amends the criteria for selecting grant applicants 
under this section to include the ``location for the Women's 
Business Center site.'' This language is to ensure that 
preference be given to applications for states without existing 
Centers.
    The bill expressly prohibits the use of the funds 
appropriated under this section for any purposes other than 
grant awards, except that, in Fiscal Year 1998 only, up to 5 
percent of the funds appropriated under this section are 
authorized to be used to supplement funds in SBA's salaries and 
expense budget for the administration of this program. SBA 
needs to change its practice of using funds appropriated under 
this section for personnel and administrative overhead. SBA 
should include in its Fiscal Year 1999 budget request a line 
item in the salaries and expenses budget to reflect the actual 
cost of administering this important program. To assist with 
Congressional oversight, the SBA is directed to provide the 
Senate and House Committees on SmallBusiness with a quarterly 
accounting within 20 days of the end of the Fiscal Year quarter 
detailing all expenditures for the Women's Business Centers program in 
Fiscal Years 1998, 1999, and 2000. In Fiscal Year 1998, the report 
shall identify whether each expenditure was funded by appropriated 
grant funds or SBA's salaries and expense budget.

    Title IV: Competitiveness Program and Procurement Opportunities

     Subtitle A: Competitiveness Demonstration Program (Comp Demo)

Section 401. Program Term

    S. 1139 makes the Competitiveness Demonstration Program 
permanent.

Section 402. Monitoring Agency Performance

    This provision changes the reporting requirement for the 
program to an annual report.

Section 403. Reports to Congress

    This provision shifts the responsibility for the annual 
report on the COMP Demo program to the SBA.

Section 404. Small Business Dredging Program

    This provision makes the Small Business Dredging Program 
permanent.

      Subtitle B: Small Business Procurement Opportunities Program

Section 411. Contract Bundling

    Section 411 amends section 2 of the Small Business Act and 
emphasizes Congressional policy to provide small businesses, to 
the maximum extent possible, prime and subcontracting 
opportunities and to eliminate obstacles to their participation 
and to avoid unnecessary and unjustified bundling of contract 
requirements.

Section 412. Definition of Contract Bundling

    Amends section 3 of the Small Business Act to define 
``bundling of contract requirements'', ``bundled contracts'', 
and ``separate smaller contracts''.

Section 413. Assessing Proposed Contract Bundling

    Amends section 15 of the Small Business Act to create a new 
subsection (e) which establishes the procedure to be followed 
by contracting officials to insure that small business concerns 
are afforded the maximum practicable opportunity to compete for 
prime contracting and subcontracting opportunities. 
Specifically, the bill directs that if a requirement could lead 
to a ``bundling'' of several areas of work that were or could 
have been separately solicited in sizes more conducive to small 
business participation then the agency must conduct ``market 
research'' to determine whether such consolidation is justified 
and would lead to cost savings and improvements.
    Section 413 also encourages small businesses to form teams 
for the purpose of competing for bundled contracts and provides 
that such teams will not affect the small business status of 
individual businesses. In establishing these teaming rules 
which alter the SBA's regulations regarding affiliation 
Congress recognizes that some types of affiliation should not 
disqualify a small business from participating in federal 
procurements.
    The ability of small businesses to team with other small 
businesses should not be considered justification or an 
opportunity for procurement officials to bundle requirements. 
The justification for bundling must be based solely on savings, 
improvements in delivery and quality, and other enhancements 
that accrue to the agency and that overwhelm any infringement 
of small business opportunity. The mere fact that small 
businesses could or might team does not lower the burden for 
agency justification of bundling.
    The bill also amends section 15 of the Small Business Act 
to require SBA procurement review procedures if a solicitation 
involves an unnecessary or unjustified bundling of contract 
requirements. Nothing in this section is intended to amend or 
change in any way the existing obligations imposed upon a 
procurement activity or the authority granted the SBA under 
section 15(a) of the Small Business Act.

Section 414. Reporting of Bundled Contract Opportunities

    Requires federal agencies to report through the Federal 
Procurement Data System all contract actions involving bundled 
requirements with an anticipated contract award value exceeding 
$5,000,000.

Section 415. Evaluating Subcontract Plan Participation in Awarding 
        Contracts

    The bill inserts a substitute for section 8(d)(4) of the 
Small Business Act requiring that bundled contracts awarded 
pursuant to the negotiated method of procurement must use the 
bidders' small business subcontracting plans and past small 
business subcontracting performance as significant factors in 
the evaluation of offers.

Section 416. Improved Notice of Subcontracting Opportunities

    Amends section 8 of the Small Business Act to allow prime 
contractors and subcontractors (at any tier) to publish 
subcontracting opportunities in excess of $10,000 in the 
Commerce Business Daily.

Section 417. Deadlines for the Issuance of Regulations

    Requires that proposed regulations be published not later 
than 120 days after the date of enactment and that final 
regulations be published not later than 270 days after the date 
of enactment.

                   Title V: Miscellaneous Provisions

Section 501. Small Business Technology Transfer Program (STTR)

    S. 1139 reauthorizes the STTR program through fiscal year 
2001. SBIR expires after fiscal year 2000. The Managers do not 
intend this discrepancy in reauthorization timetables to 
preclude making legislative revisions to the STTR program when 
the reauthorization of the SBIR program is considered.
    Section 501(b)(1)(C) adds a new subsection (s) ``Outreach 
Program'' to section 9 of the Small Business Act (15 U.S.C. 
638). The new subsection is intended to increase the STTR grant 
application pool from which STTR grant applications are 
selected by increasing the number of applications received from 
states that received under $5,000,000 in awards during fiscal 
year 1995. The new subsection is not intended to require 
agencies participating in the STTR program to increase the 
dollar value or number of STTR awards to those states.Rather, 
the program is intended to improve the overall number and quality of 
applications for awards, and to increase geographic distributions.
    The authorization contained in section 9(s)(2) shall be 
taken entirely from funds appropriated for use by the Small 
Business Administration. No funding derived from STTR agency 
research funds outlined in section 9(n)(1) may be used for the 
outreach program under section 9(s).
    Section 9(s)(4) specifies that all funds for use the new 
outreach program are solely for outreach purposes and are not 
to be used for STTR awards.
    Finally, section 9 is further amended by adding a new 
subsection (t) that requires STTR and SBIR programs to be 
included as part of the agencies' strategic plan updates 
required under the Government Performance and Results Act (5 
U.S.C. 306(b)).

Section 502. Small Business Development Centers (SBDCs)

    This legislation authorizes program levels of $85 million 
in FY 98, $90 million in FY 99, and $95 million in FY 2000. 
Additionally, it establishes a funding floor of $500,000, if 
matched by the state and expands authorized counseling 
activities to specifically include credit practices, business 
plans, financial packaging, startup, expansion and export 
planning. This section also allows the participation of Women's 
Business Centers in the SBDC program and expands authority to 
provide additional grants to SBDCs to assist minority, veteran 
and women owned business or in communities impacted by base 
closings; and rural or underserved communities.

Section 503. Surety Bond Program

    S.1139 authorizes $1.35 billion in regular surety bond 
guarantees and $650 million in preferred surety bond guarantees 
through FY 2000 while extending the Preferred Surety Bond 
Guarantee program for the same period.

Section 504. Extension of Cosponsorship Authority

    This section extends until September 30, 2000 the provision 
allowing the Small Business Administration to work in 
conjunction with private sector organizations and corporations 
in providing assistance to small business.

Section 505. Asset Sales

    This section requires the SBA to provide the Small Business 
Committees with the draft and final plans for implementing an 
asset sale program of loans currently held in the agency's 
portfolio. The Administration estimates large profits from such 
sales and the Committee requests this information in order to 
verify these claims.

Section 506. Small Business Export Promotion

    This legislation provides for the establishment of on-line 
computer linkages between SBDCs and an international trade data 
information network with ties to the Export Assistance Center 
program.

Section 507. Defense Loan and Technical Assistance (DELTA) Program

    This section extends the authorization of the DELTA loan 
program until the funds appropriated for it are exhausted. The 
bill also changes the guarantee percentage on DELTA loans to 80 
percent.

Section 508. Very Small Business Concerns

    The bill extends authority for the Very Small Business 
Concern program through the end of FY 2000. Though now due to 
expire until October 1998 the Congress is compelled to extend 
this program due to the SBA's failure to begin implementation. 
The Managers request the SBA to act with diligence in drafting 
and publishing implementing regulations as soon as possible.

Section 509. Trade Assistance for Small Businesses Adversely Impacted 
        by NAFTA

    The bill requires SBA to coordinate Federal assistance for 
providing counseling to small businesses adversely affected by 
the North American Free Trade Agreement.

                       Title VI: HUBZone Program

    The bill creates a new program known as the ``HUBZone Act 
of 1997.'' This program was approved by a vote of 18-0 in the 
Committee on Small Business in the Senate and subsequently 
included in S. 1139 as Title VI. After negotiation with the 
House it was accepted in its current final form.
    The purpose of the HUBZone Act of 1997 is to provide relief 
to urban and rural areas of the United States which have 
historically been identified as economically distressed areas. 
The HUBZone Act of 1997 is a jobs program intended to encourage 
small business concerns to locate in, and employ residents of, 
HUBZones. One of the principal purposes of this Act is to 
decrease the unemployment, underemployment, and lack of 
opportunity that tend to be concentrated in inner cities and 
some rural areas, including Indian Reservations, throughout the 
U.S.
    Every effort should be made in the implementation of the 
HUBZone Act by SBA and other Federal agencies to provide an 
effective opportunity for the contracting preferences to be 
used as the basis for meaningful levels of contract awards. To 
that end, the Small Business Administration has been given an 
additional $2 million in salaries and expenses to help 
implement the HuBZone Act.
    The HUBZone Act of 1997 is designed to bring qualified 
HUBZone small business concerns and their employees into the 
mainstream of government contracting at both the prime and 
subcontract levels by providing procurement preferences and 
through the establishment of contracting goals. The Act 
establishes three specific Federal procurement preferences for 
``qualified HUBZone small business concerns.''

Section 602. Historically Underutilized Business Zones

    This section establishes the framework for implementation 
of the HUBZone Act of 1997. It defines the terms under which a 
small business qualifies as a HUBZone small business and 
specifies the three preferences. First, Section 602 sets forth 
the authority for a contacting officer for a Federal agency to 
restrict competition for a contract to a qualified HUBZone 
small business when he determines there are two or more 
qualified HUBZone small business concerns that are likely to 
submit offers and that award can be made at a fair market 
price. Second, in circumstances where there is only one 
qualified HUBZone small business concern, the contracting 
officer is authorized to make a non-competitive award or sole-
source award of a contract that does not exceed $3 million for 
service contracts and $5 million for manufacturing contracts. 
In this circumstance, the contracting officer must determine 
that the award can be made at a fair and reasonable price. And 
third, it provides a pricing preference of up to ten percent in 
the evaluation of a bid by a HUBZone business as compared to 
that of a large firm.
    Section 602 gives the Small Business Administration new, 
discretionary authority to appeal a decision ofa contracting 
officer not to award a contract under the HUBZone program. The 
Administrator would have five days after receiving notice of this 
adverse decision to notify the contracting officer that SBA may appeal 
the decision, and within 15 days the Administrator may appeal the 
decision to the head of the department or agency.

Section 603. Technical and Conforming Amendments to the Small Business 
        Act

    The bill amends various provisions of the Small Business 
Act and makes technical and conforming amendments to effectuate 
the requirements of the program in a manner consistent with 
other statute.

Section 604. Other Technical and Conforming Amendments

    This section of the bill, addressing other technical and 
conforming amendments, is intended to amend the Competition in 
Contracting Act (10 U.S.C. 2304(b)(2)) and (41 U.S.C. 
253(b)(2)) to allow for HUBZone set-aside procedures in Federal 
prime contracting for contract requirements in excess of the 
simplified acquisition threshold. The effect of the bill is to 
amend the Competition in Contracting Act (10 U.S.C. 2304(c)) 
and (41 U.S.C. 253(c)) to provide HUBZone contracting authority 
to award HUBZone prime contracts using procedures other than 
competitive procedures for Federal prime contract requirements 
greater than the simplified acquisition threshold and not 
greater than $5,000,000, in the case of manufactured items and 
$3,000,000, for all other contract opportunities.

Section 605. Regulations

    The bill requires the Small Business Administration to 
publish within 180 days of enactment the final regulations to 
carry out the program. The bill further requires the Federal 
Acquisition Regulatory Council to publish the HUBZone 
implementing regulations within 180 days of the date the SBA 
publishes its final regulations.

Section 606. Report

    The bill requires the Administrator of the Small Business 
Administration to submit a report to the Senate and the House 
of Representatives Committees on Small Business by March 1, 
2002. The report is to evaluate the implementation of the 
HUBZone program, as well as the effectiveness of the program.

Section 607. Authorization of Appropriations

    The bill amends the Small Business Act to authorize the 
appropriation of $5,000,000, for the Small Business 
Administration for implementation of the HUBZone program for 
each Fiscal Year, 1998, 1999 and 2000.

                  Title VII: Service Disabled Veterans

    This title includes the House language designed to enhance 
the Small Business Administration's efforts to improve 
opportunities for service disabled veterans and provide 
enhanced outreach to that group. The Congress believes strongly 
that these individuals deserve better consideration from 
federal agencies than they are currently receiving.

Section 701. Purposes

    This section outlines the intent of the Congress to enhance 
entrepreneurial opportunities for service disabled veterans and 
to promote their efforts to participate in the small business 
community.

Section 702. Definitions

    This section defines the terms ``eligible veteran'' and 
``small business concern owned and controlled by eligible 
veterans'' for the purposes of this title and the Act.

Section 703. Report by the Small Business Administration

    This section requires the Small Business Administration to 
study the needs of small businesses owned by eligible veterans 
and report to the Committees on Small Business of the House and 
Senate on the steps needed to improve and enhance the role of 
service disabled veterans in the small business community and 
the economic mainstream of the country. The Congress expects 
Small Business Administration to provide this information in 
detail and well within the time allotted. The Congress expects 
the Small Business Administration to reach out for assistance 
in this task to the various veterans organizations, State run 
programs for veterans and other interested groups for 
assistance in completing this study.

Section 704. Information Collection

    This section directs the Secretary of Veterans Affairs, in 
cooperation with the Administrator of the Small Business 
Administration, to annually identify small businesses owned and 
controlled by eligible veterans and work to keep them informed 
concerning federal procurement opportunities available to them.

Section 705. State of Small Business Report

    This section directs the Small Business Administration to 
include information concerning small businesses owned and 
controlled by eligible veterans in its annual report to the 
President and Congress, ``The State of Small Business''.

Section 706. Loans to Veterans

    This section reinforces the Small Business Administration's 
preexisting authority to make loans to small business concerns 
owned and controlled by service disabled veterans. The Congress 
takes this step to cure a lingering misunderstanding that the 
Administration's requested defunding of the Veteran's direct 
loan program in no way diminishes the Small Business 
Administration's responsibility to assist veterans through the 
7(a) program.

Section 707. Entrepreneurial Training, Counseling, and Management 
        Assistance

    This section directs the Administrator to ensure that small 
business concerns owned and controlled by eligible veterans are 
given full access to the Small Business Administration's 
business assistance programs including SCORE, and the Small 
Business Development Centers.

Section 708. Grants for Eligible Veterans' Outreach Programs

    This section amends the Small Business Administration's 
existing authority to include making grants to, or entering 
into cooperative agreements with organizations that have or may 
establish outreach and assistance programs for eligible 
veterans.

Section 709. Outreach for Eligible Veterans

    This section directs the Administrator of the Small 
Business Administration, the Secretary of Veterans Affairs, and 
the Assistant Secretary of Labor for Veterans' Employment and 
Training to cooperatively develop an outreach and assistance 
program designed to coordinate the activities of their 
respective agencies and to disseminate the information about 
those programs to eligible veterans.

5.3  H.R. 3412--The Small Business Investment Companies Technical 
        Corrections Act of 1998

                           Legislative History
------------------------------------------------------------------------
                  Date                                Action
------------------------------------------------------------------------
H.R. 3412:
March 10, 1998..........................  Referred to House Committee on
                                           Small Business.
March 12, 1998..........................  Committee Consideration and
                                           Mark-Up Held.
March 12, 1998..........................  Ordered to be Reported
                                           (Amended) by Voice Vote.
March 17, 1998..........................  Reported to House (Amended) by
                                           House Committee on Small
                                           Business Report No. 105-450.
March 17, 1998..........................  Placed on Union Calendar,
                                           Calendar No. 257.
March 24, 1998..........................  Called up by House Under
                                           Suspension of the Rules.
March 24, 1998..........................  Passed House by Recorded Vote:
                                           407-0. Roll No. 66.
March 25, 1998..........................  Received in Senate and
                                           Referred to Senate Committee
                                           on Small Business.
September 15, 1998......................  Ordered Reported (Amended) by
                                           Senate Committee on Small
                                           Business.
September 25, 1998......................  Reported to Senate with
                                           Amendment in Nature of
                                           Substitute. Senate Report No.
                                           105-347.
September 25, 1998......................  Placed on Senate Calendar,
                                           Calendar No. 645.
September 30, 1998......................  Measure Laid Before Senate by
                                           Unanimous Consent.
September 30, 1998......................  Amendment Agreed to in Senate
                                           by Unanimous Consent.
September 30, 1998......................  Passed Senate with Amendment
                                           by Unanimous Consent.
October 1, 1998.........................  Measure Returned to House.
------------------------------------------------------------------------

                          Need for Legislation

    The purpose of H.R. 3412 was to make certain technical 
amendments to Title III of the Small Business Investment Act of 
1958. Title III authorizes the activities of the Small Business 
Investment Company program. Small Business Investment Companies 
(SBICs) are venture capital firms licensed by the Small 
Business Administration that use SBA guarantees to leverage 
private capital for investment in small businesses. The 
technical corrections proposed by H.R. 3412 would improve the 
flexibility of the SBIC program and allow improved access to 
this program by small businesses.
    Congress revamped the SBIC program in the 103d Congress to 
provide for a new form of leverage geared specifically towards 
equity investment in small businesses. Over the ensuing years, 
as the new program has become established, certain deficiencies 
have come to light; in addition, certain statutory provisions 
have become obsolete.
    Moreover, the nature of the SBIC industry has changed. The 
result is a participating securities industry made up primarily 
of smaller SBICs. The fact that these smaller SBICs are 
dominating the program points to shifting dynamics in the SBIC 
program. Smaller, start-up investments are more typical and, 
therefore, the demand for leverage has shifted to smaller 
individual placements.
    H.R. 3412 sought to correct these deficiencies, and remove 
provisions that may produce confusion due to changes in law and 
the character of the SBIC program. Under H.R. 3412, a provision 
in the Small Business Investment Act that reserves leverage for 
smaller SBICs will be repealed. Changes in SBA policy regarding 
applications for leverage, statutory changes in the 
availability of commitments for SBICs, and the makeup of the 
industry present the possibility that that provision may, in 
fact, create conflicts and confusion.
    H.R. 3412 modified a test for determining the eligibility 
of small businesses for SBIC financing. Current statutory 
language does not account for small businesses organized in 
pass-through tax structures such as S corporations, limited 
liability companies, and certain partnerships. Also, H.R. 3412 
will allow the SBA greater flexibility in issuing trust 
certificates to finance the SBIC program's investments in small 
businesses. Current law allows fundings to be issued every six 
months or more frequently. This inhibits the ability of the 
SBICs and the SBA to form pools of certificates that are large 
enough to generate serious investor interest.

                      Section-by-Section Analysis

Section 1. Short Title

    Designates the bill as ``The Small Business Investment 
Company Technical Corrections Act of 1998''.

Section 2. Technical Corrections

    (1) This paragraph removes subparagraph (13) of Section 
303(g) of the Small Business Investment Act (15 U.S.C. 683(g)). 
That provision reserves 50% of participating securities 
leverage for Small Business Investment Companies with private 
capital of less than $20 million until the fourth fiscal 
quarter. While the Committee continues to be interested that 
all SBICs have access to the funding needed to complete their 
investments, we also recognize that this provision is no longer 
necessary. Only 12 of the 60 SBICs in the participating 
leverage program have more than $20 million in private capital, 
and the original concern that a few large SBICs would dominate 
the program has proved unfounded. It appears that most SBIC 
equity placements are in smaller early-stage businesses and 
consequently most participating securities SBICs are 
established as smaller funds.
    (2) This paragraph establishes a test for small businesses 
formed as tax ``pass-through'' entities such as S corporations, 
or limited liability companies. Such businesses will have their 
small business investment eligibility determined by multiplying 
their net income by the combined federal and state corporate 
tax rate and then subtracting the result from their net income. 
That result will serve as the small business' estimated 
``after-tax income'' for the purpose of determining 
eligibility. This removes an uncertainty in the statute that 
meant a C corporation with as much as $9 million in pretax 
income could be a small business but a pass-through S 
corporation with $6,000,001 in income was ineligible.
    The final paragraph changes Section 320 of the Small 
Business Investment Act to allow issuance of Small Business 
Administration-backed trust certificates not less than every 
twelve months rather than the current standard of every six 
months. SBA would retain the discretion to issue guarantees and 
trust certificates at shorter intervals if appropriate. The 
change will give SBA increased flexibility in negotiating the 
terms and costs associated with the placement of certificates, 
either by contract or public offering. This will ultimately 
benefit the small businesses seeking financing since the rates 
sought by SBICs are reflected in the rates charged to small 
businesses.

5.4  H.R. 3853--The Drug-Free Workplace Act of 1998

                           Legislative History
------------------------------------------------------------------------
                  Date                                Action
------------------------------------------------------------------------
H.R. 3853:
May 13, 1998............................  Referred to House Committee on
                                           Small Business.
June 11, 1998...........................  Committee Consideration and
                                           Mark-Up Session Held.
June 11, 1998...........................  Ordered Reported (Amended) by
                                           Voice Vote.
June 18, 1998...........................  Reported to House (Amended) by
                                           Voice Vote.
June 18, 1998...........................  Placed on Union Calendar,
                                           Calendar No. 328.
June 23, 1998...........................  Passed House (Amended) by Yea-
                                           Nay Vote: 402-9. Roll No.
                                           257.
June 24, 1998...........................  Received in Senate. Referred
                                           to Senate Committee on Small
                                           Business.
September 15, 1998......................  Ordered Reported by Committee
                                           on Small Business With an
                                           Amendment in Nature of
                                           Substitute.
September 25, 1998......................  Reported to Senate. Report No.
                                           105-348.
September 25, 1998......................  Placed on Senate Calendar,
                                           Calendar No. 656.
October 19, 1998........................  Included in Conference Report
                                           for H.R. 4328, Omnibus
                                           Appropriations Act for 1999.
                                           For Further Action See H.R.
                                           4328.
H.R. 4328:
October 20, 1998........................  Conference Report for H.R.
                                           4328 Approved by House by Yea-
                                           Nay Vote: 333-95 Roll No.
                                           538.
October 21, 1998........................  Conference Report for H.R.
                                           4328 Approved by Senate Yea-
                                           Nay Vote: 65-29, Roll No.
                                           314.
October 21, 1998........................  Enrolled Measure Signed in
                                           House.
October 21, 1998........................  Enrolled Measure Signed in
                                           Senate.
October 21, 1998........................  Measure Presented to
                                           President.
October 21, 1998........................  Became Public Law 105-277.
------------------------------------------------------------------------

                          Need for Legislation

    The abuse of drugs and alcohol in the workplace is a 
significant hazard to working Americans, and a serious drain on 
the economy in terms of lost productivity, increased health 
costs and wasted potential. Small businesses employ the vast 
majority of American workers. Yet the Institute for a Drug-Free 
Workplace estimates that a majority of illicit drug users work 
for organizations of less than 25 people--small businesses. 
This statistic points to a problem in our society that goes 
beyond the economic costs. Workplace injuries and lost 
productivity are often easily quantified. The costs to families 
and children due to the problem of substance abuse are harder 
to add up. H.R. 3853 will address both the obvious and hidden 
damage this problem causes through the encouragement of 
workplace-based programs of employee assistance and 
intervention.
    H.R. 3853 will initiate a demonstration program designed to 
aid small businesses in the establishment of drug-free 
workplace programs. Under H.R. 3853, non-profit intermediaries 
will be awarded grants to establish drug-free workplace 
programs for use by small businesses. These programs will 
encourage employers to offer and use a variety of strategies of 
employee assistance, training and intervention to reduce 
substance abuse problems.

                      Section-by-Section Analysis

Section 1. Short Title

    Designates the bill as ``the Drug-Free Workplace Act of 
1998''.

Section 2. Findings, Purposes

    This section details Congressional findings regarding the 
serious costs in health, safety and productivity that the abuse 
of alcohol and drugs heaps on the economy and particularly, 
small business. This section also lays out the fundamental 
purpose of this bill--to aid working families and the small 
businesses that employ them in combating the threat of 
substance abuse.

Section 3. Sense of Congress

    This section expresses the sense of Congress that 
businesses should adopt drug-free workplace policies and that 
the States should encourage them in their efforts through tax 
and insurance incentives.

Section 4. Drug-Free Workplace Demonstration Program

    This section establishes the demonstration program 
permitting the Small Business Administration to offer grants to 
intermediary organizations who would provide assistance to 
small businesses in setting up drug-free workplace programs. 
The intermediaries must be 501(c) (3) or (6) non-profit 
organizations with a background in assisting small businesses 
and a specific history of at least two years experience in 
establishing drug-free workplace programs.
    This section, under paragraph (c), also establishes de 
minimis components for any drug-free workplace program. These 
components are (1) a clear written policy, (2) a minimum of two 
hours of training for all employees, (3) additional training 
for working parents, (4) drug testing by a certified 
institution, (5) access to an employee assistance program, and 
(6) a continuing drug and alcohol abuse prevention program.
    Paragraph (d) requires the Small Business Administration, 
in conjunction with the Departments of Labor and Health and 
Human Services, and the ``Drug Czar'' to evaluate programs of 
any drug-free workplace programs established. Paragraphs (e) 
and (f), respectively, define eligible intermediaries to 
include organizations in the District of Columbia and the 
territories, and define ``employees'' as including supervisors, 
managers and certain owners and officers.
    Finally, paragraph (g) makes clear that participation in 
drug-free workplace training sessions or other program does not 
require any employer to contract for any services offered as 
part of a drug-free workplace program, and paragraph (h) 
authorizes the program for fiscal 1999 at a sum of $10,000,000.
    While the Committee did not accept an amendment offered by 
Ms. Christian-Green regarding the certification of intermediary 
organizations it does wish to encourage the Administration, 
when drafting regulations for this program, to use certified 
intermediaries whenever possible. The Committee recognizes that 
certification may not be required in all jurisdictions, and 
does not wish to make it a statutory requirement. However, when 
required in a jurisdiction, it should also be required for this 
program. In jurisdictions where certification is not required, 
the Administration should draft regulations that require 
intermediaries to have some demonstrated skills and experience. 
The certification or experience should not necessarily be 
intrinsic to the intermediary itself, it may be acquired 
through subcontracting or referral.

Section 5. Small Business Development Centers

    Section 5 adds providing drug-free workplace assistance and 
information to the various duties and responsibilities of small 
business development centers.

Section 6. Contract Authority

    Authorizes the Small Business Administration to contract 
with other government agencies or organizations or private 
organizations for the provision of services under this Act. 
This provision will allow the Small Business Administration to 
draw on the resources of other organizations in areas outside 
their technical competencies.

Section 7. Collection of Data and Study

    Directs the Small Business Administration to collect data 
and perform a study on the abuse of drugs in the workplace and 
its costs to small business.

5.5  H.R. 4078--Woman's Small Business Expansion Act of 1998

                           Legislative History
------------------------------------------------------------------------
                  Date                                Action
------------------------------------------------------------------------
H.R. 4078:
June 18, 1998...........................  Referred to House Committee on
                                           Small Business.
June 25, 1998...........................  Committee Consideration and
                                           Mark-up Session Held.
June 25, 1998...........................  Ordered Reported by Voice
                                           Vote.
------------------------------------------------------------------------

    There was no further action on H.R. 4078.

                          Need for Legislation

    Women's Business Centers are organizations created to 
assist women entrepreneurs. They provide this assistance 
through a variety of services including management training, 
marketing assistance, and business plan development. H.R. 4078 
had only one purpose--to increase the authorization of the 
Women's Business Center program from $8 million to $9 million 
annually. This increase would enable the SBA to open 
approximately 30 more Women's Business Centers in the next two 
years.
                              CHAPTER SIX

   SUMMARY OF OTHER LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL 
                                BUSINESS

6.1  Committee Meetings
            6.1.1  organizational meeting
    On February 13, 1997, the Committee on Small Business held 
an organization meeting. The purpose of this meeting was three-
fold: (1) to consider and adopt the Committee rules for the 
105th Congress, (2) to consider and adopt the Committee's 
oversight plan for the 105th Congress, and (3) to approve the 
subcommittee assignments for Members of the Committee. The 
Committee accomplished these three tasks in record time (11 
minutes) with little discussion. Both the Committee rules and 
oversight plan were adopted, without amendment, by voice vote.
    The text of the Committee's oversight plan follows:

           OVERSIGHT PLAN FOR THE COMMITTEE ON SMALL BUSINESS

                             105TH CONGRESS

                     U.S. HOUSE OF REPRESENTATIVES

                 CONGRESSMAN JAMES M. TALENT, CHAIRMAN

    Rule X, clause 2(d)(1), of the Rules of the House requires each 
standing Committee to adopt an oversight plan for the two-year period 
of the Congress and to submit the plan to the Committees on Government 
Reform and Oversight and House Oversight not later than February 15 of 
the first session of the Congress.
    The oversight plan of the Committee on Small Business includes 
areas in which the Committee expects to conduct oversight activity 
during the 105th Congress. However, this plan does not preclude 
oversight or investigation of additional matters as the need arises.

             OVERSIGHT OF THE SMALL BUSINESS ADMINISTRATION

    The Committee will conduct hearings on all the major programs of 
the Small Business Administration to determine their effectiveness and 
possible options for improvements.

         FINANCIAL AND MANAGEMENT/TECHNICAL ASSISTANCE PROGRAMS

    The Committee will conduct hearings on the effectiveness and 
efficiency of the SBA's major programs. Particular emphasis will be 
placed on improving the economic efficiency of these programs. A number 
of the SBA's key programs will be the subject of oversight hearings by 
the Committee. These include:

           7(a) General Business Loan Programs (Spring, 1997)

          Certified Development Company Program (Spring, 1997)

                   SBIC/SSBIC Programs (Summer, 1997)

                    Microloan Program (Summer, 1997)

                          SBDC (Summer, 1997)

                       Disaster Loan (Fall, 1997)

                       Surety Bond (Winter, 1998)

                                ADVOCACY

    The Office of Advocacy was created to provide small business with 
an effective voice inside the Federal government. The Committee will 
conduct hearings on how to strengthen this voice and make sure that the 
Office of Advocacy continues to effectively represent the interests of 
small business. (Summer, 1997)

                   TECHNOLOGY AND RESEARCH ASSISTANCE

                   Small Business Innovation Research

    The Small Business Innovation Research (SBIR) program aids small 
businesses in obtaining federal research and development funding for 
new technologies. (Summer, 1997)

                   Small Business Technology Transfer

    The Small Business Technology Transfer program authorization will 
expire on September 30, 1997. Committee oversight will focus on the 
program's success at helping small business access technologies 
developed at federal laboratories and put that knowledge to work. 
(Summer, 1997)

                          FEDERAL PROCUREMENT

    The Committee will examine changes in federal procurement. The 
Committee will investigate the implementation of the changes and the 
effect they are having on small businesses involved in government 
contracting. (Fall, 1997)

                  GOVERNMENT & NON-PROFIT COMPETITION

    The Committee will be conducting hearings on the extent to which 
non-profit organizations and the federal government itself compete with 
small business. Our focus will include activities in both the private 
sector and government procurement. (Winter, 1998)

                         REGULATORY FLEXIBILITY

    The Committee will continue its oversight of agency implementation 
of the Regulatory Flexibility Act, as amended by the Small Business 
Regulatory Enforcement Fairness Act. (Ongoing)

                                 SBREFA

    The Committee will be conducting oversight hearings on agency 
implementation of the Small Business Regulatory Enforcement Fairness 
Act (SBREFA), which was enacted during the second session of the 104th 
Congress. (Ongoing)

                          PAPERWORK REDUCTION

    The Committee will continue its oversight of agency implementation 
of the Paperwork Reduction Act, as amended. (Ongoing)

                         GOVERNMENT REGULATION

    The Committee will continue to examine the regulatory activities of 
various federal agencies and assess the impact of regulations on the 
small business community. (Ongoing)

                                TAXATION

    The Committee will continue to conduct oversight hearings into ways 
to reduce the tax burden on small business. These hearings will include 
not only the fiscal but the paperwork burden of the federal tax system 
and federal enforcement efforts. (Spring, 1997 through Fall, 1997).

                     ELECTRIC UTILITY DEREGULATION

    The Committee will conduct oversight hearings on the potential 
effects of electric utility deregulation on small business. (Summer, 
1997 through Fall, 1997)

                 GOVERNMENT PERFORMANCE AND RESULTS ACT

    The Committee will continue consultations with the SBA regarding 
the preparation and implementation of strategic plans and performance 
plans as required under the Government Performance and Results Act. 
(Ongoing)

                              EMPOWERMENT

    The Committee will conduct oversight hearings over regulations and 
licensing policies that impact small businesses located in high risk 
communities. Additionally, the Committee will examine the promotion of 
business growth and opportunities in economically depressed areas, and 
will examine programs targeted towards relief for low income 
communities. (Ongoing)

6.2  Budget Views and Estimates

    Pursuant to Section 301(c) of the Congressional Budget Act 
of 1974, the Committee prepared and submitted to the Committee 
on the Budget its views and estimates on the fiscal year 1999 
budget with respect to matters under the Committee's 
jurisdiction.
            6.2.1  fiscal year 1998 budget
    The Committee did not submit its views and estimates on the 
fiscal year 1998 budget.
            6.2.2  fiscal year 1999 budget
    On March 11, 1998, the Committee submitted its budget views 
and estimates on the fiscal year 1999 budget in compliance with 
rule X, clause (4)(g), of the Rules of the House of 
Representatives. Those views and estimates were based on the 
President's Budget for FY 1999 as well as the Small Business 
Administration's budget submission. The President's proposed 
budget for FY 1999 requested an increase of $8 million over FY 
1998 for a total request of $724.8 million .
    While the Committee believed that many of the provisions of 
the budget were reasonable, it could not agree with the 
direction provided in the current FY 1999 budget proposal. The 
SBA does provide important services to the small business 
community. However, SBA's FY 1999 budget was, unfortunately, 
lacking in a coherent view. There was a troubling increase of 
nearly $200 million in overall SBA expenses that was masked by 
proposed changes to the disaster loan program.
    The President's FY 1999 SBA budget submission also asked 
for no appropriations for FY 1999 disaster assistance. The 
Administration believed that sufficient carryover funds existed 
to fully fund disasters for FY 1999. This saving of 
approximately $148 million was based on optimistic assumptions 
and an increase in the interest rate charged to disaster 
victims. These changes deliberately shifted SBA financial 
excesses onto the backs of disaster victims.
    In addition, important programs for small business 
assistance were drastically under-funded based on unrealistic 
projections of demand and carryover. The FY 1999 SBA proposed 
budget for small business financial assistance discusses 
building a twenty-first century financial management 
organization and providing assistance for small business. The 
reality was that the Small Business Investment Company program 
was severely under-funded and the 7(a) program level relied on 
unsubstantiated savings estimates.
    Finally, federal employment was increased rather than 
decreased, and some programs were increased without thought to 
cost or efficiency. Streamlining and productivity enhancing 
technology were proposed to support bureaucratic growth.
    Minority views were also submitted.
                             CHAPTER SEVEN

   SUMMARY OF OVERSIGHT, INVESTIGATIONS AND OTHER ACTIVITIES OF THE 
           COMMITTEE ON SMALL BUSINESS AND ITS SUBCOMMITTEES

7.1  Summary of Committee Oversight Plan and Implementation

    Pursuant to Rule X, clause 2(d)(1), of the Rules of the 
House of Representatives, the Committee on Small Business 
adopted, on February 13, 1997, an oversight agenda for the 
105th Congress. (For a discussion of the Committee's 
consideration of the oversight agenda and final agenda refer to 
section 6.1.1 of this report.) The House rule also requires 
that each Committee summarize its activities undertaken in 
furtherance of the oversight agenda as well as any additional 
oversight actions taken by the Committee.
    In the following portions of Chapter Seven, the provisions 
of the oversight agenda are addressed in the hearing summaries 
of the Committee and its subcommittees. A summary of each 
hearing conducted by the full Committee appears in section 7.2 
of this report and summaries of each subcommittee hearing 
appear in sections 7.3 through 7.6 of this report. An overview 
of the Committee's legislative activities appears in Chapter 
Five of this report.

7.2  Summaries of the Hearings Held by the Committee on Small Business

            7.2.1  the sba's budget for fiscal year 1998

                               Background

    On March 6, 1997 the Committee on Small Business held an 
oversight hearing on the budget proposal of the Small Business 
Administration (SBA). In response to the SBA budget request for 
fiscal year 1998, witnesses were asked to comment on the 
programs of the SBA, which would be reformed. Witnesses were 
also asked to justify how specific budget changes would 
increase the SBA's assistance to small business. Furthermore, 
witnesses commented on specific SBA programs, such as the 504 
Lending Program, the Premier Certified Lenders Program (PCLP), 
and Small Business Development Centers (SBDC).

                                Summary

    The hearing was comprised of two panels. The first 
consisted of the Honorable Aida Alvarez, Administrator of the 
U.S. Small Business Administration. She was accompanied by 
Patricia Forbes, Deputy Administrator for Economic Development, 
Gregory A. Walter, Acting Assistant Administrator for 
Congressional and Legislative Affairs, Bernard Kulik, Associate 
Administrator for Disaster Assistance; Antonella Pianalto, 
Associate Deputy Administrator for Management and 
Administrator; Johnnie Albertson, Associate Administrator for 
Small Business Development Centers; Ronald K. Hobson, Associate 
Deputy Administrator for Government Contracting and Minority 
Enterprise Development; Don Christensen, Associate 
Administrator for Investment, and Jane Butler, Acting Associate 
Administrator for Financial Assistance. The panel spoke on 
behalf of the President's budget request for the Small Business 
Administration. They supported the funding levels in the 
proposal for each SBA program. As it was Administrator 
Alvarez's first hearing before the committee in her new 
position as head of the SBA, she also outlined her goals for 
the agency's programs.
    The second panel included: Mark Barbash, Executive 
Director, Columbus Countywide Development Corporation, 
representing the National Association of Development Companies 
(NADCO); Keith Fox, General Partner, Exeter Equity Partners, 
representing the National Association of Small Business 
Investment Companies (NASBIC); James L. King, State Director, 
New York Small Business Development Center, representing the 
Association of Small Business Development Centers; and Richard 
E. Wise, President, American National Bank on behalf of the 
National Association of Government Guaranteed Lenders.
    Mr. Barbash testified about the funding levels of the SBA 
504 program's Certified Development Companies (CDCs). NADCO, 
which represents 275 CDCs, found the Administration's request 
for $2.3 billion authorization to be inadequate. His rationale 
is that FY 1996 authorizations totaled $2.5 billion and FY 1997 
loan volume should not exceed that level. NADCO estimates 
increase in every year thereafter. Furthermore, he said that 
since the 504 program is self-funded, an increase in the 
authorization level would not be detrimental to the federal 
budget.
    Mr. Fox, on behalf of NASBIC, said he agreed with the 
funding levels in the President's budget for Small Business 
Investment Companies. He also outlined the SBIC program, and 
why it remains a worthwhile governmental investment.
    Both Mr. King and Mr. Wise disagree with proposed SBA 
funding cuts in Small Business Development Centers (SBDCs). 
According to the Administration's plan, $16 million are to be 
cut from SBDCs, a 24% reduction from the previous year. Both 
witnesses testified that the SBDC program counsels thousands of 
small businesses annually and deserves support. They also 
testified to the negative effects of a budget cut to the 
assistance provided to small business.
    For further information on this hearing, refer to Committee 
publication 105-1.
            7.2.2  empowering our nation's low-income communities

                               Background

    On March 12, 1997, the Committee held a hearing 
investigating the invigoration of low-income communities. 
Chairman Talent, the Honorable Floyd H. Flake, a Representative 
from New York and the Honorable J.C. Watts, Jr., a 
Representative from Oklahoma introduced the ``American 
Community Renewal Act'' the morning of the hearing. Instead of 
offering new governmental programs to our most needy 
neighborhoods, the Act would work to nurture existing local 
community organizations. Based on the three themes of moral and 
family renewal, economic empowerment, and fostering private 
charities, witnesses testified about existing programs, which 
exemplify the merits of the proposed legislation. Also they 
addressed the impact the American Community Renewal Act might 
have if passed into law.

                                Summary

    The hearing consisted of one panel which included: 
Congressman Watts; Clint Bolick, Vice President and Director of 
Litigation, Institute of Justice; Tom Lewis, Founder and 
Executive Director, the Fishing School, Washington, DC; Dr. 
Stuart Butler, Vice President and Director of Domestic and 
Economic Policy Studies, the Heritage Foundation; Kathryn 
Wylde, President, New York City Investment Fund; and Robert L. 
Woodson, Sr., National Center for Neighborhood Enterprise.
    Mr. Watts testified about specific neighborhood ministries, 
which currently help people living in disadvantaged areas. 
These organizations assist people in finding work and 
overcoming drug addiction in order to lead productive lives. He 
emphasized that these are private religious organizations, 
which Congress has not financially assisted in the past. 
However, he urged his colleagues to allow faith-based 
organizations to become a part of the solution to help ailing 
communities through passage of the American Community Renewal 
Act.
    Mr. Bolick testified on behalf of the Institute of Justice 
which helps fight legal battles for people with limited 
economic means across the United States. He praised the Act for 
its elimination of unnecessary regulations that impede 
entrepreneurship in disadvantaged areas and the creation of 
scholarships for children of low-income families.
    Mr. Lewis, a 20-year veteran of the Washington, DC Police 
Department, an ordained minister and the founder of the Fishing 
School, an after-school program on one of the toughest streets 
of the city, testified about his community outreach program. He 
praised the Act for including incentives to start programs like 
the Fishing School by letting people spend up to $35,000 tax-
free for these programs.
    Dr. Butler and Ms. Wylde praised the American Community 
Renewal Act of 1997 by testifying about how both small business 
and disadvantaged communities will benefit from the 
legislation. They said that different provisions in the bill 
would create higher incentives for small business investment 
that will, in turn, assist the members of each community.
    Mr. Woodson also gave anecdotal information towards the 
success neighborhood grassroots organizations have had in 
turning poor and crime-ridden areas into strong, thriving 
communities. He emphasized that spending money towards 
conducting different studies and creating massive programs is 
usually wasteful whereas smaller grassroots programs are 
thriving.
    For further information on this hearing, refer to Committee 
publication 105-2.
            7.2.3  small business tax burdens

                               Background

    On April 3, 1997, the Committee on Small Business held a 
field hearing in St. Peters, Missouri, on several tax issues 
affecting small businesses. Small businesses in general, and 
home-based businesses in particular, are experiencing 
burgeoning growth throughout the St. Peters region and across 
the country. Taxes have a broad and significant impact on the 
ability of small businesses to expand, hire and retain workers, 
and maintain economic stability. Witnesses were asked to 
specifically describe how taxes have affected their small 
businesses and small business in general, with specific focus 
on the home office deduction, the health insurance deduction, 
independent contractor status and the estate tax. Further, 
witnesses explored how H.R. 1145, ``The Home-Based Business 
Fairness Act of 1997,'' would provide their businesses with tax 
relief.

                                Summary

    The hearing was comprised of three panels, the first of 
which included: Linda Howard, owner, Oasis Office Automation; 
Carol Prose, owner, Travel Opportunities; Edith Quick; owner, 
Quick Tax & Accounting Service and 1995 White House Conference 
on Small Business Region VII chairperson on taxation; and 
Valarie Wilson, owner, V. Wilson Associates. The first panel 
discussed the nature of the home-based business as an 
efficient, flexible, and highly productive mode of conducting 
business that affords home business owners and their families 
an increased quality of life. The unanimous view was that the 
home office deduction was essential, providing needed capital 
with which these businesswomen could grow their businesses by 
updating equipment and improving cash flow. However, the home 
office deduction was not available to all of the witnesses, 
most of whom were precluded from taking the deduction by the 
narrow definition of what qualifies as a home-based business 
under current tax law. Ms. Quick expressed concerns about the 
Supreme Court's 1993 ruling in Commissioner v. Soliman, which 
severely limited the number of home-based businesses who were 
able to take the home office deduction. Ms. Howard explained 
that her business was among the home offices affected; she was 
unable to take the deduction as a consultant who must perform 
her duties at the site of her client, even though she performs 
all of her preparatory and administrative work in her home 
office.
    The second panel examined health insurance deductibility 
for small businesses and included: Jim Koetting, owner, 
HealthCare Solutions; Charles Kruse, president, Missouri Farm 
Bureau; and Thomas Shalberg, owner, TCD Associates. Witnesses 
discussed the problems with current limitations on health 
insurance deductions for small businesses. Witnesses agreed 
that it was highly inequitable to afford corporations 100 
percent deductibility for health insurance premiums while 
restricting the self-employed to 40 percent under current law. 
Mr. Koetting explained that, as a result, small businesses were 
not only paying average monthly premiums of $300-400 per month, 
but, at a tax bracket of 28 percent, they were also paying 
$600-$800 per year in taxes. All witnesses remarked that, as a 
result, people often would forgo health insurance because it 
was too costly.
    The third panel examined independent contractor status and 
the estate tax, and included: Dale Oestreich, owner, American 
Delivery Service; Judy Meador, editor, St. Louis Small Business 
Monthly; Bob Poelker, vice president, BSI Constructors, Inc.; 
Sandra Wilmoth, owner, Midwest Marble and Granite Corp.; and 
Mary Ann Zerr, farm owner. Witnesses on the third panel agreed 
that the lack of clarity as to what constitutes an independent 
contractor versus an employee affects many businesses 
negatively, forcing small business owners to guess--often to 
their detriment--how they will be classified by the Internal 
Revenue Service. Mr. Oestreich explained that the risk involved 
in being re-classified by the IRS is so great that he opted for 
the safest path of classifying all of his workers as 
employees--a move that almost forced his company out of 
business. Ms. Meador echoed these concerns and remarked that 
the ``Home-Based Business Fairness Act of 1997'' afforded a 
clearer, more understandable definition of independent 
contractor status.
    The witnesses discussing estate tax were unified in their 
belief that the estate tax was detrimental to small business. 
Mr. Poelker explained that nearly $5 million is spent annually 
on life insurance premiums in order to have the proceeds 
necessary to pay the death tax in the equipment industry alone. 
Further, he mentioned that 70% of family businesses do not 
succeed to the second generation, and that every time a family-
owned business closes, an average of 46 workers lose their 
jobs. Ms. Wilmoth testified that the only option for her--as 
she cannot afford ``death insurance'' and does not have the 
capital necessary to pay the estate tax after her business 
transfers to her children--is to sell her business, which will 
result in the loss of jobs for 25 highly skilled employees.
    For further information on this hearing, refer to Committee 
publication 105-3.
            7.2.4  proposed rewrite of far part 15

                               Background

    On April 10, 1997, the Committee held a hearing on the 
Administration's proposed changes to Part 15 of the Federal 
Acquisition Regulations (FAR), which controls the source 
selection process for government procurements. Two laws passed 
in the 103rd and 104th Congresses provoked the changes to the 
FAR (Federal Acquisition Streamlining Act of 1994 and the 
Federal Acquisition Streamlining Act of 1996.) Approximately 
$50 billion in procurements are awarded using Part 15 of the 
FAR. The proposed reforms affect the full and open competition 
standards created in the Competition in Contracting Act of 
1984. While full and open competition is not eliminated by the 
reforms, a competing concept of ``efficient competition'' is 
introduced by the new standards. Witnesses were asked how the 
new regulations would affect small business participation in 
government procurements.

                                Summary

    The hearing was comprised of one panel which included: Tom 
Frana, President, Vion Corporation; Mike Postiglione, 
President, Avanti Corporation; James R. Klugh, Major General, 
US Army, Retired, President, Executive Security and Engineering 
Technologies, Inc., Jere Glover, Chief Counsel for Advocacy, 
Small Business Administration, accompanied by Jim O'Connor, 
Assistant Advocate for Procurement Policy; and Steven Kelman, 
Administrator, Office of Federal Procurement Policy.
    Mr. Frana expressed his concern that the Administration's 
proposal goes too far in regard to small business. The 
Administration's rationale for the changes is to make the 
procurement process more efficient by eliminating some of the 
formalistic procedures in handling contract bids including 
allowing bidders to remain in the bidding process at their own 
discretion. The Administration proposal suggested competitive 
range restrictions and mandatory ``down selects'' which could 
eliminate many small business bids. Mr. Frana said that these 
restrictions on free and open competition, small businesses 
might lose contracts they normally might have a chance to 
compete for. Furthermore, in the proposed regulation, small 
businesses will have no way to appeal a contract. Therefore, 
there will be no consequences for a contracting officer who 
willingly excludes small businesses from a procurement 
opportunity.
     Mr. Postiglione said he supported the FAR 15 proposal. 
Testifying for the American Consulting Engineers Council 
(ACEC), he noted qualifications-based selection (QBS) has been 
a function used by the architectural and engineering community 
for the last 25 years. In his experiences in the industry, he 
feels QBS works extremely well in the governmental marketplace. 
Because the new initiative in Part 15 mirror those used in QBS, 
Postiglione said he was in favor of the reforms.
    Gen. Klugh and Mr. Glover testified about their concerns 
with the FAR 15 proposal. They were skeptical of the assertion 
that empowerment of contracting officers would not hinder the 
bidding capabilities of small businesses. Furthermore, Mr. 
Glover produced statistics which showed small businesses 
currently earn a much greater share in competitive procurement 
opportunities than in those procurements which are decided non-
competitively.
    Dr. Kelman supported the FAR 15 rewrite and spoke on behalf 
of the Administration. He said the government would be able to 
get better quality work for what it will pay under the new 
regulations. He also felt it would improve the over-regulation 
and bureaucracy embedded in the current system. Providing 
statistics that the percentage of procurements to small 
business did not improve during the six years after the passing 
of the Competition in Contracting Act in 1984, he testified 
that small business would not be affected by the new reforms.
    For further information on this hearing, refer to Committee 
publication 105-4.

            7.2.5  relieving the tax burden on our small, family and 
                    home-based businesses

                               Background

    On April 23, 1997, the Committee on Small Business held a 
hearing to examine how to relieve small, family, and home-based 
businesses from onerous tax burdens. The hearing also explored 
taxes that concern working families and farmers, including the 
estate or death tax and capital gains taxes. Finally, the 
Committee members and the witnesses expressed concern over the 
effect of Internal Revenue Service (IRS) tax regulations on 
small business.
    This hearing followed the introduction by Chairman Jim 
Talent and Senator Kit Bond on March 20, 1997, of the Home-
Based Business Fairness Act (H.R. 1145/S. 460). The bill would 
allow home-based and self-employed workers to deduct their home 
office expenses and to deduct the full cost of their health 
insurance premiums. The bill also would clarify the definition 
of an ``independent contractor'' to minimize the threat of 
crippling IRS penalties and back taxes small businesses face 
when they use these workers.

                                Summary

    The hearing was comprised of one panel which included: 
Honorable Christopher (Kit) Bond, United States Senator from 
the State of Missouri; Marcy Bunch, owner-employee, Screening 
Services, Springfield, Missouri; Doug Horn, Vice President, 
Martin/Horn, Inc., Charlottesville, Virginia, on behalf of the 
Associated General Contractors of America; Frank Joseph, Key 
Communication Group, on behalf of the National Association of 
the Self-employed; Ann Parker Maust, President, Research 
Dimensions, Inc., Richmond, Virginia, on behalf of the National 
Federation of Independent Businesses; Anthony Vest, President, 
Management Programs Corporation, Duluth, Georgia, on behalf of 
the U.S. Chamber of Commerce; Erin Maher Weinstein, sole 
proprietor and independent sales representative on behalf of 
the Promotional Products Association International and the 
Small Business Legislative Council.
    Senator Bond first outlined the three provisions of H.R. 
1145/S. 460 and described how the legislation would relieve the 
tax burden on small, family and home-based businesses. He 
discussed the importance of clarifying the status of 
independent contractors, restoring the home office deduction, 
and accelerating to 100% the health insurance deduction for the 
self-employed. He also advocated reducing capital gains and 
discussed how regulatory burdens of the current tax system hurt 
small enterprises. Mary Bunch then discussed how an unfair tax 
burden (the inability of the self-employed to deduct their 
health insurance costs) hindered her ability to afford health 
insurance, as she invested all her family's income--including 
her husband's retirement--in her business. She expressed strong 
support for H.R. 1145, highlighting the bill would accelerate 
to 100% the health insurance deduction for the self-employed.
    Generally, the panel expressed concerns about the death 
tax, capital gains, and the need for IRS reform. Specifically, 
Doug Horn testified that his family business must hire outside 
accounting and legal advisors for estate planning, spending in 
excess of $20,000 a year in insurance and accounting fees. He 
also described how the death tax hurts small contractors in 
several ways including business continuity, cost of estate 
planning, human toll and job destruction.
    Because capital gains taxes tax income twice, Doug Horn 
described how they hurt small construction firms that rely on 
venture capital and equity investors (often employees, friends 
and family) to survive. In written testimony as Chairwoman of 
National Small Business United, Sharon Miller of Midland, 
Michigan agreed with several witnesses that capital gains taxes 
discourage long-term investment. Ms. Miller explicitly 
described how the triple burden of capital gains, death, and 
payroll taxes plagues small businesses.
    The witnesses also described disastrous experiences with 
the IRS. Mary Bunch testified that the IRS badgered her while 
she attempted to justify the independent contractor status of 
her workers under the current 20-factor test. The IRS was 
trying to reclassify her four workers as independent 
contractors. Anthony Vest testified business owners must 
utilize their personal cash, lay off workers, sell assets, or, 
in the worst case scenario, liquidate or declare bankruptcy to 
pay assessments when the IRS reclassifies independent 
contractors as employees.
    In support of H.R. 1145, Frank Joseph discussed how the 
legislation would ease his tax burdens by allowing full 
deductibility of his health insurance costs. H.R. 1145 would 
benefit Erin Maher Weinstein who has a home-based business and 
cannot currently take the home office deduction because she 
does not sell herproducts in her home. She strongly supported 
H.R. 1145 for proposing to restore the home office deduction. Ann 
Parker Maust recommended permitting the deductibility of payroll taxes, 
eliminating death taxes, implementing 100% health insurance deductions 
for the self-employed, restoring the home office deduction, reducing 
capital gains, clarifying the definition of independent contractors, 
increasing the expensing limit, and reforming the IRS. Several 
witnesses offered similar recommendations including allowing the 
deductibility of payroll taxes in addition to passing the provisions of 
H.R. 1145. In written testimony, the Small Business Legislative Council 
fervently supported H.R. 1145 and explained why death tax relief is the 
top priority of its members for the 105th Congress.

            7.2.6  small business regulatory enforcement fairness act

                               Background

    On June 5, 1997, the Committee held a hearing to educate 
members on the Small Business Regulatory Enforcement Fairness 
Act (SBRFA) and its relevance in the context of the history of 
the Regulatory Flexibility Act (RFA) of 1980. The main purpose 
of the RFA was to minimize certain regulatory burdens placed on 
small businesses. It added a chapter to the Administrative 
Procedure Act to force government agencies to review and 
minimize regulatory burdens on small businesses. After 
President Carter signed the RFA, many government agencies 
complied, implementing more small business friendly 
regulations. However, some agencies found loopholes and ignored 
the law and certain court decisions supported a looser 
interpretation of the law than what Congress intended by 
enacting the RFA. Therefore, this hearing educated members on 
SBREFA. Passed into law during the 104th Congress, SBREFA 
amends the RFA to strengthen its importance and reduce the 
regulatory burden inflicted on small business.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: the Honorable Ike Skelton, a Representative in 
Congress from the State of Missouri, and the Honorable Thomas 
W. Ewing, a Representative in Congress from the State of 
Illinois.
    Mr. Skelton, who served as Chairman of the House Small 
Business Subcommittee on Exports, Tourism and Special Programs 
when the RFA passed in 1980, gave a chronological history on 
why the implementation of SBREFA was necessary in order to 
force certain federal agencies into compliance with the RFA. 
Some of his observations were based on a 5-year report on the 
RFA that his Subcommittee completed in 1987.
    Mr. Ewing told the history of how former Small Business 
Committee Ranking Member Andy Ireland, former Small Business 
Committee Chairman John LaFalce and Mr. Skelton worked with Mr. 
Ewing at the start of the 102nd Congress to draft amendments to 
the RFA. Although re-introduced in the 103rd Congress and 
included in the Republican ``Contract with America'' at the 
start of the 104th Congress, Mr. Ewing said it took until 1996 
for the President to sign SBREFA and its amendments to the RFA 
into law. Mr. Ewing said it is the first time in 17 years that 
federal agencies will have to answer in the courts if they do 
not keep in mind small business interests in drafting rules or 
regulations.
    The second panel included experts who commented on how to 
achieve full federal agency compliance with SBREFA: James 
Morrison, Senior Policy Advisor, National Association for the 
Self Employed; Keith N. Cole, Principal, Beveridge & Diamond; 
Todd V. McCracken, President, National Small Business United; 
Craig Brightup, Director of Government Relations, National 
Roofing Contractors Association; and Mark W. Isakowitz, 
Director, Federal Government Relations--House, National 
Federation of Independent Business.
    Mr. Morrison said the drafting of the RFA was necessary 
when in the 1970's the regulatory activity in the federal 
register swelled to more than 20,000 pages a year. However, 
because the RFA restricted judicial review, the courts agreed 
with the Justice Department that small businesses could not 
seek judicial review against agencies that refuse to implement 
the law. He said SBREFA is important because small businesses 
are now better ensured relief from regulatory agencies.
    Mr. Cole testified as the former Regulatory Affairs Counsel 
to the Senate Committee on Small Business. He talked about the 
role of the Ombudsman and the regional fairness boards in 
grading how federal agencies comply with SBREFA. He also urged 
the Committee to revitalize section 610 of the RFA in the 
future, which requires an agency to adopt a plan of review of 
all of its existing regulations and to review those within 10 
years of adoption.
    Mr. McCracken expanded on Mr. Cole's concern that federal 
agencies misinterpreted section 610 by only applying a notice a 
review of new rules. However, he said SBREFA will require 
agencies to analyze the impact of its current regulations on 
small business.
    Mr. Brightup commented on how the weight of regulations 
impact the roofing industry. He specifically cited the 
Occupational Safety and Health Administration, the 
Environmental Protection Agency and the Department of 
Transportation for not analyzing their regulatory impacts on 
small business. He said SBREFA will now help protect small 
businesses from the impact of certain regulations that hinder 
their existence.
    Mr. Isakowitz said because the cost of a regulation to 
small business is on average 50 percent higher than on large 
businesses, it is important for laws like SBREFA to work. 
However, he is skeptical that it will because it seems that 
every time the 600,000 members of the National Federation of 
Independent Business lobby for new regulatory relief, agencies 
fight the newly passed laws. He said that after climbing a 
mountain, finding out more mountains rise at the peak is 
symbolic of this effort for the past three decades.
    For further information on this hearing, refer to Committee 
publication 105-13.

            7.2.7  osha's safety and health program standard

                               Background

    As mentioned as a top priority in the Occupational Safety 
and Health Administration's (OSHA's) 1996 Regulatory Agenda, 
OSHA is presently working on promulgating a comprehensive 
safety and health program standard that will be applied to 
businesses of all sizes including most small businesses. 
Although this draft standard is presently in the pre-proposal 
stage, this working draft of the rule would force small 
businesses to write a safety and health program to assess and 
control all hazards in new equipment, materials, and processes, 
and prioritize all hazards. Hazards covered by other OSHA 
standards are to be controlled in accordance with those 
standards.
    OSHA requiring a business to adopt a safety and health 
program might seem to be a plausible idea, but if one looks 
into the draft proposal, the definition of terms such as 
hazard, seriousness, control, and pattern of serious hazards 
are subjective at best. As the draft proposal is written, the 
subjective nature of this proposal could allow an inspector to 
fine a small restaurant for not assessing and controlling a 
hazard such as a bartender changing a keg of beer. If the 
safety and health program is deemed to be not up to an 
inspectors liking, a small business could be fined under this 
draft proposal.
    Due to the priority placed on this draft rule by OSHA, the 
Committee held a hearing on the draft proposal on June 26, 
1997.

                                Summary

    The hearing consisted of two panels with the first panel 
consisting of a sole witness in Greg Watchman, Acting Assistant 
Secretary for Occupational Safety and Health of the U.S. 
Department of Labor. The second panel consisted of five 
witnesses including the following: Melissa Bailey, Esq., 
McDermott, Will, and Emery, Earlyn Church, Superior Technical 
Ceramics Corporation, Katherine Gekker, The Huffman Press, 
Inc., Brian Landon, Landon's Car Wash and Laundry, and Dr. Gary 
Rainwater of the American Dental Association.
    Mr. Watchman, who was the sole witness of the first panel, 
used an answer and question format in stating his testimony. 
Mr. Watchman presented 5 questions which consisted of the 
following: Why do Americans need a safety and health program 
rule? What type of rule is OSHA considering? What is the 
rulemaking process OSHA is using? and What is OSHA doing to 
address small business concerns? Mr. Watchman basically 
attempted to validate the rule by giving specific examples of 
OSHA programs and procedures that are correlated with the 
process and context of this rule.
    The second panel which consisted of four small business 
owners and an expert witness. This panel was generally critical 
of the draft rule. The witnesses' main concern was the 
vagueness of the rule as well as how inspectors would interpret 
certain provisions of the rule due to its subjective nature. 
Witnesses also had concerns regarding OSHA using this standard 
as a way to exempt itself from going through the normal 
rulemaking process by citing companies under the general duty 
clause for failure to assess and control ergonomic hazards. The 
witnesses on this panel all concurred that the vagueness of the 
draft rule would make the inspector the judge, the jury, as 
well as the executioner.
    Mr. Watchman joined the second panel for questioning as he 
was allowed to rebut the second panel's testimony. He 
constructively criticized the witnesses' testimony defending 
OSHA's position on a variety of factors. Besides Mr. Watchman, 
the second panel witnesses were questioned generally on the 
experiences they have had with OSHA as well as their thoughts 
on this draft rule.
    Mr. Watchman was peppered with questions by the Chairman on 
the subjective nature of the rule as well as certain 
definitions of key terms such as employee, small business, 
pattern of serious hazards, etc. The hearing concluded with Mr. 
Watchman admitting that the draft rule had major flaws, and he 
also stated that OSHA would have to re-evaluate the rule 
regarding the concerns brought about by this hearing.
    For more information on this hearing, consult committee 
publication 105-15.

            7.2.8  7(a) and 504 subsidy rates

                               Background

    On Wednesday, July 16, 1998 the Committee on Small Business 
convened a hearing to discuss the system used by the Small 
Business Administration (SBA) and the Office of Management and 
Budget (OMB) to determine the credit subsidy rates that control 
funding of the SBA's guaranteed loan programs.
    The witnesses comprised a single panel of four including: 
the Honorable Aida Alvarez, Administrator of the SBA; Ms. Judy 
England-Joseph, Director for Housing and Community Development 
issues for the General Accounting Office (GAO); Mr. John 
Winchester, an analyst from Merrill Lynch Securities; and Mr. 
G. Edward DeSeve, Controller and Acting Deputy Director for 
Management of the OMB.
    Chairman Talent opened the hearing with a brief statement 
outlining the concerns of the Committee as a result of various 
problems with the subsidy model over the past two or three 
years. Specifically, he cited the unexpected change in the 
subsidy rate for the 7(a) and 504 programs, which occurred in 
1996. These dramatic changes effectively eliminated reductions 
in the subsidy rate crafted by the Committee and necessitated 
further legislation in order to rescue the programs. Chairman 
Talent also cited the recent subsidy rate problem which created 
a presumed shortage in funding for the 7(a) program until the 
GAO discovered a significant accounting error in the subsidy 
calculation.
    Mr. LaFalce echoed the Chairman's concerns and suggested 
that much of the problem may arise from the perception that the 
subsidy rate calculation is performed in a ``black box'' 
fashion. Mr. LaFalce suggested that greater transparency in the 
subsidy calculation process would greatly improve this 
perception and reduce the tension between the Congress and the 
Administration.
    The first witness to testify was Ms. Judy England-Joseph of 
the GAO. Ms. England-Joseph commented on the process which the 
GAO used to discover the error in the subsidy rate calculation. 
Ms. England-Joseph stated that the error occurred, in part, 
because insufficient controls existed to verify the 
calculations performed. She then explained that much of the 
miscalculation resulted from an error in applying the discount 
model.
    Administrator Alvarez then testified concerning SBA's role 
in the subsidy calculation process. She explained in detail 
where the error occurred and informed the Committee that she 
had requested her Chief Financial Officer scrutinize the entire 
process and had hired Price Waterhouse to conduct a review of 
SBA's internal controls. Administrator Alvarez expressed great 
concern over the error since such mistakes had the potential to 
create large problems in the management of SBA programs.
    The next witness was Mr. John Winchester from Merrill 
Lynch. Mr. Winchester commented on the securitization and sale 
of small business loans. He explained the parallel between the 
subsidy rate and the price calculations established by the 
markets for SBA-backed loans.
    The final witness was Mr. G. Edward DeSeve, Controller and 
Acting Deputy Director for Management at the Office of 
Management and Budget. Mr. DeSeve testified concerning the 
steps that OMB is taking to make sure that errors do not occur 
in future calculations. He also spoke generally about the 
changes the SBA and OMB has made over the last few years to 
improve the data collection for the subsidy model.
    Mr. Talent began the questioning by the Committee and asked 
Administrator to explain why the Committee should not be 
skeptical of future subsidy calculations coming from the 
Administration. Administrator Alvarez replied that she believed 
the new data collection methods, combined with an effort to 
develop an econometric model would improve accuracy and, she 
believed, eliminates future discrepancies. She also stressed, 
and Ms. England-Joseph agreed, that the use of statistical 
sampling rather than hard data had contributed to the errors. 
Both Ms. Alvarez and Ms. England-Joseph agreed that the SBA's 
improvement in the collection and use of hard data would 
provide more accurate and reliable subsidy estimates.
    Ms. Millender-McDonald then asked several questions 
concerning the development of the econometric model and the new 
data collection efforts. Administrator Alvarez replied that 
these efforts were vital and would require additional 
appropriations to enable SBA to improve its computer 
capabilities and hire additional staff.
    Mr. Boyd then asked Mr. DeSeve about the nature of the 
models used to calculate the subsidy rate. Mr. Boyd inquired as 
to whether the OMB had changed the models at any time during 
the past three years. Mr. DeSeve replied that OMB had not. Mr. 
Boyd then asked why there had been such a dramatic increase in 
thesubsidy rate if the models had not changed. Mr. DeSeve 
replied that the problem came as a result of inaccurate data rather 
than inaccurate modeling.
    Mr. Boyd then asked Mr. Winchester to comment on how the 
private sector arrived at its conclusions on the value and 
stability of loan portfolios prior to investing. Mr. Winchester 
replied that they used a system similar to OMB's, but less 
intricate.
    Questioning continued and centered around specific areas of 
financial standards at the SBA. Both Mr. Weygand and Mr. 
Hinojosa asked about SBA's efforts to comply with Council on 
Supporting Organizations (COSO) standards for accounting and 
the SBA's recent financial audits.
    Mr. Talent and Mr. LaFalce then asked Mr. DeSeve and Ms. 
Alvarez specific questions regarding the 504 and 7(a) programs. 
They were concerned that the SBA had overestimated recoveries 
in the 504 program by 100%. Mr. DeSeve explained that while the 
recoveries were known the OMB had no hard information for 
earlier loans in the portfolio, and that poor earlier 
assumptions had resulted in erroneous calculations.
    Mr. Talent then questioned Mr. DeSeve regarding the 
prepayment rates in both the 504 and 7(a) programs. He 
expressed concern that the OMB had a tendency to place to great 
a negative emphasis on prepayment. He also expressed concern 
over the depressive effect that data from the real estate 
problems of the 1980s was producing in the subsidy rates. Mr. 
DeSeve replied that he agreed this may have a disproportionate 
effect in the short term, but that it was difficult to pick 
when to begin and end economic cycles.
    Mr. Talent then asked two specific questions regarding the 
calculation of interest payments on defaulted 504 loans. The 
Administrator replied that, while purchases were being handled 
on a more expedited basis pursuant to statutory changes, she 
did not have specific answers and would provide them to the 
Committee.
    For further information see Committee report, 105-19.

            7.2.9  reauthorization of the small business 
                    administration's financial programs

                               Background

    On July 17, 1997, the Committee held an oversight hearing 
on the reauthorization of the Small Business Administration 
(SBA). Every three years, Congress is required to reauthorize 
the SBA and the programs it administers by legislation. The 
hearing sparked debate on the development of new legislation to 
extend the existence of the SBA from fiscal years 1998 to 2000. 
Witnesses were asked to support and defend different financial 
programs that the SBA administers to assist small businesses.

                                Summary

    The hearing was comprised of two panels. The first panel 
included: Paula Klepper, Vice President for Congressional 
Relations, National Association of Development Companies; C. 
Walter Dick, from the National Association of Small Business 
Investment Companies; and Anthony R. Wilkinson, President and 
Chief Executive Officer, National Association of Government 
Guaranteed Lenders, Inc., accompanied by Michael Hearne, 
Executive Director, Touchtone Financial Group.
    Ms. Klepper spoke on behalf of the National Association of 
Development Companies (NADCO), the trade association 
representing 275 SBA 504 program Certified Development 
Companies (CDC's.) The 504 program provides loans for small 
businesses through independent banks and CDC's. It is also 
completely self-funded and requires no additional funding from 
appropriations, yet the 504 program will terminate without 
regular reauthorization.
    Ms. Klepper testified that NADCO supported the 
reauthorization bill in general, particularly in Subtitle (c) 
of the Senate bill (S. 1139), which she thinks improves the 
program. She also testified about NADCO's concerns about the 
SBA's loan collateral valuation policies and she encouraged the 
reauthorization of the Premier Certified Lender Program (PCLP.)
    Mr. Dick testified about the reauthorization of the Small 
Business Investment Companies (SBIC) Program. SBIC's are 
privately owned and managed investment firms that make venture 
capital available to small businesses through investments or 
loans. He said the program is essential because the SBIC's 
invest in more ``Main Street'' businesses than most of the 
venture capital firms and banks.
    Mr. Wilkinson and Mr. Hearne commented on the subsidy rate 
for the primary lending program of the SBA, the 7(a) program. 
They questioned the current 13-year analysis cycle of the 
subsidy rate saying that a shorter study would be a more 
appropriate analysis. They provided new information to support 
their claim showing the average term of a 7(a) loan was on 10 
years.
    Aida Alvarez, Administrator of the Small Business 
Administration sat on the second panel. SBA Deputy Chief 
Financial Officer Gregory Walter accompanied her. Ms. Alvarez 
commented on the success of SBA credit programs and the 
challenges the Administration faces under her leadership. 
Because the SBA Inspector General found that 11.6 percent of 
defaulted SBA loans went to borrowers with criminal 
backgrounds, she said the Agency will include a privacy waiver 
on loan applications to allow the Inspector General to conduct 
a background check on an applicant. She also introduced her 
plan to expand small business finance programs to more 
borrowers without an increase in funding. Ms. Alvarez also gave 
an overview of the history of the Administration's success with 
the 7(a) lending program, the SBA disaster loan program and the 
SBIC program.
    For further information on this hearing, refer to Committee 
publication 105-20.

            7.2.10  entrepreneurship in america: fairness in regulatory 
                    enforcement

                               Background

    On August 19, 1997, the Committee on Small Business held a 
joint field hearing in Kansas City, MO, with the Senate 
Committee on Small Business, chaired by Missouri Senator, the 
Honorable Christopher S. Bond. Chairman Bond opened the hearing 
and thanked Dean Burnell Powell of the Law School at the 
University of Missouri-Kansas City, who welcomed the Committees 
with the school's hospitality. The Small Business Regulatory 
Enforcement Fairness Act (SBREFA) or ``Red Tape Reduction Act'' 
was passed in 1996 to include judicial review of the Regulatory 
Flexibility Act of 1980, to give small businesses simple 
guidance on complying with regulations, to create small 
business regulatory penalty reduction and waiver programs in 
Federal agencies and to establish a Regulatory Enforcement 
Ombudsman and Regional Fairness Boards to prepare and publish 
reports on agencies' responsiveness and fairness in the 
enforcement of Federal regulations. The hearing was comprised 
of witnesses from the Kansas City small business community, 
members of the Regional Fairness Boards, and regulatory 
agencies who testified on how SBREFA will affect the small 
business community.

                                Summary

    The hearing was comprised of three panels, the first of 
which included: Bob Spence, Vice President and Chief Financial 
Officer, Faultless Laundry Company, Kansas City, MO; Sherman 
Titens, President, Coordination Committee for Automotive Repair 
(CCAR) and Executive Director, CCAR-GreenLink, Leawood, KS; 
andEdwin N. Hatfield, Human Resources Director, Cook Brothers 
Insulation, Inc., Kansas City, MO accompanied by William Denton, 
Partner, Lathrop & Gage L.C., Kansas City, MO.
    The panel of small business owners gave anecdotal evidence 
to the Committee on how their companies, like other businesses, 
felt in the past that regulatory agencies treat them like they 
are guilty until proven innocent. They emphasized that most 
small businesses want to fully comply with regulations, 
however, many do not have the time and resources to fully 
understand and comply with the hefty bulk of regulations passed 
by Federal agencies. Furthermore, when agencies create 
burdensome regulations impacting small businesses, the 
witnesses applauded SBREFA as a helpful way to protect their 
interests.
    The second panel consisted of Scott George, General 
Manager, Mid-America Dental, Hearing and Vision Center, Mount 
Vernon, MO, and a member of the Small Business Regulatory 
Fairness Board, Region VII; and Elaine Demery, President and 
Chief Executive Officer, Nelson, Coulson, and Associates, Inc., 
Denver, CO and Chair of the Small Business Regulatory Fairness 
Board, Region VIII.
    As representatives of the two newly formed Small Business 
Regulatory Fairness Boards created by SBREFA, the witnesses 
reported that they are starting to see the culture in certain 
agencies change to include small business interests. Although 
they think that some agencies have resisted this change since 
passage of the Regulatory Flexibility Act, they said the 
attention given to SBREFA has forced these agencies to not 
create or maintain regulations detrimental to small business.
    Finally, the third panel consisted of Agency 
representatives: The Honorable Peter Barca, Small Business and 
Agriculture Regulatory Enforcement Ombudsman and Administrator 
of Region V, U.S. Small Business Administration (SBA), Chicago, 
IL; Marcia Drumm, Deputy Regional Administrator, Region VII, 
the Occupational Safety and Health Administration (OSHA), 
Kansas City, MO; Art DeCoursey, Small Business Liaison, 
Occupational Safety and Health Administration, Washington, 
D.C.; and William Rice, Deputy Regional Administrator, Region 
VII, U.S. Environmental Protection Agency (EPA), Kansas City, 
MO.
    The panel testified on both the general and specific ways 
the executive branch is attempting to change its regulatory 
culture mandated by the Regulatory Flexibility Act and SBREFA. 
Through new goals and viewpoints, such as OSHA's ``reinventing 
government,'' the witnesses went on the record to say they are 
trying to create and sustain a regulatory environment that is 
sensitive to and supports the needs of small business.
    For further information on this hearing, refer to Committee 
publication 105-26, which is a shared publication with Senate 
publication S. HRG. 105-250.

            7.2.11  occupational safety and health administration's 
                    proposed revision on occupational injury and 
                    illness recording and reporting requirements

                               Background

    On September 17, 1997, the Committee on Small Business held 
a hearing to focus on the Occupational Safety and Health 
Administration's (OSHA) new proposed recordkeeping regulations. 
These proposed regulations would require broad new sectors of 
small business to keep OSHA records that have never had to keep 
such records before, while exempting certain other segments of 
the economy from recordkeeping. It would require all businesses 
to keep records to record a number of minor kinds of injuries 
like minor swellings or skin irritations that prior to the 
regulation would not have to be reported. It would also require 
all businesses to give copies of injury or illness records on 
all their employees to any parent or former employee who asked 
for the record. Further, general contractors would be mandated 
to keep duplicate sets of records for the employees of their 
subcontractors and to certify the accuracy of those records at 
pain of potential criminal penalties.

                                Summary

    The hearing was comprised of two panels, the first of which 
included Gregory R. Watchman, Acting Assistant Secretary of 
Labor for OSHA. Mr. Watchman discussed the proposed record-
keeping standard and why it was necessary to move forward with 
the new regulations. He began by discussing the importance of 
injury and illness records to the government's effort to 
protect worker safety and health. For example, Mr. Watchman 
pointed out that OSHA would not be able to identify new and 
emerging hazards without such data; further, the Bureau of 
Labor Statistics relies on this injury and illness data to 
compile its annual survey. He also cited three advantages to 
the new proposed recordkeeping regulations: first, the proposal 
would enable the agency to better-measure results by improving 
the quality of the data; second, the proposal would expand the 
small business exemption for general industry, by doubling it 
from 10 to 20; third, the proposal would simplify the forms 
used to record injuries and illnesses and clarify the 
regulation by consolidating all previously-issued interpretive 
guidance.
    Several questions arose, however, regarding what might 
constitute a reportable situation as well as how the standard 
would be implemented in general. Congressman Goode (D-VA), for 
example, had concerns over whether pre-existing conditions 
(e.g. contracting poison ivy off the job) that were exacerbated 
by work activity (e.g. sweating on a hot day) would be 
reportable. Mr. Watchman was unable to definitively answer that 
question. Other questions were raised regarding the need for 
OSHA to clarify who would be included in the small business 
exemption, privacy concerns, and concerns over OSHA's 
underestimating the burden of this regulation on small 
businesses in its preliminary economic analysis.
    The second panel included Lawrence Halprin, Esq., of Keller 
and Heckman; Edward Laperouse, President, Edward J. Laperouse 
Metal Works, Inc.; Alan McComb, Vice President, Harold McComb & 
Son, Inc.; Kenny Miller, President, Miller Brothers, Inc.; and 
Eamonn McGeady, President, Martin G. Imbach, Inc. These 
witnesses universally were concerned with the proposed 
recordkeeping regulations and how they would materially burden 
their small business operations. Under the new proposal, injury 
and illness records would no longer be private; this was of 
great concern to the witnesses. As stated by Mr. McComb, 
``While workers are entitled to know what injuries and 
illnesses have occurred on the work site, they have no right to 
the personal medical information continued in the incident 
report as proposed by OSHA.'' Witnesses were also concerned 
about OSHA's proposed expansion of what would constitute a 
recordable incident of a workplace injury or illness. Mr. 
McComb noted that ``the simple application of a band-aid on a 
small cut or blister would be a recordable incident under the 
new rule.'' This fact, witnesses agreed, would require 
companies to spend a lot more time recording injuries and less 
time on the job--costing them money without advances in safety. 
Mr. Miller estimated that the work hours need to comply with 
this and other provisions in the draft may require him to 
create a full-time position within his company. Other witnesses 
agreed that if the standard were to go forward, paperwork 
burdens would be greatly increased.
    For more information on this hearing look at Committee 
report 105-25.

            7.2.12  the effectiveness of 7(a) and 504 programs

                               Background

    On October 22, 1997 a hearing was held to explore the 
effectiveness of the Small Business Administration 7(a) and 504 
loan programs in serving economically distressed or 
disadvantaged areas.
    In June 1997, the Woodstock Institute published a report 
which indicated that the SBA's 504 program failed to work as an 
economic development tool in economically distressed 
communities. Evidence such as this report prompted some members 
of the Committee to question the adequacy of the program. The 
hearing was a result of a discussion among several Committee 
members during the mark-up of the Small Business 
Administration's reauthorization legislation in July 1997.

                                Summary

    Harry Alford, President and CEO, National Black Chamber of 
Commerce; Aida Alvarez, Administrator, Small Business 
Administration; Charles English, Southern Dallas Development 
Company; John Gray, Associate Deputy Administrator for Economic 
Development, Small Business Administration, Daniel Immergluck, 
Vice President, Woodstock Institute; Richard Turner, South 
Shore Bank; Barbara A. Vohryzek, National Association of 
Development Companies.
    Administrator Alvarez stated that the hearing, although 
focused on the Woodstock Report, should also be focused on how 
the SBA is doing in reaching out to the under-served. She 
stated that the SBA has increased total lending since 1992 and 
increased lending to women-owned and minority-owned businesses. 
Administrator Alvarez explained the progress of the programs 
through a series of charts. The first chart showed that the 
loan approvals for the 7(a) Program had grown since 1993. The 
second chart showed a significant drop in 504 activity. 
Administrator Alvarez concluded by stating that the SBA agrees 
with the direction of the report and that the SBA is working 
vigorously to achieve the intent of the report.
    Daniel Immergluck described two reports that the Woodstock 
Institute published on SBA lending programs focusing on the 
geographic distribution of loans within metropolitan areas as 
well as lending to minority-owned businesses. The first study 
showed that the 7(a) loans in the San Antonio region went to 
disproportionately higher income zip codes, even after 
accounting for the number of businesses in such areas. The 
second study revealed that in Chicago, for three or four 
primary sectors in which 504 loans are made, loans were skewed 
away from lower-income zip codes. Mr. Immergluck recommended 
that the SBA report regularly to Congress on the percentage of 
loans going to lower and moderate-income areas, and that they 
seek to increase these percentages at regular intervals.
    Harry Alford stated that capital access is clearly the most 
pressing issue facing Black-owned business. He described 
further the sad stories about the lending efforts of the SBA 
from an African-American perspective. Mr. Alford described the 
areas that the National Black Chamber of Commerce had termed 
``brain dead'' on SBA outreach. In addition, he listed seven 
recommendations from the NBCC: First, the SBA needs a policy 
statement regarding its commitment to African American 
business. Second, the SBA must sensitize management from the 
SBA headquarters to the districts on this issue. Third, the SBA 
should implement a grass roots plan to reach out to African-
American communities. Fourth, the Agency should develop a 
system of public hearings as an oversight tool for the above 
process. Fifth, diversity must become a rated area in the 
performance reviews of district directors. Sixth, stabilization 
of mid-level management personnel at SBA is badly needed. 
Seventh, Congress must create an opportunity for Black 
contractors to present testimony concerning their experience 
with discriminatory activity at the SBA.
    Richard Turner's bank, South Shore Bank, has been 
participating in SBA programs since 1973. He stated that the 
SBA Program is a good one but that banks fail to see lending to 
the underserved as a viable market. He suggested that in order 
to make these loans effective, a credit culture shift is 
required. Mr. Turner stated that it is impossible to use 
traditional criteria and traditional ways of reaching out to 
the underserved in both urban and rural areas.
    Barbara Vohryzek of the National Association of Development 
Companies explained that NADCO agrees with the portion of the 
Woodstock report that suggests that the increased program cost 
of 504 loans has made it a less practical tool for economic 
development. Furthermore, she stated that given the constraints 
of the 504 program, development companies have in fact 
delivered the 504 product to the minority business community at 
rates exceeding their proportion in the economy. Lastly, Ms. 
Vohryzek explained that although NADCO did not entirely agree 
with the reports findings about the referral network 
constraint, they do agree that they can take some measures, 
such as a stand-alone debenture that allows 504 to act as a 
sole lending vehicle to target minority-owned businesses. 
Charles English, also representing a development company, 
described the success of his business development program. He 
emphasized that the 504 Program is not exclusive of economic 
development, that development companies in tandem with all the 
other programs offer it.
    John Gray described three areas by which the SBA can reach 
the underserved. He stated that the first was through the 
extensive network of resource partners, such as the SBDC's. 
Second, he suggested that the SBA should use its financial 
intermediaries more effectively. Finally, he asserted that 
efficient utilization of the district offices were key to 
reaching out to the underserved.
    For further information on this hearing, refer to Committee 
publication 105-30.

            7.2.13  hearing on sba implementation of the results act

                               Background

    On Wednesday, October 29, 1997, the Committee on Small 
Business met to discuss SBA's compliance with the Government 
Performance and Results Act. The plan was submitted in 
compliance with the Government Performance and Results Act, 
passed as a bipartisan measure during the 103rd Congress. The 
Results Act requires federal agencies to submit five-year 
strategic plans as the basis for the agency's annual 
performance plans.
    The SBA submitted its first five-year Strategic Plan draft 
in March 1997 and its final in September 1997. By 1998, the SBA 
was to begin using the plans to link its strategic goals to its 
daily activities and also the President's budget. The Chairman 
convened the hearing in order to better enable the Small 
Business Committee to work with the Small Business 
Administration to improve its plan.

                                Summary

    The hearing was comprised of one panel which included: 
Stanley Czerwinski, Associate Director, Housing and Community 
Development Issues, Resources, Community, and Economic 
Development Division, Government Accounting Office; Paula 
Klepper, Vice President, Congressional Relations, National 
Association of Development Companies; Maurice P. McTigue, 
Distinguished Visiting Scholar, Center for Market Processes, 
George Mason University; Paul Weech, Chief of Staff, Small 
Business Administration.
    Paul Weech described the four major goals outlined in the 
Small Business Administration's Strategic Plan. In written 
testimony, he summarized each of these goals. He stated that 
Administrator Alvarez views the SBA's strategic and annual 
performance plans as the basis for managing the agency. In 
addition, Mr. Weech emphasized that strategic planning is an 
ongoing process. He asserted that a strategic plan is in need 
of constant review and updating in response to new information 
and changing external circumstances.
    Paula Klepper focused her comments into two categories. 
First, she addressed how, as an industry, Small Business 
Development Companies perceive the plan as a method whereby the 
agency will transform itself. She suggested that SBDC's found 
strong connections between the goals and execution. Second, she 
discussed the industry's needs in implementing the plan. She 
suggested five areas of focus: Increase access to capital and 
credit; uniform internal control environment; risk management; 
oversight; excellent customer service. Upon applauding the 
agency for addressing risk management, she explained that the 
504 Program is dependent upon risk controls.
    Other witnesses commended the SBA for their effort and 
identified deficiencies in the plan. Stanley Czerwinski 
explained what the plan should accomplish. He suggested that 
the plan should lay out what the agency wants to achieve, 
describe what resources it is going to need to achieve that 
goal. According to Mr. Czerwinski it should also address who it 
wants to work with to achieve its goals. Finally the plan 
should describe factors beyond the agency's control and a 
mechanism for assessing the agency's process.
    Maurice McTigue stated that the plan was not sufficiently 
specific. He explained that strategic plans and their 
evaluation must look outside what it is that the plan states 
the agency is intending to do and look at the marketplace to 
evaluate whether or not the agency is actually achieving the 
objectives.
    For further information on this hearing, refer to Committee 
publication 105-32.

            7.2.14  the safe act: how third party consultations have 
                    worked where osha has failed

                               Background

    On January 29, 1998, the Committee on Small Business held a 
hearing to explore the third party consultation provision in 
H.R. 2579/S. 1237, the Safety Advancement for Employees 
(``SAFE'') Act. The SAFE Act is a bipartisan, bicameral bill 
that reflects a new partnership approach to worker safety. The 
key section in the bill, the third party consultation 
provision, encourages employers to hire third party safety 
consultants to inspect and audit their workplaces for 
compliance with Occupational Safety and Health Administration 
(OSHA) and safety in general. Those consultants must be 
certified by OSHA as legitimate safety consultants and will 
work with employers on an ongoing basis to ensure that the 
employer is in compliance with OSHA regulations. Once the 
employer is in compliance, the consultant will issue him a 
certificate of compliance. Employers who fully utilize third 
party consultants under the SAFE Act will be exempt for a 
period of 2 years from any civil penalty prescribed under the 
OSH Act. Under the SAFE Act, OSHA retains full power to inspect 
employers who have received such a certificate, to find 
violations of OSHA regulations, and to order such employers to 
abate the violation.
    At the hearing, witnesses were asked to describe how the 
current inspection method at OSHA does not adequately meet 
their safety and health needs, and how the SAFE Act's third 
party consultation provision would help them achieve compliance 
and better protect workers from illness and injury.

                                Summary

    The hearing was comprised of two panels, the first of which 
included Congressmen Cal Dooley (D-CA) and Charlie Stenholm (D-
TX) and Senator Mike Enzi (R-WY). This first panel of 
congressional witnesses talked about the virtues of the SAFE 
Act, and in particular how the SAFE Act would get more 
employers into compliance with OSHA and bolster worker safety. 
Rep. Dooley discussed the fact that OSHA was unable to do its 
job of protecting America's workers adequately; with a ratio of 
one OSHA inspector to 3,000 worksites, OSHA is currently able 
to inspect workplaces only once every 167 years. Mr. Dooley 
also stressed that the SAFE Act was in line with Vice President 
Gore's Reinventing Government initiatives. Rep. Stenholm's 
testimony carried the same theme, and also mentioned how small 
businesses in his Texas district who have complained to him of 
the unrealistic regulatory burden enforced by difficult 
inspectors. Additionally, Mr. Stenholm touched on the positive 
impact that the bill would have on American agriculture. 
Senator Enzi's testimony highlighted the fact that as a small 
business owner for 27 years (before he came to the Senate), it 
was he who had to do everything to keep the business running 
smoothly, and it is for those businesses that we should design 
OSHA reform efforts. It was his belief that one of the most 
effective means of communicating the importance of safety and 
how to achieve OSHA compliance was the third party consultation 
provision in the SAFE Act.
    The second panel was comprised of six witnesses, including 
John Cheffer, CSP, PE, Chairman of the American Society of 
Safety Engineers (ASSE), National Governmental Affairs 
Committee; Scott Hobbs, President, Hobbs, Inc.; Eamonn McGeady, 
Owner, Martin G. Imbach, Inc., Bob Cornell, Director of Dealer 
Operations, Director of Environmental Regulations, Chairman of 
the Safety Committee, Mon Valley Petroleum; Victor Tucci, 
President, Three Rivers Health and Safety; and Salvatore 
Bonfiglio, Corporate Manager, Environmental, Health and Safety 
Audit Program, Hoechst Corporation.
    The witnesses on the second panel were small business 
owners, safety and health professionals, and in-house safety 
manager for a large corporation. All of the small business 
owners and independent safety professionals agreed that the 
SAFE Act would achieve better OSHA compliance, would help OSHA 
better utilize its limited resources, and would protect more 
workers. John Cheffer, testifying on behalf of ASSE, mentioned 
that ASSE is a strong supporter of OSHA, and that is why it so 
strongly supports the SAFE Act; ASSE views the SAFE Act as an 
important tool in reducing workplace injuries, illnesses and 
fatalities in a proactive manner. Mr. Cheffer noted that 
proactive safety and health intervention via the SAFE Act will 
enable employers to identify and correct hazards before an 
incident takes place, rather than wait until an accident occurs 
and then work with an OSHA inspector to correct it. Scott Hobbs 
discussed how difficult it is as a small business to implement 
a superior safety program because he could not afford to hire a 
full time safety expert. The answer for his company was to 
retain the services of a third party safety consultant; 
consequently, he has been able to maintain an excellent safety 
record that he actively markets to his clients. Both Eamonn 
McGeady and Bob Cornell agreed, and Mr. Cornell noted that 
after his company hired a consultant (Victor Tucci), their 
injury rates fell drastically. Victor Tucci was able to confirm 
this, and mentioned that by passing the SAFE Act, employers 
would receive an incentive to hire a consultant.
    The only witness that did not wholly embrace the SAFE Act 
was Salvatore Bonfiglio, who primarily talked about his concern 
that the third party consultant would have a ``conflict of 
interest'' because his fees would be paid directly by the 
employer and he would not have ``OSHA looking over [their] 
shoulder.'' This concern was responded to, however, by 
highlighting the fact that OSHA currently is not looking over 
the shoulders of companies because they simply do not have the 
resources to. In fact, even Mr. Bonfiglio stated that, ``[E]ven 
OSHA does not have the resources to do their job at this 
point.'' The point of the SAFE Act, as stated by Chairman 
Talent, is to ``find a system * * * to allow [small businesses] 
access to these third-party auditors, encourage them [to use 
them], encourage OSHA to reconsider its approach and allow OSHA 
to do that, while preserving our right to go after that thin 
layer of people who really don't care.''
    For further information on this hearing, refer to Committee 
publication 105-34.

            7.2.15  federal agency compliance with section 610 of the 
                    regulatory flexibility act

                               Background

    On February 12, 1998, the Committee heard testimony 
concerning Section 610 of the Regulatory Flexibility Act (RFA). 
In 1996, Congress amended portions of the RFA with certain 
provisions contained in the Small Business Regulatory 
Enforcement Fairness Act (SBREFA) to allow for judicial review 
of agency compliance with the law. Section 610 of the RFA 
requires each agency to establish a plan for review of existing 
regulations having a significant economic impact on small 
business.

                                Summary

    Two panels of witnesses participated in the hearing. The 
first consisted of Mr. L. Nye Stevens, Director, Federal 
Management and Workforce Issues, U.S. General Accounting Office 
and Keith Cole, Esquire, Beveridge and Diamond.
    Mr. Stevens testified about a study about Section 610 the 
Regulatory Information Service Center (RISC) within the General 
Services Administration completed. The study concluded that 
agencies by and large did not comply with Section 610 
correctly. The study also concluded that a lack of any index in 
the RFA made it difficult for the public to find and comment on 
any agency's compliance with Section 610. Although the RFA 
included an index in October of 1997, Mr. Stevens concluded 
that in a similar study most agencies were still 
mischaracterizing agenda entries as Section 610 reviews, 
despite OIRA's June 1997 guidance to Federal agencies.
    Mr. Cole testified on behalf of the Regulatory Reform 
Enforcement Guarantee (RREG) Alliance, a coalition of 
organizations representing small businesses and local 
governments. He testified about the history of Section 610 and 
how he hoped tools created by SBREFA, such as judicial review, 
would incite agencies to comply with the mandate.
    Three witnesses testified on the second panel: Dr. Enrique 
Figueroa, Administrator, Agricultural Marketing Service (AMS), 
U.S. Department of Agriculture, who was accompanied by Dr. 
Kenneth Clayton, Associate Administrator, AMS, and Kenneth 
Vail, Assistant General Counsel for the Marketing Division, 
Office of General Counsel, AMS; Nancy E. McFadden, General 
Counsel, U.S. Department of Transportation, who was accompanied 
by Neil Eisner, Assistant General Counsel for Regulation, U.S. 
Department of Transportation; and Debra Valentine, General 
Counsel, Federal Trade Commission.
    Dr. Figueroa testified about how the USDA has a number of 
regulations covered in the RFA; however, that it has no 
existing rules covered by Section 610. He promised that 
although the General Accounting Office found an ``inappropriate 
characterization of the [Organic Foods Production Act],'' his 
staff will address the issue.
    On behalf of the Department of Transportation, Ms. McFadden 
testified that the agency provides economic analyses for all of 
its rules. Furthermore, she outlined the process within the 
Department concerning how it handles Section 610 reviews.
    Ms. Valentine testified that the Federal Trade Commission 
not only reviews rules every 10 years as required by the RFA, 
it annually publishes the impacts of Section 610 reviews on 
small entities. She also outlined her agency's RFA compliance 
procedure.
    For further information on this hearing, refer to Committee 
publication 105-35.

            7.2.16  reducing america's small business tax burdens

                               Background

    On February, 25 1998, the Committee on Small Business held 
a hearing on Reducing America's Small Business Tax Burdens. The 
purpose of the hearing was to identify the principle tax 
burdens of small businesses, and to explore their tax 
legislative priorities in the 105th Congress.
    Federal income and payroll taxes on individual and small 
business Americans are escalating. Consequently, the hearing 
sought to identify the tax reduction priorities of small 
businesses, and to elicit their recommendations on how Congress 
should protect and reform the long-term solvency of Social 
Security without increasing payroll taxes.

                                Summary

    The first panel of witnesses included Jack Faris, President 
of the National Federation of Independent Businesses; Paul 
Huard, Senior Policy Vice President for the National 
Association of Manufacturers; Karen Kerrigan, President of the 
Small Business Survival Committee; Martin Regalia, Vice 
President and Chief Economist for the U.S. Chamber of Commerce; 
and Bennie Thayer, President of the National Association for 
the Self-employed. The second panel of witnesses included 
Raymond Arth of Avon Lake, Ohio, Chair of the Taxation 
Committee of National Small Business United; Terry Neese of 
Oklahoma City, Oklahoma, Corporate and Public Policy Consultant 
for the National Association of Women Business Owners; Rich 
Shavell, certified public accountant from Jenkintown, 
Pennsylvania, and Chair of the Taxation Committee of the 
Associated Builders and Contractors.
    The testimony of the witnesses raised important recurrent 
issues and highlighted several new developments. For example, 
while the witnesses strongly supported fundamental tax reform, 
they failed to voice unanimous consensus on eliminating the 
current tax code. The overriding reason for a lingering 
minority concern over repealing the tax code was a reluctance 
to give up hard-earned tax deductions for lower taxes that 
increase historically. Nonetheless, the witnesses unanimously 
believe Congress should lower income and payroll taxes while 
making the tax code simpler and fairer.
    Following the Taxpayer Relief Act of 1997 (TRA '97), the 
cardinal concerns of small business are:
          1. Payroll tax relief (including reforming Social 
        Security and eliminating the Federal Unemployment 
        (FUTA) surtax);
          2. Death tax repeal (including concerns with related 
        Clinton FY 1999 budget proposals);
          3. 100% deductibility of health insurance for the 
        self-employed;
          4. Lowering tax rates and fundamental tax reform 
        (including S corporation reform); and
          5. Independent contractor relief.
    Not surprisingly, escalating Federal payroll taxes are the 
primary burden on small business. Payroll taxes are a tax on 
jobs affecting predominantly small, labor-intensive businesses. 
A majority of small businesses pay more in payroll taxes than 
in any other type of tax. Payroll taxes represent nearly 37% of 
all Federal revenue collected--second only to income taxes--and 
an astonishing 7% of gross domestic product (GDP). Since 1970, 
businesses have received nine Social Security (FICA) increases 
totaling 60%; three unemployment (FUTA) tax increases totaling 
94%; three FUTA base increases totaling 133%; and 19 FICA base 
increases totaling 677%. Payroll taxes more than doubled for 
the self-employed since 1982, leaping from 6.9% to 15.3% today 
(compared to 7.6% today for employers and employees).
    Payroll taxes finance three so-called ``trust funds'': the 
Old-Age and Survivors Insurance Trust Fund (OASDI), which pays 
Social Security retirement and survivor benefits; the 
Disability Insurance Trust Fund (DI), which pays the system's 
disability insurance payments; and the Hospital Insurance Trust 
Fund (HI), which pays hospital bills for the elderly under 
Medicare Part A. Accordingly, reforming Social Security and 
protecting its long-term solvency is indispensable to genuine 
payroll tax reform. Several witnesses advocated finding a 
solution to Social Security without raising taxes and cutting 
benefits, such as moving toward private retirement accounts. 
One witness cited its strong support for a recommendation of 
the Bipartisan Commission on Social Security to allow 
individuals to invest a portion of their Social Security taxes 
into personal accounts that are invested in the equity markets.
    Since 1976, the Federal Unemployment Tax (FUTA) has a 
surtax of 0.2% to repay Treasury borrowings from the Federal 
Unemployment Trust Fund. Even though the Treasury repaid these 
borrowings in 1987, Congress continues to extend the surtax. At 
least one witness urged Congress to repeal this surtax.
    Nearly all witnesses urged Congress to repeal the death 
tax. Absent repeal of the death tax, they urged Congress to 
reduce its high effective rates ranging from 37% to 60% 
immediately. The death tax severely penalizes small, family, 
farm and manufacturing businesses that work, save and invest. 
It is an inefficient, counter-productive tax because it has 
very high collection and compliance costs, while it accounts 
for only about 1% of total Federal revenue.
    Similarly, most witnesses advocated increasing the health 
insurance deduction for the self-employed to 100% immediately. 
They want Congress to end this long-standing inequity in the 
deductibility of health care costs to increase the availability 
and affordability of health care to millions of uninsured self-
employed American families.
    Most witnesses also voiced support for abolishing the 
current tax code and/or lowering individual income tax rates as 
soon as possible. High federal taxes are lowering the take-home 
pay of American workers and slowing the growth of small 
business--the number one job-creator in America. Federal 
revenue as a percentage of GDP is at an all time peacetime high 
of 19.9% (up from 17.8% just four years ago). The average 
American family is paying nearly 38% of its hard-earned income 
in federal, state and local taxes. Individual federal income 
tax rates have crept up since 1986 from a top rate of 28% to 
39.6%. Many witnesses testified that these high rates hurt 
independent businesses, S corporations, the self-employed, 
farmers, and other small businesses, and prevent them from 
expanding.
    Several witnesses, including in particular women-owned 
businesses, continue to seek independent contractor relief to 
minimize their risk of crippling back taxes and penalties when 
the IRS subjectively reclassifies their workers as employees.
    Finally, one or more witnesses proposed capital gains 
reform; alternative minimum tax (AMT) reform; increasing the 
business meal deduction; increasing Simple IRA annual allowable 
contributions from $6,000 to $9,500 in line with 401(k) 
contributions; and cash accounting for contractors.
    For further information on this hearing, refer to Committee 
publication 105-38.

            7.2.17  small business administration fiscal year 1999 
                    budget

                                Summary

    On Thursday, March 19, 1998 the Committee on Small Business 
convened a second hearing on the Small Business 
Administration's (SBA) proposed budget for fiscal year 1999. 
Specifically, the hearing focused on the Administration's 
proposal to double the interest rate charged on loans provided 
to small businesses and homeowners who were victims of natural 
disasters. This proposal had been offered by the SBA, in 
various forms, in each of the last five years. Each time the 
proposal has been rejected by the Congress as an inappropriate 
burden on the victims of natural disasters.
    The Committee heard from two panels during the hearing. The 
first panel consisted of Ms. Minta Herrin, a resident of New 
Richmond, Ohio; Mr. Dennis Iaquinta, a resident of Erie, 
Pennsylvania; and Mrs. Vera Mae Cimino, a resident of Ocean 
City, New Jersey. Ms. Herrin testified first and spoke about 
the devastation visited upon her hometown by flooding in 1997. 
Ms. Herrin told the committee that, at the time, her husband 
was ill and that only the low interest rate offered by the SBA 
disaster loan program enabled her family to rebuild their home. 
She also stated that many of her friends and neighbors were in 
similar situations because New Richmond is a town populated 
with primarily low- and middle-income families.
    Mr. Iaquinta testified next and focused on his frustration 
with many of the paperwork burdens placed on borrowers under 
the disaster assistance program. He also testified that any 
increase in the interest rate would have a more significant 
impact than the Administration expected. When combined with 
flood insurance and other cost, Mr. Iaquinta stated, this 
increase could easily ruin a small business and is 
fundamentally unfair to people who are injured by unexpected 
natural disasters.
    The final witness on the first panel was Mrs. Vera Mae 
Cimino. Ms. Cimino testified about the difficulties faced by 
her and her husband after the severe Nor'Easter that struck New 
Jersey in February of 1997. Tidal flooding severely damaged her 
home and required major repairs to fix it. Mrs. Cimino 
testified that both she and her husband are insulin dependent 
diabetics and that an increase in the disaster loan interest 
rate could easily have resulted in them having to choose 
between medicine and fixing their home.
    The panel was then asked by the chairman to comment on the 
SBA's assertion that the increase in the interest rate would 
have only a minimal fiscal effect on borrowers. Ms. Herrin 
replied that she already had problems making ends meet with her 
husband's medical problems and that even fifteen dollars could 
mean the difference between obtaining preventive care or 
medicine or not. Mr. Iaquinta responded that such increases 
have an overall cumulative negative effect on a small business' 
viability. He also added that such changes tend to add to a 
sense in the community that the government is insensitive.
    Mr. English and Mr. LoBiondo then commented on the effect 
disasters had on communities in their districts over the past 
several years and stated that they believed such a proposal was 
an unnecessary attempt to balance the budget at the expense of 
those least able to bear the cost. These sentiments were echoed 
by Ms. Velazquez and Mr. Goode at which point the Committee 
recessed briefly.
    Upon reconvening the Committee called the second panel. 
This panel consisted of the Honorable Aida Alvarez, SBA 
Administrator, and Mr. Jack Lew, Deputy Director of the Office 
of Management and Budget (OMB). Administrator Alvarez testified 
first and spoke of her sympathy for the victims of disasters 
and discussed the areas she has toured in her capacity as 
Administrator of the SBA. However, she said that she believed 
that this Administration proposal was sensitive and fiscally 
responsible.
    Mr. Lew then testified that the Administration had a 
history of generous response to disaster victims but that he 
felt that the benefits accruing from a balanced budget have 
done more for small business than any program and that we 
should not turn our backs on fiscal discipline. He also argued 
that the Administration was forced to make decisions on how to 
expand certain programs such as the Women's Business Center 
program and the Minority Enterprise program and simultaneously 
achieve fiscal restraint.
    Chairman Talent then questioned the witnesses as to whether 
this was an OMB or an SBA proposal. The witnesses stated in 
various fashions that this was a joint decision arrived at 
through a process of deciding between competing priorities. 
Chairman Talent also asked whether Mr. Lew considered it 
appropriate to send a budget proposal to the Congress 
containing such a clearly unpalatable proposal and not provide 
for any alternatives to finding the $125 million difference. 
Mr. Lew responded that he appreciated the argument but that OMB 
was also faced with the problem of living within the budget 
caps.
    Ms. Velazquez then asked where the SBA planned to come up 
with the funding to make of the shortfall if the proposal was 
not enacted. Ms. Alvarez replied that she believed a discussion 
with the Congress was necessary to provide an answer.
    Mr. English then questioned whether the Administration's 
entire budgeting process was suspect. He based this question on 
a number of proposals that the Administration must know would 
not be accepted by either party in Congress, and Mr. English 
cited the abolition of the Appalachian Regional Commission as 
an example.
    Mr. Sununu then questioned Mr. Lew as to why it was 
imperative that this interest rate increase be done now. Mr. 
Sununu cited an article in which Berkie Kulik, Associate 
Administrator of the SBA for Disaster Assistance, stated that 
the rate had not been raised since 1984. Mr. Sununu questioned 
what had changed significantly since 1984. Mr. Lew responded 
that the discretionary caps had been lowered. Mr. Sununu then 
suggested that perhaps changes in FTEs, or the removal of 
number of other programs, might provide a better basis for 
savings considering the Administration's proposal to spend an 
additional $120 billion over the next five years, 1000 times 
the cost of the disaster loan program.
    For further information on this hearing, refer to Committee 
publication 105-42.

            7.2.18  hearing to consider h.r. 3412

                               Background

    On Thursday, March 12, 1998, the House of Representatives 
Committee on Small Business met to discuss H.R. 3412, a bill 
which provides technical amendments to the SBIC program. SBICs 
are the venture capital aspects of the SBA which offer a broad 
range of opportunities for small business financing, such as 
equity investment and long-term loans. The bill in 
consideration presented three technical changes to the Small 
Business Investment Act. The first of these changes was a 
removal of the reserve, which held 50 percent of participating 
securities leverage for SBICs with less than $20 million in 
private capital until the fourth fiscal quarter. The second 
change offered in the bill would offer guidance to SBA in the 
determination of SBIC assistance to small businesses, ensuring 
that a company's structure (such as sub-chapter System 
corporations) would not inhibit its SBA financing. The last 
change lengthened the time frame available for the issuance of 
the trust certificates that fund SBIC debentures from every 6 
months to every 12 months. This would allow more flexibility 
for SBA in their sale of their trust certificates. There was 
only one witness, Mr. Lee Mercer, President, National 
Association of Small Business Investment Companies

                                Summary

    One witness testified at the hearing: Mr. Lee Mercer, 
president of the National Association of Small Business 
Investment Companies in Washington, DC. Mr. Mercer testified in 
favor of H.R. 3412 and discussed the technicalities involved in 
the bill. Mr. Mercer explained that the first provision in the 
bill is beneficial because current law, requiring the SBA to 
reserve 50 percent security leverage for SBICs with less than 
$20 million in capital until the fourth quarter, is 
unnecessary. Mr. Mercer believed that this measure was at one 
time necessary, but that it is evident that the SBA equitably 
distributed money and loans. Mr. Mercer also explained that 
there were only 12 SBICs out of the 60 total participants that 
had more than $20 million in private capital, so the cutoff 
seemed artificial in nature.
    Mr. Mercer then praised the second part of the bill, which 
helped clarify and solidify the ideas behind the current 
statute. Under H.R. 3412, small businesses would be subject to 
an assumed tax rate if they were pass-through entities when 
considering size under income limits. This new provision was an 
adoption of assumed tax rates that had been used in other parts 
of the Small Business Investment Act. Mr. Mercer believed that 
it would help to clarify ambiguities found within the law.
    Finally, Mr. Mercer explained the part of H.R. 3412 
concerning changing the requirements for the SBA's issuance of 
guaranteed certificates from twice a year to once a year. The 
SBA, along with the Congress and with the industry, believed 
once a year to be an optimal amount of time for selling the 
certificates into private markets so as to realize the lowest 
possible interest rates on them.
    In response to both Chairman Talent and Ranking Member 
Velazquez, Mr. Mercer explained that the industry was working 
on the issue of minority- and women-owned businesses, and how 
to achieve more funding for these types of small businesses. 
Mr. Mercer stated that the industry had urged the SBA to 
consider measures to increase their dealings with venture 
capitalists. He also explained that a subcommittee had been 
instituted in the Board of Governors to research why venture 
capitalists did not see deals from these types of small 
businesses. One last thing Mr. Mercer described to help women- 
and minority- owned businesses is the act of finding success 
stories to highlight, and he explained their success in this 
endeavor.
    Mr. Mercer's testimony led Mr. Talent to adjourn the 
hearing until markup of this bill.

            7.2.19  small business administration's fiscal year 1999 
                    budget submission

                                Summary

    On Tuesday March 3, 1998 the Committee on Small Business 
convened a hearing to discuss the Administration's proposed 
1999 budget for the Small Business Administration (SBA). During 
his opening statement Chairman Talent expressed concern over 
the structure of the budget proposal. While he was supportive 
of the SBA's plans to adhere to their five-year strategic plan, 
and their requests for funding of major programs, he had grave 
concerns over the SBA proposal to change the disaster loan 
program.
    In their 1999 budget submission the SBA proposed to double 
the interest rate for loans to disaster victims, resulting in a 
savings of 150 million dollars. However, Chairman Talent noted 
that despite these significant savings the SBA budget request 
would increase by 8 million dollars. In addition, proposals of 
a similar nature had been sent to Congress previously and had 
always been soundly rejected.
    The only witness invited to testify at the hearing was SBA 
Administrator Aida Alvarez. Administrator Alvarez began by 
outlining the basics of the proposed budget: $11 billion for 
the 7(a) business loan program, $3 billion for the 504 loan 
program, and $1.1 billion for the Small Business Investment 
Company program. The Administrator also discussed several new 
Administration initiatives regarding lending to Hispanic-
American and African-American businesses, and Memorandum of 
Understanding with the ``Big Three'' automobile manufacturers 
regarding subcontracting opportunities for minority-owned 
businesses.
    The Administrator also testified regarding several new 
administrative, legislative, and funding requests. The 
Administration budget requested that the Committee consider 
legislation making the microloan program permanent, and to 
begin a new disaster mitigation pilot program. The budget 
proposal also requested $18 million for upgrading the SBA's 
financial management systems, $3 million to help the agency 
comply with COSOaccounting standards, an increase for Women's 
Business Centers to $9 million, and an increase to $9.5 million for 
technical assistance through the 7(j) program.
    Ms. Velazquez, the ranking minority Member, opened 
questioning by the Committee and inquired about expansion of 
the Small Business Development Centers (SBDCs). She also 
expressed concerns over placement of SBDCs in inner city areas. 
Administrator Alvarez deferred to Johnnie Albertson, the 
Associate Administrator in charge of the SBDCs, who explained 
the selection criteria for SBDCs and also the methods used for 
data collection at SBDCs.
    Mr. Pascrell then continued the questioning and focused on 
the funding level for SBDCs. He expressed concern that SBDC 
funding had been essentially flat over the last few years, 
despite the program's record of job and business creation. 
Administrator Alvarez responded that despite limited resources 
the SBA did consider the SBDC program a priority.
    Ms. McCarthy then questioned Ms. Alvarez regarding the 
SBA's efforts regarding aiding small businesses with child 
care. The Administrator replied that the SBA has been working 
through the Microloan program to aid in establish child care 
businesses, and to provide assistance through the Women's 
Business Center system.
    Mr. Boyd then questioned Administrator Alvarez regarding 
the proposed changes to the disaster loan program. 
Specifically, he inquired about the shortfall that would exist 
if the Administration's proposed interest rate increase was not 
enacted. The Administrator deferred to Berkie Kulik, Associate 
Administrator for Disaster Assistance, who replied that, 
assuming an average annual demand of $901 million, the SBA 
would have a shortfall of roughly $125 million.
    Chairman Talent then questioned Administrator Alvarez 
regarding the request for additional fund for computer system 
upgrades. The Administrator replied that a spending plan had 
been submitted and a formal plan would be forthcoming in June. 
Chairman Talent then expressed his concerns over the budget's 
reliance on significant amounts of carryover in order to 
achieve the 1999 program levels for the SBIC program. Chairman 
Talent pointed out that the budget request assumed that fully 
half of the 1998 funds would have to be carried over into 1999 
in order to fund the program. Ms. Alvarez admitted to concerns 
over the availability of sufficient carryover but stated that 
the figures were difficult to calculate due to the new five-
year funding capability for SBICs.
    Mr. Talent then closed his questioning with a strong 
statement opposing the plan to double interest rates on 
disaster victims. He stated that, while it would save 
significant amounts of money, it was inappropriate to attempt 
fund savings or spending increases in other programs on the 
backs of disaster victims.
    Ms. Millender-McDonald supported the Chairman's statement 
and then proceeded to question the Administrator on 
implementation of the HUBZones program. The administrator 
replied that the SBA planned to have regulations drafted and 
approved by June and expected implementation by early in 1999.
    Mr. Davis then discussed the SBA's welfare to work 
proposals and their relationship to the microloan program, 
which he viewed as an excellent method for breaking the cycle 
of dependency. The administrator echoed his support for the 
microloan program and continued the conversation with Ms. 
Velazquez. Ms. Velazquez expressed some concern that the 
amounts of funding requested by the SBA ($401,000) may be 
inadequate. Administrator Alvarez responded that the Microloan 
program has a significant multiplier effect that enables it to 
work at low cost levels. Ms. Velazquez then concluded with a 
request that the SBA study the effect that the NAFTA agreement 
has had on small businesses.
    The hearing concluded with a discussion between Chairman 
Talent and Greg Walters, Deputy Chief Financial Officer of the 
SBA, and John Gray, the Associate Administrator for Finance. 
The Chairman questioned Mr. Walters about the approximately 200 
employee increase at the SBA and the way such new hires are 
often hidden as mid-year hires which count for only one-half of 
a full-time employee (FTE) and then appear on the following 
year's budget as an FTE.
    The Chairman then questioned Mr. Gray regarding the 
mechanics of the Microloan program and the loss reserve 
required for microloan intermediaries, and their cooperation 
with the SBDCs. The hearing was then gaveled to a close.
    For further information on this hearing, refer to Committee 
publication 105-36.

            7.2.20  the expected impact on small businesses and farmers 
                    of the kyoto treaty on global climate change

                               Background

    On April 16, 1998 the Committee on Small Business convened 
in Malden, MO to discuss the anticipated costs to small 
businesses and farmers of implementing the changes prescribed 
by the Kyoto Treaty. This agreement proposes that 
industrialized nations reduce their greenhouse gas emissions by 
seven percent below the levels measured in 1990, while 
developing nations will not be burdened with these 
requirements. In a similar situation, the 1987 Montreal 
protocol on the reduction of chlorofluorocarbons (CFCs), 
resulted in the near elimination of CFCs in the United States, 
while CFC production in developing countries almost doubled. 
Many cite faulty data gathered by non-scientists as a reason to 
doubt the disastrous environmental consequences predicted if 
nations do not conform to the Kyoto Treaty. Business owners and 
industry experts worry about the viability of their enterprises 
once the financial burden of the Kyoto Treaty is passed along 
to their customers.

                                Summary

    The hearing consisted of two panels. The first panel 
included Mr. Paul Agathen, of Ameren; Mr. Steve Heddle, 
President, Noranda Aluminum; Mr. Duane Highley of Associated 
Electric Cooperative; Ed Throop of the Board of Municipal 
Utilities; and Mr. Bob Stagner of the M&A Electric Power 
Cooperative.
    Mr. Agathen testified about the ruinous effects the Kyoto 
Treaty will have on businesses in the electrical industry and 
on their customers. According to him, replacing coal with 
natural gas to produce electricity will result in a 54-percent 
increase in electric rates for the Missouri area, a stark 
contrast to the four percent increase calculated by the Chair 
of the Council of Economic Advisors, Dr. Janet Yellen.
    Mr. Heddle criticized the Kyoto Treaty for attempting to 
remedy problems whose solutions are not scientifically proven. 
He stated that while carbon dioxide is a natural bi-product of 
aluminum production, aluminum is very environmentally friendly 
and that nearly 38 percent used in the United States is 
recycled. Additionally, the use of lightweight aluminum in the 
production of automotive parts reduces the carbon dioxide 
emissions of cars.
    In his statement, Mr. Highley pointed out that the 
hypothetical findings concerning global warming should not be 
accepted as fact. He emphasized that other plausible 
explanations to a rising global temperature, such as increased 
solar output, should be investigated before the burden of 
resolving an unproved crisis is placed on American industry. He 
also called for stricter scrutiny of the presumed cause and 
effect relationship betweenan increase in CO2 
protection and global warming. He concluded that a treaty responding to 
conjectured findings is a premature action and one that may force 
American plants to move overseas.
    Mr. Troop outlined the costs to Missouri if the Kyoto 
Treaty is passed and the amount of coal able to be burned is 
reduced. They include, among others, a loss of nearly 43,000 
jobs, a 50 cent increase in gasoline prices per gallon, and a 
residential electric rate increase of 70 percent. These are 
projected consequences, resulting from compliance with the 
Kyoto Treaty, that will prevent his company from accomplishing 
their goal of ``providing electricity at the lowest possible 
cost'' to consumers.
    Mr. Stagner testified that he too was concerned with the 
lack of scientific evidence substantiating the Treaty that 
could potentially damage the U.S. economy. He also pointed out 
that the Treaty places an unfair burden on industrialized 
nations while ignoring developing nations where the ``most 
rapid increases in greenhouse gases are occurring.''
    The second panel was comprised of Mr. Steven Wallace, 
representing the National Federation of Independent Business, 
and Vice President, Wallace and Owens Stores, Inc.; Mr. Mike 
Kasten, representing the Missouri Cattleman's Association; and 
Mr. Charlie Kruse, President, Missouri Farm Bureau.
    Mr. Wallace testified on the effects the Kyoto Treaty will 
have on the supermarket business. He confirmed that since his 
industry survives on a 1.8-2 percent profit margin, businesses 
like his could never absorb the extra costs that would be 
levied on them and they would have to pass these costs on to 
consumers. He noted that complying with these guidelines would 
especially harm the food industry since so much electricity is 
used for refrigeration and so much fuel is used to ship 
products.
    Mr. Kasten lauded agricultural technology for its 
environmental benefits, such as improving beef production so 
that fewer cows are needed for the same amount of beef, and 
high crop production so that less land can be used. He added 
that since the U.S. exports ten percent of its beef, he is 
unable to pass along the cost of Kyoto compliance because if he 
did, countries importing U.S. beef would seek a more economical 
source. He argued that a small group of environmentalists with 
more conviction than proof should not be able to preside over a 
decision which could have such disastrous consequences.
    Mr. Kruse reiterated concern over the validity of 
scientific evidence of the greenhouse effect. He reported 
calculations of senior economists at the American Farm Bureau, 
who found that the Kyoto Treaty would cause a 24-48 percent 
decrease in net farm income. It would also stifle competition 
by mandating compliance for some countries but not others.
    For more information on this hearing, see Committee 
publication 105-46.

            7.2.21  revitalizing america's economically distressed 
                    communities

                               Background

    Despite today's burgeoning economy, many of America's 
communities are in a state of economic distress. A recently 
commissioned General Accounting Office (GAO) study has 
identified rural and urban communities across the country whose 
economic prospects lag behind the rest of the nation's. The 
American Community Renewal Act (ACRA), introduced by Committee 
Chairman Jim Talent (R-MO) and Reps. Danny Davis (D-IL) and 
J.C. Watts, Jr. (R-OK), is designed to help these communities 
by creating jobs, reducing burdensome regulation, increasing 
home-ownership, encouraging savings, and strengthening the 
institutions in these communities that have already begun to 
make a difference.

                                Summary

    On Tuesday, May 19, 1998, the Committee held a hearing to 
discuss strategies to revitalize economically distressed 
communities. The hearing consisted of two panels. The first 
panel consisted of two witnesses, Rep. J.C. Watts. Jr. (R-OK) 
and Reverend Floyd Flake, Pastor, Allen AME, Jamaica, NY. The 
second panel consisted of five witnesses: Stanley Czerwinski, 
Associate Director, Resources, Community, and Economic 
Development Division, General Accounting Office; Michael 
Murphy, President, Renewal Atlanta, Atlanta, GA; Theo ``Doc'' 
Benson, Minister-Director, The Education and Employment 
Ministry, Oklahoma City, OK; Dr. Avis Vidal, Principal Research 
Associate, Urban Institute, Washington, DC; and Michael Brown, 
Chairman, Sable Bancshares, Chicago, IL.
    Rev. Flake testified that the homeownership provisions in 
ACRA are the most important for revitalizing distressed 
communities. He testified that home-ownership provides many 
opportunities for community redevelopment. Rev. Flake 
testified, that when an area has a strong homeowner base 
businesses are more likely to relocate into that neighborhood. 
Rev. Flake also testified that the drug and alcohol treatment 
provisions of ACRA are quite important . He testified that the 
issue should not be whether one goes to a faith-based treatment 
program or a secular one, but the issue should be whether this 
country is doing enough to help people who are addicted to 
drugs.
    Rep. Watts testified that if Congress does nothing to 
revitalize the pockets of poverty in this country, within ten 
years the United States will be on the brink of a social and 
economic crisis in low-income communities. Rep. Watts testified 
that ACRA will provide low-income families with an incentive to 
save--Family Development Accounts (FDA's). FDA's allow people 
who receive the Earned Income Tax Credit to put part of their 
credit into their FDA.
    Mr. Czerwinski testified regarding the methodology that GAO 
used to identify the poorest communities in this country. GAO 
was asked to identify census tracts that have poverty rates of 
20 percent and unemployment rates at least 1.5 times the 
national average. Mr. Czerwinski testified that about 9,000 of 
the nation's 59,000 tracts met the poverty and unemployment 
criteria of ACRA.
    Mr. Murphy testified that he established his company, 
Renewal Atlanta, in order to take advantage of the economic 
development incentives offered by Atlanta's Empowerment Zone. 
He stated that Renewal Atlanta has its sights set on expansion 
into other cities and he hopes they will become renewal 
communities.
    Mr. Benson testified that it is an absolute necessity to 
help people help themselves in this country. He testified that 
his organization, The Education and Employment Ministry, 
rebuilds the unemployed and underemployed through a program of 
self-help so that they will take responsibility for their 
lives.
    Dr. Vidal was the only witness who had reservations about 
ACRA. She testified that the incentives within the bill are 
structured in ways that make it highly unlikely to increase 
economic activity in the identified communities. Dr. Vidal 
testified that the bill needs to contain housing subsidies in 
order to make its housing components effective, a point that 
was contested by several members of the Committee.
    Mr. Brown testified that a key component of ACRA is the 
provision permitting HUD to sell certain properties to local 
community development corporations (CDC's). He testified that 
this provision will enable CDC's to serve as advocates for 
rehabilitation. Mr. Brown testified that the tax benefits 
offered in ACRA would succeed in developing a community 
business base.
    For more information on this hearing, consult committee 
publication 105-48.

            7.2.22  the kyoto protocol: the undermining of american 
                    prosperity

                               Background

    Negotiations on the Kyoto Protocol to the United Nations 
Framework Convention on Climate Change were completed December 
11, 1997, committing the industrialized nations to specified, 
legally binding targets for emissions of six ``greenhouse 
gasses.'' The treaty will be open for signature from March 15, 
1998, until March 15, 1999. The United States has agreed to a 
target of reducing greenhouse gasses to 7% below the 1990 
levels during the commitment period of 2008 to 2012.
    For the United States to ratify the Protocol, the treaty 
must be submitted to the U.S. Senate for advice and consent. 
Ratification requires a two thirds majority vote in the Senate 
for approval. Specific provisions in the protocol cannot be 
changed until the next conference of the parties which will be 
in November 1998 in Buenos Aires, Argentina.
    The Administration has indicated that until developing 
countries such as Mexico, China, and Brazil also make 
commitments to participate in greenhouse gas limitations, it 
will not submit the protocol to the Senate for advice and 
consent. This is attributable to Senate Resolution 98, which 
opposed any treaty that does not include emissions limitations 
for developing countries or would result in serious harm to the 
economy of the United States. S. Res. 98 passed by a vote of 95 
to 0 on July 25, 1997.

                                Summary

    On Thursday June 4, 1998, the Committee on Small Business 
held its second hearing on the economic effect the Protocol 
will have on the small business community. The hearing was 
comprised of two panels with the first panel being solely 
occupied by Dr. Janet Yellen, Chair, Council of Economic 
Advisors for the Clinton Administration.
    Dr. Yellen's lengthy testimony hinged on the precautionary 
principle as well as the Kyoto Protocol being a work in 
progress. The precautionary principle as applied to the 
protocol would be in the following terms. The use of energy 
might be warming the earth. That warming might produce 
catastrophic events. The speed of this change might require 
immediate action. Governments might be able to prevent that 
warming by an aggressive global withdrawal policy. We must take 
action now to reduce emissions. Dr. Yellen was grilled by 
Committee members on the point that the precautionary principle 
should also be applied to the economy in that this treaty might 
destroy the U.S. economy. Dr. Yellen was also asked in detail 
about the economic savings that the administration claimed in 
her testimony. Much of the assumptions were based on supposive 
meaningful participation by developing countries which the 
developing countries themselves did not even agree to. Dr. 
Yellen was also peppered with questions on the treaty's effect 
on energy prices as she was unable to give the committee a 
definitive answer claiming that the Administration's cost 
savings from the treaty were based on the assumptions. Dr. 
Yellen testified for over two and half hours due to extensive 
cross-examination by Committee members.
    The second panel consisted of the following six witnesses: 
Harry C. Alford, President and CEO, National Black Chamber of 
Commerce, Washington, DC, C. Frederick Dahlberg, Jr., 
President, St. Mary Galvanizing Company, Morgan City, LA, 
Howard Geller, Executive Director, American Council for an 
Energy Efficient Economy, Washington, DC, Raymond J. Keating, 
Chief Economist, Small Business Survival Committee, Washington, 
DC, Marlo Lewis, Jr., Vice President for Policy and Coalitions, 
Competitive Enterprise Institute, Washington, DC and Terry F. 
Steinbecker, President and CEO, St. Joseph Light and Power Co., 
St. Joseph, MO.
    Besides Mr. Geller, the second panel was in general accord 
about the economic effect of the protocol on the economy. The 
panelists argued that the treaties' most detrimental effect 
would be on energy prices. One of the panelists, Dr. Keating, 
testimony included estimates from the prestigious economic 
forecasting firm, WEFA. This company did a detailed economic 
analysis on the effect of the Kyoto Protocol on the U.S. 
economy. In his testimony, Dr. Keating cut the cost estimates 
from this study in half. Under the Kyoto Protocol, by 2010, 
commercial establishments, again taking half of WEFA's 
estimates, face price hikes on distillate fuel oil of 37%, 29% 
for natural gas, and 26% for electricity. Industrial facilities 
would be confronted by price increases of 70% on residual fuel 
oil, 46% on natural gas, 37% on electricity, and, finally, 
trucking and rail firms would face a 21% increase in the price 
of diesel. All of these estimates are WEFA's cut in half.
    The hearing concluded with the Committee finding that the 
Kyoto Protocol would have a detrimental impact on the small 
business sector as well as the U.S. economy as a whole. Some of 
the democrat members argued about the grave environmental 
problem that global warming could pose to the planet. Chairman 
Talent assured the members of another hearing on the science 
behind the Kyoto Protocol, which was held on July 27, 1998. For 
more information on this hearing, refer to Committee 
publication 105-53.

            7.2.23  the year 2000 (y2k) computer problem: are small 
                    businesses ready for the turn of the century

                               Background

    The Year 2000 (Y2K) computer problem involves the inability 
of many computers and embedded chips to process dates beyond 
December 31, 1999. In the 1960's and 1970's computer 
programmers created year date formats with two digits to 
conserve expensive storage space--for instance: 98 or 99 for 
1998 or 1999. When the year becomes 00 the year 2000 is 
indistinguishable from the year 1900. This problem could cause 
computers to stop running or to start generating erroneous 
data.
    According to a recent NFIB/Wells Fargo study titled ``Small 
Business and the Y2K Problem,'' most small business owners see 
Y2K as a small inconvenience that will have either modest or 
non-existent consequences to their business. With the 
widespread reliance on computer systems by businesses and 
government, it is essential that small business owners be 
apprised of what dangers face them if their computers and 
embedded chips are not Y2K compliant. The Committee held a 
hearing on Wednesday, July 15, 1998 to discuss the potential 
impacts of Y2K on small businesses.

                                Summary

    The hearing comprised of two panels, with the first panel 
consisting of a sole witness, Fred Hochberg, Deputy 
Administrator of the Small Business Administration. The second 
panel consisted of five witnesses: Allen Burgess, President, 
Data Integrity, Inc., Waltham, MA; Debra Taufen, Global Small 
and Medium Business Initiatives, IBM, White Plains, NY; Harris 
N. Miller, President, Information Technology Association of 
America, Arlington, VA; Robert Wagman, Executive Editor, 
Millennium Information Services, Washington, DC; and William J. 
Dennis Jr., Senior Research Fellow, National Federation of 
Independent Business, Washington, DC.
    Mr. Hochberg testified that SBA, which began its Y2K 
project in 1996, is taking an aggressive approach to solving 
its Y2K issues. According to Mr. Hochberg, SBA is on schedule 
to complete its assessment and renovations by the end of 1998 
and will begin testing its systems in the first quarter of 
1999. He also testified that SBA has taken several steps to 
inform the small business community about the dangers of Y2K. 
These efforts include developing aY2K web page on SBA's web 
site; producing a public service announcement regarding Y2K; 
and establishing a toll-free number where businesses can 
receive information regarding Y2K.Mr. Hochberg testified that 
he is confident that SBA will achieve Y2K compliance well before the 
year 2000 because SBA started its conversion process early. During the 
question period, Larry Barrett, Chief Information Officer, SBA, 
testified that SBA is confident that its costs for achieving Y2K 
compliance will be zero in fiscal year 2000 even though the costs for 
technicians who provide Y2K solutions are growing exponentially as we 
approach 2000.
    The second panel consisted of various members of the 
information technology sector who agreed that the Y2K Computer 
problem will have profound effects on small businesses if they 
don't act to correct this error swiftly. Mr. Dennis conducted 
the NFIB/Wells Fargo study regarding small businesses and Y2K. 
He testified that his study found that one-fifth of the small 
businesses surveyed knew nothing about Y2K; another fifth is 
aware of the problem and is taking action or has taken action; 
another fifth plans to take action, but has not taken any steps 
yet; and the last two-fifths plan no action whatsoever. Mr. 
Dennis also testified that 15 percent of the business owners 
surveyed said that they would lose 70 percent or more of their 
sales or production for that day if computers were to 
malfunction on the first business day of 2000.
    Many of the panelists suggested roles that the Federal 
government can take to help remedy the Y2K problem. Mr. Burgess 
suggested that Congress should provide more forums that enable 
technicians to discuss the Y2K problem with business owners. 
Ms. Taufen testified that Congress should focus its energies on 
solving the problem, rather than trying to legislate a 
solution. Mr. Miller and Mr. Wagman suggested that low-interest 
loans should be made to small businesses so that they may be 
able to afford the costs of Y2K remedies. Mr. Dennis, though, 
testified that tax credits and loan programs are inappropriate 
solutions to Y2K. He suggested that the Committee, and the 
entire Congress, focus on the issue of liability. Mr. Dennis 
testified that larger corporations may be willing to offer 
leadership in sharing Y2K technology, but they are hesitant to 
do so for liability reasons.
    For more information on this hearing, consult committee 
publication 105-58.

            7.2.24  the kyoto protocol: the underminging of american 
                    prosperity--the science

                               Background

    On July 29, 1998, the Committee invited scientists to 
debate the global warming issue on its scientific merits. This 
was the third in a series of hearings intended to study the 
impacts of the Kyoto Protocol on small business. Vice President 
Gore signed the Protocol in December of 1997 to reduce the 
production of carbon dioxide to levels 7% lower than what was 
measured in 1990. At the time of the hearing, the 
Administration had not sent the Protocol to the Senate for 
ratification. Chairman Talent opened the hearing with 
statistics from independent energy studies that said if the 
Senate ratifies the agreement, Americans might face increases 
in gas prices by as much as 65 cents per gallon, natural gas 
prices for industry might increase by 90 percent and the gross 
domestic product might decline by 2 1/2 percent. The hearing 
did not debate the economic figures; however, it allowed the 
panelists to debate the Protocol's premise: that greenhouse 
gases were causing the Earth to warm at catastrophic rates 
unsafe to the planet. Mr. Talent thanked the one panel of 
witnesses for attending the hearing after postponing it in the 
aftermath of the fatal shootings of two Capitol police 
officers, Jacob Chestnut and Josh Gibson.
    Five climatologists and one economist appeared on the 
panel: Dr. Robert T. Watson, Chairman, Intergovernmental Panel 
on Climate Change (IPCC); Dr. Daniel A. Lashof, Senior 
Scientist, National Resources Defense Council; Dr. Patrick J. 
Michaels, Senior Fellow in Environmental Studies, CATO 
Institute; Dr. Fred S. Singer, President, The Science & 
Environmental Policy Project; Dr. John R. Christy, Associate 
Professor of Atmospheric Science at the University of Alabama, 
Huntsville; and Dr. Marlo Lewis Jr., Vice President for Policy 
and Coalitions of the Competitive Enterprise Institute.

                                Summary

    Dr. Watson testified as the new chair of the United 
Nations' Intergovernmental Panel on Climate Change (IPCC), an 
international group of climate and economy experts that try to 
collaborate on their work to brief policymakers on the issues 
of global warming. He briefed the Committee on some of the 
beliefs of certain IPCC contributors that by continuing to emit 
carbon dioxide into the atmosphere, ``on balance, there will be 
a number of adverse effects: human health, heat-stress 
mortality and increase in vector-borne diseases such as 
malaria; changes in ecological systems, particularly forested 
systems and coral reefs; and, indeed, changes in socioeconomic 
sectors such as agriculture, forestry, fisheries, water 
resources, and human settlements.''
    Dr. Lashof provided several recent natural disasters such 
as heat waves, severe storms and droughts to illustrate what he 
thinks might become more severe and frequent if carbon dioxide 
emissions are not reduced.
    Dr. Michaels disagreed with Dr. Watson and Dr. Lashof on 
the severity of the global warming theory. He cited the 
research of Dr. James Hansen of NASA, who over-predicted an 
increase in temperature for the past decade by a factor of 
four. Similarly, he stated that the first IPCC report in 1990 
predicted a median warming of 3.2 degrees. The IPCC lowered 
this prediction in each of its following reports, in 1992 and 
1995. He said that as science improves, the proponents of the 
global warming theory are starting to look more like its 
original skeptics.
    Dr. Singer continued along the lines of Dr. Michaels 
testimony that current global warming climate models are not 
validated by actual observations. He said that accurate data 
going back 200,000 years shows natural climate fluctuations and 
that recent history does not suggest any dramatic changes from 
the past.
    Dr. Christy introduced his tropospheric temperature data 
from the past twenty years that shows no negligible increase in 
temperature. He said his data is supported by plotting several 
independent balloon measurements on the same chart. Since 
climate modelers cannot account for this phenomenon, he said 
any scientific consensus is premature.
    Dr. Lewis attacked the same precautionary principle cited 
in Dr. Lashof's testimony. Using the same logic of Dr. Lashof 
that humans should not gamble with their only environment by 
taking steps to reduce carbon dioxide emissions, Dr. Lewis 
introduced the precautionary principle for the economic perils 
risked by implementing the Kyoto Protocol: should humans gamble 
with the only economy they have?
    For further information on this hearing, refer to Committee 
publication 105-62.

            7.2.25  how union-only project labor agreements are harming 
                    women- and minority-owned small businesses

                               Background

    President Clinton issued an Executive Memorandum on June 5, 
1997 which encouraged departments and agencies to consider the 
use of project labor agreements (PLAs) on all Federal 
construction projects. The President's Memorandum stated that a 
PLA was to be negotiated between the Government and the unions 
before putting the work out to bid, which caused work rules and 
wage rates to be locked in before small businesses could even 
negotiate. Following the President's lead, Department of 
Transportation Secretary Slater issued aApril 22, 1998 
Memorandum for the Heads of Operating Administrations which asked for 
implementation of the President's Executive Memorandum within DOT.
    Small businesses, and women- and minority-owned businesses 
in particular, have raised concerns about this memorandum 
because most of them are not unionized, and thus they will not 
have input into negotiations of the PLA. Also, in order to win 
Federal contracts, women- and minority-owned businesses are 
forced to obtain most of their workers from union hiring halls, 
and usually only allowed to use between three and five of their 
own workers. Women- and minority-owned businesses are also 
forced to pay the unions' pension and health and welfare plans 
in addition to their own plans, thus paying at least twice the 
amount they already pay for their own workers. Thus, many 
women- and minority-owned businesses simply do not even attempt 
to be a part of PLAs, as the requirements and expenses are too 
much to handle. The Committee held a hearing on August 6, 1998 
to examine these and other concerns with PLAs.

                                Summary

    The first panel at the hearing consisted of one witness: 
Ms. Nancy McFadden, General Counsel for the Department of 
Transportation. Ms. McFadden explained that the DOT supported 
PLAs because of the guarantee they provide against strikes, 
lockouts, and any other work-delaying disruptions. She stated 
that many Federal projects are covered by PLAs, such as the 
Savannah River site in South Carolina and the Boston Harbor 
Project, and that many state and local governments have also 
made successful use of PLAs. Ms. McFadden also made the point 
that neither the President's Memorandum nor Secretary Slater's 
implementation memorandum required the use of PLAs, and rather 
simply encouraged them.
    Ms. McFadden made six main points in her testimony 
regarding the use of PLAs and why they do not discriminate 
against women- and minority-owned businesses. She stated that 
all contractors and sub-contractors have the ability to compete 
for a contract, whether or not they are union. Also, she stated 
that all workers are eligible to work on PLA projects, even if 
they are not in a union. The third point Ms. McFadden 
highlighted was that out of the 1,457 subcontractors on the 
Boston Harbor Project, 381 (26%) were minority businesses and 
278 (19%) were women-owned businesses. Her fourth point was 
that each PLA is negotiated separately, and hence there is not 
one universal PLA imposed on all projects. The fifth point Ms. 
McFadden made is that PLA parties are attempting to craft PLAs 
with small businesses in mind. And lastly, Ms. McFadden stated 
that the President's memorandum applies to a project exceeding 
$5 million, which is such a large contract that smaller 
contractors and subcontractors would not even be impacted. Ms. 
McFadden reiterated the point that PLAs are useful tools for 
contracting officers in ensuring higher quality work in a more 
timely manner.
    The first witness on the second panel was Michael D'Antuono 
of Parson Constructions, which is one of the world's largest 
construction companies. Mr. D'Antuono refuted each anti-PLA 
argument with anecdotal evidence from his company, and 
ultimately stated his support for PLAs. Mr. D'Antuono explained 
that he has not seen any instances of discriminatory measures 
with PLAs, and that they seem to only enhance opportunities for 
small businesses.
    The remaining witnesses on the second panel--all of which 
owned or were employed by women and minority-owned small 
businesses--were all strongly opposed to PLAs due to their 
discriminatory nature. Rose Girard, owner of Phoenix 
Construction Services in Riverside, CA was the first witness. 
The second witness was Barbara Hoberock, the president and 
founder of the Companies, Inc. in Union, MO. The third witness 
was Michael La Point, Vice President of J.L. Steele, Inc. in 
Roanoke, Texas. And the last witness was Phyllis Hill Slater, 
the founder, owner, and president of Hill Slater, Inc. in Great 
Neck, Long Island, and the immediate past President of NAWBO. 
These witnesses testified regarding specific instances of 
discrimination they have suffered because of PLAs; they said 
that they eliminated the contractor's right to choose because 
of the different nature of the contracts under PLAs. Ms. Girard 
noted that on one PLA job that she worked on, she was forced to 
abandon her own employees for a stranger work force. These 
employees were not as skilled as hers, and she found working 
with unions to be too limiting and inflexible for her type of 
work. Ms. Hoberock reiterated the fact that PLAs are inherently 
discriminatory, as 8 out of 10 workers are non-union. She 
stated from personal experience that open-shop contractors are 
forced to perform like unionized companies under PLAs, and that 
is detrimental to their work.
    Mr. La Point believed the support of PLAs to be in conflict 
with the open bidding statute in a DOT mandate. He also noted 
that the President's memorandum is not as optional as one might 
think, as states' reimbursement for projects could be 
considerably less depending on its use of PLAs. He cited the 
May 1998 GAO report that stated that the efficiency, quality 
and stability of the work under PLAs could not be proven, and 
that this argument is therefore invalid. Ms. Hill Slater 
repeated the aforementioned statements from her personal 
experience, saying that PLAs are inflexible and therefore 
detrimental to small businesses, and particularly those owned 
by women and minorities.
    For further information on this hearing, refer to Committee 
publication 105-63.

            7.2.26  revitalizing america's distressed communities

                               Background

    One of the biggest challenges facing our nation is the 
breakdown of low-income communities in both urban and rural 
parts of America. These communities are distressed, demoralized 
and devastated by increasing social problems and decreasing 
economic resources. For the last three years, Members of 
Congress concerned about the hardships facing these communities 
have been exploring what changes the government should make to 
help create a structure of order, decency, and opportunity for 
every American. The result of these efforts is the American 
Community Renewal Act (ACRA), introduced by Committee Chairman 
Jim Talent (R-MO) and Reps. J.C. Watts, Jr. (R-OK) and Danny 
Davis (D-IL).
    ACRA will help communities by creating jobs, reducing 
burdensome regulations, increasing home-ownership, encouraging 
savings and strengthening the institutions in these communities 
that have already begun to make a difference. To help identify 
communities in economic despair the Congressmen asked the 
General Accounting Office (GAO) to research those areas with 
the greatest number of people living in poverty. The study 
found that more than 9,000 communities in rural and urban areas 
are living in poverty. Cook County, IL, which comprises the 
Chicago area, was the second largest county identified by the 
GAO study. The Committee held its second hearing regarding ACRA 
on August 19, 1998, in Chicago, to discuss how ACRA can help 
spur economic growth in communities like Cook County.

                                Summary

    The hearing consisted of two panels. The first panel 
consisted of four witnesses: Rep. J.C. Watts, Jr. (R-OK); 
Stanley Czerwinski, Associate Director, Resources Community and 
Economic Development Division, General Accounting Office; John 
Stroger, President, Cook County Board of Commissioners, 
Chicago, IL; and Avery Goodrich, Executive Director, Chicago 
Empowerment Zone.
    Rep. Watts testified that the American Community Renewal 
Act seeks to level the playing field in America and help 
economically distressed communities realize the full promise of 
the American Dream. ACRA, by bringing new businesses into these 
communities, will not only expand job opportunities, but will 
also allow residents of these communities to spend their money 
within their neighborhoods. He testified that ACRA cannot 
promise success to every American, but it promises every man, 
woman and child the opportunity for success.
    Mr. Czerwinski testified about the methodology used by GAO 
in its study identifying rural and urban communities that are 
suffering from economic distress. In addition, GAO surveyed 
federal, state and local participants in the EZ/EC program to 
find out what factors have helped or hindered them as they 
tried to implement the program. Mr. Czerwinski testified that 
what helped these efforts was community representation on the 
governance board of an EC or EZ. He stated that what hindered 
these efforts included: a difficulty in selecting an 
appropriate governance board structure; lack of federal 
funding; and unrealistic expectations from local leaders, the 
public and the media.
    Mr. Stroger testified that Cook County is home to a human 
crisis caused by poverty, joblessness and crime. Mr. Stroger 
testified that ACRA would be helpful to his community because 
it gives tax incentives to businesses, promotes 
intergovernmental cooperation and encourages savings by low-
income families.
    Mr. Goodrich testified that the strategic plan for 
Chicago's Empowerment Zone has unified a larger community 
vision and is working to confront obstacles and create 
solutions to meet immediate and long term needs. Mr. Goodrich 
testified that the housing provisions in ACRA will allow 
communities to develop the housing stock needed to sustain 
urban areas.
    The second panel consisted of four witnesses: James 
Compton, President, Chicago, IL; Consuelo Miller Pope, 
Executive Director, Cosmopolitan Chamber of Commerce, Chicago, 
IL; Michael Brown, Chairman, Sable Bancshares, Inc. Chicago, 
IL; and Dr. Calvin Morris, Executive Director, Community 
Renewal Society, Chicago, IL.
    Mr. Compton testified that the Chicago Urban League 
believes that one of the keys to redevelopment of low-income 
communities in Chicago is the growth of a locally owned and 
operated business community. Mr. Compton testified that 
eliminating state and local taxes, abating site clean-up costs, 
creating opportunity by waiving license requirement, reducing 
capital gains taxes and encouraging hiring from within renewal 
communities are tools within ACRA that would spur economic 
development.
    Ms. Pope testified that ACRA would place a security net 
under impoverished communities. She testified that ACRA's 
emphasis on strengthening families and addressing the scourge 
of addiction make it an attractive legislative package to help 
distressed communities.
    Mr. Brown testified that ACRA takes a holistic approach to 
community development. He testified that no single solution is 
going to cure the problems of urban markets. Mr. Brown 
testified that allowing financial institutions to receive 
Community Reinvestment Act credit for investments or loans 
within renewal communities would help to stimulate an increase 
in lending and development activities within these areas.
    Rev. Morris testified that if ACRA were passed into law, it 
would move America toward the creation of a society where 
people are not forced to choose between such basic necessities 
as food or housing.
    For more information on this hearing, consult committee 
publication 105-64.

            7.2.27  h.r. 3659, the farm and ranch risk management act

                               Background

    On September 16, 1998, the Committee on Small Business held 
a hearing to explore H.R. 3659, the Farm and Ranch Risk 
Management Act. The purpose of this bill is to give America's 
farmers the opportunity to more efficiently manage the unique 
and often-severe risks associated with farming by allowing them 
to establish farm and ranch risk management (FARRM) accounts. 
FARRM Accounts are one of the most supported risk management 
tools for farmers because they allow eligible farmers to 
contribute up to 20 percent of their taxable income into tax-
deferred savings accounts. Contributions may remain in the 
account for a maximum of five (5) years, during which period 
farmers would be encouraged to save a portion of their income 
during the good years, allowing those savings to supplement 
income during bad years.

                                Summary

    The hearing was comprised of two panels, the first of which 
included Senator Charles Grassley (R-IA), Congresswoman Karen 
Thurman (D-FL) and Congressman Kenny Hulshof (R-MO). This first 
panel of congressional witnesses highlighted the very risky 
nature of the farming business and discussed the important 
features contained in the FARRM Accounts legislation that would 
provide farmers relief from severe swings in weather or trade 
situations. As noted by Sen. Grassley, while FARRM Accounts 
would be a very important part of the long-term solution to the 
farm economy, they would also be very helpful in the short 
term. He went on to explain that when prices are high, farmers 
often pay so much of their income in taxes that they are unable 
to save anything; when prices drop again, farmers then face 
liquidity problems. Rep. Thurman agreed, and explained how 
FARRM Accounts would provide farmers with an alternative to 
what is considered the ``boom and bust'' cycles of farming. 
Rep. Hulshof added that FARRM Accounts could be described as a 
cousin to income averaging, because what FARRM Accounts do is 
to help farmers prepare in the down years.
    The second panel included Charlie Kruse, President, 
Missouri Farm Bureau; Guy Donaldson, President, Pennsylvania 
Farm Bureau; and Steve Verrett, Chief Staff Officer, Plains 
Cotton Growers Association. The witnesses were unanimous and 
strong advocates of the legislation because it would help 
farmers help themselves by giving them the tools to save during 
good years for use during bad years. The witnesses mentioned 
that this theme was especially relevant this year when so much 
of the country has experienced weather severely averse to 
farming. Chairman Talent mentioned that south Texas, for 
example, has only received about 8 percent of its normal 
precipitation during the current year's drought; Rep. Hinojosa 
added that the district in south Texas that he represents has 
only received about 4 percent of its normal precipitation this 
year. Mr. Kruse noted how different things would be currently 
if FARRM Accounts had been signed into law five years ago so 
that farmers could be using their savings now. Other witnesses 
and Committee members echoed this message. Mr. Donaldson 
mentioned that his home state of Pennsylvania--unlike many 
other areas in the country--is currently experiencing high 
profit margins in the dairy industry and that many Pennsylvania 
producers might put away in 1998 monetary reserves to use 
during the next downturn in prices. Mr. Verrett added that 
FARRM Accounts are compatible with the new farm policy, which 
provides fixed, predictable, declining payments, as well as 
being compatible with more sophisticated hedging and forward 
contracting tools which allow farmers to lock in a price.
    For more information on this hearing, consult committee 
publication 105-66.

7.3  Summaries of the Hearings Held By the Subcommittee on Empowerment

            7.3.1  urban economic empowerment

                               Background

    On May 13, 1997 the Subcommittee on Empowerment held a 
hearing to identify solutions to both urban unemployment and 
blight. Onerous federal, state economic and environmental 
regulations, a weak internal tax structure and the migration of 
corporations have inflicted harm on many urban areas. This 
hearing gave a public airing of Representative Jerry Weller's 
bill encouraging the redevelopment of brownfields.

                                Summary

    The hearing consisted of one panel which included The 
Honorable Paul Helmke, Mayor of Fort Wayne, Indiana, and 
President, U.S. Conference of Mayors; The Honorable Victor 
Ashe, Mayor, Knoxville, Tennessee; Luanne Cunningham, President 
and CEO, Southeast Chicago Development Commission; and 
Congressman Weller.
    The main topic of discussion was how brownfields exert a 
negative impact upon small business and local economies. 
Business taxes and burdensome government regulations pose 
disincentives for private investors to develop these areas. The 
results are a shrinking economic base, population loss, and an 
eroding tax base. All of the witnesses agreed that 
redevelopment of the brownfields is essential to restore 
economic vitality and reduce social blight.
    The Honorable Jerry Weller spoke about the economic impact 
of his two bills, H.R.'s. 996, and 997. H.R. 997 provides an 
environmental redemption tax deduction for qualified taxpayers 
wishing to develop brownfields. H.R. 996 allows state and local 
jurisdictions with bond authority to utilize a new category of 
tax-exempt bonds called a ``qualified contamination remediation 
bond.''
    Mayor Ashe testified about the need for Environmental 
Protection Agency to reduce the amount of regulations that 
currently force local governments to increase the amount of 
resources spent on redevelopment of the brownfields. 
Additionally, he stated that the increased tax burden on the 
population has forced a reliance upon private community 
investment opportunities, designed to assist recessed areas 
regain their economic vitality by empowering local residents to 
create small businesses and teach capital management skills.
    Mayor Helmke spoke on the need to redevelop the brownfields 
to restore economic vitality to the small business sector. He 
reported that these blighted areas are the cause of billions of 
dollars in lost tax revenue in urban areas, which prevent the 
small business community from expanding. Additionally, Mayor 
Helmke testified that a three part brownfield redevelopment 
agenda be implemented to protect the small business owners: 
local initiatives to strengthen the city core, preserve prime 
agricultural land, or existing greenfields, and encourage 
development patterns that are more efficient and economically 
sustainable.
    Both mayors were critical of the federal ``empowerment 
zone'' program. They said that their cities were too small to 
be likely contenders for such designations and that they lacked 
the personnel and a location to apply for federal assistance. 
For more information on this hearing, consult committee 
publication 105-9.

            7.3.2 rural empowerment

                               Background

    On May 20, 1997, the Subcommittee on Empowerment held a 
hearing investigating rural poverty and ways to reduce it, 
while empowering both communities and small businesses. Some of 
the pressing issues these communities face is a lack of 
financial resources, high inheritance tax, population 
migration, restructuring of the urban economy, and an aging 
population.

                                Summary

    There were two panels of witnesses. The first panel 
consisted of: The Honorable Richard G. Lugar, a Senator from 
Indiana; Bob Paciocco, Executive Director, Mid-East Commission; 
and Angie Tooley, Executive Director, Northeastern Beufort 
County Economic Development Corporation.
    The main discussion of this panel was the negative impact 
high taxes have on the agricultural community. Senator Lugar 
spoke about his legislative efforts to reduce barriers to 
passing along family farms from one generation to the next.
    Senator Lugar spoke about how burgeoning inheritance and 
estate taxes impede farmers from meeting increasing food supply 
demands. Under the current tax code, farmers are six times more 
likely to face inheritance taxes than other Americans. When 
compared to other estates, commercial farms are fifteen times 
as likely to face these same taxes. Senator Lugar also 
discussed the future of agricultural research, and the 
importance of the revitalization of land based programs. 
Allocating funds to these local entities he said, empowers both 
local farmers and community planners to reduce the problems of 
poverty and accelerate job creation. Additionally, he reported 
how non-land competitive grants are used in both university 
laboratories and in cooperation with international 
organizations to develop specialized agriculture technology on 
a non-patent basis. These technological advancements enable 
farmers around the globe to purchase future agriculture 
products for less than a commercial entity.
    The second panel consisted of: Franklin Bobrow-Williams, 
CEO, Boggs Life Center; James Gimpel, Assistant Professor of 
Government, University of Maryland; Michael Irwin, Professor, 
Duquesne University; Kimberly Warker, Director, Economic 
Development, Millville, New Jersey; and Jean Wyont; National 
Family Farm Coalition.
    The second panel testified on the uniqueness of rural 
poverty, and how local solutions empower small businesses and 
communities to revitalize economic prosperity. These programs 
range from developing a rural based strategy to increase 
tourism, implementing Foreign Trade Zones, to reliance on 
various community development entities. These witnesses agreed 
that the best way to stimulate local economies is through 
enhanced education. This includes increased education reform 
and a greater awareness of opportunities and programs the state 
Small Businesses Administration offers to first time businesses 
owners.
    Mr. Bobrow-Williams testified how to reduce the amount of 
poverty and blight by combining human and financial resources 
of the SBA, Departments of Agriculture, Defense, Education and 
Labor to form a ``Rural Connection Collaborative.'' This entity 
can assist and collaborate with local governments to develop 
economic growth strategies.
    For more information on this hearing, consult committee 
publication 105-11.

            7.3.3 impact of tax proposals on minority held small 
                    businesses

                               Background

    On July 24, 1997 the Subcommittee on Empowerment held a 
hearing investigating the impacts of various tax proposals on 
minority owned small businesses. There were two panels present 
at the hearing. The first panel discussed issues ranging from 
the inheritance tax to the benefits and disadvantages of a flat 
tax. The second panel was comprised of local minority small 
business owners testifying on their personal experiences and 
frustrations of owning a business.

                                Summary

    The first panel consisted of: Herman Cain, CEO and 
President of the National Restaurant Association; Susan Au 
Allen, President of the United States Pan Asian Chamber of 
Commerce; Paul L. Pryde, Jr., President of Capital Access 
Group; Dr. Max Sawicky, Economist, Economic Policy Institute; 
and Charles Kadlec, Managing Director and Chief Investment 
Strategist, J&W Seligman & Company.
    Mr. Cain gave a description how the current inheritance tax 
levied on small business owners prevents small business owners 
from transferring ownership from one generation to another. The 
current tax code allows approximately 30% of family owned farms 
to make it through the second generation, while 13% survive 
into and past the third generation. Mr. Pryde concurred with 
Mr. Cain, stressing his objections to the current inheritance 
tax structure and how it is detrimental toward the future of 
minority owned businesses. He elaborated on the advantages of a 
capital gains tax reduction in stock sold by the SBA owned 
Small Business Investment Companies (SSBIC).
    Ms. Allen testified on the advantages of implementing a 
flat tax. She advocates using a system similar to Hong Kong's 
by implementing a 15% personal tax, and a maximum corporate tax 
of 16.5%. Ms. Allen believes that a flat tax creates a greater 
opportunity for minority held businesses to survive into future 
generations.
    The second panel consisted of: Soni Kim, Korean American 
Communications Services; Jorge G. Lozano, President, 
Condortech; Thomas Ahart, President, A and M Group, Inc.; Jerry 
V. Curry, President and CEO, Victoria International, Ltd.; and 
Dr. Samuel Matters, CEO and Chairman of the Board, Metters 
Industries, Inc.
    The main focus of this panel is how the estate tax, and how 
various tax cuts impacts small business owners and their 
families. Mr. Lozano spoke on the benefits of the Higher 
Education tax credit and its influence on the electronic 
service industry. He said he favored tax credits to assist 
small businesses. Mr. Curry testified in favor of cutting 
capital gains tax to assist must be instated. Mr. Metters 
concurred and gave support for increasing the inheritance tax 
limit from $600,000 to $1 million, while indexing this figure 
on a yearly basis for maximum effectiveness.
    For more information on this hearing, consult Committee 
publication 105-21.

            7.3.4 from dependency to self sufficiency

                               Background

    On September 12, 1997, the Subcommittee on Empowerment held 
its first field hearing in Lancaster, Pennsylvania at the Water 
Street Rescue Mission. It investigated the effectiveness of 
sectarian based organizations to remove chemically and 
financially dependent individuals from public assistance and 
into the work force.

                                Summary

    The hearing consisted of two panels. The first panel 
included: The Honorable Ron Ford, Lancaster County 
Commissioner; The Honorable Colin Hannah, Chester County 
Commissioner; Dr. Sherry Heller, Deputy Secretary for Income 
Maintaince, Pennsylvania Department of Public Welfare; and John 
Keeney, President, WeatherCraft Windows, Inc.
    This panel discussed some of the socio-economic issues 
surrounding state and local political initiatives to remove 
those receiving public assistance into the work force. The main 
topic was the ability of Pennsylvania's state and local 
government's to galvanize local sectarian organizations to 
greater assist with welfare reform efforts. Dr. Heller 
testified how Pennsylvania's Temporary Assistance for Needy 
Families (TANF) program combines with a series of Request for 
Proposals (RFP's) localizes the welfare reform efforts by 
allowing community and sectarian organizations to work with 
local governments to successfully transition welfare recipients 
to the work force. This program provides a personalized cost 
effective alternative to the government administered programs, 
resulting in greater long term results.
    The second panel included: Dick McMillen, President and 
CEO, Water Street Mission; Edith Yoder, Executive Director, 
Bridge of Hope; Howard Good, Assets Program, MEDA; Samantha 
London, Graduate of the Assets Program; and Mike Weaver, 
Executive Director, Tabor Community Services.
    This panel gave testimony regarding the success of their 
respective organizations in weaning persons away from chemical 
dependence. The witnesses unanimously concurred that the based 
method to remove and keep persons free from chemical 
dependency, is through a faith based agenda. They explained 
that the way to offer marginalized persons the opportunity for 
redemption, is to heal the soul. Once these vices are removed, 
the organization works with the individual, teaching them job 
and personal related skills, such as: resume writing, how to 
prepare for an interview, basic financial management, computer 
skills and other job related skills. An additional area where 
these organizations excel, is in secondary services. Community 
and sectarian based organizations can also provide services 
such as child care, transportation, follow up support systems, 
food stamps, and business contacts that allow an easier 
transition into both society and the work force.
    For more information on this hearing, consult Committee 
publication 105-24.

            7.3.5 urban problems and community self renewal

                               Background

    On September 19, 1997 the Subcommittee on Empowerment held 
a field hearing in Fort Wayne, Indiana at the South Side High 
School. It investigated the effectiveness of local and national 
efforts to empower individuals, communities and create economic 
opportunities in low income urban areas. The two panels of 
witnesses, were composed of members from grass roots faith 
based organizations, and a panel of mayors from the U.S. 
Conference of Mayors.

                                Summary

    The first panel consisted of: Dr. Joseph Jones, Department 
of Criminal Justice, Taylor University; Reverend Mike 
Nickelson, Senior Pastor, Mount Calvary Baptist Church; Kathy 
Dudley, President, Dallas Leadership Foundation; David Earl 
Bates, Executive Director, Olive Branch Mission; Dr. Larry 
Lloyd, President, Memphis Leadership Foundation; Dr. Robert 
Lupton, President, FCS Urban Ministries; and Dr. William E. 
Pannell, Fuller Theological Seminary.
    The main topic discussed was the ability of the sectarian 
community to heal social ills and reverse the effects of 
addiction and other maladies. Empowering them to do even more 
is an opportunity to provide an expedient cost effective 
approach for urban renewal. By addressing the dynamic, social, 
physical, mental, emotional, and spiritual needs of both the 
families and individuals, such entities have compiled 
impressive records. The efforts of Dr. Lupton in the Summerhill 
community of Atlanta, Mr. Bates in Chicago, Ms. Dudley in 
Dallas, and Dr. Lloyd in Memphis, have restored economic 
vitality in these metropolitan areas bystrengthening the 
economic and spiritual foundations of individuals, communities, 
neighborhoods and small businesses.
    The second panel consisted of four mayors: The Honorable 
Scott King, Mayor, Gary, Indiana; The Honorable Nancy Graham, 
Mayor, Palm Beach, Florida; The Honorable Wellington Webb, 
Mayor, Denver, Colorado; and the Honorable Dennis Archer, 
Mayor, Detroit, Michigan.
    Mayor King discussed how the gaming industry has had 
positive socio-economic impacts on the local economy. It has 
reduced the unemployment rates, while providing employment for 
local contractors and vendors. Additionally, Mayor King 
described a local grant program that enlists the religious 
community in efforts to enhance with welfare to work programs.
    Mayor Graham testified how a new amphitheater, and a 
redeveloped waterfront have reduced unemployment rates and 
stimulated the local economy in her city. She also spoke about 
how community policing efforts (with an emphasis on reducing 
juvenile crime,) and rebuilding dilapidated affordable housing 
have reduced crime, urban blight and hopelessness.
    Mayor Webb reported how he reduced the amount of crime and 
blight through a three point agenda. This includes a $40 
million to revitalize parks, and river fronts efforts to 
enhance quality education, and a ten point anti-gang program.
    Mayor Archer illustrated how the use of economic enterprise 
zones, new housing developments, and the development of 
brownfields have assisted the revival of Detroit. In the past 
two years economic enterprise zones generated $2.2 billion in 
revenues. The Mayor called for a partnership with Congress in 
the fight against drugs. He called for greater cooperation in 
reducing both supply and demand.
    For more information on this hearing, consult Committee 
publication 105-27.

            7.3.6  how taxes impedes small businesses productivity

                               Background

    On October 27, 1997, the Subcommittee on Empowerment held a 
field hearing in Meadville, Pennsylvania at Allegheny College. 
It investigated how the current federal tax codes impedes small 
businesses productivity and ways the government can ease the 
tax burden on such enterprises.

                                Summary

    The hearing consisted of two panels. The first panel 
included: Charles Anderson, President, Meadville Chamber of 
Commerce; Dennis Frampton, President, C&J Industries; Gregory 
Antoun, President, ChipBlaster; and William DeArment. 
President, Channellock, Inc.
    This panel discussed methods to reduce the loss of tool and 
die manufactures to foreign competition. The witnesses 
concurred that some of the main reason their industry is 
continuing to decline both physically and financially, is due 
to high capitol gains and estate taxes, lack of locally 
administered training facilities, and frivolous law suits. Mr. 
Frampton testified how the federal government's technical 
training facilities are not adequately preparing students for 
future business demands. He suggested that the federal 
government support state initiatives, where both financial and 
training management are traditionally more efficient. The panel 
agreed that the current inheritance tax code needs to be 
reformed to assure the future of small businesses.
    The second panel consisted of: Ernest Post, Director, 
Gannon University Small Business Development Center; Rick 
Novotny, Corry Redevelopment Center: Victor Leap, Executive 
Director, Crawford County Development Center; and Stanley 
Shelly, President, Flexible Manufacturing.
    This panel spoke about methods to advance the interests of 
the small businesses and the communities. The witnesses 
unanimously agreed that the most effective ways to assist the 
prosperity of the small business community is to reduce the 
amount of burdensome taxes, provide assistance with compliance 
and empower the small businesses in trade issues. Mr. Post 
testified about the benefits of H.R. 96 and how employees of 
IRS, OSHA and EPA agencies can be used as an cost saving, 
invaluable resource to both the small business development 
centers (SBDC's), and small business owners. Having members of 
these agencies in the SBDC's allows small business owners the 
opportunity to ask common questions and receive assistance with 
various compliance, tax and other issues. Mr. Novotny spoke on 
the benefits of reinstating tax credits as a method to increase 
productivity returning prosperity to the small business owner. 
Additionally, Mr. Shelly, relayed how the Crawford County 
business community has developed brownfields and how these 
efforts have restored economic vitality and reduced 
unemployment levels.
    For more information on this hearing, consult Committee 
publication 105-31.

            7.3.7  h.r. 3241, the charitable giving partnership act

                               Background

    On March 19, 1998, the Subcommittee on Empowerment held a 
hearing to discuss H.R. 3241, The Charitable Giving Partnership 
Act. The bill authored by Mr. Souder amends the Housing and 
Community Act of 1974 to authorize states to use community 
development block grant amounts provided for non-entitlement 
areas to offset the cost of state charity tax credits. There 
were four panels at the hearing.

                                Summary

    The first witness was The Honorable Dan Coats, a U.S. 
Senator from the state of Indiana. Senator Coats testified how 
the decentralization of the federal welfare program, by 
returning both fiscal and administrative responsibility to the 
state and localities is more cost efficient, and allows for 
greater quality care. He stated that the proposed tax credit 
allows for the opportunity for problems associated with teen 
pregnancy, drug abuse, homelessness, urban decay and youth 
violence to be a transition from government to the realm of the 
sectarian community and volunteer groups. Once regarded as 
``obstacles,'' by the ``Great Society,'' these entities can be 
used as valuable assets in this healing process, by encouraging 
local control. The proposed benefits of the program allow for 
an increase in aggregate charitable donations, and greater use 
of resources. To buttress this statement, he cited a Beacon 
Hill Institute at Suffolk University that found when government 
reduced the cost of giving by 1%, charitable giving increases 
by .12% Most importantly, he stated that the tax credit gives 
tax payers a choice with their contributions, without violating 
the First Amendment.
    The second panel consisted of The Honorable Sue Myrick, a 
Representative in Congress from the state of North Carolina; 
The Honorable Matt Salmon, a Representative in Congress from 
the state of Arizona; and The Honorable David Long, a State 
Senator, State of Indiana.
    Congresswoman Myrick, a former Mayor of Charlotte, North 
Carolina, testified how moral/family renewal, personal economic 
empowerment and the need to foster private charity combined 
with greater deregulation and tax relief are essential 
components in the urban revitalization process. Additionally, 
Mrs.Myrick elaborated on the need for greater local control in 
distributing charitable contributions and how increases in monetary 
donations are needed to balance the number of volunteers.
    Congressman Salmon testified on the success of two welfare 
reforms implemented by the Arizona State legislature. He told 
how a $200 charitable tax credit, and a program that allows the 
state to ``cash out the value of food stamps and the AFDC and 
give to an employer to subsidize that employee so that they 
will have the value of a job'' are yielding reductions in the 
amount of welfare recipients. He also spoke on the flexibility 
of donating funds to a preferred charity.
    Mr. Long testified about a proposed legislation called the 
Indiana Compassionate Tax Credit Act. The legislation allows 
for a tax credit who makes a cash contribution to a charity 
dealing with poverty-related matters. To insure that funds are 
properly allocated for poverty matters, the receiving entity 
must pass a two pronged establishment test. He also elaborated 
how the goals of the legislation are aimed to empower private 
charities and to encourage the creation of new charities.
    The third panel consisted of Ms. Betty Lou Ward, President-
Elect, National Association of Counties; Mr. Peter Barwick, 
Policy Analyst, Commonwealth Foundation of Pennsylvania; Mr. 
Joe Laconte, Deputy Editor, Policy Review, The Heritage 
Foundation; and Mr. Don Elberly, Director, Civil Society 
Project.
    Ms. Ward testified on her opposition to the Charitable Tax 
credit because it would ``dilute the already limited CDBG 
resources'' allocated for empowerment efforts at the local 
levels. She also stated that CDBG set-asides dilute formula 
grants to State and local governments, and that individuals' 
charitable contributions are not likely to track the type of 
activities jurisdictions fund with CDBG, and that it is 
impossible to ensure that the funds will be properly allocated 
to the most needy organizations.
    Mr. Barwick testified on the inability of the federal 
government to provide quality social care, and the reliance of. 
He stated that ``the government bureaucracy is limited to 
address the complex factors which underlie chronic poverty.'' 
He continued to state that the private sectors removed from the 
dependence of federal funding can provide the type of ``human 
caring, moral and spiritual challenge, and the sense of hope'' 
which are vital in the healing process.
    For more information on this hearing, consult Committee 
publication 105-43.

            7.3.8  urban education

                               Background

    On March 26, 1998, the Subcommittee on Empowerment held a 
hearing identifying successful education programs at urban area 
schools. This hearing was an opportunity for six educators, 
from both public and religiously affiliated schools, to share 
their insight into successful approaches to urban education. 
The hearing consisted of two panels.

                                Summary

    The first included Mr. Thaddeus Lott, Principal, Acre Homes 
Charter School, Houston, Texas; and Ms. Vera White, Principal, 
Thomas Jefferson High School, Washington, DC.
    Mr. Lott testified about the attributes of the DISTAR 
(Direct Instruction System for Teaching and Reading) program as 
an intense and successful method of teaching children to read. 
To increase the probability of long term academic success, he 
advocates grouping students according to their ability level, 
rather than their age or grade level. Mr. Lott also addressed 
the difficulty of finding adequately prepared and devoted 
teachers. Additionally, he stressed the need for improved 
teacher training programs.
    Ms. White testified about the financial and technological 
benefits resulting from a comprehensive partnership between her 
school and the COMSAT corporation. She also discussed the need 
to set high academic and social goals for pupils and continue 
tracking them through high school and post-secondary education. 
This allows for a more accurate measurement of the teaching 
methods at the secondary level. She continued to state that 
parental and community support combined with a dedicated 
teaching staff are essential to academic improvement.
    The second panel included Dr. Oscar J. Underwood, 
Headmaster, Cornerstone Christian College Preparatory School, 
Ft. Wayne, Indiana; Mr. William Elliot, Headmaster, Timothy 
Academy, Philadelphia, Pennsylvania; and Ms. Leah White, 
Administrator, New Psalmist Christian School, Baltimore, 
Maryland.
    Mr. Elliot outlined his educational proposal, the Viable 
Alternative, in which state appropriated education funds per 
child would be incorporated into the budget of the school 
chosen by the child's parent, regardless if it is a public or 
private school. He contended that these funds would allow the 
better private and public schools to ``survive and get 
better,'' while affording parents increased choice in school 
selection. Mr. Eliot urged Congress to enact a GI bill for 
elementary and high school students similar to the existing one 
for college students.
    Ms. White testified on the necessity of parental support, 
in both the home and school, and its critical role in the 
success education of students. She asserted that a positive 
attitude, beginning with the belief that all children can 
learn, must be instilled in both the children and the teachers. 
She also spoke on the difficulty of finding good teachers and 
the need for a zero tolerance policy on violence.
    Mr. Underwood spoke on establishing hope in students that 
they can improve their lives through education. He stated that 
this hope, coupled with the setting of high goals and tough 
discipline standards, enables education to take place.
    For more information on this hearing, consult Committee 
publication 105-44.

            7.3.9  how to best obtain drug-free work places

                               Background

    On May 14, 1998 the Subcommittee on Empowerment held a 
hearing investigating the merits of drug free workplaces create 
to small businesses. This hearing was held in correlation with 
H.R. 3853, a bill authored by Mr. Portman called the Drug-Free 
Workplace Act. There were three panels at the hearing.

                                Summary

    The first panel consisted of: Mr. Thomas Donohue, 
President, U.S. Chamber of Commerce and Ms. Barbara Thomas, 
President, Consumer Health Care, Warner-Lambert Company.
    Mr. Donohue testified on the negative economic impact drug 
abuse has on our nation and small business owners alike. 
Currently, drug abuse costs employers approximately $200 
billion per year, while loss in productivity costs an average 
of $640 per American. To effectively ebb the costs inflicted by 
drug abuse, Mr. Donohue advocates comprehensive ``split tests'' 
urine tests. He cited successful testing programs implementedby 
U.S. Navy, airline and trucking associations, which resulted in lower 
accidents rates. Ms. Thomas spoke on the benefits of active 
participation in drug education for children, employees, and employers.
    The second panel consisted of: Mr. Richard Manfredi, 
President, Manfredi Motor Company, and Chairman, ATA Safety & 
Engineering Committee; Ms. Beth Lindamood, Great American 
Insurance Company, Senior Analyst and Coordinator for the Drug-
Free Workplace Program; Mr. Raymond C. Soldavin, Vice President 
Phoenix House; and Mr. Scott Sutton, W.M. Jordan, Newport News, 
VA.
    The main focus of this panel was the positive effects of 
drug testing and drug education programs in the work place. Mr. 
Manfredi spoke about the correlation between drug testing and 
the reduction in drug related accidents in the trucking 
industry. He cited a study by the Federal Highway Association 
in 1995 that illustrates the effectiveness of a random drug 
testing policy in the trucking industry. When compared to car 
drivers, the study found that .02% of 1% of tested drivers were 
found to be legally intoxicated, and that 2.2% were found with 
an illicit chemical in their system while on the job. Ms. 
Lindamood spoke on how drug education programs reduce worker 
compensation costs. On the average, drug free work places 
reduce compensation costs by 5.6%, a reduction of 4.1% in 
frequency, and a 1.5% reduction in severity. Mr. Soldavin 
testified on the positive effects that drug education has on 
youths. Mr. Sutton spoke about how on-site random drug testing 
produces lower accident rates, higher company morale, and 
greater benefits, including a 401K program.
    The third panel consisted of Mr. Rudy Guzman, President, 
L&R Guzman; Mr. Lawrence T. Bennett, Katzman, Logan, Halper & 
Bennett; Mr. Charles Krehbiel, Jr., The C.J. Krehbiel Co.; and 
Ms. Sloange Bitol, American Civil Liberties Union.
    Mr. Guzman testified on how random drug tests resulted in 
higher productivity, lower theft rates. He also noted that 
profit margins grew ten fold and company size tripled. Mr. 
Bennett spoke about how random drug testing and employee 
assistance resulted in a 50% decline in the amount of OSHA 
recordable accidents, and a 63% decline in workers 
compensation. Ms. Bitol testified on the constitutionality of 
drug testing, and said it violates employee rights. She stated 
that random drug testing violates the First and Fourth 
Amendments and is both unfair and unnecessary to the worker.
    For more information on this hearing, consult Committee 
publication 105-45.

            7.3.10  empowerment education

                               Background

    On May 21, 1998, the Committee on Small Business held a 
hearing identifying various methods of providing 
entrepreneurial education, organizations that sponsor such 
programs, and ways of expanding these initiatives. These 
programs, provide an overview of our free enterprise system and 
an introduction to many facets of self-employment, while 
empowering residents of economically disadvantaged areas to 
enrich both their financial futures and fortify their 
communities. There were two panels at the hearing.

                                Summary

    The first panel included The Honorable Kweisi Mfume, 
President of the NAACP; Mr. Damon Williams, a student at George 
Washington University; Mr. James Hayes, President of Junior 
Achievement; Dr. Marilyn Kourilsky, Vice President of the 
Kauffman Center for Entrepreneurial Leadership.
    Mr. Mfume testified that the NAACP promotes the 
entrepreneurial spirit through its Community Development 
Resource Center (CDRC), by providing both funding and education 
to aspiring business owners. He then spoke about the NAACP's 
juvenile endeavor, the Youth Entrepreneurial Institute, a 
summer enrichment program whose theme is ``Planting the Seed of 
Entrepreneurship; Harvesting Future Economic Growth.'' The 
curriculum teaches young students practical business skills 
such as marketing, management, bookkeeping, accounting, 
finance, turning hobbies into business, patents, and 
copyrights. Mr. Mfume stressed that this type of programming is 
especially necessary for minority students, because the 
unemployment rate among minorities exceeds the national 
percentage.
    Mr. Hayes spoke about the advantages of introducing to 
entrepreneurship in kindergarten. He described a new program, 
Building Achievement through Sports and Entertainment (BASE), 
designed to capture the interest of students and channels it to 
a practical and potentially profitable application. Mr. Hayes 
credits volunteers from the business community for making 
possible Junior Achievement's mission of ``[ensuring] that 
every young person in America has a fundamental understanding 
of the free enterprise system.'' He was accompanied by two 
participants in Junior Achievement classes.
    Kenneth Martin, the 12 old year President of a Junior 
Achievement Company called Metro Stick Together, testified that 
his participation in this program resulted in his knowledge of 
the democratic process, product marketing, and group dynamics. 
Emily Ochoa, a 14 year old Junior Achievement participant, 
credits the program with transforming her scholastic career 
from apathetic to inspired. She praised the program for 
imparting courage and self esteem to underprivileged youths by 
teaching them to ``create, organize, and accomplish.''
    Mr. Williams testified how structured entrepreneurial 
education and corporate sponsored internship programs are an 
effective way of exposing college-age students to the business 
environment. Dr. Kourilsky spoke on how his business seeks to 
stimulate entrepreneurship by ensuring that individuals have 
the foresight and courage to recognize and capitalize on their 
innovative ideas.
    The second panel was comprised of Ms. Julie Silard, 
Divisional Director, National Foundation for Teaching 
Entrepreneurship; Mr. James Kaddaras, Executive Director, 
Working Capital; and Ms. Lynn Karlson, Vice President of 
Program and Product Development, Independent Means, Inc.
    Ms. Silard testified that entrepreneurial education allows 
poverty stricken students to improve their future earning 
potential by learning business skills and strategies and by 
receiving hands on experience operating their own companies. 
She cited that a partnership with public schools and both local 
and national companies has contributed to the success of her 
organization.
    Mr. Kaddaras spoke on the efforts of Working Capital to aid 
entrepreneurs in economically disadvantaged areas by providing 
them with business credit, training, and networking 
opportunities. He then presented a new endeavor to aid 
``existing business, social, and faith-based organizations,'' 
which promotes more permanent improvements in economically 
distressed communities.
    Ms. Karlson testified on her organization's ability to 
promote the financial independence of young women through 
formal business instruction and a mentoring program. She 
described the need for single sex female entrepreneurial 
education as resulting from the inferior amount of exposure to 
business that girls receive in childhood compared to their male 
counterparts. Additionally, she seeks to remedy the discrepancy 
between the number of women owned businesses and the amount of 
available venture capital received by female owners, by 
educating and empowering young girls to become future business 
leaders of America.
    For more information on this hearing, consult Committee 
publication 105-50.

            7.3.11  programs empowering businesses and communities in 
                    southern new jersey

                               Background

    On June 22, 1998, the Subcommittee on Empowerment met in 
Mays Landing, New Jersey, to discuss various programs 
contributing to the economic solvency of Southern New Jersey, a 
region which boasts many small businesses, but few Fortune 500 
companies. A major goal of this hearing was to explore and 
determine successful assistance to small businesses in this 
community, as often Congressional legislation lumps all small 
business aid together without considering specific regional 
needs.

                                Summary

    The first panel included Susan R. Rose, Executive Director, 
New Jersey urban Enterprise Zone Program; Francisco A. Marrero, 
New Jersey District Director, Small Business Association; and 
Joanne R. Yard, President, New Jersey Association of Women 
Business Owners and Owner, Ideal Management and Bookkeeping 
Services, Absecon, NJ.
    Ms. Rose testified about New Jersey's Urban Enterprise Zone 
(UEZ) program which helps revitalize distressed communities by 
granting incentives such as tax exemptions and low interest 
loans to businesses opened in the Zones. She added that the UEZ 
creates jobs since an increase in entry-level employment is 
required to qualify for incentives. She also stated that the 
UEZ program is the ``penicillin needed to cure urban ills'' and 
cited as a major accomplishment of the Zones the fact that, of 
$234 million in revenues collected in the there, $214 million 
was returned to these areas in the form of community 
enhancement projects.
    Mr. Marrero spoke about methods the New Jersey District 
Office of the Small Business Administration employs to empower 
local businesses. He outlined goals such as facilitating access 
to capital through lending programs, involving more minority 
businesses in loan programs, providing more business counseling 
and training, and expanding marketing and outreach efforts to 
publicize the availability of SBA assistance. He pointed out 
that New Jersey's involvement in the Brownsfields Initiative 
and the HubZone Empowerment Contracting Program will help the 
State's existing small businesses and encourage 
entrepreneurship.
    Ms. Yard testified that access to capital is the major 
impediment to women-owned businesses, which in New Jersey, 
constitute 33% of all firms and 25% of the workforce. She 
contrasted these numbers with figures showing that only 1.7% of 
government contracting dollars were awarded to women-owned 
businesses and further, only 20 out of 6,000 companies 
receiving 8(a) contracts were owned by women. She credited the 
SBA Women's Prequalification Loan Program with facilitating the 
loan procurement process, but nonetheless, concluded that ``the 
growth of women owned businesses in the economy is far 
outdistancing the Government's use of their products and 
services.''
    The second panel consisted of Dr. Bruce Getzan, Vice 
President of Life Long Learning; Gloucester County College; Ms. 
Patricia D. Knobloch, Director, Salem County Department of 
Economic Development; Ms. Kelly Burgess-Boone, Owner, Boone 
Enterprises and Distributions Systems, Inc., Millville, NJ; Mr. 
John F. Huber III, Atlantic County Economic Development 
Corporation 2000.
    Mr. Getzan spoke about the role of community colleges in 
providing continuing education, such as computer classes and 
safety training, which facilitates the functioning of small 
businesses by informing employees of technological advances and 
other innovations. He praised programs, such as the Business 
and Industry Training Center, which provide small business 
owners with a reliable information source.
    Ms. Knobloch testified that her county, New Jersey's most 
rural, utilizes many government programs in order to sustain 
and expand its local businesses. She emphasized the importance 
of the Small Business Development Center in providing 
counseling to entrepreneurs, as well as that of the Business 
Revolving Loan Fund, funded by Rural Development, as providing 
easier access to capital. She noted other agencies such as the 
Economic Development Agency, Housing and Urban Development, as 
well as the Intermodal Surface Transportation Efficiency Act 
Program, which ``enhance, empower, and strengthen local 
businesses''. She expressed concern, however, that her county, 
because of its small population, was not eligible for funds 
which are made available to the surrounding, larger counties. 
Ms. Knobloch also predicted that the tax code changes which 
allow 100% deduction for health care expenditure and 
modification of the bankruptcy laws will benefit the self-
employed.
    Ms. Burgess-Boone spoke of the difficulty of procuring long 
term, low interest loans and highlighted access to capital as a 
major concern of small business owners. She added that 
incorporation exacerbates the tax burden placed on small 
businesses and that the current tax exemptions only help those 
businesses with healthy profit margins.
    Mr. Huber testified about the importance of counseling and 
referrals to those trying to start businesses. He also 
encouraged partnerships between the public and private sectors, 
which he suggested would result in the greatest benefits for 
both the small business and the community.
    For more information on this hearing, consult Committee 
publication 105-57.

            7.3.12  the social and economic costs of teen pregnancy

                               Background

    On July 16, 1998, the Subcommittee on Empowerment held a 
hearing to identify the social and economic strains teen 
pregnancy places on society. The issues discussed were the 
causes, consequences, and possible solutions to the problems 
accompanying teenage pregnancy.

                                Summary

    The first panel included Mr. Patrick Fagan, William H.G. 
Fitzgerald Fellow in Family and Culture Studies, Heritage 
Foundation; Professor David Popenoe, Co-Director, National 
Marriage Project, Rutgers University; Hon. Val Stevens, 
Washington State Senate; Pat Funderburk Ware, President/CEO, 
PFW Consultants, Inc.
    Mr. Fagan testified about the correlation between children 
born to unwed mothers and both poor infant health and an 
increased mortality rate. He cited retarded cognitive 
development, behavioral abnormalities, childhood poverty, and 
increased incidence of sexual abuse as other consequences of 
single parenthood. He attributes a surge in the crime rate 
among children born to single mothers, to the lack of a 
masculine role model. He sees marriage and regular religious 
worship as remedies to better the lives of children born to 
single mothers. Mr. Fagan believes the government is 
responsible for providing quantitative data concerning these 
issues and of supporting the institutions of family and 
religion.
    Dr. Popenoe contrasted historical and modern perspectives 
on childbirth, noting that historically it was acceptable for 
girls to give birth as soon as they became sexually mature. He 
also noted that in developed nations such as the United States, 
educational expectations and a lack of large familial 
resources, further tax thetime of single women raising a child. 
He attributed the rise in teen pregnancy to the fact that teens are 
having sex at earlier ages because the age of puberty has slowly been 
declining. He advocated reestablishing a moral code urging teenagers to 
postpone sex until adulthood and regards marriage the ultimate solution 
to the problem of unwed teenage births.
    Senator Stevens advocates abstinence-based education in 
schools as a means of combating teen pregnancy. She cites 
programs in his own state which violate that Congressional 
definition of abstinence education by allowing contraception 
demonstrations. In order to ensure that educational initiatives 
reflect Congressional intent, Ms. Stevens suggested that 
Congress audit the Federal Department of Health and Human 
Services and after that, the Department of Health and Human 
Services audit the State grant applications.
    Ms. Funderburk Ware testified that the recent reduction in 
teen sexual activity is a result of pregnancy prevention 
programs that target high-risk regions of the United States. 
She cited the necessity of breaking the cycle of single parent 
households by improving the level of bonding and trust existing 
between parent and child, so that the child will be better 
prepared for a future long term relationship, such as marriage.
    The second panel consisted of Mr. Kevin Begatta, Executive 
Director, Real Alternatives, Inc., Harrisburg, PA; Mr. Julian 
Irving Grante, J. Irving & Draper, Judicial Advocates, 
Spotsylvania, VA; Ms. Sherry Saylor, Student Counselor, Buckeye 
Elementary School, Buckeye, AZ; and Ms. Lakita Garth, Garth 
Dominion Enterprises, Lakewood CA.
    Mr. Bagatta testified about the States' need to combat the 
deleterious effects teen or unwed pregnancy imposes on both 
mother and child. The program, Project Women in Need, is funded 
by Real Alternatives, a contractor subsidized by the Department 
of Public Welfare. These maternity homes lend physical and 
emotional support to women who are pregnant or think they are 
as well as to women whose family income is 185% below the 
Federal poverty line. This assistance helps women to abandon 
hopelessness and to realize and achieve their potential.
    Mr. Grante spoke on the need to empower youths through 
employment training, an initiative which promotes 
responsibility and confidence, and thus lessens the tendency 
toward crime and teenage sexual activity. As a judicial 
advocate, Mr. Grante cites cases where intervention in the life 
of an at-risk teenager can steer him toward a productive life 
where drugs, crime, and promiscuity are not present. He 
advocates that issues of morality be first addressed at home, 
but realizes the need for community programs to cater toward 
those children who are not properly instructed at home.
    Ms. Saylor championed the promotion of abstinence, noting a 
successful program in her area, Teens Are Saying KNOW (TASK), 
which is sponsored by Crisis Pregnancy Centers Services. Ms. 
Saylor credits this program with teaching her students to value 
sex as an unique experience accompanying the commitment of 
marriage. She credits educational programming in school with 
convincing teens that abstinence is a viable alternative to 
promiscuity.
    Ms. Garth testified that abstinence must be a universally 
taught alternative to sex before marriage. She claims that, not 
only will this bring a decrease in the rate of teen pregnancy, 
it will equip teens with self-control and discipline, which 
will aid them in all of their pursuits. Ms. Garth also believes 
that to make abstinence culturally acceptable, the community 
must promote it via role-modeling and mentoring.
    For more information on this hearing, consult Committee 
publication 105-60.

7.4  Summaries of the Hearings Held by Subcommittee on Government and 
        Oversight

            7.4.1  the regulatory flexibility act: are federal agencies 
                    using ``good science'' in their rulemaking?

                               Background

    On April 15 and 17, 1997, the Subcommittee on Government 
Programs and Oversight held a joint hearing together with the 
Subcommittee on Regulation Reform and Paperwork Reduction, on 
the need for good science in rulemaking and the use of cost-
benefit and risk analyses as essential management tools in the 
regulatory process. The hearing also focused on the impact upon 
small businesses caused by Federal agencies' failure to use 
good science or common sense when promulgating and enforcing 
regulations.
    Sound science is too often omitted in rulemaking because an 
agency starts with a fixed agenda of what a regulation should 
be and then works backward to find some scientific basis to 
justify the result the agency desires. Such an approach is 
distinctly unscientific and contrary to logic. Logic dictates 
beginning with a sound premise, then testing that premise to 
produce a conclusion--not vice versa. Small businesses of this 
nation have suffered from agencies failure to follow good 
science that is reflected in higher costs, in more paperwork 
and in having to cope with illogical requirements.
    The Subcommittees exercised Congress' oversight powers to 
examine the implementation and performance of the Environmental 
Protection Agency (EPA), the Occupational Safety and Health 
Administration (OSHA), and the Small Business Administration 
(SBA), Chief Counsel for Advocacy, of the statutory 
requirements of paragraphs (b) through (e) of Section 609 of 
Title 5 of the United States Code, as added by the Small 
Business regulatory Enforcement Fairness Act of 1996 (SBREFA). 
The new provisions added by SBREFA to the Regulatory 
Flexibility Act require EPA and OSHA to implement a panel 
process for considering and responding fairly to the advice and 
recommendations of small businesses concerning the impact and 
efficacy of proposed regulations.

                                Summary

    The hearing was comprised of four panels, the first of 
which included: Dr. Gary Smith, Director, Applied Physics 
Laboratory; Dr. Aviva Brecher, Senior Analyst, John A. Volpe 
National Transportation Systems Center; Dr. George Gray, Deputy 
Director, Harvard Center for Risk Analysis: and Dr. James 
Harless, President, Techna Corporation; Dr. George Wolff, 
Principal Scientist, General Motors Corporation. The witnesses 
emphasized the need for good science in rulemaking and the 
availability of scientific expertise in the United States, 
leaving the agencies without any excuse that good science was 
not available. There was consensus that scientific regimen such 
as risk and cost benefit analyses do fit rulemaking and should 
be routinely followed. Examples were provided of failure of 
agencies to adhere to sound science in promulgating regulations 
and the costly and sometimes ridiculous consequences that 
follow from such failure.
    The second panel included: Bennie Bixenman, President, 
Benco Sales, Inc.; Barney Deden, President, Martinizing Dry 
Cleaning; Victor Tucci, President, Three Rivers Health and 
Safety, Inc.; Michael Kerr, Director of Government Affairs, 
Circuit Center, Inc.; and Jim Quinly, President, Country Club 
Remodelers, Inc. The witnesses on the panel represented small 
businesses that had first hand knowledge of the consequences of 
agencies failure to use common sense and good science in 
rulemaking. It was clear from the testimony that agencies still 
persist in ignoring sound science in the regulatory process. 
Concern was also expressed for the added costs and paperwork 
burden resulting from needless regulations and agencies' 
ineptitude in foreseeing the practical consequences of their 
rulemaking efforts.
    The third panel was comprised of: G. Stephen Robins, 
President, G.S. Robins and Company; John Hexter, President, 
Hexter and Associates; G. Jeffrey Haber, President, Board of 
Directors, National Association of Towns and Townships; Eamonn 
McGready, President, Martin Imbach, Incorporated; and Gretchen 
Zierich, Assistant to the President, Zierick Manufacturing 
Corporation. There was universal agreement among members of the 
panel for maintaining safe work places and preserving clean air 
and water. However, all of the witnesses underscored the 
adverse economic impact that unsound science and unnecessary 
regulations can have on small businesses. One witness gave an 
example of EPA's failure to consult an industry association or 
its members before issuing a regulation that erroneously 
attributed a number of manufacturing functions to the industry. 
Whereas, in actual fact, the industry is basically engaged in 
warehousing activities. Another witness testified that the 
regulatory process has gotten out of hand and that there are 
almost one thousand pages of OSHA regulations applicable to his 
small business.
    The fourth panel included: Jere Glover, Chief Counsel for 
Advocacy, SBA; Thomas Kelly, Chair, Small Business Advocacy, 
EPA; Robert Burt, Office of Regulatory Analysis, U.S. 
Department of Labor; and Keith Cole, member of the law firm, 
Beverage & Diamond. There was testimony that government 
agencies were learning about SBREFA and were taking steps to 
comply with the requirement of this statutes. Another witness 
expressed the view that the main thrust of SBEFA was not the 
process, but listening and responding to the concerns of small 
businesses. One agency testified that the SBREFA and the panel 
process strengthened the Regulatory Flexibility Act. An SBA 
report was cited that concluded that Federal regulations cost 
small firms on average 50 percent more per employee than large 
firms and 90 percent more on a per dollar of sales basis than 
large firms.
    For further information on this hearing, refer to Committee 
publication number 105-5.

            7.4.3  the importance of patent term and patent application 
                    disclosure issues to small businesses: what impact 
                    will proposed changes in the patent laws have on 
                    small businesses?

                               Background

    On April 24, 1997, the Subcommittee on Government Programs 
and Oversight held a hearing to explore the importance of 
patent term and patent application disclosure issues to small 
businesses raised by pending legislation. A prior hearing held 
in the 104th Congress reviewed similar issues. (See House of 
Representatives, Committee on Small Business, Serial No. 104-
74, 104th Cong., 2d Sess. (April 25, 1996)). Two bills were 
filled in the 104th Congress that addressed the term and 
publication issues. H.R. 1733, introduced by Congressman 
Moorhead, would have U.S. patent laws more in line with the 
patent laws in other GATT nations. Congressman Rohrbacher 
introduced a bill, H.R. 359, that would have again made the 
patent term 17 years after issuance of a patent and would have 
required publication of a patent application only under certain 
circumstances. The bill filed by Congressman Moorhead would 
have required publication of the contents of patent application 
18 months after filing. Neither bill came up for a floor vote.
    In the 105th Congress, Congressman Coble was the sponsor of 
H.R. 400, a bill similar to the Moorhead bill filed in the 
104th Congress. The bill would have permitted the publication 
of patent information after 18 months. Congressman Rohrbacher 
was the sponsor of H.R. 811, similar in content to H.R. 359, 
filed in the 104th Congress. The Rohrbacher bill was tabled in 
the Committee on the Judiciary. H.R. 400 was reported favorably 
out of that Committee and was passed by the House of 
Representatives on April 23, 1997, by a vote of 280 to 133. The 
bill was amended to exempt small business, independent 
investors, and universities from publication of patent 
application information until the patent is granted.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Dennis J. Kucinich, Member of Congress, and Dana 
Rohrbacher, Member of Congress, who both spoke against the 
changes in the U.S. patent system proposed in the original 
provisions of H.R. 400. Both panel members agreed that there 
was little reason to make radical changes in a system that had 
served this Nation well for over 200 years. It was the 
consensus of the panel that adoption of the proposed changes 
would lead to a loss of business to overseas competitors. It 
was the view of both Congressmen that early publication of 
patent information before a patent issued would expose 
inventors to the pirating of U.S. technology. Congressman 
Rohrbacher argued that the proposed changes in the patent laws 
might violate the Constitution (Article I, Section 8) which 
secures to authors and inventors an exclusive right to their 
respective writings and discoveries for a limited period of 
time.
    The second panel included: Michael Kirk, Executive 
Director, the American Intellectual Law Property Association; 
B.N. Kramer, Vice President, Alliance for American Innovation; 
James T. Woo, President, Interscience, Inc.; Salvatore J. 
Monte, President, Kenrich Petrochemical, Inc.; William D. 
Budinger, President, Rodel, Inc.; and Raymond Damadian, 
President, Fonar Corporation. The panel was evenly divided 
between those who favored the changes to the U.S. patent laws 
contained in H.R. 400 and those who oppose any such changes. 
There was a vigorous discussion as to the pros and cons of the 
proposed legislation.
    Those in favor of H.R. 400 were of the view that the patent 
term of 20 years after filing would not, as a practical matter, 
result in an invention being protected for a shorter period 
than if the original patent term of 17 years after issuance 
were retained. It was argued that adoption of the 20-year 
period ensures that U.S. patent law conforms in this respect 
with most of the other countries and would also help to 
eliminate the problem of submarine patents. As to the 
feasibility of publishing patent information contained in an 
application prior to issuing the patent, it was argued that 
failure to publish early could result in small businesses 
incurring needless research and development expenses that could 
be avoided if the information contained in applications on file 
were known.
    Those who opposed H.R. 400 were of the view that the U.S. 
patent system, as presently constituted, protects the inventor 
and helps to spawn small businesses. The changes proposed in 
H.R. 400 were viewed as radical and detrimental to small 
entities. Publication of patent information before issuance of 
full patent protection was perceived as an invitation to 
infringers to copy an inventor's ideas and to capitalize on 
another's labors. It was also viewed as an opportunity for 
large businesses to prey on small businesses who, unlike their 
larger competitors, frequently need new capital to market an 
invention.
    For further information on this hearing, refer to Committee 
publication No. 105-7.

            7.4.4  reauthorization and oversight of the small business 
                    technology transfer pilot program (sttr)

                               Background

    On May 22, 1997 the Subcommittee on Government Programs and 
Oversight held a hearing that focused on the performance and 
reauthorization of STTR. A prior hearing in the 104th Congress 
focused on similar issues. (See House of Representatives, 
Committee on Small Business, Serial No. 104-63 (March 6, 
1996)). Thisprogram was authorized by the Small Business 
Research and Development Enhancement Act of 1992 for three fiscal 
years, 1994, 1995, and 1996. STTR authorization was extended in 1996 
for one additional year. If the program was not reauthorized it would 
terminate on September 30, 1997. (P.L. enacted after the hearing was 
held reauthorizes STTR for fiscal years 1998, 1999, 2000, and 2001.)
    The program is funded through Federal agencies that have 
extramural budgets for research, or research and development, 
in excess of $1,000,000,000 for a particular fiscal year. The 
agencies that qualify for the program are the Department of 
Defense, the National Aeronautics and Space Administration, the 
National Institutes of Health, the National Science Foundation 
and the Department of Energy. These agencies are authorized to 
expend not less than 0.15 percent of their extramural budget 
specifically in connection with STTR.
    Too often, STTR is confused with the Small Business 
Innovation Research Program, SBIR. STTR is a distinct and 
separate program. Unlike SBIR, STTR requires a cooperative 
venture between a for-profit small business and a researcher 
from a university, Federal laboratory, or a non-profit research 
institution for the purpose of developing commercially viable 
products from ideas spawned in a laboratory environment. Again, 
in contrast with SBIR, where the principal researcher would 
have to leave the research facility, jeopardizing academic 
tenure, and join the business entity, STTR lets a scientist 
remain with the research institution and at the same time work 
with a small business on a commercially promising idea.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Dr. Carol Pontzer, Assistant Professor, University of 
Maryland; Dr. Floyd Taub, President, Dovetail Technologies, 
Inc.; Dr. William T. Joines, Professor of Electrical 
Engineering and Computer Engineering, Duke University; Richard 
Carroll, President, Digital System Resources, Inc.; Dr. Barry 
Stein, Professor and Chairman, Department of Neurobiology and 
Anatomy, Wake Forest University; Robert M. Pap, President and 
CEO, Accurate Automation, Inc. All of the panelists were 
participants in the program. One of the witnesses expressed the 
view that STTR provided a critical link between the academic 
community and small businesses. Another witness valued the 
program because it provided a meaningful incentive for small 
businesses and researchers to work together to move ideas from 
the laboratory to the marketplace, foster high-tech economic 
development, and bolster U.S. competitiveness. All of the 
witnesses were of the view that STTR has had a positive impact 
and should be continued. One witness recommended that STTR and 
SBIR be reauthorized through 2002.
    The second panel included: Susan D. Kladiva, Acting 
Associate Director, General Accounting Office; Daniel O. Hill, 
Assistant Administrator for Technology, Small Business 
Administration; Dr. Kesh Narayan, Director, Industrial 
Innovation Group, National Science Foundation; and, Robert L. 
Neal, Director, Office of Small and Disadvantage Business 
Utilization, Department of Defense. The witness for GAO stated 
that the STTR Program appeared favorable at the time of the 
report, although it was too early to make a conclusive judgment 
about the commercial potential of the research. The witness 
from SBA reported that during the first three years of the 
program, 674 Phase I awards valued at $63.3 million were issued 
and 110 Phase II awards were issued at a value of $52.5 
million, and that for fiscal year 1997, $1.1 billion under SBIR 
and $60 million under STTR will be awarded. The two witnesses 
responsible for administering STTR programs spoke favorably of 
the program and its reauthorization.
    For further information on this hearing, refer to Committee 
publication 105-12.

            7.4.5  impact of sba and other federal programs to create 
                    jobs and to stimulate economic growth in cities 
                    located in predominately rural areas

                               Background

    On July 2, 1997, the Subcommittee on Government Programs 
and Oversight held a field hearing at Allegheny College in 
Cumberland, Maryland, the second in a series, to determine the 
impact of Government programs on Main Street America. (For 
first hearing see: House of Representatives, Committee on Small 
Business, Serial No. 105-5 (April 15, and 17, 1997)). The first 
hearing extended over two days and examined the impact of 
Federal regulations, especially those promulgated by the 
Environmental Protection Agency and the Occupational Safety and 
Health Administration upon small businesses. The prior hearing 
gave the Federal Government a mixed report card. However, there 
was universal agreement that Federal Government over-regulation 
and meddlesome approaches to regulation was detrimental to 
small businesses.
    The hearing explored the impact of programs administered by 
the Small Business Administration (SBA) on creating jobs and 
stimulating economic growth in cities such as Cumberland and 
Frostburg, Maryland that are located in predominately rural 
areas. The needs of these cities and the adjacent rural 
communities are too often forgotten. Frequently, SBA 
administered programs are associated with stimulating economic 
growth in large cities such as New York, Chicago, and Los 
Angeles which are located in urban corridors. The hearing also 
focused on the broader issue of the impact of federal programs 
generally in stimulating or deterring job growth and economic 
development.

                                Summary

    The hearing was comprised of five panels, the first of 
which included: Edward C. Athey, Mayor, Cumberland, Maryland; 
Michael Wagoner, Director, Tri-County Council, Western 
Maryland; and, John J. Hafer, Senator, State of Maryland. One 
witness spoke of the need of small businesses to have access to 
operating capital in order to survive in starting a new 
venture. Another witness pointed out that the Appalachian 
Regional Commission was funding an entrepreneur program and 
that a meeting was scheduled with state officials to determine 
how best to spend the funds. There was discussion about the 
overwhelming burden placed on small businesses by the 
proliferation of regulations by both state and federal 
agencies.
    The second panel included: John Korpela, President, 
Kreative Plastics, Inc.; Don Morin, President, Garrett 
Container Systems, Inc.; R. Sam Griffith, President, National 
Jet Company; and, Douglas Metz, Vice President, Home Federal 
Savings Bank. The panel was comprised of small business 
executives from the Cumberland, Maryland area. One witness 
testified to the success of SBA programs in helping small 
businesses and the multiplier effect that business growth can 
have in providing jobs and helping to revitalize a community. 
Another witness expressed concern about the regulatory burden 
created by new laws and the ability to keep abreast of 
additional regulatory requirements generated by new laws. 
Dissatisfaction was expressed with the 504 loan program and the 
costs of that program borne by the borrower.
    The third panel included: James Graham, Director for 
Maryland, Small Business Development Centers (SBDCs); Sam 
LaManna, Executive Director, Small Business Development Center 
Network, Western Maryland; and, John S. Andrews, Regional 
Director, SCORE. Those on the panel were involved in federal 
government sponsored programs providing services to small 
businesses. The witnesses explained the extent of the 
counseling, training, technical assistance, and, marketing 
services provided by SBDCs and SCORE. The need for services 
that are compatible and use advances in computer technology 
were emphasized.
    The fourth panel included: Douglas Hafer, Funeral Director, 
Hafer Funeral Homes; David Summerfield, President, Summerfield 
Aviation; Patrick McCormick, Commercial Loan Officer, First 
United National Bank and Trust Company; and, Edward Mason, 
Owner, JB Steak Cellar and Mason's Barn. One witness expressed 
the view that changes to regulations are so numerous that small 
businesses do not have time to keep up with what is current. 
Another witness stated that the SBA told him that he must first 
be turned down by a bank before hecould be eligible for an SBA 
loan program. A witness expressed the opinion that SBA loan programs 
permit banks to make loans to small businesses that they would not 
otherwise make because of the inherent risk. The 504 loan program was 
criticized for the excessive expense to the small business.
    The fifth panel included: Bernard Kulik, Associate 
Administrator for Disaster Assistance, SBA; Don A. Christensen, 
Associate Administrator for Investment, SBA; Thomas Tolan, 
Acting Regional Administrator, SBA; Robin Douglas, Regional 
Manager for Western Maryland, Maryland Department of Business 
and Economic Development; and, Julie Moore, Owner of Curly 
``M'' Stables. The witnesses from the SBA provided information 
relative to the venture capital, 7(a), 504 and disaster loan 
programs. One witness expressed the view that Federal business 
assistance programs don't work that reward bureaucratic paper 
work over quality business assistance. Another witness 
complained of difficulties dealing with the SBA.
    For further information on this hearing, refer to Committee 
publication number 105-16.

            7.4.6  h.r. 96, the small business regulatory assistance 
                    act of 1997

                               Background

    On January 7, 1997, Congressman Jerry Solomon, along with 
Reps. Gary Condit, Joel Hefley, and Floyd Flake, introduced 
H.R. 96, The Small Business Regulatory Assistance Act of 1997. 
H.R. 96 is designed to establish a system of confidential 
voluntary compliance assistance with Federal regulations.
    Under the proposed legislation, the existing Small Business 
Development Center (SBDC) network would be partnered with the 
Environmental Protection Agency, the Department of Labor 
(OSHA), and the Internal Revenue Service, as well as the 
private sector and other compliance assistance resources, to 
make non-punitive regulatory compliance assistance accessible 
to small businesses.
    In order to provide such help, the SBA, each participating 
agency, and representatives of the SBDCs would develop five-
year compliance assistance plans that could be revised 
annually. Each compliance assistance plan would contain: the 
regulatory compliance objectives and priorities of the 
participating agency; identification of the types of services, 
materials, and resources to be used by the participating 
agency; identification of the resources of the participating 
agency available to the SBA and to SBDCs; and standards to be 
used by the participating agency in determining the 
effectiveness of the system of voluntary compliance.
    The voluntary compliance program is to be funded from 
moneys appropriated to the Department of Labor, EPA and IRS. A 
percentage of each agency's annual appropriation through 2003 
is earmarked for use of the voluntary compliance program. The 
amounts set aside are significant and amount to millions of 
dollars. Funding of SBDCs is to be on a state-by-state basis 
according to the population that a particular state bears to 
the population of the United States as a whole. However, no 
state's share would be less than $300,000. No state matching 
funds would be required. No more than 2 percent of the amounts 
made available for the voluntary compliance system may be spent 
on SBA administrative expenses.
    To examine the impact of this legislation on both the small 
business community, as well as the government agencies that are 
involved, the Subcommittee on Regulatory Reform and Paperwork 
Reduction and the Subcommittee on Government Programs and 
Oversight held a joint hearing. The Subcommittees heard 
testimony from the legislation's sponsor, Mr. Solomon. 
Testimony was also provided by a panel of experts who had an 
interest in H.R. 96.

                                Summary

    The first panel of the hearing was comprised solely of Mr. 
Solomon. He testified about the need and the purpose of the 
legislation. He indicated that regulations on all levels of 
government are suffocating small businesses, the most important 
sector of our economy. As a result, fewer jobs are being 
created and economic growth is being impeded. However, there is 
often no one a small business owner can turn to in order to 
find out what regulations he or she needs to comply with, and 
how to do so. That is what H.R. 96 is designed to do. It is 
designed to link the Federal government and its compliance 
programs with the small business community in a manner that is 
user-friendly so that more businesses comply with applicable 
regulations.
    Mr. Solomon also addressed some of the concerns that had 
previously been made about the legislation. He described why 
small business development centers were the appropriate 
vehicles to deliver the compliance assistance. He explained the 
funding of the program, particularly how the cost to small 
business owners, will be nothing. He also indicated that the 
administrative agencies that this bill would cover should not 
oppose the legislation because increased compliance assistance 
will lead to increased compliance with their regulations, 
which, after all, should be their ultimate goal. The bottom 
line, Mr. Solomon indicated, is that small business owners are 
not trying to find loopholes to avoid complying with the laws. 
Rather, they are law-abiding citizens that in many cases do not 
know how to comply with the law. H.R. 96 will assist them in 
this process.
    The second panel was comprised of a number of experts. They 
included: Ms. Johnnie Albertson, Associate Administrator of 
Small Business Development Centers, U.S. Small Business 
Administration; Mr. Sam Males, State Director, Nevada Small 
Business Development Center; Ms. Pamela Christenson, Technical 
Assistance Director, Wisconsin Small Business Clean Air 
Assistance Program; Mr. Jim King, State Director, New York 
Small Business Development Center, and President-Elect of the 
National Association of Small Business Development Centers; and 
Mr. Jeff Burton, President, American Industrial Hygiene 
Association.
    Ms. Albertson testified in opposition to the legislation. 
She indicated three main areas of opposition to the bill. 
First, was the funding mechanism. Because H.R. 96 would divert 
a small percentage of the budgets of the Department of Labor, 
EPA, and IRS, she indicated that would seriously impair those 
agencies' oversight activities. She felt that it would be more 
appropriate for Congress to directly fund any compliance 
assistance program that it decides to establish through SBA and 
its resource partners. The second concern had to do with the 
way that the compliance assistance in H.R. 96 would be 
provided. She indicated that existing provisions could 
potentially shield companies who act in bad faith from criminal 
liability. Finally, she felt that the bill might create a new 
privilege for companies that might be in violation of existing 
regulations. This could lead to new litigation, possibly 
directed towards the SBDCs.
    Mr. Males and Mr. King both represented the viewpoint of 
small business development centers. They made several points in 
favor of H.R. 96. First, because SBDCs have already developed 
an extensive network throughout the country, they are well 
situated to provide assistance to a large number of small 
businesses. No other existing network can reach the number of 
businesses that SBDCs can reach. Second, SBDCs have developed a 
level of trust with the small business community that no other 
Federal agency or program can match. Throughout the course of 
their assistance, SBDCs have always operated with the best 
interests of the small business in mind. Finally, SBDCs have a 
proven track record of working with other professionals like 
lawyers, CPAs, industrial hygienists, and other private 
consultants. This should help to address the concerns that some 
have expressed regarding the claim that SBDCs do not have the 
requisite expertise to deal with the technical nature of 
regulatory compliance.
    Ms. Christenson recognized and supported the goal of H.R. 
96, which is to assist small businesses in complying with 
Federal regulations, but felt that the bill created unnecessary 
and duplicative services for environmental compliance 
assistance. She cited the program mandated by section 507 of 
the Clean Air Act, which requires that states maintain a 
program designed to help small businesses understand and comply 
with air pollution regulations. These programs, commonly 
referred to as 507 Programs, provide free, confidential, 
anduser-friendly compliance assistance to small businesses. She notes 
that in times of dwindling resources, it is important that any type of 
duplication of activities be avoided. She also notes that becoming 
knowledgeable and skilled about the regulations dealing with three 
separate and distinct agencies is an extremely challenging task, one 
that may not be possible with the limited resources that SBDCs have. In 
conclusion, she feels that it makes more sense to build on existing, 
cost-effective, environmental programs like the 507 Program, rather 
than using H.R. 96 to start from square one with another entity not 
accustomed to providing such service.
    Mr. Burton is a certified industrial hygienist, registered 
professional engineer, and a certified safety professional. He 
is also President of the American Industrial Hygienist 
Association (AIHA), the world's largest society of occupational 
and environmental health professionals. The goal of AIHA 
members is to create a healthy and safe workplace, thereby 
reducing illnesses, injuries, and fatalities. Mr. Burton 
testified that he supported the goal of H.R. 96 for many 
reasons, and offered a few suggestions on how it might be 
improved. First, because of related experiences that AIHA has 
had, Mr. Burton firmly believed that the regulatory agencies 
should not be involved with the delivery of compliance 
assistance. Small businesses tend to believe that they will be 
targeted for inspection should they approach the agency for 
help. By having a third party provide the assistance, in this 
case the SBDCs, this problem is avoided. Second, H.R. 96 should 
make clear that SBDCs should make referrals to experts should 
they find that the type of assistance that is being sought is 
too technical for them to handle. This would ensure that only 
competent, qualified individuals will be involved in providing 
training and assistance to the small businesses.
    For further information on this hearing, refer to Committee 
publication number 105-23.

            7.4.7  the impact of federal programs and regulations on 
                    women business enterprises

                               Background

    On October 8, 1997, the Subcommittee on Government Programs 
and Oversight held a hearing, the third in a series of 
hearings, to determine the impact of Federal Programs on main 
street America and various segments of the small business 
community. The subcommittee was interested in learning how 
small business owners have succeeded, whether by reliance 
solely upon the private sector or with some assistance by 
Federal Programs, in order to assist others to become, or 
continue to be, successful small business owners.
    This and the other two hearings served as a forum to voice 
problems encountered by small businesses with Federal 
Government over-regulation and needless paperwork requirements 
with a view to addressing these problems where feasible with 
remedial legislation. The first hearing extended over 2 days 
and examined the impact of Federal regulations, especially 
those enforced by the Environmental Protection Agency and the 
Occupational Health and Safety Administration upon small 
businesses. The second hearing explored the impact of programs 
administered by the Small Business Administration (SBA) on 
creating jobs and stimulating the economic growth in cities 
such as Cumberland and Frostburg, Maryland, that are located in 
predominantly rural areas.
    This, the third hearing, focused on a very important 
segment of the small business community, women's business 
enterprises. The hearing examined the ability of women to 
obtain capital, to develop a good idea into a viable small 
business. The hearing assisted Congress in the evaluation of 
Federal programs designed to assist women to start new 
businesses or to sustain or grow an established business.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Charlotte Taylor, President, Venture Concepts, Inc.; 
Jylla Foster, Vice President for Small and Medium Business, IBM 
Corporation; Victoria Nelson, Chief Executive Officer, Jarnel 
Iron and Forge; Georgia Patrick, President, Communicators, 
Inc.; Terry Neese, Corporate and Public Affairs Liaison, 
National Association of Women Business Owners; and, Mickie 
Siebert, President and Chairwoman, Muriel Siebert & Company, 
Inc. There was testimony that women in business have made 
progress in overcoming barriers to becoming entrepreneurs, but 
there still remains a disparity in the level of revenues of 
male and female firms. The revenue gap was attributed to the 
fact that women owned businesses were concentrated in lower 
earning industries, services and retail, have younger companies 
that are newer to the marketplace or operate more part-time 
businesses.
    There was testimony from the first panel that women bring 
characteristics to business that are different from men. It was 
suggested that the SBA build a closer relationship with 
organizations that represent women entrepreneurs as a way of 
raising from 3 percent the number of all government contracts 
awarded to women. It was further suggested that to increase the 
number of government contracts awarded to women-owned 
businesses a better method needs to be devised to match up 
small businesses who can do a good job with the government 
agency seeking the goods or services. One of the witnesses 
stated that women-owned firms with 100 or more employees have 
expanded 6 times faster than for all firms in the economy and 
that revenues from women-owned businesses were more than twice 
the total of the entire United States automobile industry.
    The second panel included: Katherine Hoelscher, Assistant 
State Director, the Florida Small Business Center Network; Geri 
Swift, President, Women's Business Development Center; Beatrice 
A. Checket, Executive Director, Women's Business Institute, 
Inc.; Susan Bari, President, Women Business Enterprise National 
Council; Jane Palsgrove Butler, Acting Associate Administrator, 
SBA; and, Amy Millman, Executive Director, National Women's 
Business Council. One witness testified that the Small Business 
Development Centers (SBDCs) see approximately 570,000 potential 
people a year and that SBDCs in Florida provide assistance to 
15,000 women business owners a year. Another witness stated 
that the Service Core of Retired Executives (SCORE) had 
established a Women's Advisory Council and that SCORE had 
sponsored Women's Business Roundtables throughout the country. 
It was reported by another witness that there were 8 million 
women business owners in the United States. The Chairman 
concluded with the hope that the hearing would focus public 
attention on the fact that the fastest growing part of the 
economy was women's businesses and that women's businesses have 
grown at twice the rate of the general economy.
    For further information on this hearing, refer to Committee 
publication number 105-28.

            7.4.8  making the federal government user friendly

                               Background

    On November 20, 1997, the Subcommittee on Government 
Programs and Oversight held a hearing to determine the impact 
of Federal Programs on Main Street America and various segments 
of the small business community. The goal was to learn how 
small business owners have succeeded, whether by reliance upon 
the private sector or with some assistance by Federal programs, 
in order to help others to become, or to continue to be, 
successful small business owners. The hearing was held in 
Winchester Hall, Frederick, Maryland.
    This was the fourth in a series of hearings that was begun 
in April 1997. The first hearing was held over a two-day period 
and examined the impact of Federal regulations, especially 
those enforced by the Environmental Protection Agency, the EPA, 
and the Occupational Safety and Health Administration, OSHA, 
upon small businesses. The second hearing explored the impact 
of programs administered by the Small Business Administration 
(SBA) on creating jobs and stimulating economic growth in 
cities such as Cumberland andFrostburg, Maryland, that are 
located in predominantly rural areas. The third hearing focused upon a 
very important segment of the small business community, women owned 
businesses and examined the ability of women to obtain capital to 
develop a good idea into a viable small business.

                                Summary

    The hearing was comprised of four panels, the first of 
which included: James Grimes, Mayor of Frederick, Maryland; 
Edmond B. Gregory, Linton, Schafer & Company; Michael Menzies, 
CEO, First Bank of Frederick; Ilona Hogan, County Commissioner. 
One witness attributed the growth of his business to the 
availability of funding from local banks and not Federal 
Government programs. Another witness stated that it was the 
State of Maryland economic loans that made possible a 
significant and a successful investment in downtown Frederick. 
A local banker testified the small business loans have real 
risks and are generally illiquid, require intense individual 
underwriting, on-going knowledge about rapidly changing 
industries, regular care and maintenance, patience, 
perseverance, and just plain guts. Hope was expressed that SBA 
would focus resources on those few small businesses which are 
entrepreneurial firms with substantial growth potential.
    Panel two was comprised of: George Dredden, Publisher, 
County Globe Newspaper; Arthur Lyons, President, Lyons 
Associates; and, Harry Johnson, Principal, Select Benefit 
Service. The view was expressed that regulations and guidelines 
should ensure a reasonable reinvestment into the community in 
proportion to the dollars being extracted and that economic 
growth has to embrace all segments of our society. One witness 
expressed gratitude for the hearing as a means of helping small 
businesses grow to the level that they can participate fully in 
the growth of the community. Another witness pointed out that 
small business owners have a hard time keeping up with new laws 
and regulations and that there was no Federal resource center 
to advise businesses how to comply with these new laws and 
regulations.
    Panel three included: Richard Wise, President and Chief 
Executive Officer, American National Bank, Parma, Ohio; Kathy 
Walters, Senior Commercial Loan Officer, FCNB, Frederick, 
Maryland; Jack Goldstein, President and CEO, First Bank of 
Frederick, Frederick, Maryland; and, Arnold S. Rosenthal, 
Assistant Administrator for Borrower and Lending Services, SBA. 
This panel discussed the efforts of the SBA to turn over the 
originating, servicing, and liquidating functions of the 7(a) 
loan programs to its private center lending partners. It is 
announced administration policy stated in both the SBA's budget 
submission and on the record in testimony before the House 
Committee on Small Business.
    The last panel included: Early Monroe, Member, Frederick 
County Planning Commission; Kenneth McCombs, President, 
Miscellaneous Metals; Diane Wirth, President, The Solution 
Works; Nick Rebro, President, Matthews Moving; and Michael 
Smith, President, M.R. Smith & Co. One witness pointed out that 
it was difficult to obtain funding for developing industries 
that use new methods or technology. Another witness testified 
to the harm to small businesses who are subcontractors caused 
by general contractors who engage in ``bid shopping.'' One 
witness recounted the fact that small businesses can be a 
positive economic impact in the community through job creation, 
residual business development and broadening tax base. A 
witness spoke favorably of the 504 loan program and that which 
permitted plant expansion and business growth. One witness 
spoke of the problems faced by small businesses due to the 
plethora of Federal Government regulations especially those 
promulgated by OSHA and the Internal Revenue Service.
    For further information on this hearing, refer to Committee 
publication number 105-33.

            7.4.9  the small business advocacy review panels

                               Background

    On March 18, 1998, the Subcommittee on Government Programs 
and Oversight and the Subcommittee on Regulation Reform and 
Paperwork Reduction held a joint hearing which examined the 
implementation by the Environmental Protection Agency (EPA) and 
the Occupational Safety and Health Administration (OSHA) of the 
statutory requirements of paragraphs b through e of Section 609 
of title 5 of the United States Code, as added by the Small 
Business Regulatory Enforcement Fairness Act of 1996, referred 
to as SBREFA.
    The new provisions added by SBREFA to the Regulatory 
Flexibility Act require EPA and OSHA to implement a panel 
process for considering and responding fairly to the advice and 
recommendations of small businesses as to the impact of 
proposed regulations upon small entities.
    The hearing was also a continuation of the joint hearing by 
the same subcommittees held on April 15 and 17, 1997. (See 
Committee publication No. 105-5). This hearing, as did the 
prior hearing, focused on the need for good science and common 
sense in rulemaking and the unfair financial burdens borne by 
small businesses all over this Nation as a result of 
unscientific, impractical, and unnecessary regulations.

                                Summary

    The hearing was comprised of three panels, the first of 
which included: Donald L. Struminger, President, Virginia Linen 
Services, Inc.; Honorable Jay Gullo, Mayor, New Windsor, 
Maryland; James Wordsworth, President, J.R. Steakhouse; and, 
Ken Boehm, Chairman, National Legal and Policy Center. One 
witness complained that one of the problems with the panel 
process was that EPA failed to provide representatives of small 
entities with sufficient details about a proposed rule. Another 
witness underscored the regulatory burden faced by small 
businesses who had to conform to 60 Federal requirements 
imposed by 11 Federal agencies and 41 State requirements 
imposed by 8 State agencies. A witness provided examples of 
small businesses driven out of business by heavy-handed and 
unfair regulatory enforcement.
    The second panel included: Douglas I. Greenhaus, Director, 
National Automobile Dealers Association; David F. Hobson, 
President, Uniform and Textile Service Association; Matthew 
Hickham, Director, American Health Care Association; John J. 
Huber, Vice President, Petroleum Marketers Association; and, 
William Kilmer, National Association of Home Builders. There 
was consensus that the many tiers of regulations imposed by 
local, State, and Federal governments as well as needless and 
overly burdensome regulations are of great concern and costly 
to small businesses. There was testimony that OSHA had ignored 
scientific and medical evidence as well as current, relevant 
industry specific evidence in weighing the impact of proposed 
regulations on small entities. Concern was voiced that EPA and 
OSHA had bypassed the panel process in promulgating rules which 
small businesses considered significant, but which the agencies 
treated as not meeting the criteria for invoking the panel 
process.
    The third and last panel included: L. Nye Stevens, 
Director, U.S. General Accounting Office (GAO); Hon. Jere W. 
Glover, Chief Counsel for Advocacy, Small Business 
Administration; Thomas E. Kelly, Small Business Advocacy Chair, 
EPA; and, Greg Watchman, Deputy Assistant Secretary, Department 
of Labor. GAO reported that the panel process was working 
fairly well but that there was a good deal of controversy 
associated with the process. The office of Advocacy, SBA, was 
of the view that the panel process provided new leverage in its 
efforts to ensure that the regulatory culture among the 
executive agencies fully understood the problems caused small 
businesses by arbitrary and ill-conceived regulations. Both EPA 
and OSHA found merit in the panel process.
    For further information on this hearing, refer to Committee 
publication number 105-40.

            7.4.10  small business innovation research (sbir) program 
                    oversight

                               Background

    On April 22, 1998, the Subcommittee on Government Programs 
and Oversight of the Committee on Small Business held a hearing 
to review the success of SBIR--a federally-funded research and 
development small business set-aside program established in 
1982. SBIR was scheduled to expire on October 1, 1988. However, 
Congress initially extended the program to September 30, 1993. 
The reasons given for extending SBIR were that the program 
creates new jobs, increases productivity and economic growth, 
helps combat inflation, and stimulates exports. In extending 
the program, Congress acknowledged that small businesses had 
not been receiving a fair share of Federal research and 
development dollars. In 1992 Congress enacted the Small 
Business Research and Development Enhancement Act which again 
extended SBIR, this time through December 30, 2000. President 
Bush signed the bill into law on October 28, 1992.
    The statute that established the program requires that each 
Federal agency with an extramural budget for research and 
development in excess of $100 million set-aside a percentage, 
presently 2.5 percent, of that budget for projects awarded to 
small businesses. Unlike the Small Business Technology Transfer 
Program (STTR) with which it is often confused, SBIR does not 
require, but permits a cooperative venture between a for-profit 
small business and researchers at a university, Federal 
laboratory, or a nonprofit research institution. From the 
inception of the SBIR program through the end of the FY 1996, 
in response to 187 solicitations, 261,421 proposals were 
received and 41,351 contracts worth $6.5 billion were awarded 
according to the Small Business Administration (SBA).

                                Summary

    The hearing had two panels, the first of which included: 
Mr. Douglas P. Taylor, President, Taylor Devices, Inc.; Ms. 
Alisa Rogers, Vice President, SELF Corporation; Dr. Charles 
Kojabashian, President, Foster-Miller, Inc.; Dr. Jeanne Dietz-
Band, Oncor, Inc.; Dr. Catherine A. Ricks, Vice President, 
Embrex, Inc.; and, Dr. Carl J. Johnson, Chairman, II-IV 
Incorporated. There was consensus that SBIR was a successful 
program for the performance of important research leading in 
many instances to the development of viable products. For some 
small companies, SBIR projects have been a ready source of 
capital with relatively low financial risk to the participants. 
Examples were given of technological advances that benefited 
the Federal agency sponsoring the project as well as the nation 
as a whole. The view was expressed that it was not always 
possible in advance to determine with certainty the most 
beneficial commercial application of research, but that the 
pursuit of new ideas does contribute to this nations body of 
scientific knowledge and enhances our international 
competitiveness.
    The second panel included: Ms. Susan D. Kladiva, Associate 
Director, U.S. General Accounting Office (GAO); Ms. Susan E. 
Haley, Deputy Director, Department of Defense; Mr. Kesh 
Narayanan, Director, National Science Foundation; Dr. Wendy 
Baldwin, Deputy Director, National Institutes of Health; Dr. 
Charles F. Cleland, Director, Department of Agriculture; and, 
Mr. Daniel O. Hill, Assistant Administrator, U.S. Small 
Business Administration. GAO reported that the program appeared 
to be targeting the participation of women-owned small 
businesses and economically disadvantaged small businesses and 
to be including critical technologies. One agency stated that 
it employed rigorous peer review in selecting program 
participants and that the reviewers were drawn primarily from 
universities and government laboratories. One witness was of 
the view that SBIR ensures that the best and brightest 
researchers in the nation will be a part of the Federal 
research and development efforts that benefit our national 
defense, build safer highways and airports and contribute to 
our public health and safety. There was consensus that the 
program was a success and should be continued.
    For further information on this hearing, refer to Committee 
publication number 105-47.

            7.4.11  performance of the small business administration 
                    (sba) in providing financial and entrepreneurial 
                    services to veterans

                               Background

    On May 20, 1998, The Subcommittee on Government Programs 
and Oversight of the Committee on Small Business and the 
Subcommittee on Benefits of the Committee on Veterans' Affairs 
held a joint hearing which reviewed the performance of SBA in 
providing assistance to veterans desiring to start or expand an 
existing small business. The hearing was held because of past 
complaints that SBA and other agencies were ignoring the needs 
of veterans. SBA is required to provide special consideration 
to veterans in the administration of its programs. Failure to 
keep promises to those who served this nation faithfully and 
bravely impacts not only those who are presently veterans, but 
those in who are now in uniform and those who will serve this 
country in the future.
    Government programs to assist veterans to start or grow an 
existing business dates back to the Service Men's Adjustment 
Act, better known as the ``GI Bill'' which was passed in 1944. 
The hearing served as a reminder to the administration that the 
needs of veterans were not being addressed. Also the Small 
Business Reauthorization Act of 1997 directed that service 
disabled veterans be provided with improved services and 
greater outreach. The hearing provided the first opportunity 
for Congress to review SBA's plan for complying with the new 
requirements for improving services to those who have been 
disabled in the service of their country.

                                Summary

    The hearing had two panels, the first of which included: 
Paul R. Camacho, Director of Special Projects, University of 
Massachusetts; William D. Elmore, Veterans' Advocacy, Data 
Force Associates; and, Paul Hanley, President, D.C. 
Incorporated. There was consensus that federal agencies had 
neglected the needs of veterans. It was the view of one witness 
that all the groups, with the exception of veterans, get 
special treatment at SBA. Another witness was of the opinion 
that there was a limit to what the federal government could do 
to help veterans' who aspired to start a small business and 
that the very nature of small business was individuality, 
flexibility and unique approach. It was noted that helping 
veterans also meant assisting women and minorities since both 
women and minorities were well represented in the Armed Forces.
    The second panel included: Emil Naschinski, Assistant 
Director, The American Legion; William Crandell, AMVETS; W. 
Kenneth Yancey, Jr., Executive Director, SCORE; and, Clifton 
Toulson, Jr., Assistant Administrator, SBA. The SBA was hopeful 
that in the future the agency would be responsive to the 
statutory requirements with regard to providing services to 
veterans. SCORE was of the view that it could recruit enough 
veterans to provide services that were designed specifically 
for those who had served in the Armed Forces. The veterans' 
service organization expressed dissatisfaction with the failure 
of SBA to follow the congressional mandate to provide special 
considerations to veterans.
    For further information on this hearing, refer to Committee 
publication number 105-49.

            7.4.12  hubzone program

                               Background

    On June 24, 1998, the Subcommittee on Government Programs 
and Oversight held a hearing to examine the planning being done 
by the Small Business Administration (SBA) and the other 
Federal Government agenciesfor implementing the HUBZone 
Program. This program provides promise for creating new jobs and 
fostering welfare-to-work. It was important to determine whether this 
new program would be implemented in a timely manner. Additionally, it 
was important to make sure that the program was administered in a 
manner that would meet the needs of American workers and families who 
live in areas as geographically diverse as Appalachia and the inner 
city.
    The HUBZone Act of 1997 was introduced in the Senate in 
January 1997 and was incorporated into the Senate version of 
the Small Business Reauthorization Act of 1997. The program was 
approved by a 18-0 vote in the Senate Committee on Small 
Business and was included in the reauthorization act approved 
by the Conference Committee. The Conference Committee report 
was passed in the House by a 397 to 17 vote. The program is 
designed to provide economic relief to areas of this Nation, 
such as Appalachia and our inner cities that have historically 
suffered from high rates of unemployment and low income levels. 
The program is designed to encourage the location of small 
businesses in these economically distressed areas and to 
provide stable employment to those who live in these areas. The 
program assists small businesses in HUBZones to enter the 
mainstream of Federal Government contracting by streamlining 
the contracting process.

                                Summary

    The hearing had two panels, the first of which included: 
Hon. Jesse L. White, Jr., Federal Cochairman of the Appalachian 
Regional Commission and Mr. Robin Douglas, Regional Manager for 
Western Maryland, State of Maryland Department of Business and 
Economic Development. It was pointed out that the HUBSZone 
Program is an important tool in the creation of small 
businesses in rural and small-town America which also include, 
i.e., access to capital, technical start-up assistance, 
technology transfer and commercialization, more business 
oriented training and education in public schools, and creating 
a network of readily available services. Concern was expressed 
that program money would be spent on administrative matters to 
the detriment of encouraging participation by businesses and 
areas that could benefit from the program.
    The second panel included: Ms. Jacqueline M. Jenkins, 
Director, Small Business Development Center, The Wharton School 
of Business, University of Pennsylvania; Mr. Ralph C. Thomas 
III, Associate Administrator, Office of Small and Disadvantaged 
Business Utilization, National Aeronautics and Space 
Administration; Mr. Lloyd C. Alderman, Director, Office of 
Small and Disadvantaged Business Utilization, Defense Logistics 
Agency; Ms. Tracey L. Pinson, Director, Office of Small and 
Disadvantaged Business Utilization, Office of Secretary of the 
Army; and, Richard L. Hayes, Associate Deputy Administrator, 
Government Contracting and Minority Business Development, SBA. 
It was acknowledged that the purpose of the program was to 
stimulate private sector investment and to increase employment 
opportunities in distressed communities by increasing Federal 
government contracts awarded to businesses located and 
employing persons living in those areas. The program targeted 
the inner city pockets of unemployment and underemployment as 
well as unemployment and underemployment areas all across our 
country. There was consensus that thorough advance planning was 
essential to the success of the program.
    For further information on this hearing, refer to Committee 
publication number 105-56.

            7.4.13  sba--proposed new loan monitoring system

                               Background

    On July 16, 1998, the Subcommittee on Government Programs 
and Oversight held a hearing to examine the Small Business 
Administration's (SBA) proposed new automated loan monitoring 
system for the 7(a) loan program. The Small Business Committee, 
in its report accompanying the Small Business Reauthorization 
Act of 1997, expressed approval for upgrading the SBA's 
computerized financial tracking and loan monitoring system. The 
Committee expressed grave concern over SBA's ability to spend 
money wisely for this project. The lack of effective management 
by SBA had previously manifested itself in disturbing 
instances, such as a substantial error in the subsidy rate that 
precipitated a needless crisis in the 7(a) loan program until 
detected by the U. S. General Accounting Office (GAO).
    Section 233 of the Reauthorization Act required that SBA 
complete eight mandated planning actions before it obligated or 
expended any funds for the development and implementation of 
the proposed new 7(a) loan monitoring system. It had been hoped 
that SBA would have completed the mandated planning, or at 
least be well underway to completing the planning by June 2, 
1998, the date the statute required SBA to report its progress 
to Congress. The GAO reported that SBA had failed to do its 
homework and to complete the planning for the automated loan 
monitoring system. Instead of doing the required planning, SBA 
in its report to Congress, provided a plan to do a plan.

                                Summary

    The hearing had one panel, which included: Mr. Joel 
Willemssen, Director, Accounting and Information Management 
Division, GAO; Mr. James T. Parks, Vice President and 
Comptroller--Multifamily, Fannie Mae; Mr. David T. Kresge, 
Senior Vice President and Chief Economist, The Dun & Bradstreet 
Corporation; Mr. Peter DelCOL, Chairman of the Board, Colson 
Services Corp.; Mr. John L. Gray, Associate Deputy 
Administrator and Mr. Lawrence E. Barrett, Chief Information 
Officer, SBA. GAO was of the view that SBA should complete all 
of the eight mandated planning tasks before buying hardware or 
systems. One witness was of the view that the new loan 
monitoring system should: (1) provide continuous automatic 
monitoring of the entire loan portfolio, (2) quantify risk by 
use of such tools as credit scoring, and (3) be driven by a 
wide range of data inputs. SBA testified that the eight 
planning steps required by Congress would be completed by 
August 1999, or sooner. SBA had not evidenced a lack of money 
to complete the planning. Also, SBA testified that it needed to 
consider the option of contracting out the loan monitoring 
system as the most cost-effective method of operating this 
system. The total cost of the system as estimated by SBA was 
$18.4 million, well in excess of the amount contemplated by 
Congress.
    For further information on this hearing, refer to Committee 
publication number 105-56.

            7.4.14  secondary market for guaranteed portions of 7(a) 
                    loans

                               Background

    On September 23, 1998, the Subcommittee on Government 
Programs and Oversight held a hearing to examine the 
performance of the Small Business Administration (SBA) in 
overseeing the sale in the secondary market of the Federal 
Government guaranteed portion of its 7(a) loan portfolio. A 
major focus of the hearing was an interim report of the U.S. 
General Accounting Office (GAO) which had been asked to 
undertake a study of the secondary market in the guaranteed 
portion of loans made under the authority of section 7(a) of 
the Small Business Act. GAO had studied the secondary market in 
the unguaranteed portion of 7(a) loans for the Senate Committee 
on Small Business.
    GAO was asked, inter alia, to review first, the structure 
of the SBA secondary market as compared to the other secondary 
markets in Federal Government guaranteed paper, and second, the 
efficiency of the SBA secondary market in achieving the 
objectives established for it in comparison with comparable 
markets. In addition to the GAO, the Subcommittee and the full 
Committee sought the views of those involved in the 
SBAsecondary market as to the market's operation, administration, and 
usefulness. Also, the Subcommittee sought recommendations for 
legislation that might strengthen or improve the market.

                                Summary

    The hearing had one panel, which included: Mr. Thomas 
McCool, Director, Financial Institutions and Market Issues, 
GAO; Ms. Donna Faulk, Vice President, Prudential Securities; 
Mr. Clarke Ulmer, President, Colson Services Corporation; Mr. 
Richard Wise, President and CEO, American National Bank; Mr. 
Arthur Johnson, President and CEO, United Bank of Michigan; and 
Ms. Jane Butler, Acting Associate Administrator, SBA. There was 
testimony that 3,000 lenders participated in the secondary 
market and that, during fiscal years 1996-1997, lenders sold 
approximately 12,000 loans each year, representing slightly 
less than 25 percent of the number of loans approved, and 
approximately 40 percent of the dollars approved.
    One of the witnesses pointed out that a secondary market 
allows a lender to sell a loan it originates rather than 
holding the loan on its balance sheet and that such a market 
provides a lender with a funding alternative to deposits, lines 
of credit, and other debt sources. The view was expressed that 
the efficiency and liquidity of the of the SBA secondary market 
are vital elements in the continued success of the 7(a) loan 
program. For small banks the secondary market provided these 
institutions an opportunity to leverage their lending 
capabilities. There was consensus that the secondary market was 
generally beneficial and operating efficiently.
    For further information on this hearing, refer to Committee 
publication number 105-67.

7.5  Summaries of the Hearings Held by the Subcommittee on Regulatory 
        Reform and Paperwork Reduction

            7.5.1  the regulatory flexibility act: are federal agencies 
                    using ``good science'' in their rulemaking?

                               Background

    On April 15 and 17, 1997, the Subcommittee on Government 
Programs and Oversight held a joint hearing together with the 
Subcommittee on Regulation Reform and Paperwork Reduction, on 
the need for good science in rulemaking and the use of cost-
benefit and risk analyses as essential management tools in the 
regulatory process. The hearing also focused on the impact upon 
small businesses caused by Federal agencies' failure to use 
good science or common sense when promulgating and enforcing 
regulations.
    Sound science is too often omitted in rulemaking because an 
agency starts with a fixed agenda of what a regulation should 
be and then works backward to find some scientific basis to 
justify the result the agency desires. Such an approach is 
distinctly unscientific and contrary to logic. Logic dictates 
beginning with a sound premise, then testing that premise to 
produce a conclusion--not vice versa. Small businesses of this 
nation have suffered from agencies failure to follow good 
science that is reflected in higher costs, in more paperwork 
and in having to cope with illogical requirements.
    The Subcommittees exercised Congress' oversight powers to 
examine the implementation and performance of the Environmental 
Protection Agency (EPA), the Occupational Safety and Health 
Administration (OSHA), and the Small Business Administration 
(SBA), Chief Counsel for Advocacy, of the statutory 
requirements of paragraphs (b) through (e) of Section 609 of 
Title 5 of the United States Code, as added by the Small 
Business regulatory Enforcement Fairness Act of 1996 (SBREFA). 
The new provisions added by SBREFA to the Regulatory 
Flexibility Act require EPA and OSHA to implement a panel 
process for considering and responding fairly to the advice and 
recommendations of small businesses concerning the impact and 
efficacy of proposed regulations.

                                Summary

    The hearing was comprised of four panels, the first of 
which included: Dr. Gary Smith, Director, Applied Physics 
Laboratory; Dr. Aviva Brecher, Senior Analyst, John A. Volpe 
National Transportation Systems Center; Dr. George Gray, Deputy 
Director, Harvard Center for Risk Analysis: and Dr. James 
Harless, President, Techna Corporation; Dr. George Wolff, 
Principal Scientist, General Motors Corporation. The witnesses 
emphasized the need for good science in rulemaking and the 
availability of scientific expertise in the United States, 
leaving the agencies without any excuse that good science was 
not available. There was consensus that scientific regimen such 
as risk and cost benefit analyses do fit rulemaking and should 
be routinely followed. Examples were provided of failure of 
agencies to adhere to sound science in promulgating regulations 
and the costly and sometimes ridiculous consequences that 
follow from such failure.
    The second panel included: Bennie Bixenman, President, 
Benco Sales, Inc.; Barney Deden, President, Martinizing Dry 
Cleaning; Victor Tucci, President, Three Rivers Health and 
Safety, Inc.; Michael Kerr, Director of Government Affairs, 
Circuit Center, Inc.; and Jim Quinly, President, Country Club 
Remodelers, Inc. The witnesses on the panel represented small 
businesses that had first hand knowledge of the consequences of 
agencies failure to use common sense and good science in 
rulemaking. It was clear from the testimony that agencies still 
persist in ignoring sound science in the regulatory process. 
Concern was also expressed for the added costs and paperwork 
burden resulting from needless regulations and agencies' 
ineptitude in foreseeing the practical consequences of their 
rulemaking efforts.
    The third panel was comprised of: G. Stephen Robins, 
President, G.S. Robins and Company; John Hexter, President, 
Hexter and Associates; G. Jeffrey Haber, President, Board of 
Directors, National Association of Towns and Townships; Eamonn 
McGready, President, Martin Imbach, Incorporated; and Gretchen 
Zierich, Assistant to the President, Zierick Manufacturing 
Corporation. There was universal agreement among members of the 
panel for maintaining safe work places and preserving clean air 
and water. However, all of the witnesses underscored the 
adverse economic impact that unsound science and unnecessary 
regulations can have on small businesses. One witness gave an 
example of EPA's failure to consult an industry association or 
its members before issuing a regulation that erroneously 
attributed a number of manufacturing functions to the industry. 
Whereas, in actual fact, the industry is basically engaged in 
warehousing activities. Another witness testified that the 
regulatory process has gotten out of hand and that there are 
almost one thousand pages of OSHA regulations applicable to his 
small business.
    The fourth panel included: Jere Glover, Chief Counsel for 
Advocacy, SBA; Thomas Kelly, Chair, Small Business Advocacy, 
EPA; Robert Burt, Office of Regulatory Analysis, U.S. 
Department of Labor; and Keith Cole, member of the law firm, 
Beverage & Diamond. There was testimony that government 
agencies were learning about SBREFA and were taking steps to 
comply with the requirement of this statutes. Another witness 
expressed the view that the main thrust of SBEFA was not the 
process, but listening and responding to the concerns of small 
businesses. One agency testified that the SBREFA and the panel 
process strengthened the Regulatory Flexibility Act. An SBA 
report was cited that concluded that Federal regulations cost 
small firms on average 50 percent more per employee than large 
firms and 90 percent more on a per dollar of sales basis than 
large firms.
    For further information on this hearing, refer to Committee 
publication number 105-5.

            7.5.3  the congressional review act and its impact on small 
                    businesses

                               Background

    The Congressional Review Act (CRA) was enacted as part of 
the Small Business Regulatory Enforcement Fairness Act (SBREFA) 
in March of 1996. It provides Congress with a formal mechanism 
to review new regulations, and prevent those that it deems too 
burdensome or inconsistent with Congressional intent from 
taking effect. This hearing examined how this powerful 
oversight tool, if implemented effectively, could provide 
relief from burdensome new regulations for small businesses 
across the nation.
    This hearing also examined H.R. 1704, legislation that 
Chairwoman Kelly has introduced which would establish a 
Congressional Office of Regulatory Analysis (CORA). H.R. 1704 
is designed to facilitate the implementation of the 
Congressional Review Act.

                                Summary

    This hearing was comprised of one panel. Witnesses 
included: Angela Antonelli, Deputy Director for Economic Policy 
Studies, The Heritage Foundation; Todd McCracken, President, 
National Small Business United; Jack Block, President, Food 
Distributors International; Lewis Freeman, Vice President of 
Government Affairs, The Society of the Plastics Industry; 
Stephen King, President and CEO, Tomah Products, Inc.; Jim 
Morrison, National Association for the Self-Employed; Gary 
Bass, Executive Director, OMB Watch.
    Ms. Antonelli testified that the Congressional Review Act 
(CRA) is one of the ``good government'' reforms that was 
enacted during the 104th Congress. However, while the CRA could 
produce ``dramatic'' results, Congress appears to have little 
interest in using it. As a result, CRA runs the risk of 
becoming little more than a bureaucratic hurdle that agencies 
need to meet. While Ms. Antonelli feels that H.R. 1704 is a 
good concept, she does not feel that it will address the 
primary problem, which is a legislative branch that does not 
want to act. Instead, she offers three suggestions: (1) 
establish within Congress a centralized review mechanism for 
identifying, prioritizing, and challenging agency rulemaking; 
(2) provide Members of Congress with more information that 
allows them to deliberate more carefully about the need for new 
regulations; and (3) enact comprehensive regulatory reform to 
force agencies to make more sensible regulatory decisions to 
begin with.
    Messrs. McCracken, Block, and Freeman, all representatives 
of small business organizations, agreed on the need for 
Congress to implement the Congressional Review Act. The 
companies that make up their membership are all impacted by the 
burdensome, and in many cases unnecessary, regulations that 
they are forced to comply with. Having Congress prevent some, 
or even a few, onerous regulations with the CRA would be very 
welcome. All three also endorsed H.R. 1704, feeling that a 
Congressional Office of Regulatory Analysis would give Congress 
information that it could use to better assess the impact that 
new regulations would have, and allow more informed decisions 
about whether use of the Congressional Review Act is warranted.
    Mr. Morrison, also a representative of a small business 
organization, echoed some of the points that the other small 
business witnesses made with respect to H.R. 1704. However, he 
also offered some suggestions about how the legislation could 
be improved. First, CORA should be able to access and use 
information that is already produced by other government 
sources as a way to save time and resources. Second, a 
statement that clarifies CORA's missions, not just its duties, 
would be useful in answering questions that may arise. Third, 
in order to address concerns about CORA growing unacceptable 
large, staff ceilings should be considered. For this, the model 
of the Office of Information and Regulatory Affairs (OIRA) 
might be useful.
    Mr. King agreed with the need to implement CRA and also 
endorsed H.R. 1704. As an actual small business owner, his 
comments were based on the experiences he gained from running 
his company. He was also testifying on behalf of the Synthetic 
Organic Chemical Manufacturers Association (SOCMA).
    Mr. Bass focused most of his testimony on H.R. 1704, and 
was the only witness who opposed the legislation. He opposed 
the bill for a number of reasons: (1) it would create a costly 
now government apparatus that would duplicate functions already 
performed by OIRA; (2) it runs counter to current efforts to 
streamline the government; (3) it contains no language 
requiring CORA to operate in the sunshine; (4) it raises 
Constitutional questions over the separation of powers; (5) it 
contains the unreasonable expectation that CORA conduct its own 
cost-benefit analyses for all major rules; (6) it would 
politicize the rulemaking process; (7) it contains a regulatory 
accounting provision that could be an attempt to create a 
congressional regulatory budget; and (8) it assumes that 
agencies never issue the most cost-effective regulatory 
alternative.
    For further information on this hearing, refer to Committee 
publication number 105-17.

            7.5.4  the impact of federal regulations on small 
                    businesses in the hudson valley

                               Background

    With many of the larger employers that have historically 
provided jobs in New York's Hudson Valley having substantially 
downsized in recent years, small businesses are now more vital 
to the local economy than ever. Unfortunately, Federal 
regulations often place a burden on small businesses that 
prevent new or existing small business growth. As a result, the 
Subcommittee held a field hearing in Mt. Kisco, New York to 
hear directly from small business owners about the impact that 
regulations are having on them.

                                Summary

    The Subcommittee heard testimony from two panels of small 
business owners. Panel one included: Harold Vogt, County 
Chamber of Commerce, Inc.; David Feldman, Feldman Cleaners; 
Solomon Steiner, Ph.D., Pharmaceutical Discovery Corporation; 
Jack Fedigan, L & E Lighting Company; and Dick Crabtree, 
Crabtree's Kittle House. Panel two included: Gretchen Zierick, 
Zierick Manufacturing Corporation; William Binns, Liberty Home 
Inspection & Appraisal; Robert Hankin, Pre-Fab City, Inc.; Dr. 
Abe Levy, Mt. Kisco Medical Group; Jack Freeman, Aremco 
Products, Inc.; and Robert Spolzino, Office of New York State 
Senator Nicholas Spano.
    The topics that the witnesses on both panels discussed in 
their testimony were varied. While all of the witnesses agreed 
on the need to keep all Federal regulation to a minimum, the 
Environmental Protection Agency (EPA), the Occupational Safety 
and Health Administration (OSHA), and the IRS were three 
Federal agencies that were specifically mentioned as 
particularly problematic for small businesses.
    Mr. Vogt testified about the likely impact that EPA's new 
National Ambient Air Quality Standards (NAAQS) for ozone and 
particulate matter would have on small businesses in 
Westchester County, New York. He feels that the new standards 
would pose ``serious economic consequences in terms of new 
business investment and growth, and business retention and 
expansion'' in places like Westchester County, which is already 
in non-compliance with the current standards.
    Mr. Feldman discussed the complimentary roles that both the 
government and the private sector must play. The government 
must always remember that the private sector is responsible for 
creating jobs and providing a solid tax base. Therefore, it 
must keep regulation and paperwork to a minimum. On the other 
hand,the private sector must recognize that the government has 
an obligation to protect the public. As a result, it must assist in 
this process by acting responsibly. An example of this relationship 
working properly can be seen in the area of volunteerism. Volunteers 
deliver vital services to their communities, but can only thrive if 
government cooperates and does not discourage involvement.
    Dr. Steiner had a number of particularly interesting 
comments to make about OSHA. He related an instance when he was 
fined by OSHA for having eye-wash bottles instead of an eye-
wash fountain, although his design is at least as effective as 
what OSHA requires. As someone who has made a career of working 
in laboratories developing treatments designed to help 
individuals who are sick, he is upset with the fact that OSHA 
can issue fines for such minor technical violations. Dr. 
Steiner also feels that OSHA's regulations are ``purposely 
vague'' so that if an OSHA inspector wants to find a violation, 
he or she can.
    Mr. Fedigan testified about the challenges that he and his 
brother faced in trying to expand an industrial park that they 
owned. Because of the park's success, they wanted to expand it 
to provide additional space to other businesses. In order to do 
this, however, they needed to build a second access bridge to 
the park. After obtaining approval and funding from the New 
York State Department of Transportation's Industrial Access 
Program, they encountered obstacles from other agencies, 
particularly at the Federal level. He summarized the experience 
this way: ``The Federal government is involved in every phase 
of business enterprise, from the small company to the largest; 
however, the smaller companies who lack economies of scale * * 
* are hard pressed to meet the letter of the law of all the 
Federal requirements that are involved with business 
development.''
    Mr. Crabtree discussed the difficult, and often arbitrary, 
process of reporting gratuities to the IRS that waiters and 
waitresses who work at his restaurant receive. This is a very 
important process because it is upon that figure which 
unemployment, Social Security, and Medicare taxes are based. 
However, it is also a very arbitrary number since the money is 
given directly to the waiters and waitresses in the restaurant, 
and is never seen by the owner.
    Ms. Zierick testified about the burden that new health care 
regulations place on small businesses. In particular, she 
mentions the new exclusions that are contained in both the 
Health Insurance Portability and Accountability Act (HIPAA) and 
the Newborns and Mothers Health Protection Act. Ms. Zierick's 
company had always tried to offer a generous health benefits 
plan. However, continued governmental mandates is making it 
much more difficult to do so.
    Mr. Binns pointed out that Federal agencies usually do a 
poor job of informing small businesses about regulations with 
which they need to comply. Because small business owners have 
neither the time nor the resources to review the Federal 
Register regularly, it is very difficult for them to remain 
informed about new regulations that will apply to their 
businesses. One remedy he offered to this problem was for each 
agency to develop a SIC guidance document which lays out the 
regulatory requirements for each industry.
    Mr. Hankin discussed the difficulties that regulations pose 
for companies that are in the construction business. There are 
a number of reviews that home builders must complete before 
construction can begin. These reviews, however, are often time-
consuming and burdensome. As a result, they often delay the 
planning and development of new projects, costing businesses 
time and money. One remedy to this problem would be to 
establish a Congressional Office of Regulatory Analysis that 
would review new regulations before they are established to 
ensure that they are not too burdensome.
    Dr. Levy testified about his experiences as a physician 
dealing with Federal regulations. Perhaps his most interesting 
comments were about the Occupational Safety and Health 
Administration. He indicated that when he was younger and had 
heard an employer or corporation complain about OSHA, he had 
assumed that they were trying to evade their responsibility for 
worker safety or health. However, over the years, he has 
learned better. He recognizes the accomplishments that OSHA has 
made, but also sees that their goals could be achieved in much 
less onerous ways. Dr. Levy also made a number of useful 
observations about the difficult task of complying with 
Medicare regulations.
    Mr. Freeman discussed the difficulties that he had with 
regulators from the Westchester County Department of Health. He 
described a situation where Department of Health officials, 
accompanied by police, swarmed his business and, essential, 
forced his business to come to a standstill. While Mr. Freeman 
understands the need for government officials to investigate 
potentially dangerous situations, he was shocked at the manner 
in which they carried out their duties. Essentially, he felt 
that he was guilty of wrongdoing before any investigation could 
be completed. And while this was a local government agency he 
was dealing with, Mr. Freeman felt that this was the mindset 
that dominated most regulatory agencies on all levels (federal, 
state, and local).
    Mr. Spolzino appeared before the Subcommittee as a 
representative of New York State Senator Nicholas Spano. He 
discussed concerns he had with the regulatory environment 
related to residential mortgage lending, which affects everyone 
who buys a home. What has happened in the residential lending 
environment is that a series of well-intended regulations have 
imposed an increasing burden on home buyers, usually in the 
form of paying attorney's fees to ensure compliance with the 
myriad of regulations imposed by laws like the Truth in Lending 
Act, the Real Estate Settlement Procedures Act, and the 
Residential Lead-Based Paint Hazard Reduction Act. They are 
problematic because, like other regulatory burdens, no one has 
ever taken the time to coordinate the different regulations so 
they can be handled in an efficient manner. Second, some of 
them are so confusing that it becomes impossible for them to 
serve their purpose. He suggests that Congress review these 
regulations to see if they can be applied in a less-burdensome, 
more efficient, and more comprehensible manner.
    For further information on this hearing, refer to Committee 
publication number 105-22.

            7.5.5  h.r. 96, the small business regulatory assistance 
                    act of 1997

                               Background

    On January 7, 1997, Congressman Jerry Solomon, along with 
Reps. Gary Condit, Joel Hefley, and Flody Flake, introduced 
H.R. 96, The Small Business Regulatory Assistance Act of 1997. 
H.R. 96 is designed to establish a system of confidential 
voluntary compliance assistance with Federal regulations.
    Under the proposed legislation, the existing Small Business 
Development Center (SBDC) network would be partnered with the 
Environmental Protection Agency, the Department of Labor 
(OSHA), and the Internal Revenue Service, as well as the 
private sector and other compliance assistance resources, to 
make non-punitive regulatory compliance assistance accessible 
to small businesses.
    In order to provide such help, the SBA, each participating 
agency, and representatives of the SBDCs would develop five-
year compliance assistance plans that could be revised 
annually. Each compliance assistance plan would contain: the 
regulatory compliance objectives and priorities of the 
participating agency; identification of the types of services, 
materials, and resources to be used by the participating 
agency; identification of the resources of the participating 
agency available to the SBA and to SBDCs; and standards to be 
used by the participating agency in determining the 
effectiveness of the system of voluntary compliance.
    The voluntary compliance program is to be funded from 
moneys appropriated to the Department of Labor, EPA and IRS. A 
percentage of each agency's annual appropriation through 2003 
is earmarked for use of the voluntary compliance program. The 
amounts set aside are significant and amount to millions of 
dollars.Funding of SBDCs is to be on a state-by-state basis 
according to the population that a particular state bears to the 
population of the United States as a whole. However, no state's share 
would be less than $300,000. No state matching funds would be required. 
No more than 2 percent of the amounts made available for the voluntary 
compliance system may be spent on SBA administrative expenses.
    To examine the impact of this legislation on both the small 
business community, as well as the government agencies that are 
involved, the Subcommittee on Regulatory Reform and Paperwork 
Reduction and the Subcommittee on Government Programs and 
Oversight held a joint hearing. The Subcommittees heard 
testimony from the legislation's sponsor, Mr. Solomon. 
Testimony was also provided by a panel of experts who had an 
interest in H.R. 96.

                                Summary

    The first panel of the hearing was comprised solely of Mr. 
Solomon. He testified about the need and the purpose of the 
legislation. He indicated that regulations on all levels of 
government are suffocating small businesses, the most important 
sector of our economy. As a result, fewer jobs are being 
created and economic growth is being impeded. However, there is 
often no one a small business owner can turn to in order to 
find out what regulations he or she needs to comply with, and 
how to do so. That is what H.R. 96 is designed to do. It is 
designed to link the Federal government and its compliance 
programs with the small business community in a manner that is 
user-friendly so that more businesses comply with applicable 
regulations.
    Mr. Solomon also addressed some of the concerns that had 
previously been made about the legislation. He described why 
small business development centers were the appropriate 
vehicles to deliver the compliance assistance. He explained the 
funding of the program, particularly how the cost to small 
business owners, will be nothing. He also indicated that the 
administrative agencies that this bill would cover should not 
oppose the legislation because increased compliance assistance 
will lead to increased compliance with their regulations, 
which, after all, should be their ultimate goal. The bottom 
line, Mr. Solomon indicated, is that small business owners are 
not trying to find loopholes to avoid complying with the laws. 
Rather, they are law-abiding citizens that in many cases do not 
know how to comply with the law. H.R. 96 will assist them in 
this process.
    The second panel was comprised of a number of experts. They 
included: Ms. Johnnie Albertson, Associate Administrator of 
Small Business Development Centers, U.S. Small Business 
Administration; Mr. Sam Males, State Director, Nevada Small 
Business Development Center; Ms. Pamela Christenson, Technical 
Assistance Director, Wisconsin Small Business Clean Air 
Assistance Program; Mr. Jim King, State Director, New York 
Small Business Development Center, and President-Elect of the 
National Association of Small Business Development Centers; and 
Mr. Jeff Burton, President, American Industrial Hygiene 
Association.
    Ms. Albertson testified in opposition to the legislation. 
She indicated three main areas of opposition to the bill. 
First, was the funding mechanism. Because H.R. 96 would divert 
a small percentage of the budgets of the Department of Labor, 
EPA, and IRS, she indicated that would seriously impair those 
agencies' oversight activities. She felt that it would be more 
appropriate for Congress to directly fund any compliance 
assistance program that it decides to establish through SBA and 
its resource partners. The second concern had to do with the 
way that the compliance assistance in H.R. 96 would be 
provided. She indicated that existing provisions could 
potentially shield companies who act in bad faith from criminal 
liability. Finally, she felt that the bill might create a new 
privilege for companies that might be in violation of existing 
regulations. This could lead to new litigation, possibly 
directed towards the SBDCs.
    Mr. Males and Mr. King both represented the viewpoint of 
small business development centers. They made several points in 
favor of H.R. 96. First, because SBDCs have already developed 
an extensive network throughout the country, they are well 
situated to provide assistance to a large number of small 
businesses. No other existing network can reach the number of 
businesses that SBDCs can reach. Second, SBDCs have developed a 
level of trust with the small business community that no other 
Federal agency or program can match. Throughout the course of 
their assistance, SBDCs have always operated with the best 
interests of the small business in mind. Finally, SBDCs have a 
proven track record of working with other professionals like 
lawyers, CPAs, industrial hygienists, and other private 
consultants. This should help to address the concerns that some 
have expressed regarding the claim that SBDCs do not have the 
requisite expertise to deal with the technical nature of 
regulatory compliance.
    Ms. Christenson recognized and supported the goal of H.R. 
96, which is to assist small businesses in complying with 
Federal regulations, but felt that the bill created unnecessary 
and duplicative services for environmental compliance 
assistance. She cited the program mandated by section 507 of 
the Clean Air Act, which requires that states maintain a 
program designed to help small businesses understand and comply 
with air pollution regulations. These programs, commonly 
referred to as 507 Programs, provide free, confidential, and 
user-friendly compliance assistance to small businesses. She 
notes that in times of dwindling resources, it is important 
that any type of duplication of activities be avoided. She also 
notes that becoming knowledgeable and skilled about the 
regulations dealing with three separate and distinct agencies 
is an extremely challenging task, one that may not be possible 
with the limited resources that SBDCs have. In conclusion, she 
feels that it makes more sense to build on existing, cost-
effective, environmental programs like the 507 Program, rather 
than using H.R. 96 to start from square one with another entity 
not accustomed to providing such service.
    Mr. Burton is a certified industrial hygienist, registered 
professional engineer, and a certified safety professional. He 
is also President of the American Industrial Hygienist 
Association (AIHA), the world's largest society of occupational 
and environmental health professionals. The goal of AIHA 
members is to create a healthy and safe workplace, thereby 
reducing illnesses, injuries, and fatalities. Mr. Burton 
testified that he supported the goal of H.R. 96 for many 
reasons, and offered a few suggestions on how it might be 
improved. First, because of related experiences that AIHA has 
had, Mr. Burton firmly believed that the regulatory agencies 
should not be involved with the delivery of compliance 
assistance. Small businesses tend to believe that they will be 
targeted for inspection should they approach the agency for 
help. By having a third party provide the assistance, in this 
case the SBDCs, this problem is avoided. Second, H.R. 96 should 
make clear that SBDCs should make referrals to experts should 
they find that the type of assistance that is being sought is 
too technical for them to handle. This would ensure that only 
competent, qualified individuals will be involved in providing 
training and assistance to the small businesses.
    For further information on this hearing, refer to Committee 
publication number 105-23.

            7.5.6  the impact of federal regulations on small 
                    businesses in montana

                               Background

    The importance of small business to the state of Montana 
cannot be overstated. From 1992 to 1996, small businesses 
(fewer than 500 employees) created all of the net new jobs. In 
1997, 97.8 percent of the businesses in Montana were small 
businesses. A large proportion of these small businesses were 
also owned by women. According to The National Foundation for 
Women Business Owners, there were 34,100 women-owned businesses 
in Montana in 1996, and this number is growing. Between 1987 
and 1996, the number of women-owned businesses increased 76.7 
percent. Because of the prominent role that small businesses 
play in the Montana economy, the Subcommittee convened a field 
hearing in Missoula, Montana to assess the impact that Federal 
regulations have on small businesses in that state. Congressman 
Rick Hill, Montana's sole representative, also participated in 
the field hearing.
    The Subcommittee heard testimony from two panels, both 
comprised of small business owners from Montana. The first 
panel included: Dr. Douglas Hadnot, Family Dentist Group, 
Missoula, Montana; J.R. Chipman, Benefit Innovations, Missoula, 
Montana; Dean Randash, NAPA Auto Parts, Helena, Montana; and 
Loren Smith, KOA Campgrounds and Prairie Craft Specialties, 
Great Falls, Montana. The second panel included Jeff Peterson 
and Jim MaCabee, Automotive and Industrial Distributors, 
Missoula, Montana; Mick Ringsack, Millers Western Apparel, 
Butte, Montana; Jim Ramsay, Bob's Pizza Plus/Neon Pretzel 
Company, Missoula, Montana; Tim Wilkens, Bitterroot Flower 
Shop, Missoula, Montana; Ron Keeney, Keeney Construction, 
Missoula, Montana; and John Maxness, Executive Air Montana, 
Helena, Montana.

                                Summary

    Dr. Hadnot testified about the impact that OSHA has on 
dental practices, the vast majority of which are small 
businesses. He cited several proposed regulations that would be 
very problematic for dental offices if they were to go into 
effect. They include the Tuberculosis Standard, the Safety and 
Health Program Standard, and the Ergonomics Standard. He also 
mentioned two current regulations that are difficult for dental 
offices: the Hazard Communication Standard and the Bloodborne 
Pathogen Standard. They are accompanied by a very heavy-handed 
enforcement approach by OSHA that includes random inspections 
and heavy fines. Importantly, he cited a study by the American 
Dental Association which found that the cost of compliance with 
the Bloodborne Pathogen Standard was twenty-seven times greater 
than what OSHA had estimated.
    Mr. Chipman discussed how Federal laws and regulations make 
it more difficult for small businesses to offer benefit 
programs to their employees. He mentions a wide variety of 
issues, including day-care programs, tax code provisions, and 
medical benefits programs, and others. For example, a large 
number of small businesses are not formed as C corporations, 
but as S corporations, proprietorships, and partnerships. The 
owners of these entities cannot participate in many of the 
benefit programs that could be available to their employees. As 
a result, an owner is less likely to offer his or her employees 
a benefits program in which he or she could not participate.
    Mr. Randash is the owner of two NAPA Auto Parts Stores and 
described the impact that OSHA's Hazardous Communications 
Standard has on his business. He pointed out that OSHA mandates 
that he have on file a Material Data Safety Sheet (MSDS) for 
each product that he sells. For his business, he is required to 
keep over 3000 MSDSs on file. He described the administrative 
burden that maintaining an accurate file of MSDSs places on a 
business owner. Explaining that the requirements for commercial 
and private customers are different, Mr. Randash recommended 
that a standardized rating system be developed that displays 
exposure to health, safety, and fire risks. This would convey 
more information to both private and commercial consumers, and 
would be easier to maintain administratively.
    Mr. Smith testified about the general impact that 
government regulation is starting to have on the business 
climate. First, he pointed out that the biggest impediment to 
the creation of new jobs is regulation. He indicated that when 
he talks with students, he tells them that their biggest 
challenge to opening a business of their own will be government 
regulation. Second, he explained that excessive regulation is 
beginning to undermine respect for the law. With so many 
regulations, business owners recognize that they are unable to 
comply with all of them, so they begin to look for ways to 
avoid compliance. He recommended government regulation-free 
zones, modeled along the lines of free trade zones, as a way to 
demonstrate what life would be like without regulation.
    Mr. Peterson and Mr. Macabee discussed MSDSs as well, but 
presented the problems they cause from a slightly different 
perspective. The type of business that they operate provides 
other businesses, not individual consumers, with the products 
that they sell. As a result, they are technically responsible 
for providing a copy of the MSDS to each business they 
distribute to. This would essentially require an employee to 
stay at thephotocopying machine full time. While they did not 
offer a solution to the problem, they recognized and agreed that 
something needed to be done.
    Mr. Ringsack spoke generally about government regulation. 
He cited statistics that describe the overall burden that 
regulations place on the economy and small businesses, and 
pleaded that something be done to begin to lower that burden. 
He complemented the 104th Congress for the passage of the Small 
Business Regulatory Enforcement Fairness Act and the 
Congressional Review Act, but felt that more needed to be done. 
He pointed out that even with these new laws on the book, the 
executive branch continues to develop thousands of new 
regulations. He recommended that one way to combat this effort 
was to ``put some teeth'' into the Congressional Review Act.
    Mr. Ramsay continued the theme that had developed in the 
hearing that regulations stifle the ability of small businesses 
to create jobs and remain competitive. He cited several 
government agencies that make his ability to succeed in the 
restaurant business more difficult. They include OSHA, the 
Department of Justice, the Immigration and Naturalization 
Service, and the IRS. He cited OSHA's Bloodborne Pathogen 
Standard as one example of the challenges that regulation 
creates for him. Under that regulation, if an employee, as part 
of his or her job, was designated to provide first aid, then 
the employer would have to provide him or her a Hepatitis B 
vaccination and protective gear, and fill out piles of records 
whenever the employee provided first aid. He felt that this was 
sound practice for health personnel and EMTs, but was needless 
bureaucratic paperwork for the waiter or waitress that wanted 
to maintain a CPR certification. The end result was that most 
restaurants did not ask employees to perform first aid, 
including bandaging a cut finger, because of the red tape that 
was involved.
    Mr. Wilkens touched on two main issue areas in his 
testimony. First, tax regulations were of great concern to him. 
He believed that the tax code itself probably is not all that 
problematic. Rather, it is all the exceptions that come out of 
it that create most of the problems. He cited the alternative 
minimum tax as an example. Because it has never been indexed, 
the number of people who now qualify has greatly expanded. The 
second major issue that he mentioned was the ergonomics 
standard currently being developed by OSHA. Although he had 
never received one complaint from any of his employees for a 
repetitive motion injury, he was concerned about the cost and 
administration of such a standard, were it to be implemented.
    Mr. Keeney testified about the costly and time consuming 
process that his construction company had to endure in order to 
comply with the Electronic Funds Transfer Payment System 
(EFTPS) required by the IRS. Because his bank was not prepared 
to deal with this payment system, and ended up declining 
participation, he was forced to open a separate account with 
another bank to deal with it. Rather than providing guidance 
and technical assistance to both small businesses and the 
banking industry, the IRS simply said that if you fail to 
comply, you will be fined. The entire ordeal ended up costing 
his business over one thousand dollars. Mr. Keeney also 
discussed the Disadvantaged Business Enterprise (DBE) program 
that is administered by the Department of Transportation. He 
described how the DBE program prevents him from winning highway 
construction contracts because it awards work to contractors 
based on the race and gender of their ownership. He pointed out 
that national statistics show that 65 to 75 percent of all 
highway subcontracts go to DBEs.
    For further information on this hearing, refer to Committee 
publication number 105-29.

            7.5.7  the first report to congress by the small business 
                    and agriculture regulatory enforcement ombudsman

                               Background

    The Small Business Regulatory Enforcement Fairness Act 
(SBREFA) established the Small Business and Agriculture 
Regulatory Enforcement Ombudsman (``Ombudsman'') and the 
Regional Small Business Regulatory Enforcement Fairness Boards 
(``Regional Fairness Boards''). The Ombudsman's primary 
responsibilities are to solicit and record comments about 
regulatory enforcement actions from small businesses and 
compile an evaluation, similar to a ``customer satisfaction'' 
rating, of each agency's performance. A ``report card'' of 
these agency ratings is to be published annually.
    The Regional Fairness Boards, composed of five small 
business owners in each of the Small Business Administration's 
ten regions, provide small businesses with an opportunity to 
review and assess government agencies' enforcement activities 
involving small businesses. The Regional Fairness Boards may 
hold hearings, gather information, and offer recommendations 
and comments on agency enforcement policies and practices to 
the Ombudsman for inclusion in his annual report. The Ombudsman 
is the federal official designated to assist the Regional 
Fairness Boards by coordinating their independent activities. 
The Ombudsman is directed by statute to include their advice 
and recommendations in his report to Congress.
    Each agency that has regulatory authority over small 
businesses is also required to work with the Ombudsman to 
ensure that small business concerns are provided with a means 
to comment on the enforcement activity which that agency might 
conduct. Small businesses that wish to comment on a federal 
agency's compliance or enforcement action may obtain a Federal 
Agency Appraisal Form directly from a Regulatory Fairness Board 
member, from the RegFair page of the SBA website (www.sba.gov/
regfair), from the toll-free telephone number (1-888-REG-FAIR 
or 734-3247), or from the National Ombudsman's office. Major 
national trade associations are also distributing the Form.
    On December 31, 1997, the Ombudsman presented his first 
annual Report to Congress on the Regulatory Fairness Program. 
This report details the administrative activities of the 
Ombudsman and the Regional Fairness Boards, and more fully 
explains how the program operates. The Subcommittee on 
Regulatory Reform and Paperwork Reduction held a hearing to 
more fully examine this report, as well as to search for ways 
in which the program could be improved in the future.
    The Subcommittee heard testimony from two panels of 
witnesses during the hearing. The first panel was comprised 
solely of Mr. Barca. The second panel was comprised of small 
business owners and representatives of small business 
organizations who had experience dealing with the Regulatory 
Fairness Program. They included: Dr. Ann Parker Maust, 
President of Research Dimensions; Mr. Mike Van Zeeland, Vice 
President of Paul Van Zeeland Heating, Inc.; Ms. Gretchen 
Mathers, Operating Partner of Gretchen's of Course; Mr. Todd 
McCracken, President of National Small Business United; and Mr. 
David Voight, Director of the Small Business Center for the 
U.S. Chamber of Commerce.

                                Summary

    Mr. Barca testified about the progress that he and his 
staff had made over the previous year in implementing the 
Regulatory Fairness Program. He summarized a program that had 
three primary goals: first, simplicity of use for small 
businesses; second, easy accessibility to Fairness Boards and 
the National Ombudsman; and third, assurance that the Boards 
and the Ombudsman receive high quality feedback from small 
businesses on the regulatory environment.
    There are a variety of ways in which small business owners 
can provide feedback to the Regulatory Fairness Program. Small 
businesses can attend a Fairness Board Hearing in their region 
and formally present their concerns; they can submit a Federal 
Agency Appraisal Form to the National Ombudsman's office; they 
can call a toll-free number and speak with a representative of 
the National Ombudsman's office; or they can visit the 
Regulatory Fairness Program's Internet website.
    At the time of the hearing, the Regulatory Fairness Program 
had received a total of 735 calls on the toll-free telephone 
line, averaging 74 calls per month. On the Regulatory Fairness 
Internet website, there had been approximately 56,000 ``hits'' 
received. For the first seven months of website operation, hits 
averaged over 3,600 per month. However, during the three months 
prior to the hearing, website hits have averaged over 7,500 per 
month, with a high of 8,851 in January, 1998. Mr. Barca thought 
this trend would continue to increase as awareness of the 
program continued to grow.
    Through feedback from small businesses, Fairness Board 
Hearings, and interaction with the small business community, 
the Regulatory Fairness Program had collected a broad base of 
information on which to build a good understanding of federal 
regulatory enforcement activities. Comments received and 
testimony offered by small businesses showed that many of the 
same issues with agency regulations and compliance activities 
were surfacing across the country and across industries. The 
National Ombudsman and the Regional Fairness Boards identified 
four common themes in the regulatory environment that were 
faced by small businesses. These themes were the following: 
first, agencies change their rules in the middle of the game; 
second, agencies disregard the economic or other consequences 
of their actions on small businesses; third, small businesses 
often get ensnared in conflicting regulatory requirements when 
two federal agencies' jurisdictions overlap; and fourth, small 
businesses fear agency retaliation.
    Mr. Barca felt that the progress and results shown by the 
Regulatory Fairness Program over the past months of actual 
operation were very encouraging. The Regulatory Fairness 
Program was receiving steadily increasing numbers of Federal 
Agency Appraisal Forms. Press and media coverage was rising, 
especially for the Regional Fairness Board public hearings. The 
biggest challenge they faced was to continue to increase public 
awareness of SBREFA and the Regulatory Fairness Program, as 
most small businesses in America were still not aware of their 
new rights.
    Dr. Maust is the President of Research Dimensions, a small 
analytical services company. She testified on behalf of the 
National Federation of Independent Business, of which she is a 
member. She also served on the Small Business Regulatory 
Enforcement Fairness Board for the South Atlantic States. In 
general, she made three main points during her testimony. 
First, although it had been roughly eight months since the 
Regulatory Fairness Program had been fully implemented, she 
felt that they had only scratched the surface of how it could 
be implemented. That is why she felt the Ombudsman's report 
appeared lacking in certain respects. Second, she felt that 
there was a vast communication gap between the professionals 
who are disseminating information about the program and the 
average small business owner who is experiencing regulatory 
burdens in the field. As a result, the average small business 
owner still did not understand how the program could help his 
or her business. Finally, she felt that small business owners 
may be unwilling to take the time that is required to fully 
participate in the Regulatory Fairness Program. They think that 
the time and cost involved is simply not worth the effort.
    Mr. Van Zeeland is the Vice President of sales and 
marketing of Paul Van Zeeland Heating, Inc. He testified on 
behalf of the Associated Builders and Contractors. He has also 
applied to be a member of the Regional Fairness Board in his 
region. He focused much of his testimony on the Federal Agency 
Appraisal Form that the Regulatory Fairness Program uses. He 
felt that it, as it is currently written, does not provide 
adequate confidentiality because it requires disclosure of an 
individual's name and company to the National Ombudsman and 
Regional Fairness Boards. His experience has shown that most 
small business owners do not want their company name and 
address associated with ``blowing the whistle'' on government 
agency officials who overstep their authority. He felt that 
with government intrusion in the workplace at an all-time high, 
small businesses may not wish to file appraisal forms unless 
there are adequate confidentiality measures.
    Ms. Gretchen Mathers is the operating partner of Gretchen's 
of Course, a business that involves catering, box lunches, and 
a bakery. She has been an elected delegate to the 1986 and 1995 
White House Conferences on Small Business, and was chairman of 
the region 10 Regulatory Fairness Board. Ms. Mathers explained 
that many small businesses have long complained that the 
Federal government does not keep them in mind when it develops 
new regulations. She reminded the Subcommittee that the SBA 
estimates that small businesses spend 50 percent more per 
employee than large businesses complying with Federal 
regulation. The passage of SBREFA and the implementation of the 
Regulatory Fairness Program was welcome news to many small 
business owners, because it provides a venue for them to 
communicate their thoughts--both positive and negative--to 
someone who is sympathetic. She firmly believed that the 
program should continue, because, at the very least, it gives 
small business owners the opportunity to know that someone was 
listening to their concerns.
    Mr. McCracken is the President of National Small Business 
United, the oldest national small business organization in the 
country, representing about 65,000 small businesses across the 
country and in all 50 states. A number of NSBU members have 
served on Regional Fairness Boards and have testified at 
Regulatory Fairness Program hearings. As a result, NSBU has 
been quite committed to having the Regulatory Fairness Program 
succeed. There were three main issues that Mr. McCracken 
covered in his testimony. First, he felt that there needed to 
be greater public awareness that the program exists. One of the 
most effective ways to do this is to get small business 
associations like NSBU to publicize the program to its 
membership. Second, he felt that there was a chilling effect on 
small businesses, because they were reluctant to put their 
name, address and phone number on a form that is submitted to 
the Federal government. They do not yet fully trust that their 
confidentiality will be protected from the regulatory agencies. 
Finally, he felt that the annual report that the Ombudsman 
submits to Congress should not hesitate to be critical of 
Federal agencies, when criticism is warranted. One of the best 
ways to motivate agencies' behavior is to provide honest 
criticism.
    Mr. Voight is the Director of the Small Business Center for 
the U.S. Chamber of Commerce. The Chamber is the world's 
largest small business federation, representing more than three 
million members and organizations, with over 96 percent of the 
members having 100 or fewer employees. While Mr. Voight thought 
that Mr. Barca deserved significant credit for getting the 
Regulatory Fairness Program moving, he offered three points of 
``constructive criticism''. First, he felt that the Ombudsman 
should not lose sight of his overall mission, which is to 
foster changes in agency cultural attitudes so that they better 
take into account how their regulations impact small 
businesses. He was concerned that the Ombudsman was instead 
trying to correct the circumstances of every Federal Agency 
Appraisal Form that is filed. This could become an impossible 
task as the program continued to grow and more people began to 
use it. Second, he felt that the Ombudsman should have taken a 
more critical approach in his report in pointing out the 
regulatory agencies who were not being as cooperative as they 
should be. He felt that while it was appropriate to point out 
agencies who do good work, it was perhaps more important to 
identify those who do not, and that was something that the 
Ombudsman failed to do in his report. Finally, more effort 
needed to be made to get more small businesses involved in the 
program. High small business participation was key to the 
success of the program.
    For further information on this hearing, refer to Committee 
publication number 105-37.

            7.5.8  the small business advocacy review panels

                               Background

    On March 18, 1998, the Subcommittee on Government Programs 
and Oversight and the Subcommittee on Regulation Reform and 
Paperwork Reduction held a joint hearing which examined the 
implementation by the Environmental Protection Agency (EPA) and 
the Occupational Safety and Health Administration (OSHA) of the 
statutory requirements of paragraphs b through e of Section 609 
of title 5 of the United States Code, as added by the Small 
Business Regulatory Enforcement Fairness Act of 1996, referred 
to as SBREFA.
    The new provisions added by SBREFA to the Regulatory 
Flexibility Act require EPA and OSHA to implement a panel 
process for considering and responding fairly to the advice and 
recommendations of small businesses as to the impact of 
proposed regulations upon small entities.
    The hearing was also a continuation of the joint hearing by 
the same subcommittees held on April 15 and 17, 1997. (See 
Committee publication No. 105-5.) This hearing, as did the 
prior hearing, focused on the need for good science and common 
sense in rulemaking and the unfair financial burdens borne by 
small businesses all over this Nation as a result of 
unscientific, impractical, and unnecessary regulations.

                                Summary

    The hearing was comprised of three panels, the first of 
which included: Donald L. Struminger, President, Virginia Linen 
Services, Inc.; Honorable Jay Gullo, Mayor, New Windsor, 
Maryland; James Wordsworth, President, J.R. Steakhouse; and, 
Ken Boehm, Chairman, National Legal and Policy Center. One 
witness complained that one of the problems with the panel 
process was that EPA failed to provide representatives of small 
entities with sufficient details about a proposed rule. Another 
witness underscored the regulatory burden faced by small 
businesses who had to conform to 60 Federal requirements 
imposed by 11 Federal agencies and 41 State requirements 
imposed by 8 State agencies. A witness provided examples of 
small businesses driven out of business by heavy-handed and 
unfair regulatory enforcement.
    The second panel included: Douglas I. Greenhaus, Director, 
National Automobile Dealers Association; David F. Hobson, 
President, Uniform and Textile Service Association; Matthew 
Hickham, Director, American Health Care Association; John J. 
Huber, Vice President, Petroleum Marketers Association; and, 
William Kilmer, National Association of Home Builders. There 
was concensus that the many tiers of regulations imposed by 
local, State, and Federal governments as well as needless and 
overly burdensome regulations are of great concern and costly 
to small businesses. There was testimony that OSHA had ignored 
scientific and medical evidence as well as current, relevant 
industry specific evidence in weighing the impact of proposed 
regulations on small entities. Concern was voiced that EPA and 
OSHA had bypassed the panel process in promulgating rules which 
small businesses considered significant, but which the agencies 
treated as not meeting the criteria for invoking the panel 
process.
    The third and last panel included: L. Nye Stevens, 
Director, U.S. General Accounting Office (GAO); Hon. Jere W. 
Glover, Chief Counsel for Advocacy, Small Business 
Administration; Thomas E. Kelly, Small Business Advocacy Chair, 
EPA; and, Greg Watchman, Deputy Assistant Secretary, Department 
of Labor. GAO reported that the panel process was working 
fairly well but that there was a good deal of controversy 
associated with the process. The office of Advocacy, SBA, was 
of the view that the panel process provided new leverage in its 
efforts to ensure that the regulatory culture among the 
executive agencies full understood the problems caused small 
businesses by arbitrary and ill-conceived regulations. Both EPA 
and OSHA found merit in the panel process.
    For further information on this hearing, refer to Committee 
publication number 105-40.

            7.5.9  electric utility restructuring: the small business 
                    perspective

                               Background

    The regulation of electric utilities is pervasive. All 
aspects of a utility's rates, services to its customers, 
geographic area of operation, safety, environmental and 
emission compliance, general expenditures, and corporate 
structure and governance are overseen by federal and state 
regulators.
    However, the electric power industry is starting to move 
from a highly regulated business to one where the generation 
and wholesale power markets are more competitive. Additionally, 
an increasing number of states are moving forward with reforms 
of retail electric services. Because electricity plays a 
critical role in every American home, business, and industry, 
it is essential that competition in electricity markets 
benefits all electric consumers, including small businesses.
    The Subcommittee on Regulatory Reform and Paperwork 
Reduction held a hearing to more fully examine how electric 
utility restructuring will impact the small business community. 
The Subcommittee received testimony from two panels during the 
hearing. The first panel was comprised of a number of 
individuals who had been involved with and studied the electric 
utility industry for a number of years. The second panel was 
comprised of actual small business owners who had legitimate 
interests in how the restructuring debate was progressing.

                                Summary

    The first panel was comprised of: Mr. Alan J. Statman, 
Managing Partner, Wright & Talisman, P.C.; Mr. Robert A. 
O'Neil, Managing Partner, Miller, Balis & O'Neil, P.C.; Mr. 
John Wilson, President, J.W. Wilson & Associates; Jon 
Hockenyos, TXP--Texas Perspectives; Dr. John N. O'Brien, 
President & CEO, Wheeled Electric Power Company; and Dr. Arthur 
A. Fletcher, Chairman of the Board, National Black Chamber of 
Commerce.
    Mr. Statman is a Managing Shareholder of Wright & Talisman, 
P.C., a Washington, DC law firm specializing in energy law. He 
discussed some of the reasons why electric utility 
restructuring is such a complicated issue, both technically and 
legally, and how restructuring might take place. First, 
jurisdiction over the industry is basically split between the 
Federal government and the States. As a result, no one body can 
act unilaterally to effectuate restructuring. Second, as 
restructuring goes forward, utilities should not be excluded 
from competing in certain markets. Competition, not competitors 
are the ones that should be protected. Third, mergers do not 
necessarily lack merit, because they can often help competitive 
forces. Besides, regulatory and antitrust agencies have tools 
at their disposal to deal with anti-competitive actions. In 
conclusion, Mr. Statman felt that because of the complexity of 
the issue, a ``slow and steady'' approach to the issue was more 
appropriate than a ``fast and cataclysmic'' one.
    Mr. O'Neil is a partner in the law firm of Miller, Balis, & 
O'Neil, P.C., located in Washington, DC. He felt that four main 
principles should be kept in mind when dealing with this issue. 
First, it is important to remember that the purpose of 
deregulation should be to assist or provide benefits to 
consumers. Second, deregulation of the electric utility 
industry should be allowed only where real, as opposed to 
theoretical, competition exists. Third, geographic realities 
produce markets. Electricity cannot be manufactured in advance, 
inventoried, and propositioned to meet market demand. As a 
result, differing geographic markets must be kept in mind. 
Finally, care should be exercised to avoid handicapping or 
eliminating existing small players in the market. Congress 
should seek to preserve and enhance an environment where these 
small systems can continue to operate.
    Dr. O'Brien is President, Chairman, and Chief Executive 
Officer of Wheeled Electric Power Company located in Uniondale, 
New York. He testified that historically, regulation of the 
electric industry has not been beneficial to small businesses. 
Residential consumers have had consumer advocates paid by 
States, State's attorneys general, and others to favorably 
influence the price of residential electric rates. Similarly, 
industrialconsumers, through large cash-flows, have been able 
to finance a tremendous effort designed to lower electric rates. He 
stated that small businesses had no such advocates for their interests. 
As a result, small business consumers end up subsidizing both 
residential and industrial consumers. Deregulation or restructuring 
would not change this. Therefore, Dr. O'Brien felt that small 
businesses need some type of advocate to be established, perhaps at the 
SBA, to represent their interests before State regulatory bodies.
    Dr. Wilson is President of J.W. Wilson & Associates, a 
consulting firm in Washington, DC. He indicated that there were 
two ways in which small businesses would be affected by 
restructuring and deregulation in the electric utility 
industry. First, in the way in which restructuring and 
deregulation may affect the businesses that they are in. 
Second, the extent to which it influences the prices that small 
businesses pay for their electric power. Historically, small 
businesses have paid higher prices for electricity than other 
classes of consumers, primarily because they have not had 
sufficient advocates to represent their views. Additionally, 
they are relatively captive customers. Unlike industrial 
customers who can exercise a certain amount of leverage by 
choosing to expand or contract their operations at one location 
or another, most small businesses do not have that type of 
flexibility. As a result, small businesses can benefit from 
deregulation only if real competition exists in the deregulated 
marketplace.
    Mr. Hockenyos is the Managing Director of Texas 
Perspectives located in Austin, Texas. He testified on behalf 
of the Small Business Survival Committee. He discussed a study 
that his company completed that examined the potential impacts 
of restructuring on the small business community. The study 
found that in the near term, there would be immediate benefits 
in states in the Northeast, California, and a few States in the 
Midwest. These states tended to have high urban populations 
and, consequently, the highest rates. On the other hand, States 
in the mountain region, where there are fairly dispersed 
populations and relatively low rates, benefits would be much 
slower in materializing. Therefore, since each State's 
circumstances were relatively unique, there should be some 
flexibility in any restructuring proposal that allows them to 
set their own course.
    Dr. Fletcher is Chairman of the National Black Chamber of 
Commerce, located in Washington, DC. He testified that the 
National Black Chamber of Commerce is in favor of electric 
utility deregulation. He felt that it would lead to greater 
competition, development of new technologies, and above all, 
public exposure, which would lead to lower prices for consumers 
and vast market opportunities for small business growth. He 
felt that the buying power that would result from decreased 
prices and increased jobs through business growth would have a 
cyclical nature and provide the greatest form of economic 
infusion in the history of urban neighborhoods.
    The second panel was comprised of the following 
individuals: Mr. Cliff McCourt, Day & Night Heating; Mr. 
Charles H. Vernon, Vice President, Newport Harbor Company; Mr. 
John Bishop, Gurnee Heating & A/C Corporation; Mr. Donald J. 
Deless, President, Deless Associates; and Ms. Laurie Crigler, L 
& D Associates.
    Mr. McCourt is the owner of Day and Night Heating and 
Cooling, located in Novi, Michigan. He testified on behalf of 
the Air Conditioning Contractors of America. He discussed the 
negative impact that cross-subsidization has had on small 
businesses in the air conditioning contracting industry. He 
stated that there is a need for Federal legislation to provide 
relief from cross-subsidization.
    Mr. Vernon is the Vice President of the Newport Harbor 
Corporation, of Newport, Rhode Island. He testified on behalf 
of the National Restaurant Association. He felt that small- and 
mid-sized businesses could save billions of dollars per year if 
the nation's electric utility industry were restructured to 
allow greater competition. However, in order for this to 
happen, all utility customers must be treated fairly. 
Therefore, he felt that fairly resolving the issue of stranded 
costs and providing for aggregation were the keys to any 
legislation that might be considered.
    Mr. Bishop is with the Gurnee Heating & Air Conditioning 
Corporation from Closter, New Jersey. He testified on behalf of 
the Associated Builders and Contractors. He also discussed the 
issue of cross-subsidization. He showed the Subcommittee a 
number of advertisements that utilities had placed in various 
media outlets that described various unregulated services that 
they offer. He was concerned that funding for these 
advertisements might be coming from funds that were generated 
from the regulated part of the business. As a result, he felt 
that some sort of protection from cross-subsidization was 
needed.
    Mr. Deless is the President of Deless Associates Energy, 
located in Wayne, Pennsylvania. He testified on behalf of the 
National Association of Home Builders. He stated that he 
supported electric utility deregulation, provided that it was 
done in a fair and comprehensive manner. However, he also made 
the point that the current electric utility system has served 
consumers well over the years by offering consistent and 
reliable service. Any plans to change this system should, at a 
minimum, maintain a few specific qualities. First, residential 
consumers should not pay higher rates. Second, housing 
affordability must not be negatively impacted. Third, 
residential customers should not bear unfair burdens in 
stranded asset recovery. And fourth, programs offered by 
utility companies that are beneficial to home buyers should not 
be eliminated.
    Ms. Crigler is the owner of L & D Associates, Inc., of 
Aroda, Virginia. She testified on behalf of the Plumbing, 
Heating, Cooling Contractors National Association. She 
discussed the fact that the energy market is more than the 
buying selling of electricity; it is also the buying and 
selling of plumbing, heating, and cooling equipment; repair 
services; maintenance agreements; and other goods and services. 
Because many utilities are now entering the competitive markets 
listed above, she fears that they may be using ratepayer funds 
to subsidize the new avenues of business. She provided the 
Subcommittee with an agreement that was negotiated with her 
major investor-owned utility, and offered it as a model that 
could be followed in the future to address other small 
businesses' concerns about the issue of cross-subsidization.
    For further information on this hearing, refer to Committee 
publication number 105-61.

7.6  Summaries of the Hearings Held by the Subcommittee on Tax, 
        Finance, and Exports

            7.6.1  why exports matter

                               Background

    On May 1, 1997, the Subcommittee opened its trade agenda by 
holding a hearing on the general importance of trade to the 
overall economic health of the nation, particularly examining 
the impact of trade on small businesses. The purpose of the 
hearing was to allow academic experts to comment on trade 
policy and the value of export promotion programs.

                                Summary

    The hearing was comprised of one panel that included Clyde 
Prestowitz, Jr., President of the Economic Strategy Institute, 
David Richardson, Professor of Economics at Syracuse University 
and a Visiting Fellow at the Institute for International 
Economics, and Perry Newman, Director of the Maine 
International Trade Center. The 1st session of the 105th 
Congress had a series of trade initiatives on its legislative 
calendar, including the reauthorization of the Overseas Private 
Investment Corporation (OPIC), the Export-Import Bank of the 
United States (Ex-Im), and ``fast track'' trade negotiating 
authority for the President.
    Professor Richardson testified that export and import 
dependence is good public policy. The benefits to companies 
that are involved in international trade include higher growth, 
better wages and more secure jobs for their workers, and a more 
productive workforce. These same benefits apply equally to 
small and large businesses alike. Just in the last five years, 
the number of small firms that have ventured into the export 
arena has grown from 10 percent to 19 percent.
    Professor Richardson concluded with three central 
recommendations for policymakers. First, do no harm. The U.S. 
should remove impediments to exports including an overvalued 
U.S. dollar and unilateral economic sanctions.
    Second, be wise as serpents. Export promotion programs that 
work best are either infrastructural policies (e.g., trade data 
statistics, ensuring fair treatment abroad of U.S. products) or 
tactical policies (e.g., informed embassy personnel abroad or 
targeted export financing).
    Finally, do the right thing. International trade is a great 
opportunity, not without risks, but not without significant 
gain for both large and small businesses alike.
    Clyde Prestowitz of the Economic Strategy Institute then 
detailed the findings of his study of the value of Ex-Im. He 
concluded that Ex-Im has met its main objectives--responding to 
imperfections in the marketplace and counteracting the export 
subsidies given to U.S. competitors by foreign governments. If 
Ex-Im was abolished, the study concludes that U.S. exports 
would drop by $15 billion. Compounded over five years, that 
figure translates into a one-third increase in the already 
large U.S. trade deficit.
    In addition, the U.S. Gross Domestic Product (GDP) would 
decrease by $35 billion, which translates in to a 250,000 job 
loss immediately and a 600,000 job loss over the long-term.
    Finally, if Ex-Im was not reauthorized, it would translate 
into a loss of $7 billion in tax revenue to the U.S. Treasury 
immediately and approximately $24 billion over the long-term. 
Thus, getting rid of Ex-Im would actually increase the budget 
deficit when you factor in loss of revenue in addition to what 
it takes to run Ex-Im. Thus, Mr. Prestowitz made a compelling 
case to retain and reauthorize the Ex-Im Bank--it helps provide 
good paying U.S. jobs and decreases both the trade and budget 
deficits.
    The third witness focused on bringing these lofty economic 
statistics down to earth. Perry Newman talked about the 
importance of educating more companies in Maine about the 
benefits of exporting. Using some case studies, Mr. Newman 
explained that the explosion of trade is not limited to big 
companies in large population centers but applies equally to 
small business in rural America.
    Thus, all three witnesses agreed on the need for small 
businesses to remain engaged in the international marketplace. 
For further information about this hearing, refer to Committee 
105-8 publication.

            7.6.2  does opic help small business exporters?

                               Background

    On May 15, 1997, the Subcommittee held a hearing examining 
the impact of the Overseas Private Investment Corporation 
(OPIC) on small businesses. OPIC provides political risk 
insurance, in addition to project finance, for U.S. investments 
overseas in developing nations and emerging economies. OPIC 
needed to be reauthorized by September 30, 1997. Thus, the 
hearing provided an opportunity to review OPIC's programs for 
small business and their role in helping small business growth.

                                Summary

    The hearing was comprised of one panel that included 
Mildred O. Callear, Acting President and CEO of OPIC; Monique 
Maddy, President of the African Communications Group of 
Cambridge, Massachusetts; Elliott Braswell, President of the 
Braswell Services Group of Charleston, South Carolina; and 
Craig Roach of the Boston Pacific Company of the District of 
Columbia.
    Ms. Callear outlined the history and performance of OPIC. 
Over the past 25 years, OPIC has facilitated $108 billion of 
private sector investments, which have generated $53 billion in 
U.S. exports and 225,000 U.S. jobs, all at no net cost to the 
taxpayer. In fact, OPIC has operated at a surplus to the U.S. 
Treasury (in 1996, OPIC generated $209 million in revenue for 
the taxpayer), resulting in a $2.7 billion reserve fund.
    Specifically, OPIC directly provided a record amount of 
support for small business projects in 1996--33 individual 
projects in 17 different countries, for a total of $1.8 
billion. Indirectly, small businesses benefit from OPIC as 
downstream suppliers to larger firms. More than half of the 
identified suppliers to OPIC's larger customers are small U.S. 
companies.
    Monique Maddy testified regarding her experience with OPIC. 
Ms. Maddy heads a three person small business that specializes 
in focusing investments in the telecommunications sector in 
Africa. The African Communications Group (ACG) received their 
first OPIC political risk insurance package in 1993, which 
resulted in $5 million in U.S. exports to Tanzania. This 
particular project provided Tanzania with nationwide wireless 
public pay phone, paging, and voicemail services. ACG is in the 
process of redesigning Ghana's telephone system, which could 
result in $50 million in sales of equipment and services from 
U.S. suppliers. With OPIC, ACG was able to penetrate markets in 
Africa that have been traditionally ceded to European or Asian 
firms.
    Elliott Braswell also related his experience with OPIC. The 
Braswell Services Group, a 250-employee shipyard repair firm, 
had traditionally relied on government contracts to repair U.S. 
naval vessels in the Charleston, South Carolina harbor. When 
the Base Closure Commission shut down the Charleston Naval 
Shipyard, the Braswell Services Group looked elsewhere for 
business. They successfully bid on a 20-year contract with the 
Panamanian government in the canal zone, which was supported by 
a direct loan from OPIC. However, when certain well-connected 
Panamanian officials attempted to seize their property and 
illegally terminate the contract, OPIC intervened, along with 
the U.S. Ambassador, to correct the situation. Without OPIC's 
insurance backing and timely U.S. government intervention, Mr. 
Braswell would have lost his entire investment in Panama.
    The final witness, Dr. Craig Roach, documented for the 
subcommittee three case studies of what happens to small 
business suppliers once a larger firm wins a power project 
contract thanks to help from OPIC and/or the Export-Import Bank 
of the United States (Ex-Im). In his findings, Dr. Roach 
reported that first, each of these case studies generated 
between 3,000 and 4,000 U.S. jobs; second, each of these 
projects relied on a large number of suppliers spread 
throughout the country; and third, 60 percent of these 
suppliers were small- and medium-sized businesses.
    Dr. Roach also emphasized for the subcommittee that every 
major industrialized nation has trade finance and investment 
support comparable to or more aggressive than OPIC and Ex-Im. 
Each of these case studies were subject to intense foreign 
competition. Thus, if OPIC or Ex-Im was not there to level the 
playing field, these deals would have gone to our foreign 
competitors. As a result, the benefits to small business 
suppliers would have disappeared.
    In conclusion, the hearing determined that OPIC helps small 
business, both directly and indirectly. For further information 
about this hearing, refer to Committee publication number 105-
10.
            7.6.3  the impact of estate taxes on small and family owned 
                    businesses

                               Background

    On June 27, 1997, the Subcommittee on Tax, Finance and 
Exports held a hearing to discuss the impact of estate taxes on 
small and family-owned businesses. The Committee heard 
testimony from individuals, business owners and organizations 
affected by this onerous tax. Additionally, the Committee 
investigated the recommendations of two economists and possible 
solutions to the death tax.

                                Summary

    The hearing consisted of two panels. The first panel 
included: Mr. James Antunes, President, and CEO, A.J. Antunes & 
Co., on behalf of the National Association of Manufacturers; 
Ms. Mary Borse, Downers Grove, Illinois; Mr. James Martin, 
President, the 60 Plus Association; Mr. Todd McCracken, 
President, National Small Business United; Ms. Kelly Niemi, 
ACF, Neimi Forestry, Castle Rock, WA; and Mr. James Wickett, 
Manager, House of Legislative Affairs, Federal Government 
Relations, National Federation of Independent Business.
    Mr. Antunes testified that preparing to avoid the death tax 
forces many family-owned businesses to borrow against their 
company to pay high insurance premiums and taxes. He elaborated 
these businesses are forced to sell off assets or to forgo 
making necessary capital improvements. In the past five years, 
the death tax rate grew faster than the ability of Mr. Antunes' 
company to create jobs.
    Ms. Borse testified the death inflicted economic horrors 
upon her family. After her parents' death, the IRS levied a 60% 
tax on the estate and forced them to pay double on unearned 
income. The family was economically ``raped'' by lawyers, 
accountants and their trustee. Ms. Borse also testified the 
family business was forced to close, resulting in a loss of 
over 200 jobs in the community. Ms. Borse stressed the 
important role her parents and their family business led in 
contributing to and building their local community.
    Mr. Wickett testified the death tax destroys the American 
dream of owning and developing a business with employees and 
family members; and of passing it on to the next generation. He 
stated that people who support the death tax based upon IRS 
data are using misleading and incomplete information. While the 
IRS data illustrates that a small portion of society pays the 
tax, it ignores the thousands of small business owners who have 
to liquidate their businesses and estates to pay tax bills. Mr. 
Wickett testified that the House of Representatives Committee 
on Ways and Means passed legislation increasing the exemption 
to $1 million by 2007. However, this change is only a first 
step that does not yet accurately catch up with inflation 
rates.
    Mr. McCracken testified that the House passed death tax is 
insufficient and needs to be properly indexed for inflation. He 
stated that estate tax planning continuously erodes employers' 
profitability. Finally, Mr. Martin highlighted a petition with 
190,000 signature circulated by the 60 Plus Association in 
support of abolishing the death tax.
    The second panel consisted of two economists: Mr. Bruce 
Bartlett, Senior Fellow, National Center for Policy Analysis; 
and Mr. Leonard Burman, Senior Research Associate, The Urban 
Institute, Income and Benefits Policy Center.
    Mr. Bartlett testified that good estate planning can 
eliminate the death tax completely, but conceded estate 
planning takes extensive time and cost. Accordingly, only 
individuals possessing larger estates traditionally implement 
an estate plan. As a result, most small business owners and 
their families face the egregious estate tax because they 
rarely consider the net value of their estate while they are 
alive. Under this system, the surviving family members have to 
deal with the financial repercussions. He also testified that 
implementing a flat tax would be beneficial and easier to 
comprehend.
    Mr. Burman testified that Congress should think about 
estate tax reform. Mr. Burman highlighted IRS data indicating 
the estate tax affected only 1.4% of the people who died in 
1995. Of this percentage, only 2,000 were small businesses or 
farms. Nonetheless, he testified that estate taxes levied on 
small businesses and farms amount to less than 4% of federal 
estate tax revenues. Therefore, while few people who die are 
directly subject to the estate tax, a problem does exist. The 
problem is that the government spends more money enforcing the 
tax and individuals spend more money complying with it than the 
government raises in collecting it. In Mr. Bruman's view, 
therefore, the best way to cut estate taxes would be to allow a 
full credit against estate taxes for the taxes individuals paid 
on their capital gains.
    For further information on this hearing, refer to Committee 
publication number 105-14.

            7.6.4  does ex-im help small business exporters?

                               Background

    On July 15, 1997, the Subcommittee held a hearing examining 
the impact of the Export-Import Bank of the United States (Ex-
Im) on small business. Ex-Im is the official export credit 
agency of the U.S. government for American-made products 
destined for export. The Ex-Im reauthorization bill had just 
passed the Banking Committee and was nearing House floor 
action. The purpose of the hearing was to acquaint subcommittee 
Members with Ex-Im's programs and review their efforts to help 
small business exporters.

                                Summary

    The hearing was comprised of one panel, which included five 
witnesses. The first panelist was the newly installed President 
and Chairman of the Ex-Im Bank, the Honorable James Harmon. He 
presented the subcommittee with a brief review of Ex-Im's 
history and its efforts to carry out its congressional mandate 
to increase small business export loans. In 1992, Congress 
mandated that at least 10 percent of Ex-Im's financing be set 
aside for small businesses. In 1996, Mr. Harmon announced that 
Ex-Im supported 1,934 small business transactions, valued at 
$2.4 billion. In other words, 21 percent of Ex-Im's financing 
and 81 percent of the transactions or deals were in direct 
support of small businesses. In addition, Mr. Harmon pointed 
out that Ex-Im supports even more small businesses which 
participate as subcontractors and suppliers to larger firms 
that export with Ex-Im help. He highlighted a specific deal in 
the Chairman's district, Beloit Corporation, that supported 
about 300 suppliers, 150 of which were small businesses mostly 
located in the 16th District of Illinois.
    The second witness, Brett Silvers, Chairman and President 
of First National Bank of New England of Hartford, Connecticut, 
provided a perspective of a banker who specializes in making 
small business export loans. He informed the subcommittee of 
the importance of Ex-Im and made a few suggestions for reform. 
Critical to increasing small business export growth and to 
reduce the bureaucratic burden on Ex-Im, Mr. Silvers believes 
that Ex-Im should lower the risk to the taxpayer of Ex-Im's 
Medium Term Guarantee and Medium Term Insurance Programs from 
100 percent to 85 percent. Currently, Ex-Im maintains a 100 
percent guarantee for these medium-term (up to seven years) 
programs, which, in Mr. Silvers' opinion, prevents Ex-Im from 
delegating this responsibility to interested lenders, similar 
to the Export Working Capital Guarantee program (the EWCG 
program is geared towards shorter term deals, under one year, 
and many banks have been authorized under the ``delegated 
authority'' program by Ex-Im to make EWC loans, subject to 
oversight). Fifteen percent risk-sharingby lenders and 
exporters for loans and insurance programs up to seven years would, 
according to Mr. Silvers, increase the number of banks involved in 
international finance and thus increase the number of small business 
exporters.
    The next two witnesses provided a point of view from the 
small business exporter. Warren Fuller, President and Chairman 
of Paul O. Abbe, Inc. of Little Falls, New Jersey related the 
story of how his 40 employee company that manufactures very 
specialized process equipment went from $3 million in sales in 
1994 to over $7 million in sales in 1996, thanks largely in 
part to exports. This increase was spurred by a $1.5 million 
line of credit established through the First National Bank of 
New England, which is a delegated authority lender of Ex-Im. As 
a result, Mr. Fuller was able to hire three more people to fill 
high-quality, good paying jobs in his company.
    David Lamb, Managing Director of Lamb-Grays Harbor Company 
of Hoquiam, Washington, related a similar story. Mr. Lamb's 
company employs nearly 300 workers producing materials handling 
equipment for the pulp and paper industry. Their main 
competitors are in Germany, Finland, Sweden, and Japan who have 
no reservations about using their home government export credit 
agency. Lambs-Gray Harbor began to use Ex-Im services in 1992 
after Congress imposed the new mandate to expand small business 
export loans and changed the culture of the agency. According 
to Mr. Lamb, Ex-Im proved to be the winning edge in securing 
these intensely competitive foreign contracts. Just a few weeks 
before the hearing, Mr. Lamb related a story of how his company 
won a $20 million order because of a 24 hour turn-around time 
on a letter of commitment from Ex-Im for a loan. Without Ex-
Im's quick action in helping to secure that deal, Lamb-Grays 
Harbor would have had to let go 30 people.
    The final witness was Lon Zeager, President of Made Machine 
Company, Inc. of Elyria, Ohio who provided a perspective of a 
small business supplier to a larger firm. Mr. Zeager's company 
biggest customer is the Fuller Company of Bethlehem, 
Pennsylvania, which manufacturers cement. His 24 employee 
company, which doubled in size over the past seven years, 
manufacturers dampers for various applications. Mr. Zeager 
believes the reason for the job growth at his company is 
because of the increase in the number of orders his company has 
received from the Fuller Company when they won export deals 
abroad, thanks to assistance from Ex-Im.
    Thus, the hearing concluded that Ex-Im helps small business 
exporters. While there is room for improvement, the agency 
should not be abolished. For further information about this 
hearing, refer to Committee publication number 105-18.

            7.6.5  the first step: death tax reform

                               Background

    On March 25, 1998, the Subcommittee on Tax, Finance and 
Exports held a hearing to explore in detail the onerous 
economic effects of the estate tax--the death tax --on small 
business, women and minorities. The Committee investigated 
whether the elimination of the death tax is essential to the 
survival of our nation's small businesses and family farms, and 
to the health of the nation's economy.

                                Summary

    The hearing consisted of one panel: Mr. William Beach, John 
M. Olin Senior Fellow in Economics, and Director of the Center 
for Data Analysis, The Heritage Foundation, Washington, DC; Mr. 
Richard Fullembaum, accompanied by Ms. Mariana McNeill, M&R 
Associates, Rockville MD, on behalf of the Research Institute 
for Small and Emerging Businesses, Inc., Washington, DC; Mr. 
David Lord, President and CEO, Pioneer Newspapers, Inc., 
Seattle Washington; and Mr. Edward McCaffery, Professor of Law 
and Economics, University of Southern California, Los Angeles, 
California.
    Mr. Lord testified that the death tax has severe socio-
economic effects on the newspaper industry as a whole and on 
Pioneer Newspapers in Seattle, Washington. To successfully 
counter the potentially devastating economic effects of the 
death tax, Pioneer newspapers must allocate valuable resources 
to pay estate planners and attorneys' fees to create tax 
avoidance structures. As a result, Pioneer must delay necessary 
capital improvements and investments in employee and community 
programs. Mr. Lord elaborated that the death tax is a 
contributing factor in the growing trend toward consolidation 
of newspapers, thereby reducing the number of privately held 
companies and yielding large conglomerations and a diluted, 
disinterested media source.
    Mr. Beach testified that the death tax is inconsistent with 
public policy by inflicting an extraordinary amount of socio-
economic damage to minority and women-owned small businesses. 
While our public policy extends civil liberties, civil rights, 
and equal opportunity to all, the death tax undermines this 
promise. Mr. Beach testified that if Congress repeals the death 
tax the economy would grow an estimated $11 billion dollars, 
create 145,000 new jobs, and increase personal income 
precipitously.
    Mr. McCaffery, a self-avowed ``liberal'' professor, 
testified that Congress must completely abolish the death tax. 
Calling it the ultimate ``tax on virtue,'' Mr. McCaffery said 
the death tax penalizes those who work hard, save and invest. 
He faulted Democrats for not ``seeing the light'' in tax 
reform, and for blocking key Republican death tax reform 
initiatives. Mr. McCaffery argued against special death tax 
provisions that fall short of complete repeal. He believes 
these provisions invariably lead to complicated laws that are 
expensive to enforce. They result in counter-productive and 
counter-intuitive effects in both equity and efficiency. Mr. 
McCaffery also believes that special business carve-outs from 
the death tax penalize thrift, life work and savings. 
Consequently, he strongly advocates complete repeal of the 
death tax.
    Mr. Fullenbaum testified on the findings of a study 
prepared by him and Ms. McNeill for the Research Institute for 
Small and Emerging Businesses, Inc., which analyzes the 
aggregate short-term and intermediate economic effects of 
repealing the Federal Estate and Gift Tax over a seven (7) year 
period. The study addresses the macroeconomics consequences of 
eliminating the tax in terms of output, employment, 
productivity, interest rates, investment, prices and net 
government revenues. The results of the study conclude that 
from fiscal years 1997 to 2003 eliminating the death tax would 
lead to higher levels of real output, employment and 
investment. Approximately $74 billion of the lost $98 billion 
in revenue would be recaptured, excluding any revenue 
recaptured from projected increased consumer activity. (These 
figures do not take into account any revenues recaptured as 
result of the subsequent sale of assets under a unified capital 
gains tax system.)
    For further information on this hearing, please refer to 
the Committee publication number 105-41.

            7.6.6  internal revenue service accountability to small 
                    business and self-employed taxpayers

                               Background

    On Friday, May 15, 1998, the Subcommittee on Tax, Finance 
and Exports of the Committee on Small Business held a hearing 
at Washington State University in Vancouver, Washington. The 
purpose of the hearing was to assess whether the Internal 
Revenue Service (IRS) had improved its services and 
accountability to small business and self-employed taxpayers 
during the past year. The Honorable Linda Smith, Vice Chair of 
the Subcommittee, presided over the hearing.
    Throughout the fall of 1997, a series of hearings held in 
the House and Senate revealed growing IRS mismanagement and 
collection abuses. The hearings and several related bills 
prompted the House to pass a sweeping IRS reform bill, the 
Internal Revenue Service Restructuring and Reform Act, on 
November 5, 1997 by a vote of 426 to 4. In May 1998, the Senate 
unanimously passed its own version of the IRS reform bill. This 
Subcommittee hearing served as an opportunity for the small 
business community to testify on its evaluation of the IRS. The 
testimony of the witnesses also provided important small 
business information in preparation for the anticipated House-
Senate conference on the IRS reform legislation.

                                Summary

    The hearing was comprised of one panel including: David 
Austen, CPA, Vancouver, Washington; Mike Day, CPA, Caton, Day & 
Co., CPA's Inc., Vancouver, Washington; Scott Dietzen, CPA, 
LeMaster & Daniels, PLLC, Moses Lake, Washington; Dolores 
Harris, EA, Puyallup, Washington, on behalf of the National 
Association of Enrolled Agents; Stephen B. Hill, Esq., 
Shareholder, Bullivant, Houser, Bailey, Pendergrass & Hoffman, 
Portland, Oregon; Leslie S. Shapiro, Legal Counsel, National 
Society of Accountants, Alexandria, Virginia.
    Many witnesses shared their sense that the IRS had made 
substantial improvements internally. For example, the IRS 
vastly up-graded its management initiatives. Nevertheless, the 
witnesses concurred that the agency needs to continually 
examine and improve its policies and practices affecting small 
businesses. Furthermore, the testimony of the witnesses 
revealed that the IRS' level of quality is a regional factor in 
which certain IRS offices succeeded while others failed to 
improve their accountability to small business and self-
employed taxpayers.
    Most of the witnesses expressed overall satisfaction with 
the Washington and Oregon district IRS offices. Stephen Hill 
discussed his satisfaction in handling most issues for clients 
that involved interaction with the Oregon District Internal 
Revenue Service. Similar to the other witnesses, it appeared to 
him that upper levels of management are willing to make 
improvements. Relatedly, several witnesses cited new IRS 
Commissioner Charles O. Rosotti's positive steps for small 
business. Dolores Harris expressed her sense that Commissioner 
Rosotti's proposals for change are on the right track for small 
business. She also discussed the Seattle area's small business 
lab and focus group.
    Witnesses described many problems that plague small 
business owners and practitioners attempting to resolve tax 
issues with the IRS. Mike Day expressed his concerns regarding 
the Automated Collections System and how time constraints often 
limit the ability of professional practitioners to help 
taxpayers. Scott Dietzen, a representative of several farm 
producers, focused on IRS employees and discussed why he 
believes IRS personnel lack an understanding of the law. He 
testified there are IRS proceedings that improperly motivate 
IRS employees. Further, he explained why the complexity of IRS 
regulations hurt small farmers. Similarly, Stephen Hill 
expressed dissatisfaction with how the actions of some Service 
Center employees in Oregon frustrate practitioners and 
taxpayers. He explained that Service Centers provide 
inconsistent, slow service and lack an adequate computer system 
to handle consolidations.
    The panel offered substantial recommendations for improving 
the lingering problems small businesses face with the IRS. Mike 
Day suggested the IRS should create a more user-friendly 
collection notice and educate the public about alternatives in 
dealing with IRS personnel should a conflict arise. Delores 
Harris emphasized clarification techniques as well and 
suggested there is a need for taxpayer education and tax 
simplification. She and other panel members emphasized 
reforming Internal Revenue Form 1040, Schedule D. Leslie 
Shapiro offered recommendations for improving the structure of 
the proposed IRS Oversight Board should the provision remain in 
the IRS reform bill after conference. His suggestions included 
providing the Oversight Board with the authority to address 
audit and collection activities and to review the ethics, 
integrity and civility of IRS officers and employees. Finally, 
he fervently recommended the inclusion of small business 
representatives on the proposed IRS Oversight Board.
    For further information on this hearing, please refer to 
the Committee publication number 105-51.

            7.6.7  reducing the tax burden on small business owners

                               Background

    During the afternoon of June 1, 1998, the Subcommittee 
traveled to the State Capitol building in Topeka, Kansas to 
learn of the tax problems facing small business owners. The 
purpose of the hearing was to hear directly from small business 
owners, who have limited time and are usually unavailable to 
travel to Washington, DC to testify before Congress, about 
their recommendations for possible tax cuts and reforms.

                                Summary

    The hearing was comprised of one large panel of seven 
witnesses. Each one of these witnesses focused on one 
particular tax problem that hindered their ability to expand 
and create jobs in Kansas.
    Charlie Peer of Great Plains Ventures located in Wichita, 
Kansas led off the panel discussion testifying about the 
negative impact of the federal estate or ``death'' tax. Mr. 
Peer has had to artfully plan for his retirement and his estate 
in order to keep his company in private hands in Wichita, both 
for his children's security and his employees future. His 
daughter, Susayn Brandes, also employed at Great Plains 
Ventures, testified how the estate or ``death'' tax takes a 
personal toll on her family. To her, small family-owned and 
operated companies like Great Plains Ventures is similar to 
raising a child. The estate tax is like having an outsider 
moving this family member from home to out-of-state and then 
telling the family that they can no longer influence this 
child. Ms. Brandes and her brother have made many personal 
sacrifices just so the family business is protected from 
seizure by this ``outsider,'' which is, in this case, the U.S. 
government.
    David Allison, a Certified Public Accountant (CPA) with the 
firm of Braunsdorf, Carlson & Clinkinbeard, located in Topeka, 
Kansas, provided a unique view of the federal tax burden on 
small business owners. His number one recommendation was to 
reform the definition of ``independent contractor.'' He urged 
Members of Congress to cosponsor and endorse H.R. 3722, 
introduced by Representative Jon Christensen of Nebraska, which 
would simplify the definition of independent contractor in 
order to eliminate the confusion that exists between those who 
are legitimate independent contractors and employees of a 
company.
    Pat Shelley of Teague Electric Construction of Overland 
Park, Kansas, testified about the need to reduce the capital 
gains tax rate. Mr. Shelley believes the capital gains tax rate 
represents an anti-growth philosophy. Literally trillions of 
dollars worth of investment are locked away simply because of 
the potential adverse tax consequences. Other nations of the 
world, like Hong Kong, Germany, and the Netherlands do not tax 
capital gains at all. Reducing and perhaps eliminating the 
capital gains tax rate would increase America's international 
competitiveness.
    Roland Smith of the Wichita Independent Business 
Association testified about the need to provide 100 percent tax 
deductibility of health insurance premiums for the self-
employed. Mr. Smith believes it is unfair that incorporated 
businesses are able to fully deduct their health insurance 
premiums but not the self-employed. While the tax cut bill 
passed by Congress last year made gradual progress to solve 
this problem, it is still not good enough. Fully deductibility 
should not have to wait until 2007, according to Mr. Smith.
    Paul Styers of Styers Equipment Company located in Overland 
Park, Kansas, testified about the need to generally reduce tax 
rates across-the-board. By allowing more money to be kept by 
the hands that produce it will result in significant benefits 
to the U.S. economy.
    Finally, Bill Rowe of Willie C's Cafe and Bar located in 
Wichita, Kansas testified about various tax problems unique to 
restaurant owners. The most onerous problem is the ``tip'' tax, 
which makes tax collectors out of restaurant owners. While the 
Tip Reporting Alternative Commitment (TRAC) is suppose to be 
voluntary, the IRS strongly suggested to Mr. Rowe that in order 
to avoid an audit, he should sign up for the TRAC program. It 
is his opinion that collecting proper taxes on tips should be a 
matter between his employees and the IRS, not placing him as 
the man in the middle.
    Mr. Rowe also mentioned four other problems associated with 
the tax code. First, was the compliance cost of the tax laws on 
small business owners. Second, was his complaint about double 
taxation, particularly on the issue of paying corporate income 
taxes and then having his shareholders pay taxes again on the 
dividends. Third, was his observation about the enormous burden 
of payroll taxes. And, last, he agreed with the other witness 
on the need to reduce the capital gains tax rate.
    In conclusion, all witnesses had various ideas on how to 
reduce the tax burden on our nation's small business owners. 
These ideas centered around repealing the estate tax, 
clarifying the definition of an independent contractor, 
reducing the capital gains tax rate, providing full 
deductibility of health insurance premiums for the self-
employed, reducing tax rates across-the-board, and reforming 
the tip tax policy of the IRS. They all agreed that some 
progress was made by Congress in 1997 in this direction. But 
they all believed that there is still a long way to go to 
reforming the U.S. Tax Code in order to foster small business 
development in the United States. For further information about 
this hearing, refer to Committee publication 105-54.

            7.6.8  export resources for small businesses

                               Background

    During the morning of June 1, 1998, the Subcommittee 
continued its field hearing agenda with a forum in Overland 
Park, Kansas to examine the resources that are available from 
the public and private sectors to help small businesses enter 
or expand their export sales. The purpose of the hearing was to 
familiarize the small business community in the greater Kansas 
City metropolitan area about the wealth of information that is 
readily available, often just a few computer clicks away, about 
export opportunities around the world.

                                Summary

    The hearing was comprised of three panels. The first panel 
allowed local small business exporters to share their story of 
how they became involved in selling overseas. Those who provide 
export information and trade statistics demonstrated their 
product as part of the second panel. Once an interested 
overseas customer is found, the final panel explained the 
services that are available from the U.S. government to help 
finance an export deal.
    The first panel was comprised of two witnesses--Jill Jarvis 
of Thompson's Pet Pasta Products, located in Kansas City, 
Kansas, and Mike Kilkenny of Taylor Forge Engineered Systems, 
located in Paola, Kansas. Ms. Jarvis testified how her company, 
a manufacturer of high quality dog food, never exported prior 
to 1995. Because she used some of the federal government's 
resources in export promotion (the National Trade Data Bank and 
the Foreign Agricultural Service), she was able to export 
$800,000 worth of dog food in 1997 and expects to reach $2.5 
million in international sales this year. In addition, she 
complimented the help she reached through various export 
promotion offices of the State of Kansas.
    Mr. Kilkenny attributed almost all of the sales growth of 
Taylor Forge, which designs and fabricates custom steel 
products for the energy markets, over the last three years to 
exports. Average sales grew from $20 million in 1992 to an 
expected $38 million in 1998. His company sought international 
markets mainly out of necessity. He gave four quick points of 
advice to potential small business exporters. First, do not be 
afraid to start. Second, define your niche specifically. Third, 
establish good overseas agent relationships. And, finally, 
learn the way other countries do business. Mr. Kilkenny also 
specifically recommended traveling on an overseas trade mission 
as one good way to establish contacts and overcome the fear 
factor of selling overseas.
    The second panel of three witnesses then began their 
presentations. Tom Strauss, the local Kansas City 
representative of the U.S. & Foreign Commercial Service of the 
Department of Commerce, went through his slide presentation of 
what export promotion services are available from the U.S. 
government. The main focus of his presentation centered on the 
National Trade Data Bank (NTDB) and the various reports a small 
business exporter can receive for a nominal fee about the 
prospects for doing business in a particular country. In 
addition, Mr. Strauss encouraged participation in trade shows 
and overseas trade mission.
    Mary Ann Boukalis, of Global Trade Information Services, 
described how her private company customizes trade statistical 
information into a more user-friendly format. By dividing the 
total value of a specific good by the total volume of trade, 
one can easily determine if a potential small business exporter 
can competitively sell to customers in a particular country. In 
addition, the trade statistical information can determine which 
potential countries to prioritize in targeting, based on the 
rate of growth of sales of a particular good.
    Finally, Mike O'Donnell of the International Business 
Resource Center of Kansas University, explained the workings of 
their Web Site. Small business exporters can briefly describe 
their company and their products on the Internet. Overseas 
customers interested in buying products from Kansas can browse 
KU's Web Site and place export orders through E-mail 
connections back to the company.
    The third panel was comprised of two witnesses from two 
export credit agencies of the federal government. Ray Williams 
of the U.S. Small Business Administration (SBA) explained the 
mechanics of the Export Working Capital Program (EWCP). This 
program allows small business exporters, who need less than 
$750,000 of export working capital, to commence work on a 
particular project destined for export. The SBA would guarantee 
90 percent of a commercial bank's loan for this purpose. Export 
working capital loans are of a short-term nature (usually less 
than 60 days) because a small business exporter must have a 
deal or contract in hand as assurance of repayment.
    Jean Fitzgibbon of the Export-Import Bank of the United 
States (Ex-Im) explained many of their programs and some recent 
changes to their regulations to ease access to trade finance. 
Most importantly, Ex-Im jointly administers the EWCP by taking 
on the export deals greater than $750,000. Ms. Fitzgibbon also 
encouraged any bankers in attendance at the hearing to become 
qualified ``delegated authority'' lenders so that more 
opportunities could be opened up to small business exporters to 
find alternative sources of financing.
    Thus, the hearing concluded that there are a multitude of 
resources that are readily available to help small businesses 
enter the export arena. It's mainly a question of surmounting 
the ``fear'' barrier of selling overseas. There were many 
supplementary materials submitted for the record that mentioned 
other resources for assistance. For further information about 
this hearing, refer to Committee publication 105-55.

            7.6.9  the effect of the estate tax on central new jersey 
                    farms and small businesses

                               Background

    On June 2, 1998, the Subcommittee continued its field 
hearing agenda with a forum dedicated specifically to focus on 
the impact of the estate or ``death'' tax on farms and small 
businesses in areas where land values are at a premium and 
suburban sprawl is a growing problem. The purpose of the 
hearing was not only to hear of the devastating impact of the 
estate tax on the longevity of family businesses but to learn 
of its negative impact on the environment.

                                Summary

    The hearing was comprised of one panel of six small 
business witnesses from the central New Jersey area of the 12th 
District, represented by Congressman Mike Pappas. Each one of 
these witnesses told their personal story of their dealing with 
implications of the estate tax.
    Four witnesses, who are farm owners and operators, 
testified about the harsh impact of the estate tax on their 
ability to pass along their business to future generations. 
Fred Clucas of Tewksbury, New Jersey explained that even 
spending much time and money planning for his death, he still 
does not exactly know if his estate tax plan will be enough to 
save his family farm.
    Tom Everett of Somerville, New Jersey, complained about the 
high value of land in rural areas on the edge of suburban 
sprawl due to development pressures, such as central New 
Jersey. These land values easily exceed the maximum exemption 
limit of the estate tax. Thus, the estate tax is a barrier to 
the growth of a farm business in these areas.
    Steven Jany from Highstown, New Jersey testified regarding 
his personal experience with the estate tax after the death of 
his father-in-law in 1991. His family was able to take 
advantage of Section 1032(a) to keep the farm open but has had 
to promise to farm the land for 10 years. It cost his family 
$30,000 just to pay the lawyers and appraisers for this Section 
1032(a) protection.
    Henry ``Pete'' Chamberlin of Windsor, New Jersey testified 
about how after he and his brother and sister inherited the 
family farm in 1990, their nightmare started. Just to pay the 
estate tax, he and his siblings had to liquidate their life 
savings. To add to this misery, his local township down zoned 
their property three different times, making the farm worth 
less and less. In fact, their farm lost one-third of its value 
since 1990. Only 34 acres remains of the farm his family has 
had since the early 1900's, and Mr. Chamberlin expected to sell 
that last portion of his land later that summer to developers.
    To provide a non-farm perspective, Denise Wood of 
Princeton, New Jersey talked about her worries owning a BMW 
auto dealership. Because automotive dealers has a high 
percentage, up to 90 percent, of the value of the business tied 
up in non-liquid assets, such as inventory and property, the 
estate tax poses a high burden if the owner wishes to pass 
along the business to the next generation. Almost all auto 
dealers have assets well in excess of one-time unified credit 
exemption of $1.3 million, which places them in the 55 percent 
tax bracket. Franchised car dealers have contractual 
obligations to maintain a certain level of service and spare 
parts. They cannot sell off portions of the business in order 
to decrease the estate tax burden. Thus, car dealers are 
``asset rich but cash poor.'' In addition, Ms. Wood feels an 
obligation to preserve the business not just for her children 
but for her 45 employees and their families. In her opinion, 
the estate tax should not put these people out of a job.
    Finally, the Subcommittee heard from Ms. Penny Hendrickson 
who owns a farm in Lawrenceville, New Jersey. In 1993, she and 
her husband inherited a 100 acre farm from her father-in-law. 
In order to reduce the estate tax obligation of $360,000, they 
took advantage of the ``Promise to Farm'' provision of the tax 
code, which reduced their tax payment to $51,000. This 
provision obligates the Hendricksons to farm their property for 
10 years. Shortly after they acquired the farm, Ms. Hendrickson 
was approached by representatives from the New Jersey Farmland 
Preservation Program. In return for a promise not to sell their 
property to developers, the state of New Jersey would 
``purchase'' their development rights. The goal of this state 
initiative is to maintain open spaces in historically rural 
areas now threatened by suburban sprawl. But if the 
Hendrickson's pursued this initiative, they would owe the 
Internal Revenue Service (IRS) $309,000. Thus, the estate tax 
stopped the Hendrickson's ``cold'' in their attempt to enroll 
in the pro-environmental open space state initiative. They are 
now contemplating selling the land to a developer anyway while 
land prices are still high. Ms. Hendrickson concluded that if 
New Jersey still wants to be known as the ``Garden State,'' the 
estate tax should be removed as a barrier to farmers who want 
to participate in state-sponsored open space initiatives.
    Thus, all the witnesses concluded that the estate or 
``death'' tax places a huge burden on any small business owner 
who wishes to pass down the company to his or her children. 
Many testified about the emotional pain the estate tax inflicts 
on families, causing them to make heart-wrenching decisions 
about the future of a family-run small business. Complying with 
estate tax takes away from investments that could be used to 
expand a small business and hire more employees. In addition, 
the estate tax is a hurdle to any farmer with property near the 
outer suburbs who wishes to preserve the land from development 
by enrolling in pro-environment state-sponsored open space 
initiatives. It was the opinion of all the participants that 
the estate tax should be repealed, either immediately or as 
part of a gradual phase-out. For further information about this 
hearing, refer to Committee publication number 105-52.

            7.6.10  pension reform for small businesses

                               Background

    On September 16, 1998, the Subcommittee on Tax held a 
hearing on a pension reform proposal offered by Representative 
Roy Blunt of Missouri (HR 3870). The goal of this legislative 
initiative is to make it easier for more small businesses to 
establish pension plans for their employees. In 1996, Congress 
passed the Savings Incentive Match Plan for Employees or SIMPLE 
pension reform plan. However, this proposal has not done enough 
to fill the gap of pension coverage, mainly because of limits 
on contributions ($6,000 and three percent match). H.R. 3870 
aims to streamline the regulatory burden of setting up a 
pension plan for qualified small businesses, increase the 
contribution limits, and provides a tax credit incentive. H.R. 
3870 had gained 78 bipartisan cosponsors, including five 
Subcommittee members, by the time of the hearing, which is the 
largest number of Members supporting any pension reform bill in 
recent memory.

                                Summary

    The hearing was comprised of two panels--one with the two 
prime authors of H.R. 3870 and the second with private sector 
experts on pension issues.
    The first panel allowed the two key bipartisan writers of 
H.R. 3870 to explain the rational and the need for this 
legislation. First, Representative Roy Blunt of Missouri (R-
7th) provided the Subcommittee with basic background 
information about the absence of retirement plans among small 
businesses. For large companies, 84percent of the employees 
have access to a pension plan. However, if you work at a firm that has 
less than 25 people, only 17 percent of those employees have access to 
a pension plan. The aim of H.R. 3870 is to make it easier and less 
cumbersome for small businesses to establish pension plans for their 
employees so that these workers do not rely solely on personal savings 
and Social Security for their retirement needs.
    Representative Ken Bentsen of Texas (D-25th) testified 
about what he thought were the most important provisions of the 
legislation. As a trade-off for eliminating some of the ``top-
heavy'' provisions of current pension regulations, H.R. 3870 
also requires the employers meet specific qualifications and 
provide mandatory contributions of at least three percent of an 
employee's compensation on two conditions: (1) the employee is 
at least 21 years old and (2) the employee has worked more than 
1,000 hours in the preceding calendar year. H.R. 3870 would 
also allow savings up to 15 percent in an employees pension 
plan, but no employer match is required above 10 percent. 
Finally, H.R. 3870 requires a minimum three year vesting 
period.
    The second panel was comprised of two experts from the 
private sector representing different ends of setting up 
pension plans. John Bachmann, Managing Partner of the Edward 
Jones Investment Company in St. Louis, Missouri spoke about the 
investment side of H.R. 3870. He decried the few number of 
small businesses that have pension plans for their employees. 
Yet, many of these same small business owners have personal 
investment plans of their own. Mr. Backmann believes that H.R. 
3870 helps to break down two barriers to setting up these plans 
by (1) simplifying the burdensome regulatory climate and (2) 
providing a tax incentive, representing 50 percent of the 
administrative cost, up to $2,000 the first year and up to 50 
percent for future administration costs for the next four 
years. In response to a question about the level of interest in 
the approach contained in H.R. 3870, Mr. Bachmann responded 
that in about a ten-day period, his local office alone received 
more than 10,000 inquires.
    Mr. Peter Kelly, a lawyer with the firm of Murphy, Smith & 
Polk of Chicago, Illinois, representing the U.S. Chamber of 
Commerce, addressed this issue from a legal perspective. Mr. 
Kelly specifically addressed some technical changes he would 
like to see in the bill to resolve his concern that H.R. 3870 
covers defined benefit plans, as long as the contribution 
amounts by the employees and employers fit within the 
parameters in the bill. He also strongly believes that even 
though he might not personally benefit as a pension lawyer, 
regulations should be streamlined for small business to help 
them set up retirement plans. In Mr. Kelly's opinion, anything 
done to increase retirement savings among small business owners 
is a win-win for everyone--employers, employees, and all levels 
of government (in terms of decrease demand for government 
services).
    The hearing concluded that H.R. 3870 is a generally sound 
legislative proposal that builds on the success of the SIMPLE 
plan passed by Congress in 1996. While some minor technical 
changes can be made to the bill and a more accurate cost 
estimate should be obtained from the Joint Committee on 
Taxation, nevertheless, H.R. 3870 deserve to be part of the 
overall debate on tax reform in the 106th Congress to help more 
small businesses establish pension plans for their employees. 
For further information about this hearing, refer to Committee 
publication number 105-65.

                                
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