House Report 105-849 - SUMMARY OF ACTIVITIES

[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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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

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

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

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

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

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

Summary

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.