[Senate Report 105-62]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 145

105th Congress                                                   Report
                                 SENATE

 1st Session                                                     105-62
_______________________________________________________________________



 
              SMALL BUSINESS REAUTHORIZATION ACT OF 1997

                               __________

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

                              R E P O R T

                                 of the

                      COMMITTEE ON SMALL BUSINESS

                          UNITED STATES SENATE

                              to accompany

                                S. 1139




                August 19, 1997.--Ordered to be printed


                      COMMITTEE ON SMALL BUSINESS

                CHRISTOPHER S. BOND, Missouri, Chairman
CONRAD BURNS, Montana                JOHN F. KERRY, Massachusetts
PAUL COVERDELL, Georgia              DALE BUMPERS, Arkansas
DIRK KEMPTHORNE, Idaho               CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah              TOM HARKIN, Iowa
JOHN W. WARNER, Virginia             JOSEPH I. LIEBERMAN, Connecticut
WILLIAM H. FRIST, Tennessee          PAUL D. WELLSTONE, Minnesota
OLYMPIA J. SNOWE, Maine              MAX CLELAND, Georgia
LAUCH FAIRCLOTH, North Carolina      MARY LANDRIEU, Louisiana
MICHAEL ENZI, Wyoming

             Louis Taylor, Staff Director and Chief Counsel
                   Paul Cooksey, Deputy Chief Counsel
       Patricia Forbes, Minority Staff Director and Chief Counsel



                            C O N T E N T S

                              ----------                              
                                                                   Page
 I. Introduction......................................................1
II. Description of the Bill...........................................3
III.Committee Vote...................................................28
IV. Cost Estimate....................................................28
 V. Evaluation of Regulatory Impact..................................30
VI. Section-by-Section Analysis......................................31



                                                       Calendar No. 145
105th Congress                                                   Report
                                 SENATE

 1st Session                                                     105-62
_______________________________________________________________________


               SMALL BUSINESS REAUTHORIZATION ACT OF 1997

                                _______
                                

                August 19, 1997.--Ordered to be printed

_______________________________________________________________________


   Filed under authority of the order of the Senate of July 31, 1997

_______________________________________________________________________


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

                              R E P O R T

                         [To accompany S. 1139]

    The Committee on Small Business reported an original bill 
to reauthorize the programs of the Small Business 
Administration, and for other purposes, having considered the 
same, reports favorably thereon without amendment and 
recommends that the bill do pass.

                            I. Introduction

    The Small Business Reauthorization Act of 1997 is a 
Committee bill to reauthorize most programs at the Small 
Business Administration for Fiscal Years 1998, 1999, and 2000. 
In addition, the bill makes changes to some existing programs. 
On June 26, 1997, the Committee on Small Business conducted a 
mark-up of this legislation. The Committee adopted an en bloc 
amendment by unanimous consent, and it subsequently voted 18-0 
for the amended bill.
    The Small Business Reauthorization Act of 1997 is the 
result of a series of hearings held by the Committee since the 
beginning of 1997. In addition, this bill draws on testimony 
that the Committee received from hearings conducted in 1995 and 
1996.
    In 1995, the Committee initiated a series of hearings on 
``Entrepreneurship in America,'' which focused on the growing 
presence and influence small businesses are having on the 
economy of the United States. Small businesses in the start-up 
phase or which are expanding are confronted by a very 
complicated maze of Federal, state and local regulations and 
requirements, creating unending frustration for many small 
business owners. Unfortunately, there is no centralized 
repository of government regulations, guidelines, or licensing 
requirements that a small business owner can turn to for help 
or guidance. It is not infrequent for a small business owner to 
first learn of a Federal regulation from an on-site inspection 
by a Federal, state, or local government official.
    The Small Business Administration is in an excellent 
position to assist small businesses confronted with these 
oversight and regulatory difficulties or questions. The agency 
has the ability to work closely with the regulatory agencies to 
seek out a fair and balanced approach for small businesses. In 
1996, the Congress adopted the Small Business Regulatory 
Enforcement Fairness Act, which is designed to assist small 
businesses confronted with the tidal wave of red tape that 
often confronts them from Federal agencies. This landmark 
legislation established ten Regional Fairness Boards, which are 
made up of small business owners, who work closely with small 
businesses around the country regarding their treatment by 
Federal regulatory agencies. Each year these Regional Fairness 
Boards will issue a report card on how effectively Federal 
agencies work with small businesses. This legislation is a 
start by our government to recognize the impacts its new laws 
and regulations have on small businesses and how small business 
growth can be stifled by uncontrolled, unfair regulations.
    The Small Business Reauthorization Act of 1997 reflects the 
Committee's continued strong support of the SBA's credit 
programs. Entrepreneurs and small business owners frequently 
have difficulty obtaining loans from traditional lending 
sources, and SBA has several excellent programs that meet the 
small business borrowing needs. SBA programs are designed to 
provide very small loans, as little as $500, and can total as 
much as $1 million, with the government generally guaranteeing 
75% of that amount. Small businesses are looking more each year 
to the Small Business Administration for help in meeting their 
borrowing needs.
    This bill includes sections addressing the Microloan 
Program, the Small Business Investment Company (SBIC) Program, 
and the 504 Development Company Loan Program, as well as a 
section authorizing program levels for these programs and the 
7(a) guaranteed business loan program. Since the Microloan 
Program was first created in 1991, it has been classified as a 
``demonstration program.'' Recognizing the success and 
acceptance of this program, the Microloan Program will be made 
permanent by this legislation.
    Last year, the Congress adopted major legislation making 
significant changes in the SBIC Program. This bill continues 
the Committee's effort to make the SBIC Program more responsive 
to the small business and investor communities and to 
strengthen its safety and soundness to lower the risk of loss 
to the government.
    Two years ago, this Committee reluctantly approved a 
proposal promoted by the Administration and the lending 
community made up primarily of Certified Development Companies, 
which mandated that this program have a ``zero'' subsidy rate. 
Subsequently, the 504 Program's subsidy rate has increased over 
1200%, which required the Committee to authorize substantial 
fee increases on both the borrowers and the lenders to offset 
the subsidy costs of this program. The bill reauthorizes the 
maximum fees that will be paid by the borrowers and requires 
the SBA to decrease these fees should the credit subsidy rate 
decrease. In addition, the bill includes changes in the 504 
Program designed to support improved business opportunities and 
to encourage greater participation in the Premier Certified 
Lenders Program.
    SBA's support and advocacy for America's small businesses 
need to go further. On February 24, 1997, the Committee opened 
its hearings on SBA's non-credit programs and received 
testimony from student entrepreneurs who had participated in 
the Junior Achievement's programs, Future Farmers of America's 
entrepreneurial programs; and the Kauffman Foundation's young 
entrepreneurs programs. The students represented the Small 
Business Administration's customers of the future, and they all 
demonstrated the value of business education and 
entrepreneurial programs. These bright, young entrepreneurs 
testified about the programs they were exposed to in their 
junior and senior high schools. The testimony from these 
students raised questions about whether SBA's programs and the 
programs and services of SBA's resource partners are prepared 
to serve the entrepreneur of the future, many of whom will have 
already participated in business education programs beginning 
as early as kindergarten and through high school. The Committee 
is encouraged to see that the SBDC community is reaching out to 
these organizations to coordinate and strengthen their 
programs.
    With this 3-year Reauthorization, the Committee's objective 
is to build on the successes of the Small Business 
Administration and direct the Administration's attention to 
making the improvements and establishing the priorities 
necessary to achieve a standard of excellence worthy of serving 
America's entrepreneurs. In addition, the bill introduces a new 
program which is based on S. 208, the HUBZone Act of 1997. The 
HUBZone Program is designed to target government contracts to 
small businesses located in economically distressed areas which 
employ residents from these areas. The bill also addresses 
Federal contract bundling, which oftentimes makes it more 
difficult for small businesses to enter into prime contracts 
with the Federal government. This section is designed to help 
SBA work with Federal agencies to minimize the impact contract 
bundling is having on small businesses. Legislation adopted in 
1990 to address the bundling issue has not been successful in 
stemming the increase in contract bundling; therefore, the 
Committee has adopted new bundling provisions. The bill 
includes a new welfare-to-work provision, which utilizes the 
Microloan Program to provide technical assistance and loans to 
persons who wish to leave welfare and become small business 
owners.

                        II. Description of Bill

                        Title I: Authorizations

    Title I of the bill authorizes appropriations for SBA's 
business loan programs. Included among the loan programs are 
Section 7(a) Guaranteed Business Loans, 504 Development Company 
Loans, Microloans, and Small Business Investment Company 
Debentures and Participating Securities.
    Funding for SBA loan programs are detailed in the following 
chart. As indicated, the bill is a three year authorization. 
The Committee has carefully considered the Administration's 
funding request for each program as well as recommendations 
from small business owners, individual entrepreneurs, the 
lending community, and members of this Committee.


                     Title II: Financial Assistance

                           Microloan Program

    Subtitle A includes a historic landmark for the Microloan 
program, transforming it from a demonstration program to a 
permanent part of the array of SBA credit assistance programs. 
Established by Congress on October 28, 1991 (Public Law 102-
140), the Microloan Demonstration Program was intended to reach 
individual entrepreneurs in very small businesses that were 
being served by neither traditional lenders nor SBA's credit 
programs. Financial help and technical assistance are two 
fundamental needs of borrowers in this targeted group. The 
Microloan Program seeks to fulfill these needs by offering a 
consolidated package of financial and management support. The 
bill only authorizes for three years the pilot guarantee 
program for microloans which became operational one year ago, 
and its value is still being assessed.
    The targeted Microloan borrower group is comprised of 
entrepreneurs requiring loans of $25,000 or less. Over the life 
of the demonstration program, the average loan size has been 
approximately $10,000. Borrowers have included women, low 
income individuals, minorities, business owners in areas 
suffering from localized economic downturns, and other 
individuals seeking to open or operate successful small 
businesses. In many cases, these borrowers may be considered 
unreliable borrowers by traditional credit markets due to 
issues such as the small amount of money required, weak or non-
existent credit histories, and limited business experience. 
Evidence of the tremendous success of this program is provided 
by low default rates on loans. The Federal government has had 
only one default in its loans to the intermediary loan 
providers, and the intermediaries have experienced only a two 
percent default rate in loans to small business.
    At a hearing on the Microloan Program held on June 12, 
1997, the Committee heard from nonprofit organizations 
participating in the SBA Microloan Program. Based on their 
testimony, several improvements were made to the program and a 
new pilot project was included in the bill.
    Several witnesses at the hearing recommended improvements 
to the loan loss reserve formula to reduce the burden on 
Microloan providers that have a proven track record. The 
Committee changed the formula for the period after the initial 
five years of program participation to require intermediaries 
to have a loan loss reserve equal to the greater of ten percent 
of outstanding loans or two times the historic loss rate.
    Inspired by testimony on successful efforts to help 
individuals on public assistance at the Institute for Social 
and Economic Development in Iowa, Senator Kerry introduced S. 
958, the ``Welfare-to-Work Microloan Pilot Program Act of 
1997'' on June 25, 1997. Co-sponsors of the bill included 
Senators Bumpers, Harkin, Grassley, Landrieu, Cleland, 
Lieberman, Wellstone, Levin, Snowe, and Lautenberg. With 
assistance from Chairman Bond, the new pilot program was 
adopted into the reauthorization bill. A three year pilot 
program is established to provide enhanced technical assistance 
grants to non-profit organizations specifically to help welfare 
recipients start their own small businesses. To make the 
Microloan Program more accessible to aspiring entrepreneurs who 
currently receive public assistance, the pilot program would 
provide intensive technical assistance for learning basic 
business skills, including developing business plans, starting 
a company, applying for small loans, and operating a new 
business. In addition to the technical assistance, the 
supplemental grants could be used by local organizations to 
help defray the borrower's expense of transportation or child 
care, which is directly related to program participation. The 
bill authorizes $3 million in FY 1998, $4 million in FY 1999, 
and $5 million in FY 2000. The SBA would provide grants of up 
to $200,000 to organizations participating in the Microloan 
Program. Up to 20 organizations could participate in the first 
year and 25 and 30 in the following years, respectively. 
Funding also may be used by SBA to provide training to 
organizations to serve the welfare community. The Committee 
urges the SBA Administration to pursue funding for the pilot 
program from the Administration's welfare reform budget.
    Under the Microloan program, SBA lends money or guarantees 
commercial loans to quasi-public, non-profit entities which, in 
turn, re-lend the funds to small business owners and individual 
entrepreneurs. These entities, known as intermediary lenders, 
also provide their borrowers, and some prospective borrowers, 
with technical assistance. SBA has more than 100 intermediary 
lenders that provide loans in every state except Alaska, 
Wyoming, Louisiana and Rhode Island. As of June 1997, Microloan 
intermediaries have provided Microloans totaling more than 
$60.5 million. Microloans have ranged in size from $125 to up 
to $25,000; the average loan size is approximately $10,300.

               Small Business Investment Company Program

    In 1958, the Congress created the Small Business Investment 
Company (SBIC) Program to assist small business owners obtain 
investment capital. Today, small businesses continue to 
experience difficulty obtaining investment capital from banks 
and traditional investment sources, and SBICs are frequently 
their only source of investment capital. Since 1991, this 
Committee has worked closely with the Small Business 
Administration (SBA) to correct earlier deficiencies in the law 
and insure the future of the program. In its early years, the 
SBIC program suffered instances of abuse and mismanagement and 
experienced a high loss rate. In recent years, however, the 
program has been re-established on a new foundation of safety 
and soundness, attracting high caliber investment groups 
willing to put significant amounts of private capital into the 
program. Growing small businesses depend on SBIC financing, and 
small business entrepreneurs have looked to Congress to 
strengthen and enhance the SBIC program so it can achieve its 
important objectives.
    This legislation includes significant program authorization 
levels for the SBIC program. In addition, this legislation 
refines the Small Business Investment Act of 1958 in order to 
make the SBIC program more responsive to the needs of 
individual SBIC's and the small companies that rely on their 
investments.
    Section 211 gives the Administrator of SBA new authority to 
make five year leveragecommitments for SBICs. This change is 
designed to assist SBICs in raising private capital, which is matched 
with government guaranteed capital to be 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.
    Under Section 213, SBICs will be required to pay a 1% 
commitment fee at the time SBA makes a commitment for leverage, 
and the balance of 2% will be paid on the amount of leverage as 
it is periodically drawn by the SBIC. If SBA made no prior 
commitment to the SBIC for leverage, the entire 3% fee is paid 
at the time that leverage is drawn by the SBIC.
    In order to bring the Small Business Investment Act up-to-
date with current investment practices, Section 213 also makes 
minor changes to existing law under which banks may invest up 
to 5% of their capital and surplus in one or more SBICs. 
Currently, the Small Business Investment Act only provides that 
banks may purchase stock from SBICs. Many SBICs now are 
organized as limited liability companies and partnerships, 
which do not have stock, and some banks may want to structure 
their SBIC investments through a separately managed ``fund of 
funds'' to diversify among several different SBICs. These 
language changes are being made to allow banks to continue to 
invest in SBICs, whether organized as corporations, 
partnerships, or limited liability companies, and expressly 
permits banks to invest in entities established to invest 
solely in SBICs, with no requirement that such entities be 
registered investment companies.
    Because the majority of the SBICs are partnerships, Section 
213 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.
    As a result of the growing investor and maturity of the 
SBIC program, the bill provides for the statutory $90 million 
cap on leverage to an individual SBIC or multiple SBICs under 
common control to be adjusted annually for inflation. Receipts 
of leverage in excess of $90 million would agree to invest all 
the leverage obtained above this cap in ``smaller'' small 
businesses, which are defined as small businesses having $2 
million or less in revenues and $6 million or less in net 
worth.
    The bill also includes three changes to enhance the 
operations of the investment division at SBA. Currently, SBA 
has authorization to collect reimbursements from SBICs to 
perform the examination function. Section 212 would permit SBA 
to begin collecting fees from SBIC applicants to offset 
expenses incurred by SBA to perform the licensing function, and 
both examination fees and licensing fees will be paid into the 
salaries and expense account at SBA to be used only to 
reimburse the agency for specific examination and licensing 
expenses as they occur.
    Current law requires SBA pool and sell debentures to 
investors every three months. This requirement has caused 
difficulties for SBA in producing sufficiently large and 
diverse pools of debentures that are most attractive to 
investors. Section 213 of the bill would permit SBA to pool and 
sell debentures to investors every six months. This change will 
allow for larger pools, which should generate greater investor 
interest and more favorable interest rates for SBICs. SBA will 
retain the discretion to pool and sell debentures more 
frequently, if there is sufficient demand.

                 certified development company program

    During the past two years, this Committee has devoted 
considerable attention to the 504 Certified Development Company 
Program. During this period, the credit subsidy rate, which 
determines the loss reserve for this program, has increased 
over 1200%. Last year, at the urging of both the Administration 
and the organization representing the 504 lenders and Certified 
Development Companies (CDCs), the Committee passed legislation 
mandating that this program be supported entirely by fees paid 
by the private sector. It is the Committee's belief that these 
fees have had a direct impact on the reduction in demand for 
the program.
    Since the major increase in subsidy rate and the increase 
in fees, this program continues to be plagued by an uncertain 
credit subsidy rate. This uncertainty has caused much concern 
about the future of the program. The 504 program is unlike any 
other SBA credit program. SBA guarantees 10- or 20-year 
debentures issued by CDCs, and the proceeds of these debentures 
are used to fund loans with similar terms to small businesses 
for plant acquisition, construction, expansion, and equipment. 
The SBA-guaranteed debenture to the CDC cannot exceed 40% of 
the project cost. A conventional lender, such as a bank, 
usually provides financing for 50% of the project cost. The 
bank's loan is senior to the SBA-guaranteed loan in the event 
of a default by the 504 borrower. Last year, this Committee 
approved legislation that increased the borrower's share of the 
project financing by 5% if the building to be purchased was a 
special purpose building, and by another 5% if the borrower 
were entering a new line of business.
    The Committee has been concerned about reports and 
testimony from SBA, the Office of Management and Budget and the 
Congressional Budget Office about low recoveries made by SBA 
following a default by the borrower under the 504 program. The 
failure of SBA to take aggressive actions to recover the value 
of collateral held following a default can add significantly to 
the credit subsidy rate for this program. In addition, the 
Committee is concerned about reports that SBA has failed to 
retire debentures in a timely fashion following a default, 
which has led to further loses under this program. Recent 
reports from lenders and CDCs have also pointed out instances 
where SBA has failed to pursue secondary collateral and 
borrower personal guarantees after a default.
    In response to reports about SBA's failure to make 
sufficient recoveries after 504 default, the Committee approved 
legislation last year to establish the 504 Loan Liquidation 
Pilot Program. This program was designed to allow qualified 
CDCs to perform all liquidation andforeclosure actions 
following a default. The Committee believes that recoveries can be 
improved if qualified CDCs diligently pursue liquidation actions. The 
Committee is concerned about reports citing the continuing failure of 
SBA to pursue aggressively the orderly disposition of property after a 
borrower has become delinquent and during costly foreclosure and 
liquidation actions. The Congressional Budget Office staff has informed 
this Committee of CBO projections that SBA recoveries will be 
approximately 28%. It is of critical importance that SBA take effective 
steps now, including those specified in statute, to arrest the pattern 
of losses that threaten the life of the 504 program.
    Section 222 permits the continuation of the 15/16ths of 1% 
fee that is paid by the 504 borrower annually on the 
outstanding principal owed on the loan guaranteed by SBA. This 
fee is paid to SBA in order to offset the credit subsidy rate. 
The bill provides that if the credit subsidy rate is reduced, 
this fee paid by the 504 borrower is reduced by SBA in an 
amount to ensure that excessive fees are not collected by SBA 
from 504 borrowers.
    The bill also recognizes certain changes in borrower 
business practices. Section 222 provides that a 504 borrower 
can lease up to 25% of its project to one or more businesses. 
This change will allow the small 504 Program borrower to take 
advantage of a current trend where the prime business, such as 
a grocery store, can attract another business, such as a bank, 
to set up a small window operation on the site of the prime 
business.
    Section 222 also changes current law to permit two or more 
small business to borrow money under the 504 Program for the 
same project. This section provides further that the selling 
party in a 504 transaction may loan money to the 504 borrower. 
However, in this situation the debt from the seller's loan is 
subordinate to the SBA loan. Thus, SBA's ability to realize an 
enhanced recovery is improved in a default situation.
    Section 223 expands the Premier Certified Lenders Program 
by repealing the current limit of 15 CDCs that can participate 
under the program. To participate in the program, CDCs must 
continue to maintain a loss reserve in an amount equal to the 
greater of 10% or the CDC's historic loss rate for the benefit 
of SBA. While this section provides CDCs with new flexibility 
for maintaining this loss reserve, should any funds be 
disbursed from the loss reserve to reimburse SBA for the 
company's share of the loss, the CDC must replenish the reserve 
account within 30 days.

                 7(a) Guaranteed Business Loan Program

    The bill includes significant program authorization levels 
for the 7(a) program for the next three Fiscal Years. The 
Committee believes these levels may be necessary in order for 
SBA to meet the projected demand from small business unable to 
obtain equivalent credit elsewhere. At a time that the 7(a) 
program is filling a central need of small business, however, 
the Committee remains concerned about the SBA's management of 
this program.
    SBA witnesses have testified before the Committee about the 
agency's intention to rely more heavily on lenders to conduct 
the loan underwriting analysis and to service and liquidate the 
loans. The Committee has been concerned about SBA's failure to 
provide timely and regular examinations of SBA-licensed 
lenders, which are the same lenders that will be given the 
expanded authority under the SBA initiative to rely more 
heavily on lender support for the 7(a) program. As a result of 
these concerns, the Committee approved a proposal last year 
which was incorporated in Public Law 104-208, which requires 
SBA to implement a program to provide a complete examination of 
each lender under the Preferred Lenders Program (PLP) every 
year. According to the last report from SBA, fewer than 20 
Preferred Lenders have undergone a thorough examination during 
Fiscal Year 1997.
    The SBA Inspector General complied a report entitled 
``Inspection of SBA 7(a) Lender Liquidation Responsibility,'' 
which reported the SBA does not take full advantage of lender 
liquidation capabilities. While some SBA district offices give 
lenders significant latitude in pursuing a liquidation, others 
insist on involving themselves in step-by-step liquidation 
actions on PLP and CLP defaulted loans. The conclusions of the 
Inspector General are consistent with reports the Committee 
continues to receive from Preferred Lenders who are having 
difficulty with SBA district offices in obtaining timely 
approvals so they can pursue the maximum recovery once a loan 
is in default. These complaints persist even though SBA 
witnesses attempt to reassure the Committee that the agency is 
relying on Preferred Lenders to carry out this important 
function. Since the historic recovery rate for the 7(a) program 
is approximately 44%, the Committee believes it is imperative 
that the agency improve its practices in this area.
    The credit subsidy rate for the 7(a) program, which 
fluctuates annually (see the following chart prepared by SBA), 
has been discussed at great length in recent years. Since 1993, 
there has been an overall drop in the subsidy rate; however, 
this drop in the subsidy rate is attributable primarily to new 
fees paid by the borrowers and 7(a) lenders rather than 
improvements in program management by SBA. If Congress had not 
raised these fees, the 7(a) subsidy rate would now be over 9%. 
The Committee believes it is time for SBA to accomplish 
reductions in the subsidy rate through better program 
management rather than depending on new fee increases.
    Prior to the discovery by the General Accounting Office 
(GAO) of the computational error in the subsidy rate 
calculation for Fiscal Year 1997 that went undetected by SBA 
and OMB, SBA had explained to this Committee that the subsidy 
rate for Fiscal Year 1998 would drop from 2.54% to 2.32%. The 
drop in the subsidy rate was explained generally as a result of 
a projected 1% decrease in the default rate and a very small 
increase in the recovery rate, which were offset by an increase 
in the level of prepayments from 7(a) borrowers.
    Following the discovery of the computational error by GAO, 
which revealed that the subsidy rate for Fiscal Year 1997 in 
reality had been 1.93% not 2.54%, SBA reversed its explanation 
of the subsidy rate change. Now SBA explains that the subsidy 
rate will be increasing form 1.93% to 2.32%, and the decrease 
in the default rate and the increase in the recovery rate will 
not have a positive impact on the subsidy rate in the manner 
originallyexplained to the Committee. SBA's new explanation for 
the increasing subsidy rate is that significant growth in the level of 
prepayments by 7(a) borrowers is being offset only insignificantly by a 
decrease in the default rate and the increase in the recovery rate. The 
inconsistencies in these explanations continue to concern this 
Committee about the soundness of these credit subsidy estimates and the 
assumptions used by SBA and OMB, which seem to be maintained in a fluid 
state to explain the ever-changing subsidy rate projections. The 
Committee believes SBA and OMB need to do a much better job managing 
the credit subsidy rates for SBA programs in the future.
    The Committee also notes that SBA has not promulgated a 
final regulation governing the sale of the unguaranteed portion 
of any loan made under the 7(a) loan program. The Committee 
believes SBA's current procedures under its ``interim final'' 
securitization regulation do not satisfy the requirements of 
Section 5(f)(3) of the Small Business Act. This section 
directed SBA to promulgate a regulation by March 30, 1997, that 
applies uniformly to both banks and SBA-regulated lenders. The 
Committee urges the Administration to move forward with a final 
regulation that conforms with the specific requirements of the 
statute.


                              asset sales

    Accompanying the President's SBA budget request for FY 1998 
was an announcement that SBA will sell its portfolio of 
defaulted guaranteed loans and direct loans in Fiscal Years 
1998 and 1999. Initially, SBA intends to conduct a sale of $100 
million from the Disaster loan portfolio. The Committee is 
encouraged by the willingness of SBA to undertake efforts to 
improve management of its growing portfolios of Disaster loans 
and defaulted loans and to obtain a greater recovery from 
defaulted loans. The Committee also recognizes the significant 
size and scope of this project to be undertaken by SBA staff 
over the next two fiscal years. The importance of sound 
planning, calling on the expertise developed by other Federal 
agencies which have undertaken similar types of sales, is 
critical to the success of this effort by SBA. The Committee 
wants to be supportive of this undertaking by SBA, and it also 
wants assurances that the Agency has identified and is taking 
all necessary steps to carry out these sales in a prudent and 
financially sound manner. The Committee expects the Agency to 
provide to the Committee copies of preliminary plans at the 
time they are prepared for evaluation by SBA, as well as any 
amended or final plans chosen by SBA to carry out the sales of 
the assets covered by this program and copies of reports 
analyzing the results of each sale. The Committee also reminds 
SBA of the special characteristics and needs of disaster loan 
borrowers and encourages SBA to include consideration of these 
factors in developing its plan for the sale of disaster loan 
assets.

                Title III: Women's Business Enterprises

    Title III reflects the Committee's recognition of the 
economic contribution made by women entrepreneurs and the 
potential for the continued growth and development of 
businesses owned and controlled by women. During its hearings 
on women-owned businesses held during the 104th and 105th 
Congresses, the Committee received valuable input on the SBA 
programs dedicated to serving women entrepreneurs. Witnesses 
advised the Committee of their leading concerns: the need for 
business education and management assistance tailored to women, 
increased procurement opportunities for women-owned firms, and 
improved access to capital for women entrepreneurs. Title III 
addresses the non-credit programs dedicated to serving women 
who own or seek to start their own business.
    Title III of the bill establishes the duties and 
responsibilities of each of the women's programs created over 
the past decade by Executive Order or an Act of Congress. 
Recommendations received by the Committee supported 
strengthening SBA's Office of Women's Business Ownership and 
its network of resources, including the Interagency Committee 
on Women's Business Enterprise and the National Women's 
Business Council--to improve the opportunities for women owning 
or starting a business.

          Interagency Committee on Women's Business Enterprise

    The Interagency Committee was created in 1977 as an 
interagency task force, and by Executive Order 112138 (May 
1979), it became the Interagency Council. In 1988, the Women's 
Business Ownership Act (Public Law 100-533) replaced the 
Interagency Council with a joint public-private sector National 
Women's Business Council, which included four public sector 
representatives from the former Interagency Council and six 
private sector representatives appointed by Congress. The SBA 
Reauthorization and Amendment Act of 1994 (Public Law 103-403) 
revised the Council's structure again, returning all public 
sector participants to an expanded Interagency Committee on 
Women's Business Enterprise.
    Section 301 of the bill expands the list of Federal 
agencies and departments that constitute the Interagency 
Committee on Women's Business Enterprise. Under the 1994 SBA 
Reauthorization Act, the Committee included representatives 
from the Departments of Commerce, Defense, Health and Human 
Services, labor, Transportation, and Treasury, as well as 
representatives from SBA, General Services Administration, 
Federal Reserve, and the Executive Office of the President. 
Section 301 adds the following agencies to this list: the 
Departments of Education and Energy, the Environmental 
Protection Agency, the National Aeronautics and Science 
Administration, and the Office of Federal Procurement Policy.
    In addition, this section provides that each designee to 
the Committee is to report directly to the head of that agency 
on the status of the Committee's activities. Under current law, 
the participating agency head designates who represents the 
agency, except that in the case of SBA the designee is the 
Assistant Administrator for the Office of Women's Business 
Ownership. Thelanguage further requires that the Assistant 
Administrator for the Office of Women's Business Ownership report 
directly to the SBA Administrator on the status of the Committee's 
activities.
    No specific appropriation authorization is provided to 
support the activities of the Interagency Committee. The 
agencies and departments represented on the Committee are to 
allocate existing personnel and resources to support the 
agency's participation on the Committee.
    Consistent with revisions made in 1994 to link the 
Committee more closely to the SBA, Section 302 provides that 
the Interagency Committee's annual report to Congress and the 
President shall be transmitted through the SBA. This section 
also deletes the requirement that the Committee's annual report 
include the recommendations of the Council. This change is made 
to reflect the fact that the bill adds a specific reporting 
requirement for the Council, which does not exist separate and 
apart from the Committee's report under current law. This 
section provides that the Committee's report include the status 
on its efforts to meet its statutory duties.

                   national women's business council

    The National Women's Business Council was created by the 
Women's Business Ownership Act of 1988. The Council was created 
to serve as an advisory body comprised of representatives from 
both the private and public sectors. The public-private 
structure was created with the expressed intent to inspire 
action, because the Interagency efforts were criticized over 
time for inactivity. In the Conference report accompanying the 
1994 Act, revisions were made in an effort to promote action by 
these entities. By separating the private sector Council from 
the public sector Interagency Committee, it was thought that 
the Council would be the pro-active force to inspire action by 
the Interagency Committee. Regrettably, the independence of the 
Council has been compromised by its staff becoming the staff of 
the Interagency Committee as well. This contradicts the 
expressed intent of Congress, in the 1994 Conference report, 
that the resources provided for the Council were to be used 
solely for the Council and its activities, and the Agencies 
comprising the Interagency Committee would have the 
responsibility for committing staff and resources to the 
Committee's efforts.
    In order to remove an inconsistency from the statute, the 
bill provides that the Council will 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 also requires the Council to report 
annually to the Senate and House Committees on Small Business 
and the President. This report is in addition to the 
discretionary reports and recommendations that the Council can 
initiate as it deems appropriate. The new annual report to the 
President and the Congress is to include a status report on the 
Council's efforts to fulfill its duties under sections 406 (a) 
and (d) of current law.
    The membership of the Council continues to evolve under 
this bill. First, to re-invigorate the interaction between the 
Council and the Congress, Section 304 expressly addresses the 
role Congress is to play in recommending individuals for 
appointment to the Council. In the 1988 Act, the private sector 
participants on the Council were selected by the Majority and 
Minority leaders of the Senate and House. Under the 1994 
revisions, the role of Congress in the selection of Council 
members was removed from the bill and placed in the report 
language. The SBA Administrator was given the authority to 
appoint Council members after consultation with the Chairperson 
(who is appointed by the President) and with the Assistant 
Administrator of the Office of Women's Business Ownership. The 
role of Congress was limited to recommendations from the 
leadership delivered through the Committees on Small Business 
in the House of Representatives and the Senate.
    The approach taken by this bill is a hybrid of these 
earlier approaches. The SBA Administrator continues to appoint 
the Council members with the consultation mentioned above; 
however, those appointments are to be made after receiving the 
recommendations from the Chairman and Ranking Minority Members 
of the Committees on Small Business in the House of 
Representatives and Senate. This change is intended to ensure 
that these Committees, and Congress as a whole, take an active 
and ongoing interest in the Council and its activities. If the 
Council is to be an advisor to Congress, Congress needs to be a 
stakeholder in the process. Having individuals recommended by 
the House and Senate Small Business Committees appointed to the 
Council will ensure that the reports and recommendation of the 
Council have an interested and involved audience in Congress.
    Consistent with past changes, the revisions are intended to 
bolster private sector participation in the Council. The bill 
expands the Council to fourteen members and one chairperson. 
Under current law, there are nine members (four business owners 
and five women's business organizations' representatives). 
Section 304 revises the membership by increasing the number of 
entrepreneurs from four to six; increasing the number of 
women's business organization representatives from five to six 
with the express recognition representatives of local Women's 
Business Centers are eligible to be selected; and adds two 
slots for representatives from academia or corporations that 
have an interest in women entrepreneurship. In order to 
facilitate the inclusion of representatives from Women's 
Business Centers, the Committee removed the word ``national'' 
as a qualifier for the types of organizations that can be 
represented on the Council. Successful local programs are often 
the best laboratories for new ideas, and the Committee has 
sought to ensure that the Council expands its focus to include 
issues relevant to the women seeking assistance from the 
Women's Business Centers. Consistent with its focus on women 
entrepreneurs, individuals appointed to the Council to 
represent women's business organizations should be women 
business owners themselves.
    Testimony provided to the Committee by the current chair of 
the Council recommended expanding the size of the Council and 
the Committee met that request in this legislation. In 
communications with the Council and its staff, it was 
recommended that slots be added from academia and corporate 
America. The former category was intended to bolster the 
Council's ongoing efforts to encourage research in areas of 
interest to women entrepreneurs. The latter slot was 
recommended in light of the Council's work with major 
corporations which have proactively sought to improve 
contracting opportunities for businesses owned and controlled 
bywomen. Depending on the caliber of nominations, the 
legislation authorizes the Administrator to choose one academic and one 
corporate representative or two from one category or another.
    The bill also amends the language addressing diversity in 
selecting members to include attention to rural as well as 
urban representation. Several Members of the Committee 
represent states with rural populations, and the current 
requirement to consider geographic diversity is amended to 
ensure that consideration is also given to rural and urban 
representation.
    Section 305 provides an authorization for the appropriation 
set at $400,000 per year for Fiscal Years 1998, 1999, and 2000. 
This increase in the annual authorization is intended in part 
to absorb the additional costs associated with an expanded 
Council. It is the intent of the Committee that any funds 
appropriated under this section are to be used solely for the 
activities and duties of the Council and not diverted to any 
other activities at SBA.
    Section 306 includes the text of S. 888, the Women's 
Business Centers Act of 1997, introduced by Senators Domenici, 
Bond and Kerry on June 12, 1997. S. 888 was cosponsored by 
other members of the Committee, including Senators Burns, 
Kempthorne, Frist, Snowe, Faircloth, Enzi, Bumpers, Levin, 
Harkin, Lieberman, Wellstone, Cleland and Landrieu. Cosponsors 
of the bill that are not on this Committee include: Senators 
Kohl, Lautenberg, Daschle, Mikulski, Moseley-Braun, Hutchison, 
Boxer, Specter, Moynihan, Santorum, Bingaman.
    S. 888 and the language incorporated in this bill increase 
the program authorization level for creating Women's Business 
Centers, previously called ``Women's Business Demonstration 
Sites,'' from $4 million per year. Grantees awarded funds under 
this section will receive funds for five years rather than 
three, as provided under current law, and the Federal/non-
Federal funding match is changed as follows:
          One non-Federal dollar for each two Federal dollars 
        in years one through three rather than just during the 
        first year,
          One non-Federal dollar for each two Federal dollars 
        in year four rather than during year two, and
          Two non-Federal dollars for Federal dollar in year 
        five rather than in year three, which had been the last 
        year.
    The bill provides further that grantees receiving funds 
under the previous program on the day before enactment will be 
able to make application to SBA for approval to receive funds 
for two additional years. The receipt of funds is conditioned 
on fulfillment of the grantee's obligations under this section.
    Section 306 includes language from S. 925, legislation 
introduced by Senator Coverdell to codify the practice of 
allowing Women's Business Center grant recipients to pursue 
other sources of Federal funds. Funds received from other 
Federal agencies do not qualify as non-Federal funds under the 
matching funds requirement of this section. The additional 
funds obtained by a Women's Business Center do not in any way 
affect the level of non-Federal funds they must obtain, and 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 adds the ``location for the Women's Business 
Center site'' as an item to be addressed by the criteria 
developed by the SBA for selecting successful grant applicants 
under this section. Under current law, the SBA is authorized to 
establish criteria for selecting grant applicants and special 
emphasis has been provided to applicants from states that do 
not have an existing Women's Business Center Site. The language 
added by this bill is intended to codify the preference 
currently given to applicants from state's without existing 
center sites. This is not intended to be an absolute 
preference, but rather each application must be selected on its 
merits. Where possible, however, preference should be given to 
applications that expand the number of states with Women's 
Business Centers. Currently, there are 32 states without such 
centers and several states with multiple centers.
    The Committee does not intend to stifle the expansion of 
center sites in those states with the infrastructure to reach 
additional women. The Committee would like to see the Office of 
Women's Business Ownership work to cultivate possible grant 
applicants in states lacking centers and provide guidance to 
prospective applicants from underserved states to help ensure 
that new sites are sustainable. It is the goal of the Committee 
to have Women's Business Centers in every state of the nation. 
This should be a priority of the program.
    Support for the increased authorization was obtained in 
part by stating that it would enable the creation of centers in 
states without sites, while balancing this objective with a 
strong interest in providing funds for additional sites in 
states where there remains the demand for additional centers. 
To reflect the fact that existing Women's Business Centers may 
submit applications for grants to create new sites in their 
state or neighboring states, a definition of ``women's business 
center site'' is included. The language is revised from S. 888 
to clarify that linkages between new and existing sites are 
permitted but not required.
    Having increased the size of the grant program two-fold, 
the Committee considered imposing additional safeguards and 
controls to ensure that the program was appropriately managed. 
The controls included in the bill include the elevation of the 
position of the Assistant Administrator for the Office of 
Women's Business Ownership and an express prohibition on the 
use of the funds appropriated under this section for any 
purposes other than grant awards. It was just one year ago when 
the Administration sought to merge the women's business 
demonstration sites with other SBA business assistance 
programs. Congress rejected the Administration's proposal, 
restored the program's separate funding, and language was 
included to prohibit the reprogramming of the funds appropriate 
to other programs.
    The SBA office charged with administration and support of 
the program has been chronically under-staffed. This threatens 
the integrity of the program and the intent of Congress that 
the funds appropriated be provided to the grantees to establish 
programs in the states. In itsFiscal Year 1998 budget 
submission, the SBA request indicated a need for seven full time 
employees in the Office of Women's Business Ownership. It is the intent 
of this Committee that SBA not only fulfill its commitment to having 
seven full time employees, but that the ceiling be increased, if 
necessary, so additional staffing can be dedicated to the 
administration of this program. The present allocation of one full time 
employee to the oversight of this program appears woefully inadequate. 
SBA staff assigned to OWBO activities in District Offices (Women 
Business Ownership Representatives/WBORs), also should be properly 
trained to assist in the oversight of the Women's Business Centers 
program.
    Section 307 sets forth the duties of the Assistant 
Administrator for the Office of Women's Business Ownership. The 
position was elevated to an Assistant Administrator in the last 
reauthorization bill, but the corresponding responsibilities 
and duties were not provided. The GS level of the Assistant 
Administrator is increased to GS 17, again to ensure that the 
office receives the staffing and stature within the SBA that an 
$8 million program warrants. This section sets forth the duties 
and responsibilities of the Assistant Administrator of the 
OWBO.
    The Office of Women's Business Ownership was established by 
Executive Order in 1979, as a result of a report produced by 
the Federal Interagency Task Force on Women's Business 
Enterprise. The Order gave OWBO a broad advocacy role and was 
charged with the responsibility for promoting Federal agency 
and private efforts to assist women owned businesses. The SBA 
Reauthorization Act of 1994, made OWBO a permanent office 
within the SBA. In addition to administering and managing the 
Women's Business Centers program, the OWBO promotes women's 
business ownership programs and services which are delivered 
through SBA District Offices and Resource Partners offering a 
network of training, counseling and mentoring services for 
women.

      federal procurement opportunities for women owned businesses

    The Committee approved an amendment offered by Senators 
Cleland and Coverdell to provide for the study of issues 
related to procurement opportunities for businesses controlled 
and owned by women. The amendment authorizes a separate 
appropriation of funds, not to exceed $200,000, which can be 
provided in whole or in part in Fiscal Years 1998, 1999 and 
2000. The funds are to be available until spent for the 
purposes specified in section 308.
    Women-owned business now represent over one-third of all 
businesses. However, they receive a much smaller share of 
Federal procurement dollars. In 1994, the Federal Acquisition 
Streamlining Act established a government-wide goal of five 
percent for Federal contracts being awarded to women-owned 
businesses. In order to gain a greater understanding of the 
Federal government's performance in working with this growing 
sector, the Coverdell/Cleland amendment has directed the 
National Women's Business Council 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 NWBC to 
prepare a report on the best procurement practices of the 
Federal government and the commercial sector and to recommend 
policy changes. The Committee believes the $200,000 authorized 
for this project is critical to ensure that the NWBC is able to 
attain a qualified outside contractor to review the data and 
develop the study.

    Title IV--Competitiveness Program and Procurement Opportunities

                 Small Business Competitiveness Program

    The Small Business Competitiveness Demonstration Program 
was established under Title VII of Public Law 100-656, the 
``Business Opportunity Development Reform Act of 1988'', which 
was signed into law on November 15, 1988. The program's purpose 
is to demonstrate that the competitive capabilities of small 
business firms in certain industry categories will enable them 
to compete successfully on an unrestricted basis for Federal 
contracting opportunities. Further, the program is designed to 
show how the use of targeted goaling and management techniques 
by procuring agencies, in conjunction with the Small Business 
Administration, can expand small business participation in 
certain industries where participation has been historically 
low.
    The Committee bill extends the demonstration program 
through Fiscal Year 2000 because the benefits for all covered 
small businesses are still uncertain. The Committee, in an 
effort to streamline the reporting process, changed the 
quarterly reporting requirement to an annual reporting 
requirement. The intent is to reduce the administrative 
reporting burden on participating Federal agencies and to 
provide more comprehensive and meaningful reports.
    Additionally, the Small Business Administration has been 
designated as the Federal agency responsible for the 
preparation and submission of the Congressional Report on the 
results of the Small Business Comprehensiveness Demonstration 
Program. This reporting should address the benefits and 
deficiencies of this program compared to more traditional 
methods of guaranteeing of small business prime contracts in 
Federal procurement.

            Small Business Procurement Opportunities Program

    In October 1978, President Carter signed into law (Public 
Law 95-507) legislation which established the requirement for 
the Small Business Administration to be the agency responsible 
for negotiating small business contracting goals with Federal 
departments and agencies. Subsequently, the Congress passed, 
and President Reagan signed into law, the Business Opportunity 
Development Reform Act of 1988 (Public Law 100-656), which 
mandated that the government-wide goal for small business 
participation in Federal contracting be ``not less than 20 
percent of the total value of all prime contract awards for 
each Fiscal Year.''
    Testimony before the Committee and other evidence 
accumulated by its staff has outlined a series of actions by 
the Federal government that could remove many prime contract 
opportunities from the reach of thousands of small businesses, 
which could make the 20% goal unattainable.
    This bill includes a separate subtitle that responds to the 
issue of bundling of Federal contract opportunities. Bundling 
is the Federal government's practice of consolidating smaller 
contracts into very large contracts. Often bundling results in 
contracts of a size or geographic dispersion that small 
businesses cannot compete for or obtain. As a result, the 
government can experience a dramatic reduction in the number of 
offerors. This practice, intended to reduce short term 
administrative costs, can result in a monopolistic environment 
with a few large businesses controlling the market supply. The 
Federal government should not abandon the innovative and 
competitive small business market for the purposes of 
administrative convenience. The purpose of this section is to 
ensure that actions are not taken arbitrarily that have the 
effect of shifting Federal contracting out of the reach of many 
small businesses that have previously contracted with the 
government or who wish to bid on Federal contracts.
    As part of the Committee's February 6, 1997, hearing on 
Women-Owned and Home-Based Business, Ms. Phyllis Hill Slater, 
President of Hill Slater, Inc., President-elect, National 
Association of Women Business Owners, and Chairperson, Women 
Business Owners Corporation, testified that as the result of 
the implementation of the Federal Acquisition Streamlining Act 
(FASA) of 1994, ``small business is being streamlined right out 
of the procurement system.'' Ms. Slater went on to state that 
Federal contract bundling ``has become one of the most 
pervasive problems faced by women business owners and other 
small business.''
    Ms. Carolyn Stradley, President and chief Executive 
Officer, C & S Paving, Inc., Marietta, Georgia testified that 
she was opposed to the Federal government's initiative to 
``bundle'' contract requirements. As an example of the problem, 
Ms. Stradley explained that her firm's limit on bonding is $5 
million. As the direct result of contract bundling actions, her 
firm lacked the bonding capacity to submit a bid on these 
expanded requirements.
    The Committee has received numerous constituent and trade 
association letters complaining of the Federal government's 
apparent movement towards the consolidation ``bundling'' of 
contract requirements. Some of the letters address specific 
contract solicitations that were previously performed by small 
businesses as several separate contracts. Most of the letters 
noted that the trend in Federal contracting has been moving 
towards larger and larger solicitation packages that are beyond 
the capability of small business. In some cases, the bundled 
contracts are so large that participation is limited to a 
select few of the largest contractors.
    The Small Business Administration commissioned a study 
titled ``Bundled Contract Study FY91-FY95,'' dated June 20, 
1997. The study showed that fewer and larger contracts are 
being won by fewer and larger companies. As a result, thousands 
of small businesses have disappeared from the Federal 
marketplace as these trends occurred. The study indicated that 
5,723 small businesses have disappeared from the Federal 
marketplace between Fiscal Years 1991 and 1995, while the 
number of large businesses increased by 1,201. The study also 
found that ``the rate of new, small business participants has 
declined over the last four years.'' One of the study's 
recommendations was to ``add a reporting requirement on the DD-
350 and SF-279 forms that indicates whether a newly awarded 
contract combined requirements from previously separate 
contracts.'' The study also noted that the Federal government 
has enacted significant procurement reforms encouraging 
contract consolidations, and centralized administration and has 
entered long-term agreements with fewer vendors.
    Mr. Jere Glover, Chief Counsel for Advocacy, Small Business 
Administration, has issued a letter endorsing the bundling 
provisions contained in this bill. Mr. Glover's letter stated 
that seven of the top sixty recommendations of the White House 
Conference on Small Business focused on expanding the market 
share of government contracts to small business. Mr. Glover 
further related that his office is concerned by ``* * * the 
apparent trend to bundle contracts in the interest of short 
term operating cost savings that would harm competition and 
limit small business access to Federal procurement.''
    Consequently, the Committee, after recognizing the concerns 
of small businesses, trade associations and Government 
personnel regarding the growing problem of contract bundling, 
included language in the bill to address this issue.

                   Title V: Miscellaneous Provisions

           small business technology transfer (sttr) program

    Under present law, the STTR Program will terminate on 
September 30, 1997. In establishing the STTR Program, Congress 
intended to create an easy-to-use vehicle for moving ideas from 
research institutions to the marketplace where they can best 
benefit the U.S. economy. STTR accomplishes this goal by 
linking small businesses with creative ideas to universities, 
nonprofit scientific and educational institutions, and Federal 
laboratories. Under STTR, research and development that 
benefits our national defense, promotes health and safety, and 
improves our highways and airports can move from the early 
research and development state to the marketplace. The STTR 
Program ensures that innovative ideas developed by universities 
and non-profit organizations, in partnership with quality small 
businesses, serve an active role in building our nation's 
economy. The current legislation recognizes the past success of 
the STTR Program and provides a 6-year reauthorization. This 
long term reauthorization will give both the government 
agencies and private sector participants and supporters of the 
program the knowledge that they can depend on it the long term 
continuation of the program.

                   small business development centers

    Since its inception in 1980, the Small Business Development 
Centers (SBDCs) Program has been key in the delivery of the 
Administration's small business education programs (training) 
and economic development services (no-fee counseling) for 
entrepreneurs from more than 950 SBDC locations nationwide.
    Operating in partnership with the SBA under a Cooperative 
Agreement, participating SBDCs are required to provide funds 
from non-Federal sources to match the grant funds supplied by 
SBA. SBA's Office of SBDC and SBA District Directors are 
involved in the management and oversight of the Cooperative 
Agreement and on-going operations of the SBDC to ensure proper 
use of Federal funds. SBDCs are permitted to engage in other 
programs funded by the Federal government if so approved by the 
SBA Associate Administrator, SBDC.
    The Committee increased the SBDC authorized funding level 
at $85 million for FY 1998 rather than the $57 million sought 
by the Administration, and the Committee rejected the idea of 
imposing fees for counseling services by SBDCs, recommended by 
the Administration. For FYs 1999 and 2000, the funding levels 
will increase to $90 million and $95 million, respectively. The 
increase in funding levels will allow for the increase in 
minimum Federal funding and an increase in the funding base for 
SBDCs authorized by the bill. However, the bill provides that 
the latter increase will go into effect only if adequate 
appropriations are made available in advance. The Committee 
included bill language that would add Women's Business Centers 
(WBCs) to the category of applicants eligible to receive grants 
and the Committee hopes SBDCs will form partnerships with WBCs 
to further support programs for women entrepreneurs.
    The Committee encourages the SBDC program participants to 
become even more creative and competitive in serving the ever-
changing needs of today's entrepreneurs with a greater emphasis 
on helping small business owners avoid failure and extend the 
life cycle of small businesses. The SBDCs should become more 
accessible to their customers, expand the number of 
participating regional subcenters where appropriate, and fully 
integrate their resources through SBA District Offices with all 
SBA funded programs and services.
    The Committee recommends that SBDCs work cooperatively with 
SBA District Offices and Federal agencies to prepare 
entrepreneurs to meet government regulatory compliance burdens. 
Without easy and understandable access to current Federal and 
state regulatory requirements, small business owners are 
finding it difficult to meet these requirements. Failure to 
anticipate these potential costs and the potential impact of 
fees or penalties can be disastrous, threatening the continued 
existence of many small businesses.

      the pilot preferred surety bond guaranteed program extension

    In 1988, Congress created the Preferred Surety Bond Program 
as a pilot, and its current authority will expire on September 
30, 1997. This legislation will extend this pilot program for 3 
additional years.
    Under the Surety Bond Guarantee Program, SBA guarantees bid 
bonds and performance bonds that are issued by surety companies 
on behalf of small business contractors. The program has two 
parts: the Prior Approval Program and the Preferred Surety Bond 
Program. Under the Prior Approval Program, surety companies 
must obtain SBA's prior approval for each bond guarantee. Under 
the Preferred Surety Bond Program, a limited number of surety 
companies are empowered by SBA to issue, service, and monitor 
surety bonds without SBA's prior approval. The later program 
was established to encourage larger, standard insurance 
companies to provide bonding assistance to more small 
businesses.
    Since its inception, the Preferred Surety Bond Program has 
grown and is now an important alternative in the surety bond 
industry. Currently, there are 15 Preferred Surety Bond Program 
participants. Since FY 1992, Preferred Surety Bond Program 
activity has increased from 365 bonds valued at $72.2 million 
to 1,347 bonds valued at $305.8 million in FY 1996.

                  extension of cosponsorship authority

    Since 1980, SBA has continued to demonstrate the value of 
leveraging its resources with the private sector to produce 
programs and products to meet the changing needs of small 
businesses. In 1996, for every SBA dollar invested in 
cosponsored national, state and local activities, $8 was 
generated in the development and delivery of small business 
programs and services including publications, videos, and 
training materials.
    One of the best examples of the benefits of cosponsorships 
is the SBA Business Information Centers (BICs) program. 
Approximately 100,000 clients use the 40 BICs (10 BISC in 
progress) annually which feature self-help computerized work 
stations for business plan and financial package development, 
business reference libraries, training, and individual 
counseling. The actual costs to the SBA is nominal.
    The SBA continues to adhere to the restrictions and 
requirements imposed by Congress to ensure that the agency 
avoids the endorsement or promotion of a cosponsor's product or 
service.

              service corps of retired executives (score)

    Established in 1964 as a not-for-profit association 
sponsored by the SBA, SCORE offers pre-business workshops and 
no-fee counseling at more than 800 locations. Two-thirds of the 
funding for the SCORE program is used for reimbursement for 
out-of-pocket expenses to its more than 13,000 volunteer 
members; one-third of the program funding is allocated to the 
National SCORE Office for administration and for resources and 
tools provided to SCORE Chapters nationwide. In addition to 
traditional workshop and counseling, in 1997 SCORE expanded its 
service to entrepreneurs through the Internet with its new 
``Cyber-Chapter'' comprised of 100 SCORE counselors. ``Cyber-
Chapter'' offers counseling services direct through Internet e-
mail.
    The Committee is concerned about reports from SCORE 
volunteers that direct in-kind support from SBA may be 
withdrawn. Historically, SBA has provided needed office space, 
telephone service, and postage service to SCORE chapters, 
enabling thousands of SCORE volunteers to meet with and 
communicate with small businesses in need of help. In approving 
the authorization level for SCORE, the Committee recognizes 
that funds provided to the SCORE program are supplemented by 
these SBA-provided support services. The Committees believes 
that the withdrawal of these services from the SCORE chapters 
could cause serious hardship to the program that has served 
small businesses across America so well and urges SBA to 
continue to maintain its current level of in-kind support.

                       Title VI: HUBZone Program

    In January 1997, Senator Bond introduced S. 208, the 
HUBZone Act of 1997. Title VI: the HUBZone Program, includes 
much of S. 208 with amendments that were proposed by Senator 
Kerry, and which were endorsed unanimously by the Committee.
    The HUBZone Program is a jobs bill and a welfare-to-work 
bill. Specifically, this Program targets special Federal 
government help to inner cities and rural counties that have 
low household incomes, high unemployment, and whose communities 
have suffered from a lack of investment. In addition, the bill 
designates each Federal Indian Reservation as a HUBZone. The 
HUBZone Program is designed to help fulfill the goal set by 
President Clinton and Congressional leaders that we create 
realistic opportunities for moving people off welfare and into 
meaningful jobs.
    The role of America's businesses, in particular the small 
business community, is critical if we want to be successful in 
rebuilding low income areas in our cities and the rural poor 
areas of our Nation. No amount of training dollars can insure 
the revival of these communities if there are no jobs. And we 
must have business, in particular small business, locating and 
thriving in these areas to provide those jobs.
    Testimony before this Committee has indicated that current 
programs have not succeeded in creating job opportunities in 
economically distressed areas. Many poor people do not have 
jobs. Many poor people live in urban and rural communities made 
up of vacant buildings, inferior schools, and neglected public 
services. And many of America's poor have lived under these 
circumstances for generations. Poor people in America do not 
have professional lobbyists who can fight for them in 
Washington, D.C. and in their state capitals. They need help. 
The HUBZone Program is designed to provide both help and hope.
    Creating new jobs in an economically distressed areas has 
been the greatest challenge for many of our nation's governors, 
mayors, and community leaders. The trend is for business to 
locate in areas where there are customers and a skilled 
workforce. Asking a business to locate in a distressed area 
often seems counter to its potential to be successful. But 
without businesses in these communities, we don't create jobs, 
and without sources of new jobs, we are unlikely to have a 
successful revitalization effort.
    The HUBZone Program attempts to utilize a valuable 
government resource, a government contract, and make it 
available to small businesses who agree in return to locate in 
economically distressed areas and employ people from these 
areas. There are more than 6,000 areas within the United States 
that could qualify as HUBZones. Contracts to small businesses 
in HUBZones can translate into thousands of job opportunities 
for persons who are unemployed or underemployed.
    It should be noted that the HUBZone Program is not designed 
to compete with SBA's 8(a) Program. One of the amendments 
adopted by the Committee during its markup of this legislation 
places a HUBZone small business concern at the same level of 
contracting preference as an 8(a) small business concern. The 
bill, as amended, gives the procuring agency's contracting 
officer the flexibility to decide whether to target a specific 
procurement requirement for the HUBZone Program or the 8(a) 
Program.

                            HUBZones Defined

    Under the bill, a HUBZone small business concern has the 
following characteristics:
          It is a small business whose principal office is 
        located in a HUBZone; and
          Its work force includes at least 35% of its employees 
        from one or more HUBZones.
    A HUBZone can be one or more of the following:
          One or more census tracts in a metropolitan area 
        where not less than 50% of the households have an 
        income of less than 60% of the metropolitan statistical 
        area median gross income;
          A rural county where the household income is less 
        than 80% of the non-metropolitan area median gross 
        income for its state;
          A rural county where the unemployment rate is not 
        less than 140% of the state-wide average unemployment 
        rate for the state in which the county is located;
          A Federally recognized Indian Reservation.
          A qualified HUBZone small business concern is 
        eligible to obtain federal contracts through three 
        procedures:
          If the procuring agency determines that two or more 
        qualified HUBZone small business concerns will submit 
        offers for the contract and the award can be made at a 
        fair market price;
          At the discretion of the contracting officer, a sole 
        source contract can be awarded to a qualified small 
        business concern so long as the contract does not 
        exceed $5 million for manufacturing and $3 million for 
        all other contracts;
          In the case of a full and open competition, a 
        qualified HUBZone small business concern may qualify 
        for a 10% price evaluation preference.

                        Phased-in Implementation

    Implementation of the HUBZone Program is intended to be 
phased in over the next three years. Until September 30, 2000, 
implementation will be limited to the following Agencies: EPA, 
GSA, NASA and the Department of Defense, Agriculture, Health 
and Human Services, Transportation, Veterans Affairs, Energy, 
and Housing and Urban Development.

                             Program Goals

    In FY 1999, the government-wide goal for awarding 
government contracts to qualified small business concerns will 
be not less than 1% of the total value of all procurement 
contracts awarded by the Federal government. In FY 2000, this 
goal will increase to 1.5%; in FY 2001, it will be 2%; in FY 
2002, it will be 2.5%, and it will be 3% in 2003 and each year 
thereafter.

                      Certification and Penalties

    In order for a small business to qualify as a HUBZone small 
business concern, it must certify in writing to the SBA, or SBA 
may make a determination, that it meets the following three 
criteria:
          It is located in a HUBZone;
          It will attempt to maintain a workforce that includes 
        at least 35% of its employees from one or more 
        HUBZones;
          It will ensure that not less than 50% of the contract 
        costs will be performed by the qualified small business 
        concern.
    The SBA Administrator will be responsible for establishing 
a system to verify certifications made by small business 
concerns. Such a verification system will include random 
inspections and procedures relating to the disposition of any 
challenges to the accuracy of any certification. If the 
Administrator of SBA or his designee determines that a small 
business concern misrepresented its status as a HUBZone small 
business concern, it could be subject to prosecution under 18 
U.S.C. 1001, False Certification, in 31 U.S.C. 3729-3733, False 
Claims Act. In addition, the HUBZone Program provides that 
anyone who misrepresents an entity as being a qualified HUBZone 
small business concern in order to obtain a government contract 
or subcontract can be fined up to $500,000 and imprisoned for 
not more than 10 years and be subject to the administrative 
remedies prescribed by the Program Fraud Civil Remedies Act of 
1986 (31 U.S.C. 3801-3812).
    In order to assure this program is developed and promoted, 
the Committee authorized $5 million per year for three years. 
The Committee expects SBA to report to the Committee in 180 
days on implementation and the costs associated with it.

                          III. Committee Vote

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following vote was recorded on June 26, 1997.
    A motion by Senator Bond to adopt the En Bloc Amendment to 
the Small Business Reauthorization Act of 1997 passed by 
unanimous voice vote.
    A motion by Senator Bond to adopt the Small Business 
Reauthorization Act of 1997, to reauthorize the programs of the 
Small Business Administration, and for other purposes, 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. Cost Estimate

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed below.
    Assuming Congress appropriates the amounts necessary to 
carry out the programs authorized under the Small Business 
Reauthorization Act of 1997, $570 million is specifically 
authorized in the bill for SBA programs such as the Small 
Business Development Center (SBDC) program, the Service Corps 
of Retired Executives (SCORE) program, and technical assistance 
grants to Microloan recipients. In addition, the bill includes 
authorization of the next three fiscal years for the credit 
programs at SBA, including the 7(a) Business Loan Program, 504 
Development Loan Program, the SBIC Program, and the Microloan 
Program. Since the cost for these credit programs is determined 
annually by the credit subsidy rate that is established by the 
Office of Management and Budget (OMB) and SBA, it is not 
possible to provide a fixed cost for these programs until the 
annual appropriation is approved.
    In order to provide a broader understanding of the 
projected estimates for SBA programs authorized by this bill, 
two tables prepared by the Congressional Budget Office (CBO) 
have been included. Table 1 provides an overall estimate of the 
budgetary impact by the Small Business Reauthorization Act of 
1997.

             TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF THE SMALL BUSINESS REAUTHORIZATION ACT OF 1997            
----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal years, in millions of dollars--     
                                                           -----------------------------------------------------
                                                              1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                      SPENDING SUBJECT TO APPROPRIATION \1\                                     
                                                                                                                
Spending Under Current Law:                                                                                     
    Budget authority \2\..................................      873        0        0        0        0        0
    Estimated outlays.....................................      820      299       65       21        9        0
Proposed Changes:                                                                                               
    Specified authorization level.........................        0      151      157      163      103      103
    Estimated authorization level.........................        0    1,226    1,274    1,327       13       13
                                                           -----------------------------------------------------
      Total authorization level...........................        0    1,377    1,431    1,490      116      116
    Estimated outlays.....................................        0      871    1,276    1,444      583      189
Spending Under The Bill:                                                                                        
    Authorization level \2\...............................      873    1,377    1,431    1,490      116      116
    Estimated outlays.....................................      820    1,171    1,341    1,465      592      189
                                                                                                                
                                           CHANGES IN DIRECT SPENDING                                           
                                                                                                                
Estimated Budget Authority................................        0        1        1        1        1        1
Estimated Outlays.........................................        0        1        1        1        1        1
----------------------------------------------------------------------------------------------------------------
\1\ All but approximately $15 million of the estimated amounts are for projected spending by the SBA. In        
  addition to the amounts shown in the table, CBO expects that Title VI (HUBZone program) would impose          
  significant cost on agencies other than the SBA, but we cannot estimate those costs at this time.             
\2\ The 1997 level is the amount appropriated for that year.                                                    

    Table 2 includes both the specific authorization levels 
established by the Committee in this bill, and it includes an 
estimate by CBO of the cost of the credit programs. The latter 
estimate in Table 2 assumes a not yet determined credit subsidy 
rate, and it also assumes that Congress will appropriate an 
amount necessary to fund the entire amount authorized. Table 2 
also provides a more detailed breakdown of the estimated credit 
subsidy costs for SBA's credit programs and estimated loan 
administration costs for SBA. It should be noted, however, that 
while CBO has included annual increases in these amounts, 
Congress has not funded annual increases in recent years.

                       TABLE 2.--SBA LOAN LEVELS, SUBSIDY COSTS, AND ADMINISTRATIVE COSTS                       
----------------------------------------------------------------------------------------------------------------
                                                                    By fiscal years, in millions of dollars--   
                                                               -------------------------------------------------
                                                                  1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                             AUTHORIZED LOAN LEVELS                                             
                                                                                                                
Guaranteed and Direct Business Loans..........................    18,200    19,950    22,650         0         0
Disaster Loans................................................     1,543     1,543     1,543         0         0
                                                                                                                
                                               LOAN SUBSIDY COSTS                                               
                                                                                                                
Guaranteed and Direct Business Loans:                                                                           
    Estimated authorization level.............................       350       380       421         0         0
    Estimated outlays.........................................       225       348       390       133         8
Disaster Loans:                                                                                                 
    Estimated authorization level.............................       459       459       459         0         0
    Estimated outlays.........................................       230       413       459       230        46
                                                                                                                
                                            LOAN ADMINISTRATION COSTS                                           
                                                                                                                
Guaranteed and Direct Business Loans:                                                                           
    Estimated authorization level.............................        94        97       100         0         0
    Estimated outlays.........................................        94        97       100         0         0
Disaster Loans:                                                                                                 
    Estimated authorization level.............................       164       169       174         0         0
    Estimated outlays.........................................       164       169       174         0         0
----------------------------------------------------------------------------------------------------------------

    The Committee, during its consideration of the Small 
Business Reauthorization Act of 1997, considered the 
possibility that both loan subsidy costs and loan 
administration costs might increase as suggested by the CBO 
estimates. The Committee believes that SBA has begun to take 
steps to streamline administration of its credit programs, and 
the Committee expects SBA's overhead costs to decrease over the 
next three years. In addition, the Committee has encouraged SBA 
to take steps necessary to improve the management of its credit 
programs in order to reduce the credit subsidy cost necessary 
to maintain the loan programs. The Committee believes these 
subsidy rate costs need to decrease further by adopting 
management improvements at SBA rather than through increased 
fees or through the need for additional appropriations from the 
Congress.
    The Small Business Reauthorization Act of 1997 would 
reauthorize the Small Business Competitiveness Demonstration 
Program through fiscal year 2000. This program establishes a 
goal of 40% for small business contracting in the areas of 
architecture and engineering, refuse removal, construction, and 
non-nuclear ship repair. CBO estimates that extending the 
program would cost the ten Federal agencies that participate in 
the program and SBA a total of $1 million per year. In 
addition, the bill extends the small business participation in 
Dredging Program, which is estimated to cost $500,000 annually 
during FY 1998-2000.
    The bill also extends the STTR program from FY 1998 and FY 
2003. This program is limited to Federal agencies with annual 
appropriations for extramural research of $1 billion or more, 
which are required to set aside a specified percentage of their 
extramural research budget for cooperative research between 
small businesses and non-profit or university-based research 
centers. CBO estimates that the cost of administering the 
awards would be $1 million per year.
    The Small Business Reauthorization Act of 1977 includes two 
new sections. The Small Business Procurement Opportunities 
Program would build on an SBA program to monitor the growth of 
the bundling of Federal procurement contracts. CBO has 
estimated that it would cost approximately $2.5 million in FY 
1998 and $1.5 million in each subsequent fiscal year to follow 
the procedures established in the bill.
    The bill also establishes the HUBZone Program with a 
specific authorization of $5 million for each year for SBA to 
implement the program. The HUBZone Program would raise the 
government-wide goal for awarding contracts to small businesses 
from 20% to 23% of all prime Federal contracts. Although CBO 
and SBA have made general comments about other possible 
spending implications of the HUBZone Program, the Committee has 
not been made aware of any conclusive evidence that this change 
would lead to any increased costs for the government in excess 
of the authorization contained in the bill.
    Section 252 of the Balanced Budget and Emergency Deficit 
Control Act of 1985 sets up pay-as-you-go procedures for 
legislation affecting direct spending or receipts through FY 
2007. CBO has estimated that provisions in the bill allowing 
SBA to spend examination fees paid by SBA-licensed Small 
Business Investment Companies would increase direct spending by 
$1 million per year.
    The Small Business Reauthorization Act contains no 
intergovernmental mandates as defined in the Unfunded Mandates 
Reform Act (UMRA) of 1995, and it would not impose any costs on 
state, local or tribal governments. In addition the bill would 
impose no new private-sector mandates as defined in UMRA.

                   V. 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.

                    VI. Section-by-Section Analysis

                        Title I: Authorizations

    See the table with the program levels included in Part II 
of this report.

                     Title II: Financial Assistance

                          a. microloan program

Section 201

    Converts the direct microloan program from a demonstration 
program to a permanent program, and extends the guaranteed 
microloan program for three years.

          b. small business investment company (sbic) program

Section 211

    Gives the Administrator the option of making five year 
leverage commitments for SBICs. This change permits SBA to 
provide leverage to SBICs based with their investment pattern, 
which normally allows for all investments to be made during the 
first five years of the SBIC life cycle.

Section 212. Licensing Fees

    Permits SBA to collect fees from SBIC applicants to offset 
expenses incurred by SBA to perform licensing function.

Section 213

            (a) Bank Investment
    Clarifies current law provisions permitting Federal or 
state regulated banks to invest in one or more SBICs. 
Currently, the Act only provides that banks may purchase stock 
from SBICs; however, since most SBICs are now partnerships, 
which do not have stock, this change is being made to allow 
banks to continue to invest in SBICs, whether they are 
corporations, partnerships, limited liability companies, or 
entities established to invest solely in SBICs.
            (b) Leverage Cap
    This section would allow individual SBICs or multiple SBICs 
under common control to exceed the $90 million cap on leverage 
if it agrees to invest all leverage obtained above this cap in 
smaller small businesses (those defined as having $2 million or 
less in revenues, and $6 million or less in net worth). Each 
year this cap would be adjusted upwards for inflation.
            (c) Tax Distributions
    This section permits SBICs to make quarterly distributions 
to its investors to meet the investors' tax obligations. This 
is to cover the situation where investors are making quarterly 
tax payments to the Federal government.
            (d) Leverage Fee
    Currently, SBICs must pay three percent as a fee for the 
leverage it receives from SBA. This section requires that one 
percent be paid at the time SBA makes a commitment for this 
leverage and the balance of two percent be paid on the date 
that the leverage is drawn by the SBIC. If no prior commitment 
from SBA is provided, the three percent fee is paid at the time 
that leverage is drawn by the SBIC.
            (e) Issuance of Guarantees and Trust Certificates
    This section provides that SBA will poor and sell 
debentures to investors every six months; this is a change from 
current statute which requires it to be done every three 
months. The purpose of the change is to allow for larger pools, 
which should generate greater investor interest and more 
favorable interest rates for the SBICs.

Section 214. Examination Fees

    SBA has authorization to collect from SBICs to perform 
examination function. Section 214 permits SBA to use these fees 
to offset examination program expenses.

                c. certified development company program

Section 211

    Changes current law and permits two or more small 
businesses to borrow money from the 504 program for the same 
project. This section further provides that the selling party 
in a 504 transaction may loan money to the 504 borrow; however, 
the debt from the seller's loan is subordinate to the SBA loan. 
This improves SBA's position to improve its recovery if there 
is a default.
    This section also provides that a 504 borrower can lease up 
to twenty-five percent of its project to one or more small 
businesses. This is to allow the 504 borrower to take advantage 
of a current trend where the prime business, such a gas 
station, attracts another small business, such as a fast food 
franchise, to set up a small operation at its site.

Section 222

    Permits the continuation of the 15/16ths of one percent fee 
that is paid by the borrower on an annual basis. This fee is 
collected by SBA in order to offset the credit subsidy rate. It 
also provides that if the credit subsidy rate is reduced, this 
fee is reduced by SBA in an amount to insure that excessive 
fees are not collected from 504 borrowers. Authority to collect 
these fees is approved through Fiscal Year 2000.

Section 223

    Expands the Premier Certified Lenders Program under the 504 
program by eliminating the limit of 15 CDCs that previously 
could participate. To participate in the program, CDCs must 
maintain a loss reserve, in an amount equal to the greater of 
10 percent or the CDC's historic loss rate, for the benefit of 
SBA. This section provides CDCs with new flexibility for 
maintaining this loss reserve. Should funds be disbursed from 
the loss reserve to reimburse SBA for the company's share of 
the loss, the CDC must replenish the reserve account within 
thirty days.
    This section provides further that a premier CDC should 
establish a goal of processing at least fifty percent of its 
loan applications under this program.

                Title III: Women's Business Enterprises

Section 301. Interagency Committee Participation

    This section expands the group of departments that 
constitutes the Interagency Committee on Woman's Business 
Enterprise to include: Education, EPA, DOE, NASA, and Office of 
Procurement Policy. The departments currently on the Committee 
are: Commerce, Defense, HHS, Labor, SBA, DOT, Treasury, GSA, 
Federal Reserve, and the Executive Office of the President.
    In addition, this section provides that each designee to 
the Committee is to report directly to the head of that agency 
on the status of the Committee's activities. Under current law, 
the agency head may designate who sits at the table on their 
behalf, except that the designee for SBA is the Assistant 
Administrator for the Office of Women's Business Ownership. The 
bill adds that the AA for OWBO is to report directly to the SBA 
Administrator on the status of the Committee's activities.

Section 302. Reports

    To bolster the role of the SBA, the Committee's annual 
report to Congress and the President shall be transmitted 
through the SBA. This section also deletes the requirement that 
the Committee's annual report includes the recommendations of 
the Council. This change is made because the bill adds a 
specific reporting requirement for the Council, which presently 
does not exist separate and apart from the Committee's report. 
The bill inserts language to have the Committee's report 
include the status on its efforts to meet its statutory duties.

Section 303. Duties of the Council

    The bill removes an inconsistency from that statute by 
having the Council submit its recommendations and report to the 
SBA through the Assistant Administrator for OWBO. As mentioned 
before, the current proposal adds reporting requirements for 
the Council. The general reporting to the President and the 
House and Senate Small Business Committee ties in with the 
Council's duties in sections 406 (a) and (d) under current law.

Section 304. Council Membership

    The bill expands the Council to 14 members and one 
chairperson. Under current law, thereare 9 members (4 business 
owners and 5 women's business organizations' representatives). The bill 
revises the membership as follows: increases the number of 
entrepreneurs from 4 to 6; increases the number of women's business 
organization representatives from 5 to 6, and makes representatives of 
local Women's Business Centers eligible; and adds two slots for 
representatives from academia or corporations who have an interest in 
women entrepreneurship.
    The bill also amends the language addressing diversity in 
selecting members to include attention to rural versus urban 
representation. Section 305 provides an authorization for the 
appropriation of $400,000 per year for Fiscal Years 1998, 1999, 
and 2000.

Section 306. Women's Business Centers

    This section includes the text of S. 888, the Women's 
Business Centers Act of 1997, introduced by Senators Domenici, 
Bond and Kerry. The bill's cosponsors include 15 of the 
Committee's 18 members. The language increases the 
authorization from $4 million per year for three years to $8 
million per year for three years. The language precludes any 
funds appropriated under this authorization from being used for 
anything other than grants. Grantees awarded funds under this 
section will receive funds for five years rather than three, as 
under current law, and the Federal/non-Federal funding match is 
changed accordingly. Current grantees receiving funds on the 
day of enactment will be able to apply to receive funds for two 
additional years.
    This section includes language from S. 925, Senator 
Coverdell's bill, to codify the practice of allowing grant 
recipients to pursue other sources of Federal funds. Obtaining 
additional Federal funding will not jeopardize the centers from 
receiving funds under this section.
    Under current law, the SBA is to establish criteria for 
selecting grant applicants. The bill adds the ``location for 
the Women's Business Center site'' as an issue to be 
considered. The bill's report will reflect the Committee's 
preference for funding new sites in states without sites, while 
balancing this objective with a strong interest in providing 
funds for additional sites in states where their remains the 
demand for additional centers. The definition of ``women's 
business center site'' is revised from S. 888 to clarify that 
linkages between new and existing sites are permitted but not 
required.

Section 307. Office of Women's Business Ownership

    This section sets forth the duties of the Assistant 
Administrator for the Office of Women's Business Ownership. The 
position was elevated to an Assistant Administrator in the last 
reauthorization bill, but the responsibilities and duties were 
not provided. The GS level of the Assistant Administrator is 
increased to GS 17, again to ensure that the office receives 
the staffing and stature within the SBA that an $8 million 
program warrants. The perspectives and experience of OWBO 
should be included in all SBA program and policy deliberations.

    Title IV--Competitiveness Program and Procurement Opportunities

               A. Small Business Competitiveness Program

Section 401. Program Term

    Amends section 711(c) of the Small Business Competitiveness 
Demonstration Program Act of 1988 (15 U.S.C. 644 note) to 
extend the program through Fiscal Year 2000.

Section 402. Monitoring Agency Performance

    Amends section 712(d)(1) to change the reporting and goal 
accomplishment from quarterly to annual.

Section 403. Reports to Congress

    Amends section 716(a) of the Small Business Competitiveness 
Demonstration Program Act of 1988 (15 U.S.C. 644 note) to 
extend the reporting requirements through Fiscal Year 2000 and 
requires the Administrator of the Small Business Administration 
(SBA) to be the reporting agency in lieu of the Administrator 
of the Office of Federal Procurement Policy (OFPP). As a 
technical amendment this section replaces the term ``Committee 
on Governmental Affairs'' with ``Committee on Government Reform 
and Oversight.''

Section 404. Small Business Participation in Dredging

    Amends section 722(a) of the Small Business Competitiveness 
Demonstration Program Act of 1988 (15 U.S.C. 644 note) to 
extend the program through Fiscal Year 2000.

          B. Small Business Procurement Opportunities Program

Section 411. Contract Bundling

    Adds a new subsection (j) to section 2 of the Small 
Business Act (15 U.S.C. 631). The amendment amplifies the Small 
Business Act's Congressional policy to foster the participation 
of small business concerns in Federal contracting 
opportunities. The new provision emphasizes the existing 
responsibilities of each Federal agency and structures their 
contract solicitations to take all reasonable steps to avoid 
obstacles to small business participation.

Section 412. Definition of Contract Bundling

    Adds a new subsection (o) to Section 3 of the Small 
Business Act (15 U.S.C. 632). The new subsection defines 
`contract bundling' as the practice of consolidating two or 
more procurement requirements of a type that were previously 
solicited and awarded as separate smaller contracts into a 
single contract solicitation likely to be unsuitable for award 
to small business. This subsection establishes the following 
four criteria that would indicate a bundled requirement:
          1. Diversity and size of elements of performance.
          2. Aggregate dollar value of anticipated contract.
          3. Geographical dispersion of contract performance 
        sites.
          4. Any combinations of (1), (2), and (3).

Section 413. Assessing Proposed Contract Bundling

    This amendment to Section 15(b) of the Small Business Act 
(15 U.S.C. 644(b)) establishes the procedures to be followed by 
contracting activities and the Small Business Administration 
(SBA) in regards to the bundling of contract requirements 
(similar to the SBA Procurement Center Representative (PCR) 
review procedures when a solicitation has not been set-aside 
for small business). When a bundled contract is contemplated, 
the activity shall identify the anticipated benefits and assess 
impediments to small business participation. The PCR shall be 
given an opportunity to review the `bundled requirement' and be 
allowed to request that the activity provide alternative 
strategies that would increase participation opportunities for 
small business. The PCR can also suggest alternative strategies 
to the contracting activity.
    Provides the PCR a 30 day review period, instead of the 15 
day period for set-aside reviews, in recognition that the 
proposed solicitation for bundled contracts can reasonably be 
expected to be more complex.
    ``(C) Dispute Resolution. Provides the procedural structure 
to be followed when the PCR and the contracting activity fail 
to agree on a revised procurement strategy. If the head of the 
contracting activity and the PCR fail to agree, the PCR may 
submit a challenge to the proposed bundled contract to the SBA 
Administrator. If the SBA Administrator concurs that the 
proposed solicitation is an unjustified bundling of contract 
requirements precluding small business participation as prime 
contractors, the SBA Administrator shall refer the challenge to 
the agency head for final determination. The intent is to 
encourage the agency head to initiate a further review of the 
bundled requirement for the purpose of identifying an alternate 
procurement strategy that would enhance the likelihood of small 
business participation.
    ``(D) Supporting Information. Any decision of the head of 
the agency to issue a contract solicitation with no revision of 
the procurement strategy shall be documented with a written 
`determination and finding' (D&F). The D&F shall be submitted 
to the Administrator.
    ``(E) Specific Findings. The D&F shall include the 
estimated benefits of the proposed bundled contract 
requirements, including programmatic objectives, cost savings 
and how such benefits were calculated. Additionally, the D&F 
should address specific actions to be taken by the contracting 
activity to foster small business participation at the 
subcontractor level of the bundled requirement.
    ``(F) Timing. A bundled solicitation may not be issued 
prior to the issuance of a D&F unless the agency head 
determines that the solicitation must be issued for ``urgent 
and compelling reasons''. It is intended that such a finding of 
urgent and compelling reasons shall be supported by a D&F which 
will be submitted to the Administrator.
    ``(c) Responsibilities of Agency Small Business Advocates. 
This modification to the Small Business Act (15 U.S.C. 644(k)) 
adds an additional responsibility to the Federal agency's 
Director of the Office of Small and Disadvantaged Business 
Utilization, to identify and report on proposed solicitations 
that represent bundling of contract requirements and work with 
agency acquisition officials to revise procurement strategies 
for such proposed solicitations to improve small business 
participation at prime and subcontract levels.

Section 414. Fostering Contractor Teaming

    Amends Section 15(b) of the Small Business Act (15 U.S.C. 
644(b)) to permit a small business concern to assemble a team 
of small businesses capable of competing for bundled 
requirements. This amendment waives the SBA rules regarding 
``affiliation'' and ``control'' limitations for a requirement 
to be counted as a small business award.
    The purpose is to encourage the formation of tailored small 
business teams, including flexible prime/subcontractor teams, 
capable of performing the bundled contract requirements. The 
proposed small business-led team would be subject to approval 
by the SBA. Under the proposed provision the subcontract team 
could include firms that are ``other than small business,'' 
provided that such firms perform not more than 25 percent of 
the effort.

Section 415. Reporting of Bundled Contract Opportunities

    Subsection (a) of this section requires the Federal 
Procurement Data System (FPDS) to be modified to collect data 
regarding contract bundling to facilitate oversight by Congress 
and the small business community. The information collected 
will capture determinations that an awarded contract (and 
subsequent modifications) be counted as incidents of contract 
bundling.

Section 416. Evaluating Subcontract Participation in Awarding Contracts

    Amends Section 8(d) of the Small Business Act to provide 
for the consideration of proposed small business participation 
as subcontractors and suppliers as part of the process of 
selecting among competing offerors for award of a prime 
contract. Section 416 also recognizes prime contractors past 
performance in supporting small business subcontracting 
participation in other Federal contracts.

Section 417. Improved Notice of Subcontracting

    Amend (15 U.S.C. 637) by adding a new subsection (k) 
Notices of Subcontracting Opportunities. This amendment 
provides permissive authority for Government prime contractors 
and their subcontractors to place notices of subcontracting 
opportunities in the Commerce Business Daily (CBD). This may 
provide small firms with additional information regarding 
business opportunities as subcontractors or suppliers.
    Subsection (b) requires the implementation of this 
provision through modification of the Government-wide Federal 
Acquisition Regulation (FAR).
    Subsection (c) makes conforming modification to Section 
8(e)(1)(C) of the Small Business Act increasing the threshold 
for requiring agencies to furnish to the CBD notices regarding 
contracting awards or orders placed by executive agencies from 
$25,000 to $100,000. The Federal Acquisition Streamlining Act 
of 1994 (FASA) made a series of changes in subsections (e), (f) 
and (g) of Section 8 of the Small Business Act when FASA 
increased the $25,000 small purchase threshold to the $100,000 
Simplified Acquisition Threshold (SAT).

Section 418. Deadlines for Issuance of Regulations

    Subsection (a) of this section established a deadline for 
the publication in the Federal Register of proposed regulations 
for the implementation of the Act. The deadline is not later 
than 120 days from the date of enactment. The public is assured 
60-days for comment on the proposed regulations.
    Subsection (b) requires that final regulations be published 
in the Federal Register within 270 days of the date of 
enactment. The effective date of the final regulations cannot 
be sooner than 30-days after the date of publication to assure 
small business concerns and small business advocates within 
Government and the small business community adequate time to 
understand the protections afforded by the new regulations.

                   Title V: Miscellaneous Provisions

Section 501

    Extends the Small Business Technology Transfer (STTR) 
Program through Fiscal Year 2003.

Section 502

    Makes numerous changes to the Small Business Development 
Center (SBDC) Program. This section directs that when SBA does 
not renew or extend an existing contract with an SBDC, SBA 
shall award a contract to a new entity based on full and open 
competition. In each such competition, Women Business Centers 
will be eligible to be selected by SBA to be the new SBDC.
    This section also strengthens the relationship between 
SBDCs and the SBA by requiring all programs and services be 
jointly developed between the two entities. Furthermore, this 
section calls on the SBDCs to review all public and private 
partnerships and co-sponsorships with SBA on an annual basis.
    This section expands on the concept of SBDCs providing 1-
on-1 individual counseling for small businesses by requiring 
that SBDCs work with individual entrepreneurs to improve their 
basic credit practices, and to assist these individuals in 
developing business plans, credit applications, and contract 
proposals. This section also directs SBDCs to work with SBA to 
provide appropriate information for individual businesses to 
assist in their start up planning, business expansion, and 
export planning.
    This section further clarifies the SBDC's role in working 
with SBA to assist small businesses in recognizing regulations 
that affect their businesses and to make counseling and support 
materials available on methods of complying with these 
regulations. This section directs SBDCs to provide counseling 
and technology development assistance when necessary to help 
small businesses find solutions for complying with 
environmental, energy, health, safety and other Federal, state, 
and local regulations.
    Section 502 amends the Small Business Act to prohibit any 
Small Business Development Center from imposing or collecting a 
fee in connection with providing counseling services to 
individuals and small businesses.

Section 503

    Extends the pilot Preferred Security Bond Program through 
Fiscal Year 2000.

Section 504

    Extends SBA's co-sponsorship authority through Fiscal Year 
2000.

                       Title VI. HUBZones Program

Section 601

    This Act is called the ``HUBZone Act of 1997.''

Section 602. Historically Underutilized Business Zones

    Definitions--
          Historically Underutilized Business Zone (HUBZone) is 
        any area located within a qualified census tract or 
        qualified non-metropolitan county.
          HUBZone Small Business Concern is a small business 
        whose principal office is located in a HUBZone and 
        whose workforce includes at least 35% of its employees 
        from one or more HUBZones.
          Qualified Census Tract is an area where not less than 
        50% of the households have an income of less than 60% 
        of the metropolitan statistical area median gross 
        income as determined by the Department of Housing and 
        Urban Development.
          Qualified Non-metropolitan County is an area where 
        the household income is less than 80% of the non-
        metropolitan area median gross income as determined by 
        the Bureau of the Census of the Department of Commerce.
          Qualified HUBZone Small Business Concern must certify 
        in writing to the Small Business Administration (SBA) 
        or be certified by SBA that it (a) is located in a 
        HUBZone, (b) will attempt to maintain a workforce that 
        includes at least 35% of its employees from one or more 
        HUBZones, (c) will insure that not less than 50% of the 
        contract cost will be performed by the Qualified Small 
        Business.
    Eligible Contracts--
          A contract award to a qualified HUBZone small 
        business concern can be made by a procuring agency if 
        it determines that 2 or more qualified HUBZone small 
        business concerns will submit offers for the contract 
        and the award can be made at a fair market price.
          A contracting officer can award a sole source 
        contract to a qualified HUBZone small business concern 
        if it submits a reasonable and responsive offer and is 
        determined by the appropriate agency contracting 
        officer to be a responsible contractor. Sole-source 
        contracts cannot exceed $5 million for manufacturing 
        contracts and $3 million for all other contract 
        opportunities.
          10% Price Evaluation Preference in full and open 
        competition can be made on behalf of the Qualified 
        HUBZone small business concern if its offer is not more 
        than 10% higher than the other offeror, so long as it 
        is not a small business concern.
    Enforcement; Penalties--
    The SBA Administrator or his designee shall establish a 
system to verify certifications made by small business concerns 
to include random inspections and procedures relating to 
disposition of any challenges to the accuracy of any 
certification. If SBA determines that a small business concern 
may have misrepresented it status as a HUBZone small business, 
it shall be subject to prosecution under title 18, section 
1001, U.S.C., False Certifications, and title 31, sections 
3729-3733, U.S.C., False Claims Act.

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

    HUBZone Preference--
    HUBZone small business concerns are afforded the same level 
of preference given to 8(a) small business concerns.
    Phased-in Implementation--
    After enactment and until September 30, 2000, 
implementation of the HUBZone Act of 1997 will be limited to 
the following Agencies: EPA, GSA, NASA, and the Department of 
Defense, Agriculture, Health and Human Services, 
Transportation, Veterans Affairs Energy, and Housing and Urban 
Development.
    HUBZone Goals--
    This section sets forth government-wide goals for awarding 
government contracts to qualified small businesses. In Fiscal 
Year 1999, the goal will be not less than 1% of the total value 
of all prime contracts awarded to qualified small businesses 
located in HUBZones. In FY 2000, this goal will increase to 
1.5% in FY 2001, it will be 2%; in FY 2002, it will be 2.5%, 
and it will reach 3% in FY 2003 and each year thereafter.
    Offenses and Penalties--
    This section provides that anyone who misrepresents any 
entity as being a qualified HUBZone small business concern in 
order to obtain a government contract or subcontract can be 
fined up to $500,000 and imprisoned for not more than 10 years 
and be subject to the administrative remedies prescribed by the 
Program Fraud Civil Remedies Act of 1986 (31 U.S.C. 3801-3812).

Section 604. Other Technical and Conforming Amendments

    This section makes technical amendments to other federal 
government agency programs that have traditionally provided 
contract set asides and preferences to disadvantaged small 
businesses by expanding each program to include qualified 
HUBZone small business concerns.

Section 607

    This section authorizes $5 million for each of the next 
three years to implement the program.

                          
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