[Senate Report 105-347]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 645
105th Congress                                                   Report
                                 SENATE

 2d Session                                                     105-347
_______________________________________________________________________


 
   YEAR 2000 READINESS AND SMALL BUSINESS PROGRAMS RESTRUCTURING AND 
                           REFORM ACT OF 1998

                                _______
                                

               September 25, 1998.--Ordered to be printed

_______________________________________________________________________


Mr. Bond, from the Committee on Small Business, submitted the following

                              R E P O R T

                        [To accompany H.R. 3412]

    The Committee on Small Business reported H.R. 3412, as 
amended, to authorize a special program to provide loans to 
small business concerns to repair or replace their computer 
systems in preparation for the Year 2000, to authorize programs 
at the Small Business Administration, and for other purposes, 
having considered the same, reports favorably thereon, with an 
amendment in the nature of a substitute and recommends that the 
bill as amended do pass.

                            I. Introduction

    The Year 2000 Readiness and Small Business Programs 
Restructuring and Reform Act of 1998 is a bill that addresses 
the Year 2000 computer problems that are confronting small 
business concerns. In addition, the bill expands certain 
programs at the Small Business Administration and creates new 
pilot programs to help small businesses in today's competitive 
economy.
    On September 15, 1998, the Committee on Small Business 
conducted a mark-up of bills pending before the Committee. 
Senator Bond proposed an amendment in the nature of a 
substitute to H.R. 3412, a bill making technical amendments to 
the SBIC Program which passed the House on March 24, 1998, and 
was referred to the Committee. Senator Bond's substitute 
amendment incorporated the full texts of S. 2372, the Year 2000 
Readiness Act, and S. 2407, the Small Business Programs 
Restructuring and Reform Act of 1998, and provisions from S. 
2448, the Small Business Loan Enhancement Act, introduced by 
Senator Kerry. The Committee debated and approved seven 
amendments to Senator Bond's substitute amendment by unanimous 
voice votes. It subsequently voted 18-0 to report favorably 
H.R. 3412 as amended by Senator Bond's substitute amendment as 
amended.
    This legislation draws on testimony made before the 
Committee over the past two years, from reports received by the 
Committee, and from meetings held with small business owners, 
their employees, and other persons regarding significant issues 
facing small business.
    On June 2, 1998, the Committee held a hearing on the impact 
the Year 2000 computer problem on small businesses. The 
testimony of the witnesses was alarming. Only 15% of small 
businesses with fewer than 200 employees have begun to 
inventory the automated systems that may be affected by this 
computer glitch. The Committee is very concerned about the 
impact the Y2K problem may have on the economy, in particular 
on small business owners. One of the looming problems not yet 
addressed was how small business would obtain the necessary 
capital to upgrade their computer systems to make them Y2K 
compliant. The Committee responded by approving an expansion of 
SBA's FA$TRAK Program, which allows SBA's Certified and 
Preferred Lenders to obtain a 50% guaranty for making loans to 
small businesses to make Y2K corrections.
    Many of the programs at SBA that are designed to help small 
business owners are working well, but they need statutory 
changes to allow them to expand to meet growing demand from the 
small business community. The Women's Business Center Program 
is a good example. It was expanded from a $4 million program to 
an $8 million program by this Committee just last year; 
however, its growth continues. The Committee's bill authorizes 
the program to increase to $12 million in grants annually 
beginning in Fiscal Year 1999.
    The Committee has received similar reports about the growth 
of the Small Business Innovation Research (SBIR) Program. The 
General Accounting Office (GAO) submitted a comprehensive 
report on the SBIR Program and testified before the Committee 
earlier this year. There are ever-increasing numbers of small 
research firms that are applying for research grants. GAO 
reports that only one in eight grant applications are being 
funded. In spite of this success, there are many states that 
receive 11 or fewer awards annually. In recognition of the 
program's success, the Committee agreed to make the SBIR 
Program permanent. The Committee also adopted a provision 
recommended by Senator Levin which directs Federal agencies to 
use existing resources to provide SBIR Program outreach in 
those states that receive small numbers of SBIR awards.
    During the past three years, the Committee has taken an 
active role overseeing SBA's credit programs. In 1995, the 
Committee approved a provision in the Small Business Lending 
Enhancement Act (P.L. 104-36) directing SBA to notify the 
Senate and House Committees on Small Business not later than 15 
days before making any significant policy or administrative 
change affecting the operation of the 7(a) guaranteed business 
loan program. The bill includes a new provision that requires 
SBA to provide notification to the Committees whenever its 
initiates or changes a pilot program under 7(a). These pilot 
programs generally have not been authorized by the Congress, 
nor does SBA promulgate regulations to implement the pilot 
programs. Therefore, this change was adopted to ensure that the 
Committee obtains sufficient information about the pilot 
programs to conduct its oversight role.
    The SBA has the resources to help in areas that are 
struggling to participate in the small business community. The 
bill directs SBA to take an aggressive approach to assist our 
Nation's veterans, especially the service-disabled veterans. 
For successful Microloan Intermediaries, the Committee approved 
a reduced loan loss reserve, and encourages the Intermediaries 
to use the savings to make more loans and provide more 
technical assistance to borrowers.
    Building on its record to help small businesses deal with 
the burden of government regulation, the Committee adopted the 
Small Business Environmental Assistance Pilot Program. This 
pilot program is designed to provide technical assistance to 
small businesses to help them comply with environmental 
regulations. Testimony before the Committee from small business 
owners frequently focuses on the volume of Federal regulations 
and the near impossibility for small business to be in 
compliance with each applicable rule governing its business 
activities.
    There is an obvious reluctance on the part of a small 
business owner to bring a specific compliance problem to the 
attention of the agency directed with enforcing compliance. The 
bill creates a public-private advisory committee at SBA which 
is tasked with charting the course of small business 
environmental compliance assistance. The bill also provides 
four year grants to up to ten Small Business Development 
Centers to provide environmental compliance assistance to small 
businesses in partnership with existing programs.
    The Committee adopted amendments approving two new pilot 
programs at SBA. The Disaster Mitigation Pilot Program 
authorizes loans to small businesses located in disaster prone 
areas. The loans are to be used to pay for preventive measures 
to mitigate against future disaster losses. The Community 
Development Venture Capital Demonstration Program would 
authorize a new technical assistance program to assist firms 
that want to make venture capital investments in small 
businesses located in economically distressed areas, such as 
inner cities and poor rural counties. The bill directs SBA to 
report to the Committee on the impact of the two pilot 
programs.

                        II. Description of Bill

              TITLE 1: SMALL BUSINESS YEAR 2000 READINESS

    The Committee is concerned that most small businesses are 
not adequately prepared for the problems they may face from 
Year 2000 (Y2K) computer problems. The Y2K problem is a result 
of computer programmers over the years writing computer code 
that used only two digits to represent years. This means that 
certain computers and processors in automated systems will fail 
because such systems will not recognize the Year 2000 but will 
mistake it for 1900. The Committee held hearings this year on 
the effect the Y2K problem will have on small businesses. The 
Committee received testimony that the companies most at risk 
from Y2K failures are small and medium-sized industries, not 
larger companies. Witnesses testified that this anomaly is 
caused by two factors. First, many small companies have yet to 
realize the extent the Y2K computer problem affects their 
businesses. Second, many small companies may not have the 
access to capital to cure such problems before they cause 
disastrous effects. They concluded the outlook for small 
businesses is not good.
    A study on Small Business and the Y2K Problem sponsored by 
Wells Fargo Bank and conducted by the National Federation of 
Independent Businesses found that an estimated 4,750,000 small 
employers are exposed to the Y2K problem. This equals 
approximately 82 percent of all small businesses that have at 
least two employees. Even though the Y2K problem will have a 
significant adverse affect on small businesses, the Committee 
has received information that only 15 percent of all businesses 
with under 200 employees have even begun to inventory the 
automated systems that may be affected by this computer glitch, 
much less commenced fixing such systems. The Committee is 
concerned that small business exposure to the Y2K problem will 
have devastating affects on our economy generally. As the 
result of communications with small businesses, computer 
manufacturers, consultants and groups, the Committee has found 
there is significant likelihood that the Y2K issue will cause 
many small businesses to close, playing a large role in Federal 
Reserve Chairman Greenspan's prediction of a 40 percent chance 
for recession at the beginning of the new millennium.
    Given the effect a substantial number of small business 
failures will have on our nation's economy, the Committee 
determined that it is imperative that legislation be enacted to 
ensure that small businesses are aware of the Y2K problem and 
have access to capital to fix such problems. This legislation 
requires the Small Business Administration (SBA) to establish a 
limited-term loan program whereby SBA would guarantee 50 
percent of the principal amount of a loan made by a private 
lender to assist small businesses in correcting Year 2000 
computer problems. The loan amount would be capped at $50,000. 
The guarantee limit and loan amount will limit the exposure of 
the government and ensure that eligible lenders retain 
sufficient risk so that they make sound underwriting decisions. 
The Y2K loan program regulations will be based on the 
guidelines SBA already has established to govern its FA$TRAK 
pilot program, or any successor pilot program or successor 
program. Accordingly, lenders originating loans under the Y2K 
loan program would be permitted to process and document loans 
using the same internal procedures they would on loans of a 
similar type and size not governed by a government guarantee.
    The bill further provides that each lender designated as a 
Preferred Lender or Certified Lender by SBA is eligible to 
participate in the Y2K loan program. This would include 
approximately 1,000 lenders that have received special 
authority from SBA to originate loans under SBA's existing 7(a) 
loan program. The Y2K loan program would sunset after October 
31, 2001.
    The Committee intends that this bill will serve the dual 
purpose of providing small businesses with the means to 
continue operating successfully after January 1, 2000, and 
making financial institutions and small firms more aware of the 
dangers that lie ahead. The Committee believes that awareness 
by lenders of the availability of this loan program is of 
paramount importance. The Committee understands that, pursuant 
to the Year 2000 WorkProgram Phase II, the Federal Financial 
Institutions Examination Council has established procedures for 
federal regulators to use when examining federally supervised 
financial institutions for Y2K preparedness. These examination 
procedures include determining if financial institutions have 
evaluated the Y2K readiness of their borrowers and implemented 
controls to mitigate risk from the potential financial 
difficulties of such borrowers. The Committee believes that 
financial institutions, in order to comply with these 
examination procedures and to mitigate losses to their loan 
portfolios, will contact their small business customers to 
ensure that they are Y2K compliant and to make them aware of 
the problems that may arise from noncompliance. The Committee 
has determined that the existence of a separate Y2K loan 
program will give financial institutions a specific solution to 
offer small companies that may not be eligible for additional 
private capital to fund Y2K corrections and will focus the 
attention of financial institutions and, in turn, their small 
business customers to the Y2K problem. Accordingly, the 
legislation requires SBA to inform all lenders eligible to 
participate in the program of the loan program's availability.
    Section 104 amends the 7(a) loan program to state that one 
of the purposes of the 7(a) loan program is to ``assist small 
business concerns in meeting technology requirements for the 
Year 2000.'' This provision is intended to clarify that all 
7(a) lenders, regardless of their status as regular, Certified 
or Preferred Lenders, may also make loans for Y2K corrections 
under the 7(a) loan program.

                       Pilot Program Requirements

    Section 103 establishes two reporting requirements for SBA 
relating to pilot programs administered by SBA under the 7(a) 
loan program. First, section 103 requires SBA to report to the 
House and Senate Committees on Small Business prior to making 
any changes to a pilot program it administers under the 7(a) 
loan program or prior to the initiation of any pilot program 
under the 7(a) program, if such change or initiation may affect 
the subsidy rate estimates for the 7(a) program. The Committee 
believes it is appropriate that SBA perform, in consultation 
withOMB, an analysis of the affect any change in, or initiation 
of, a pilot program will have on the subsidy rate for the 7(a) program 
and inform the Senate and House Committees on Small Business of the 
estimated affect, which current law does not require. Any change in the 
subsidy rate may substantially effect the program level established by 
Congress.

       TITLE II: SMALL BUSINESS PROGRAM RESTRUCTURING AND REFORM

                    women's business center programs

    Due to the rapid growth of women-owned businesses, this 
Section 201 increases the funding authorization for grants 
under the Women's Business Center program. Paragraph (a) sets 
forth the Congressional findings supporting the need for 
additional funding and the benefits to be derived from the 
program's expansion. Paragraph (b) increases the authorization 
for annual appropriations to $12 million, effective Fiscal Year 
1999 and thereafter. This is $3 million above the level the 
Administration requested in the President's budget for Fiscal 
Year 1999, and $4 million above the level authorized in the 
Small Business Reauthorization Act of 1997 (P.L. 105-135). 
Section 201(b) becomes effective on October 1, 1998 and, 
consequently, does not alter the restrictions in P.L. 105-135 
on SBA using these funds for administrative purposes.
    Section 201(c) amends the Section 308(b) of P.L. 105-135 to 
establish a uniform fourth-year matching requirement (one non-
federal dollar for every federal dollar awarded) for all 
Women's Business Centers receiving grants from SBA. At the 
request of the Committee on Small Business in the House of 
Representatives, the law enacted last year included a more 
stringent matching requirement (two non-federal dollars for 
each federal dollar) for the Centers extending their three-year 
eligibility for funding to five years. Enactment of this 
Section will retain the higher matching requirement for all 
Centers during their fifth year of funding. This change will be 
effective as though contained in the Small Business 
Reauthorization Act (P.L. 105-135) at the time of its 
enactment.
    Section 201(d) instructs the General Accounting Office 
(GAO) to conduct baseline and follow-up studies of the 
administration of the Women's Business Center program by SBA's 
Office of Women's Business Ownership (OWBO). Because the 
Administration previously sought to zero out this program, the 
GAO studies are to ensure that SBA is providing appropriate 
oversight, funding and staff to support to this popular and 
growing program. The information gathered by the Comptroller 
General will assist the Committees on Small Business in the 
Senate and House of Representatives' oversight of SBA's 
management of the program and its continued expansion.
    The Comptroller General is to coordinate GAO's efforts with 
the Small Business Committees. SBA is to assist GAO by making 
available the information provided to OWBO by the Women's 
Business Centers. While GAO may contact current and former 
grantees to gather additional information, GAO should first 
review all relevant information submitted to SBA in order to 
minimize the burden on the Centers. GAO is encouraged to meet 
with the national association of women's business centers to 
identify the least intrusive and most beneficial approach to 
gathering information directly from the Centers.
    Section 201(d) identifies the analysis to be conducted by 
GAO and addressed in the baseline and follow-up reports. GAO is 
to assess SBA's implementation and operation of the program. 
The analysis required under paragraph (i) would disclose the 
level of staffing involved in administering the program, the 
nature of their responsibilities, the process for soliciting 
and selecting applicants to open centers, administrative 
expenditures by OWBO related to the women's business center 
program, and the methods for evaluating the Centers compliance 
with the terms of their grant contracts. This would include a 
review of OWBO's procedures for complying with Section 29(h) of 
the Small Business Act, which requires SBA to conduct annual 
programmatic and financial evaluations of the centers receiving 
grants.
    Under paragraph (ii), the Committee expects GAO to review 
SBA's implementation of the program and assess its compliance 
with the legislative objectives of the program. Paragraph (iii) 
focuses on the supervisory and oversight responsibilities 
performed by OWBO. GAO should describe the relationship between 
OWBO and the Centers. For instance, does OWBO provide technical 
assistance to the Centers on the delivery of services?
    The intent of paragraph (iv) is for GAO to assess whether 
all 69 centers awarded SBA grants since 1988 continue to 
provide ongoing training. The Committee intends for GAO to 
review the information submitted to OWBO by currently funded 
women's business centers and identify the types of training 
offered, the number of training hours provided, and number of 
clients served. Examples of training approaches to be measured 
include: one-on-one counseling, all-day training sessions, 
multi-week training courses (i.e., FastTrak II), roundtables, 
and workshops. GAO will distinguish ``networking'' sessions 
from actual training and reflect other services such as the 
number of loans packaged. The challenge will be for GAO to 
conduct a telephone survey or develop a written questionnaire 
to get the same information from formerly funded Centers that 
no longer have a reporting obligation to SBA. This comparison 
will inform the Committee on the long-term benefits derived 
from the grants and whether the Centers are able to sustain 
their activities without the SBA grants.
    GAO's analysis under paragraph (v) assesses SBA's 
compliance with the reporting requirement found under 29(j) of 
the Small Business Act. The Small Business Reauthorization Act 
(P.L. 105-135) retained the requirement for SBA to report 
annually to the Senate and House Committees on Small Business 
on the effectiveness of the women's business center program. 
SBA's report covering June 1996 through July 1997 did not 
address all five criteria specified in the statute. GAO's 
analysis should address OWBO's effectiveness in quantifying the 
outcomes identified in the Small Business Act, the 
implementation of a computerized monitoring and reporting 
system (OWBOTrack) to capture this data, and alternative 
measurements should the outcomes identified in the statute 
prove inherently difficult to measure. Under paragraph (vi), 
the Committee will work with GAO to see if there is an 
appropriate way to identify best practices or gain a profile of 
the characteristics of a successful women's business center.

                              sbir program

    In 1982, Congress established the Small Business Innovation 
Research Program because small businesses are a principal 
source of innovation in the United States. In order to remain 
competitive in the global economy, the United States has 
historically depended heavily on innovation through research 
and development. Our dependence on small business for 
innovation is significant.
    The SBIR program requires agencies with extramural R&D 
budgets of $100 million or more to set aside not less than 2.5% 
of that amount for the SBIR program. It is a three phase 
program. Phase I is designed to determine the scientific and 
technical merit and feasibility of a proposed research idea. A 
Phase I grant award cannot exceed $100,000. Phase II is 
designed to develop further the idea, taking into consideration 
such things as the idea's commercialization potential. Phase II 
grant awards cannot exceed $750,000. Phase III is the 
commercialization phase. It is funded by non-federal funds for 
the commercial application of the technology or non-SBIR 
federal funds for continued R&D under government contracts.
    Ten years after Congress originally approved the SBIR 
program, it was re-authorized by the Small Business Research 
and Development Enhancement Act (P.L. 102-564, October 28, 
1992). The principal purposes of the 1992 Act were to:
          Expand and improve the SBIR Program;
          Emphasize the program's goal of increasing the 
        private sector's commercialization of technologies; and
          Increase small business' participation in the program 
        by women-owned small business concerns and by socially 
        and economically disadvantaged small business concerns.
    In addition, the 1992 Act directed the GAO to undertake two 
reports. The first report was submitted to the Committees on 
Small Business on March 8, 1995. Their second report was 
received April 1998.
    In April 1998, GAO issued its comprehensive report on the 
state of the SBIR Program. In June 1998, GAO addressed the 
report in testimony before the Committee. The unmistakable 
message was clear--this is a worthwhile program that is running 
very well. There are ten Federal agencies that participate in 
the program, and GAO concluded they are adhering to the 
program's funding requirements. Competition has been intense 
among small business R&D firms in response to solicitations 
from the ten agencies. GAO found, however, that it was very 
rare for an agency to make an award when it received only one 
proposal in response to a solicitation.
    Section 202 would remove the sunset date for the SBIR 
Program, effectively making the program permanent. Testimony 
before the Committee and the findings of the GAO clearly 
support this Congressional action. Section 202 also requires 
each agency subject to the SBIR Program to use the same formula 
set forth by the Director of the Office of Management and 
Budget in calculating extramural budgets, as noted by GAO in 
its testimony before the Committee.
    Members of the Committee continued to be concerned about 
the high concentration of SBIR awards in a small number of 
states, with nearly 80% of awards going to six states. Last 
year, the Congress approved a special program that directs SBA 
to make grants to conduct outreach in states where SBIR 
participation is low. Section 202 is another step to improve 
outreach of the SBIR Program. It directs existing Federal 
outreach activities, such as the electronic commerce resource 
centers and the procurement technical assistance centers, to 
conduct specific outreach activities funded out of their 
existing budgets to support the SBIR Program. The Committee 
intends to review closely the success of SBA activities and 
activities of agencies subject to the SBIR Program to conduct 
effective outreach activities in states receiving small numbers 
of SBIR awards.

                              sbic program

    In 1958, Congress created the SBIC Program to assist small 
business owners obtain investment capital. Forty years later, 
small businesses continue to experience difficulty in obtaining 
investment capital from banks and traditional investment 
sources. SBICs are frequently their only sources of investment 
capital. In 1992 and 1996, the Committee on Small Business 
worked closely with the SBA to correct earlier deficiencies in 
the law in order to ensure the future of the program. Today, 
the SBIC Program is expanding rapidly in an effort to meet the 
growing demands of small business owners for debt and equity 
investment capital.
    H.R. 3412, as passed by the House of Representatives, 
included three technical changes in the SBIC program which have 
been incorporated in Section 203. The first change removes a 
requirement that at least 50% of the annual program level of 
the approved participating securities under the SBIC Program be 
reserved for funding with SBICs having private capital of not 
more than $20 million. The requirement has become obsolete 
because SBA's experience has shown that the vast majority of 
SBICs applying for leverage have private capital of less than 
$20 million. Removing the requirement will enhance SBA's 
recently imposed leverage commitment process and facilitate the 
use of five-year commitments for SBIC leverage.
    The second House change to the SBIC Program clarifies the 
rules for the determination of an eligible small business or 
small enterprise that is not required to pay Federal income tax 
at the corporate level, but that is required to pass income 
through to its shareholders or partners by using a specified 
formula to compute its after-tax income.
    The third House provision requires SBA to issue SBIC 
guarantees and trust certificates at periodic intervals of not 
less than twelve months. The current requirement is six months. 
Thischange will give maximum flexibility for SBA and the SBIC 
industry to negotiate the placement of certificates that fund leverage 
and obtain the lowest possible interest rate.
    Section 203 would also make a relatively small change in 
the operation of the program. This change, however, would help 
smaller, small businesses to be more attractive to investors. 
SBICs would be permitted to accept royalty payments contingent 
on future performance from companies in which they invest as a 
form of equity return for their investment.
    SBA already permits SBICs to receive warrants from small 
businesses, which give the investing SBIC the right to acquire 
a portion of the equity of the small business. By pledging 
royalties or warrants, the small business is able to reduce the 
interest that would otherwise be payable by the small business 
to the SBIC. Importantly, the royalty feature provides the 
smaller small business with an incentive to attract SBIC 
investments when the return may otherwise be insufficient to 
attract venture capital.
    During the Committee's consideration of H.R. 3412, the 
Committee approved an amendment to increase the program 
authorization levels to fund participating securities. In 
Fiscal Year 1999, the authorization level would increase from 
$800 million to $1 billion; in Fiscal Year 2000, it would 
increase from $900 million to $1.2 billion. The two increases 
were approved by the Committee based on reports that demand in 
the SBIC program was growing at a rapid rate, and higher 
authorization levels are necessary if the SBIC Program is going 
to meet the demand for investment capital from the small 
business community.

                 Certified Development Company Program

    The 504 Certified Development Company (CDC) Program was 
enacted to leverage private sector resources to fund larger 
projects for small businesses to acquire, construct or expand 
their facilities. Such loans create job opportunities and 
improve the economic health of communities.
    Over the past four years, this Committee has devoted 
considerable attention to the 504 program. The Committee has 
been particularly concerned about reports and testimony from 
the Small Business Administration (SBA) and the Office of 
Management and Budget about low recoveries following a default 
by a borrower on a loan made under the program. Under current 
law, in nearly all cases when a 504 program borrower defaults, 
it is SBA, not the CDC, that takes the required liquidation and 
foreclosure actions. The failure of SBA to take aggressive 
actions to recover the value of collateral held following a 
default significantly increases the costs to borrowers to 
obtain a loan under the 504 program. This failure is 
demonstrated by the Administration's fiscal year 1999 budget 
estimates that show recoveries on defaulted loans under the 504 
program steadily declining. The recovery rate estimate utilized 
to determine the subsidy rate for the 504 loan program has 
declined from 44 percent in 1997 to 34.27 percent in 1998 to 
30.67 percent in 1999. Because the 504 program is self-funded 
through user fees, with no appropriation required by Congress, 
borrowers must pay higher fees to compensate for low recovery 
rates. The Committee believes that greater recoveries could be 
realized if all qualified CDCs were given the authority to 
liquidate and foreclose on the 504 loans in their portfolios.
    In response to the continuing problem of low recoveries on 
504 loans, the Committee, in 1996, approved legislation 
establishing a pilot program that allowed approximately 20 CDCs 
to liquidate loans that they originate. This pilot was 
implemented in June, 1997, by SBA, working with a group of CDCs 
representing the CDC industry. Early results of the pilot are 
encouraging, and allow the Committee to conclude that it is in 
the best interests of the 504 program to allow additional CDCs 
to conduct their own liquidation and foreclosure activities.
    Many CDCs have demonstrated the ability, through the pilot 
program and other lending programs in which they participate, 
to appropriately perform such activities; and have indicated a 
willingness to perform such functions to supplement SBA's 
activities in this area. Accordingly, Section 204 of this bill 
makes the pilot liquidation program permanent and requires SBA 
to permit certain CDCs to foreclose and liquidate defaulted 
loans that they have originated under the 504 loan program.
    Section 204 requires that a CDC submit to SBA a liquidation 
plan, workout plan or plan to purchase any other indebtedness 
secured by property securing the loan at issue, as applicable, 
prior to engaging in any liquidation or workout activities. 
Section 204 further requires SBA to approve or reject such 
plans within 15 business days or provide a CDC with written 
notice explaining the reason why such plans cannot be approved 
within this time-frame. These deadlines were drafted in 
consultation with SBA to ensure that SBA has sufficient time to 
appropriately consider the plans developed by CDCs. As 
originally introduced, the legislation provided that if SBA did 
not specifically approve a liquidation plan, workout plan or 
plan to purchase indebtedness within the required time frames, 
such plans would be deemed approved. This initial language was 
intended to ensure that SBA promptly respond to CDC liquidation 
plans. The Committee is concerned that if SBA is not 
expeditious in its consideration of efforts of CDCs to recover 
the value of collateral, the value of such collateral will 
depreciate. The legislation, therefore, requires SBA to report 
to Congress annually on the number of times SBA has failed to 
approve or reject a CDC's liquidation plan or loan workout plan 
and the Committee will closely monitor SBA's compliance with 
these deadlines.
    After approval by SBA of a CDC's liquidation plan, the 
Committee intends that the CDC be permitted to engage in 
liquidation activities in a manner consistent with that plan 
and in a reasonable and sound manner according to commercially 
accepted practices. A CDC need not obtain additional authority 
to engage in routine liquidation activities that are consistent 
with its approved liquidation plan. In addition, the Committee 
intends that CDCs not be required to obtain additional approval 
for non-routine activities that have been specifically approved 
in a liquidation plan. It may be appropriate for SBA to 
promulgate, as part of its regulations, guidelines on the type 
of routine liquidation activities that do not require further 
approval from SBA.
    Section 204 further permits CDCs to litigate matters 
related to their liquidation and foreclosure activities, 
subject to SBA's oversight of such litigation and SBA's right 
to assume the defense or prosecution of a case if the outcome 
of the case may adversely affect SBA's management of the 504 
loan program or if SBA is entitled to beneficial legal remedies 
not available to CDCs. The Committee understands that 
litigation may arise in the ordinary course of liquidation of 
real estate secured loans, including, for example, judicial 
foreclosure proceedings and intervention in bankruptcy 
proceedings. The Committee believes that CDCs should be 
permitted to engage in such routine litigation activity that 
arises in the ordinary course of their liquidation efforts. The 
Committee also believes that SBA should be kept aware of such 
routine litigation matters and may require certain 
notifications from CDCs on significant developments in such 
litigation. SBA, however, should not intervene in such 
litigation unless the outcome may adversely affect SBA's 
management of the program or if there are clear benefits to SBA 
or a CDC from SBA asserting legal remedies unavailable to the 
CDC.

               Small Business Federal Contract Set-Asides

    Section 502 of the Business Opportunity Development Reform 
Act of 1988 (P.L. 100-656 of Nov. 15, 1988) called upon the 
President to establish an annual goal for small business 
opportunities in Federal contracting, with the Government-wide 
goal to be ``not less than 20 percent of the total value of all 
prime contract awards for each fiscal year.'' This Government-
wide minimum was raised to 23% in the Small Business 
Reauthorization Act of 1997 (P.L. 105-135 of Dec. 2, 1997).
    The Committee is alarmed by a report issued in April 1998 
by the Department of Energy's Office of Inspector General 
(``Report on Inspection Regarding Small Business Contracting, 
Statistics Reporting, and Presentation''), which indicates 
inter alia that the Department of Energy (DoE) exploited a 
change in its statistical methodology to inflate its small 
business contracting achievements. For Fiscal Year 1994, the 
DoE had set a goal of 25% of prime contracts to be awarded to 
small business. At the end of that year, the DoE reported 
awarding $3,328,780,000 in contracts to small business out of a 
total of $9,404,716,000--an impressive 35.4% achievement that 
well exceeded the 25% goal. Moreover, the DoE set a Fiscal 1995 
goal of awarding $3,029,100,000 in prime contracts to small 
business, out of a base of $8,780,000,000 in total prime 
contracts, a goal of 34.5%. Although this would have been a 
modest decline from the 35.4% achievement in Fiscal 1994, it 
would still have been an encouraging contribution toward the 
Government-wide contracting goal, then 20%. These goals were 
signed in a Performance Agreement between the Secretary of 
Energy and the President.
    The remarkable growth in the DoE's small business 
contracting turned out to be the result of a reduction in the 
base number the DoE used as its total value of prime contracts. 
Reducing the denominator of a fraction, with no change in the 
numerator, will necessarily increase the percentage that the 
fraction represents. Initially, the Deputy Administrator of the 
Small Business Administration accepted this change in 
methodology due to ``a unique situation'' at DoE regarding the 
excluded contract dollars. However, the Deputy Administrator 
subsequently asked DoE to recalculate its small business goals 
and achievements after observing that DoE's ``unique 
situation'' was not in fact unique. When the excluded contract 
dollars were restored to the base number of total prime 
contract dollars, the DoE's Fiscal 1994 achievement dropped 
from the 35.4% initially reported to 19.5% (below the DoE's 25% 
goal). Further, the Fiscal 1995 goal dropped from 34.5% to 
18.4%.
    The Inspector General's report notes that, although the 
inflated figures were included in a Performance Agreement 
signed with the President, the DoE did not revise its 
Performance Agreement to reflect the new numbers requested by 
SBA. The Committee is greatly disturbed by the failure to keep 
the President apprised of these changes, particularly since the 
Small Business Act, as amended in 1988 and 1997, places 
responsibility in the President for setting the Government-wide 
goal (provided it is not less than 23%). Moreover, the 
Committee is appalled by comments made in the Inspector 
General's report by the DoE's Director of Economic Impact and 
Diversity that ``we do not believe it was necessary'' to notify 
the head of the Executive Branch of these significant changes 
by an Executive agency.
    The Committee believes that such notification is in fact 
necessary. Moreover, the Committee is concerned that the 3% 
increase in the Government-wide prime contracting goal may 
increase the temptation for agencies to engage in statistical 
manipulation to give the mere appearance of compliance without 
truly increasing small business contracting opportunities. 
Accordingly, the Committee has included new reporting 
requirements intended to disclose and monitor these changes. 
The Committee is concerned that the SBA has issued letters 
appearing to authorize, and later to de-authorize, these 
methodological changes. The Committee wishes to be kept 
apprised of any such letters, and to have the benefit of 
informed comments by a small business advocate on the 
advisability of issuing each such letter.
    Thus, copies of such letters must be provided to the Senate 
and House Small Business Committees at least 45 days before 
such letters may be issued. Further, the SBA's Chief Counsel 
for Advocacy shall receive copies of such letters as well, and 
shall submit written comments on the appropriateness of each 
such letter within 30 days after receipt. The Committee 
believes this to be consistent with the Chief Counsel's current 
responsibilities, which include reporting on a variety of 
issues concerning the Federal Government's relationship with 
the small business sector. (See 15 U.S.C. Sec. Sec. 634b, 
634c.) As with the Chief Counsel's other reports (see 15 U.S.C. 
Sec. 634f), the Chief Counsel's comments on letters to change 
an agency's statistical methodology will not be subject to 
prior review by other Executive Branch agencies.
    To prevent the use of methodological changes to inflate an 
agency's small business achievements, the Committee has 
included provisions that require each agency making such 
methodological changes to include, in its annual report on 
small business, a calculation of what the reporting year's 
total contract dollar value would have been under the 
methodology used during each of the previous two years. The 
calculation of the total dollar value under the previous year's 
methodology is intended to disclose the effect of that year's 
methodological change, to avoid giving the appearance of sudden 
changes in small business contracting fromyear to year. The 
calculation of the total dollar value under the methodology used two 
years previously is intended to disclose longer term trends: for 
example, whether the cumulative effect of changes during the current 
year and of changes during the previous year are consistently allowing 
the agency to overstate its small business contracting achievements.
    Finally, the Committee has also included broader language 
requiring disclosure of any data excluded from an agency's 
small business report, any report that deviates from the 
requirements of the Small Business Act, and of the reasons for 
such changes. This is intended to capture changes in small 
business reporting that may be due to problems or practices not 
currently known to the Committee. Because some agencies have 
fallen behind in reporting on their small business programs 
(most notably the DoE, which the Inspector General found was 
``not in compliance'' with statutory requirements), the 
Committee has imposed a new deadline for reporting to the 
Congress: 180 days after the end of a fiscal year.
    The Committee believes the information required by this 
bill is necessary to monitor the true state of small business 
contracting opportunities. Although these reporting provisions 
entail some additional work, it is hoped this process will 
prevent abuse of these methodological changes and will keep the 
number of such changes to an absolute minimum of truly 
necessary adjustments.
    The Committee has not included language in this section to 
develop an overall methodology or baseline beyond those 
currently necessary to carry out existing law. The Committee is 
concerned with changes from year to year that could prove 
misleading to the users of small business procurement 
statistics. Generally, a statistic for a given year should be 
comparable to the same statistic for prior years and for 
subsequent years--and if it is not comparable, the reasons 
should be disclosed and explained. In this way, changes in the 
statistic can help monitor changes in the phenomenon being 
measured, not simply reflect mere manipulation of statistical 
methodology.
    The Committee notes that the minimum Government-wide goal 
for small business participation is fixed statutorily at 23% 
``of the total value of all prime contract awards for each 
fiscal year.'' The Committee expressly directs that the value 
of a contract or type of contract may not be excluded from this 
total value solely because of the contracting agency's 
subjective judgment that such a contract is not awardable to 
small business. The statutory goal is not set in terms of a 
percentage of ``contracts winnable by small business'' actually 
awarded to small business; it is set in terms of total prime 
contract dollars, and the Committee expects the value of all 
prime contracts (and only prime contracts) to be included in 
that figure.

                        assistance for veterans

    Last year, when Congress approved the Small Business 
Reauthorizaton Act of 1997, it included a separate title to 
improve business opportunities for service-disabled veterans. 
The Senate and House Committees on Small Business believed 
strongly that these individuals deserve better support from the 
Federal agencies than they have received historically. Last 
year's bill included a provision requiring the SBA to undertake 
a comprehensive report containing the findings and 
recommendations of the SBA Administrator on the needs of small 
businesses owned and controlled by service-disabled veterans.
    Section 206 of H.R. 3412 would take the next step to 
strengthen the mandate that SBA's programs be more responsive 
to all veteran small business owners. The bill would direct 
that veterans receive comprehensive help at SBA. Section 206 
elevates the Office of Veterans Affairs at SBA to the Office of 
Veterans Business Development, which would be headed by an 
Associate Administrator who would report directly to the SBA 
Administrator.
    In addition, section 206 would establish an Advisory 
Committee on Veterans' Business Affairs composed of 15 members. 
Eight members would be veterans who own small businesses, and 
seven members will be representatives of national veterans 
service organizations. Further, the bill would create the 
position of National Veterans' Business Coordinator within the 
Service Corps of Retired Executives (SCORE) Program. This new 
position would work in the SBA headquarters to ensure that 
SCORE's programs nationwide include entrepreneurial counseling 
and training for veterans.
    Section 206 of the bill would make veteran small business 
owners eligible to apply for small, start-up loans under SBA's 
Microloan Program. And the SBA Office of Advocacy would be 
directed to evaluate annually efforts by Federal agencies, 
business and industry to help business that are owned and 
controlled by veterans.
    The Committee believes that SBA has taken too long to 
undertake the study directed by last year's bill. Now that SBA 
has finally undertaken that study, it should proceed with the 
study expeditiously and should implement Section 206 as 
promptly as possible. The Committee intends to review 
thoroughly the efforts by SBA with respect to veterans when it 
conducts its oversight of SBA programs in early 1999.

                       section 7(a) loan program

    Section 207 repeals a provision requiring that SBA pay a 
lender under the 7(a) loan program 100 basis points less than 
the interest rate on a loan when a lender is paid the 
guaranteed portion of a defaulted 7(a) loan. Two years ago, 
Congress enacted this requirement anticipating that it would 
decrease subsidy costs of the 7(a) program substantially. This 
has not proved to be the case and the Committee believes that 
the paperwork burden caused by this provision has been 
disproportionately high compared to the savings achieved.
    The Committee has heard concerns from community banks, 
including rural banks, that the monthly reporting requirements 
in the SBA's 7(a) loan program are burdensome. Lenders have 
stated they lack the loan volume or personnel to meet reporting 
requirements for the 7(a) loan program in a cost effective 
manner. In response, the SBA has simplified and varied theforms 
used to report the 50 basis point fee on all 7(a) loans. The Committee 
views this as a positive step in assisting rural banks in complying 
with reporting requirements. However, the Committee continues to hear 
from community banks, especially rural banks, about difficulties in 
meeting the monthly reporting requirements. Therefore, the Committee 
requests that SBA provide it with a report, within 180 days, on the 
ability of banks, particularly rural banks, to meet the monthly 
reporting requirement without any undue burden. The report should also 
contain an analysis of the benefits of monthly reporting as compared 
with quarterly reporting on the subsidy rate and the effectiveness of 
any contractors or subcontractors used to compile data for the SBA's 
lender reporting requirements for the 7(a) program as it relates to the 
subsidy rate.

                   disaster mitigation pilot program

    Section 208 incorporates Senator Cleland's amendment to 
establish a pilot disaster mitigation loan program at the Small 
Business Administration. This section would permit SBA to 
establish a pilot program using up to $15 million of disaster 
loans annually from FY 1999--2003 to provide small businesses 
located in disaster prone areas with low interest, long-term 
disaster loans to finance preventive measures to mitigate 
against future disaster losses. The pilot program would operate 
in disaster prone areas designated by the Federal Emergency 
Management Agency (FEMA). FEMA has launched ``Project Impact,'' 
which emphasizes emergency preparedness, in response to the 
problem of increased costs and personal devastation caused by 
repeated natural disasters. Focusing on mitigation of future 
disaster losses, rather than the current strategy of response 
and recovery, has been estimated to save as much as 50 percent 
of projected disaster loan costs.
    Under current law, SBA disaster loans may be used for 
mitigation purposes only to the extent that includes repairing 
or replacing existing protective devices that are destroyed or 
damaged in an area that has recently suffered a natural 
disaster. In addition, up to 20 percent of the disaster loan 
amount may be used to install new mitigation devices that will 
prevent future damage. Under the Disaster Mitigation Pilot 
Program, a small business borrower would be allowed to use 100 
percent of an SBA disaster loan for disaster mitigation 
purposes within an area designated by FEMA.

                           microloan program

    Section 209(a) would strike the cap on the amount of loan 
funds that a single state can receive under the Microloan 
Program, while ensuring equitable funding of intermediaries. 
This provision was adopted during the Committee's consideration 
of H.R. 3412. Current law requires the SBA to use a formula, 
based on state population compared to national population, to 
determine how much funding a state can receive in any fiscal 
year. This formula neither takes into account the demand for 
microloans in any single state nor does it consider that 
several states have intermediaries with the capacity to 
generate high loan volumes. The formula has worked to penalize 
several rural states with small populations and a strong demand 
for microloans. In addition to striking the state funding cap, 
Section 209 would direct SBA to fund intermediaries equitably. 
This provision would ensure that Microloan intermediaries in 
every state have access to adequate microloan funds.
    Section 209(b) incorporates Senator Kerry's amendment to 
restructure the loan loss reserve requirements for SBA's 
Microloan Program. This provision is designed to permit those 
Microloan Intermediaries with historical loss rates of less 
than 15% during the previous five years to reduce their loan 
loss reserves. The Committee would urge Intermediaries to 
direct their savings from this provision to make additional 
microloans or much needed technical assistance available for 
the borrowers.
    This section authorizes the SBA Administrator, upon request 
of a Microloan Intermediary with at least five years' 
participation in the program and when certain conditions are 
met, to reduce its loan loss reserve from 15 percent of its 
outstanding microloans to its five-year average loan loss rate. 
In no case could the loan loss reserve be reduced to less than 
10 percent. The maximum loan loss reserve would remain at 15 
percent. In determining whether to approve an Intermediary's 
application for a reduced loan loss reserve, the Administrator 
should consider the average loan losses of the Intermediary for 
each of the prior five years and any other factors that are 
likely to impair the ability of the Intermediary to repay its 
obligations to the SBA. Once an Intermediary's application for 
a reduced loan loss reserve has been approved, the SBA is 
required to conduct an annual review of the reduced loan loss 
reserve, and to make appropriate adjustments to the loss 
reserve requirement which would be necessary to protect the 
Federal government from excessive risk of loss.

                         real estate appraisal

    Section 210 was incorporated into the legislation at the 
Committee's markup as an amendment proposed by Senator Kerry. 
This section changes SBA's appraisal standards under the 504 
and 7(a) loan programs to require appraisals of real estate 
collateral by state-licensed or state-certified appraisers only 
when more than $250,000 of the loan proceeds are to be used to 
acquire, construct or improve real property. The section also 
specifies that a lender must require a state-certified or 
state-licensed appraisal on loans of less than $250,000 if the 
lender requires such appraisals for similar unguaranteed loans.
    This section conforms the appraisal requirements for the 
7(a) and 504 loan programs to the regulations promulgated on 
June 7, 1994, by the Office of the Comptroller of the Currency, 
Office of Thrift Supervision, Federal Deposit Insurance 
Corporation and the Federal Reserve Board. These regulations 
established a loan amount of $250,000 as the threshold at or 
below which depository institutions are not required to obtain 
appraisals of real estate collateral. SBA currently requires 
lenders to obtain appraisals on collateral on most loans 
exceeding $100,000. This mandate arises from a circular 
(Circular No. A-129) issued by the Office of Management and 
Budget (OMB) which requires all agencies that manage credit 
programs to ensure that all credit transactions over $100,000 
have an appraisal prepared by a state-licensed or state-
certified appraiser.
    Committee staff has had numerous discussions with officials 
from OMB and SBA on whether increasing to $250,000 the loan 
amount threshold that triggers an appraisal requirement will 
increase risk to Federal government funds. OMB and SBA 
officials have assured Committee staff repeatedly that raising 
the threshold to $250,000 will not expand risk to the 
government or affect the subsidy rates for the 504 or 7(a) loan 
program. In addition, prior to markup, the Committee received a 
letter from SBA, that was approved by OMB, providing that 
neither SBA nor OMB objected to raising this threshold. The 
Committee has received information that this change will save 
borrowers approximately $1,000 to $3,000 on each loan where an 
evaluation of real estate collateral is required in lieu of an 
appraisal.

      Community Development Venture Capital Demonstration Program

    Section 211 authorizes a total of $20 million over four 
years to create the Community Development Venture Capital 
(CDVC) Demonstration Program at the SBA. The purpose of this 
new program is to develop and expand a new but growing field of 
organizations that use the tools of venture capital to create 
good jobs, productive wealth, and entrepreneurial capacity that 
benefit disadvantaged people and economically distressed 
communities. The Committee would expect the SBA to follow 
established definitions, such as the definition for the HUBZone 
Program, to identify ``economically distressed communities'' 
that will be eligible to benefit under this demonstration 
program.
    CDVC funds make equity investments in highly competitive 
small businesses that hold the promise of rapid growth. The 
investments typically range from $100,000 to $1 million, and 
the companies in which CDVC funds invest generally employ 
between ten and one hundred people. Investors in CDVC funds 
include foundations, banks, insurance companies, corporations, 
and private individuals.
    A small number of CDVC organizations have been successful 
at producing a ``double bottom line'' of not only financial 
returns, but also social benefits in the form of good jobs and 
healthier communities. Investing capital in smaller businesses 
in inner cities and rural areas, however, requires a highly 
specialized set of skills. Businesses in low-income communities 
need patient, longer-term capital. They need investors who will 
provide significant entrepreneurial and managerial assistance. 
They need equity investments far smaller than most traditional 
venture capital investments. For all these reasons, CDVC funds 
are generally more expensive to operate as a percentage of 
funds under management.
    Under the CDVC Demonstration Program, SBA will make grants 
to experienced CDVC organizations that act as intermediaries to 
provide technical expertise and operating assistance to new, 
emerging, less experienced CDVC organizations. The SBA also 
will make grants to ``developmental organizations'' to conduct 
training and research to promote the sound development of CDVC 
organizations. Intermediaries will match each grant dollar with 
a dollar raised from non-Federal sources. None of the Federal 
grant funds, nor the matching amount provided by the grant 
recipient, can be used to fund equity or debt investments.
    CDVC organizations, sometimes referred to as ``funds,'' may 
be not-for-profit, for-profit, and quasi-public organizations. 
Their structures encompass for-profit ``C'' corporations, 
limited partnerships, limited liability companies, community 
development corporations, and Small Business Investment 
Companies.

                         Technical Corrections

    Provisions in Section 212 make corrections to drafting 
errors that arose during the consideration of the HUBZone Act 
of 1997 (Title VI of the Small Business Reauthorization Act of 
1997, P. L. 105-135 of Dec. 2, 1997). The technical corrections 
make the literal language of the statute conform to the 
understanding and intent of the Congress at the time of 
enactment.
    As this Committee noted in reporting out the Small Business 
Reauthorization Act of 1997 (S. Rpt. 105-62, at 26), the 
HUBZone Act intended to create three types of HUBZones: urban 
HUBZones defined by qualified census tracts; rural HUBZones 
consisting of counties that qualify on the basis of high 
unemployment or low income; and Federal Indian reservations. 
This approach was retained during final passage of the 
legislation, but a clause that was misplaced during the process 
of enactment could potentially undermine this Congressional 
intent.
    In the definition of ``qualified nonmetropolitan county,'' 
the language of the statute includes both the unemployment and 
income tests for qualification, but the clause describing the 
unemployment test (15 U.S.C. Sec. 632 (p)(4)(B)(ii)) is 
misplaced outside of the restriction limiting the definition to 
nonmetropolitan counties (15 U.S.C Sec. 632(p)(4)(B)(i)(I)). As 
a result, a literal reading of the definition would allow both 
nonmetropolitan and metropolitan counties with unemployment 
rates at least 140% of statewide average to be considered 
``qualified nonmetropolitan counties''--an absurd result not in 
accord with the expressed Congressional intent. The Committee 
has included a technical correction to this section.
    Similarly, the description of urban HUBZones is not 
expressly clear that these refer to ``qualified census tracts'' 
in metropolitan areas. The Secretary of Housing and Urban 
Development designates census tracts in rural areas as well as 
metropolitan ones, but the HUBZones legislation addresses rural 
areas on a county-level basis, instead of the census tract 
basis that is used for urban areas. Thus, the Committee has 
included a technical correction to clarify the application of 
census tracts to metropolitan areas. Again, this brings the 
face of the statute into accord with the Congressional intent 
expressed at the time of passage.
    The Committee included further language to correct the 
reference to the Internal Revenue Code of 1986 in which the 
definition of ``qualified census tract'' is found. In 15 U.S.C. 
Sec. 632(p)(4)(A), the HUBZone Act refers erroneously to 26 
U.S.C. Sec. 42(d)(5)(C)(ii)(I) for the definition of 
``qualified census tract.'' The correct reference is 26 U.S.C 
Sec. 42(d)(5)(C)(ii).
    Without this correction, the list of qualified census 
tracts published by the Secretary of Housing and Urban 
Development would not be a valid guide to the HUBZone Program. 
TheHUD Secretary designates census tracts subject to a 
restriction that no more than 20% of the population in a metropolitan 
statistical area may be included; in the absence of this limitation, 
additional tracts would qualify as HUBZones beyond those listed by the 
Secretary. Since the Congress did not include a mechanism for 
determining those additional tracts, the Congress clearly did not 
intend to exclude this provision from the HUBZone Program's definition 
of ``qualified census tract.'' Thus, the Committee has corrected the 
reference to accord with the Congressional intent.
    Last, the Committee deleted a typographical error in the 
definition of ``HUBZone small business concern'' (15 U.S.C. 
Sec. 632(p)(3)).

    TITLE III--SMALL BUSINESS ENVIRONMENTAL ASSISTANCE PILOT PROGRAM

    Title III incorporates Senator Burns'' amendment to create 
the Small Business Environmental Assistance Pilot Program to 
provide technical assistance to small businesses to help them 
comply with environmental regulations. The pilot program has 
two parts. First, an Advisory Committee on Small Business 
Environmental Assistance Program will be established to review 
existing programs that provide environmental assistance to 
small businesses and to chart the course for small business 
environmental compliance assistance. Second, SBA is authorized 
to establish a demonstration grant program, based on the 
recommendations and strategy developed by the Advisory 
Committee, to provide 4-year grants to certain small business 
development centers to provide environmental compliance 
assistance to small businesses in partnership with existing 
programs.
    On April 28, 1998, the Committee on Small Business held a 
hearing entitled ``Environmental Compliance Tools for Small 
Business.'' Witnesses provided testimony on the complexity of 
environmental regulations and the importance of environmental 
compliance tools designed to help small businesses comply with 
the laws and regulations administered by the Environmental 
Protection Agency (EPA). Witnesses commented on effective 
programs that provide small businesses with the assistance they 
need and recommended that improvements could be made with 
increased funding and better coordination. It was recommended 
that the strengths and weaknesses of existing programs be 
reviewed and the future direction for compliance assistance be 
developed strategically.
    Title III establishes the Advisory Committee on Small 
Business Environmental Assistance Programs to provide advice 
and recommendations to SBA, EPA, and Congress on ways to 
enhance existing programs designed to improve the environmental 
performance of small businesses. The Advisory Committee would 
include the Chief Counsel of the Office of Advocacy of SBA, the 
Chair of Small Business Advocacy of EPA, the Assistant 
Administrator for Small Business Development Centers of SBA, 
and not more than 15 additional members which are to include 
not more than seven representatives of small business concerns 
or their trade associations, not more than four representatives 
of small business development centers, and not more than four 
representatives of state environmental compliance assistance 
programs. The Chief Counsel will serve as the Chair of the 
Advisory Committee and is charged with the responsibility of 
selecting the 15 additional members after consultation with the 
Assistant Administrator and the EPA Small Business Advocacy 
Chair. The Assistant Administrator is to recommend the 
representatives of the small business development centers, and 
the EPA Small Business Advocacy Chair is to recommend the 
representatives of the state environmental compliance 
assistance programs.
    In selecting the members of the Advisory Committee, the 
Committe on Small Business urges the Chief Counsel to give 
careful consideration to their knowledge of environmental 
regulations and involvement with existing compliance assistance 
programs. The members selected to represent small business 
should comprise a cross section of industries and collectively 
should have experience with EPA's various regulations and 
program offices (i.e, air, water, hazardous waste, etc.). The 
individuals selected can come directly from a small business or 
a trade association representing small businesses, but each 
individual must be knowledgeable about EPA regulations and 
environmental compliance assistance programs, including state 
small business stationary source technical and compliance 
assistance programs (established under section 507 of the Clean 
Air Act), state pollution prevention programs, etc. The EPA 
Advocacy Chair should consider the full range of state 
compliance assistance programs, and not just those authorized 
under section 507, when selecting Advisory Committee members to 
represent state environmental compliance assistance programs.
    Title III directs the Chief Counsel to make the 
appointments to the Advisory Committee no later than 60 days 
after the date of enactment. Each member of the Advisory 
Committee shall serve for a term of one year. If a vacancy 
occurs, it will be filled at the discretion of the Advisory 
Committee.
    The duties of the Advisory Committee include: reviewing 
each SBA and EPA program that is designed to assist small 
business concerns in complying with environmental laws and 
regulations or to enhance environmental performance of small 
business concerns. The Committee on Small Business intends this 
to include programs established under section 21 of the Small 
Business Act, section 213 of the Small Business Regulatory 
Enforcement Fairness Act, and section 507 of the Clean Air Act. 
The Advisory Committee is to develop a strategy to enhance the 
efficacy of these compliance assistance programs in assisting 
small businesses with compliance and to improve small 
businesses'' environmental performance. The recommended means 
for enhancing these programs can include improved techniques 
for measuring the achievements of compliance resulting from 
such assistance programs, innovative compliance assistance 
demonstration projects, and strengthening the capabilities of 
State and local compliance assistance programs. In addition, 
the Advisory Committee is to recommend types of pilot programs 
that would implement the strategy developed to enhance the 
efficacy of the existing programs.
    Title III directs that not later than September 30, 1999, 
the Advisory Committee shouldprovide a report containing the 
above-mentioned strategy and recommendations to the Administrator of 
SBA, EPA Administrator and the Committees on Small Business in the 
Senate and House of Representatives. To assist the Advisory Committee 
in accomplishing its responsibilities, it may secure information from 
any department or agency of the Federal Government. The Chief Counsel 
for Advocacy, as chair of the Advisory Committee, shall require that 
the head of such department or agency furnish the information to the 
Advisory Committee as requested.
    The Advisory Committee shall meet no less than twice during 
Fiscal Year 1999. In between meetings, the Committee on Small 
Business expects the Chief Counsel of Advocacy, the Assistant 
Administrator, the EPA Advocacy Chair, and other departments 
and agencies as requested to gather information and prepare 
materials to further the efforts of the Advisory Committee. The 
funds authorized for carrying out this section include $500,000 
for direct support and reimbursement of costs for the Advisory 
Committee. A portion of these funds are to be used to reimburse 
the members of the committee for their travel and subsistence 
expenses, and the balance will be used to provide the direct 
support required by the Advisory Committee and as provided by 
the Office of the Chief Counsel for Advocacy.
    Title III authorizes the SBA to establish a demonstration 
program based on the criteria and recommendation in the 
Advisory Committee's report, whereby interested small business 
development centers (SBDCs) will apply to the SBA for 4-year 
grants of not more than $400,000 per year to carry out 
environmental assistance programs. Not later than 60 days after 
the Advisory Committee submits its report, SBA shall publish in 
the Federal Register a notice of the program, including 
application requirements and selection criteria based on the 
strategy and recommendation included in the Advisory 
Committee's report. SBDCs must submit grant applications not 
later than 60 days after the notice is published, and the SBA 
shall select the SBDCs not later than 90 days after the notice 
is published.
    The SBA shall select 10 SBDCs, one from each EPA region if 
practicable, using the selection criteria based on the strategy 
and recommendation in the Advisory Committee report and 
consistent with the additional selection criteria provided in 
this subsection. Highest priority for selection shall be given 
to SBDCs that form partnerships with a State small business 
stationary source technical and compliance assistance program, 
or other environmental assistance providers, including trade 
associations, pollution prevention programs, etc. The 
partnership is intended to ensure the application offers the 
requisite experience and expertise in providing environmental 
compliance assistance. SBA shall select applications that 
demonstrate a cooperative approach between the SBDC and their 
environmental compliance assistance partner that utilize the 
relative strengths of each. Not later than 60 days after the 10 
SBDCs are selected, the SBA shall make the grants available to 
the successful applicants. The statute limits the grant amounts 
to $400,000 but does not establish a minimum amount. The 
Committee expects SBA to use discretion in determining the 
amount of each grant, taking into consideration the demands in 
the State or other geographic area served by the SBDC, the 
complexity and scope of the proposed assistance program, and 
the number of partners affiliated with the SBDC.
    Title III authorizes $4 million per year for Fiscal Year 
2000 through Fiscal Year 2003. Of the amounts made available 
for the program during the Fiscal years 2000 through 2003, not 
more than six percent may be used for administration, 
evaluation, and reporting, but the six percent shall include 
the cost of a full-time SBA employee to assist in administering 
the program. Amounts made available to a SBDC by SBA or another 
agency to carry out section 21(c)(3)(G) will not be included in 
the calculation of the maximum funding under this program. 
Grants awarded a SBDC under this pilot demonstration program 
are not subject to a matching requirement. However, if this 
program is expanded or reauthorized, the Committee expects that 
a matching requirement consistent with that required under 
Section 21(a)(4) of the Small Business Act would apply.
    Not later than March 1, 2003, the General Accounting Office 
shall submit to the Committees on Small Business of the Senate 
and House of Representatives an evaluation of the program, the 
criteria of which shall be developed under the direction of the 
Committees.

                          III. Committee Vote

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following vote was recorded on September 15, 
1998.
    Seven amendments were adopted by voice votes to the Year 
2000 Readiness and Small Business Programs Restructuring and 
Reform Act of 1998, Senator Bond's amendment in the nature of a 
substitute to H.R. 3412.
    A motion by Senator Bond to adopt the Year 2000 Readiness 
and Small Business Programs Restructuring and Reform Act of 
1998 as an amendment in the nature of a substitute to H.R. 3412 
was approved by a unanimous 18-0 recorded vote, with the 
following Senators voting in the affirmative: Bond, Kerry, 
Burns, Coverdell, Kempthorne, Bennett, Warner, Frist, Snowe, 
Faircloth, Enzi, Bumpers, Levin, Harkin, Lieberman, Wellstone, 
Cleland, and Landrieu.

                  IV. Evaluation of Regulatory Impact

    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who utilize the services provided.

                           SECTION BY SECTION

                                TITLE I

Section 101. Findings

    This section sets forth Congressional findings on the 
effect the Year 2000 computer problem likely will have on small 
business concerns.

Section 102. Year 2000 Computer Problem Loan Guarantee Program

    This section requires the Small Business Administration to 
establish a pilot loan guarantee program whereby SBA would 
guarantee 50 percent of the principal amount of a loan, not 
exceeding $50,000, made by a private lender to assist small 
businesses in correcting Year 2000 (Y2K) computer problems. The 
Y2K loan program will sunset on October 31, 2001. This section 
further requires SBA to promulgate, within 60 days, Y2K loan 
program regulations based on the guidelines governing SBA's 
FA$TRAK pilot program, or its successor program or pilot 
program.
    Under the FA$TRAK program, and thereby under the Y2K loan 
program, lenders originating loans are permitted to process and 
document loans using the same internal procedures they would on 
loans of a similar type and size not governed by a government 
guarantee. In return, lenders receive a smaller guarantee than 
under the 7(a) loan program and waive payment of such guarantee 
until after liquidation. This section also provides that each 
lender designated as a Preferred Lender or Certified Lender by 
SBA would be eligible to participate in the Y2K loan program. 
This section further requires SBA to inform all eligible 
lenders of the availability of the program.

Section 103. Pilot Program Requirements

    This section establishes two reporting requirements for the 
SBA relating to pilot programs. First, SBA is required to 
report to the House and Senate Committees on Small Business 
prior to making any changes to a pilot program it administers 
under the 7(a) loan program or the initiation of any pilot 
program under the 7(a) program, if such change may affect the 
subsidy rate estimates for the 7(a) program. Second, SBA is 
required to report to the House and Senate Committees on Small 
Business on the number and amount of loans made under all pilot 
programs commenced under the 7(a) loan program, the number of 
lenders participating in such programs, and the default rate, 
delinquency rate and recovery rate for loans made under such 
pilot programs.

Section 104. Amendment to purposes of 7(a) loan program

    The legislation amends the 7(a) loan program to state that 
one of the purposes of the 7(a) loan program is to ``assist 
small business concerns in meeting technology requirements for 
the Year 2000.'' This section was added from Senator Kerry's 
legislation. It is intended to clarify that all 7(a) lenders, 
regardless of their status as regular, Certified or Preferred 
Lenders, may also make loans for Y2K corrections under the 7(a) 
loan program and clarify that the 7(a) loan program may be used 
by a lender to fund a small business concern's Y2K corrections.

                                TITLE II

Section 201. Women's Business Center Program

    Subsection (a) sets forth the findings of the Committee in 
support of establishing additional Women's Business Center 
sites.
    Subsection (b) increases the funding authorization for 
grants under the Small Business Administration's Women's 
Business Center program from $8 million to $12 million, 
effective in Fiscal Year 1999 and thereafter.
    Subsection (c) amends the Small Business Reauthorization 
Act of 1997 to establish a uniform fourth-year matching 
requirement (one non-Federal dollar for every Federal dollar 
awarded) for all Centers receiving grants from SBA. The two 
non-Federal dollar to one Federal dollar matching requirement 
will apply only to the fifth year a Center receives Federal 
funding. This change will take effect as if included in the 
1997 Act.
    Subsection (d) directs the General Accounting Office (GAO) 
to conduct a baseline and follow-up study of SBA's 
implementation of the Women's Business Center program to ensure 
that SBA provides appropriate oversight and staff support to 
this popular and growing program. The GAO reports will assist 
the Committees on Small Business in the Senate and House of 
Representatives in their oversight of the program's expansion.

Section 202. SBIR Program

    Subsection (a) recognizes the need for the Federal 
government to take a more active role in encouraging research, 
development and production of actual products in the 
marketplace for assistive technology end-users. It encourages 
all the agencies participating in the Small Business Innovation 
Research (SBIR) Program to solicit proposals to advance 
research and development in this area.
    Subsection (b) directs each agency subject to the 
requirements of the SBIR Program to conform its definition of 
``extramural budget'' to the definition approved by OMB.
    Subsection (c) directs Federal agencies to conduct program 
outreach activities to support the SBIR Program using existing 
outreach activities, such as the electronic commerce resource 
centers and the procurement technical assistance centers.
    Subsection (d) repeals the sunset provision in existing 
law.

Section 203. SBIC Program

    Section 203 amends the Small Business Investment Act of 
1958 to permit a Small Business Investment Company to receive 
contingent obligations, such as warrants, royalties, and 
conversion rights, when financing a small business. The 
contingent obligations will not be used by SBA to determine 
whether the SBIC has complied with the maximum interest rate an 
SBIC can charge in a loan transaction.
    Subsection (b) increases the funding level for 
participating securities from $800 million to $1 billion in FY 
1999 and from $900 million to $1.2 billion in FY 2000.
    Subsection (c) incorporates technical corrections in the 
SBIC Program that were included in the House-passed bill. It 
strikes the requirement for SBA to reserve 50% of the leverage 
for SBICs with less than $20 million in private capital. It 
provides for determining eligibility of a business that is not 
required to pay Federal income tax. It reduces the requirement 
for SBA to issue SBIC guarantees and trust certificates to once 
every twelve months.

Section 204. 504 Certified Development Company Program

    Subsection (a) amends the Small Business Investment Act of 
1958 to require the Small Business Administration to permit 
certain certified development companies (CDCs) to foreclose and 
liquidate defaulted loans that such companies have originated 
under the 504 loan program. The Small Business Administration 
currently is conducting a pilot program that allows 
approximately 20 CDCs to liquidate loans that they have 
originated. By all accounts, this pilot program has been a 
success, with CDCs obtaining higher recoveries than SBA. This 
subsection makes the pilot program permanent by requiring the 
SBA to authorize CDCs that meet certain eligibility 
requirements to liquidate loans they originate.
    Subsection (a) establishes eligibility requirements that 
must be met by a CDC to qualify under this loan liquidation and 
foreclosure program.
    The legislation also describes the loan foreclosure and 
liquidation activities that must be undertaken by a qualified 
CDC and establishes a framework for SBA approval of liquidation 
plans and oversight of litigation relating to liquidation of 
loans. SBA may assume the defense or prosecution of litigation 
in certain circumstances, and SBA is required to provide 
written notification to CDCs if SBA does not approve a 
liquidation or workout plan within specified time frames. The 
legislation originally provided that such plans would be deemed 
approved if SBA did not meet respond within the mandated time 
frames. To assist the Committee in monitoring SBA'scompliance 
with the time frames in the legislation, the substitute further 
requires SBA to annually report to the Committee on the number of times 
it has failed to meet such approval deadlines.
    Subsection (a) also prohibits CDCs from engaging in 
activities causing an actual or apparent conflict of interest 
and it sets forth the circumstances under which SBA may suspend 
a qualified CDC from the loan foreclosure and liquidation 
program. The subsection directs SBA to submit an annual report 
to the Senate and House Committees on Small Business on the 
results of the delegation of authority to CDCs to foreclose and 
liquidate loans and a comparison of such results to SBA's 
liquidation performance.
    Subsection (a) directs SBA to promulgate final regulations 
within 150 days of enactment of the Act implementing the 
requirements set forth in subsection (a).
    Subsection (b) amends Section 501 of the Small Business 
Investment Act of 1958 to provide that the achievement of 
expansion of women-owned business development is one of the 
public policy goals of 504 loan program. This will permit 
women-owned businesses to receive loans of up to $1,000,000 
under the 504 loan program. Loans that do not achieve one of 
the stated public policy goals of the 504 loan program are 
limited to $750,000.

Section 205. Small business Federal contract set asides

    Section 205 addresses the Committee's concern about Federal 
agencies that have attempted to overstate their success in 
meeting the Federal contract small business set-aside goal, 
which was increased to 23% from 20% by the Small Business 
Reauthorization Act of 1997. This section directs SBA to submit 
an annual report to the Senate and House Committees on Small 
Business within 180 days of the end of each fiscal year that 
details the status of each Federal agency in meeting its small 
business set-aside goal.
    Section 205 directs SBA to identify any agency that has 
changed its statistical methodology in calculating either the 
dollar value of prime contracts and subcontracts awarded to 
small businesses or the total dollar value of the agency's 
contracting awards against which the small business goal is 
measured, as well as any other omission of contracting data. 
This provision is intended to prevent the use of methodological 
changes to create the appearance of success at meeting the 
small business goals.
    Section 205 requires that SBA submit to the Senate and 
House Committees on Small Business at least 45 days in advance 
any waiver it intends to grant to permit an agency to change 
its statistical methodology in calculating both the dollar 
value and percentage of Federal contract set-asides for small 
businesses. SBA is to provide a similar notification to the 
Chief Counsel for Advocacy, who will provide written comments 
on this waiver to both Committees and to the affected agency.

Section 206. Assistance for veterans

    Subsection (a) defines veterans, service-disabled veterans, 
and small business concerns owned by veterans and service-
disabled veterans.
    Subsection (b) establishes an SBA Office of Veterans 
Business Development, which will be headed by the Associate 
Administrator for Veterans Business Development, who will 
report directly to the Administrator.
    Subsection (b) also establishes a new Advisory Committee on 
Veterans Business Affairs, which will be composed of 15 members 
appointed by the SBA Administrator. Eight members will be 
veterans who are owners of small businesses, and seven members 
will be representatives of veterans service organizations. Each 
member will have a term of three years, and the chairperson 
will be selected by a vote of the members of the Advisory 
Committee. The Committee will meet at least twice annually.
    Subsection (b) establishes in the Service Core of Retired 
Executives (SCORE) the position of National Veterans Business 
Coordinator, whose exclusive duties shall be those relating to 
veterans'' business development matters. This subsection 
directs the SBA Administrator to submit annually a report to 
the Senate and House Committees on Small Business on the needs 
of small businesses owned by veterans and service-disabled 
veterans. This report will include information on the degree of 
utilization of small business programs by veterans and the 
percentage and value of Federal contracts that are awarded to 
veteran-owned small businesses.
    Subsection (c) directs the SBA Office of Advocacy to 
evaluate and report annually to both Committees on efforts of 
each Federal agency and of private industry to assist small 
businesses owned by veterans and service-disabled veterans.
    Subsection (d) amends the Small Business Act to include 
veterans as a targeted group to be served by the Microloan 
Program.

Section 207. Section 7(a) loan program

    This section eliminates the requirement that a lender be 
paid 100 basis points less than the interest rate on a loan 
when a lender is paid the guaranteed portion of a defaulted 
7(a) loan.

Section 208. Disaster mitigation pilot

    Section 208 authorizes a new pilot program at SBA to 
provide direct loans to small business owners to finance 
installation of disaster mitigation devices and take preventive 
steps to protect against future disaster damage. Loans are 
limited to small businesses located in formal mitigation areas 
designated by FEMA.
    Subsection (b) authorizes SBA to make loans totaling $15 
million in Fiscal Years 1999-2003 to small businesses 
participating in the pilot program.
    Subsection (c) directs SBA to report to the Senate and 
House Committees on Small Business by January 31, 2001, on the 
effectiveness of the pilot program.

Section 209. Microloan program

    Subsection (a) amends the Small Business Act to strike the 
pro rata limit on microloan funds that can be allocated to each 
state.
    Subsection (b) revises the loan loss reserve that must be 
maintained by each Microloan Intermediary to permit SBA to 
reduce the reserve from 15% to as low as 10% for Intermediaries 
that have been in the program for at least five years and 
maintained a successful loan portfolio. For Intermediaries that 
apply for the reduced loss reserve, SBA would have the 
discretion to reduce it to a percentage equal to the 
Intermediary's five year loss rate, but in no case could it be 
reduced below 10%.

Section 210. Real estate appraisals

    Section 210 amends SBA's appraisal standards under the 504 
and 7(a) loan programs to require appraisals of real estate 
collateral by state-licensed or certified appraisers only when 
more than $250,000 of the loan proceeds are to be used to 
acquire, construct or improve real property. The section also 
specifies that a lender must require a state-certified or 
licensed appraisal on loans of less than $250,000 if the lender 
requires such appraisals for similar unguaranteed loans.

Section 211. Community Development Venture Capital Demonstration 
        Program

    Subsection (a) sets forth the purpose of the section, which 
is to provide technical assistance to organizations that 
deliver venture capital to small businesses located in 
economically distressed areas.
    Subsection (b) defines the organizations which are 
authorized to receive grants from SBA. This subsection 
describes the permissible uses of the grant funds, including 
payment for training and research activities. Grants funds can 
also be used to pay for intensive marketing, management, and 
technical assistance. Recipients of grants from SBA are 
authorized to make further grants to community development 
venture capital organizations for the purposes described above.

Section 212. Technical amendments

    This section makes technical changes to correct drafting 
errors contained in the legislation enacted in 1997 
establishing the HUBZone Program.

                               TITLE III

    Section 301 amends the Small Business Act to create a new 
Section 21B, establishing the Small Business Environmental 
Assistance Pilot Program.
    Section 21B(a) sets for the definition of key terms used in 
the pilot program.
    Section 21B(b) directs the SBA to establish the Advisory 
Committee on Small Business Environmental Assistance Programs. 
This section outlines the membership of the Advisory Committee 
and sets forth the terms, duties, powers, and other 
requirements specific to the Advisory Committee's operation.
    Section 21B(b)(5)(C) directs the Comptroller General to 
submit no later than March 1, 2003, to the Senate and House 
Committees on Small Business an Independent National Assessment 
evaluating the pilot program.
    Section 21B(c) directs SBA to establish a demonstration 
grant program based on the criteria and recommendations 
contained in the report by the Advisory Committee on Small 
Business Environmental Assistance Programs. This section 
authorizes interested Small Business Development Centers 
(SBDCs) to apply to SBA for 4-year grants of not more than 
$400,000 per year to provide environmental compliance 
assistance to small businesses. Grants to SBDCs will be made 
subject to the terms contained in Section 21B(d).
    Section 21B(e) authorizes the following amounts that SBA 
may spend on the programs contained in Section 21B: $500,000 in 
FY 1999 to support the expenses associated with the Advisory 
Committee; $4 million per fiscal year for Fiscal Years 2000-
2003 for the demonstration grant program.

                                
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