[Senate Report 105-63]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                                 SENATE

 1st Session                                                     105-63
_______________________________________________________________________


 
          REPORT OF LEGISLATIVE AND OVERSIGHT ACTIVITIES 

                       DURING THE 104TH CONGRESS

                          UNITED STATES SENATE

                      COMMITTEE ON SMALL BUSINESS




                August 19, 1997.--Ordered to be printed

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


                      COMMITTEE ON SMALL BUSINESS

                CHRISTOPHER S. BOND, Missouri, Chairman
LARRY PRESSLER, South Dakota         DALE BUMPERS, Arkansas
CONRAD R. BURNS, Montana             SAM NUNN, Georgia
PAUL COVERDELL, Georgia              CARL LEVIN, Michigan
DIRK KEMPTHORNE, Idaho               TOM HARKIN, Iowa
ROBERT F. BENNETT, Utah              JOHN F. KERRY, Massachusetts
KAY BAILEY HUTCHISON, Texas          JOSEPH I. LIEBERMAN, Connecticut
JOHN WARNER, Virginia                PAUL D. WELLSTONE, Minnesota
WILLIAM H. FRIST, Tennessee          HOWELL HEFLIN, Alabama
OLYMPIA J. SNOWE, Maine              FRANK R. LAUTENBERG, New Jersey

             Louis Taylor, Staff Director and Chief Counsel
     John W. Ball III, Democratic Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. Chairman's Summary of Committee Activity for the 104th 
            Congress.............................................     1
        A. Regulatory Fairness...................................     1
        B. Small Business Tax Issues.............................     2
        C. Workplace Issues......................................     4
        D. Access to Capital: Small Business Administration 
            Programs.............................................     6
        E. Health Care Issues....................................     7
        F. Banking and Financial Institutions....................     7
        G. Securities Laws.......................................     8
        H. Telecommunications....................................     8
        I. Product Liability Reform..............................     9
 II. Regulatory Fairness.........................................     9
        A. Small Business Regulatory Reform......................     9
        B. Comprehensive Regulatory Reform.......................    14
        C. Regulatory Accounting Requirements....................    15
        D. Superfund.............................................    16
        E. Paperwork Reduction...................................    18
        F. SBREFA Demonstration Project..........................    18
III. Small Business Tax Issues...................................    19
        A. Independent Contractor................................    19
        B. Self-Employed Health Insurance........................    20
        C. Estate Taxes..........................................    20
        D. Home-Office Deduction.................................    21
        E. Equipment Expensing...................................    21
        F. Pension Simplification................................    23
        G. Capital Gains.........................................    23
        H. Taxpayer Bill of Rights 2.............................    24
        I. Meals and Entertainment...............................    24
        J. Payroll Tax Relief....................................    25
        K. S Corporation Reform..................................    25
        L. Tax Reform Debate.....................................    26
        M. The Consumer and Main Street Protection Act...........    26
        N. Electronic Tax Payment Requirement....................    27
        O. Extension of Expiring Provisions......................    27
 IV. Workplace Issues............................................    27
        A. OSHA Reform...........................................    27
            1. Legislative Reform................................    27
            2. Workplace Violence Guidelines.....................    28
            3. Ergonomics........................................    28
            4. Hazard Communications.............................    28
        B. Labor-Management Relations............................    28
            1. Union Salting.....................................    28
            2. Single Facility Bargaining Units..................    30
        C. Fair Labor Standards Act..............................    32
            1. Compensatory Time Off.............................    32
            2. Inside Sales......................................    33
            3. Minimum Wage......................................    33
        D. TEAM Act..............................................    34
        E. Davis-Bacon Act.......................................    35
        F. Family and Medical Leave Act..........................    36
  V. Access to Capital: Small Business Administration Programs...    37
        A. 7(a) Guaranteed Business Loan Program.................    37
        B. 504 Certified Development Company Program.............    38
        C. Small Business Investment Company Program.............    39
        D. Expanded Export Opportunities for Small Business......    41
        E. Revitalizing America's Rural and Urban Communities....    41
        F. Women Business Ownership..............................    42
        G. Small Business Research and Development...............    42
 VI. Health Care.................................................    43
VII. Banking and Financial Institutions..........................    43
VIII.Securities Laws.............................................    44

 IX. Telecommunications..........................................    44
        A. Telecommunications Deregulation Act...................    44
        B. Small Cable Television Concerns.......................    46
  X. Product Liability Reform....................................    47
 XI. Hearings of the Committee...................................    47
        February 10, 1995: Exploring the Future of the Small 
            Business Administration..............................    47
        February 16, 1995: Small Business Owners Perspective on 
            the Small Business Administration....................    48
        February 20, 1995: ``Entrepreneurship in America:'' 
            Excessive Governmental Burdens on Small Business--
            Albuquerque, New Mexico..............................    49
        March 8, 1995: S. 350, Regulatory Flexibility Amendments 
            Act of 1995..........................................    51
        March 11, 1995: ``Entrepreneurship in America:'' Final 
            OSHA Logging Regulations--Kalispell, Montana.........    52
        April 4, 1995: The Small Business Administration's 8(a) 
            Minority Business Development Program................    54
        April 12, 1995: ``Entrepreneurship in America:'' Reducing 
            Governmental Burdens on Small Business--Kansas City, 
            Missouri.............................................    56
        April 12, 1995: ``Entrepreneurship in America:'' Focus on 
            Capital Formation--St. Louis, Missouri...............    57
        April 13, 1995: ``Entrepreneurship in America:'' Federal 
            Government Burdens on Agribusiness--Cape Giradeau, 
            Missouri.............................................    59
        April 13, 1995: ``Entrepreneurship in America:'' 
            Loosening the Government Noose on Small Business--
            Memphis, Tennessee...................................    60
        May 18, 1995: The Small Business Administration's 7(a) 
            Business Loan Program................................    62
        July 13, 1995: The Small Business Investment Company 
            Program..............................................    63
        August 16, 1995: ``Entrepreneurship in America:'' 
            Overview of SBA Programs in Alaska--Anchorage Alaska.    65
        August 17, 1995: ``Entrepreneurship in America:'' 
            Alaska's Small Business Environment--Ketchikan, 
            Alaska...............................................    66
        September 19 and 20, 1995: Tax Issues Impacting Small 
            Business.............................................    68
        October 19, 1995: Revitalizing America's Rural and Urban 
            Communities..........................................    73
        October 31, 1995: The Cost of Regulations on Small 
            Business.............................................    75
        November 8, 1995: The Impact of Rail Mergers on Small 
            Shippers.............................................    77
        December 6, 1995: Small Business and OSHA Reform.........    79
        December 12, 1995: Proposals to Strengthen the Small 
            Business Investment Company Program..................    81
        February 28, 1996: S. 917 and S. 942: Implementing the 
            White House Conference on Small Business 
            Recommendations on Regulations and Paperwork.........    82
        March 21, 1996: S. 1574, The HUBZone Act of 1996: 
            Revitalizing Inner Cities and Rural America..........    83
        April 18, 1996: Small Business and Employee Involvement: 
            the TEAM Act Proposal................................    85
        April 23, 1996: Issues Affecting Home-Based Business 
            Owners...............................................    86
        May 1, 1996: Nomination of Ginger Ehn Lew to be Deputy 
            Administrator of the United States Small Business 
            Administration and the United States Small Business 
            Administration's Fiscal Year 1997 Budget.............    89
        May 10, 1996: Small Business Investment Company Reform 
            Legislation..........................................    90
        June 5, 1996: Implementation of the Small Business Agenda    91
        July 24, 1996: Implementation of the Small Business 
            Regulatory Enforcement Fairness Act of 1996..........    95


   I. CHAIRMAN'S SUMMARY OF COMMITTEE ACTIVITY FOR THE 104th CONGRESS

    As Chairman of the U.S. Senate Committee on Small Business 
during the 104th Congress, I organized the Committee's agenda 
so we could focus on the highest priority recommendations from 
the 1995 White House Conference on Small Business and respond 
to the input and concerns expressed by small business owners 
across the nation during the Committee's ``Entrepreneurship in 
America'' hearings. This report summarizes the legislative and 
oversight activities of the Committee on these key issues of 
concern and interest to small businesses.

                         A. Regulatory Fairness

    One of the primary concerns of small business owners across 
the nation is the disproportionate burden they bear in 
complying with an overwhelming and ever-increasing number of 
complex federal regulations. Antiquated federal rule-making 
procedures--generally designed for larger firms that have more 
resources to deal with the resulting compliance costs--have 
long been a serious concern to smaller entrepreneurs and were a 
constant theme at both the White House Conference and at 
Committee field hearings. As Committee Chairman, I made 
regulatory fairness for small businesses one of our highest 
priorities during the 104th Congress. I authored the Small 
Business Regulatory Enforcement Fairness Act (SBREFA) that 
passed Congress on March 29, 1996 and became effective on July 
1, 1996. The measure, when fully implemented, will provide 
small business owners with a level regulatory playing field 
both at the front end of the rule-making process when agencies 
first propose regulations, as well as at the enforcement phase, 
where, all to often, small businesses are treated exactly the 
same as large corporations and federal agencies are not held 
accountable for their actions.
    The SBREFA law contains some important, innovative 
provisions. It adds judicial teeth to the Regulatory 
Flexibility Act, a 1980 law requiring federal agencies to 
consider ways to reduce the economic impact of new regulations 
on small businesses and local governments. The original Reg-
Flex Act, although well intentioned, has been routinely ignored 
by agencies because it lacked statutory teeth. A centerpiece of 
the SBREFA law is language permitting small entities to seek 
judicial review of agency compliance with the Reg-Flex Act so 
that small businesses and other small entities, such as local 
governments, can take federal agencies to court if they 
continue to ignore the Act's requirements. SBREFA also includes 
the following important items:
          It requires agencies to prepare ``Plain English'' 
        compliance guides that will allow small business owners 
        to comply with federal regulations without having to 
        hire a team of lawyers to interpret them;
          It requires federal agencies to establish policies or 
        programs providing for waivers or reductions in civil 
        penalties for non-serious infractions that do not 
        involve willful violations, criminal conduct, or 
        violations that pose serious threats to health, safety 
        and the environment;
          It sets up an independent Ombudsman at the Small 
        Business Administration to receive confidential 
        complaints and comments from small businesses about 
        their dealings with federal regulators and establishes 
        regional citizen review boards to ``rate the 
        regulators'' based on these comments and publish their 
        findings in a ``report card'' for each agency;
          It makes it easier for small businesses to recover 
        attorneys fees when agencies make demands for fines and 
        penalties that are not sustainable in court; and
          It allows Congress to review and disapprove new 
        regulations written by federal agencies within a 60 day 
        window.
    Another important law passed by this Congress, the 1995 
Paperwork Reduction Act, should help reduce the regulatory and 
paperwork burden currently faced by small businesses. During 
the 104th Congress, the Committee held hearings to ensure that 
federal agencies comply with this important legislation. At our 
hearing on the implementation of this law, testimony from the 
General Accounting Office (GAO) indicated that federal agencies 
had failed to reach their obligation under the Act to reduce 
paperwork by 10% in the first year following enactment. In 
fact, using the Office of Management and Budget's own numbers, 
GAO concluded that the actual reduction achieved was less than 
1% in 1996. Clearly, that is unacceptable. As Committee 
Chairman in the 105th Congress, I will follow this issue 
closely, and I will continue my efforts to make certain that 
federal agencies comply with the laws passed by Congress.

                      B. Small Business Tax Issues

    The lack of a level playing field with regard to taxation 
and tax compliance is a major concern for small business owners 
who, once again, bear a disproportionate burden in complying 
with a U.S. tax code that has not kept pace with the changing 
economy and the dramatic expansion of small businesses. In 
hearing after hearing during this Congress, small business 
owners have expressed to me their deep concerns--not only with 
the level of taxes that must be paid to Washington--but with 
the enormous time and costs involved just trying to understand 
the litany of red tape promulgated by the Internal Revenue 
Service. Time and money spent trying to understand complicated 
tax procedures and arcane tax law results in time not available 
for running the business and money not available for expansion, 
investment and new jobs. Issues of taxation elicited the most 
concern from delegates at the White House Conference, resulting 
in some of their highest priority recommendations for 
legislative action. The delegates' recommendations included 
clarifying the definition of an independent contractor, raising 
the deductibility of health-care costs for the self-employed to 
100%, restoring a meaningful home-office deduction, increasing 
the expensing deduction for new equipment purchases, and 
expanding small business pension plans.
    As Committee Chairman, I authored legislation to clarify 
the definition of an independent contractor--this was voted the 
most important small business issue at the White House 
Conference. That is because the IRS uses a complex and highly 
subjective 20-factor, common-lawtest to determine whether a 
worker is an employee or independent contractor. This test has created 
fear and confusion for entrepreneurs who are subject to worker 
reclassifications and collection of back taxes if they get it wrong. 
Recent evidence has demonstrated that the IRS has resolved too many 
cases in favor of an employment relationship at the expense of bona 
fide independent-contractor arrangements. I introduced a bill during 
the 104th Congress, the Independent Contractor Tax Simplification Act, 
S. 1610, that would replace the 20-factor test with three simple 
questions. By the end of the 104th Congress, the bill had 32 co-
sponsors in the Senate, and I will re-introduce legislation on this 
issue in the 105th Congress.
    Meanwhile, small businesses received some important tax 
changes in the Small Business Job Protection Act that was 
enacted in 1996:
    Although not as comprehensive as my Senate bill, some 
changes were made to the Revenue Act of 1978 that will reduce 
some of the confusion surrounding worker classification and 
independent contractors.
    Senator Bob Dole's `SIMPLE' plan was enacted, making it 
easier for small employers to establish retirement-savings 
plans for their employees.
    The amount a small business can deduct for new equipment 
purchases will be raised gradually, from its current level of 
$17,500 to $25,000 in 2003.
    The Act makes it easier to form subchapter S corporations, 
raising the number of shareholders who can organize as S 
corporations from 35 to 75. That will result in more risk-
sharing and, consequently, more investment in small businesses.
    Small business owners who perform their work outside of 
their home, but whose office is their home, should be allowed 
to claim a home-office deduction without fear of an IRS audit. 
This is very important to the self-employed and to those 
parents raising children while working at home. As the number 
of home-based businesses increases, the importance of the 
deduction mounts. In excess of some nine million Americans now 
operate home-based businesses and that number continues to grow 
rapidly. Women have a significant stake in the market, owning 
70% of these businesses. Accordingly to the Small Business 
Administration, 300,000 women start home-based businesses every 
year.
    I co-sponsored a measure in the Senate, the Home Office 
Deduction Act of 1995, S. 327, that would have expanded the use 
of the home-office deduction and leveled the playing field for 
self-employed business owners who work at home. The legislation 
would have overturned the 1993 Commissioner v. Soliman Supreme 
Court decision. In that case, Dr. Solimon, a practicing 
physician based out of his residence, was not permitted by the 
IRS to deduct his home-office expenses because much of his 
work, such as visiting patients and practicing medicine at 
several facilities, was done outside the home. S. 327 would 
have overturned the Supreme Court ruling with language that 
states that the home office deduction may be utilized when the 
majority of essential day-to-day administrative functions of 
the office are performed in the home and when there is no other 
principal place of business to expedite those functions. 
Unfortunately, the measure did not reach the Senate floor 
during the 104th Congress.
    Under the current tax system, corporations can deduct 100% 
of their share of an employee's health-insurance costs, but the 
self-employed farmer, child-care provider, or truck driver can 
only deduct 30%. It comes as no surprise, then, that nearly 25% 
of the self-employed do not have health insurance, which 
results in 4 million families headed by a self-employed worker 
not having access to health insurance coverage. That is unfair, 
and I have been trying to raise the deduction amount for the 
self-employed to 100%. The Health Insurance Reform Act that was 
enacted into law during this Congress will raise the amount, 
incrementally, to 80% by the year 2006. It is not perfect, but 
it is the best we could get at the time. A measure that would 
have raised the deductible amount to 55% immediately failed 
when President Clinton vetoed the Balanced Budget Act of 1995.
    Under the current tax system, family-owned enterprises that 
are passed from one generation to the next often must be sold 
off just to pay the estate or inheritance tax. Clearly, that is 
counter-productive for the economy and unfair to American 
families. The family-owned small business is a cornerstone of 
American entrepreneurship, and I believe Congress should modify 
the estate tax, helping family-owned small businesses remain in 
the family. During the 104th Congress, I co-sponsored the 
American Family Owned Business Act of 1995, which would have 
raised the tax exclusion on family-owned businesses from 
$600,000 to $1,000,000, eliminated the tax on the first $1.5 
million of the business' value, and reduced by 50% the tax on 
business assets over $1.5 million.

                          C. Workplace Issues

    For the smallest of small businesses, a mandatory increase 
in the minimum wage is a job killer. That is why I offered a 
common sense small business exemption to the wage hike enacted 
during the 104th Congress. The amendment failed by a very 
narrow margin. My exemption would have protected businesses 
grossing less than $500,000 per year from what amounts to a 20% 
mandatory increase in their labor costs.
    One of the agencies most frequently cited by small business 
owners as heavy handed when it comes to federal regulation of 
the workplace is the Occupational Safety and Health 
Administration (OSHA). In spite of the many complaints from 
small businesses leveled against OSHA and the widely held 
perception that it operates with a `gotcha' mentality, OSHA 
continues to issue heavy fines on small business owners for 
minor paperwork and posting violations that often have no 
bearing on employee health and safety. At the same time, the 
agency has not offered sufficient assistance to many employers 
who are seeking genuine voluntary compliance with federal 
rules. The simple fact is that the overwhelming majority of 
employers care about their employees and know safe workplaces 
save money through high productivity and lower workers' 
compensation expenses.
    In 1996, I co-sponsored the OSHA Reform and Reinvention 
Act, S. 1423, that would have made real progress toward 
providing relief to small businesses by replacing OSHA's 
``gotcha'' mentality with a common sense approach that 
redefines the agency's mission as a cooperative partnership 
with small business. Under this legislation, OSHA would 
continue to be there when the employer is making no effort to 
comply voluntarily with health and safety standards. But 
employers who take positive, reasonable steps to maintain safe 
workplaces would no longer have to fear OSHA for technical 
violations that have little to do with worker safety. The long-
term result of sensible OSHA reform would be improved worker 
safety, more private sector growth, more jobs, and less red 
tape for small businesses. Unfortunately, President Clinton 
threatened to veto this measure and the bill was never reported 
out of the Senate Labor Committee.
    The inability of employees who work in non-union companies 
to have a say in their workplace environment was also a 
significant issue during the 104th Congress. As Chairman of the 
Small Business Committee, I co-sponsored the Teamwork for 
Employees and Management (TEAM) Act, S. 295, that would have 
provided non-union employees of small businesses a greater say 
in workplace issues by removing the barriers to employee 
involvement programs and worker-management committees that are 
contained in the antiquated 1935 National Labor Relations Act. 
The TEAM Act amends this law to allow employees and managers at 
non-union companies to resolve workplace issues such as 
scheduling, safety and health, and even things like free coffee 
and company softball teams. The legislation would not have 
allowed employee teams to act as unions since they could not 
engage in collective bargaining or act as exclusive 
representatives of employees. This measure passed the Senate 
late in the second session but was vetoed by President Clinton.
    The virtually unlimited punitive damage awards allowable 
under current law has enormous consequences for small business 
owners. Even when lawsuits are frivolous, the high cost of 
retaining an attorney and the risk of catastrophic loss often 
means that a small business owner must settle the case out of 
court, regardless of the merits involved. Unlike large 
corporations that have more resources to fight frivolous 
lawsuits, small business owners are often destroyed by them. As 
Chairman of the Small Business Committee, I co-sponsored and 
voted for the Product Liability Fairness Act of 1995, S. 565, a 
bipartisan measure that would have decreased frivolous lawsuits 
against small businesses while still allowing wide latitude for 
plaintiffs to bring lawsuits, including the imposition of 
punitive damages to deter egregious behavior. The measure 
requires ``clear and convincing evidence'' that the defendant 
in a lawsuit acted with ``conscious, flagrant disregard'' of 
the plaintiff's rights or safety before large punitive damage 
awards can be made. The legislation passed the Senate with more 
than 60 votes, but was vetoed by President Clinton.

      D. Access to Capital: Small Business Administration Programs

    Legislation produced by the Committee in the 104th Congress 
to strengthen SBA's finance programs has led to an enormous 
expansion in the availability of bank loans and investment 
capital for small business borrowers, while reducing the cost 
of these programs to taxpayers. For small business owners, who 
often have difficulty securing capital from traditional lending 
sources such as commercial banks, the strength and availability 
of SBA loan and loan guarantee programs is a critical issue.
    In 1995, Congress enacted the Small Business Lending 
Enhancement Act, a bill I wrote to provide a major increase in 
program availability for SBA's 7(a) guaranteed business loan 
program. The legislation restructured the program to provide 
over $10 billion in loans to meet the growing demand of small 
businesses through fiscal year (FY) 1996. The measure shored up 
the 7(a) program by lowering the credit subsidy rate from 2.74% 
to 1.06%, a 61% reduction in the subsidy rate. This change has 
a significant impact on the volume of loans that can be made to 
small businesses because when the subsidy rate is lowered, the 
total loan authorization amount can increase even with a 
smaller appropriation of taxpayer money. Taxpayers and small 
business owners alike have benefited from this program 
expansion. In FY 1995, $214 million was needed to support a 
loan program of $7.8 billion. Under S. 895, in FY 1996, the 
Senate appropriation of only $133 million will support $12.5 
billion in loan guarantees.
    In 1996, Congress approved a comprehensive bill reported by 
the Committee to overhaul the Small Business Investment Company 
(SBIC) program, which provides SBA-guaranteed risk capital for 
investment by venture capital firms in small businesses. The 
Act strengthens the SBIC program while limiting the risk of 
loss to the federal government that had plagued the program in 
the past. The Act expands by 80% the amount of investment 
capital available to small business owners--from $373 million 
to $620 million--while reducing the taxpayer cost of the 
program by 46%.
    Historically, women have had more difficulty than men in 
securing capital and that is something that must change. In 
addition to the benefits women entrepreneurs will receive with 
the expansion of the 7(a) program, the SBA's Women's Business 
Ownership Demonstration Project, a program that the Committee 
authorized during the 104th Congress, has been successful in 
helping to address this problem. When the SBA re-authorization 
bill comes up next year in the 105th Congress, I will sponsor a 
three-year extension of this important women's program.
    One of our greatest challenges in America today is to bring 
jobs and economic opportunity to those without hope in the 
inner cities and the depressed rural areas of our country. 
There is a way we can do this, and I am excited about the 
prospects. In 1996, I introduced a bill creating HUBZones 
(Historically Underutilized Business Zones). If passed and 
signed into law, the HUBZones legislation would provide 
government contracting preferences and set-asides to any small 
business located in and hiring employees from economically 
distressed urban and rural areas across the country.
    This measure would benefit entire communities by creating 
meaningful incentives for small businesses to operate and 
provide employment within America's most disadvantaged inner-
city neighborhoods and rural areas. For these distressed areas, 
HUBZones would result inthe immediate infusion of sorely needed 
capital as more and more businesses--both start-ups and existing 
enterprises--relocate into HUBZone areas in order to improve their 
changes of receiving federal contract awards. The net result would be 
meaningful job creation and community development in areas of perennial 
high unemployment and low income. Most importantly, HUBZones would help 
to accomplish an important objective of welfare reform--providing jobs 
for individuals who want to move from welfare to work.
    I believe we should place greater emphasis on programs that 
encourage small businesses to provide jobs and economic 
development where they are needed most. The HUBZones 
legislation would accomplish that objective and help break the 
cycle of poverty that has isolated distressed areas of our 
country. My bill, which was not reported out of the Small 
Business Committee, will be re-introduced in the next Congress.

                         E. Health Care Issues

    Health care continued to be one of the top issues of 
concern for small businesses during the 104th Congress. During 
the Committee's ``Entrepreneurship in America'' series of 
hearings, we heard from a number of small businesses concerning 
the difficulties they face in obtaining and maintaining health-
care coverage. In response to these calls for assistance, I co-
sponsored the Health Insurance Portability and Accountability 
Act of 1996, which included a number of the health-care 
recommendations adopted by the White House Conference on Small 
Business delegates.
    The Act includes several provisions specifically designed 
to assist small businesses, including a pilot program for 
Medical Savings Accounts available to self-employed individuals 
and businesses with less than 50 employees. The Act also 
increases the deductibility of health-insurance costs by self-
employed individuals incrementally from the 1996 level of 30% 
to 80% by the year 2006. While this increase is a step in the 
right direction, I will introduce legislation in the 105th 
Congress to accelerate the deduction to 100% and fully level 
the playing field for small businesses.

                 F. Banking and Financial Institutions

    In connection with its overall efforts to provide 
regulatory reform for small businesses, the Committee also 
focused on regulatory relief for small banks. Towards that 
goal, I joined a number of Senators in co-sponsoring the 
Economic Growth and Regulatory Paperwork Reduction Act, S. 650, 
which was incorporated into the 1997 Omnibus Appropriations Act 
and will provide regulatory and paperwork relief for small 
banks across the nation.
    I also promoted several other reforms that would assist 
small financial institutions including extension of federal 
examination cycles for certain banks with strong capitalization 
and management; expansion of the exemptions from home-mortgage-
data-reporting requirements; and changes to the Truth-in-
Lending Act, the environmental liabilities laws and bank 
application processes. Each of these changes will mean reduced 
administrative costs for all financial institutions, including 
small banks.

                           G. Securities Laws

    Small businesses were the beneficiaries of two securities-
related laws enacted by the 104th Congress. The Private 
Securities Litigation Reform Act of 1995 makes broad 
modifications to the rules governing private securities 
litigation and class action suits. As an advocate of these 
revisions, I believe they will assist small enterprises that 
are just beginning their businesses, as well as those small 
firms that are expanding their operations by helping them 
obtain important capital financing.
    The Capital Markets Efficiency Act of 1996 will also 
benefit small businesses by streamlining the regulatory 
compliance rules applicable to small investment advisors who 
operate in several states. This legislation's uniform federal 
de minimis registration exemption for small investment advisors 
and its uniform books and records requirements for small 
investment advisors will go a long way towards alleviating the 
paperwork and regulatory burdens imposed on small firms in the 
investment industry.

                         H. Telecommunications

    The 104th Congress made significant headway in overhauling 
the nation's telecommunications laws, which will enable small 
telecommunications firms more opportunities to compete in this 
dynamic and growing industry. The Telecommunications Act of 
1996, S. 652, ends 40 years of excessive government regulation 
by opening the local telephone marketplace. While I supported 
these changes, as Committee Chairman I also recognized the risk 
that small firms could be subject to discrimination and other 
entry barriers. As a result, I undertook efforts to ensure that 
this legislation included safeguards to protect small 
businesses' opportunity to compete in this market. I also 
encouraged the Federal Communications Commission to utilize the 
Market Entry Barriers Proceeding provisions of the bill to the 
fullest extent to eliminate market barriers to small businesses 
participation in the telecommunications industry.
    On a related issue, the availability of cable programming 
at fair and competitive prices continued to be a concern during 
the 104th Congress. In response to the proposed merger between 
Time-Warner Inc. and Turner Broadcasting System, I contacted 
each of the five commissioners of the Federal Trade Commission 
(FTC) to call their attention to the risk of price 
discrimination against small cable carriers, which could result 
if the FTC approved the merger. The final FTC consent decree 
addressed these concerns by requiring Time-Warner to adhere to 
nondiscriminatory pricing policies. The decree also restricted 
Time-Warner from bundling services and engaging in practices 
that would reduce the opportunity of small cable operators to 
compete in this market place.

                      I. Product Liability Reform

    The business community, and in particular small business, 
has long called for reform of the country's product liability 
system. As Chairman of the Committee, I strongly supported 
legislation introduced by Senator Gorton and Rockefeller that 
included uniform statutes of limitations and repose, limited 
liability for sellers that are not manufacturers, and several 
liability for non-economic damages. I also advocated that the 
legislation include a reasonable limit on punitive damage 
awards of $250,000 or twice the economic damage award for 
businesses with fewer than 25 full-time employees. This 
provision was included in the final bill, and the legislation 
was approved by both the Senate and the House. Despite the 
strong endorsement from the small business community, President 
Clinton vetoed the bill.
    As the foregoing sections demonstrate, the Committee's 
activities on issues important to American small businesses 
have been diverse and far reaching. While we made significant 
progress on a number of our priorities, further steps certainly 
will be required. I am committed to taking those steps in the 
105th Congress as we work to put small businesses and family-
owned enterprises on a level playing field with their larger 
competitors.

                        II. REGULATORY FAIRNESS

                  A. Small Business Regulatory Reform

Background

    In June 1995 nearly 2,000 delegates to the White House 
Conference on Small Business came to Washington to vote on an 
agenda of the top concerns of small business. The Washington 
meeting completed a year-long grass-roots effort in which over 
20,000 small business people sifted through more than 3,000 
policy recommendations in 59 state conferences and six regional 
meetings.
    Over 400 of the most important policy recommendations were 
voted on by the delegates to the Washington meeting. The top 60 
recommendations were published by the Conference last September 
as a report to the President and Congress entitled Foundation 
for a New Century. Not surprisingly, the White House Conference 
echoed the findings from many of the Committee's hearings in 
its series on ``Entrepreneurship in America.'' Three of the top 
recommendations, set out in full below, call for reforms in the 
way government regulations are developed, in the way they are 
enforced, and in reducing government paperwork requirements:
        The Regulatory Flexibility Act (Agenda #183)
          Congress should amend the Regulatory Flexibility Act, 
        making it applicable to all federal agencies including 
        the Internal Revenue Service and the Department of 
        Defense, to include the following:
                  Require cost-benefit analysis, scientific-
                benefit analysis and risk assessment on all new 
                regulations and Internal Revenue Service 
                interpretations;
                  Grant judicial review of regulations, 
                providing courts the ability to stay harmful 
                and costly regulations and to require agencies 
                to rewrite them;
                  Require small-business representation on 
                policy-making commissions, federal advisory and 
                other federal commissions or boards, whose 
                recommendations impact small business. Input 
                from small business representatives should be 
                required in any future legislation, policy 
                development, and regulation making affecting 
                small businesses; and
                  With respect to all regulations involving 
                small business, require negotiated rulemaking 
                proceedings for adoption of all rules, with 
                small business representing 50 percent of the 
                negotiating panel.
        Regulatory Compliance/Agency Enforcement Reform (Agency 
        #194)
          Congress shall enact legislation and appropriate 
        enforcement to include all of the following:
                  Require that all agencies provide a 
                cooperative/consulting regulatory environment 
                that follows due process procedures and that 
                the agencies be less punitive and more 
                solution-oriented in dealing with unintentional 
                regulatory violations;
                  Require that fines take into account the 
                severity of the infraction, size and type of 
                company, the past safety record and the 
                frequency and severity of the violations;
                  Allow proposed fines to be used toward 
                correcting violations;
                  Prohibit fines either for violations 
                identified during a consulting visit requested 
                by the company, or by an agency investigator 
                and brought to the attention of the employer 
                for the first-time specific violation. If the 
                company is found to be in substantial 
                compliance; the employer and inspector should 
                negotiate a reasonable timetable for 
                compliance, and fines should be levied only for 
                failure to comply with that timetable;
                  Allow small business the option of binding 
                arbitration to resolve any dispute with any 
                federal agency;
                  Require that regulatory agencies to put the 
                fines that they impose and collect into the 
                general treasury fund toward retiring the 
                national debt; said agencies should be 
                prohibited from receiving credit or usage of 
                such monies;
                  Require that the liability of the employer 
                and the employee be relative to their 
                respective culpability; and
                  Require enforcement actions to comply with 
                American due process concepts; adequate notice 
                and opportunity to be heard, a presumption of 
                innocence until proven guilty, and the issuance 
                of an impartial judgment.
        Paperwork Reduction/Paperwork and Regulatory Reform 
        (Agency #188)
          Congress shall enact legislation and appropriate 
        enforcement provision to include all of the following:
                  Require all agencies to simplify language and 
                forms required for use by small business and 
                that only the English language be required;
                  Require all agencies to sunset and reevaluate 
                all regulations every five years, using the 
                same standards required for new regulations, 
                with the goal of reducing total paperwork 
                burden by at least 5 percent each year for the 
                next five years;
                  Require agencies to assemble information 
                through a single source on all small-business 
                related government programs, regulations, 
                reporting requirements, and key federal 
                contacts' names and phone numbers, with as much 
                as is feasibly available by online computer 
                access; and
                  Eliminate duplicate regulations from multiple 
                government agencies.
    The common theme of all three recommendations is the need 
to change the culture of government agencies. In his address to 
the White House Conference, the Vice President expressed a 
number of similar concerns with government regulations and the 
need for cultural change within government agencies, saying:

          The old way was for government to treat business like 
        a suspect and the goal seemed to be to catch you red 
        handed. That was yesterday's government. The new way, 
        one of the things we found out is something that you've 
        long since learned. You get what you measure. You focus 
        on what you keep track of and if the people on the 
        front line are evaluated and rewarded on the basis of 
        how many fines they issue and how many citations they 
        hand out, then they are going to concentrate on 
        increasing the number of fines and citations.
          The new way is for government to treat business like 
        a partner sharing a common goal and the goal is this. A 
        growing business that works in a safe and healthy 
        environment. That is what reinventing government is all 
        about. And we're making progress, it's working. We said 
        when we started this that it would take 8-10 years to 
        change the culture of the federal government and to 
        make all of the changes that are necessary. But already 
        there are a lot of results.
          Well, the old OSHA used to look at their inspections 
        to see if that poster was up and if the poster wasn't 
        up that was an automatic $400 fine. And it was a hefty 
        percentage for what the fines were. Here's what the new 
        OSHA will do if they find out that you don't have the 
        poster up. Instead of giving you a $400 fine, they give 
        you a poster.

Legislation

    As a result of the recommendations of the White House 
Conference and based ontestimony taken at the Committee's 
``Entrepreneurship in America'' field hearings, Chairman Bond 
introduced the Small Business Regulatory Fairness Act of 1995, S. 942. 
In addition, Senator Domenici introduced the Small Business Advocacy 
Act of 1995, S. 917, drawing on the White House Conference 
recommendation and on testimony received at the Committee's field 
hearing, ``Entrepreneurship in America: Excessive Governmental Burdens 
on Small Business,'' held in Albuquerque, New Mexico, on February 20, 
1995 [See Hearings of the Committee]. Both bills were referred to the 
Small Business Committee, and together with S. 350, became the basis 
for the Small Business Regulatory Enforcement Fairness Act of 1996 
(``SBREFA'').
    As enacted into law, SBREFA contains a number of important 
provisions to implement recommendations of the White House 
Conference on Small Business:
    Compliance Guides. SBREFA requires agencies to publish an 
easily understood guide to assist small business in complying 
with regulations which undergo a required Regulatory 
Flexibility analysis. Courts will not second guess the adequacy 
of the guides, but the guide and the agency's claim that the 
guide provided ``plain English'' assistance will be available 
as evidence of the reasonableness of any proposed fine on the 
small entity.
    Informal Small Entity Guidance. SBREFA directs agencies to 
answer inquiries of small entities concerning information on 
and advice about regulatory compliance. The agency's advice 
need not be binding and dispositive as to the legal effects of 
a small entity's actions, but will be available as evidence of 
the reasonableness of any subsequently proposed fine on the 
small entity.
    Services of Small Business Development Centers. SBREFA 
allows Small Business Development Centers to provide small 
businesses information on complying with regulatory 
requirements. This is not an exclusive grant of authority, but 
is in addition to programs such as the state-run stationary 
source technical assistance programs developed under section 
507 of the Clean Air Act Amendment of 1990.
    Small Business and Agriculture Enforcement Ombudsman and 
Regional Boards. SBREFA creates a Small Business and 
Agriculture Enforcement Ombudsman at SBA to provide a 
confidential means for small businesses to comment on agency 
enforcement actions and to develop an annual ``customer 
satisfaction'' rating of the responsiveness to small businesses 
of agencies and agency offices. SBREFA also creates Regional 
Small Business Regulatory Fairness Boards at SBA which 
coordinate with the Ombudsman to provide small businesses with 
a greater opportunity to track agency enforcement policy and 
practice and to provide that information to Congress.
    Small Business Enforcement Policies and Programs. SBREFA 
requires federal agencies to develop programs to waive or 
reduce civil penalties for violation by small businesses, and 
to consider a small business' ability to pay when assessing 
penalties. The agencies will establish appropriate conditions 
and exceptions from the policy, such as for serious threats to 
public health, safety, or the environment.
    Leveling the Playing Field. SBREFA assists small businesses 
in recovering their attorney's fees if they have been subject 
to excessive and unsustainable proposed penalties or other 
enforcement actions. The Equal Access to Justice Act (EAJA) has 
proven to be a limited value in leveling the playing field 
between small businesses and the federal government. SBREFA 
amends the EAJA to create a new avenue allowing small entities 
who have not willfully violated the law and otherwise acted in 
good faith to recover their attorney's fees necessary to fight 
excessive government demands in enforcement actions. Under the 
new provision, the test for recovering attorney's fees is 
whether the agency demand in an enforcement action (whether a 
fine, injunctive relief or damages) is substantially in excess 
of the final outcome in the case so as to be unreasonable as 
compared to the final outcome. SBREFA also increases the 
maximum hourly rate for attorney's fees under the EAJA from $75 
to $125.
    Regulatory Flexibility Act. SBREFA clarifies the 
requirements of the Regulatory Flexibility Act (RFA) to apply 
unambiguously to IRS regulations and interpretive rules and 
subjects final agency action under the RFA to judicial review. 
It does not change or in any way affect the legal standards of 
the underlying statute. However, the agency must consider ways 
to minimize the effects of the rule on small entities. If the 
court finds that the agency action under the RFA was arbitrary, 
capricious, an abuse of discretion, or otherwise not in 
accordance with the law, the court may set aside the rule and 
order the agency to take corrective action.
    Early Small Business Involvement. SBREFA amends the 
existing requirements of RFA section 609 for small business 
participation in the rulemaking process at the Environmental 
Protection Agency (EPA) and the Occupational Safety and Health 
Administration (OSHA) by incorporating a modified version of S. 
917 (the Small Business Advocacy Act, introduced by Senator 
Domenici) to provide early input from small business. For 
proposed rules with a significant impact on a substantial 
number of small entities, EPA and OSHA must collect advice and 
recommendations from small business to provide better 
information for the agency's initial regulatory flexibility 
analysis on the potential effects of the proposed rule. The 
findings of the Panel and the comments of small business 
representatives will be made public as part of the rulemaking 
record.
    Congressional Review. SBREFA establishes a 60-day review 
period following the issuance of any federal agency final rule 
during which Congress could enact a ``joint resolution of 
disapproval.'' The joint resolution would be considered by 
Congress under a ``fast track'' procedure not subject to 
filibuster in the Senate. If the resolution is passed by 
Congress and signed by the President or the President's veto is 
overridden, the regulation would be null and avoid.

Committee Action

    During the Fall and Winter of 1995, Committee staff worked 
to combine provisions from S. 350, S. 917 and S. 942 into a 
single legislative package. This package reflected comments 
received by the Committee since the introduction of these 
bills. The provisions of S. 350 in particular had been subject 
to significant modification during and after the debate on the 
Comprehensive Regulatory Reform Act of 1995, S. 343.
    A discussion draft of the combined bill, S. 942, was 
circulated in February 1996 and was the subject of a hearing 
held by the Committee on February 28, 1996 [See Hearings of the 
Committee]. The Committee held a markup of S. 942 on March 6, 
1996, at which Chairman Bond offered an amendment in the nature 
of a substitute to S. 942 incorporating the text of the 
discussion draft as well as numerous comments received at the 
hearing. This amendment was adopted by voice vote as was an 
amendment by Senator Lieberman, directing Manufacturing 
Technology Centers to provide technical assistance to small 
businesses on how to comply with federal regulations. S. 942 as 
amended, the Small Business Regulatory Enforcement Fairness Act 
of 1996, was ordered reported by a unanimous vote of the 
Committee. Due to a desire on the part of the Senate to take up 
this important legislation promptly prior to pending debate on 
extending the debt ceiling, the Committee reported S. 942 
without a written report. However, Chairman Bond and Senator 
Bumpers submitted a joint statement of explanation of the 
Committee-reported legislation on March 7, 1996.
    Initial objections to proceeding with consideration of S. 
942 prevented the Senate from taking up the bill immediately. 
However, when the Senate took up S. 942 on March 15, Chairman 
Bond and Senator Bumpers offered a manager's amendment, which 
reflected changes sought by the Administration during intensive 
discussions following the Committee markup. The manager's 
amendment was agreed to by voice vote, as was an amendment 
offered by Senators Nickles, Reid and Stevens to allow for a 
60-day period for congressional review of new regulations. On 
March 19, the Senate Passed S. 942 as amended by a vote of 100-
0.
    In the House, a version of the SBREFA with language nearly 
identical to the Senate-passed version of S. 942 was 
incorporated into an amendment offered by Congressman Hyde to 
the Contract With America Advancement Act, H.R. 3136. The Hyde 
amendment was subsequently incorporated into H.R. 3136 as Title 
III, which passed the House on March 28, 1996 by a vote of 328 
to 121. H.R. 3136 also passed the Senate by unanimous consent 
on March 28. On March 29, Chairman Bond and Senator Bumpers 
submitted a joint statement of explanation of the final text of 
the bill as passed by the House and Senate. Senators Nickles, 
Reid and Stevens made a joint statement on their amendment to 
S. 942 on April, 18. On March 29, 1996, the President signed 
H.R. 3136 into law as Public Law 104-121. Note that in the 
Public Law, SBREFA is Title II, instead of Title III as in the 
House-passed version of H.R. 3136 because Title II of H.R. 3136 
as passed by the House, dealing with the line item veto, had 
already passed the Senate and was separately enrolled into law. 
Thus, SBREFA became Title II of Public Law 104-121.
    The Committee held an oversight hearing on July 24, 1996 in 
Washington, D.C. on the implementation of SBREFA, particularly 
by EPA and OSHA [See Hearings of the Committee]. In addition, 
the Committee asked many of the important federal regulatory 
agencies to provide written descriptions of their SBREFA 
implementation activities, including the requirement under 
section 610 of Reg Flex that agencies have a plan to review 
periodically their existing regulations that effect small 
entities.

                   B. Comprehensive Regulatory Reform

Background

    The White House Conference on Small Business identified 
regulatory reform as one of the most important issues for small 
business in the 104th Congress. From the perspective of small 
business, regulatory reform involves a number of related, but 
distinct, initiatives. These include benefit-cost analysis, 
scientific risk assessment, periodic review of regulations, and 
reforming the enforcement of regulations.

Legislation

    In the Senate, the primary legislative vehicle for 
regulatory reform was the Comprehensive Regulatory Reform Act 
of 1995, S. 343, and the substitute offered by Senators Dole 
and Johnston. This legislation contained provisions that 
directly addressed many of the reforms identified by the White 
House Conference, including the language of S. 350 providing 
judicial review of the Regulatory Flexibility Act (RFA), cost-
benefit analysis of regulations, scientific risk assessment of 
hazards that agencies propose to regulate, and periodic review 
of existing regulations. Throughout the debate on S. 343 and 
during the development of the Dole/Johnston substitute, the 
Committee played a crucial role in redrafting numerous 
provisions to reflect the small business agenda, including the 
provisions on judicial review of the RFA, cost-benefit 
analysis, risk assessment, and periodic review of regulations.
    Chairman Bond and Senator Domenici offered an amendment to 
S. 343, which expanded the scope of regulation reform to 
include provisions requiring early small business input on 
proposed EPA and OSHA regulations, and reforms to the 
enforcement of regulations. Building on provisions in S. 917 
and S. 942, the amendment also established small business 
Ombudsmen and Regulatory Fairness Boards in the SBA regional 
offices to make government inspectors more accountable for 
their actions. This amendment was adopted by voice vote.
    Another amendment to S. 343, offered by Chairman Bond and 
Senator Robb sought to allow an industrial facility, or groups 
of small businesses or small cities, to develop an alternative 
means of achieving the results required by current 
environmental regulation. Building in part on the 
recommendations of the National Academy of Public 
Administration report, this alternative compliance amendment 
would allow small businesses or groups of small businesses to 
solve environmental problems creatively without being 
constrained by regulations that mandate the useof a specific 
technology or by the current division of environmental law into media-
specific requirements. The resulting alternative compliance agreements 
would result in a better environment, and a reduced burden on industry, 
compared with the EPA's current command-and-control approach. S. 343 
was withdrawn from consideration before the Senate could vote on this 
amendment.

                 C. Regulatory Accounting Requirements

Background

    The overall effort for regulatory reform has been hampered 
by a lack of good data on the true costs and effects of federal 
regulations. While numerous studies have taken periodic looks 
at regulatory costs, the federal government does not regularly 
publish an accounting of the various costs it imposes on 
individuals and businesses through the regulatory process.

Legislation

    Committee staff worked with Senator Stevens to include 
language in the 1997 omnibus appropriations bill to provide for 
an annual accounting of the cost and benefits of federal 
regulation. This amendment implements further the number three 
recommendation of the White House Conference on Small Business 
to require cost-benefit analysis of all new regulations.
    The regulatory accounting amendment requires the Office of 
Management and Budget (OMB) to prepare an annual report 
estimating the costs and benefits of each major rule costing 
over $100 million (currently this is performed on a rule-by-
rule basis). OMB is directed to include an estimate of the 
cumulative annual quantitative and non-quantitative costs and 
benefits of all federal rules (including minor rules). OMB is 
also directed to assess separately the effects of federal rules 
on the private sector, state and local government, and the 
federal government. Finally, OMB must provide Congress with a 
summary of significant public comments and recommendations to 
reform regulatory programs or program elements that are 
wasteful or outdated. OMB must provide the public with notice 
and an opportunity to comment on the draft report before it is 
submitted to Congress on September 30, 1997. The amendment was 
supported by a unanimous voice vote in the Appropriations 
Committee and on the Senate floor.
    This ``truth in regulating amendment'' will inform small 
businesses and Congress about the benefits and burdens of 
federal regulations, and provide a mechanism to judge the 
efficacy of regulatory programs. Unlike on-budget government 
spending, regulatory programs impose costs that now are 
accounted for in government budget figures--about $600 billion 
annually. These costs are passed on to the American consumer 
and taxpayer in one form or another, including higher prices, 
lower wages, higher taxes, and reduced government services. The 
tab is about $6,000 per year for the average American 
household--about half the federal tax burden faced by most 
families. Yet until the adoption of this amendment, there has 
been no centralized accounting of the benefits and costs of 
regulatory programs.

                              D. Superfund

Background

    The number five recommendation of the White House 
Conference on Small Business was comprehensive reform of the 
Superfund program, including repeal of retroactive liability, 
reliance on sound science using realistic risk assessment and 
cost-benefit analysis in assessing health risks and selecting 
cleanup remedies at Superfund sites, making greater use of de 
minimis exemptions to Superfund liability, and eliminating the 
liability of fiduciaries and lenders on property held primarily 
as security for a loan.

Legislation

    Most of the Superfund recommendations of the White House 
Conference were included in S. 1285, the Superfund 
reauthorization bill introduced by Senator Smith in September 
1995. This bill was the subject of lengthy discussions among 
all of the various stakeholder groups. Despite the progress 
made as the result of these discussions, S. 1285 was not marked 
up by the Senate Environment and Public Works Committee. 
Nonetheless, members of the Small Business Committee played an 
active role in the Superfund reform debate and worked with 
Senator Smith to refine S. 1285 in keeping with the small 
business agenda. In particular, members of the Committee were 
active in finding ways to protect the environment from 
hazardous waste sites faster and for less money, thus reducing 
the effects on small businesses involved in Superfund sites.

Committee action

    Chairman Bond asked the General Accounting Office (GAO) to 
examine whether opportunities exist to reduce the costs of 
Superfund cleanups--and the cost to small businesses--while 
maintaining protection of health and the environment. The GAO 
report, published in July 1995, indicated that much of the 
health risk associated with Superfund sites would occur only if 
there was a change in land use at the Superfund site. It showed 
that there are two very different kinds of risks at Superfund 
sites: the ``risk'' to your health from being exposed to 
pollution, and the ``risk'' that something might happen in the 
future at a Superfund site that could trigger exposure.
    Too often, the EPA obscures the difference between these 
types of risks by talking about Superfund risks as if they were 
all the same. In the first case, however, the Superfund site 
could be making people sick today, while in the second case, 
the Superfund site is definitely not making people sick today, 
but events in the future may create conditions that could 
affect people's health. Unfortunately, once a Superfund site 
enters the remedial action program, EPA has made little effort 
to coordinate its efforts at Superfund sites with current 
health risks. As a result, EPA resources often go to sites 
where the only risk is based on some hypothetical event in the 
future, while other sites languished where real exposures are 
having real effects on real people's health.
    In a follow-up report issued in April, 1996, the GAO 
analyzed the results of so-called non-time-critical (``NTC'') 
removals conducted under EPA's Superfund Accelerated Cleanup 
Model initiated by the Bush Administration in 1992. This report 
points out that significant time and money can be saved through 
the NTC removal process. GAO found that EPA can save 15-20 
percent and two years of clean up time when it conducts NTC 
removals as an alternative to the traditional remedial action 
process at all but the most complex types of cleanups. GAO has 
shown that NTC removals use the same types of treatment and 
cleanup standards as remedial actions, but they do it faster 
and cheaper. Together, these reports show that greater use of 
NTC removals could allow EPA to provide the same degree of 
protection for public health at less cost to small business and 
others, and complete the cleanup in significantly less time. 
Alternatively, with equivalent resources, EPA could clean up 
more sites through a greater use of NTC removals.

                         E. Paperwork Reduction

Background

    Government paperwork remains one of the biggest burdens for 
small business. One of the primary recommendations of the White 
House Conference of Small Business was to require federal 
agencies to achieve a reduction of the government's total 
paperwork burden by five percent each year for the next five 
years.

Legislation

    The Paperwork Reduction Act of 1995 (PRA) went beyond the 
White House Conference recommendation of a five percent annual 
reduction and called for a 10 percent reduction in 1996 and 
1997 and a five percent reduction in each of the following four 
years. Members of the Committee were very active in the debate 
and passage of the PRA. Following its enactment, the Committee 
took an active role in overseeing the implementation of the 
PRA.

Committee action

    The Committee held an oversight hearing on June 5, 1996 in 
Washington, D.C. on the implementation of the Small Business 
Agenda, which highlighted PRA activities [See Hearings of the 
Committee].

                    F. SBREFA Demonstration Project

Background

    Section 215 of SBREFA directs federal agencies to cooperate 
with states to develop joint small entity guidance that 
combines state and federal requirements. This section was 
designed to move federal agencies further down the road towards 
providing simplified and comprehensive guidance to small 
entities on their obligation under federal and state 
regulations.

Legislation

    The Committee had language included in the FY 1997 VA, HUD 
and Independent Agencies Appropriations bill directing EPA to 
undertake a $1 million demonstration project to develop 
integrated compliance assistance packets as a means of further 
implementing section 215 of SBREFA. The key innovation of this 
demonstration is to look at all of the federal and state 
environmental regulations affecting a particular industry. The 
purpose of the demonstration project is for states and federal 
regulators to work together to develop an instructional packet 
describing proper reporting techniques and what a small 
business should do to comply with state and federal 
environmental laws, a video describing compliant and non-
compliant situations, and simplified permits or substitute 
permits for a specific industry sector. The final product will 
provide small businesses in a selected industry sector with a 
single resource to consult in order to determine what the small 
business must do to comply with state and federal environmental 
laws. Selection of projects for this demonstration is to be 
carried out by the EPA in cooperation with state environmental 
regulatory officials and small business associations.

                     III. SMALL BUSINESS TAX ISSUES

                       A. Independent Contractor

Background

    The delegates to the White House Conference on Small 
Business as their top priority urged Congress to clarify the 
definition of an independent contractor. According to the 
delegates it is the most important issue plaguing small 
business today. The crux of the problem is that employers have 
a difficult time using a 20-factor common-law test for 
determining whether a worker is an employee or an independent 
contractor. Employers argue that the test is ambiguous, 
subjective and unpredictable. Meanwhile, the examining agents 
are resolving many of the cases in favor of employee status and 
are levying heavy penalties against the business owner.

Legislation

    On March 13, 1996, Senator Bond, joined by Senator Nickles, 
introduced the Independent Contractor Tax Simplification Act, 
S. 1610. The purpose of the legislation was to set out a short 
list of simple, clear, and objective standards for determining 
who is an employee and who is an independent contractor. The 
bill was introduced because the small business community made 
it clear that the longstanding ambiguity in the current law was 
making it extremely difficult for owners to determine worker 
status and in some cases was stifling business expansion.
    The bill sets out three questions to be asked in 
determining worker status. First, is there a written agreement 
between the parties? Second, does it appear the worker has made 
some investment such as incurring substantial unreimbursed 
expenses or being paid primarily on a commission basis? Third, 
does the worker appear to have some independence such as having 
his own place of business? In other words, if there is a 
written agreement between the parties and if basic investment 
and independence criteria are met, then the worker is an 
independent contractor. In addition, as under current law, the 
parties must properly report payments above $600, which ensures 
that all taxes properly due to the Treasury are collected.
    Support for S. 1610 was significant with 31 Republican co-
sponsors. As a result of this legislative effort, grassroots 
small business support, and a parallel effort on companion 
legislation (H.R. 1972), some improvements were made to the 
worker classification rules in the Small Business Job 
Protection Act of 1996. These changes, although helpful to some 
small business owners were not enough, and continued effort to 
change the law likely will occur during the 105th Congress.

Committee action

    The Small Business Committee held hearings on the worker-
classification issue on September 19 and 20, 1995 and April 23, 
1996 [See Hearings of the Committee].

                   B. Self-Employed Health Insurance

Background

    Another important issue facing small business during the 
104th Congress was the deductibility of health-insurance costs 
for the self-employed. Beginning on January 1, 1994, the 25% 
deduction level expired, and according to the Treasury 
Department, this meant some 3.2 million self-employed taxpayers 
could not deduct any of their health-insurance premiums.

Legislation

    In 1995, Congressional concern about the expiration of the 
provision led to passage of legislation making the deduction 
permanent and increasing the deduction amount of 30%. Later in 
1995, Chairman Bond introduced an amendment to the budget 
reconciliation legislation to increase the deduction for the 
self-employed to 55% beginning January 1, 1996. The amendment 
passed unanimously. In conference, however, the provision was 
modified to provide a deduction of 35% in 1998 and 1999, 40% in 
2000 and 2001, and 50% in 2002. Subsequently, the President 
vetoed that legislation.
    The Chairman and Committee Members heard from constituents 
throughout the 104th Congress regarding this issue. The lack of 
parity, as compared with C corporations, and the rising cost of 
insurance made the issue subject to considerable debate. During 
the Committee's tax hearings, testimony was heard from small 
business owners and their representatives explaining the 
further need for change. Finally, near the end of the 104th 
Congress, as part of the Health Insurance Portability and 
Accountability Act, the deduction was increased, incrementally 
to 80% by 2006. Chairman Bond and other Members of the 
Committee supported the increase as a step in the right 
direction, in terms of leveling the playing field for small 
business entrepreneurs. Chairman Bond stated, however, that his 
effort to achieve tax parity would continue to be a top 
priority in the 105th Congress.

Committee action

    The Small Business Committee held hearings on increasing 
the health-insurance deduction for the self-employed on 
September 19 and 20, 1995 and April 23, 1996 [See Hearings of 
the Committee].

                            C. Estate Taxes

Background

    Estate tax relief was identified by many small business 
groups, including the National Federation of Independent 
Business and the delegates to the White House Conference, as a 
vital concern. Small business owners argue that the current law 
is forcing some to sell what otherwisewould be a viable family 
business just so they can raise cash to pay the estate taxes. And the 
surviving family members are not the only ones affected by the tax--
with the terminated business goes valuable jobs in the community. It is 
interesting to note that because sophisticated taxpayers often make 
charitable gifts and arrange their deductible transactions to reduce 
their taxable estates, the estate tax has its most damaging impact in 
the small, family business sector, but it raises little net revenue for 
the federal government.

Legislation

    On July 28, 1995, Senator Dole joined by 31 co-sponsors, 
introduced The American Family Owned Business Act, S. 1086. The 
bill would eliminate the estate tax for each decedent's 
interest in a family-owned business worth up to $1.5 million. 
If the decedent's family-owned business assets exceed $1.5 
million, then one-half of the excess would be excluded from the 
estate. The bill received tremendous praise and grassroots 
support from small business owners throughout the country. The 
Small Business Committee heard testimony on the importance of 
the issue from several witnesses, including the Missouri Farm 
Bureau and the National Cattlemen's Association.
    A modified version of S. 1086, which would have 
significantly reduced the estate-tax when a family-owned 
business passes from one generation to the next, was included 
in the Balanced Budget Act, which was vetoed by the President. 
Some small business owners, including delegates to the White 
House Conference have recommended complete repeal of the estate 
tax.

Committee action

    The Small Business Committee held hearings on estate tax 
reform September 19 and 20, 1995 [See Hearings of the 
Committee].

                        D. Home-Office Deduction

Background

    An important issue identified by home-based business owners 
and by the National Association for the Self-Employed is the 
need to restore the existing law concerning the home-office 
deduction. A 1993 Supreme Court decision, Commissioner v. 
Soliman, significantly narrowed the home-office deduction for 
entrepreneurs who perform their work outside of their homes, 
but whose office are in their homes. For example, those losing 
the deduction include plumbers, electricians, homebuilders, 
veterinarians, and travel agents.

Legislation

    In response to the need for change, Senator Hatch 
introduced the Home Office Deduction Act, S. 327, which 
provides reform of the home-office deduction in light of the 
1993 Supreme Court decision Commissioner v. Soliman. The bill 
would restore the deduction to thousands of business owners. 
Rather than meeting the narrow criteria set out in the Soliman 
decision, the bill would allow the deduction if the home office 
is the sole location where essential administrative or 
management activities are conducted by the taxpayer on a 
regular basis.
    Small business owners argue that the Soliman decision is 
shortsighted and ignores the way business is done today, 
especially in light of the development of new technologies. The 
changes provided by S. 327 would benefit certain parents who 
are raising children while working at home as well as 
individuals laid off as a result of corporate downsizing. 
Chairman Bond and Senator Lieberman were the only two Members 
of the Small Business Committee to cosponsor S. 327. While the 
legislation did not pass during the 104th Congress, it will 
remain a top priority for home-based business owners and the 
Committee for the 105th Congress.

Committee action

    The Small Business Committee held hearings on restoring the 
home-office deduction on September 19 and 20, 1995 and April 
23, 1996 [See Hearings of the Committee].

                         E. Equipment Expensing

Background

    Throughout the 104th Congress, the small business community 
supported an increase in the provision of the tax law that 
permits small businesses to expense certain purchases of 
equipment. Generally, taxpayers must recover the cost of 
business property placed in service over time through 
depreciation. The law provides that in lieu of depreciation, 
small businesses may deduct up to $17,500 of the cost of 
qualifying property placed in service.

Legislation

    The Balanced Budget Act of 1995 included a provision to 
increase the equipment expensing limitation to $25,000 over a 
seven-year period. The President vetoed the legislation, and as 
a result, small business lost the chance for improved cash flow 
and the opportunity for expansion that this change would have 
provided.
    In June of 1996, Chairman Bond sent a letter to Senator 
Roth, Chairman of the Finance Committee, outlining small 
business tax priorities and urging the Finance Committee to 
consider, among other things, an increase in the equipment 
expensing provisions during the markup of the Small Business 
Job Protection Act. Senator Bond wrote that an increased 
deduction would improve cash flow and permit the additional 
hiring that often accompanies business expansion. In addition, 
an increase would help remove some of the complex, annual 
depreciation calculations from compliance burdens on small 
enterprises.
    When the Small Business Job Protection Act was enacted in 
the Summer of 1996, it included an increase to the equipment 
expensing provision that raises the deduction limitation 
incrementally to $25,000 over several years. Some small 
business groups contend that this increase is too small and 
would have preferred the deduction be raised to $50,000.

Committee action

    The Small Business Committee held hearings on the equipment 
expensing issue on September 19 and 20, 1995 [See Hearings of 
the Committee].

                       F. Pension Simplification

Background

    Historically, the high cost of establishing and maintaining 
pension and profit-sharing plans has been a major barrier for 
small business. During Committee hearings on the issue John 
Galles, President National Small Business United, testified 
that the ``complex and costly burdens our pension rules place 
on small businesses wishing to offer retirement plans for the 
benefit of their employees too often frightens and discourages 
those businesses from starting or even maintaining such 
plans.''

Legislation

    The 104th Congress went a long way towards correcting this 
problem with the development of the Savings Incentive Match 
Plan for Employees (SIMPLE). SIMPLE plans can be adopted by 
employers with 100 or fewer employees who do not maintain 
another employer-sponsored retirement plan. Small businesses 
like SIMPLE plans because, much of the complexity of 
traditional retirement plans is removed, and thus they can 
offer retirement plans to employers at a reduced cost. SIMPLE 
plans will help encourage people to take responsibility for 
their own retirement, making it easier for small businesses to 
participate in the process.
    In 1995, the President vetoed provisions included in the 
Balanced Budget Act, that would have established the SIMPLE 
Plan. Eventually, the SIMPLE Plan was enacted in 1996 as part 
of the Small Business Job Protection Act. The Act also 
contained a number of other changes that simplified the 
existing pension laws, which will further encourage and enable 
small businesses to offer retirement benefits to their 
employees.

Committee action

    The Small Business Committee held hearings on pension 
reform and simplification on September 19 and 20, 1995 [See 
Hearings of the Committee].

                            G. Capital Gains

Background

    Capital gains tax relief was identified as an important 
issue to both small and large businesses during the 104th 
Congress. Some businesses viewed a reduction in the rate as a 
way to unlock built-up asset values and make money available 
for new investment. There was also support for a second, lower 
rate generated from investments in small businesses as an 
incentive to attract newly available capital into the small 
business sector. In addition, there was support for the 
deferral of taxes on small business capital gains if the gain 
is reinvested in another small business to permit successful 
entrepreneurs to create a new success story.

Legislation

    During the first session of the 104th Congress, Senators 
Hatch and Lieberman introduced The Capital Formation Act, S. 
959, which embodied this tiered approach. The Senators 
testified before the Small Business Committee regarding their 
bill, which received significant support with 44 co-sponsors. 
Ultimately, the President vetoed provisions, included in the 
Balanced Budget Act to reduce the capital-gains tax rate and to 
provide for a targeted incentive for investments in small 
growth companies. Continued efforts towards capital gains 
relief will remain a high priority for the 105th Congress.

Committee action

    The Small Business Committee held hearings on the capital-
gains tax on September 19 and 20, 1995 [See Hearings of the 
Committee].

                      H. Taxpayer Bill of Rights 2

    By unanimous consent, the Senate passed the Taxpayer Bill 
of Rights 2 of July 11, 1996, and it was signed into law by the 
President on July 20, 1996 (Pub. L. 104-168), which makes a 
number of administrative and statutory changes with respect to 
the rights of taxpayers in relation to the IRS. In particular, 
the legislation allows certain taxpayers who have prevailed 
against the IRS in court to shift the burden of proof to the 
IRS when seeking attorney's fees. The legislation also 
increases the amount of attorney's fees that taxpayers may 
recover from $75 per hour to $110 per hour, and it raises the 
amount of actual direct economic damages that a taxpayer may 
recover from $100,000 to $1 million.
    The Taxpayer Bill of rights 2 also expands the current 
interest abatement rules to allow for abatement when IRS 
employees cause unreasonable mistakes or delays, for which the 
taxpayer should not bear the burden of additional interest. In 
addition, the legislation establishes a taxpayer advocate to 
replace the existing ombudsman. The new advocate is responsible 
for assisting taxpayers in resolving difficulties with the IRS. 
The advocate will also help to identifyproblems with the tax 
system and assist the congressional tax-writing committees in 
correcting them.
    Two other changes made by the legislation will help 
taxpayers on the administrative front. First, the legislation 
prohibits temporary, proposed, or final regulations from being 
implemented earlier than the date that adequate notice of the 
regulation is given to the public. This bar against retroactive 
regulation will prevent taxpayers from burdens imposed by new 
regulations before there is adequate notice of the new 
requirements. Second, the Taxpayer Bill of Rights 2 allows 
taxpayers to use private delivery services for sending tax 
documents to the IRS, and it permits taxpayers to rely on the 
postmark from the delivery service as evidence that the 
document was filed in a timely manner.

                       I. Meals and Entertainment

Background

    The second highest priority of the delegates to the White 
House Conference on Small Business was increasing the deduction 
for business meal and entertainment expenses. Small businesses 
often use the business lunch to help generate new clients or 
customers and to maintain relationships with existing 
colleagues. Frequently these lunches are in lieu of spending 
significant amounts on advertising. The Committee heard 
testimony that the deduction should be raised from its current 
50% level, especially since advertising is a 100% deductible 
expense.

Legislation

    Senator Inouye introduced S. 216, which would increase the 
meal and entertainment deduction to 80% from the current level 
of 50%. Despite the popularity among many small business 
groups, the legislation did not receive widespread support and 
was not passed during the 104th Congress.

Committee action

    The Small Business Committee held hearings on restoring the 
meals and entertainment deduction on September 19 and 20, 1995 
[See Hearings of the Committee].

                         J. Payroll Tax Relief

Background

    Many small businesses pay more in payroll taxes than they 
do in income taxes. In addition, under current law taxpayers 
pay income tax on their social security tax, which effectively 
is a tax on a tax. The payment of both income and payroll taxes 
is especially difficult for the self-employed. The issue was 
highlighted during the Committee's home-based business hearing 
when Dianne Floyd Sutton testified that ``the self-employed are 
double taxed on social security--Paying both the employer's and 
the employee's share, 15.3%. And that comes off gross revenue, 
too, before even a nickel of deductions for expenses or for 
income taxes.''

Legislation

    The small business community and Committee staff followed 
legislation introduced by Senator Ashcroft, The Working 
Americans Wage Restoration Act, S. 1741, which would allow 
workers to deduct their payroll taxes. The legislation would 
allow both the self-employed and employees to subtract from 
their gross income the Social Security tax they pay (6.2% of 
their income). The significant burden of payroll taxes were 
discussed during the Home-Based Business hearing at which the 
Committee was reminded that the 15% that the self-employed have 
to pay is substantial. Some believe that the bill's enormous 
cost could not be justified as consistent with the overriding 
effort to balance the budget. The measure was not considered by 
he Senate during the 104th Congress.

Committee action

    The Small Business Committee held hearings on payroll tax 
relief on April 23, 1996 [See Hearings of the Committee].

                        K. S Corporation Reform

Background

    Throughout the 104th Congress, there was significant 
support for S Corporation Reform. S corporations typically are 
small businesses and are frequently family owned. These small 
business owners indicated that certain restrictions within the 
law were hindering an S corporation's ability to raise funds 
for growth and the creation of new jobs. Constituents argued 
that certain changes in the law could improve business 
opportunities for the 1.9 million small businesses operating as 
S corporations across America.

Legislation

    Senator Hatch introduced the S Corporation Reform Act, S. 
758, which would simplify many of the outdated, unnecessary, 
and complex tax rules that small businesses must follow. The 
bill would expand access to capital in a variety of ways, 
including increasing the number of permitted shareholders. In 
1995, President Clinton vetoed provisions included in the 
Balanced Budget Act that would have provided S Corporation 
Reform. In 1996, changes and improvements to the law were made 
as part of the Small Business Job Protection Act.

                          L. Tax Reform Debate

    The tax reform debate was an important topic to all 
taxpayers during the 104th Congress, including small business. 
Many closely followed the National Commission on Economic 
Growth and Tax Reform, chaired by former Congressman and 
Secretary of Housing and Urban Development Jack Kemp. In 
January of 1996, the Commission released its report, which 
contained recommendations on reforming the U.S. tax code. Tax 
reform will have significant consequences for all sectors of 
the economy.
    The Small Business Committee spent a great deal of time 
during the 104th Congress examining the business and public-
policy issues that will determine how small business can help 
stake out our country's path for the future. Tax reform should 
drive economic growth, encourage entrepreneurship, and promote 
savings while providing relief to small businesses, our 
nation's primary source of new jobs and economic growth. The 
debate will continue in the 105th and subsequent Congresses, 
and the voice of small business will continue to play an 
important role.

             M. The Consumer and Main Street Protection Act

    Senator Bumpers introduced legislation to create a level 
playing field between retailers and direct marketers regarding 
the collection of sales and use taxes. Currently, direct 
marketers are exempt from such tax collection requirements if 
they have no physical presence in the state where products are 
shipped. Because retail establishments are required to collect 
sales taxes as a matter of state law, they are placed at a 
competitive disadvantage vis-a-vis mail-order companies. 
Senator Bumpers' legislation, The Consumer and Main Street 
Protection Act of 1995, S. 545, would resolve this issue by 
allowing states to require use tax collection on direct-market 
products.
    S. 545 is also designed as a consumer protection measure 
because consumers remain liable for use taxes, even though 
direct marketers may not collect the taxes. In recent years, 
thousands of consumers have been assessed after the fact for 
unpaid use taxes on goods purchased via direct marketing, and 
interest and penalties are often charged in the assessment.
    S. 545 was referred to the Senate Finance Committee, but 
did not see further action.

                 N. Electronic Tax Payment Requirement

    Chairman Bond and Senator Bumpers sent a joint letter to 
Treasury and IRS officials urging a delay in implementation of 
the Electronic Federal Tax Payment System (EFTPS) for small 
businesses. The letter noted that great confusion existed among 
small businesses regarding the new requirements and that more 
information was needed before the new system became effective. 
IRS Commissioner Margaret Richardson subsequently agreed to 
waive penalties for six months on small businesses using EFTPS 
and to provide more detailed information about the system.
    Following the IRS' penalty waiver announcement, provisions 
were added to the Small Business Job Protection Act that delay 
the implementation of EFTPS for small businesses until July 1, 
1997. This delay was included to give small firms additional 
time to learn about the system and to enroll prior to having to 
make their tax payments electronically.

                  O. Extension of Expiring Provisions

    As part of the Small Business Job Protection Act several 
expiring tax provisions important to small business were 
extended. For example, the research and development tax credit, 
employer-provided educational assistance program, and 
contributions of stock to private foundations were all 
extended. Although the Small Business Committee did not hear 
witness testimony regarding the extenders, passage of the 
legislation was followed with interest and support.

                          IV. WORKPLACE ISSUES

                             A. OSHA Reform

                         1. Legislative Reform

Background

    Delegates to the White House Conference on Small Business 
recommended legislative changes that encourage a non-
adversarial, supportive relationship between the Occupational 
Safety and Health Administration (OSHA) and small businesses. 
The delegates suggested legislation that allows OSHA to assist 
and cooperate with small employers that are trying to comply 
voluntarily with OSHA's regulations.

Legislation

    The Senate Regulatory Relief Task Force sent a letter to 
Senator Kassebaum, Chairman of the Labor Committee, in October 
1995, encouraging her to draft legislation that would replace 
OSHA's current system with a cooperative, partnership approach. 
The Task Force suggested incentives for voluntary compliance, 
more opportunities for consultation between OSHA and employers, 
decreased penalties for non-serious violations, and changes in 
the way OSHA conducts inspections.
    Senators Gregg and Kassebaum introduced the Occupational 
Safety and Health Reform and Reinvention Act, S. 1423, in 
November, 1995. The Act seeks to refocus OSHA on its primary 
mission, improved workplace safety, while simultaneously 
leveraging the agency's scarce resources on the most dangerous 
work sites. The legislation permits OSHA inspectors to issue 
warnings in lieu of citations for non-serious violations and 
reduces fines for paperwork and other non-serious citations. In 
addition, the bill provides positive incentives for employers 
to address occupational safety on their own. Businesses with 
effective health and safety programs or those that utilize 
certified, third-party safety consultants will be exempt from 
regular OSHA inspections and will receive reduced penalties for 
citations. The bill also clarifies that employee participation 
on company safety committees does not violate the National 
Labor Relations Act.
    President Clinton threatened to veto S. 1423 before it was 
considered by the Labor Committee, but did not offer any 
alternative legislation. The Gregg/Kassebaum bill was marked-up 
by the Labor Committee in March 1996. The Committee reported 
out the legislation, but it was not considered by the full 
Senate.
    Additional OSHA reform bills introduced in the 104th 
Congress included: H.R. 1834 (Rep. Ballenger), H.R. 3234 (Rep. 
Ballenger), S. 592 (Sen. Hutchison), S. 526 (Sen. Gregg).

                    2. Workplace Violence Guidelines

    OSHA released proposed guidelines for workplace violence 
prevention programs at night retail establishments on April 5, 
1996. The Republican members of the Committee sent a letter in 
June 1996 to Joseph A. Dear, Assistant Secretary of OSHA, 
expressing concern about OSHA's intentions regarding 
enforcement of the guidelines. The letter stated that OSHA 
often uses its authority under the General Duty Clause of the 
Occupational Safety and Health Act to cite employers for 
failing to follow guidelines. Because of this pattern, OSHA 
guidelines can act as the functional equivalent of regulations 
from the perspective of small business owners. The letter also 
questioned whether using guidelines to achieve specific 
compliance activities reflects the cooperative and consultative 
approach to regulating small business described at the White 
House Conference on Small Business and included in the Small 
Business Regulatory Enforcement Fairness Act (SBREFA). By 
issuing a guideline rather than promulgating a rule, OSHA 
avoids any analysis of the economic impact of the guideline on 
small businesses and is not required to comply with the 
Regulatory Flexibility Act.
    Assistant Secretary Dear responded to the letter by 
assuring the Committee that the guidelines would not be 
enforced like traditional regulations. He stated that the 
guidelines are intended as a compilation of the ``best 
practices'' regarding workplace violence that employers will 
not be forced to follow. The letter referenced the Guidelines 
for Preventing Workplace Violence for Health Care and Social 
Service Workers and the subsequent memorandum sent to OSHA's 
Regional Administrators clarifying that the guidelines were for 
educational purposes only and that no citations would be issued 
based upon them. Secretary Dear stated that OSHA would try to 
emphasize in the final version that the guidelines are not 
intended to have the force and effect of rules.

                             3. Ergonomics

    The Committee also studied OSHA's development of a rule on 
ergonomic injuries. The small business community was concerned 
about the potential cost of complying with a broad ergonomics 
rule. These organizations and their members argued that OSHA 
did not have credible scientific studies to show that ergonomic 
injuries are due to workplace activities. These groups also 
pointed to the disagreements among scientific experts about the 
proper treatment of ergonomic injuries and the cost of a rule.
    The FY 1996 appropriations legislation prohibited OSHA from 
issuing a proposed or final ergonomics rule. OSHA was given the 
authority to continue researching the ergonomics rule and to 
conduct peer review activities. The FY 1997 appropriations bill 
did not contain a similar prohibition on issuing an ergonomics 
rule.

                        4. Hazard Communication

    In May 1995, President Clinton, as part of the government 
re-invention process, tasked OSHA to look at four issues 
related to OSHA's Hazard Communication Standard. The President 
requested the National Advisory Committee for Safety and Health 
(NACOSH) to makerecommendations on simplifying material safety 
data sheets, reducing the amount of required paperwork, improving the 
effectiveness of worker training, and revising enforcement policies to 
focus on the most serious hazards. All of these issues have a 
significant impact on small business, and, therefore, the Committee has 
taken a direct interest in potential policy changes being considered by 
the Agency.
    The Committee has assisted small business organizations as 
well as small business owners in expressing their concerns and 
recommendations to the NACOSH group. Additionally, the 
Committee has arranged for small business owners to meet with 
senior OSHA officials on hazard communication issues.
    In September, 1996, NACOSH issued their report with 
recommendations to streamline the Hazard Communication 
Standards methods of downstream communication and enforcement 
policy. This report is considered advisory only, and the NACOSH 
recommendations will now be considered by the Agency. The 
Committee will continue to monitor the policy considerations of 
the Agency to ensure that small business interests are 
considered and integrated into final agency action.

                     B. Labor-Management Relations

                            1. union salting

Background

    The Committee examined statements received from numerous 
small contracting businesses that have experienced union 
``salting'' campaigns. ``Salting'' is a technique used by 
unions in organizational and other types of campaigns typically 
involving businesses in the construction industry. Union 
agents, or ``salts,'' apply for jobs with non-union employers. 
If hired, the salt attempts to convince the employees to join 
the union and tries to generate unfair labor practices against 
the employer. If the salt is not hired, he or she files an 
unfair labor practice complaint with the National Labor 
Relations Board (NLRB) alleging that the employer failed to 
hire the salt because of union affiliation.
    Several small businesses characterized the salting 
campaigns they had experienced as unrelated to organizing. 
These small employers stated that the unions were often not 
interested in organizing and did not file election petitions 
with the NLRB, but instead used their salts to generate unfair 
labor practices and to call other federal agencies such as OHSA 
and the Environmental Protection Agency (EPA) with frivolous 
complaints. These businesses believe that the true goal of some 
salting campaigns is to destroy non-union businesses to reduce 
competition for union contractors. For example, a small 
contractor in Missouri said that at the instigation of a union, 
the NLRB had filed approximately 120 unfair labor practices 
claims against him during a two year period. Of these 120 
unfair labor practices, the NLRB found merit in only two cases. 
This small employer spent over $55,000 on legal expenses to 
defend against the charges. The union did not at any time 
during the campaign file a petition for an election.

Legislation

    Two bills designed to remedy the salting problem were 
introduced. Rep. Fawell introduced the Truth in Employment Act, 
H.R. 3211, on March 29, 1996. The bill establishes that an 
employer does not have to hire an applicant who is seeking 
employment to further the goals of the union. Senator Gorton 
introduced the Senate companion bill, S. 1925, in June 1996. 
The Gorton bill states that an employer does not have to hire 
anyone whose ``primary goal'' is representing the union in an 
``organizational struggle.''
    The Committee planned a hearing to explore the impact of 
salting campaigns on small businesses. The Committee invited 
five small businesses to testify about their experiences with 
salting and was also to hear from four labor law experts. The 
hearing was postponed, and there was insufficient time to 
reschedule it prior to the conclusion of the 104th Congress.

                  2. single facility bargaining units

Background

    The NLRB proposed a rule that would change the way the 
Board evaluates the appropriateness of collective bargaining 
units. Currently, the Board looks at a variety of factors to 
determine whether or not employees share a ``community of 
interest.'' To be in the same collective bargaining unit, 
employees must have similar interests in terms of wages and 
benefits so that the union can negotiate a collective 
bargaining agreement that is beneficial to all of the employees 
in the unit. The ``community of interest'' standard has been 
used by the NLRB for over 40 years and allows the bargaining 
unit to consist of several facilities operated by the employer 
or single facilities.
    The NLRB's proposed rule would establish a presumption that 
employees at a single location constitute the appropriate 
bargaining unit as long as there are 15 or more employees at 
the location, no other work site of the employer is within one 
mile of the requested locations, and at least one supervisor is 
present at the site. The single facility would be rejected as 
an appropriate bargaining unit only in ``extraordinary 
circumstances.''
    The Committee heard from numerous small businesses that 
were concerned about the NLRB's proposed rule. Those businesses 
argued against another ``one-size-fits-all'' rule that applies 
to businesses of all sizes and emphasized that in a business 
environment including phones, faxes, and computers, centralized 
management of several facilities was increasingly commonplace. 
Small businesses expressed concern about the possibility of 
having several facilities in one area that would be governed by 
different unions and pay scales. For example, a franchise owner 
with four locations in the same area would have to show 
``extraordinary circumstances'' in order to include employees 
from all of the locations in the same bargainingunit. Under the 
proposed rule, these employees could be in different bargaining units 
even when employment and management policies were centralized.

Legislation

    The House and Senate FY 1996 appropriations bills for the 
Department of Labor included a provision prohibiting the NLRB 
from using appropriations to further develop the single-
facility rule. The provision was also included in the 
continuing resolution that provided funding for the Department 
of Labor for FY 1997.
    Chairman Bond and 37 other Senators, including five other 
Committee members, sent a letter to William Gould, Chairman of 
the NLRB, in March, 1996 urging the Board to exercise caution 
in promulgating the new rule. The letter questioned the need 
for the rule given that litigation regarding the 
appropriateness of bargaining units has fallen in recent years. 
In addition, the letter pointed out the Board had only three 
members confirmed by the U.S. Senate and one recess appointee 
serving at the time of the proposed rule.
    Chairman Gould answered the letter on April 1, 1996, 
stating that litigation on the appropriateness of bargaining 
units had remained steady rather than declining. Chairman Gould 
explained that a finding that a single facility is appropriate 
has always been available under the law and that the proposed 
rule simply sets forth the decisive factors for finding that 
single location units are appropriate. Chairman Gould concluded 
by emphasizing the exceptions from the single facility rule are 
provided in ``extraordinary circumstances'' and that the 
proposed rule is an attempt to address the need for 
flexibility.

                      C. Fair Labor Standards Act

                        1. compensatory time off

Background

    The Committee heard from small businesses and employees 
about increased flexibility in working conditions. Employers 
and employees expressed interest in flexible schedules that 
would allow them to spend more time with their families and to 
have more compensation options.
    Several bills were offered during the 104th Congress that 
would allow employees to choose compensatory time off rather 
than overtime pay. Currently, the Fair Labor Standards Act 
(FLSA) requires employers to pay eligible employees at an 
hourly rate of 1.5 times their regular pay for any hours over 
40 worked in a week. As a result, employers are unable to 
permit employees to work extra hours during one week and take 
the time off in another week. For example, an employer would be 
unlikely to allow an employee to work 48 hours one week so that 
he or she could take a day off the following week because the 
employer would have to pay eight hours of overtime for this 
first week.

Legislation

    Senator Ashcroft introduced the Work and Family Integration 
Act, S. 1129, in August 1995. Representative Ballenger 
introduced the Compensatory Time for All Workers Act, H.R. 
2391, in September 1995. The legislation allows employers to 
offer comp-time programs. Employees could choose to participate 
in the program and receive time off rather than overtime pay. 
Both bills allows employees to accrue up to 240 hours of 
compensatory time off and to cash out any accrued time with 30 
days notice. Employees may use earned compensatory time for any 
purpose with reasonable notice to the employer. Requested use 
of compensatory time can be denied by the employer only if the 
employee's absence is unduly disruptive to the workplace. Both 
bills are based on the compensatory time-off programs programs 
that have been available to federal government employees since 
1945 and to state and local government employees since 1985.
    The Ballenger legislation passed the House on July 26, 1996 
by a vote of 225-195. The Senate did not consider the Ashcroft 
bill. President Clinton characterized the Ballenger bill as a 
``poison pill'' when it was discussed as an attachment to the 
legislation increasing the minimum wage and Secretary of Labor 
Robert Reich recommended that President Clinton veto the 
Ashcroft and Ballenger bills. President Clinton announced his 
own proposal for ``employee choice flex time,'' which would 
allow employees to accrue up to 80 hours of compensatory time 
and allow a cash out with two weeks notice regardless of any 
disruption to the workplace. Part-time, seasonal, and temporary 
workers would not be permitted to participate in the program, 
and the Secretary of Labor could exclude other groups of 
workers. The Clinton proposal would sunset in five years.

Committee action

    The Committee studied the comments received from many small 
businesses interested in offering their employees compensatory 
time off. These employers explained that small businesses are 
often unable to offer their employees the benefit packages 
larger businesses are able to offer, but they can offer 
flexibility. That flexibility is, however, limited by the 
current restrictions of the FLSA.

                            2. inside sales

Background

    The Fair Labor Standards Act provide an exemption from 
overtime pay for outside salespeople. The FLSA also provides an 
overtime exemption for inside salespeople in the retail 
industry if they are paid more than 1.5 times the minimum wage 
and more than half of their compensation is paid in 
commissions.

Legislation

    In March, 1995, Rep. Fawell introduced H.R. 1226, a bill 
that would allow all businesses to use the exemption for inside 
salespeople. The Senate companion bill, S. 2026, was introduced 
by Sen. Faircloth in August 1996. Neither bill was considered 
by the House or Senate.

Committee action

    The Committee received correspondence from several small 
businesses interested in the FLSA's inside-sales provision. 
Small wholesalers told the Committee that they were at a 
competitive disadvantage relative to retail establishments that 
could utilize the exemption for inside salespeople. In 
addition, small businesses explained that the distinction 
between inside and outside salespeople was more difficult to 
define today than it was in 1938 when the FLSA was passed 
because of computers, phones, and faxes. One business owner 
illustrated the problem by saying that he could save money by 
putting his inside salespeople on a bus and driving them around 
so that they would be outside salespeople and that his inside 
and outside salespeople essentially performed the same jobs. 
Small employers also explained that their sales employees want 
to be exempt from overtime provisions because they want to be 
able to offer their customers excellent service and increase 
their sales quotas.

                            3. minimum wage

    As Congress began considering a federal minimum wage 
increase, the Committee gave serious consideration to the 
potential impact of such an increase on America's small 
businesses. Chairman Bond wrote in a Dear Colleague letter on 
May 21, 1996, that the vast majority of new jobs created during 
the past decade were due to small businesses and that 
protection from federal mandates would be necessary to maintain 
this growth.
    Exemptions from the federal minimum wage had been utilized 
in the past for small businesses. Prior to 1989, retail and 
service establishments grossing under $362,500 were completely 
exempt from the federal minimum wage and overtime provisions. 
When Congress raised the minimum wage in 1989, the exemption 
was raised to $500,000 and applied to all types of businesses 
rather than only retail and service establishments. 
Unfortunately, Congress failed in the 1989 amendments to amend 
a portion of the minimum wage law that covers individual 
employees. As a result, no business with employees engaged in 
interstate commerce is exempt despite Congress' clear 
intentions to do so in 1989.
    In 1990 and 1991, Senator Bumpers, the ranking member on 
the Committee, introduced legislation that would have 
effectuated Congress' intent by exempting small businesses 
grossing less than $500,000 from the 1989 increase. The bill 
had 48 co-sponsors, 26 Republicans and 22 Democrats, but it was 
never passed.
    Philip Lader, Administrator of the Small Business 
Administration, suggested to Secretary of Labor Robert Reich in 
March 1995, that America's smallest businesses be exempted from 
any minimum wage increase. Mr. Lader stated that an exemption 
would help alleviate the need for firms at the margin to fire 
workers and would compensate small employers for the costs they 
incur by hiring unskilled workers. In the letter, Mr. Lader 
explained that a two-tiered minimum wage system serves two 
important public policy goals--promoting small businesses and 
preserving jobs.
    Chairman Bond sent a letter to President Clinton in June 
1996, asking the President to support an exemption from the 
proposed increase for small businesses grossing under $500,000. 
Chairman Bond reviewed the legislative history of the small 
business exemption and cited statements made during the 1989 
debates expressing Congress' intent to exempt small businesses 
from the increase. Chairman Bond explained that the provision 
would exempt small businesses grossing under $500,000 from the 
increase in the minimum wage, thereby maintaining the status 
quo for small business. President Clinton responded with a 
letter to Majority Leader Lott characterizing a small business 
exemption as a ``poison pill'' that would guarantee a veto.
    Chairman Bond offered an amendment on August 6, 1996 to 
H.R. 3448, the minimum wage bill passed by the House, which 
provided for an increase in the minimum wage to $4.75 beginning 
January 1, 1997 and another increase to $5.15 beginning January 
1, 1998. Under Chairman Bond's amendment, small businesses 
grossing under $500,00 would have been exempt from the increase 
and would have continued to pay $4.25.
    The Bond amendment failed by a vote of 46 to 52. As a 
result, businesses of all sizes began paying the increased rate 
of $4.75 on October 1, 1996 and will begin paying $5.15 on 
September 1, 1997.

                              D. TEAM Act

Background

    The Teamwork for Employees and Management Act of 1995, S. 
295, was introduced by Senator Kassebaum on January 10, 1995. 
The TEAM Act amended Section 8(a)(2) of the National Labor 
Relations Act (NLRA), which prohibits employer-dominated labor 
organizations. The NLRA defines a labor organization as a group 
of employees that discusses terms or conditions of employment 
with management. The National Labor Relations Board (NLRB) and 
courts have interpreted ``terms and conditions of employment'' 
to include nearly all aspects of employment. Thus, efforts by 
non-union employers to involve teams of employees in such areas 
as safety, productivity, quality, and working conditions have 
increasingly been found to be illegal labor practices. The 
NLRB's interpretation has also deterred other employers from 
using or expanding employee involvement initiatives.
    The TEAM Act would allow employee involvement so long as 
the employees involveddo not have the power to enter into or 
negotiate collective bargaining agreements. The Act establishes that it 
is not an unfair labor practice for employers and employees to 
participate in a group that addresses ``matters of mutual interest'' as 
long as the group does not have the power to negotiate a collective 
bargaining agreement. Thus, employers and employees would be able to 
form teams or other types of entities to talk about issues like safety, 
productivity, and quality that may implicate terms and conditions of 
employment.
    The Committee heard from many small business owners that 
wanted to use employee involvement entities, but felt 
constrained by section 8(a)(2) as interpreted by the NLRB and 
the courts. These employers explained that in a small business, 
the delineation between manager and employee is not always 
clear because of smaller staffs and overlapping 
responsibilities. For example, the owner of a small business is 
more likely to turn work scheduling over to a team of employees 
because resources for a personnel director are not available. 
Small business owners also explained that they did not have the 
resources to consult a labor law expert each time they wanted 
to try something new. Unless the small business owner had read 
each case decided by the NLRB, he or she would be unable to 
determine whether or not employee teams for specific issues are 
permissible.

Legislation

    The TEAM Act, introduced in the House as H.R. 743 passed by 
a vote of 221-202 on September 27, 1995. The Senate version of 
the bill, S. 295, was reported favorably out of the Senate 
Labor and Human Resources Committee on April 14, 1996. The 
Senate ultimately considered and passed the House version, H.R. 
743, by a vote of 53-46 on July 10, 1995. President Clinton 
vetoed the Act on July 30, 1996.

                           E. Davis-Bacon Act

Background

    The Davis-Bacon Act governs all construction contracts 
between business owners and the federal government. The Act 
requires that employers pay the ``prevailing wage'' in the area 
to employees working on federal contracts. The prevailing wage 
is calculated through data collected from employers and 
typically approaches the wage earned by union workers.
    Small business representatives recommended repeal of the 
Davis-Bacon Act at the White House Conference on Small 
Business. The Act put small and minority firms at a 
disadvantage because they cannot afford to pay the higher wages 
and because of complicated federal contracting procedures. The 
Act discourages employment of inexperienced workers because the 
payment of high wages encourages employers to hire the most 
skilled workers even if their skills are not necessary for each 
job. In addition, the Act results in government waste. The 
Congressional Budget Office estimated in 1983 that repealing 
the Act would save $75 million to $1 billion in federal 
construction expenses each year.

Legislation

    The Committee monitored legislation concerning the Davis-
Bacon Act because of its importance to the small business 
community. Senator Kassebaum introduced the Davis-Bacon Repeal 
Act, S. 141, in January 1995. The Labor Committee held a 
hearing on the repeal bill, but it was not marked-up or 
considered on the Senate floor. Senator Hatfield introduced the 
Davis-Bacon Reform Amendments of 1995, S. 1183, in August 1995. 
The Hatfield bill raised the threshold for Davis-Bacon coverage 
and clarified provisions on leased facilities, trainees and 
helpers, and contract splitting. The Hatfield bill was not 
considered by the Labor Committee or the Senate. President 
Clinton has promised to veto any bill that repeals the Act.

                    F. Family and Medical Leave Act

Background

    The Family and Medical Leave Act (FMLA) was enacted on 
February 5, 1993, and requires employers with 50 or more 
employees to allow each employee 12 weeks of unpaid leave for 
the birth or adoption of a child or because of the serious 
health condition of the employee or a parent, spouse or child. 
Intermittent leave is available if it is medically necessary or 
if the employer and employee reach an agreement. Employers must 
maintain the employee's health insurance during the leave and 
reinstate the employee to an equivalent job with the same pay 
and benefits once the leave is over.

Legislation

    Senator Dodd and Representative Schroeder introduced S. 
1896 and H.R. 3704, respectively, to expand the FMLA. The 
legislation lowers the coverage threshold from 50 employees to 
25 employees. Employees would be entitled to a ``parental 
involvement leave'' of up to four hours per month or total of 
24 hours per year. The leave could be used for school or 
community activities involving the employee's child or foster 
child. The Senate bill was not considered by the Labor 
Committee or voted on by the full Senate.

Committee action

    The Committee reviewed statements from several business 
owners about the FMLA. The experiences of these employers and 
their employees were mostly positive, but several suggestions 
were made regarding the administration of the Act. Several 
employers reported that the Department of Labor's definition of 
``serious health condition'' is so broad that common conditions 
such as colds and ear infections could result in qualification 
for FMLA leave. Employers also expressed concern about the 
availability of intermittent leave. Because employees can take 
up to 12 weeks of leave in one hour increments, FMLA leave 
becomes difficult to track and can be disruptive to the 
workplace.

      V. ACCESS TO CAPITAL: SMALL BUSINESS ADMINISTRATION PROGRAMS

    Small business is the engine that drives the U.S. economy. 
Without the extraordinary growth and success of small 
businesses over the past decade, the U.S. economy would have 
failed to expand. Ninety-nine percent of all businesses in the 
United States are small, and 85% employ fewer than 20 people. 
They provide jobs to 54% of the private workforce. Small 
businesses also provide about 67% of initial job opportunities 
and are responsible for most of the initial on-the-job training 
in basic skills.
    One of the greatest challenges facing many small businesses 
is the availability of capital to support on-going business 
activities and to fund business start-ups and growth. 
Traditional sources of capital for businesses, such as banks 
and large venture capital firms, historically have been 
reluctant to make debt and investment capital readily available 
to small businesses at reasonable rates and terms. To respond 
to this void, the Committee on Small Business devoted special 
attention in 1995 and 1996 to studying the effectiveness of 
critical Small Business Administration (SBA) finance programs 
that were initially created to fill this void. The result was a 
series of investigative hearings that produced major bills, 
introduced by Senator Bond, that reformed SBA's finance 
programs. These key legislative measures received unanimous 
bipartisan support in the Senate and were signed into law by 
the President.

                A. 7(a) Guaranteed Business Loan Program

Background

    The 7(a) Guaranteed Business Loan Program is designed to 
encourage banks and SBA-licensed non-bank lenders to make long-
term credit available to small businesses. This is SBA's most 
popular program. In FY 1996, 45,845 loans totaling $7.7 billion 
by banks and non-bank lenders to small businesses were 
guaranteed by SBA under the 7(a) program; in FY 1995, 55,596 
loans totaling $8.3 billion were guaranteed by SBA.

Legislation

            The Small Business Lending Enhancement Act of 1995
    During a series of hearings before the Committee on Small 
Business in early 1995, it became evident that the Committee 
needed to enact legislation to make more 7(a) business loans 
available to fund small business start-ups and to support small 
business growth. In response to this finding, in June 1995 
Chairman Bond introduced the Small Business Lending Enhancement 
Act of 1995, S. 895. This bill reduced the credit subsidy rate 
for the 7(a) program from 2.68% to 1.06%, which made it 
possible for Congress to approve and fund significant program 
growth to meet borrower demand. S. 895 was approved unanimously 
by the Committee on Small Business and the full Senate. After a 
conference with the House of Representatives, it was signed 
into law on October 13, 1995, as Public Law 104-36.
            Bond-Bumpers comprehensive substitute amendment to H.R. 
                    3719
    In early 1996, the SBA notified Congress that projected 
program losses for the 7(a) business loan program were higher 
than previously presented. Actual recoveries on defaulted loans 
were 44%, not 55% as claimed earlier by the Agency. In 
addition, SBA and the Office of Management and Budget insisted 
that the default rate would continue at a level of over 17% for 
FY 1994 through FY 1997, a significant increase above the 
default level of 10.5% for FY 1992 and 9.5% for FY 1993. As a 
result, these persistently high default rates have led to 
increased fees for borrowers and lenders making capital more 
expensive for small business borrowers.
    In August and September 1996, Chairman Bond and Senator 
Bumpers, the Committee's ranking member, drafted a 
comprehensive substitute amendment to the House-passed Small 
Business Programs Improvement Act of 1996, H.R. 3719. Their 
substitute Amendment included program reforms to improve the 
safety and soundness of the 7(a) business loan program while 
allowing the program to grow and meet the borrowing needs of 
small businesses.
    The Bond-Bumpers Substitute Amendment strengthens the 
requirements to allow SBA lenders to sell off the unguaranteed 
portion of 7(a) loans by directing SBA to promulgate new 
regulations mandating that each lender maintain a loss reserve 
on loans sold on the secondary market. In addition, this bill 
directs that SBA-licensed Preferred Lenders and Certified 
Lenders be allowed to have a direct roll in liquidating 
defaulted 7(a) loans in order to improve recoveries from the 
collateral pledged from the loan.
    H.R. 3719 requires SBA to create a management data base so 
that SBA, the Congress, and outside parties can begin to 
understand the reasons for failed 7(a) loans. H.R. 3719 was 
included as part of the FY 1997 Omnibus Consolidated 
Appropriations Act and was signed into law on September 30, 
1996, as Public Law 104-208.

              B. 504 Certified Development Company Program

Background

    This SBA-backed small business finance program is designed 
to stimulate community investment and the creation of new jobs. 
Under this program, a bank or SBA-licensed non-bank lender will 
make a loan without a government guarantee to a small business 
for 50% of the small business' total financing requirement. 
Next, SBA guarantees 40% of the financing requirement and takes 
a subordinate position to the bank. The remaining 10% is 
usually put up by the borrower.
    In 1995, SBA testified before the Committee that the 504 
program had a very low risk to the government, and the 
government's exposure was very low as a result. In response to 
SBA's assurances about the fiscal soundness of the 504 program, 
the Committee on Small Business approved an incremental 
increase in the borrower fees in order to reduce the credit 
subsidy ratefrom 0.57% to 0. The fee increases were included as 
part of the Small Business Lending Enhancement Act of 1995, S. 895, 
which was signed into law on October 13, 1995, as Public Law 104-16.
    In March 1996, the President's FY 1997 budget request for 
SBA described a much different review for the 504 Program. 
Previous assurances about fiscal soundness of the program were 
withdrawn, and SBA revealed that program losses were actually 
1,200% higher than previously submitted. In fact, SBA had been 
understating the default rate and overstating the recovery 
rate, which created a dramatic understatement of the risk of 
the program and losses actually being borne by the federal 
government.
    Without delay, the Committee undertook an investigation 
into the circumstances surrounding the failure of SBA to 
provide accurate and truthful information to the Congress. As a 
result, future submissions by SBA and the Office of Management 
and Budget to the Congress will more accurately reflect actual 
program performance. After studying SBA's budget submission, 
the Committee worked closely with the lending community and the 
Certified Development Companies to adjust fees paid by the 
lenders and borrowers to pay for the increased cost to support 
this program. The Committee unanimously approved the Chairman's 
504 Program reform proposal, which included new fees and 
underwriting changes to reduce the risk of loss under the 
program. The Committee concurred with Chairman Bond's 
recommendation that the government should not fund additional 
future losses under this program.
    The Congress adopted the 504 program reform measures as 
part of the Small Business Programs Improvement Act of 1996, 
H.R. 3719, which was included in the FY 1997 Omnibus 
Consolidated Appropriations Act. Without this legislation, an 
appropriation of $181 would have been necessary to support the 
504 program, and this important program for small business 
would have been terminated. This bill was signed into law on 
September 30, 1996, as Public Law 104-208.

              C. Small Business Investment Company Program

Background

    Historically, small businesses that have sought venture 
capital investments from the traditional Wall Street investment 
firms have walked away empty handed. While small businesses 
have been responsible for the net increase in new jobs and 
almost all new business start-ups, the well known, large 
investment firms have been reluctant to concentrate any effort 
to make these small-type investments, which generally fall in 
the $500,000 to $2.5 million range. Furthermore, banks have 
been reluctant to loan money to these higher risk small 
businesses.
    SBA's Small Business Investment Company (SBIC) program 
supports and encourages this type of small business 
investments. The SBIC program loans government-guaranteed risk 
capital to venture capital firms licenses by SBA as Small 
Business Investment Companies, which they match with private 
capital and invest in small businesses. In FY 1995, SBICs 
invested $1.09 billion in small businesses; in FY 1996, SBIC 
investments increased to $1.17 billion.
    An adjunct of the SBIC program is the Specialized Small 
Business Investment Company (SSBIC) Program. Firms licensed by 
SBA in this program agree to make investments in small 
businesses that are owned and controlled by socially and 
economically disadvantaged individuals. In FY 1995, $153.5 
million was invested by SSBICs in disadvantaged small 
businesses. In FY 1996, $101.5 million was invested by SSBICs.

Legislation

            The Small Business Investment Company Improvement Act
    In 1995 and 1996, the Committee held a series of hearings 
highlighting the SBIC program, which culminated in Chairman 
Bond's introduction of the Small Business Investment Company 
Improvement Act of 1996, S. 1784. This important legislation 
was approved unanimously by the Committee and the full Senate.
    The Chairman's bill made significant improvements in the 
management of the SBIC program designed to enhance its safety 
and soundness and reduce the risk of loss to the federal 
government. Minimum private capital requirements for new 
license applicants were increased to $5 million for debenture-
type licensees and $10 million for participating-security 
licensees. Under this bill, SBA will have the discretion to 
reduce this requirement to as low as $5 million for a 
participating-security licensee after determining that its 
management team and investment plan meet all other SBA 
requirements.
    Under S. 1784, SBA must ensure that each SBIC has a 
diversification between management and ownership of SBIC. In 
addition. S. 1784 requires that SBA intensify its oversight of 
all SBICs to determine that no SBIC receives SBA-guaranteed 
leverage when it is under capital impairment, and that SBICs do 
not incur excessive third-party debt. SBA mandates that each 
SBIC adopt the valuation criteria required by SBA to establish 
the values of loans and investments of each SBIC subject to an 
annual review by an independent certified accountant.
    As a result of S. 1784, for FY 1997 the cost of the program 
to taxpayers was reduced from $41 million to $21 million; at 
the same time, the amount of government-guaranteed risk capital 
available to small businesses grew from $364 million to $700 
million.
    S. 1784 also provided for consolidation of the SBIC and 
SSBIC programs. With the decline in the level of new SBIC 
investment funds flowing to disadvantaged companies, the 
Committee believed that by combining the resources of both 
programs, thus making more investment capital available to 
SSBICs, additional investments could be made in disadvantaged 
small businesses. S. 1784 further specified that each SBIC 
invest at least 20% of its dollar investments in ``smaller 
enterprises,'' which are smaller firms with a net income of $2 
million orless and a net worth of $6 million or less.
    S. 1784, in its entirety, was included in the FY 1997 
Omnibus Consolidated Appropriations Act, which was signed into 
law by the President on September 30, 1996, as Public Law 104-
208.

         D. Expanded Export Opportunities for Small Businesses

Background

    Conducting businesses outside the United States places a 
significant, and sometimes overwhelming, burden on small 
businesses. At the same time the nation has been a leader in 
the expansion of the world economic community, America's small 
businesses do not have the resources, nor oftentimes the 
knowledge, to enter successfully into foreign markets.
    One of the primary missions of the SBA in the export arena 
is to make credit available to small businesses that wish to 
conduct business overseas. In FY 1995, SBA's Export Revolving 
Line of Credit Program provided financing for approximately 210 
small businesses. As the result of this small number of export 
loans, Chairman Bond urged the SBA and the multi-agency Trade 
Promotion Coordinating Committee to streamline SBA's export 
loan program and take additional steps to make export loans 
more readily available to small business. The number of SBA 
export loans increased by over 50% in FY 1996.

         E. Revitalizing America's Rural and Urban Communities

Background

    Historically, America's cities and poor rural counties have 
experienced much difficulty attracting investments and creating 
new jobs in economically distressed areas. Following a series 
of hearings conducted by the Committee on Small Businesses in 
1995 on the 8(a) Minority Contracting Program and 
Entrepreneurship in America, the Chairman concluded that 
federal contracting programs that were designed to assist 
minority-owned small businesses were failing to stimulate 
investment and the creation of new jobs in the areas where this 
help is needed most, in poor rural areas and many inner cities.

Legislation

            HUBZone Act of 1996
    In February 1996, Chairman Bond introduced the Historically 
Underutilized Business Zone Act of 1996, S. 1574, which creates 
incentives for small businesses to locate in economically 
distressed rural and urban areas. A ``HUBZone'' is a rural 
county or one or more census tracts in an urban area where the 
median household income is substantially below the state 
average.
    Small businesses that are located in a HUBZone and that 
employ at least 35% of their workforces from a HUBZone would be 
eligible for special preferences to receive federal government 
contracts. For example, a HUBZone qualified small business 
could receive a sole-source federal government contract for up 
to $5 million, or the competition for a government contract 
could be limited to HUBZone qualified small businesses.
    Under Chairman Bond's bill, after a four year phase-in 
period, 4% of all federal government contracts would be 
targeted to HUBZone-qualified small businesses. In FY 1996, 
approximately $8 billion in government contracts would have 
been included under this bill.
    After introduction of S. 1574, the Committee conducted a 
hearing on the bill in March 1996. The Committee took no action 
on the bill prior to the end of the 104th Congress.

                      F. Women Business Ownership

Background

    Small businesses owned by women are the fastest growing 
segment of the U.S. economy. By the year 2003, more than 50% of 
all small businesses will be women-owned. This enormous growth 
is occurring even though women continue to be confronted with 
more obstacles than men who own businesses.
    Women have greater problems than men in raising capital to 
start up a small business or to invest in business growth. 
During the past two years, some trends indicate that barriers 
surrounding women's access to bank loans appear to be falling. 
However, women business owners continue to experience a 
significant disadvantage in obtaining higher risk venture 
capital investments.
    During the 104th Congress, the Committee on Small Business 
strongly supported SBA's Women Business Ownership Programs. The 
President's FY 1997 budget request for SBA, however, proposed 
terminating the Women's Business Demonstration Grant Program, 
while shifting responsibility for this oversight to the Small 
Business Development Centers. SBA never submitted a plan to the 
Committee explaining how this transfer would be conducted and 
how it would preserve the integrity of this vital women's 
business ownership program. As part of the Omnibus Consolidated 
Appropriations Act, the Senate Appropriations Committee adopted 
a provision requiring that SBA fund the entire Women's 
Demonstration Grant Program in FY 1997.

               G. Small Business Research and Development

Background

    The Small Business Technology Transfer (STTR) pilot program 
was established in 1992 to stimulate technological innovation, 
use small businesses to meet federal research and development 
(R&D) needs, foster and encourage socially and economically 
disadvantaged person's participation in technological 
innovations, and increase the private sector's 
commercialization of innovations derived from federal R&D 
projects. In order to be eligible for an STTR award, a small 
business must collaborate with a non-profit research 
institution, such as a university of a federally funded R&D 
center.
    The goal of the program is to provide a more effective 
mechanism for transferring new knowledge from research 
institutions to industry. The General Accounting Office (GAO) 
monitors this program on an on-going basis. GAO has reported to 
the Committee on Small Business that the quality and commercial 
potential of the STTR program's winning proposals were rated 
highly during the first complete year of the program.

Legislation

    Under legislation adopted by the Congress in 1994, the STTR 
pilot program was set to expire on September 30, 1995. The 
Committee unanimously approved Senator Bond's recommendation 
that the program be extended for one year, and this extension 
was included in the Omnibus Consolidated Appropriations Act, 
which was signed into law on September 30, 1996, as Public Law 
104-208.
    The one year extension of the STTR pilot program allows the 
Committee on Small Business an opportunity to evaluate a longer 
term extension and other program improvements when it considers 
the three-year reauthorization of SBA programs in early 1997.

                         IV. HEALTH CARE ISSUES

    The 104th Congress made significant progress in bringing 
equity to the small business health insurance market. The 
Health Insurance Portability and Accountability Act of 1996, 
H.R. 3103, the most extensive health-care reform measure in 
almost a decade, included several recommendations offered by 
the delegates to the White House Conference on Small Business 
and aired by small business owners during the Committee's 
``Entrepreneurship in America'' series of hearings.
    The Act includes several provisions designed specifically 
for small businesses. One of these--a pilot program for Medical 
Savings Accounts--will be available only to self-employed 
persons and businesses with less than 50 employees. This 
restricted program allows individuals to deposit tax-free funds 
into a special account to cover routine and preventative 
medical care. Employees with monies remaining at the end of the 
year can either withdraw the funds or roll them over into an 
IRA. Small businesses will also benefit from language in the 
bill that promotes small business purchasing coalitions. In 
addition, the Act increases the deductible amount of health-
insurance costs for the self-employed incrementally from the 
1996 level of 30% to 80% by the year 2006.
    Finally, the legislation improves the availability of 
health-care insurance without imposing employer mandates. 
Effective July 1, 1997, insurance companies that sell policies 
in the small group market, (i.e., to companies with between two 
and fifty employees) must offer group plans to all employers in 
that market. The bill would also curb the insurance industry's 
practice of denying coverage to many individuals because of an 
pre-existing illness.

                VII. BANKING AND FINANCIAL INSTITUTIONS

    Regulatory relief for small banks also ranked high on the 
legislative agendas of the White House Conference delegates and 
Small Business Committee members. Chairman Bond and Senators 
Bennett, Burns, Frist, Heflin, Nunn and Warner jointed as co-
sponsors of the Economic Growth and Regulatory Paperwork 
Reduction Act, S. 650. This bill, which was incorporated into 
the Omnibus Consolidated Appropriations Act, will bring 
paperwork and regulatory relief to small banks across the 
nation.
    Chairman Bond advocated several provisions directed at 
smaller financial institutions. The most significant of these 
reforms will allow well-capitalized, well-managed banks to 
extend federal examination cycles. Small banks will also 
benefit from the expanded exemptions from home-mortgage-data 
reporting requirements. Finally, extensive changes in the 
Truth-in-Lending Act, the environmental liability laws, and 
bank application processes are expected to reduce 
administrative costs for all financial institutions.

                         VIII. SECURITIES LAWS

    The 104th Congress enacted two securities-related laws that 
benefit small and start-up businesses. The Private Securities 
Litigation Reform Act of 1995 offers sweeping revisions to the 
rules governing private securities litigation and class actions 
based on the federal securities law. These modifications are 
expected to assist emerging growth in obtaining capital 
financing.
    The second securities bill, the Capital Markets Efficiency 
Act of 1996, streamlines regulatory compliance for small 
investment advisors operating in multiple states. Chairman Bond 
was a strong advocate for the most notable change to the 
securities laws, which provides a uniform federal de minimis 
registration exemption from state registration for small 
investment advisors. Under this provision, if a small advisor 
maintains fewer than six clients in a single state, the advisor 
will be exempt from the registration requirements of that 
particular state. Another provision ensures uniformity of books 
and record requirements for small advisors, thereby alleviating 
the problem of complying with varying requirements in multiple 
states.

                         IX. TELECOMMUNICATIONS

                 A. Telecommunications Deregulation Act

Background

    The 104th Congress set a goal of overhauling the nation's 
telecommunications laws for the first time since 1936. The 
Telecommunications Act of 1996, S. 652, was introduced by 
Commerce Committee Chairman Pressler, and its focus was to 
phase out unnecessary and burdensome regulation in one of the 
country's most dynamic industries. The industry is experiencing 
a vibrant growth period and offers businesses and entrepreneurs 
limitless opportunities for growth. The government regulatory 
structure, however, has failed to keep pace with the industry 
advancement, which has hindered rather than promoted the 
potential to the telecommunications industry.

Legislation

    S. 652 ends decades of excessive government regulation 
throughout the telecommunications industry. The legislation 
opens the local telephone marketplace to competition and opens 
new opportunities for further competition in the long distance 
telephone marketplace. The legislation phases out rate 
regulation in the cable and video industry while opening up the 
industry to increased participants and competition.
    Rapid deregulation also presents the possibility of the 
large telecommunications conglomerates dominating the industry 
before small businesses are prepared to compete in the newly 
deregulated environment. Under intense pressure from small 
business advocates, the legislation addresses many of the 
concerns specific to small telecommunications businesses. Most 
importantly, the bill includes Section 257, The Market Entry 
Barriers Proceedings, which directs the Federal Communications 
Commission (FCC) to examine the industry for regulatory and 
financial barriers to entry for small businesses and suggest 
plans to eliminate these barriers. The legislation also 
requires the FCC to hold regular hearings to examine barriers 
to entry throughout the telecommunications industry that 
prevent small businesses from entering the industry and 
prospering.
    Small carriers throughout the telecommunications industry 
obtained language in the legislation critical to their futures. 
Small and rural cable providers were immediately exempted from 
rate regulation, while the existing rate structure for cable-
pole attachments will be phased out over a period of five 
years. The legislation also strongly encourages the providers 
of cable television programs to sell their product to small 
cable buying groups, enabling small cable companies to compete 
with the large cable companies that purchase programming at 
volume discounts. Alarm monitoring companies, an industry that 
is dominated by small businesses, won language that grants 
monitoring companies a six year grace period before having to 
compete with the incumbent local bell telephone companies, 
which are the current owners of the telephonenetworks used by 
the monitoring companies.
    Small telephone companies obtained language critical to 
their ability to compete effectively with the local incumbent 
operators and the major long distance carriers. The legislation 
includes language requiring the incumbent Bell companies to 
offer resale service to small local carriers at wholesale 
rates. The bill also requires the Bell incumbent telephone 
companies to resell service at nondiscriminatory rates. Small 
local carriers were awarded flexibility and limited waiver 
possibilities for complying with the interconnection 
requirements with which the larger Bell operating companies 
were directed to comply under the bill. Both local and long 
distance carriers are entitled under the bill to purchase 
resale and other services on an unbundled, nondiscriminatory 
basis and at nondiscriminatory rates, including such important 
functions as dialing parity and directory assistance. Without 
these provisions, small carriers would not have a realistic 
opportunity to compete.

Committee action

    Chairman Bond and the Committee were responsive to the many 
concerns that small telecommunications providers had with the 
telecommunications bills and advocated legislation that 
addressed these small business needs. Upon the signing of the 
bill by President Clinton, Chairman Bond immediately sent a 
letter to FCC Chairman Reed Hundt outlining the importance of 
the Market Entry Barriers Proceeding section to small business 
and urged the FCC to give small business entry barriers the 
emphasis that they deserve. Chairman Hundt responded with his 
concurrence and his assurance that the FCC would conduct 
immediate and aggressive hearings and begin the process of 
eliminating these market barriers to entry.
    Chairman Bond also urged the House-Senate conference 
committee to consider important small business 
telecommunications issues. In a letter to Chairman Pressler, 
Chairman Bond asked that the fullest consideration be given to 
the issues critical to small providers advocating 
interconnection flexibility and nondiscriminatory resale on an 
unbundled basis for small local carriers and wholesale resale 
rates for long-distance carriers. The Chairman also made the 
case for such important issues as the phasing out of the pole-
attachment rate structure and a separate subsidiary requirement 
to ensure that the large companies are unable to cross-
subsidize ventures to compete against small carriers. The 
Chairman also advocated a grace period for the alarm monitoring 
companies to prepare for competing with the large local 
exchange carriers. Each of the Chairman's positions were 
included in the final bill as signed by the President.

                   B. Small Cable Television Concerns

    The availability of cable programming at fair and 
competitive prices remains a principle concern of small cable 
television operators. Shortly after passage of the legislation, 
Time-Warner Inc. and Turner Broadcasting System petitioned the 
Federal Trade Commission (FTC) for approval of their merger. A 
successful merger would have placed Turner Broadcasting a 
significant producer of cable programming services, in control 
of Time-Warner, part owner of the DBS home satellite system and 
a large provider of cable television services. This vertical 
integration may have produced a powerful incentive for Time-
Warner Inc. to increase sharply the prices offered to smaller 
cable operators at discriminatory prices to favor their own 
enterprises. Cable operators were fearful of the effect that 
this incentive could have on their ability to compete and 
continue to offer quality and affordable services to their 
customers.
    Chairman Bond contacted each of the five FTC Commissioners 
and outlined his concern that the merger could result in such 
vertical integration and an incentive to discriminate in 
pricing against the small cable carriers. Chairman Bond met 
with representatives of the FTC while the merger consent decree 
was being considered and made a case on behalf of the small 
carriers that the FTC should strongly consider the possibility 
of discriminatory pricing incentive should the merger be 
approved.
    The FTC responded to the pricing concerns held by the small 
cable operators, giving Chairman Bond's concerns, as 
Commissioner Roscoe Starek said, ``significant and full and 
fair attention.'' The consent decree addressed the concerns by 
directing that in areas in which Time-Warner and its 
substitutes compete with small cable operators, small operators 
are guaranteed by the consent decree the same nondiscriminatory 
pricing policies offered by Turner prior to the merger. The 
Time-Warner company is also prohibited from bundling services 
and engaging in discriminatory practices that will undermine 
small competitor cable operator's ability to compete with this 
telecommunications giant. Small cable operators have a history 
of providing high quality service, often to areas that other 
operators hesitate to serve. This language rewards these 
operators for their service, and gives them opportunity to 
compete in this new environment.

                      X. PRODUCT LIABILITY REFORM

    Product liability reform legislation was introduced in the 
104th Congress with the support of Chairman Bond and several 
members of the Committee. Small businesses expressed their 
support to the Committee for uniform product liability laws 
with limitations on the possible plaintiffs in a civil suit and 
reasonable limitations on the award of punitive damages. These 
businesses expressed their frustration with the current state 
of the civil justice system. They shared with the Committee 
accounts of defending legal claims when plaintiffs are simply 
in search of a deep pocket and paying punitive damage awards 
that bear little relation to the actual damages. Small business 
owners live in a constant state of anxiety that a random claim 
and decision could put them out of business or that they could 
be financially crippled by legal expenses in defending a 
meritless legal claim.
    A bill reforming the product liability system was 
introduced in the 104th Congress by Senators Gorton and 
Rockefeller. The legislation included uniform statutes of 
limitations and repose, limited liability for sellers that are 
not manufacturers, several liability for non-economic damages, 
and reasonable limitations for the award of punitive damages. 
Similar legislation was introduced in the past five Congresses 
but never came close to becoming law. This bill, with the 
strong support of small business, passed in both the Senate and 
House for the first time. The Senate bill contained a small 
business provision limiting punitive damage awards in a wider 
circle of civil cases to $250,000 or twice the economic damage 
award for businesses with fewer than 25 full-time employees.
    Chairman Bond sent a letter to the conference members 
emphasizing the importance of this section for small businesses 
and the strong support for introducing common sense into the 
process for awarding punitive damages in suits against small 
businesses. The conference committee included the section in 
the final bill. Despite the support of the bill among small 
businesses, President Clinton, vetoed this bill.

                     XI. HEARINGS OF THE COMMITTEE

    ``Exploring the Future of the Small Business Administration''--
                  Washington, D.C., February 10, 1995

    On February 10, 1995, the Committee held a hearing to 
review the current programs of the Small Business 
Administration (SBA) and their future viability in a budget 
conscious environment. Chairman Bond summarized the purpose of 
this hearing by stating that the voters have indicated they 
want change, and ``I view that call for change as a positive 
challenge * * * to all of us in government to target our 
resources wisely, increase our oversight over Federal 
activities, and ask the basic questions of what we are doing, 
why are we doing it, how are we doing it, and do we need to be 
doing it? ''
    Philip Lader, Administrator, U.S. Small Business 
Administration was the sole witness. Mr. Lader began his 
testimony by stating, ``My vision of the SBA is very much a 
public-private partnership.'' He went on to defend the SBA 
against reports that only one percent of small businesses in 
America are helped by the organization, stating that in 1994 
``more than one million businesses directly had training and 
education assistance from our various SBA programs.''
    Mr. Lader broke down what the SBA offers into four 
categories: Money, education and training, advocacy, and the 
disaster assistance program. He intended these categories to 
show the vast number of people the SBA actually does affect. 
The first, money, is the one most people think of when they 
think of the SBA. In 1994, the SBA financed $950 million in 
loans for small businesses. With this money many businesses 
were started and many were able to expand, and as a result, new 
jobs were created.
    Education and training are services offered by the SBA that 
people often do not think about, although they affect more than 
one million businesses. These programs help businesses acquire 
the knowledge to stay in business and to grow. In addition, 
advocacy is a growing part of the SBA today enabling the agency 
to undertake research and help reduce the paperwork burdens on 
small business by working within the government to see that 
agencies adhere to the paperwork reduction requirements. Mr. 
Lader estimated that this function of the agency benefits 20 
million small businesses.
    Finally, the SBA is helping small businesses and all 
citizens through its disaster relief program. With a portfolio 
of $5 billion and 250,000 people, this service provides 
emergency relief not only to small business, but home owners as 
well. Although Mr. Lader stated his belief that this program is 
very important, he suggested that the disaster loan interest 
rate of four percent should be increased to equal the cost of 
money to the government plus two percent. He gave as the reason 
for this proposed change the high subsidy rate for disaster 
loans--for every $100 that is provided, it costs the taxpayer 
$32.
    Mr. Lader testified that the SBA's programs are very 
important to the United States economy as well as individual 
businesses. With a few cost cutting measures and changes in 
some policies, the SBA will be able to continue to help start-
up and growing small businesses for many more years.

       ``Small Business Owners Perspective on the Small Business 
         Administration''--Washington, D.C., February 16, 1995

    On February 16, 1995, the Committee held a hearing to 
review the Small Business Administration (SBA) and its impact 
on small businesses. Chairman Bond, noted that ``54% of 
America's force is employed by small business, which generates 
50% of the gross domestic product.'' The SBA has been 
instrumental in the continued growth of small businesses, but 
the Chairman believes it is important to review the SBA and 
eliminate the programs that are not working. In addition, it is 
critical to look for new, innovative ways for the SBA to keep 
up with emerging and growing businesses.
    The Committee first heard from two witnesses about their 
experiences with the SBA's 7(a) loan program. Bob Giaimo, 
President and Chief Executive Officer, Silver Diner 
Development, Inc., testified about his experiences with the SBA 
and how SBA-guaranteed loans have been a key element in helping 
him build three successful small businesses: Blimpies, American 
Cafe and Silver Diner. As a college freshman, Mr. Giaimo opened 
his first franchise and the SBA provided him with the 
credibility and stability to start his own business at such a 
young age. Later, he turned to the SBA for help in starting two 
other businesses. Giovanni Coratolo, Owner, Port of Italy, Inc. 
also testified about his experience with the 7(a) loan program 
and the benefits it had on his restaurant business. Mr. 
Coratolo urged the Committee to continue funding for the 7(a) 
loan program.
    Robert C. Varney, Ph.D., Chairman, Greater Washington 
Chapter, Council of Growing Companies, President, Robsan Corp., 
and Past Chairman and Chief Executive Officer, International 
Telesystems Corp., testified that private investment incentives 
are critical for small business growth and development because 
they will provide more capital for entrepreneurs to start and 
expand their businesses. Lewis A. Shattuck, Executive Vice 
President, Barre Granite Association, and member of the Board 
of Trustees, National Small Business United, pointed out that 
over 50% of the nation's employees are employed through small 
business, which he believes is directly related to the SBA and 
its programs. And as Virginia Littlejohn, Past President, 
National Association of Women Business Owners, President, The 
Star Group and Global Strategies, testified, women have become 
a growing force in the world of small businesses. ``They own 
one-third of all the small businesses in the country.'' The 
growth of these women-owned businesses can be attributed to the 
SBA's pre-qualification pilot in which women receive help with 
the loan process.
     The Committee also heard testimony about the need for 
improvement within the SBA and its small business programs. 
James B. Graham, Founder, Faxland Corp., stated that the SBA 
can be effective in assisting small businesses but needs to 
make improvements to its services. Due to the paperwork and 
higher cost than other avenues available to him, he did not 
continue to utilize the SBA loan program. He also stated that 
the 8(a) program focuses on helping only minority employers and 
not the minority employees. Gary Petty, President and Chief 
Executive Officer, National Moving and Storage Association, and 
Chairman of the Board, Small Business Legislative Council, 
testified about his concern with the effects of government-
imposed burdens on small business, and requested that the 
Committee take a cautionary note of lenders passing 
requirements onto high-risk entrepreneurs because their chances 
for success are already slim.

``Entrepreneurship in America: Excessive Governmental Burdens on Small 
         Business''--Albuquerque, New Mexico, February 20, 1995

    This was the first in a series of field hearings held 
during the 104th Congress designed to listen to the concerns of 
small business entrepreneurs from around the country. The 
philosophy behind the ``Entrepreneurship in America'' series 
was to provide smaller entrepreneurs--those who do not normally 
testify at hearings in Washington, D.C.--the opportunity to 
express their concerns and have an impact on Washington 
lawmakers in the environment where they run their businesses.
    This hearing, held by Chairman Bond and Senator Domenici, 
took place in Albuquerque, New Mexico. Citing the importance of 
small businesses to the economy of New Mexico, Senator Domenici 
emphasized that 97% of New Mexico's firms were small businesses 
and that 57% of those firms employed five people or less. 
Senator Domenici also emphasized the negative economic impact 
that excessive governmental regulations have had on small 
businesses in New Mexico, noting that the governmental burden 
per worker for a small business has increased more than a third 
since 1989, corresponding to a drop in average profits for New 
Mexico's small businesses.
    During the hearing, several New Mexico small business 
owners testified that they bear a disproportionate burden in 
complying with comprehensive federal regulations that are often 
designed for large businesses--those that have enough financial 
resources and a large enough labor base to amortize these 
costs. According to the witnesses, many small businesses simply 
do not have the resources to comply with federal regulations 
that have grown both in number and complexity. Chet Lytle, 
President of Communications Diversified Inc., pointed out that 
many regulations are so complex and ambiguous that it is 
difficult to determine what a business must do to comply. He 
added that ``the cost of determining compliance requirements 
diverts funds from job creation and capital investment.'' Greg 
Anesi, Regional Coordinator of the Small Business Advocacy 
Council in northwest New Mexico, agreed and noted that the 
topic most often discussed at council meetings was the 
inability to comply with federal regulations. Regulations have 
become so complex, and in some cases contradictory, that it is 
often necessary to take the costly step of hiring consultants 
to help make sure a business is in compliance. The witnesses 
said that the burden of coming into compliance with such 
regulations can often result in lost time, lower profits, less 
expansion, and fewer new jobs.
    One of the greatest concerns of the witnesses is the 
adversarial attitude of federal regulators. Marlo Martinez of 
Espanola, New Mexico, mentioned that regulatory agencies seemed 
to discourage businesses rather than offer them assistance. 
``There is no spirit of cooperation between regulators and 
small businesses,'' she said. Don Davis of Clovis-Portales, New 
Mexico suggested that ``regulatory agencies should become more 
teacher and coach and less traffic cop and prosecutor.'' Mary 
Garza of Las Cruces, New Mexico, pointed out the need to do 
away with the ``us against them'' mentality between regulators 
and small businesses and bring about cooperation and 
understanding. All of the witnesses favored better 
communication and quarterly updates on new or revised 
regulations. Ms. Garza also suggested that it would be helpful 
if rule changes were not implemented until training and 
education could be accomplished.
    There was a consensus among witnesses that a lack of 
accountability exists on the part of federal regulators, which 
has brought about a situation in which small businesses are 
paying not only for their own mistakes, but for those of the 
regulators as well. Mr. Anesi mentioned that ``there is no 
practical resourse for a bad regulation or a bad regulator.'' 
He said that regulators make mistakes in interpreting and 
writing regulations and the only recourse for these mistakes is 
litigation, which is usually very costly and time consuming. 
Small businesses simply do not have the resources to challenge 
regulators. Mr. Davis conveyed the feelings of many of the 
panelists when he suggested that some form of constant 
oversight is necessary ``to ensure that the original intent of 
the law is being addressed and that the benefit of 
implementation and enforcement is commensurate with the costs 
of the requirements.'' This concern was addressed by a 
provision in the Small Business Regulatory Enforce Fairness Act 
(SBREFA), authored by Senator Bond and enacted into law in 
1996. The provision calls for the establishment of an Ombudsman 
at the U.S. Small Business Administration (SBA) who will 
address complaints and grievances from small business owners.
    A major item of discussion at this hearing focused on the 
lack of any significant role by small businesses at the front 
end of the federal rule-making process and, by extension, the 
resulting lack of a level playing field for small entrepreneurs 
in complying with those rules. As a direct result of this 
hearing, Chairman Bond's SBREFA law was amended to address this 
concern by including a section authored by Senator Domenici, 
establishing small business advocacy review panels composed of 
small business owners who must be consulted before agencies 
such as the Environmental Protection Agency (EPA) and the 
Occupational Safety and Health Administration (OSHA) make new 
regulations that affect small businesses.

``S. 350, Regulatory Flexibility Amendments Act of 1995''--Washington, 
                          D.C., March 8, 1995

    On March 8, 1996, the Committee held a legislative hearing 
on the Regulatory Flexibility Amendments Act of 1995, S. 350, 
introduced by Chairman Bond. The Regulatory Flexibility Act, 
enacted in 1980, was designed to reduce the impact of federal 
regulations on small business. Under the Regulatory Flexibility 
Act, unless a federal agency can certify that a proposed 
regulation will not have a significant impact on a substantial 
number of small entities, it must prepare a regulatory 
flexibility analysis describing the impact and outlining any 
alternatives to the regulation considered during the rulemaking 
process.
    However, the Regulatory Flexibility Act explicitly 
prohibited any judicial review of its requirements. Enforcement 
of the Act was left to the discretion of the Executive Branch. 
As Chairman Bond noted in his opening statement, some Federal 
agencies have chosen to ignore their obligations under the Act. 
S. 350 would amend the Regulatory Flexibility Act to allow for 
judicial review of whether an agency's certification that a 
regulation would not have a significant impact on a substantial 
number of small entities was proper, and whether an agency's 
final regulatory flexibility analysis was in compliance with 
the requirements of the Act. At the hearing, the Committee 
sought testimony from a number of witnesses on the provisions 
of S. 350.
    Jere W. Glover, Chief Counsel, Office of Advocacy, U.S. 
Small Business Administration, testified that the one problem 
most clearly and constantly mentioned by small business is the 
regulatory burden imposed by the state and federal governments. 
In addition, he testified that one solution universally 
mentioned by small business is to improve and strengthen the 
Regulatory Flexibility Act and to provide judicial review. Mr. 
Glover conveyed the Administration's support for judicial 
review of the Act, noting that both the President and the Vice 
President's National Performance Review have supported this 
amendment. Mr. Glover testified that ``the only real opponents 
to judicial review for Regulatory Flexibility Act are the 
general counsels and the regulators. They, of course, do not 
like having anyone interfere with their process, and it is 
always a challenge when we try to resolve those internal 
disputes.'' Finally, Mr. Glover described the memorandum of 
understanding between his office and the Office of Management 
and Budget to work together on compliance with the Regulatory 
Flexibility Act.
    Johnny C. Finch, Assistant Comptroller General, Government 
Division, General Accounting Office (GAO), testified on the 
findings of a April 1994 GAO report, which indicated that 
agencies' compliance with the Regulatory Flexibility Act has 
varied widely from one agency to another. He also testified on 
the findings of a 1992 GAO survey of agency compliance with the 
requirements for periodic review of regulations under section 
610 of the Act. This survey found that three-quarters of the 
agencies surveyed believed that they were not required to 
publish a plan ``because none of their regulations had a 
significant economic impact on a substantial number of small 
entities.'' Mr. Finch noted several reasons for agencies' 
apparent lack of compliance with the Act. First, no one is 
authorized to interpret key statutory provisions for the 
various agencies, nor has any guidance been issued defining 
these key statutory provisions. Second, there is no standard 
criteria for agencies to follow in reviewing their rules. 
Third, no one can compel rulemaking agencies to comply with the 
provisions of the Act. Mr. Finch also noted that OMB's 
authority to review rules to ensure compliance with the Act is 
limited because under current executive orders, OMB cannot 
review rules proposed by independent regulatory agencies. 
Finally, he testified that congressional action is needed to 
clarify statutory authority in these areas.
    The Committee also heard testimony from David Voight, 
Director of the Small Business Center, U.S. Chamber of 
Commerce, Michael O. Roush, Director of Senate Federal 
Government Affairs, National Federation of Independent 
Business, and John S. Satagaj, President, Small Business 
Legislative Council. These witnesses testified in favor of 
granting judicial review of the Regulatory Flexibility Act, and 
in favor of S. 350. Mr. Voight testified that the IRS has taken 
the position that its rules are ``interpretive rules'' exempt 
from the Act, and that the applicability of the Act should be 
expanded to cover IRS interpretative rules. Mr. Roush testified 
on a number of ways to strengthen S. 350, including, broadening 
the standing for judicial review, extending the time to file a 
challenge, and directing courts to stay successfully challenged 
regulations.

   ``Entrepreneurship in America: Final OSHA Logging Regulations''--
                   Kalispell, Montana, March 11, 1995

    This was the second in the Committee's series of 
``Entrepreneurship in America'' field hearings, which were 
designed to assist Congress as it rethinks how best to serve 
small business by obtaining the views and comments of that 
constituency. They were also intended to enable small 
businesses to participate in the legislative process through a 
forum that is more easily accessible than hearings held in 
Washington, D.C.
    Chaired by Senator Conrad Burns, the hearing took place at 
the Outlaw Inn Convention Center in Kalispell, Montana. The 
hearing examined the effects on small business of the 
Occupational Safety and Health Administration's (OSHA) final 
rule on logging, which became effective on February 9, 1995. At 
a time when Congress was considering a moratorium on federal 
rules and regulations, the Committee was particularly 
interested in obtaining testimony from affected parties on the 
logging rule's effect on productivity, worker safety, and 
whether the cost of compliance would affect the profitability 
of the timber industry. As noted by Senator Burns, the timber 
industry ``is the backbone of our economy and I do not want to 
see it bogged down in red tape and unnecessary regulations.''
    Greg Baxter, Deputy Regional Administration, Region 8, and 
Richard Sauger, Senior Safety Specialist, testified on behalf 
of OSHA that a number of specific logging issues were raised in 
the rulemaking process and that OSHA sought extensive public 
comment to provide insight from affected parties. Messrs. 
Baxter and Sauger testified that public comment was received 
and integrated into the rule on such issues as power-saw brake 
requirements to prevent kickbacks, and protective footwear and 
face protection. They also noted that state consultation 
programs are available in all 50 states, which provide free 
safety and health services to small business employers.
    The logging industry representatives provided the Committee 
with specific comments on the logging rule and the burden that 
this regulation would place on their businesses and on 
individual workers. John Hansen, Field Safety Representative, 
Montana Logging Association, testified that OSHA's new rules do 
little to improve on-the-ground safety for loggers in Montana. 
He cited the ``silly, doctor approved safety kits * * * and the 
imaginative chain saw resistant safety boots as examples of 
OSHA's lack of understanding of industry issues.'' 
Additionally, Mr. Hansen stated that his greatest frustration 
was OSHA's ``categorical dismissal'' of many constructive 
suggestions offered by logging and safety officials.
    Following Mr. Hansen, a variety of industry officials, 
small timber owners and workers reiterated their belief that 
the OSHA logging final rule would do little to reduce safety 
concerns, and in some cases, it would even increase safety 
risks inherent in logging operations. Additionally, timber 
industry small business owners testified that the compliance 
costs associated with the new OSHA rule would be burdensome. 
One owner pointed out that he had to pay for his crew to 
receive instruction in blood-borne pathogens even though he was 
informed by health officials that the risk of such pathogens in 
logging operations was ``infinitesimally small.''
    The consensus of the timber management officials and 
logging worker representatives was that the logging industry 
has been extremely safety conscious and has done a good job of 
self policing. The panelists were also critical of the onerous 
OSHA enforcement practices. Industry representatives believe 
that a less confrontational approach, such as providing 
consultation services or warning notices for first time 
offenders, would promote better cooperation between government 
and industry to provide a safe and healthy working environment 
for the logging industry.
    Many of the comments and suggestions raised at this hearing 
were incorporated into the SBREFA legislation, which was signed 
into law on March 29, 1996. Among its many provisions designed 
to assist small businesses, SBREFA will enable small businesses 
to provide their input in the rule-making process and make 
federal agencies such as OSHA more accountable for their 
enforcement practices. Senator Bond also co-sponsored the 
Occupational Safety and Health Reform and Reinvention Act, S. 
1423, which is designed to focus OSHA away from its ``gotcha'' 
enforcement approach to that treats small business owners like 
partners in the regulatory process.

     ``The Small Business Administration's 8(a) Minority Business 
          Development Program--Washington, D.C., April 4, 1995

    On April 4, 1995, the Committee held a hearing to address 
questions concerning the 8(a) set-aside program. In particular, 
the hearing focused on the original intent of the program, 
whether the program is fulfilling its purpose, the presumption 
that members of certain racial and ethnic groups are socially 
disadvantaged, and ways to expand opportunities without 
providing preferences for certain groups of people.
    Chairman Bond opened the hearings with a brief history of 
the 8(a) program. Section 8(a) of the Small Business Act dates 
back to 1953, which until 1967 authorized the SBA to ``let 
Federal procurement contracts to small business.'' In 1967, in 
response to the Kerner Commission report, President Johnson 
substantially revised the program, and Section 8(a) was 
``administratively rewritten to direct Federal procurement 
contracts to minority-owned small businesses. It was in 1978, 
with the adoption of Public Law 95-507, that the 8(a) Minority 
Business Program was transformed from an administrative program 
to a statutory program. Since that time, the 8(a) program has 
grown significantly. According to Philip Lader, SBA 
Administrator, the original purpose was a ``response to a 
historic pattern of exclusion, or under representation in 
business generally, and certainly * * * in Federal 
procurement.'' However, he added, ``Of the 5400 currently 
certified firms, only about half of them have actually been 
getting contracts. Our job is not to guarantee work * * * but 
is to allow them to have this extra threshold.''
    Other witnesses, such as Judy A. England-Joseph, Director, 
Housing and Community Development Issues, Resources, Community, 
and Economic Development Division, U.S. General Accounting 
Office, pointed out the weaknesses in the program, which she 
stated ``are preventing some firms from obtaining experience 
essential to their development.'' She noted that ``while SBA 
has approved business plans for most firms, it has not given 
that same attention to annually reviewing these plans to ensure 
that they accurately reflect the firms' development goals and 
contract needs.'' She also added that many firms are still 
dependent on the 8(a) program after their 9 year participation 
limit is reached, causing hardship for the firms in the 
competitive marketplace. Peter Homer, Jr., Co-founder and 
Member, National Indian Business Association, agreed and 
suggested dropping ``unnecessary regulatory limitations on 
self-marketing by 8(a) firms * * *. 8(a) firms * * * should be 
permitted to compete on a national level at all times.''
    Mr. Lader provided the Committee with some statistics 
supporting the success of the 8(a) program. The average net 
worth of participants entering the program is $54,000. He said 
that ``Black Enterprise Magazine, in identifying the 100 top 
African-American owned businesses, found that 32 of them were 
or are participants in the 8(a) program.'' Mr. Lader claimed 
that ``9(a) today is not a Government handout * * * but it 
means by which qualified businesses have produced goods and 
services that have met or exceeded the market standards and 
agency needs.'' However, Joshua L. Smith, Former Chairman, U.S. 
Commission on Minority Business Development, disagreed with Mr. 
Lader's measure of success, noting that ``minority business 
programs in general, have to do with socioeconomic programs. 
But in reality, socioeconomic programs are neither social nor 
economic. Therefore, the measures of success are totally 
lacking.''
    ``I feel very strongly that one succeeds through hard work 
and commitment,'' said Santos Garza, Chairman of the Board and 
CEO, Counter Technology Inc., who admittedly benefited from 
affirmative action and minority economic development programs. 
Cassandra Pulley, Deputy Administrator, SBA, said that there 
had been an effort to include minority firms in other programs, 
but primarily they are participating in 8(a). ``Without 8(a) 
surely that commitment [of helping minority firms] would 
continue, but it would be a significant drop and a significant 
loss to the minority business community without the access to 
Government contracting and the procurement opportunities.'' 
Nancy E. Archuleta, Chairman and CEO, MEVATEC Corporation, and 
Chairman, Latin American Management Association, said, ``the 
Council does not believe that past and current discrimination 
have been overlooked and that some form or preference is still 
needed. Therefore, we proposed * * * streamlining the 8(a) 
program and creating additional opportunities for small and 
minority owned business.''
    Other witnesses testified that special considerations for 
businesses based on the ethnicity of the business owners does 
more harm than good. According to James B. Graham, Founder, 
Faxland Corp., ``the 8(a) program penalizes groups it is 
designed to help. Employees who would have qualified for 
special contract set asides had they owned the businesses lost 
commissions, pay, and benefits because they worked for my 
company.'' Arnold J. O'Donnell, Member, Associated General 
Contractors of America, and Vice President, O'Donnell 
Construction Company, added his belief that ``it is 
fundamentally unreasonable to put race as a prime criteria as 
to whom can do business with a government organization, and * * 
* it just gets worse following that premise. [It] takes away 
low bid and quality of work.''
    When asked whether opportunities can be expanded without 
providing preferences, Ms. Archuletta said the ``answer it 
there should be more of a total Federal procurement dollar to 
all small businesses, therefore eliminating the need for us to 
fight between 24 percent to a mere 2.7 percent of the dollars 
that 8(a) companies get.'' R. Noel Longuemare, Principal Deputy 
Under Secretary of Defense for Acquisitions and Technology, 
U.S. Department of Defense, testified that the Defense 
Department's experience has been that ``if the socially 
disadvantaged standard is deleted or significantly broadened, 
the program will be so substantially changed as to eliminate 
the very reason for 8(a).'' According to James Graham, ``the 
premise that small businesses need Federal help to compete in 
the free market is false. It stems apparently from the belief 
that big business has some insurmountable advantage based on 
economic resources, when in fact the opposite is true. Our 
small business thrived on competing with the giants because the 
burden of bureaucracy inflated their cost of doing business.''

 ``Entrepreneurship in America: Reducing Governmental Burdens on Small 
           Business''--Kansas City, Missouri, April 12, 1995

    This was the third in a series of ``Entrepreneurship in 
America'' field hearings held during the 104th Congress. The 
purpose of the field hearings was to obtain the views and 
comments of small business owners in order to guide Congress as 
it rethinks how government can best serve small businesses. The 
hearings allowed small business owners to express their 
concerns about the state of small business in a forum more 
easily accessible to them than Washington, D.C.
    The hearing, chaired by Senator Bond, took place in Kansas 
City, Missouri, at the University of Missouri at Kansas City. 
Chairman bond emphasized that ``the burden of government 
regulation falls most heavily on small businesses, so the Small 
Business Committee's work will focus on reducing these 
burdens.''
    Many of the panelists shared Chairman Bond's concerns about 
the burdens of over-regulation. Shirley J. Potts, President of 
DLT Transportation Services, pointed out that ``each additional 
regulation imposes burdensome compliance issues, reporting 
costs and fear to small businesses * * * there is a fear that 
one mistake can mean substantial costs, maybe even the cost of 
our business and all the jobs that go with it.'' According to 
Ms. Potts, excessive and overly complex regulations produce 
significant expenses and delays, and inhibit growth. Many small 
businesses do not have the resources to handle these obstacles 
that are often designed to regulate larger businesses. Ms. 
Potts suggested federal agencies could provide education, 
counseling assistance, and no fault audits to ease the burdens 
on small businesses, and help them comply with regulations.
    The exorbitant amount of federal regulations was the major 
topic of discussion at the hearing. All of the panelists 
participating in the discussions were overwhelmed with the 
amount of paper work required to keep a business in compliance. 
Leon Hubbard of Blue Springs, Missouri, noted that the 
substantial amount of paper work, which is often unnecessary, 
requires him to either hire extra help or spend more personal 
time filling out paper work.
    Robert Wheeler of Kansas City pointed out that big 
businesses can devote highly trained and specialized staff cost 
effectively to dealing with federal agencies and regulations. 
Many small businesses simply do not have the resources to 
absorb the costs of hiring this type of help, which impedes the 
smaller firm's ability to compete with the larger companies. 
Mr. Wheeler also pointed out that there is an unequal balance 
of power between federal regulators and small business owners. 
If a small business owner has a grievance with a federal 
regulator or a ruling by a federal regulator, his only redress 
is through the judicial system--never an inexpensive endeavor.
    Many of the concerns raised at this hearing were 
incorporated into Chairman Bond's SBREFA legislation, which 
became law on March 29, 1996. Among its many provisions, the 
new law allows for judicial enforcement of the 1980 Regulatory 
Flexibility Act, requiring federal agencies to consider ways to 
reduce any significant economic impact of new regulations on 
small businesses and local governments. SBREFA also requires 
federal agencies to provide plainly written guides for 
regulatory compliance. These ``Plain English'' guides for 
compliance are designed to reduce the need for hiring experts 
to ensure that a small business is in regulatory compliance. In 
addition, the new law establishes an Ombudsman at the Small 
Business Administration who will counsel small businesses on 
compliance issues and receive confidential complaints and 
comments from small businesses about their dealings with 
federal regulators. Regional citizen review boards will ``rate 
the regulators'' based on these comments and publish a report 
card for each agency.

``Entrepreneurship in America: Focus on Capital Formation''--St. Louis, 
                        Missouri, April 12, 1995

    This was the forth in a series of field hearings held 
during the 104th Congress designed to give entrepreneurs, who 
are unable to testify in Washington, the chance to be heard. 
The hearing on small businesses access to capital was chaired 
by Senator Bond in St. Louis, Missouri.
    As Chairman Bond stated, ``[small businesses] employ 54 
percent of the American work force. They generate some 50 
percent of the gross domestic product. Over the past decade, 
for every person laid off by large corporations in this 
country, five new jobs will be created by small business. These 
new and growing small businesses need ready sources of capital 
to grow, to hire new employees, to continue to fuel our 
economic growth.'' The SBA has several loan programs that it 
employs to assist small businesses in their search for ready 
capital, including the 7(a) program, 8(a) program, and the 
Small Business Investment Company (SBIC) program.
    Each of the witnesses testified about a particular SBA 
program designed to assist entrepreneurs with obtaining capital 
and operating a successful business. James F. O'Donnell, 
Chairman, Capital for Business, Inc., testified specifically 
about the SBIC program, and its impact on small business. Mr. 
O'Donnell pointed out that the demand for SBIC loans outpaces 
the ability to provide such loans under the current budget 
appropriation for the program. He expressed his optimism that 
eventually there can and should be less government funding and 
a privitization of the program while still providing investment 
capital through this important program.
    William M. Zielonko, Senior Vice President of Retail 
Banking, Boatmen's National Bank of St. Louis, testified that 
his bank deals with every type of SBA loan and believes that 
they are very beneficial to the small business entrepreneur. He 
cautioned, however, that the paperwork process needs to be 
streamlined. Mr. Zielonko stressed that, ``We know how to 
deliver loans, and we find that excessive paperwork strangles 
this efficiency. Banks are forced to spend unnecessary 
resources on SBA paperwork, and small business owners wait an 
unnecessarily long time because of the requirements.''
    Dennis G. Coleman, Executive Director, Economic Council of 
St. Louis County, a not-for-profit economic development agency, 
urged the Committee to continue SBA's 504 Program, and he 
emphasized the benefits it has brought to the St. Louis 
community with little outlay from the federal government. He 
also testified that Small Business Development Centers (SBDCs) 
are integral to the expansion of entrepreneurship, but that 
they should institute a service charge or fee schedule under 
which participating companies match the dollars put up by the 
centers. Tess Greenspan, President, Sappington Farmer's Market, 
testified that without the Small Business Development Center in 
St. Louis, she would not be a successful small businessperson 
today. She pointed to an impact study that stated, ``for every 
federal dollar invested in the program over $7 in increased tax 
revenues are generated,'' which is not to mention the jobs that 
are produced from a start-up business. Entrepreneurs turn to 
the SBDCs as a valuable source of information, especially with 
regard to the requirements imposed by the federal government, 
and many businesses rely on the SBDCs to advise them on 
business strategy.
    Virginia Kirkpatrick, Owner, CVK Personnel Management and 
Training Specialists, testified about how the SBA and its 
LowDoc programs have helped the people in her community by 
making it possible for smaller banks to offer loans. As she 
stated, ``Small businesses were creating jobs when large 
companies were laying them off. I believe seriously that 
without programs like the 504, 7(a), the LowDoc program, the 
women's business loans, that many banks would not make those 
loans.'' Robert Cimasi, President and Founder, Health Capital 
Consultants gives credit to SBA programs for continued job 
creation in service industries. He testified that ``As hospital 
consolidations and mergers force lay-offs and significant 
reductions in the number of service jobs, the importance of new 
start-up businesses and the expansion of established health 
care service sector businesses become all the more important to 
pick up the slack in employment. The capital formation needs of 
these small service businesses are not likely to be met through 
private sector commercial lending sources or other sources 
related to the venture capital and equity markets. It is in 
this area and for these reasons that the loan guarantee 
programs of the Small Business Administration are most vitally 
needed and must continue.''
    The opinion shared by Professor Murray Weidenbaum, 
Director, Center for the Study of American Business at 
Washington University, and Robert Brochaus, Ph.D., Coleman 
Foundation Chairholder in Entrepreneurship, and Director of 
Jefferson Smurfit Center for Entrepreneurial Studies, St. Louis 
University, is that there are two main problems that small 
businesses face: high taxation and regulation. If both of these 
were reduced government-wide, small business would benefit more 
from SBA's programs. They also stressed that these programs 
should not have their funding reduced due to their expanding 
benefits to the economy.
    A number of the concerns raised by the witnesses at this 
hearing about the SBA and its programs were incorporated into 
the Small Business Lending Enhancement Act, S. 895, which 
Chairman Bond introduced in the First Session of the 104th 
Congress. This legislation, which was signed into law on 
October 13, 1995, made significant improvements to the 7(a) 
program and substantially decreased the program's subsidy rate. 
In addition, Chairman Bond and Senator Bumpers offered a 
substitute amendment in 1996 to the Small Business Programs 
Improvement Act of 1996, H.R. 3719, which included other 
suggestions of the panelists. In particular, the legislation 
restored the 504 loan program to being a self-funding program 
and overhauled the SBIC program to expand the availability of 
this investment program while limiting the risk to loss to the 
federal government. This legislation was signed into law on 
September 30, 1996.

     ``Entrepreneurship in America: Federal Government Burdens on 
        Agribusiness''--Cape Girardeau, Missouri, April 13, 1995

    This was the fifth in a series of ``Entrepreneurship in 
America'' field hearings held during the 104th Congress. The 
purpose of the hearings was to obtain the views and comments of 
small business owners and to guide Congress as it rethinks how 
government can best serve small businesses. The hearings 
allowed small business owners to express their concerns about 
the state of small business in a forum more easily accessible 
to them than Washington, D.C. As the late Missouri Congressman 
Bill Emerson pointed out, ``these hearings are an excellent 
opportunity for people to be in touch with their lawmakers and 
to share their thoughts and concerns.''
    The hearing focused on two major items of concern to small 
businesses: capital-gains tax relief and over regulation by 
federal agencies. According to Ronald C. Milbach, President and 
CEO of the Production credit Association and Federal Land Bank 
Association of Southeast Missouri, ``I think it [a capital 
gains tax cut] would have a very positive effect on 
agriculture. Currently, a large amount of land is held by 
retired farmers who would like to sell, but because of the high 
tax burden they face, they're probably not going to sell it.'' 
Mr. Milbach said that a capital-gains tax break would benefit 
more than just the property owners. ``Another factor I think we 
would see is the economic impact which would be dramatic from 
the standpoint that the title insurance companies would be 
selling a lot more title insurance, appraisers would be busy 
doing more appraisals, real estate agents selling, and 
certainly as a lender I would be in a position to want to hire 
new employees, new loan officers. And at the same time, our 
agribusiness people that do land grading, those that sell 
irrigation equipment, would be in a position to have new sales 
opportunities. So I think it would have a dramatic effect on 
our economic development in rural America,'' Mr. Milbach said. 
As a direct result of the concerns raised by Mr. Milbach and 
others, Chairman Bond co-sponsored the Capital Formation Act of 
1995 introduced by Senators Hatch and Senator Bieberman, which 
would cut the capital gains tax by 50%. The legislation passed 
in both houses of Congress, but was eventually vetoed by 
President Clinton.
    The concerns over regulations have increased with the 
escalating intrusion of federal regulations into property 
owners' land use decisions. Peter C. Myers Sr., former Deputy 
Secretary of Agriculture for the U.S. Department of Agriculture 
testified that ``EPA regulations involving wetlands, air 
pollution and water quality, both surface and ground water, are 
best left to USDA to provide landowners technical assistance 
and advice, but not regulation by either agency.'' The general 
consensus among the panelists was that local commissions are 
better suited to make such decisions than federal regulators. 
Mr. Myers also stated, ``If allowed to operate on the better 
acres in our country without excessive federal regulations, 
U.S. farmers can continue to produce more crops per acre and 
thus will be able to continue as viable agricultural 
operations.
    During the hearing, Danny Terry, Chairman of the Department 
of Agriculture at Southeast Missouri State University, 
testified that ``small businesses represent the foundation of 
agribusiness * * * assuming a level playing field, the 
efficiency of American agribusiness currently has no rival.'' 
Dr. Terry went on to add that ``cumbersome and excessive 
regulations significantly and adversely tilt this playing 
field.'' He suggested that a common sense cost/benefit approach 
would benefit both small businesses and regulatory agencies, 
making them both more streamlined and efficient. Ed Barnhill of 
Charleston, Missouri, suggested that one way to help small 
businesses become more efficient would be to reduce the amount 
of paper work required by federal agencies. ``The days when you 
could concentrate on buying and selling your products and 
servicing your customers now seems to be overshadowed by that 
paperwork,'' Mr. Barnhill said.
    The Paperwork Reduction Act (PRA) of 1995 directly 
addressed Mr. Barnhill's concerns by requiring federal agencies 
to reduce the paperwork burden created by regulations over the 
next few years. Chairman Bond, who strongly supported this 
legislation, held a hearing on agency compliance with the PRA 
in 1996, Many of the other concerns raised at this hearing were 
addressed in Chairman Bond's SBREFA law, which assists small 
business owners by providing them with input in the rule-making 
process and making federal agencies such as OSHA and EPA more 
accountable for their enforcement practices. Chairman Bond also 
co-sponsored the Occupational Safety and Health Reform and 
Reinvention Act, S. 1423, a measure designed to focus OSHA away 
from its ``gotcha'' enforcement approach to one that treats 
small business owners like partners in the regulatory process.

``Entrepreneurship in America: Loosening the Government Noose on Small 
             Business''--Memphis, Tennessee, April 13, 1995

    This was the sixth in a series of field hearings held 
during the 104th Congress designed to listen to the concerns of 
small business entrepreneurs from around the country. The 
philosophy behind the ``Entrepreneurship in America'' hearings 
series was to seek the views and comments of entrepreneurs from 
across the nation to guide Congress as it rethinks how 
government can best serve America's small businesses.
    Led by Chairman Bond and Senator Frist, this hearing took 
place in Memphis, Tennessee. Citing the importance of small 
businesses in the United States, Senator Frist said ``the 
American small business community ranks as the world's third 
largest economic power, behind only Japan.'' Senator Frist also 
emphasized the problem Tennessee entrepreneurs are having with 
excessive government regulations. He stressed their concern 
that federal agencies are strangling them with red tape and 
that they need relief in order to produce more economic growth 
and new jobs.
    Jack Faris, President of National Federation of Independent 
Business (NFIB), testified that there are three main things 
that need to be changed: frivolous lawsuits, regulatory relief, 
and cutting taxes while reducing spending. He later testified 
that the initials NFIB members do not like are ``IRS * * * by 
far number one. Number two, OSHA. Number three, EPA.'' 
According to Mr. Faris, who's organization is the nation's 
largest small business advocacy organization, government needs 
to get out of the small business owner's way, so he or she can 
do business and generate new jobs and new revenue for the 
government by expanding the tax base.
    Arlene Goodman, Chair of the Tennessee Delegation to the 
White House Conference on Small Business and former owner of 
Nashville KOA Campground, told the Committee of her experience 
with government regulations; ``As I looked around the mobile 
home and counted the massive files, the computers, the stacks 
of paperwork, I realized I was finally really working for the 
government. I no longer felt self-employed. The large majority 
of information in that mobile home was paperwork, * * * files, 
rules, and regulations that my silent partner [the government] 
required of me.''
    Ron Pickert, Chairman and Chief Executive Officer of 
Sofamor Danek Group, Inc., a medical device development and 
manufacturing company, expressed concern over FDA's regulatory 
ability. ``The FDA controls virtually every aspect of our 
operation. This includes expansive authority over the 
manufacturing, labeling, promotion, and marketing aspects,'' he 
said. Due to the FDA regulations on exports, in 1993 Sofamore 
Danek had to merge with a French company in order to remain 
globally viable.
    Another issue of concern was ``leveling the playing field'' 
for competition between small businesses and large companies, 
as well as easing the burdens of starting new businesses. 
Patrick Carter stated that the problem in starting a business 
is capital and trying to get a loan. After the business is 
started, the problems are taxes, Workman's Compensation, and 
the lack of a level playing field for competition. Added to the 
everyday costs of running a business, according to David 
Hagedorn, General Manager, Frank A. Conkling Co., are costs 
``imposed by the federal and local governments upon businesses 
in the name of health, safety, environment, Workman's Comp, and 
other regulations.'' Ronald L. Coleman, President, Competition 
Cams, Inc., said that small business owners, who are faced with 
the vague and complicated regulations, try in good faith to 
comply with them and end up making mistakes and spending 
significant amounts of time and money as a result.
    Many of the concerns raised at this hearing were 
incorporated into Chairman Bond's SBREFA law, leveling the 
regulatory playing field for small business owners by providing 
them with input in the rule-making process and making federal 
agencies such as OSHA and EPA more accountable for their 
enforcement practices. In addition, Chairman Bond introduced 
and Congress passed his Substitute Amendment to the 1996 Small 
Business Programs Improvement Act, resulting in the expansion 
of SBA loan programs for FY 1997. Chairman Bond also 
cosponsored the Occupational Safety and Health Reform and 
Reinvention Act, S. 1423, a measure designed to focus OSHA away 
from its ``gotcha'' enforcement approach to one that treats 
small business owners like partners in the regulatory process.

``The Small Business Administration's 7(a) Business Loan Program''--May 
                                18, 1995

    On May 18, 1995, the Committee held a hearing on the need 
for building a strong foundation under the 7(a) program and to 
set the stage for designing a sensible and affordable program 
to meet long-term demand for small business financing.
    The 7(a) loan program is the most popular and effective 
program of the Small Business Administration (SBA). The program 
assists small businesses and entrepreneurs in obtaining long-
term business loans that would otherwise not be available on 
reasonable terms from banks and other lenders. According to 
Philip Lader, Administrator, SBA, the 7(a) program is ``a 
splendid example of a public-private partnership that truly is 
working.'' He presented statistics indicating that 
approximately 60,000 loans are made each year, the average loan 
being $139,000. The program guarantees up to 75% of a $500,000 
loan. Anywhere from $26 million to $34 million in loans are 
made each day. Mr. Lader cited three guiding principles for 
this program. The first is ``growth of small business financing 
through a zero-subsidy that provides some administrative 
flexibility and increased preferred lender participation.'' 
Second, ``there be incentives for small loans in under served 
areas. * * *'' Finally, an ``assurance of continued 
profitability for our partners * * * so that they continue to 
be active in this program and there is a fair distribution of 
costs between the lenders and the borrowers.''
    Two witnesses addressed the problem of loan services in the 
7(a) program. Joe Scallorns, President, Farmers and Traders 
Bank, recommended the ``elimination of all [SBA] regional 
offices and substantial reduction in the [SBA] central office. 
The field offices who deliver the product could be enhanced by 
using only part of the savings from * * * the cutbacks.'' Gary 
Hoyer, President and Principal, Princeton Capital Finance 
Company, LLC, suggested that to improve the program, the 7(a) 
loan originations should increase and thus develop a viable 
secondary market ``resulting in greater efficiencies for small 
business borrowers, small business lenders, and the 
Government.''
    To take some of the pressure off the 7(a) program, the SBA 
created the Low Documentation (LowDoc) loan program. Mr. Lader 
testified that LowDoc is a pilot program because none of the 
loans are three years old and therefore cannot be considered 
``seasoned.'' However, despite LowDoc being a pilot program, 
the government is guaranteeing the loans at 90%. Lyle 
Fredrickson, Manager, Government Loan Center, Bank One N.A., 
expressed concern that many of these loans are going to start-
up companies; therefore, the SBA needs to ``look at a credit 
scoring system to be applied to LowDoc as a means of helping 
SBA underwrite and monitor those loans.'' Though the loans are 
not seasoned and most of the capital goes to start-up 
companies, LowDoc currently appears to be successful. According 
to Mr. Lader, as a result of ``the LowDoc program, with more 
responsibility to the lenders, less documentation and review by 
the SBA, we currently have a healthier portfolio of LowDoc 
Loans than the overall portfolio.''
    The biggest issue addressed at the hearing and of most 
concern to the witnesses was the question of a zero subsidy 
rate and fees for loans. Currently the SBA has a ``savings 
account'' funded by the taxpayers to protect against bad loans. 
Mr. Lader recommended instead of taxpayers funding the losses, 
there should be a fee for borrowers and lenders, so that as the 
demand for loans increases, ``the amount paid by the borrowers 
and the lenders to that reserve would increase.'' Michael 
Gallagher, Manager of Government Loan Programs, Business 
Banking Group, Wells Fargo Bank, agreed with the concept of 
zero subsidy, but warned ``it should be done so as to 
encourage, not displace, private unguaranteed lending programs 
and the growth of private unguaranteed secondary markets.'' He 
also suggested that the SBA could also be ``self funding by 
becoming the monopoly buyer of 7(a) loans and instituting a fee 
structure for sellers and keepers of loans. * * *''
    Other witnesses testified that a zero subsidy rate would be 
a bad idea for the 7(a) program. John J. Canning, President and 
Chief Operating Officer, AT&T Small Business Lending 
Corporation, and Strategic Business Leader, AT&T Capital 
Corporation, testified that as a result of the ``SBA propos[al] 
[of] several fees and charges * * * the maximum incremental 
rate over the prime rate for a 7(a) loan would increase from 
12.75 percent to 3.25 percent, an 18 percent increase.'' Mr. 
Scallorns warned that ``if you raise the lender's cost of 
making a loan and raise the borrower's cost of getting a loan, 
then it is going to be more difficult for small business to get 
the capital it needs.'' He made the further point that once the 
subsidy is reduced to zero, there will be pressure in 
subsequent years to ``raise fees and further decrease the 
return to lenders and further increase the fees to borrowers so 
that less overall capital will be available.''
    As a result of this hearing, Congress passed the Bond-
Bumpers Substitute Amendment to H.R. 3719, which increased 
funding to the 7(a) program and provided a number of reforms to 
strengthen the program.

 ``The Small Business Investment Company Program''--Washington, D.C., 
                             July 13, 1995

    On July 13, 1995, the Committee held a hearing to examine 
the Small Business Investment Company (SBIC) program. The main 
focus of the hearing was how to reform and improve the SBIC 
program to enable it to assist more small businesses and 
entrepreneurs.
    Small businesses are an essential part of the U.S. economy. 
They employ more than half of the domestic labor force and 
produce nearly half of the gross domestic product. Small 
businesses are responsible for a significant amount of the job 
growth over the past two decades, while larger corporations 
have generally been downsizing over that period of time. The 
SBIC program is important because it provides the necessary 
capital to promote the development and growth of small 
businesses.
    During the hearing several witnesses testified about the 
importance of the SBIC program. Small businesses are 
incessantly faced with difficulty in obtaining long-term 
capital necessary for development. Commercial banks usually do 
not provide the necessary financing and private venture capital 
funds are often extremely selective with their investments. 
SBICs create another, much needed option for small business 
entrepreneurs.
    Patricia M. Cloherty, Chairman of the SBIC Re-invention 
Council and President of Patricof & Co. Ventures, Inc., stated 
that ``the SBIC program uniquely provides both permanent equity 
capital and long-term debt capital to small enterprises when 
they need them both.'' SBICs tend to invest in smaller more 
diverse enterprises when compared with the private venture 
capital industry. Cassandra Pulley, Deputy Administrator, Small 
Business Administration (SBA), noted that Specialized Small 
Business Investment Companies (SSBICs) go even further. 
``SSBICs, by definition, serve under served markets by 
investing only in companies owned by persons who are socially 
or economically disadvantaged.''
    Many challenges face the SBIC program, especially the need 
to increase and stabilize the availability of equity capital 
and long-term debt financing. Many of the panelists suggested 
that stabilizing government funding either by appropriation, 
tax incentives, or privatization would be a good way to address 
this need. Ms. Pulley agreed with the SBIC Re-invention 
Council's recommendations for SBIC programs, which include: 
eliminating the need for appropriations by making the program 
self funding; providing stable, predictable funding that can 
grow to meet the needs of small businesses for equity and long-
term debt; and improving administration of the program to 
reduce its risk and improve service.
    The Committee also heard testimony suggesting a long-term 
strategy of ``a new off-budget government sponsored enterprise 
(GSE)'' to privatize the SBIC program. This plan calls for: a 
privately-owned GSE with SBIC licensees owning the voting 
common stock; a GSE controlled by a Board of Directors; and 
mandatory Board representation by former SSBICs, and smaller 
entrepreneurial focused SBIC licensees.
    The SBIC program has provided a great service to small 
businesses in its 37 year history. William F. Dunbar, of the 
National Association of Small Business Investment Companies, 
said, ``today's SBICs are better managed and better 
capitalized. They operate in a more reasonable regulatory 
environment and are successfully filling the needs of small 
business. Most importantly, today's SBICs are committed to 
invest in and work with America's small growth companies to 
help them now and well into the future.''

 ``Entrepreneurship in America: Overview of SBA Programs in Alaska''--
                   Anchorage, Alaska, August 16, 1995

    This was the first of two ``Entrepreneurship in America'' 
hearings held in Alaska during the 104th Congress. These 
hearings were designed to give small business entrepreneurs 
from around the country, who are not able to testify at 
hearings in Washington, D.C., the opportunity to express their 
concerns and have an effect on Washington lawmakers.
    The hearing, chaired by Senator Bond, took place in 
Anchorage, Alaska, at the invitation of Alaska Senator, Ted 
Stevens. According to Jan Fredericks, State Director of the 
University of Alaska Small Business Development Center, 99% of 
the businesses in Alaska are small businesses, with 65% 
employing one to four people. Many of these businesses are 
located in remote areas that are many miles from banking 
facilities and depend on SBA guaranteed loans. Also, many 
Alaskan small business owners qualify as Alaska Native Claims 
Settlement Act (ANCSA) corporations under the SBA's 8(a) 
program. According to Julie Kitka, President, Alaska Federation 
of Natives, Inc., the people of the remote villages are 
dependent upon welfare and other forms of public support for 
survival, and with the combination of a population boom and a 
lack of resources to draw large corporations, it is important 
for the SBA to work with the State of Alaska to create ``small 
enterprise development, producing local employment and 
income.''
    During the hearing, several Alaskan small business owners 
testified that the SBA loan application process is not 
conducive to small businesses. They suggested that the 
applications be processed locally, rather than in Washington, 
D.C. or at the regional field office headquartered in Seattle, 
Washington. This would reduce the amount of processing time and 
the confusion in processing the application, particularly for 
those businesses that fall under the 8(a) program. Trefon 
Agasan, Board Member, Alaska Federation of natives, Inc., 
testified that ``local administration of the [8(a)] program 
works very smoothly * * * and should be expanded. It would also 
enhance the ability of the 8(a) program to fulfill its mission 
* * * as a very important tool to help Alaska natives 
participate meaningfully in the private sector.'' Mr. Agasan 
was accompanied by Mike Carter, whose application for a waiver 
for his construction company was slowed down due to the 
confusion that resulted from processing the waiver at a distant 
SBA field office. Mr. Carter said that his company was going to 
miss a major construction season because of that confusion, 
resulting in a major financial impact on his business. Mr. 
Carter stated, ``had the people been sitting here and we'd been 
dealing with them one on one I think they would have thought it 
made sense.''
    Like all states, in order for Alaska to continue to develop 
its economic base, it needs capital. According to Marc 
Langland, President, Northrim Bank in Anchorage, ``As a state 
with a young economic base and an enormous geographic area, a 
relatively small population and only a handful of large 
communities, we have been constrained by a lack of capital over 
the last three decades.'' Except for large oil companies, 
Alaska's economic base is comprised of small businesses, which 
must compete with each other and larger markets to obtain 
capital for business start-ups and expansion. ``By lowering 
overall credit risks and providing longer-term lending-options 
to borrowers, the SBA has enabled banks to make more loans, put 
more loan dollars into Alaska communities, and provide greater 
depth in financing to specific business sectors than otherwise 
would have been impossible for us to do,'' Mr. Langland said. 
Statistics provided at the hearing by Frank D. Cox, District, 
SBA Anchorage District Office, lent numerical proof to Mr. 
Langland's statement. ``In the past 13 years, the SBA has 
approved 3,014 business loans and loan guarantees totaling over 
$622 million. The current portfolio is approximately 1,800 
loans with a total value of $200 million.
    An important item of discussion at this hearing focused on 
the need for the SBA to promote education and counseling to 
entrepreneurs through Small Business Development Centers for 
solving problems, rather than consultants who identify problems 
but do not offer any solutions. Many small business owners want 
to expand their businesses, but have no knowledge of what 
programs and aid is available to help them accomplish that 
goal.
    The burden of government regulations on small businesses 
was also discussed. Dr. Joyce M. Murphy, D.V.M., emphasized 
that ``we are still dealing with a burdensome and onerous 
regulatory process * * * OSHA is killing us.'' She gave an 
example of fire extinguishers in her clinic: ``If I were to 
follow the OSHA regulations for the fire extinguishers in my 
practice, I will be opposed to my local fire code for the fire 
extinguishers they want me to use. I am going to get fined if 
OSHA walks in; I am going to get fined if my fire chief walks 
in. As a small business person, I don't have the time or money 
to fool around with this kind of stupidity.'' According to 
Pamela L. Marsch, Chief Executive Officer, Enterprise Brokers, 
and President, Electronic Solutions, who served as a tax chair 
for the 1995 White House Conference on Small Business, the IRS 
needs to be downsized and gave several suggestions for 
modifying the tax code including capital-gains tax modification 
``to encourage reinvestment in small business; and * * * no 
retroactive taxation.''
    As a result of this hearing and others, Chairman Bond 
introduced the Bond-Bumpers Substitute Amendment to the Small 
Business Programs Reauthorization Act, requesting 
reauthorization and additional funding for SBA programs such as 
the Small Business Development Centers and the 7(a) loan 
program. In the regulatory arena, he authored and Congress 
passed the Small Business Regulatory Enforcement Fairness Act 
of 1996 (SBREFA) to reduce the regulatory burdens on small 
businesses, and he co-sponsored the Occupational Safety and 
Health Reform and Reinvention Act, S. 1423.

 ``Entrepreneurship in America: Alaska's Small Business Environment''--
                   Ketchikan, Alaska, August 17, 1995

    This was the second of two hearings in Alaska that were 
part of the Committee's ``Entrepreneurship in America'' series 
of hearings. The philosophy behind these hearings is to give 
entrepreneurs who would not normally testify in Washington, 
D.C. a chance to express their opinions and concerns in their 
local business environment.
    Chaired by Senator Bond, this hearing took place in 
Ketchikan, Alaska, at the invitation of Alaska Senator, Frank 
Murkowski. Senator Murkowski emphasized the importance of small 
business to the Alaska economy: ``small business development * 
* * in Alaska is really what Alaska is all about. We have no 
resident accumulation of capital. Our capital input is 
dependent on individuals looking at opportunities in Alaska, 
not necessarily for markets, but for resource development.''
    The main issue raised by the witnesses at this hearing was 
the problem of government regulations negatively affecting 
small businesses. Meredith Marshall best summed up the feelings 
of many entrepreneurs throughout the country when she asked 
that the Senators ``restrict the power of regulators. Make them 
hold to a standard of common sense and cost-effectiveness.'' 
The problems stated most often were the tax code and IRS' 
method of auditing, OSHA standards, required employer-paid 
health care insurance, and EPA regulations.
    Scott Milner, CPA, said that an interpretation by the IRS 
on capital construction fund (CCF) contributions and Social 
Security taxes is unfair to the self-employed shipping vessel 
operators in Alaska and that ``owners who establish CCFs pay 
double Social Security tax on the money earned that is 
contributed to CCFs.'' Another problem he presented was 
government employees who can deduct high-cost-of-living 
expenses from their taxes while those who work in the private 
sector, making the same salary, have to pay taxes on all of 
their salary. Steve Seley, Jr. of Seley Corporation, runs a 
sawmill and said, ``we have OSHA problems where OSHA has come 
to our facility. We ask regularly for voluntary compliance 
checks. They give us a list of where we are out of compliance 
and then fine us anyway.'' Despite the voluntary check, he 
still has been given a fine of approximately $7,500. With 
regard to health insurance, Ernesta Ballard, Ballard & 
Associates, stated that ``small business is competitively 
challenged in this area. Health insurance is generally inferior 
in scope, higher in price, much harder to come by, and easier 
to lose for small businesses. And, in addition, the costs for 
owners are not deductible [unlike that of large 
corporations].''
    Reexamination of environmental regulation was proposed by 
Don Thornlow, President, Communications Unlimited, Inc., who 
stated in his written testimony that there needs to be a 
``complete review of laws and regulations * * * such as the 
Clean Water Act, Clean Air Act, Endangered Species Act, and 
National Environmental Policy Act.'' He also mentioned the 
problem of government seizure of property caused by 
environmental regulations, specifically in regards to wetlands. 
He recommended that federal policy be revised regarding the 
effect of regulations on private property and recommended that 
EPA review its unrealistic penalty assessments and utilize risk 
assessment and cost-benefit analysis in land decisions.
    Another concern expressed at that hearing was the need for 
more funding for SBA loan programs and making the application 
process more efficient. Jerry Scudero, President, Taquan Air 
Service, Inc., expanded his airline in 1987 with a guaranteed 
loan from the SBA. He said, ``I have a very sincere 
appreciation for the Small Business Administration's efforts to 
stand behind me and help me do what I was not able to do by 
myself by providing me with those guaranteed loans through 
participating banks with requirements far less stringent that 
what the private banks needed to make those same loans.'' John 
M. Clifton, Vice President, First Bank, Ketchikan, noted that 
``two of our customers have grown in size to become major local 
employers, each of which are now employing over 100 people.'' 
David L. Coates, owner of several small businesses in Ketchikan 
emphasized that the SBA loan program ``is an opportunity that 
is extremely important to the strong growth and development of 
not only a healthy economy in our community but our country as 
well.''
    Many of the concerns raised at this hearing were 
incorporated into Chairman Bond's SBREFA legislation, leveling 
the regulatory playing field for small business owners by 
providing them with input in the rule-making process and making 
federal agencies such as OSHA and EPA more accountable for 
their enforcement practices. In addition, Chairman Bond 
introduced and Congress passed his Substitute Amendment to the 
1996 Small Business Programs Improvement Act, resulting in the 
expansion of SBA loan programs for FY 1997. Chairman Bond also 
co-sponsored the Occupational Safety and Health Reform and 
Reinvention Act, S. 1423, a measure designed to focus OSHA away 
from its ``gotcha'' enforcement approach to one that treats 
small business owners like partners in the regulatory process.

``Tax Issues Impacting Small Business''--Washington, D.C., September 19 
                               & 20, 1995

    On September 19 and 20, 1995, the Committee held two days 
of hearings focusing on the tax issues affecting small 
business. The hearings were timed so that Members would have an 
opportunity to listen to the tax priorities of small business 
owners prior to Congressional action on tax legislation and 
budget reconciliation. During the two days of hearing six tax 
issues vital to small business were addressed including: 
reducing the capital gains tax rate, estate tax relief, pension 
simplification, classification of independent contractors, 
increasing the expensing provision, and the deductibility of 
health insurance by the self-employed.

                             Capital Gains

    The hearing began with testimony from Senators Hatch and 
Lieberman who discussed their bill, The Capital Formation Act 
of 1995, S. 959. Senator Hatch explained that capital-gains tax 
relief is important to small businesses throughout the country 
and that a cut in the rate is an integral part of balancing the 
budget. The effect of a rate cut will be economic growth and 
job creation. Senator Hatch noted that, ``As we all know, a 
healthy and growing economy requires the ready availability of 
capital for new and expanding entrepreneurial activity. And the 
job creation generated by this entrepreneurial activity is one 
of the keys to increased cash tax flow to our Treasury.'' 
Senator Hatch went on to say that some economists estimate that 
this country has about $8 trillion of unrealized capital gains 
and that S. 959 would go a long way towards unlocking a large 
portion of that wealth, creating a tremendous benefit for the 
economy.
    Senator Hatch pointed out that some Members argue that a 
capital-gains tax cut unduly benefits the wealthy. He used 
Treasury Department figures to show that, although a cut will 
benefit some who are wealthy, a cut will also benefit lower and 
middle income Americans, as well. The Senator outlined for the 
Committee the provisions of S. 959:
    1. Reduces by 50% the taxable capital gain on assets held 
at least one year.
    2. Reduces the maximum corporate capital-gains tax rate to 
25%.
    3. Considers the loss on the sale of personal residence as 
a capital loss.
    4. Expand the 1993 provisions championed by Senator Bumpers 
that were designed to spur investment in expanding and new 
start-up companies. If a taxpayer invests in a start-up company 
and holds the stock for between one and five years there is a 
50% capital-gains deduction; if the stock is held for more than 
five years there is a 75% deduction. Or if the taxpayer decides 
after five years to sell and invest the proceeds in another 
small business, then the gain on the sale of the first stock is 
deferred until the second stock is sold.
    Senator Hatch indicated that he believes that the targeted 
capital provisions would do a great deal towards increased 
investment and job creation in small business.
    Senator Lieberman echoed many of the points raised by 
Senator Hatch. He also pointed out that the 75% exclusion on 
gain from the sale of a qualified small business investment 
builds on the 1993 legislation, which up to now has not 
produced the results that they would have liked. S. 959 is an 
improvement because it removes some of the inhibitions to those 
with capital to invest in small businesses. He also cited Joint 
Tax Committee estimates reflecting the proposal's relatively 
low cost as compared with the potential return. Senator 
Lieberman concluded by saying that a large number of people 
will benefit including ``middle class people who own a small 
business, own a farm, own a little piece of investment 
property, or have a share of a mutual fund, or one of the 
millions of Americans who are part of a stock option plan where 
they work.'' Therefore, the legislation has a broad based, 
positive effect on society in this country.
    Tom Wiggans, President and Chief Executive Officer, 
Connective Therapeutics, on behalf of the Biotechnology 
Industry Organization, also testified regarding a reduction in 
capital gains. Mr. Wiggans spoke in support of the two tier 
system contained in 
S. 959, noting that the first tier incentive is for all 
investors while the second tier is for venture capitalists, 
recognizing that not all investments are the same. ``Venture 
capital investments typically involve tremendous risk, yet 
potentially, they provide the greatest economic and social 
benefits by funding truly novel technologies that create whole 
new industries and revolutionize our standard of living.'' He 
urged the Members to pass the Hatch-Lieberman legislation.

                           Estate Tax Relief

    Ann Parker Maust, Ph.D., President, Research Dimensions, 
Inc. and a member of the National Federation of Independent 
Business, testified regarding her experience with the estate 
tax laws. Dr. Maust's parents started a family agricultural 
business (oranges and cattle) in Florida. Due to an 
appreciation in the land underlying the business, the family 
realized that they would have to save a considerable sum of 
money in order to pay the estate taxes on the family business. 
She testified that several unsettling questions arise when a 
family is in this situation: ``What would be the total cash 
requirement that we would face, not only in terms of the tax 
payment, but also the payment for legal advise and support? 
Would we have to mortgage any or all of the land underpinning 
the business in order to come up with the estate tax cash 
requirement? What would happen to planned business expansions 
and investments as we attempted to hoard cash and/or mortgage 
land in an attempt to deal with these estate tax 
requirements?''
    Dr. Maust went on to say that the security her parents 
thought they had developed over the years was threatened as was 
the future of the business. With that, she testified in support 
of The American Family Owned Business Act, S. 1086, which would 
exempt up to $1.5 million of a family-owned business from the 
estate tax. The legislation would relieve her family's fear and 
would allow them to continue to operate the business. More 
importantly, Dr. Maust testified that the bill would provide 
them with ``more of an opportunity to grow the business, using 
cash reserves for planned business expansion and investment, 
thus contributing to job generation and productivity, and 
ultimately to a healthier economy.''
    Michael Roush, Director of Federal Government Relations for 
the Senate at the National Federation of Independent Business, 
also testified regarding the estate tax. In the view of small 
business owners, the estate tax is a form of double taxation 
that discourages businesses from growing. Small business owners 
ask ``why should family businesses, and jobs be destroyed to 
pay estate taxes. The estate tax is one of the most intensely 
disliked provision in the Tax Code by small business owners, 
and S. 1086 will go a long way in helping businesses survive.'' 
Mr. Roush concluded by urging Members to co-sponsor the bill 
and to include it in the reconciliation package.
    Charles Kruse, President of the Missouri Farm Bureau, and 
Phyllis Gardner, Chairman of the National Cattlemen's 
Association Tax and Credit Committee, both testified in support 
of S. 1086 and regarding the estate tax as it relates to farms, 
ranches, and rural communities. Ms. Gardner testified that 
rural economies are largely comprised of family-owned 
businesses. ``The viability of main street in rural America and 
the surrounding farms and ranches is directly linked to their 
ability to stay in business during generational change. The 
opportunity to pass your business to the next generation is a 
life-long goal for most of us involved in agriculture. 
Tradition and family continuity are not trendy terms in rural 
America. It is how we live.'' She went on to say that S. 1086 
will work and will help keep the backbone of rural America 
together from one generation to the next.

                        independent contractors

    In his opening statement, Chairman Bond said that the 
uncertainty and unfairness surrounding the worker 
classification issue has been a concern of taxpayers for many 
years. Today, Internal Revenue Service agents are using a 20-
factor test that is a nightmare for small business. The IRS has 
forced businesses to reclassify approximately 400,000 
independent contractors as employees and are now converting 
almost 2,000 independent contractors into employees each week. 
The Chairman recognized that finding a solution to this problem 
will not be easy, but was essential because the status quo is 
unacceptable. Taxpayers are worried, and the policy is hurting 
the economy by stifling job growth and expansion through fear.
    The Chairman quoted the Commissioner of Internal Revenue, 
Margaret Richardson, who told delegates to the White House 
Conference on Small Business that the IRS ``does not care 
whether someone is an employee or an independent contractor as 
long as they properly report their income.'' The Chairman 
concluded that Congress needs to come up with a legislative 
solution so that we can move the IRS out of this ``de facto'' 
role of setting employment policy and back into its role of 
revenue collection.
    The testimony regarding independent contractors began with 
Senator Nickles who at one time ran a small business and who in 
conjunction with Chairman Bond planned to introduce the 
Independent Contractor Tax Simplification Act. Senator Nickles 
testified that it is vitally important for Congress to clarify 
who is an independent contractor and who is an employee. The 
20-point common-law test is not working, and he pointed out 
that the ``General Accounting Office calls the common-law test, 
`Unclear and subject to conflicting interpretations.' Even the 
Treasury Department has testified, `Applying the common-law 
test on employment tax issues does not yield clear, consistent, 
or even satisfactory answers and reasonable persons may differ 
as to the correct classification.' '' The Senator indicated 
that both the IRS and Congress are at fault and the Congress 
needs to resolve the issue through legislation. Senator Nickles 
went on to outline the three-part test contained in the 
legislation and indicated that an effort was made to simplify 
the definition of who is an independent contractor. He closed 
by saying that the issue is vitally important and solicited 
input and support from other Members to ensure passage of the 
bill.
    The Committee also heard testimony from Thomas Shopa, CPA, 
President of McBride, Shopa & Company, Raymond Kane, President 
of Pisa Brothers Travel Service, and Paul Hense, CPA and 
President of Paul Hense, CPA. The witnesses all spoke in 
support of a change in the law that would simplify and clarify 
the definition of an independent contractor for small business. 
Mr. Kane spoke of his own person experience during IRS 
examinations of his business and their resulting assessment of 
some $274,000 in penalties for the years 1992, 1993 and 1994. 
Mr. Hense testified that as a CPA he tells his clients ``If you 
can avoid it, do not have employees. It is more of a hassle 
than it is worth. * * *'' And Mr. Shopa testified that he 
represent clients through the IRS appeals process and that 
appellate conferees will right up front advise the business 
that they will lose the case. Each of the three witnesses had 
compelling testimony and significant points regarding the 
horrendous state of the law surrounding this issue and the need 
for its revision.

                          equipment expensing

    John Galles, President of National Small Business United, 
and John Satagaj, President of the Small Business Legislative 
Council, both testified regarding the equipment expensing 
provision under Section 179 of the tax code. Under current law, 
small businesses may elect to expense rather than depreciate 
the first $17,500 of business property. Small business would 
like to see that amount significantly increased. Mr. Satagaj 
testified that ``Small business finances many of its capital 
asset investments from retained earnings. Waiting 5 or 7 years 
to recover that investment is a significant deterrent to 
further growth and expansion.'' He went on to advocate 
increasing the amount to $50,000. Mr. Galles pointed out that 
the increased deduction would help ``cash-strapped small 
businesses'' that would like to grow and enlarge their capital 
base. An increased ability to expense the business investment 
would indeed enhance the long-term productivity of the 
business.

                self-employed health insurance deduction

    Bennie Thayer, President of the National Association for 
the Self-Employed, testified regarding the health-insurance 
deduction for the self-employed. Mr. Thayer commended the 104th 
Congress for reinstating the health-insurance deduction and 
making it permanent. He also applauded the increase in the 
deduction to 30% for 1995 and thereafter. However, he urged 
theCommittee to go the next step and to increase the deduction to 100%. 
Currently, corporations may fully deduct the cost of the health-
insurance premiums paid for their employees. Later in his testimony, 
Mr. Thayer reported that the deduction is not only important for tax 
equity purposes, ``but it would also greatly assist the self-employed 
in the purchase of health insurance.'' He cites that nearly three 
million self-employed are uninsured and that small firms cannot afford 
to cover themselves or their dependents. ``If a self-employed 
individual could deduct the full cost of health care coverage, the 
number of uninsured Americans should decrease dramatically. If Congress 
really wants to increase health insurance coverage of small businesses 
and their employees, studies show that a full deduction is the most 
fair and effective way to do it.''
    More specifically, Mr. Galles cites a 1983 study by the 
Employee Benefits Research Council indicating that more than 
nine million self-employed individuals are without insurance, 
that is one in four of all the uninsured. ``It is also a fact 
that enabling business owners to provide insurance for 
themselves (a worthy goal in itself) greatly enhances the 
likelihood that they will provide insurance for their 
employees.''

                         pension simplification

    The cost of starting and maintaining a pension plan for the 
benefit of employees is extremely high for small business. Mr. 
Roush, of the National Federation of Independent Business, 
testified that the ``rising administrative costs and legal 
complexity of pension and retirement plans are forcing small 
business owners to drop their plans in ever increasing 
numbers.'' Given the meager savings rate in America, Congress 
should be encouraging employers to establish retirement 
programs, but in a desire to insure that all plans are fair, 
the current law makes it difficult for employers to offer plans 
at all.
    The Majority Leader, Senator Dole, was unable to attend the 
hearing but submitted his statement for the record, which among 
other things, outlined his new proposal to increase savings 
among America's small business through the Savings Incentive 
Match Plan for Employees (SIMPLE). According to Senator Dole's 
testimony, the SIMPLE Plan would be available to small 
employers who have no more than 100 employees. Eligible 
employees could contribute up to $6,000 each year, and 
employers would be required to match employee contributions 
dollar-for-dollar up to 3% of compensation, allowing employees 
to save up to $12,000 per year. In addition, SIMPLE plans would 
not be subject to the nondiscrimination or top heavy plan 
rules. Senator Dole's testimony also noted that the SIMPLE 
pension proposal had the support of many small business 
organizations, including the National Federation of Independent 
Business, the U.S. Chamber of Commerce, and the Small Business 
Council of America.

  ``Revitalizing America's Rural and Urban Communities''--Washington, 
                         D.C., October 19, 1995

    On October 19, 1995, the Committee held a hearing to 
discuss possible means of bringing small businesses and jobs to 
impoverished areas of the United States.
    Chairman Bond opened the hearing by stating that the role 
of the small business community is critical to revitalization 
of impoverished areas of the nation. He noted that ``No amount 
of training dollars can insure the revival of these communities 
if there are no jobs. And we must have businesses, in 
particular small businesses, locating and thriving in these 
areas if we are to provide these jobs.'' Chairman Bond briefly 
summarized his proposal for Historically Underutilized Business 
Zone (HUBZones), defined as areas within metropolitan and rural 
communities that have very low income and high unemployment. 
The goal of HUBZones is to encourage small businesses to 
relocate to and employ people in low income, economically 
distressed areas by allowing these businesses to receive a 
special preference or set aside in bidding on federal 
government contracts.
    Senators Lieberman and Abraham testified in favor of their 
bill the Enhanced Enterprise Zones Act of 1995, S. 1252, which 
expands the Enterprise Zones Act of 1993 and ``supercharges'' 
the nine Empowerment Zones and 94 Enterprise Communities. 
Senator Lieberman specified that the bill ``provides a zero 
rate of capital gains tax on the sale of any qualified zone 
stock, business property, or partnership interest that has been 
held for at least 5 years within an enterprise zone or 
Enterprise Community.'' The bill also provides limited 
regulatory relief, low-income home ownership, and vouchers for 
school choice.
    Senator Abraham stated that the philosophy behind the bill 
is supporting the ``notion that giving jobs, creating tax cuts 
and other economic incentives to residents and businesses, 
particularly small businesses in distressed areas. * * * '' He 
expressed his belief that Enterprise Zones do work, stressing 
that ``35 States and the District of Columbia already have 
enterprise zones that have produced over 663,000 jobs and $40 
billion in capital investment.'' Former Congressman and 
Secretary of Housing and Urban Development, Jack Kemp said that 
``a good start would be to pass the enhanced enterprise zone 
bill'' and couple it with a bill to do away with the capital 
gains tax to ``encourage more jobs, more growth, more small 
business and more entrepreneurial opportunities.'' He said the 
best way to create jobs is to ``get men and women to leave 
their existing business and take a risk to start a new 
business.''
    Addressing the problems of Enterprise Zones, Senator Bond 
gave an example from Missouri. He noted that, although 8,800 
jobs had been created in the areas designated as enterprise 
zones by the end of 1984, only one area was rural, the rest 
were central city areas of St. Louis and Kansas City. Senator 
Bond proposed three ways in which to enhance the effectiveness 
of the enterprise zone program in reaching more areas. He 
suggested that the government needs to find criteria for 
designating zones, whether they are called ``HUBZones'' or 
``Enterprise Zones,'' which combine high unemployment with high 
poverty. Second, he stated that ``we have run intothe problem 
at the State level the tax incentives are not enough, and at the 
Federal level any time you are trying to provide tax incentives you run 
into the problem of revenue scoring. The Treasury Department * * * 
always puts limits on the amount available.'' To help solve this 
problem, HUBZones would use the concept of set-asides to give any 
enterprise in a HUBZone an opportunity to bid on federal government 
contracts. Finally, in response to the complaint that the 8(a) program 
does not always bring jobs to the areas of highest need, Senator Bond 
suggested designating areas for companies to receive benefits from the 
8(a) program, away from the congressional scoring system.
    In written testimony, Senator Kay Bailey Hutchison outlined 
her bill, S. 743, which ``utilizes a targeted, limited tax 
credit to businesses to help defray their cost of construction, 
expansion, and renovation. The legislation builds on the 
empowerment zone/enterprise community program now unfolding in 
more than a hundred communities across the nation.'' She stated 
that other similar programs have been very valuable to the 
public. For example, the Historic Rehabilitation Tax Credit in 
Fiscal Year 94 ``produced nearly 21,000 jobs, and among 524 
projects and leveraged $483M in private investment from a 
federal revenue cost of $97M.'' The success is even better for 
the Low Income Housing Tax Credit. According to HUD figures 
``for every 100,000 new housing starts, 170,000 jobs are 
created.'' Mr. Kemp, who is heading up a tax commission for 
Senate Majority Leader Dole and House Speaker Gingrich 
recommended not only cutting the capital gains tax, but also a 
tax credit to offset the payroll tax. Mr. Kemp said that the 
capital gains tax is ``not a tax on the rich. It is a tax on 
the poor who want to get rich.'' Randall C. Gideon of the 
American Institute of Architects said that neighborhood 
rebuilding is a local enterprise dependent upon public 
participation and that S. 743 ``would fill a gap in the 
incentives for the revitalization of commercial 
infrastructure'' and ``an effective capital base incentive for 
non-historic commercial projects in targeted areas is a missing 
piece of the incentive package that must be available to reduce 
the risk of investment.''
    Senator Ashcroft testified that ``one of the first things 
that Government should do, however, is to soberly assess its 
contribution to the problems in the cities.'' He further stated 
that ``in its urge to help, Government has done many things 
that have been tremendously counterproductive.'' Senator 
Ashcroft proposed that regulations, particularly EPA 
regulations, have contributed to the problem. ``These programs 
have cleaned the soil, but they sullied the environment. They 
have addressed certain risks but they have forgotten about 
unintended consequences.'' Senator Ashcroft introduced the 
Urban Regulatory Relief Zone Act, S. 1184, to allow a mayor 
with a city population of 200,000 or more to establish a 
commission to assess the regulations and petition for 
regulatory waivers, giving the people more control and making 
the environment more business friendly.
    From a community standpoint, Mark Bendick, Jr., PhD., 
Project Director, Committee for Economic Development, said that 
``it is appropriate not to use a single criterion, such as 
resident's low income alone, to target benefits or define 
eligibility for benefits in the bills, but instead the emphasis 
should be on finding the simultaneous presence of multiple 
problems.'' He said that ``historically such lone ranger 
efforts are relatively ineffective in revitalizing distressed 
communities.'' Community revitalization needs participation by 
the residents and community leaders to succeed.

   ``The Cost of Regulations on Small Business''-- Washington, D.C., 
                            October 31, 1995

    On October 31, 1995, the Committee held a joint hearing 
with the House Committee on Small Business (the first in two 
decades) on a report by the Small Business Administration's 
Office of Advocacy on the relative impact of regulatory 
compliance costs on small business. Numerous studies have 
examined the impact of regulations on business in general. For 
example, the cost of state and federal regulations on the 
business community has increased from an estimated $330 billion 
in 1988 to an estimated $400 billion today. The Office of 
Management and Budget has reported that taxpayers expended 6.64 
billion hours on federal paperwork in fiscal year 1992, 
including some 5.6 billion hours for taxpayer compliance with 
IRS regulations.
    While these overall burdens are well documented, little 
research has been done on the relative burdens faced by small 
business. In 1994, Congress requested that the Chief Counsel 
for Advocacy conduct a ``study or the impact of all Federal 
regulatory, paperwork and tax requirements on small business'' 
(P.L. 103-403, Section 613). The hearing provided an 
opportunity for Jere Glover, Chief Counsel for Advocacy, Office 
of Advocacy, Small Business Administration, to testify on the 
findings of the report, ``The Changing Burden of Regulation, 
Paperwork, and Tax Compliance on Small Business: A Report to 
Congress.'' As Mr. Glover testified, the report sought to 
answer three basic questions: (1) does the burden of regulation 
fall more heavily on small firms, (2) if so, is it good public 
policy to regulate in such a way as to give large firms a 
competitive cost advantage in the marketplace, and (3) if the 
answer is no, how can the regulatory process be changed to help 
achieve a level playing field.
    The report found that regulations do fall more heavily on 
small business. While firms with fewer than 500 employees 
generate some 50% of total employment and sales, they bear 63% 
to 67% of the total burden of regulations, paperwork, and tax 
compliance costs. Small businesses pay an average of 50% to 80% 
more per employee than big business to comply with federal 
regulations. Research conducted for the Chief Counsel by Thomas 
D. Hopkins, a leading researcher in the costs of regulations, 
showed that the average cost of regulations per employee in 
1992 was $5,532 for firms with less than 20 employees, $5,298 
for firms with 20-499 employees, and $2,979 for firms with over 
500 employees. Thus, the regulatory burden on small businesses 
is over 80% greater than for large business. In the 
manufacturing sector, regulatory cost were substantially 
higher, averaging $9,016 per employee for firms with less than 
20 employees, $10,605 for firms with 20-499 employees, and 
$4,855 for firms with over 500 employees.
    As to the second question, the report found that the 
disproportionate impact of regulations on small businesses 
gives large firms a competitive cost advantage in the 
marketplace and serves as a disincentive to small business 
formation, growth, job creation, and innovation. The report 
concluded that the ``inequitable allocation of regulatory costs 
is not good public policy.'' While regulations may confer 
benefits on society, ``This inequitable cost allocation gives 
large firms a competitive advantage, a result at odds with the 
national interest in maintaining a viable, dynamic, and 
progressive role for small businesses in the American 
economy.'' Furthermore, ``If the nation's goals are to generate 
employment and innovation, improve global competitiveness, and 
encourage economic growth, government action should not impose 
disproportionate costs burdens on the small business sector to 
solve other problems.''
    As to suggested reforms, the report first surveyed the 
current efforts to reduce the impact of regulation of small 
business. It noted that Administration's efforts to ease the 
regulatory burden were undertaken primarily through Executive 
Order 12866, which confirms the requirements, first established 
by President Reagan, that regulations undergo a cost-benefit 
analysis, that the benefits of a regulation should justify its 
costs, and that agencies should tailor regulations to impose 
the least burden on society, including businesses of different 
sizes. In addition, the Administration's National Performance 
Review directed federal agencies to conduct a page-by-page 
review of all regulations and to eliminate or modify those 
regulations in need of reform. Finally, the Administration has 
promised a 25% reduction in the EPA's paperwork burden.
    The report noted that regulatory reform was among the most 
important issues at the 1995 White House Conference on Small 
Business. The delegates recommended requiring cost-benefit 
analysis and scientific risk assessment of all new regulations, 
enhanced input from small business in the development of 
regulations, paperwork reduction, periodic review and sunset of 
regulations, and fairer enforcement policies. The most 
important regulatory reform issue at the conference was 
judicial review for the Regulatory Flexibility Act. The Act 
requires government agencies to analyze regulatory alternatives 
that minimize the impacts on small businesses whenever there is 
likely to be a significant economic impact on a substantial 
number of small entities. While the Regulatory Flexibility Act 
has saved small business many millions of dollars in regulatory 
costs, federal agencies have not fully complied with the 
requirements in part because compliance with the Act is not 
subject to any form of judicial review.
    As noted in the report, the regulatory reform legislation 
in both the House and Senate provided for many of the 
regulatory reforms sought by the White House Conference on 
Small Business including judicial review of the Regulatory 
Felxibility Act, risk assessment, cost-benefit analysis and (in 
the Senate bill) periodic review of regulations. While the 
Senate regulatory reform bill, S. 343, was opposed by the 
Administration and the subject of an extensive filibuster, the 
report noted that Congress did reauthorize the Paperwork 
Reduction Act. The new law requires the Administration to 
reduce paperwork requirements by 10% per year in 1996 and 1997 
and by five percent each year thereafter. In a significant 
change sought by small business, the new law extends coverage 
of the Paperwork Reduction Act to include federal agency 
disclosure requirements and information required to be 
disclosed to third parties.
    The report found that ``several obstacles to curbing the 
rising cost of regulations remain,'' citing the current backlog 
of regulatory requirements such as under the Clear Air Act, as 
well as additional regulatory requirements that may be in new 
legislation. In attempting to answer the third question, the 
report found that ``despite more than 13 years of experience 
with the Regulatory Flexibility Act, public policy makers need 
additional direction to reconcile their regulatory decisions 
with the national goals of preserving competition through the 
growth of small business.'' The report concluded that, ``The 
need for regulatory reform through initiatives such as amending 
the Regulatory Flexibility Act is great.''
    In response to the findings of the report, Chairman Bond 
stated, ``this report breaks new ground in assessing the burden 
placed on small business by government regulation relative to 
large business. It confirms what many of us have long 
suspected--and what our series of field hearings suggested--
that small business bears more than its fair share of the cost 
of regulations. Our field hearings have clearly shown that this 
disproportionate burden creates series obstacles for small 
businessmen and women across the country. The need to reform 
regulations and the laws that produce them could not be more 
clear.''

  ``The Impact of Rail Mergers on Small Shippers''--Washington, D.C., 
                            November 8, 1995

    On November 8, 1995, the Committee held a second joint 
hearing with the House Committee on Small Business on the 
effect of past and proposed railway mergers and consolidations 
on small shippers. The rail industry is currently going through 
a period of so-called ``mega-mergers'' between freight 
carriers. These include the recently completed merger of the 
Burlington Northern with the Santa Fe ($7.8 billion in 
revenues) and the proposed merger of Union Pacific with 
Southern Pacific ($9.1 billion in revenues). These mergers will 
reduce the number of major rail carriers in much of the western 
half of the country.
    Freight shippers may stand to gain from the greater 
efficiencies created by these mergers. Some shippers, 
particularly high volume shippers moving freight between major 
destinations, expect these mergers to result in improved 
service and reduced rates. However, many shippers, particularly 
small shippers, have expressed concerns to the Committee that 
these mergers may lead to a less competitive rail industry with 
higher freight rates and/or reduced service.
    Under legislation enacted earlier in 1995, the Interstate 
Commerce Commission (ICC) ceased to exist at the end of the 
year. Separate legislation, enacted at the end of 1995, 
transferred the powers of the ICC to a newly established board 
at the Department of Transportation. The new board will review 
rail mergers and consolidations using factors similar to those 
currently considered by the ICC.
    The first panel consisted of Dan Glickman, Secretary of 
Agriculture, who testified on the importance of a competitive 
rail transportation system to the agricultural sector and the 
anticompetitive problems posed by rail mergers. Secretary 
Glickman, in response to questions by Senator Bond, also 
expressed his concern over the shortage of rail cars and the 
effects of that shortage on the agricultural sector.
    The second panel consisted of C. Phillip Hoffman, 
Secretary, Hoffman & Reed; William York, Manager, Lange 
Company, LLC; James F. Jundzilo, Transportation Manager, Tetra 
Chemical Company; Duane ``Butch'' Fischer, President, Scouler 
Grain Company; Ned Leonard, Manager of Communications and 
Governmental Affairs, Western Fuels Association; Ed Emmet, 
President, National Industrial Transportation League; Curtis 
Grimm, Professor, College of Business and Management, 
University of Maryland; and Richard J. Barber, Barber & 
Associates.
    One of the issues raised by a number of witnesses was the 
number of shippers that will see their competitive freight 
alternatives reduced from three options to two or from two 
options to one. For example, the Committee received testimony 
that the proposed Union Pacific-Southern Pacific merger would 
reduce the rail options from two carriers to one on routes 
connecting a total of 164 market areas where Union Pacific and 
Southern Pacific handle $1.6 billion in freight. In comparison 
the Burlington Northern-Santa Fe merger affected 20 market 
areas with a combined revenue of only $165 million. Mr. Barber 
disputes these figures and testified that the level of two to 
one reductions would be significantly less.
    Another issue raised by several witnesses who are small 
volume grain shippers was the supply and distribution of rail 
cars. These witnesses testified that there is a shortage of 
rail cars in the Midwest for grain shipments, and they worry 
that they will not have access to rail cars in the needed 
numbers and at the required times. Even if these small shippers 
have access to the needed rail cars, they are equally concerned 
with competitive rates. While some commodities can move easily 
by truck, others such as grains, fertilizers, mineral ores, 
bulk chemicals and aggregates depend very heavily on rail 
transportation. Shippers of these products often find it 
difficult to shift to truck or barge transportation and are 
concerned about maintaining competition among rail carriers.
    The Committee also heard from small shippers, particularly 
in rural areas away from the main rail lines, who worry that 
these mergers may accelerate the trend of emphasizing high-
volume routes at the expense of lower-volume routes. Small 
shippers testified that they are particularly concerned that 
the discount rates frequently offered for shipments of 100 or 
more rail cars will make smaller shipments, and small shippers, 
non-competitive. In addition, smaller shippers are concerned 
that even on major routes, the merged rail carriers may be less 
willing to stop to pick up and deliver small volumes of 
freight. These shippers worry about the possibility that the 
freight rail service to their facility might end or be 
drastically reduced, and that the rail line might simply be 
abandoned by the newly consolidated rail carrier.
    Senator Bond noted during the hearing that, ``These small 
shippers have a vital interest in maintaining high quality and 
competitively priced freight rail service in this era of mega-
mergers in the rail industry. While they recognize that these 
mergers present opportunities for more efficient rail service, 
they are also concerned that these mergers may adversely affect 
small shippers.'' The Chairman highlighted the situation of 
grain elevators throughout much of the Midwest. ``Many of these 
elevators are totally dependent on rail transportation to get 
their product to market and to import fertilizer at competitive 
rates.'' He emphasized that competitive rail service is 
essential not only to the grain elevator operators, ``but to 
the hundreds of farmers who depend on the local grain elevator 
to get their corn, soy beans and wheat to market.''

 ``Small Business and OSHA Reform''--Washington, D.C., December 6, 1995

    On December 6, 1995, the Small Business Committee and the 
Labor Committees held a joint hearing on the effect of the 
Occupational Safety and Health Reform and Reinvention Act, S. 
1423, on small businesses. Chairman Bond described Occupational 
Safety and Health Administration (OSHA) reform as an extremely 
important issue for small business and explained that small 
businesses do not have the resources to hire expensive 
consultants to arm themselves for a game of ``gotcha'' with 
OSHA. Chairman Bond said that the provisions of S. 1423 
recognize that most employers want to comply with OSHA's 
regulations. Employers want safe workplaces because of workers 
compensation rates and because their employees are their most 
important assets. The legislation forces OSHA to leverage its 
resources so that strong enforcement is directed at employers 
that are not voluntarily complying. Those employers that have 
effective safety and health programs would be able to focus on 
voluntary compliance through inspections by certified third 
parties and proof of fewer than average accidents.
    Senator Kennedy, ranking member of the Labor Committee, 
expressed concern that the legislation exceeds President's 
Clinton goals for OSHA Reinvention. Senator Kennedy stated that 
he was in favor of helping small business comply with OSHA, but 
that he opposed S. 1423 because it weakens employee 
protections.
    Senator Kassebaum, Chairman of the Labor Committee, 
commended Assistant Secretary Joseph Dear for his work in 
``reinventing'' OSHA and explained the importance of codifying 
some of those provisions. Senator Kassebaum responded to 
Senator Kennedy's concerns by explaining that most of the 
bill's provisions codify some of the OSHA programs designed to 
help small business. S. 1423 is designed to change businesses' 
relationship with OSHA from an adversarial to a working 
relationship.
    The Committee heard testimony from a panel of four small 
business owners who described their involvement with OSHA and 
offered suggestions for reform legislation. Mark Hyner, 
President of Whyco Chromium, and Daniel Richardson, owner of 
Latta Road Nursing Homes, were delegates at the White House 
Conference on Small Business. Both testified about the 
priorities identified for OSHA reform at the White House 
Conference and said that S. 1423 contained many of these 
priorities. Mr. Hyner stated that most small businesses support 
the goals and intent of OSHA, but that every business owner 
that he knows has at least one OSHA horror story. Mr. Hyner 
explained that in his experience, OSHA rarely leaves a facility 
until the inspector finds a way to fine the small business. Mr. 
Richardson emphasized that the use of third-party consultants 
results in safer workplaces because consultants, unlike OSHA 
inspectors, understand the demands of particular businesses. 
Mr. Richardson stated that OSHA and its citation-based 
structure were flawed and that legislation is necessary to 
ensure that the American workplace is safer with OSHA than 
without it.
    The Committee heard testimony from two additional small 
business owners, Earl Bradley, President of EBAA Iron, and Mike 
McMichael, President of McMichael Company. Mr. Bradley noted 
that good safety practices not only save lives, but are good 
business, and he explained the importance of eliminating OSHA's 
``quota mentality.'' Mr. Bradley said that provisions allowing 
employee participation in safety programs, codification of 
OSHA's safety programs, third-party consultation, and allowing 
abatement of hazards were important parts of S. 1423, which he 
supported. Mr. Bradley also stressed the importance of 
leveraging OSHA's resources to increase the focus on serious 
violators. Mr. McMichael testified about OSHA's practice of 
citing general contractors for violations when a sub-
contractor's employees cause the condition leading to the 
citation. Mr. McMichael explained that he is a general 
contractor who has no employees, yet OSHA has cited him for the 
violations of sub-contractors.
    The Committee heard testimony from Paul Middendorf, 
Director of the Georgia OSHA Compliance Program. Mr. Middendorf 
testified about the importance of OSHA consultation for small 
business. The Georgia program allows small businesses to 
request help from OSHA in developing safety and health programs 
and in identifying hazards. The Committee also heard from John 
Cheffer, Chairman of the National Governmental Affairs 
Committee on the American Society of Safety Engineers. Mr. 
Cheffer expressed support for provisions in the bill that allow 
inspections by certified third-party consultants. Mr. Cheffer 
explained that it is necessary for OSHA to look to the private 
sector for assistance because of limited resources. David 
Carroll, Director of Safety at Woodpro Cabinetry, testified 
about his experience in OSHA's Voluntary Protection Program 
(VPP). Mr. Carroll explained that consultation and partnership 
with OSHA is important to small business and expressed support 
for the codification of the VPP program.
    The Committee also heard testimony from two union 
representatives. Robert Georgine, President of the Building and 
Construction Trades Department of the AFL-CIO, said that he 
disagreed with the legislation's underlying theme that 
workplaces would be safer if government activity was replaced 
with voluntary compliance. Mr. Georgine suggested that the best 
way to improve safety is to give OHSA a bigger budget for more 
inspectors and to strengthen employee rights. Deborah 
Berkowitz, Director of Occupational Health and Safety for the 
United Food and Commercial Workers, testified that the bill 
ignores the fact that enforcement is the key to preventing 
injuries. Ms. Berkowitz admitted that there are cases in which 
OSHA has ``gone overboard'' and been ``overzealous,'' and she 
said that the key challenge is allocating OSHA's scarce 
resources.

    ``Proposals to Strengthen the Small Business Investment Company 
             Program''--Washington, D.C., December 12, 1995

    On December 12, 1995, the Committee held the second in a 
series of three hearings to identify and evaluate steps that 
the SBA has been taking to improve the Small Business 
Investment Company (SBIC) program, and to begin considering 
other improvements requiring legislation over which the 
Committee has jurisdiction. Senator Burns of Montana stated at 
the outset of the hearing that he hoped the panelists would 
``come to us * * * with suggestions and solutions for how to 
reduce the default rate and make these federal dollars more 
broadly utilized.'' Senator Harkin also noted that, ``the SBIC 
program provides a crucial niche in credit availability, 
namely, venture capital. Without venture capital, the ability 
of business outside of the norm, often the most creative, 
cannot grow and prosper. This is particularly true in rural 
areas, such as in my home state of Iowa, which are often served 
by small banks that are limited in the types of loans they are 
able to make to their customers.''
    Legislation passed in 1992 accomplished a number of 
important objectives, including improving the operating 
environment for SBICs, and reducing the risk of loss of 
taxpayers. The legislation also served to raise the licensing 
standards, and increase minimum capital requirements, making 
SBICs viable economic entities. While these were steps in the 
right direction, Chairman Bond emphasized that more can be 
done.
    Many of the panelists' recommendations were to operate the 
SBIC program using common sense, sound business practices. 
Keith R. Fox, Chairman of the National Association of Small 
Business Investment Companies, suggested that privatizing or 
``out sourcing'' certain parts of the program, for example, the 
licensing and examination process, would not only save money 
but also improve the quality of the function. Stanley W. 
Tucker, a member of the Board of Directors of the National 
Association of Investment Companies, concurred that 
privatization should be considered. All of the panelists agreed 
that in the current environment of belt tightening, the money 
that is available needs to be used as efficiently as possible.
    During this period of federal spending reductions, it is 
unlikely that this program will receive additional funds 
through appropriations. ``But if we legislate strict licensing 
and oversight requirements to ensure businesslike and 
accountable operations by SBICs and by those at SBA 
implementing the program, I believe we can reduce the credit 
subsidy rate and stretch the available appropriations much 
further,'' Chairman Bond noted.
    Many panelists favored eliminating Specialized Small 
Business Investment Companies (SSBICs). The current 
distinctions between SBICs and SSBICs contributes to a negative 
perception of SSBIC licenses, which makes it harder to attract 
private capital. As a result, the panelists conclude that the 
function of the SSBICs would be absorbed by regular SBICs.
    Many of the panelists' concerns were addressed by S. 1784, 
a bill proposed by Senator Bond that would expand and improve 
the SBIC program.

 ``S. 917 and S. 942: Implementing the White House Conference on Small 
 Business Recommendations on Regulations and Paperwork''--Washington, 
                        D.C., February 28, 1996

    On February 28, 1996, the Committee held a legislative 
hearing on two bills designed to implement recommendations of 
the White House Conference on Small Business on paperwork 
reduction and regulatory reform. The Small Business Advocacy 
Act, S. 917, was introduced on June 13, 1995 by Senator 
Domenici, and the Small Business Regulatory Fairness Act, S. 
942, was introduced on June 16, 1995 by Chairman Bond. Both 
bills were referred to the Committee on Small Business. The 
purpose of the hearing was to solicit input from delegates to 
the White House Conference on Small Business, the 
Administration, and the small business community generally on 
how best to implement the White House Conference on Small 
Business recommendations. In addition, the Committee sought 
specific comments on the legislative language of both S. 917 
and S. 942 and on a February 8, 1996 staff discussion draft of 
an amendment combining elements of both bills.
    The Committee first heard from Senator Russ Feingold who 
testified in favor of amending the Equal Access to Justice Act 
to make it easier for small business to recover their 
attorney's fees in litigation against the government and to 
raise the statutory rate for attorney's fees. He testified in 
support of the amendments to the Equal Access to Justice Act to 
limit the government's ``substantially justified'' defense, but 
urged the Committee to go further and eliminate the substantial 
justification threshold altogether.
    The first panel consisted of three of the regional 
regulation and paperwork chairs of the White House Conference 
on Small Business: Scott J. George from SBA region 7, Rosemary 
Reed from SBA region 3, and Scott Holman, Sr. from SBA region 
5. These witnesses described the disproportionately heavy 
regulatory burdens they face as small business owners and those 
faced by small business generally. They also described the 
White House Conference recommendations to reduce regulatory 
burdens, including the need for a new approach to regulating 
based on cooperation, not confrontation, for fitting 
regulations to the size of the business, and for periodic 
review of regulations. Additionally, these witnesses testified 
on the need to make regulators more accountable for their 
actions. They also emphasized the need for the provisions of S. 
942 allowing judicial review of the Regulatory Flexibility Act 
and those expanding the Act to include interpretative rules of 
the IRS. These witnesses also made a number of suggestions for 
technical modifications to the discussion draft.
    The second panel consisted of Kent P. Swanson, President of 
Nurses Available, Inc. on behalf of the National Federation of 
Independent Business, Victor N. Tucci, President of Three 
Rivers Health and Safety Inc. on behalf of National Small 
Business United, H. Daniel Pincus, President of HDP Industries 
on behalf of the National Association of Homebuilders, Wendy 
Lechner, Legislative Director of the Printing Industries of 
America, Inc. on behalf of the Small Business Legislative 
Counsel, and James Morrison, Senior Policy Advisor of the 
National Association for the Self-Employed. The panelists 
testified on the need for judicial review of the Regulatory 
Flexibility Act and for expanding the coverage of the Act to 
include IRSinterpretative rules. Other testimony supported the 
requirement for ``Plain English'' guides to assist small businesses in 
their efforts to comply with regulations.
    The second panel also described the adversarial 
relationship that often exists between government agencies and 
small businesses, and the witnesses testified about the need 
for a more cooperative and less punitive approach to regulatory 
compliance. The panel favored the provisions in the bill 
establishing agency programs to reduce or waive fines on small 
businesses for first time violations and establishing an 
enforcement ombudsman to record the problems that small 
businesses have with enforcement officials. Other testimony 
described how small business owners feel blackmailed into 
paying unjustified fines because they cannot afford to go to 
court and fight the government, and the need for the provisions 
of the bill that amend the Equal Access to Justice Act to make 
it easier for small businesses to recover their attorney's 
fees. Finally, the panel made a number of suggestions on 
improving the text of the discussion draft.
    At the conclusion of the hearing, Chairman Bond announced 
his intention to move expeditiously to a markup of S. 942, and 
to amend the bill to incorporate the comments of the witnesses 
at the hearing. He also indicated his desire that the 
legislation move forward on a bipartisan basis under his 
leadership and that of Senator Bumpers. A markup of the S. 942 
was held on March 6, 1996.

``S. 1574, The HUBZone Act of 1996: Revitalizing Inner Cities and Rural 
               America''--Washington, DC, March 21, 1996

    On March 21, 1996, the Committee held a hearing to evaluate 
the Historically Underutilized Business Zone (HUBZone) Act of 
1996, S. 1574. The hearing allowed small businesses in 
Washington, D.C. to testify about how the HUBZone Act would 
affect their businesses and community, and that of inner cities 
and rural counties of America.
    Citing the importance of providing incentives to encourage 
the revitalization of decaying inner cities and poor rural 
counties, Chairman Bond recognized an overriding ``consensus 
that much more needed to be done and that much of it could be 
done through small businesses.'' Chairman Bond indicated his 
desire through the HUBZones Act to ``encourage investment in 
low-income metropolitan and rural areas where poverty and 
unemployment are very important concerns,'' thus having an 
immediate impact on economically distressed areas and creating 
new job opportunities and growth.
    The Committee primarily heard from the owner and employees 
of e. villages and its venture in Northwest Washington, D.C., 
Edgewood Technology Services, Inc. (ETS). C. Austin Fitts, co-
founder of e. villages, testified that if the HUBZone Act were 
passed into law, it would ``significantly support [e. 
villages'] mission of building a distributed work force in 
underserved communities.'' He pointed out the importance of the 
Act to offset effects of recently reduced subsidies for housing 
and how ``successful efforts to promote economic growth in 
these communities [would] minimize Federal Government losses as 
well as losses on the part of private lenders and investors.'' 
In conclusion, Mr. Fitts recommends that the definition of 
eligible small businesses under this Act be simplified and the 
size standards be waived for those companies that are not able 
to achieve and maintain the 35% employment eligibility 
requirement.
    Other witnesses included employees of ETS, which is a 
working HUBZone example. ETS employs residents of its immediate 
community, and all of ETS's employees are trained on-site and 
provide data processing and computer graphics specialization. 
According to the witnesses, the HUBZone Act would enable 
distressed and underutilized areas to provide jobs to citizens 
in areas where these opportunities may not otherwise be 
afforded, as well as minimize governmental loss by assisting 
those willing to help themselves move from welfare to work.
    Marvin G. Harris, Site Manager of ETS, testified in support 
of the HUBZone and said, ``the HUBZone legislation can provide 
significant subcontracting opportunities for small 
businesses.'' He also noted that the legislation provides 
significant training and helps instill a work ethic to a 
community sometimes overlooked. Mr. Harris was also accompanied 
by several of his employees, including Bridget J.C. McLaurin 
and Wanda Riddick, who provided examples of what ETS had done 
for their lives. They also discussed their views on the impact 
that a HUBZone can make on their community and communities like 
theirs.
    There was a consensus among the witnesses that the HUBZone 
Act of 1996 would allow for improvement in the nation's inner 
cities and poor rural areas by providing incentives to small 
businesses to employ citizens of these areas. The witnesses 
stressed that the Act would have a significant effect on the 
lives of the people in these underutilized areas and would also 
benefit the state and federal government as well as the small 
business community.

  ``Small Business and Employee Involvement: The TEAM Act Proposal''--
                    Washington, D.C., April 18, 1996

    On April 18, 1995, the Committee held a hearing on the 
effect of the Teamwork for Employees and Management (TEAM) Act 
of 1995, S. 295, on small business on April 18, 1995. The TEAM 
Act, introduced by Sen. Kassebaum, amends the National Labor 
Relations Act (NLRA) to allow employers and employees to 
participate in organizations created to address matters of 
mutual interest (including issues of quality, productivity, and 
efficiency) provided such organizations cannot negotiate, enter 
into, or amend collective bargaining agreements.
    Chairman Bond stated in his opening statement that the NLRA 
offers two options to employees and managers: employee 
involvement through unions, or no involvement at all. As a 
result, the 90% of American workers who are not unionized have 
no opportunity to be involved in workplace decisions. He also 
explained that a small business owner from Missouri had wanted 
to attend the hearing, but her attorney explained that she 
risked a confrontation with the NLRB if she came to explain how 
her employees are involved in the workplace. Chairman Bond said 
that her story illustrated the importance of allowing small 
businesses to form informal partnerships with employees and 
said that it was regrettable that the current state of the law 
deterred her from appearing before the Committee.
    Senator Warner who chaired the hearing at Chairman Bond's 
request, pointed out that employee involvement increases 
productivity and that in a time of global competition, the 
government should not be impeding competitive and safe 
workplaces. Senator Warner also emphasized that nothing in S. 
295 prevents unionization.
    The hearing was divided into two panels. The first panel 
included representatives from four small businesses. Bill 
Budinger, CEO of the Rodel, Inc., a Delaware manufacturer, 
opened his statement by saying that his attorneys had 
recommended that he not testify at the hearing. Mr. Budinger 
was a delegate to the White House Conference on Small Business 
and said that delegates at the conference discussed global 
competition and the need for American businesses to be capable 
of competing. He testified that his company formed committees 
that included employees to explore ways to decrease health-care 
costs and improve productivity. Mr. Budinger said that he 
realized that what he was doing probably violated the NLRA, but 
that employee involvement had helped his company enormously. 
Chester ``Mac'' McCammon described his experiences as an 
employee at Universal Dynamics, Inc., and he explained that he 
had been a union member in the past, but he now worked for a 
non-union company. Mr. McCammon said that he would like to see 
the law changed to allow a wider range of employee 
participation options in the management process. Mr. McCammon 
said that the quality control and other self-directed teams had 
to be dismantled at Universal Dynamics because of the National 
Labor Relations Board's (NLRB) interpretations of section 
8(a)(2) of the NLRA.
    Harold ``Skip'' Pascoe, an executive officer at Sunsoft 
Corporation, testified that employee participation has allowed 
his company to compete with larger corporations with more 
resources for personnel management, process improvements, and 
training. Mr. Pascoe also mentioned the regulatory requirements 
of other agencies, such as the Food and Drug Administration, 
which require employee involvement in manufacturing in direct 
conflict with section 8(a)(2) of the NLRA. Donna C. Gooch, 
Director of Human Resources at Sunsoft Corporation, explained 
that human resources coordination requires an understanding of 
what employees need and calls for recommendations so that 
``win-win'' solutions can be implemented, both of which would 
be facilitated by enactment of the TEAM Act. Dennis Rampe, 
President of Precision Litho, testified about employee 
involvement at his printing company. Mr. Rampe explained that 
the primary goal of employee involvement entities was better 
communications between employees and management. Mr. Rampe 
believed that teams had improved trust and respect between 
employees and management, resulted in greater job satisfaction 
and customer service, and had helped his company be successful. 
Mr. Rampe noted, however, that after reading about section 
8(a)(2) of the NLRA, he dismantled his employee teams. As a 
result, communications were not as successful and customer 
service suffered.
    The second panel consisted of four experts on employment 
policy and business productivity with a variety of viewpoints. 
Owen Herrnstadt, Legislative Counsel to the International 
Machinists and Aerospace Workers, testified that passage of the 
Team Act would result in evisceration of the NLRA's prohibition 
of company unions. James Rundle, Senior Extension Association 
at the School of Industrial and Labor Relations at Cornell 
University, testified that the Team Act was unnecessary because 
the NLRB does not bring very many section 8(a)(2) cases. G. 
Roger King, a partner at Jones, Day, Reavis & Pogue, testified 
about section 8(a)((2) cases he had litigated. Mr. King 
described S. 295 as an extremely modest proposal that did not 
interfere with the NLRA. Mr. King emphasized that even if the 
NLRB did not bring many section 8(a)(2) cases, the threat of 
litigation was impeding employee participation and increased 
productivity. Edward E. Potter, President of the Employment 
Policy Foundation, testified about a study he had conducted 
that showed that 70% of productivity is due to employee 
involvement. Mr. Potter said that over a 20-year period, given 
the current level of employee involvement for the median-wage 
worker, the worker would make $17,000 more with employee 
involvement than without it because of increased productivity.
    Following the hearing, the Senate and House approved an 
amended version of the TEAM Act. Despite strong small business 
support, President Clinton vetoed the legislation.

  ``Issues Affecting Home-Based Business Owners''--Washington, D.C., 
                             April 23, 1996

    On April 23, 1996 the Committee held a hearing on issues 
affecting home-based business owners. The hearing gave the 
Committee an opportunity to recognize and pay tribute to a 
growing phenomenon in America, that of the home-based 
entrepreneur. During 1995, approximately two million Americans 
started home-based businesses. The development of new computer 
and other technologies, corporate downsizing, and the need to 
balance the demands of work and family have all added to the 
increasing popularity of home-based businesses. Chairman Bond 
pointed out that ``Changes in tax policy need to be considered 
to ensure that our laws do not inhibit the growth and 
development of home-based businesses.''
    The Committee heart testimony from small business owners 
about three major tax issues: worker classification, the 
deductibility of health-insurance by the self-employed, and the 
home-office deduction.

                         Worker Classification

    Witnesses testified that determining worker classification 
is one of the most important tax issues facing small business 
today. The delegates to the White House Conference on Small 
Business ranked it as their highest priority issue. The 
ambiguity in the current law makes it extremely difficult for 
business owners to determine whether a worker is an independent 
contractor or an employee. For many years, the Internal Revenue 
Service has been using a 20-factor common-law test to determine 
worker status. The test is subjective and unpredictable and, 
IRS agents are capitalizing on the lack of clarity and 
resolving many cases in favor of an employment relationship at 
the expense and disruption of bona fide independent-contractor 
arrangements. As a result, some small business owners are 
reluctant to hire independent contractors.
    Witnesses discussed their views of the Independent 
Contractor Tax Simplification Act, S. 1610, introduced by 
Chairman Bond and Senator Nickles to correct the problem. The 
bill sets out a short list of simple criteria in determining 
whether a person providing services to another is an employee 
or an independent contractor. To take advantage of this new 
provision, the parties must properly report payments to the 
IRS, just like under current law. This ensures that all taxes 
properly due to the Treasury will be collected. The bill 
provides immediate clarification and relief to taxpayers 
currently undergoing IRS examinations. The change in the law 
would save many businesses from long and expensive battles with 
the IRS.
    Debbie Jo Horton, a CPA and the New England Regional Tax 
Implementation Chair to the White House Conference on Small 
Business, testified that this ``bill represents the spirit of 
the White House Conference on Small Business recommendation 
#224. It addresses a majority of concerns raised by the 
delegates as their top vote-getter. I commend Senators Bond and 
Nickles for their diligence and consideration. It is one of the 
most important issues plaguing small businesses today.'' 
Chairman Bond asked whether Ms. Horton, as a CPA, sometimes 
finds herself in a position of recommending to clients that 
they not use independent contractors because of the danger of 
being reclassified by the IRS. She indicated that she has made 
such recommendations in certain cases because the interest and 
penalties that accrue as a result of reclassification can be 
devastating to a small or even a mid-sized company.
    Not all the comments regarding the bill were favorable. for 
example, Senator Wellstone was concerned that if the language 
is not carefully drafted there may be ``a bunch of people who 
really are employees all of the sudden classified as 
independent contractors for the convenience of the company'' 
potentially disadvantaging the employees. Senator Bumpers also 
wanted to see the language tightened up so that a new law is 
not created that could encourage coercive reclassification of 
workers.

                            Health Insurance

    Another top concern of home-based business owners is health 
insurance with nearly four million of the self-employed being 
uninsured. At the time of the hearing, the law provided that 
corporate employers could deduct the full cost of health 
insurance, while self-employed business owners could deduct 
only 30% of their health-insurance costs.
    Jim Johnson testified on behalf of the National Federation 
of Independent Business and said that full deductibility would 
bring parity in this area of the tax law and would also create 
an incentive for the self-employed to purchase insurance for 
their employees. Ms. Horton testified that the deduction of 
health-insurance costs ranked 15th by the White House 
Conference delegates, and she also said that the ``inequity 
places a severe financial burden on small businesses owners.''
    During the hearing there appeared to be bipartisan support 
for increasing the health-insurance deduction. The Chairman 
noted that the week prior to the hearing, the Senate voted on 
an amendment to the Health Insurance Reform Act that would 
increase the amount that self-employed individuals can deduct 
for health-insurance costs. The Chairman commented that while 
the legislation ``is not perfect, it represents a step in the 
right direction in terms of leveling the playing filed for 
America's small business entrepreneurs'' and pledged that his 
effort to achieve tax equity on this issue would continue to be 
a top priority.

                         Home-Office Deduction

    The Committee also heard testimony on a third tax issue 
important to home-based business owners, the home-office 
deduction. In 1993, the Supreme Court in, Commissioner v. 
Soliman, narrowed the availability of the home-office 
deduction. Under the Soliman decision, the bulk of the 
businesses revenue must be generated within the home office and 
the business owner must see clients in the home office in order 
to qualify for the deduction. The effect was to deny the 
deduction to self-employed plumbers, home-care nurses, 
contractors, and many others who perform their work outside of 
the home but whose office is their home. During the 104th 
Congress, legislation was introduced that would expand the 
deduction for small businesses and entrepreneurs and would 
allow the deduction if it is the sole location where essential 
administrative or management activities are conducted on a 
regular basis.
    The Chairman noted the importance of the deduction to the 
self-employed and especially to parents raising children while 
working at home. In addition, he commented that as the number 
of home-based businesses increases, the importance of the 
deduction mounts.
    Senator Bumpers pointed out that the logic behind the 
Soliman decision was, in his opinion, flawed in that it ignored 
the reality of today's business environment. He pointed out 
that although the deduction may have been abused by some 
taxpayers, that does not give cause for denying the deduction 
to those who are legitimately entitled to it. He cautioned that 
lawmakers ``should do whatever we can to allow the deduction 
when a home office is a real cost of doing business, while at 
the same time taking care not to open a new loophole for those 
who are simply seeking a tax write-off.
    Diane Sutton testified on behalf of the National 
Association for the Self-Employed and said that the number of 
home-based businesses is increasing because society is 
changing, technology is changing, and the workforce is 
changing. She went on to say that these changes are pushing 
away from the large employer and ``one job site'' model of the 
1950s and 1960s. Ms. Sutton testified that an ``enlighten 
approached to home-based businesses would be to facilitate home 
office deductions, with the appropriate safeguards against 
abuse.'' Ms. Horton testified that the Saliman decision should 
be reversed and pointed out that the White House Conference 
delegates also ranked the issue 29th amongst the top 60 issues.
    The Chairman noted that access to technology, corporate 
downsizing, and the need for two income families will likely 
accelerate over time. He expressed his strong support for home-
based entrepreneurs and his belief that Congress must do 
everything possible to create and maintain an environment where 
home-based businesses can grow and flourish.

``Nomination of Ginger Ehn Lew To Be Deputy Administrator of the United 
   States Small Business Administration and the United States Small 
Business Administration's Fiscal Year 1997 Budget''--Washington, D.C., 
                              May 1, 1996

    This was a combined hearing on the nomination of Ginger Ehn 
Lew to be Deputy Administrator of the Small Business 
Administration (SBA) and on the SBA's fiscal year 1997 budget.
    Congresswoman Nancy Pelosi, of California addressed the 
committee concerning Ms. Lew, who is a native Californian. In 
her remarks Ms. Pelosi expressed considerable support for Ms. 
Lew from the entire California delegation. Senator Barbara 
Boxer of California also submitted a letter in support of Ms. 
Lew. Ms. Pelosi was later joined by Phil Lader, Administrator 
of the SBA in backing Ms. Lew.
    Ms. Lew, a native of San Francisco, possesses a bachelor's 
degree in political science from UCLA and a law degree from the 
University of California. If confirmed she would bring a broad 
background to the SBA. Her experience includes service as a 
small business advisor for Arthur Young & Company, as well as a 
key role in the start up of a biotechnology company. She also 
has a strong background in government service. She served as 
Regional Chief Enforcement Counsel for the Department of 
Energy, and most recently she served as a top advisor to the 
late Secretary Ron Brown at the Department of Commerce.
    As Deputy Administrator, Ms. Lew would essentially be the 
Chief Operating Officer of the SBA. She expressed a desire to 
``continue to advocate for changes within the SBA, as well as 
with other agencies, to find ways to relieve the regulatory 
burden on small businesses and to allow them to get on with the 
business of doing business.'' She also expressed a desire to 
develop a sincere cooperation with the Committee. ``This 
Committee has had a long history of bipartisan support for our 
Nation's small business, and I look forward to working with you 
and other members in this spirit.''
    Ms. Lew answered questions from Committee members on a 
variety of topics including Committee initiatives, her 
experience, and her joint tax returns from 1992 to 1995, which 
showed no tax liability. This lack of liability was a major 
concern for Committee members and was apparently generated by 
losses involved in a limited partnership real estate venture.
    During the hearing the Committee also addressed the fiscal 
year 1997 budget request for the SBA. Chairman Bond stated that 
he continues ``to believe [the] SBA can be streamlined and made 
more efficient in achieving its mission.'' There is a need for 
the SBA to make better use of its resources and to prepare for 
the future of the SBA.
    There was extensive discussion regarding the 7(a) and 504 
loan program budget increase request. Mr. Lader said that the 
``principal portion of the additional amount in the President's 
budget'' for these programs is consumed by a subsidy rate 
change by OMB. The remainder of the funds are necessary to keep 
up with the growth of the program.
    Senator Olympia Snowe voiced the concerns of many Committee 
members when she noted in her written statement: ``I am * * * 
concerned to see that the latest budget proposal of President 
Clinton includes a $664 million funding request for the SBA in 
1997--an amount even greater than that requested in 1996. If we 
are to work toward a balanced budget, we must be sure that 
funding requests for federal programs are both justifiable and 
realistic * * *. I am concerned that this increased budget 
request may be lacking under both of these standards.''

 ``Small Business Investment Company Reform Legislation''--Washington, 
                           D.C. May 10, 1996

    On May 10, 1996, the Committee held the third in a series 
of hearings to determine ways to improve the Small Business 
Investment Company (SBIC) Program. In his opening statement 
Chairman Bond expressed his desire ``to continue to build on 
the improvements in the SBIC program contained in the law 
passed by Congress under Senator Bumpers' Chairmanship of this 
Committee in 1992.''
    During the first hearing in this series, the Committee 
heard from small business people who have used the SBIC program 
to their advantage in developing their business. Often the 
SBICs were the only ones willing to work with these small 
businesses. The second hearing consisted of testimony from 
people involved in venture capital lending, or more 
specifically, the lending/investing side of the SBIC program.
    This hearing was designed to pull together the ideas from 
the first two hearings and to form draft legislation to improve 
the SBIC program. In his opening remarks, Chairman Bond 
identified these main objectives:
          ``To reduce the risk of SBIC defaults by putting in 
        place a few important statutory standards governing the 
        licensing and leveraging of SBICs, such as increasing 
        the required level of private capital, eliminating the 
        special distinctions between SBICs and SSBICs, 
        requiring experienced and qualified management for all 
        SBICs and requiring a level of diversification between 
        SBIC investors and the management team'';
          To put ``in place a few important statutory 
        safeguards governing the operating practices of SBICs, 
        such as requiring frequent and meaningful valuations 
        and examinations of SBIC licensees and their 
        investments, and setting reasonable limitations on the 
        ability of SBICs with outstanding SBA leverage to 
        further dilute their private capital reserves by 
        incurring additional debt from other sources.''
    Chairman Bond also emphasized the importance of SBICs 
investing in businesses located at the lower end of eligible 
size standards. ``Licensees with less than $2.5 million of 
private capital, while they represent 38 percent in number of 
all licensees, provide only 4 percent of the program's private 
capital.'' Leveraged at more than a four to one level, this 
amounts to significant risk for the SBA. In fact, since 1989, 
over 90 percent of the liquidation efforts by the SBA involved 
those licensees in the range below $2.5 million. This created 
some contention among Committee Members, some questioning the 
need to take the risk, and others insisting it is necessary. 
Terry L. Jones, President of Syncom Capital Corporation, 
pointed out that 80% of SSBIC's have private capital totaling 
less than $2.5 million. If the standard were changed, 
economically and socially disadvantaged people would be left 
out of the SBIC program.
    The Small Business Administration indicated that it 
approves of any legislation that will improve its ability to 
provide equity and long-term debt, and reduce its cost to the 
taxpayers. The administration, however, does not support 
specifically legislating such regulations due to the lack of 
flexibility and the problems that it could cause.

``Implementation of the Small Business Agenda''--Washington, D.C., June 
                                5, 1996

    On June 5, 1996, the Committee held a hearing on 
implementation of its small business agenda. The Committee 
wanted to know how the small business agenda, which is based on 
recommendations of the 1995 White House Conference on Small 
Business and the Committee's prior hearings on Entrepreneurship 
in America, was being implemented by the Administration. One 
small business priority, paperwork reduction, was selected as a 
focus of the hearing.
    The Committee sought to collect information on how the 
Paperwork Reduction Act of 1995 (PRA) was being implemented by 
federal agencies. Specifically, the Committee set out to 
examine whether PRA mandated government-wide paperwork 
reduction goals were established and being enforced by the 
Executive Branch. As practicable examples of compliance with 
PRA provisions, the Committee looked at paperwork reduction 
practices at the Internal Revenue Service (IRS), the 
Occupational Safety and Health Administration (OSHA), and the 
Environmental Protection Agency (EPA).
    In addition to the PRA, the Committee evaluated the impact 
of other laws on the implementation of the small business 
agenda. The Small Business Regulatory Enforcement Fairness Act 
of 1996 (SBREFA) as well as the newly amended Regulatory 
Flexibility Act were of particular interest to the Committee. 
The purpose of both of these laws, as well as the PRA, is to 
provide the small business community with tools to assist it in 
working within the government regulatory processes.
    The Committee requested testimony on how Executive Branch 
policy and procedures were assisting small business in working 
with the regulatory process. The Committee was especially 
interested in testimony involving the SBA's Office of Advocacy. 
SBA's Chief Counsel for Advocacy is required by the SBA's 
enabling legislation to promote the interests of small business 
within the Administration, especially in regulatory matters.
    Finally, the Committee sought testimony directly from small 
business representatives on implementation effectiveness. In 
particular, the Committee requested small business' perceptions 
of actions by the Office of Advocacy taken to represent small 
business concerns before regulatory agencies. The Committee 
also requested legislative recommendations from small business 
that could further support the efforts of the Office of 
Advocacy.
    In his opening statement, Chairman Bond stated that the 
cost of the government's regulatory paperwork burden is 
enormous. The cost of paperwork burdens exceeds $400 billion 
per year, with small business' costs estimated at $100 billion 
dollars. Chairman Bond pointed out that these costs only 
represent the cost of preparing and filing forms, reports, and 
other paperwork required by the federal government. The 
government-wide paperwork burden total has risen substantially 
between 1980 and 1995 from 1.5 billion burden hours in 1980 to 
more than 6.9 billion hours in 1995.
    The first panel of witnesses included Michael Brostek, 
Associate Director, Federal Management and Workforce Issues, 
General Government Division, General Accounting Office (GAO), 
and Peter F. Guerrero, Director, Environmental Protection 
Issues Resources, Community and Economic Development Division, 
GAO. The GAO testimony was developed in response to a February 
1996 letter from Chairman Bond requesting testimony on the 
Administration's implementation of the Paperwork Reduction Act 
of 1995. Specifically, Chairman Bond requested testimony on: 
(1) what plans and processes OMB and certain agencies (EPA, 
OSHA, and IRS) have established to meet the Paperwork Reduction 
Act's burden reduction goals, (2) whether progress has been 
made since the Act became effective on October 1, 1995, both 
government-wide and in the three agencies, that will achieve 
the Act's burden reduction goals within the time frames 
established in the Act; and (3) measurement issues Congress 
should be aware of in its oversight of agencies' progress in 
reducing paperwork burden.
    The GAO witnesses testified that the PRA requires the OMB's 
Office of Information and Regulatory Affairs (OIRA) to 
establish a 10% paperwork reduction goal in FY96 and FY97 as 
well as five percent goals for the following years. Mr. Brostak 
testified that OIRA has not, as of the hearing date, set any 
government-wide paperwork reduction goals for FY96 even though 
the PRA became effective October 1, 1995, nine months earlier. 
In addition, even if planned agency-specific goals were used, 
their total would not equal the 10% government-wide reduction 
goal. The GAO witnesses, based on their burden hour 
projections, stated that OIRA would only require agencies to 
attain a one percent government-wide reduction for FY96. This 
projection, combined with out-year PRA reduction requirements, 
was discussed, and the Committee expressed concern about the 
Administration's failure to attain the reduction goal.
    GAO's testimony provided examples of agency compliance with 
the PRA. Mr. Brostak testified that EPA Administrator Carol 
Browner committed the Agency to a 25% paperwork burden 
reduction from its January 1995 baseline of 81 million hours by 
June 1996. Contrary to EPA's commitment, GAO's analysis 
projected EPA's paperwork burden would total 117 million hours 
by September 1996, a 44% increase. An accurate EPA paperwork 
baseline was a subject of lengthy discussion at the hearing. 
EPA, according to GAO, had revised its baseline several times 
during 1995 and 1996 making consistent analysis difficult. In 
summary, GAO agreed with Committee members that EPA's paperwork 
burden was continuing to increase. One reason cited by GAO for 
the increase was new regulation requirements, such as the Clean 
Air Act.
    The GAO witnesses testified that OSHA originally projected 
its paperwork reduction burden at four percent. OSHA 
subsequently revised its reduction by interpretive rulings 
within the Department of Labor, thereby claiming an eight 
percent reduction. To do this, OSHA claimed an additional 17 
million burden hour reduction due to planned phase out of 
third-party information collection burden. This interpretive 
ruling prompted discussion on whether agencies were keeping 
different sets of books, one for public release and a second 
with reduction figures. The GAO witnesses responded that 
agencies had been revising their burden hours totals since the 
original PRA baselines were established in August 1995 and that 
this made consistent goal evaluation difficult.
    GAO testified that the IRS, which accounts for over 75% of 
the total government paperwork burden, has claimed savings in 
simplifying forms and instructions as well as moving eligible 
taxpayers to the ``EZ'' versions of required forms. Ms. Brostak 
testified that IRS would only reduce its paperwork burden by 
0.9% for FY96.
    Finally, the GAO witnesses testified that OIRA had failed 
to keep Congress properly informed of major activities related 
to the PRA, as required under the Act. Mr. Brostak pointed out 
two major activities of which Congress was not informed: (1) 
OIRA has not established any burden reduction goals to date, 
and (2) agency projections, which OIRA received in early 1996, 
indicated that the 10% government-wide paperwork reduction goal 
called for in the Act would not be achieved.
    The Committee examined the Office of Advocacy's 1995 annual 
report of agency compliance with the Regulatory Flexibility 
Act. The report's purpose is to inform the small business 
community and others of the regulations on which the Office of 
Advocacy has commented on. As a result, the report serves as an 
indicator of the Office of Advocacy's support of the small 
business agenda. Chairman Bond stated that 5,133 regulations 
were considered by the federal government in FY95, of which 918 
regulation were considered significant by the federal agencies 
themselves. Chairman Bond pointed out that the Office of 
Advocacy filed only 57 written comments to the 918 significant 
rules under consideration. In addition, only four of the 57 
comments dealt with the big three agencies for small business: 
EPA, OSHA, and IRS. Chairman Bond compared 1995 totals to 1992 
when over four times as many comments were written, even though 
there were almost 1,000 fewer regulations considered in 1992.
    The witnesses on the second panel testified about the 
Office of Advocacy's performance. The Committee, in addition to 
information collection, was seeking testimony on potential 
legislative recommendations to strengthen the Office of 
Advocacy. The panel included Mary K. Ryan, Deputy Chief 
Counsel, Office of Advocacy, SBA, who testified that the major 
starting point for Office of Advocacy activities is to 
implement the 60 recommendations of the White House Conference 
on Small Business. Ms. Ryan testified about specific Office of 
Advocacy actions that were undertaken to implement the 
conference recommendations, especially the use of information 
and education initiatives.
    The second witness on this panel was Jack Faris, President, 
National Federation of Independent Business, which represents 
over 600,000 small businesses across the country. Mr. Faris's 
testimony outlined several legislative and executive actions 
required to fulfill small businesses' priorities, including 
regulatory reform, tax reform, health-care reform, legal 
reform, and a balanced federal budget.
    The final witness was R. Wendall Moore, Executive Vice 
President and Co-Founder, Red Hot & Blue Restaurants, Inc., 
who, in addition to being a small businessman, was a former 
Acting Chief Counsel for Advocacy as well as Deputy Chief 
Counsel for the SBA. Mr. Moore testified, based on his SBA 
experience, that while the Office of Advocacy was legislatively 
intended to be ``an independent voice'' for small business, he 
believed that the public law establishing the Chief Counsel is 
inconsistent with the original congressional intent and 
therefore does not allow the Office to operate independent from 
Administration policy. Mr. Moore testified that since the Chief 
Counsel for Advocacy is appointed by the President and the 
office's budget and staff levels are determined by a 
presidential appointee, its independence is extremely 
improbable. Mr. Moore gave legislative recommendations that 
could be considered to strengthen the Office of Advocacy.
    One issue discussed during the hearing was the potential 
minimum wage increase, which eventually passed the Congress in 
September 1996. Messrs. Faris and Moore commented that the 
proposed minimum wage would impose an additional burden on the 
small business community. Mr. Faris expressed the concern that 
the minimum wage was not even on the ``radar screen'' as a 
issue for small business at the White House Conference. As a 
result, he was unclear why the Administration would make it a 
priority at this time.
    The small business panel also provided the Committee with 
testimony advocating major reform in the present tax code. The 
panelists stated that the majority of federal paperwork 
requirements presently imposed on small business revolve around 
the current tax system, and until this structure is modified, 
changed, or scraped, many small business persons will view 
paperwork reduction actions as a Washington bureaucratic game.

``Implementation of the Small Business Regulatory Enforcement Fairness 
             Act of 1996''--Washington, D.C., July 24, 1996

    On July 24, 1996, the Committee held an oversight hearing 
on the Administration's implementation of the Small Business 
Regulatory Enforcement Fairness Act (SBREFA). On March 29, 
1996, as Title III of the Contract with America Advancement 
Act, SBREFA was signed into law by President Clinton. The 
effective date of SBREFA was June 28, 1996. The Act, originally 
sponsored in the Senate by Chairman Bond as S. 942, is intended 
to legislate specific recommendations of the 1995 White House 
Conference on Small Business, which deal with the development 
and enforcement of federal regulation, including judicial 
review of agency actions under the Regulatory Flexibility Act.
    In authorizing judicial review of the Regulatory 
Flexibility Act, SBREFA helps insure that federal agencies 
consider ways to reduce any significant economic impact of new 
regulations on small businesses. In addition, it requires 
federal agencies to prepare ``Plain English'' compliance guides 
spelling out in easy to follow language how small business can 
comply with federal regulations.
    Another provision sets up an independent Ombudsman to 
receive confidential complaints and comments from small 
businesses about their dealings with federal regulators. 
Regional review boards will ``rate the regulators'' based on 
these comments and publish their findings in a report card for 
each agency. SBREFA also allows small businesses to recover 
their expenses and legal fees from the government when 
enforcers make excessive demands for fines or penalties that 
cannot be sustained in court. Finally, the bill authorizes 
Congress to review and overturn new regulations written by 
federal agencies within a 60-day window. This last provision 
was not part of the bill as reported by the Committee, and 
therefore was not a focus on the hearing.
    While SBREFA had only been in effect for less than a month 
on the hearing date, the hearing was held to determine what 
actions the Administration had taken to date in compliance with 
the new law. The Committee received testimony from the OMB's 
Office of Information and Regulatory Affairs (OIRA) and SBA's 
Office of Advocacy on Administration plans for SBREFA 
implementation. Additionally, the Committee sought the 
perspective of small businesses on what effect any 
circumvention of SBREFA procedures would have on their 
businesses' activities.
    The first panel consisted of Sally Katzen, Director, OIRA 
and Jere Glover, Chief Counsel, Office of Advocacy, SBA. Ms. 
Katzen testified that the Administration was active in its 
support for the passage of SBREFA and highlighted provisions of 
the legislation for implementation. Ms. Katzen testified that 
OIRA and the SBA have worked together on a wide range of issues 
and had already begun planning discussions with regulatory 
agencies on the implementation of SBREFA.
    Mr. Glover testified about the Office of Advocacy's 
implementation of SBREFA. He pointed out that judicial review 
was a major recommendation of the 1995 White House Conference 
on Small Business and complimented the Committee for moving 
swiftly to address this important issue. Mr. Glover went on to 
explain that the Office of Advocacy was involved in several 
avenues of outreach to inform and educate small business about 
the SBREFA provisions.
    One issue of significance discussed in the hearing was the 
meaning of the term ``significant impact on a substantial 
number of small businesses,'' as required by the Regulatory 
Flexibility Act. Mr. Glover testified that industry data is 
helpful, but many times this issue becomes a judgment call 
caused by individual circumstances. Chairman Bond followed up 
Mr. Glover's testimony by questioning him about whether the SBA 
had provided the necessary guidance to agencies on this issue. 
Chairman Bond pointed out that recent SBA guidance failed to 
address this issue.
    This issue of OIRA and SBA providing meaningful guidance on 
the Regulatory Flexibility Act was discussed by the Committee 
and the Administration witnesses. Both witnesses were asked for 
assurances that their offices would provide proper guidance and 
accountability procedures to agencies to ensure compliance with 
the Regulatory Flexibility Act provisions. Specifically, 
Section 610 of the Act, requiring agencies to inform small 
business of the periodic review of significant regulations, was 
reviewed. The Committee wanted to make sure that agencies 
review their present Section 610 procedures to ensure 
compliance with its provisions for advance notification to 
small business in the rulemaking process.
    Finally, Chairman Bond, as a follow-up to the June 1996 
Committee hearing on implementation of the small business 
agenda, asked Ms. Katzen when OIRA would issue the required 
Paperwork Reduction Act burden reduction goals for fiscal year 
1996. The Chairman expressed concern that the Administration 
was 10 months into the fiscal year and had not issued any 
reduction goals. Ms. Katzen answered that Administration 
officials were continuing to meet and discuss the reductional 
goals but had not come to any final conclusions.
    The second panel of small business representatives 
testified on recent agency regulatory actions. This panel 
provided the Committee with a small business perspective on the 
Administration's implementation of SBREFA. The panel included: 
William M. Smiland, Co-owner, Smiland Paint Company; Richard 
Hardy, President, XIM Products, Inc.; Willis J. Goldsmith, 
Partner, Jones, Day, Reavis & Pogue; and Jean Smith Mohler, 
Assistant Counsel, Petroleum Marketers of America.
    The panelists focused on EPA and OSHA regulatory actions 
and how these actions appear to circumvent new regulatory 
procedures mandated by SBREFA. Mr. Smiland pointed out that EPA 
issued a paint and coatings proposed rule on June 26, 1996 just 
two days before the effective date of SBREFA. Additionally, he 
pointed out that EPA only issued part of the proposal on June 
26 and did not publish the remainder of the rule until the next 
week, after the SBREFA effective date. By doing this, Mr. 
Smiland suggested, the agency had no requirement to convene a 
Small Business Advocacy Review Panel as required under SBREFA. 
As a result, small business was denied a valuable tool for 
input into the rulemaking process.
    Mr. Goldsmith testified that OSHA, by issuing guidelines 
for Nighttime Workplace Violence instead of following 
traditional rulemaking procedures has denied small business 
important protections in the rulemaking process. Mr. Goldsmith 
testified that some OSHA guidelines, as issued, can be used for 
enforcement purposes thereby making guidelines have the same 
effect as OSHA rules without being subject to key rulemaking 
provisions, such as public comment from small businesses, as 
required by SBREFA.
    Ms. Mohler testified that EPA, on June 27, 1996, one day 
before SBREFA's effective date, published a proposed rule to 
expand the Toxics Release Inventory (TRI). Ms. Mohler pointed 
out that the rule, which must be approved by OMB before 
publication, appears to have been significantly expedited by 
OMB to allow EPA to publish it before the SBREFA effective 
date. Ms. Mohler testified that while some rules require months 
of OMB review, the TRI rule was cleared by OMB within one week 
of review. Additionally, Ms. Mohler believes that EPA's initial 
regulatory flexibility analysis, as called for in Regulatory 
Flexibility Act, was badly flawed. She suggested that the 
Agency's haste to publication was done to avoid the small 
business review panel required under SBREFA, and as a result 
the quality of the analysis suffered.
    The Committee heard testimony from Mr. Hardy on the 
significant impact that the paint and coatings rule is having 
on his small business. He testified that this rule will require 
his company to spend over $1 million in research to find 
alternative methods to comply with the new rule. He testified 
that the rule significantly effected speciality paints, which 
are an important part of his business and that of many small 
paint manufacturers and painters. Mr. Hardy stated that input 
from small paint companies, as required under SBREFA, would 
have allowed for a more orderly and less costly transition to 
the proposed rules for small business.

                                
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