[Senate Report 106-147]
[From the U.S. Government Publishing Office]



106th Congress                                                   Report
                                 SENATE
 1st Session                                                    106-147
_______________________________________________________________________

                                     




                        SUMMARY OF LEGISLATIVE


                       AND OVERSIGHT ACTIVITIES


                       DURING THE 105TH CONGRESS

                               __________

                              R E P O R T

                                 of the

                      COMMITTEE ON SMALL BUSINESS

                          UNITED STATES SENATE




                August 27, 1999.--Ordered to be printed

   Filed under authority of the order of the Senate of August 5, 1999

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
58-141                     WASHINGTON : 1999

                      COMMITTEE ON SMALL BUSINESS
                CHRISTOPHER S. BOND, Missouri, Chairman
CONRAD BURNS, Montana                JOHN F. KERRY, Massachusetts
PAUL COVERDELL, Georgia              DALE BUMPERS, Arkansas
DIRK KEMPTHORNE, Idaho               CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah              TOM HARKIN, Iowa
JOHN W. WARNER, Virginia             JOSEPH I. LIEBERMAN, Connecticut
BILL FRIST, Tennessee                PAUL D. WELLSTONE, Minnesota
OLYMPIA J. SNOWE, Maine              MAX CLELAND, Georgia
LAUCH FAIRCLOTH, North Carolina      MARY LANDRIEU, Louisiana
MICHAEL ENZI, Wyoming
             Louis Taylor, Staff Director and Chief Counsel
               Patricia Forbes, Democratic Staff Director
                 Paul H. Cooksey, Deputy Chief Counsel

                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. Summary of Committee Activity for the 105th Congress.............1
          A. Regulatory Fairness: Oversight and Implementation of 
              the Red Tape Reduction Act.........................     1
          B. Regulatory Reforms for Small Businesses.............     4
          C. Small Business Tax Issues...........................     4
          D. Workplace Issues....................................     6
          E. Access to Capital: Small Business Administration 
              Programs...........................................     7
          F. Women-Owned Businesses..............................     8
          G. Federal Procurement.................................     8
          H. Health Care.........................................     9
          I. Securities Law......................................    10
          J. Banking and Financial Institutions..................    10
          K. Telecommunications..................................    11
 II. Regulatory Fairness: Oversight and Implementation of the Red Tape 
     Reduction Act...................................................11
          A. Small Business Ombudsman and Regional Fairness 
              Boards.............................................    11
          B. Bureau of Land Management Wilderness Management Rule    12
          C. Small Business Advocacy Review Panels at EPA and 
              OSHA...............................................    13
          D. IRS Rules...........................................    13
          E. Regulatory Flexibility Act of 1980 (Judicial Review)    15
          F. GAO Report on APA Compliance........................    16
III. Regulatory Reforms for Small Business...........................17
          A. Mandates Information Act............................    17
          B. Congressional Office of Regulatory Analysis Act.....    17
          C. Section 610 Reforms.................................    18
          D. Environmental Compliance Tools......................    19
 IV. Small Business Tax issues.......................................20
          A. Deductibility of Health Insurance for the Self-
              Employed...........................................    20
          B. Home-Office Deduction...............................    21
          C. Independent-Contractor Reform.......................    22
          D. IRS ``Stealth Tax'' Regulations.....................    23
          E. IRS Nursery Regulations.............................    24
          F. Electronic Federal Tax Payment System...............    25
          G. Capital-Gains Tax Reduction.........................    26
          H. Estate Tax Reform...................................    27
          I. Alternative Minimum Tax Reform......................    27
          J. Tax Relief for Farmers..............................    28
          K. Pension Reform......................................    29
          L. IRS Restructuring and Reform........................    30
          M. Fundamental Tax Reform..............................    32
          N. Internet Tax Freedom Act............................    33
          O. Extension of Expiring Provisions....................    34
          P. Payroll Tax Relief..................................    35
  V. Workplace Issues................................................36
          A. OSHA Reform.........................................    36
              1. OSHA's Cooperative Compliance Program...........    36
              2. Ergonomics......................................    36
          B. Labor-Management Relations..........................    37
              1. NLRB Reform Legislation.........................    37
              2. Union Salting...................................    37
              3. Minimum Wage....................................    38
          C. Drug-Free Workplace.................................    38
 VI. Access to Capital: Small Business Administration Programs.......39
          A. 504 Certified Development Company Program...........    39
          B. Small Business Investment Company Program...........    39
          C. SBAExpress and LowDoc Pilot Loan Programs...........    41
          D. Oversight...........................................    42
              1. SBA's Lender Examination Procedures.............    42
              2. Asset Sales.....................................    44
              3. Securitization of the Unguaranteed Portion of 
                  7(a) Loans.....................................    45
          E. Small Business Year 2000 Readiness..................    46
          F. Proposed 7(a) and 504 Loan Program Changes..........    47
VII. Women-Owned Businesses..........................................48
          A. Survey of Women-Owned Enterprises...................    48
          B. Women's Business Center Program.....................    48
VIII.HUBZones and Federal Procurement................................49

          A. HUBZone Act of 1997.................................    49
          B. Contract Bundling...................................    50
          C. Reporting of Small Business Contracting Statistics..    51
          D. Small Business Research and Development.............    52
 IX. Health Care.....................................................54
  X. Reform of Consumer Bankruptcy Laws..............................55
 XI. Telecommunications..............................................56
          A. FCC Access Charge Rule..............................    56
          B. FCC Telephone Directories Rule......................    56
XII. Hearings of the Committee.......................................57
          February 6, 1997: Women-Owned and Home-Based Businesses    57
          February 12, 1997: Nomination of Aida Alvarez to be 
              Administrator of the United States Small Business 
              Administration.....................................    59
          February 26, 1997: The President's Fiscal Year 1998 
              Budget Request for the United States Small Business 
              Administration.....................................    60
          February 27, 1997: S. 208, The HUBZone Act of 1997.....    61
          March 25, 1997: Entrepreneurship in America: 
              Cultivating Maine Grown Businesses.................    62
          April 2, 1997: Entrepreneurship in America: Impacts of 
              Meat Inspection on Small Business..................    63
          April 3, 1997: Entrepreneurship in America: Solutions 
              for Tax and Regulatory Fairness for Small Business.    64
          April 10, 1997: S. 208, The HUBZone Act of 1997........    65
          April 24, 1997: Oversight of SBA's Non-Credit Programs.    67
          May 7, 1997: Oversight of SBA's Finance Programs.......    68
          May 15, 1997: Oversight of SBA's Finance Programs--Part 
              II.................................................    69
          May 31, 1997: Entrepreneurship in America: The Impact 
              of OSHA and Other Agencies.........................    71
          June 4, 1997: Small Business Perspectives on Mandates, 
              Paperwork, and Regulation..........................    72
          June 12, 1997: Oversight of SBA's Microloan Program....    73
          August 19, 1997: Entrepreneurship in America: Fairness 
              in Regulatory Enforcement..........................    74
          October 22, 1997: Small Business and Fundamental Tax 
              Law Reform.........................................    77
          February 12, 1997: IRS Reform: What America's Taxpayers 
              Need Now...........................................    79
          March 2, 1998: Entrepreneurship in America: Focus on 
              the IRS............................................    80
          March 18, 1998: The President's Fiscal Year 1999 Budget 
              Request for the Small Business Administration......    81
          April 28, 1998: Environmental Compliance Tools for 
              Small Business.....................................    83
          May 14, 1998: Nomination of Fred P. Hochberg to be 
              Deputy Administrator of the SBA....................    85
          June 2, 1998: E-commerce and Y2K: What's Ahead for 
              Small Business?....................................    86
          June 4, 1998: Oversight of the Small Business 
              Innovation Research (SBIR) Program.................    88
          July 13, 1998: Entrepreneurship in America: Expansion 
              of Microlending....................................    89
          July 15, 1998: Home Health Care: Can Small Agencies 
              Survive New Regulations?...........................    90
          September 24, 1998: Can Small Business Compete With 
              Campus Bookstores?.................................    92

106th Congress                                                   Report
                                 SENATE
 1st Session                                                    106-147

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



 
   SUMMARY OF LEGISLATIVE AND OVERSIGHT ACTIVITIES DURING THE 105TH 
                                CONGRESS

                                _______
                                

                August 27, 1999.--Ordered to be printed

   Filed under authority of the order of the Senate of August 5, 1999

                                _______


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

                              R E P O R T

        I. SUMMARY OF COMMITTEE ACTIVITY FOR THE 105TH CONGRESS


 A. Regulatory Fairness: Oversight and Implementation of the Red Tape 
                             Reduction Act

    Regulatory reform for small business continued to be a 
priority for the Committee during the 105th Congress. The 
Committee paid especially close attention to implementation of 
the Small Business Regulatory Enforcement Fairness Act of 1996, 
which provided small businesses with new tools to reduce red 
tape and participate meaningfully in the rulemaking process.
    As the principal author of this new law, Chairman 
Christopher S. ``Kit'' Bond wanted to ensure that Federal 
agencies properly and fully implemented its requirements. He 
sought to ensure that the letter and spirit of the law were 
being followed. Witnesses at the Committee's hearing on ``Small 
Business Perspectives on Mandates, Paperwork, and Regulation'' 
testified to the importance of regulatory reforms to small 
business and oversight of agency implementation. Through 
oversight, Congress can better ensure that the benefit intended 
by Congress when it enacts legislation is realized once the 
statute is implemented.
    The Chairman shared the concerns of small business that if 
left unsupervised, Federal agencies might not incorporate the 
requirements of this ``Red Tape Reduction Act'' into their 
policies and practices. This concern was in part the result of 
the small business community's experience with the Regulatory 
Flexibility Act of 1980, which agencies had historically 
ignored. Because the Red Tape Reduction Act amended the 
Regulatory Flexibility Act to allow small businesses to sue 
agencies in court as a means of enforcing compliance, the time 
was right for Congressional oversight and vigilance by small 
businesses and their advocates in Congress.
    To assist the Committee with its oversight, the General 
Accounting Office (GAO) conducted several studies for the 
Committee on agency compliance with the Administrative 
Procedure Act, the Regulatory Flexibility Act, and the Red Tape 
Reduction Act. While each report tells a slightly different 
story, the variation between agency interpretations and 
compliance with these important laws is troubling.
    Throughout the 105th Congress, the Committee monitored 
agencies' rulemaking activities to assess their compliance with 
the requirements of the Red Tape Reduction Act and the 
Regulatory Flexibility Act. On numerous occasions, small 
businesses and the trade associations representing them came to 
the Committee with information regarding agency rulemakings 
that had failed to comply with the law. The Chairman and 
Ranking Member joined efforts on several letters to agencies, 
calling upon the head of the agency to bring the rulemaking 
into compliance with the law. The objective was to ensure that 
the agencies knew that Congress was indeed watching and 
interested in ensuring agencies complied with the procedural 
safeguards provided by these important laws.
    The Chairman wrote to the Department of Interior's Bureau 
of Land Management (BLM) twice regarding a proposed wilderness 
management regulation that would significantly impact small 
companies involved in outfitting and leading climbing tours on 
land managed by BLM. Despite contrary information from the 
small businesses, the BLM had certified that the rule would not 
have a significant economic impact on a substantial number of 
small entities. Under the Regulatory Flexibility Act, an agency 
must perform a Regulatory Flexibility analysis unless it can 
certify that the rule will not have a significant economic 
impact on a substantial number of small entities. Use and abuse 
of the certification process was the subject of several letters 
from the Committee.
    The Federal Communications Commission (FCC) received 
letters from the Chairman and Ranking Member regarding two 
separate rulemakings in which the FCC appeared not to take into 
consideration the full impact of their actions on small 
businesses. First, in the FCC's Access Charge rule, small 
businesses were concerned that the FCC had failed to analyze 
the impact of changes to the pricing of interstate access 
service on small long-distance carriers and certain small 
retail businesses that use long distance. The second joint 
letter addressed the concerns of small publishers of telephone 
directories who raised concerns about the effects on small 
businesses of the FCC's determination of the ``reasonable'' 
price for subscriber list information. In both rules, the small 
businesses sought the assistance of the Committee to urge the 
FCC to conduct a more thorough Regulatory Flexibility analysis 
before proceeding with their rules.
    Two rulemakings by the Internal Revenue Service (IRS) also 
prompted a series of letters from the Committee for their 
failure to assess appropriately the impact of proposed rules on 
small businesses. The Chairman sent letters regarding a 
proposed rule to amend the definition of ``limited partner,'' 
which was issued without appropriate attention to the impacts 
on small businesses. Similarly, when the IRS issued a proposed 
and temporary rule affecting nursery businesses, Senator Bond 
wrote to the IRS and the Treasury Department regarding their 
narrow interpretation of when IRS rules triggered the need to 
comply with the Regulatory Flexibility Act and the Red Tape 
Reduction Act. Under their interpretation, compliance was only 
required in the limited instances when an IRS regulation would 
impose a new paperwork requirement, with a specific form being 
required. Otherwise, IRS interpretive rules would be proposed 
without the benefit of a Regulatory Flexibility analysis. The 
Chairman's letters clearly stated that such a narrow 
interpretation undermines the language in the Red Tape 
Reduction Act that was expressly intended to require compliance 
with the Regulatory Flexibility Act when an interpretive rule 
was proposed to amend the Internal Revenue Code.
    The Committee's actions on behalf of our nation's home-
health care providers received a great deal of visibility. A 
hearing in July 1998 was dedicated to this topic, and Senator 
Bond introduced two pieces of legislation in an effort to 
remedy the adverse impacts on small home-health care providers 
caused by the Health Care Financing Administration's (HCFA) 
implementation of regulations on surety bonds and its Interim 
Payment System (IPS). In the first instance, HCFA issued 
regulations to implement a statutory requirement that home-
health care agencies participating in the Medicare and Medicaid 
programs must obtain surety bonds. However, HCFA exceeded the 
statutory mandate and issued a requirement for financial 
guarantee bonds, instead of overpayment bonds, which placed the 
bonds out of reach for most small home-health care providers. A 
resolution of disapproval introduced by Chairman Bond, S. J. 
Res. 50, earned sixty cosponsors and was the driving force 
behind HCFA's agreement to suspend the effective date of its 
surety bond regulations pending a study by the GAO and 
additional consideration on the contents of the rules.
    HCFA's surety bond regulations and its regulations to 
implement an IPS were also controversial because HCFA issued 
both rules without first publishing a notice of proposed 
rulemaking which provides the opportunity for advance notice 
and comment by the regulated community. At the hearing in July 
of 1998, numerous witnesses spoke to the problems being caused 
by HCFA's regulations and the need for relief to ensure that 
reputable home-health care providers and their beneficiaries 
were not harmed by these regulations.
    The Committee also focused attention on provisions of the 
Red Tape Reduction Act that sought to ensure that small 
businesses get a fair shake during agency enforcement actions. 
A hearing was held in Kansas City, Missouri, in August of 1997 
to receive testimony from small businesses regarding regulatory 
fairness. While progress was being made, the witnesses clearly 
expressed the need for additional oversight from Congress and 
additional commitment from Federal agencies to internalize the 
requirements of the Red Tape Reduction Act. A strong emphasis 
was placed on the important role of compliance assistance, and 
in 1998, the Committee reviewed reports from the agencies on 
their implementation of the compliance assistance and penalty 
reduction and waiver provisions of the law. The Committee also 
monitored the Regulatory Fairness Program established at the 
Small Business Administration (SBA) pursuant to the Red Tape 
Reduction Act.

               B. Regulatory Reforms for Small Businesses

    In addition to oversight, the Committee explored the need 
for additional legislation to reduce the regulatory burdens on 
small businesses. In June of 1997, the Committee received 
testimony from Senator Spencer Abraham and Representative Gary 
Condit on S. 389, the ``Mandates Information Act of 1998.'' The 
Chairman was a lead cosponsor of this bill, which sought to 
build on the successes of the Unfunded Mandates Reform Act of 
1995. The Chairman joined Senator Richard Shelby as a lead 
sponsor of ``The Stealth Tax Prevention Act,'' which would have 
restricted the ability of the Internal Revenue Service (IRS) to 
raise taxes through regulation. In addition, Senators Shelby 
and Bond introduced legislation to create a Congressional 
Office of Regulatory Analysis (CORA), which would assist 
Congress in fulfilling its responsibilities under the 
Congressional Review Act. Although these bills were not 
enacted, each generated meaningful and productive discussions 
on the continued need for regulatory reforms tailored to 
address the impacts on small businesses.
    The Committee's exploration of agency compliance with 
Section 610 of the Regulatory Flexibility Act assisted the 
Governmental Affairs Committee in developing a proposal to 
revise the periodic review of rules provision enacted in 1980. 
Despite evidence from the GAO that many agencies were failing 
to comply with the Act, the reform language was not supported 
by the Administration and subsequently dropped during 
negotiations with the Administration.
    In an effort to assist small businesses with their efforts 
to comply with environmental regulations, the Committee 
approved an amendment offered by Senator Conrad Burns to create 
a pilot program to establish an advisory committee on Small 
Business Environmental Assistance programs. While this program 
was approved by the full Senate, it was not considered in the 
House of Representatives; however, it is anticipated that this 
measure will be considered again in the 106th Congress.

                      C. Small Business Tax Issues

    Throughout the 105th Congress, tax equity continued to be a 
top priority for small businesses. In hearings before the 
Committee, a wide range of small businesses reported the 
effects of disparate tax treatment. Home-based businesses 
testified about the lack of a level-playing field they face on 
issues like the deductibility of office expenses--a business 
based in the owner's home may only deduct such expenses in 
limited circumstances, while a business that owns or rents a 
separate facility can deduct the costs in full. Similarly, the 
self-employed emphasized the inherent unfairness of limitations 
on the deductibility of their health-insurance costs when their 
corporate competitors can deduct them completely. 
Entrepreneurs, too, stressed the inequity caused by the current 
worker-classification rules, which in many cases force them to 
structure their business relationships not on practicality and 
the best economic decision, but on complex and obscure criteria 
dictated by the IRS.
    Small business owners also repeatedly expressed their 
frustration with the overall complexity of the tax code. With 
thousands of pages of statutes, regulations, forms, 
instructions, and other guidance, entrepreneurs are spending 
countless hours of nonproductive time keeping records, 
completing forms, and simply trying to keep up with all the 
requirements of the current tax system. By some estimates, 
small business owners are spending more than 5% of their 
revenues on tax compliance, which does not include the amount 
they spend to pay the tax bill. With few employees, small 
businesses must spend these revenues in many cases on outside 
bookkeepers, accountants, and lawyers to make sure that the 
business meets its tax obligations and does not run afoul of 
the myriad rules and regulations. As too many witnesses 
testified, the time and money required for tax compliance takes 
valuable resources away from the small business' ability simply 
to be productive.
    The report of the National Commission on Restructuring the 
Internal Revenue Service and the Senate hearings on IRS abuses 
highlighted many of the obstacles that small firms face when 
dealing with the IRS. Witnesses before the Committee testified 
that onerous audits and difficulties in resolving honestly 
disputed issues can mean the end of a small business. In 
addition, the Committee heard accounts of IRS personnel failing 
to provide appropriate customer service and respect for 
taxpayers' rights, which not only places enormous burdens on 
the individual taxpayer, but also reduces the confidence of all 
taxpayers that the tax system is fair.
    Chairman Bond introduced legislation with Senators Snowe 
and Nickles at the start of the Congress to eliminate some of 
the inequities identified by small business owners. The Home-
Based Business Fairness Act of 1997 (S. 460) included 
provisions to provide full deductibility of health insurance 
for the self-employed and to restore the home-office deduction 
for businesses operated out of the home. In addition, the bill 
contained a clear test for determining when a worker is an 
independent contractor. The bill also provided protection 
against the IRS second guessing those decisions and forcing 
businesses that contract with independent contractors to pay 
large sums for back taxes, interest, and penalties for worker 
classifications made in good faith. The bill received strong 
support from the small business community, and by the end of 
the 105th Congress, it had 36 cosponsors in the Senate.
    The Taxpayer Relief Act of 1997 made two parts of the Home-
Based Business Fairness Act a reality--the home-office 
deduction was restored and the deductibility of health 
insurance for the self-employed was accelerated, reaching 100% 
in 2007. The Taxpayer Relief Act also included several other 
provisions beneficial to small business including lower 
capital-gains tax rates and an expanded exclusion for capital 
gains resulting from investments in small firms. Additionally, 
the Act provided important relief from the estate tax, 
especially for family-owned businesses and farms, and it 
reduced the burdens of the alternative minimum tax for many 
small business owners and farmers.
    In response to calls for IRS restructuring and 
strengthening of taxpayer rights, the Chairman introduced 
legislation during the Second Session of the 105th Congress to 
address these issues as they pertain specifically to small 
business taxpayers. With the strong support of the small 
business community, major parts of the Putting the Taxpayer 
First Act of 1998 (S. 1669) were implemented by the IRS, 
including restructuring the agency along customer lines for 
taxpayers with similar needs and characteristics such as small 
businesses and the self-employed. In addition, a number of 
provisions from this legislation were included in the Internal 
Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-
206), which was signed into law in July 1998. As a result, 
significant steps were taken to create an environment of 
service and respect for small businesses across the country as 
they interact with the IRS and seek to meet their tax 
obligations.
    As the 105th Congress drew to a close, additional progress 
was made on several tax issues important to small businesses. 
As part of the Omnibus Consolidated and Emergency Supplemental 
Appropriations Act, the self-employed health-insurance 
deduction was again accelerated so that full deductibility will 
be achieved in 2003 (instead of 2007) and a greater deduction 
will be available in each of the preceding years. The Act also 
included several provisions to reduce tax burdens on America's 
farmers who have faced difficult economic times in recent 
years. In addition, the Act extended a number of expiring tax 
incentives important to small firms in a variety of industries.
    In retrospect, the 105th Congress enacted legislation that 
significantly improves the tax environment for small businesses 
in America. While progress was made, however, much work remains 
to be done to ensure equal treatment for all small firms and to 
provide a fair and simple tax code that is not economically 
draining on the business enterprises vital to our economy. In 
particular, the Chairman remains committed to ensuring that the 
self-employed are treated fairly with respect to the 
deductibility of health insurance at the earliest possible 
date. It is also anticipated that efforts to reform the 
independent contractor rules will continue so that business 
relationships can once again be dictated by sound business 
decisions and not the tax laws. In addition, the Committee will 
continue its oversight of the IRS to ensure that agencies 
minimize the burdens on all taxpayers, especially through 
compliance with the Small Business Regulatory Enforcement 
Fairness Act (i.e., the Red Tape Reduction Act, P.L. 104-121), 
which the Chairman authored during the 104th Congress.

                          D. Workplace Issues

    The Occupational Safety and Health Administration (OSHA) 
continues to raise major concerns for small business owners. 
The uniform regulations promulgated by OSHA, as with other 
agencies, often impose disproportionate burdens on small 
businesses. In particular, small businesses sought the 
assistance of the Chairman regarding OSHA's Cooperative 
Compliance Program (CCP). The Chairman met with Charles 
Jeffress, the new Assistant Secretary for Occupational Safety 
and Health at the Department of Labor, and urged him to work 
with employers seeking in good faith to comply with OSHA 
standards and to reduce occupational injuries and illnesses. 
The agency's CCP initiative was viewed as coercive by many 
businesses because it required them to implement a prescriptive 
safety and health program or face the full force of OSHA with a 
wall-to-wall inspection.
    Other issues brought to the Committee's attention included 
OSHA's efforts to address ergonomic risk factors in the 
workplace and the controversial union practice of engaging in 
``salting'' campaigns to harass and intimidate non-union 
workplaces.

      E. Access to Capital: Small Business Administration Programs

    Legislation developed by the Committee in the 105th 
Congress to strengthen the SBA's credit programs has led to an 
enormous expansion in the availability of loans and investment 
capital for small business borrowers, while reducing the cost 
and risk exposure to the 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 guarantee and investment guarantee 
programs are critical components to the success of small 
businesses.
    In 1997, the Committee approved the ``Small Business 
Reauthorization Act of 1997,'' which made important changes in 
the Small Business Investment Company (SBIC) program to permit 
manageable program growth while strengthening the SBA's 
oversight of the program. Most importantly, the 1997 Act gives 
the SBA the option to make five-year leverage commitments, 
which would conform the program to typical investment strategy 
patterns.
    The Small Business Reauthorization Act also made important 
changes in the SBA's Microloan program by making the program 
permanent. The Microloan program had been a pilot program 
designed to test whether the SBA could deliver a loan program 
for very small borrowers, who were seeking loans of less than 
$25,000. In addition, the bill addressed the 504 Certified 
Development Company program. In 1995, Congress approved 
legislation requiring that the funding requirements be fully 
supported by fees rather than Congressional appropriations. The 
Reauthorization Act directed that the SBA reduce the fees as 
the performance of the program improved and less funds are 
needed to fund the loss reserve.
    In 1998, the Committee unanimously approved the ``Year 2000 
Readiness and Small Business Programs Restructuring and Reform 
Act of 1998'' (H.R. 3412). Originally, this bill passed the 
House of Representatives and made three technical changes in 
the SBIC Program. This House-passed version of the bill was 
amended by Chairman Bond to include the full texts of S. 2372, 
the ``Year 2000 Readiness Act,'' S. 2407, the ``Small Business 
Programs Restructuring and Reform Act of 1998,'' and provisions 
from S. 2448, the ``Small Business Loan Enhancement Act,'' 
which was sponsored by Senator John Kerry, the Committee's 
Ranking Member.
    As approved by the Committee, H.R. 3412 authorized the SBA 
to establish a pilot loan guarantee program to assist small 
businesses in correcting Year 2000 (Y2K) computer problems. 
Further, the bill established two new reporting requirements 
for the SBA relating to pilot credit programs. H.R. 3412 was 
approved by the Senate on September 30, 1998. The House of 
Representatives was unable to act on the bill before it 
adjourned for the 105th Congress.

                       F. Women-Owned Businesses

    During the Second Session of the 105th Congress, Chairman 
Bond maintained his commitment to support the continued growth 
and expansion of women-owned businesses. In the First Session, 
Chairman Bond authored the Small Business Reauthorization Act 
of 1997, which addressed several programs administered by the 
SBA that serve the women business owners of today and tomorrow. 
As part of the Committee's oversight in 1998, it closely 
monitored the SBA's handling of the National Women's Business 
Council and the Women's Business Center program. Chairman Bond 
was joined by Senator Olympia Snowe in introducing ``The Home-
Based Business Fairness Act'' (S. 460) to provide tax relief 
called for during the first hearing of the 105th. Additional 
support for the bill was provided at a field hearing in Bangor, 
Maine, on February 6, 1997, attended by the Chairman and 
Senator Snowe. Two parts of S. 460 were included in the 
Taxpayer Relief Act of 1997 (P.L. 105-206) passed by Congress 
on July 22, 1998.

                         G. Federal Procurement

    During the 105th Congress, the Committee made significant 
progress on expanding opportunities for small business to 
participate in Federal procurement. Doing business with the 
Federal government can make a major difference to small 
businesses that operate on a slim margin and need every 
customer they can get. Making contracting opportunities 
available to a wide array of small businesses also helps a 
broader cross-section of the public to benefit from Federal 
activities and expenditures, rather than reserving those 
benefits for a narrow sliver of well-connected, insider large 
businesses. In the long run, it also means real benefits for 
the taxpayers, since greater competition means lower prices for 
the goods and services the Government purchases.
    The most notable and most exciting new endeavor in the 
contracting arena is the HUBZone Act, authored by Chairman Bond 
and adopted as part of the Small Business Reauthorization Act 
of 1997. This new program seeks to direct a greater portion of 
contracts to economically distressed areas, to bring jobs and 
opportunities to places with some of the most unrelenting 
poverty. Small businesses truly are on the front lines in the 
battle to reclaim and redevelop these areas, and the job-
creating power of small businesses is their most potent weapon. 
By setting increasing goals for contracting in HUBZone areas, 
and by ensuring that eligible small businesses must hire at 
least 35% of their workforce from these distressed areas, the 
HUBZone law offers a real chance to bring economic activity and 
growth to our inner cities, distressed rural counties, and 
Indian reservations.
    The Committee made progress on other procurement matters as 
well. New legislation in the Small Business Reauthorization Act 
clearly defines a ``bundled contract'' so this practice can be 
monitored more effectively and its impact on small business 
measured. Combining several smaller contract opportunities into 
larger contracts likely reduces the ability of small business 
to participate, since they often are unable to fill all the 
additional contract requirements. This effectively excludes 
small business from contracting and sets aside increasing 
chunks of procurement activity for large businesses.
    Congress also increased the goal for small business 
participation in Government-wide procurement to 23% of prime 
contract dollars, up from the 20% adopted into law in 1988. To 
enhance the likelihood that these changes translate into real 
opportunity for small business, the Committee also adopted 
legislation to disclose and control efforts by Executive 
agencies to change their statistical methods. Reliable and 
valid statistics are crucial for the Committee and for the 
small business community to oversee the Government's compliance 
with the 23% goal. The temptation for some agencies to engage 
in statistical games that appear to increase small business 
contracting, without actually doing so, is a threat to the 
entire small business procurement program. Although the 
legislation was not passed by the House of Representatives, it 
was adopted both at the Committee level and by the full Senate. 
The Senate and the Committee on Small Business are now on-
record as disfavoring sudden, undisclosed statistical changes 
that produce unexplained changes in the performance of 
Executive agencies in their small business contracting.

                             H. Health Care

    Health care continued to be one of the top concerns of 
small businesses during the 105th Congress. Language in the 
Balanced Budget Act of 1997 directed HCFA to issue a series of 
regulations intended to curb the rising cost of home-health 
care and to rid the Medicare and Medicaid programs of firms 
engaged in fraud and abuse. HCFA issued regulations that 
exceeded Congressional intent, driving many reputable home-
health care providers out of business. Chairman Bond led the 
fight to reduce the adverse impact of HCFA's regulations that 
had devastating effects on the small businesses and small non-
profits in home-health care.
    On June 10, 1998, the Chairman introduced S.J. Res. 50, a 
resolution of disapproval to strike HCFA's regulation to 
implement the requirement that home-health care agencies obtain 
a surety bond for the greater of $50,000 or of 15% of their 
annual Medicare receipts. This resolution was the first one 
introduced under Subtitle E of the Red Tape Reduction Act, 
known as the Congressional Review Act, that gained broad-based 
support in the Senate and the House of Representatives. With 60 
Senate cosponsors, the resolution precipitated HCFA's 
suspension of the surety-bond rule pending completion of a GAO 
study and, potentially, the development of a new proposal. As 
the result of an agreement among HCFA, the Chairman, and 
Senators Charles Grassley and Max Baucus, HCFA issued a Federal 
Register notice on July 31, 1998, suspending deadline for 
compliance with the surety rule. HCFA further agreed not to 
enforce the rule without providing at least 60 days notice, and 
not before February 15, 1999.
    On July 15, 1998, the Chairman introduced the Medicare 
Home-Health Care Beneficiary Protection Act of 1998 (S. 2354), 
to put a moratorium on the IPS that limits reimbursement for 
services provided on or after October 1, 1997, pending the 
development of an alternate payment system. During the Fiscal 
Year 1999 appropriations cycle, Chairman Bond led efforts to 
resolve the IPS crisis, which ultimately resulted in a solution 
included in the Omnibus Appropriations Act for Fiscal Year 
1999. Signed into law on October 21, 1998, this stopgap measure 
increased payments to home-health care providers, and delayed 
until October 1, 2000, HCFA's proposed 15% reduction in 
reimbursements. The law will ensure continued access to home-
health care for seniors and the disabled across the nation.

                           I. Securities Law

    Small businesses were the beneficiaries of securities-
related laws enacted by the 105th Congress. The Securities 
Litigation Uniform Standards Act of 1997 (S. 1260) amended the 
Securities Acts of 1933 and 1934 to preempt state statutory and 
common law in connection with class actions alleging any untrue 
statement or omission of a material fact in connection with the 
purchase or sale of a ``covered security,'' or that a defendant 
used or employed any manipulative or deceptive device or 
contrivance in connection with the purchase or sale of a 
``covered security.'' In addition, the bill permits any class 
action brought in state court involving a ``covered security'' 
to be removable to Federal district court.

                 J. 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. Small banks 
benefitted from three banking and financial institutions-
related initiatives in the 105th Congress. First, the Credit 
Union Membership Access Act (H.R. 1151), which became Public 
Law 105-219, permits credit unions to have members from 
multiple occupational groups, provided that the number of 
persons in each group (at the time the group joins the credit 
union) does not exceed 3,000, with limited exceptions. The bill 
also limits commercial lending activities of credit unions, 
adopts certain Department of the Treasury recommendations that 
improve regulation of credit union safety and soundness, and 
changes voting requirements to make it easier for credit unions 
to convert to mutual savings banks and thrifts.
    Second, the Consumer Bankruptcy Reform Act of 1998 (S. 
1301) establishes a ``means test'' for Chapter 7 bankruptcies, 
by permitting a court to dismiss a Chapter 7 case or convert it 
to Chapter 13 if the court finds ``abuse'' of the bankruptcy 
system.
    Third, the Financial Services Act of 1998 (H.R. 10) 
eliminates the restrictions on affiliation among banks, 
securities firms and insurance companies under the Glass-
Steagall Act and permits such companies to combine with one 
another as affiliates under an umbrella financial-holding 
company. In addition, the bill regulates the insurance and 
securities underwriting and sales activities of Federally 
chartered depository institutions.
    While the Credit Union Membership Access Act was the only 
initiative enacted on that issue during the 105th Congress, 
efforts to assist small banks will likely continue in the 106th 
Congress.

                         K. Telecommunications

    During the 105th Congress, the Committee took action 
regarding two FCC rules that affect small telephone 
communications firms. In a 1997 Report and Order, the FCC 
modified the methods by which local-exchange carriers charge 
long-distance carriers for access to their network, 
substantially increasing the costs faced by long-distance 
carriers that utilize the local-exchange carriers' tandem 
switches. The Committee was concerned about the FCC's failure 
to analyze the impact of these changes on the pricing of 
interstate access service both on small long-distance carriers 
and on certain small retail businesses that use long-distance 
services. Chairman Bond and Ranking Member Kerry sent a joint 
letter to the FCC concerning the agency's compliance with the 
Regulatory Flexibility Act on this issue. The Committee's 
letter noted the opportunity provided the FCC by the Petitions 
for Reconsideration and encouraged the FCC to reassess the 
impact of its recent decisions on both small business long-
distance carriers and the small business retailers that such 
carriers serve.
    Additionally, producers of independent telephone 
directories contacted the Committee regarding the potential 
impact of a pending FCC rulemaking to implement provisions of 
the Telecommunications Act of 1996. Congress intended Section 
222(e) of the Act to increase competition and enhance the 
ability of independent publishers to compete with directories 
wholly owned by telephone companies. Small businesses involved 
in directory publishing were concerned that the FCC rule to 
determine the ``reasonable'' price for subscriber list 
information might not recognize the minimal cost imposed on 
telephone companies when providing such information to 
requesting independent directories. Chairman Bond and Ranking 
Member Kerry wrote FCC Chairman William Kennard urging the FCC 
to conduct a thorough Regulatory Flexibility analysis prior to 
issuing a final rule and to ensure the rule achieved the 
competition Congress intended by protecting small businesses 
from market abuses.

 II. REGULATORY FAIRNESS: OVERSIGHT AND IMPLEMENTATION OF THE RED TAPE 
                             REDUCTION ACT


        A. Small Business Ombudsman and Regional Fairness Boards


Background

    The Red Tape Reduction Act [Small Business Regulatory 
Enforcement Fairness Act (SBREFA), P.L. 104-121] charged the 
Small Business Administration (SBA) with implementation of the 
Regulatory Fairness program. The law directs the SBA to 
designate a Small Business and Agriculture Regulatory 
Enforcement Ombudsman (Ombudsman) to receive comments from 
small businesses regarding unreasonable and excessive agency 
enforcement actions. The Ombudsman is to issue an annual report 
to Congress that includes an evaluation of agencies' 
responsiveness based on comments from small businesses. The 
Ombudsman also coordinates the activities of the 10 Regional 
Small Business Regulatory Fairness Boards (Fairness Boards), 
each comprising five small business owners.

Committee Action

    During the 105th Congress, the Committee received 
complaints from several members of the Fairness Boards that the 
SBA appeared more concerned with ``process'' and ``being fair'' 
to the Federal agencies than giving a voice to the concerns of 
small business. Through letters, direct conversations, and a 
Committee hearing, Chairman Christopher S. ``Kit'' Bond worked 
to educate Peter Barca, the SBA-appointed Ombudsman, on the 
importance of rating the agencies in order to provide the 
impetus for agencies to change their policies or culture. 
Despite these overtures, the Ombudsman's first report to 
Congress, issued on December 31, 1997, was disappointing to the 
Chairman and many in the small business community. Joined by 
House Small Business Committee Chairman James Talent, Chairman 
Bond sent a letter to the Ombudsman expressing disappointment 
with the SBA's report. In his reply, Mr. Barca acknowledged the 
failure to include a ``more rigorous agency evaluation'' and 
committed to include an evaluation in future reports. On 
October 30, 1998, Mr. Barca advised Chairman Bond that the 
second annual report to Congress would be delivered on February 
28, 1999, in order to produce a report that better reflects a 
full year's activities of the Fairness Boards.

        B. Bureau of Land Management Wilderness Management Rule


Background

    Throughout 1997, numerous small businesses requested 
Chairman Bond's assistance on a Bureau of Land Management (BLM) 
proposal governing management of BLM wilderness areas. The BLM 
had certified that the agency's proposed rule would not have a 
significant economic impact on small businesses, despite 
contrary information provided both to the agency and Congress. 
Climbing outfitters and guide services that organize and lead 
trips as well as the manufacturers and resellers of climbing 
equipment disagreed with the BLM's certification, stating that 
a prohibition on installation or replacement of fixed anchors 
would place climbers' safety in jeopardy and effectively 
restrict the use of internationally recognized climbing 
destinations under BLM's management.

Committee Action

    Chairman Bond wrote the BLM on March 10, 1997, regarding 
the potential impact of the proposed regulation on small 
businesses that manufacture rock climbing equipment and provide 
guide services. In his reply, the Acting Director of the BLM, 
Sylvia V. Baca, offered a partial explanation for the initial 
certification and committed the agency to a careful 
consideration of the issues raised by small businesses and the 
Chairman's letter. On January 14, 1998, Chairman Bond sent a 
letter to the new Director of the BLM, Pat Shea, urging him to 
ensure that the BLM conducted a meaningful Regulatory 
Flexibility analysis prior to issuing a final rule. In the 
Unified Agenda published November 9, 1998, the BLM reported 
that issuance of a final rule is imminent, but also maintained 
that a Regulatory Flexibility analysis is not required.

        C. Small Business Advocacy Review Panels at EPA and OSHA


Background

    Small businesses have had difficulty complying with the 
regulations issued by agencies such as the Environmental 
Protection Agency (EPA) and the Occupational Safety and Health 
Administration (OSHA), many of which place a great financial 
burden on small businesses. Because of the significant impact 
of rules issued by these agencies, the Red Tape Reduction Act 
(P.L. 104-121) requires the EPA and OSHA, prior to publishing 
an initial Regulatory Flexibility analysis, to convene a Small 
Business Advocacy Review Panel composed of Federal employees 
from the SBA Office of Advocacy, the Office of Management and 
Budget (OMB) and the agency initiating the rulemaking, to 
elicit comments from small businesses on the rule's impacts. 
Under the law, panels are convened for 60 days and must report 
to the agency on comments and recommendations from small 
entities related to the rule's impacts. The panel report 
becomes part of the rulemaking record, and the agency head is 
to give consideration to the comments and recommendations 
provided.

Committee Action

    To date, the EPA has completed panels for 13 proposed 
rules: nine panels in 1998 and five in 1997. Although success 
of the panel process varies with each rule, SBA's Office of 
Advocacy generally credits the EPA with being responsive to 
concerns raised. Three regulatory proposals were revised to 
reduce the small business impacts, and the EPA often included 
in its proposed rules a regulatory alternative suggested by the 
small entities participating in the panel process.
    With respect to OSHA, one panel was completed in 1997 on a 
rule to address occupational exposures to tuberculosis. Small 
businesses were not pleased with OSHA's responsiveness to their 
concerns. In October 1998, OSHA convened a panel on a proposal 
to require employers to implement comprehensive safety and 
health programs. The panel issued its report on December 18, 
1998, highlighting deficiencies in OSHA's cost estimates and 
draft initial Regulatory Flexibility analysis. The report also 
recommended non-regulatory alternatives to OSHA.

                              D. IRS Rules


Background

    During the 105th Congress, Chairman Bond worked to relieve 
the enormous tax burden placed upon small businesses by the 
Internal Revenue Service (IRS). Many small businesses have 
difficulty comprehending the complex language of the tax code 
and cannot afford legal help often used by big businesses. The 
IRS is required to comply with the Regulatory Flexibility Act 
and the Red Tape Reduction Act on interpretive rules that 
impose collection-of-information requirements on small 
business.

Committee Action

    Beginning in March of 1997, Chairman Bond sent letters to 
the IRS and the Treasury Department regarding rulemakings that 
failed to address the concerns of small business. The first 
series of letters were in response to an IRS interpretive rule 
to change the definition of ``limited partner,'' which ignored 
the impacts on small business. Chairman Bond and numerous other 
Senators sent a joint letter to Treasury Secretary Robert Rubin 
expressing disappointment over the failure to abide by the 
Regulatory Flexibility Act and the Red Tape Reduction Act. In 
July 1997, Chairman Bond secured a moratorium on issuance of 
the proposed rule as part of the Taxpayer Relief Act of 1997, 
which was signed into law on August 5, 1997. Consequently, the 
rulemaking was suspended through June 30, 1998.
    On September 19, 1997, Chairman Bond again called the IRS 
and the Treasury Department to task for noncompliance with the 
Regulatory Flexibility Act and the Red Tape Reduction Act. This 
rule was of great concern to small nursery farming businesses, 
which have historically enjoyed a special exemption from IRS 
rules on uniform capitalization. Their continued eligibility 
for this important exemption came into question when the IRS 
issued temporary and proposed rules that changed the definition 
of ``farming business.'' Two sentences added to the definition 
would have disqualified a nursery business that ``merely 
resells plants'' or that grows plants in temporary containers, 
resulting in the imposition of significant recordkeeping 
burdens associated with maintaining inventories.
    The Chairman's letter to the IRS raised concerns shared by 
more than 750 small businesses, which submitted comments to the 
IRS for its public hearing on the rule in November 1997. In an 
October 14, 1997, letter to Chairman Bond, the IRS Chief 
Counsel asserted that the definition of farming business was 
not being modified and, consequently, no new recordkeeping 
requirements would be imposed on small businesses. Without such 
recordkeeping requirements, Regulatory Flexibility would not be 
triggered. In December, the IRS published a clarification of 
the proposal, stating that the definition of farming business 
was not being changed.
    Small nursery farming businesses received this information 
as vindication of their concerns, and they applauded Chairman 
Bond for his leadership on the issues. This experience also 
demonstrated to the small businesses involved the importance of 
agencies receiving factual information from small businesses 
early in the rulemaking process. To formalize this interaction, 
the recommendation was made to amend the Regulatory Flexibility 
Act to require the IRS to convene Small Business Advocacy 
Review Panels before issuing an initial Regulatory Flexibility 
analysis, a requirement the Red Tape Reduction Act applied to 
the EPA and OSHA.

Legislation

    On February 24, 1998, Chairman Bond introduced the Putting 
Taxpayers First Act (S. 1669), which included three regulatory 
reform provisions to benefit small businesses. First, S. 1669 
included the ``Stealth Tax Prevention Act of 1997'' (S. 831). 
Chairman Bond joined Senator Richard Shelby in sponsoring S. 
831, which would designate any final IRS rule that raises 
revenues beyond the intent of Congress or current tax practices 
as a ``major rule'' under the Congressional Review Act. This 
would provide Congress 60 days to enact a resolution of 
disapproval before the offending rule could take effect. The 
second regulatory reform provision would increase small 
business participation in IRS rulemaking by including the IRS 
with OSHA and the EPA as agencies that must convene a Small 
Business Advocacy Review Panel prior to issuing a proposed rule 
with a significant economic impact on small entities.
    The third and final reform was to provide taxpayers a 
choice with respect to recovery of costs and certain fees. 
Under the Internal Revenue Code, a taxpayer may recover costs 
and fees, including attorneys' fees, against the IRS if he or 
she prevails and the IRS' litigation position was not 
substantially justified. The Equal Access to Justice Act 
(EAJA), as amended by the Red Tape Reduction Act, permits a 
small business to recover such costs when an unreasonable 
agency demand for fines or civil penalties is not sustained in 
court or in an administrative proceeding. In addition, a small 
business may also recover such costs and fees under the EAJA 
when it is the prevailing party, and the agency enforcement 
action is not substantially justified.
    Under current law, the EAJA prohibits a taxpayer seeking to 
recover costs and fees in an IRS enforcement action from doing 
so under the EAJA if the fees and costs can be recovered under 
the Internal Revenue Code. S. 1669 would permit taxpayers to 
elect whether to pursue recovery of attorneys' fees and 
expenses under EAJA or the Internal Revenue Code. Although 
numerous provisions of S. 1669 were enacted as part of the IRS 
Restructuring and Reform Act of 1998, these three regulatory 
provisions were not included in the IRS bill when it was 
considered by the Senate.

        E. Regulatory Flexibility Act of 1980 (Judicial Review)


Background

    The Red Tape Reduction Act bolstered the hand of small 
businesses by allowing judicial review of agency compliance 
with the Regulatory Flexibility Act of 1980 (Regulatory 
Flexibility Act). At least 14 suits have been filed under the 
Act. Of the 10 decided, two cases best illustrate the 
importance of this new tool.
    On February 24, 1998, the U.S. District Court for the 
Middle District of Florida ruled that the National Marine 
Fisheries Service (NMFS) failed to comply with the Regulatory 
Flexibility Act on a rulemaking to reduce the quota for shark 
fishing by 50%. NMFS had improperly certified that the rule 
would not have a significant economic impact on small entities 
and failed to conduct an appropriate final Regulatory 
Flexibility analysis before issuing the final rule. The court 
stated that the agency's refusal to recognize the economic 
impacts ``raises serious questions about its efforts to 
minimize those impacts through less drastic alternatives.'' The 
court kept jurisdiction over the case when it remanded the 
Regulatory Flexibility analysis to the agency with instructions 
to analyze the economic effects and alternatives.
    On May 15, 1998, the agency submitted its analysis to the 
court, acknowledging the rule's ``significant financial 
hardship to shark fishermen.'' On October 16, 1998, the court 
granted the plaintiff's request that a special master be 
appointed to assist the court in reviewing the agency's remand 
submission. The court instructed the special master to assess 
the bona fides of the submission with respect to the 
``availability of workable alternatives, regulatory or 
otherwise'' to reduce the financial injury to shark fishermen.
    In a separate case, on May 13, 1998, the U.S. District 
Court for the District of Columbia granted a motion for summary 
judgment and remanded a regulation back to the BLM. Under the 
Regulatory Flexibility Act, the BLM had certified that the rule 
would not have a significant economic impact on a substantial 
number of small businesses. The Northwest Mining Association 
challenged the rule and the BLM's certification because the BLM 
did not use the SBA's definition of a small mining business, 
and the BLM did not follow the procedures provided in the 
Regulatory Flexibility Act to adopt an alternate definition. 
The SBA's Office of Advocacy and other mining associations 
filed amicus briefs in the case.
    The court noted that the small business impacts imposed by 
the rule ``appear to have a large impact on the small miner'' 
and are ``precisely what the procedural safeguards of the 
[Regulatory Flexibility Act] and the [Administrative Procedure 
Act] are set in place to address.'' The court acknowledged the 
public interest in protecting the environment, but also noted 
``the public interest in preserving the rights of parties which 
are affected by government regulation to be adequately informed 
when their interests are at stake and to participate in the 
regulatory process as directed by Congress.'' Chairman Bond 
hailed this decision, noting that the Regulatory Flexibility 
Act was being used as intended to ensure that Federal agencies 
do not overlook their obligations to identify and reduce the 
impacts of their regulations on small business.

                    F. GAO Report on APA Compliance


Background

    In August 1998, the General Accounting Office (GAO) 
released a report to Chairman Bond entitled, ``Agencies Often 
Published Final Actions Without Proposed Rules.'' At the 
Chairman's request, the GAO had studied the frequency with 
which Federal agencies issue final rules without the benefit of 
a notice of proposed rulemaking. The GAO found that agencies 
are taking advantage of a narrow exemption in the 
Administrative Procedures Act (APA) that allows agencies to 
waive the notice and comment procedures for ``good cause'' with 
compelling reasons. Of the 4,658 rules that the GAO reviewed in 
1997, about half of these actions were published without notice 
of proposed rulemaking. While many of these rules may be 
administrative or technical with limited applicability, 11 of 
the 61 major rules reviewed by the GAO were published without a 
notice of proposed rulemaking--18% of the major rules.

Committee Action

    The GAO's findings were of particular interest to the 
Committee because an agency's obligation to comply with the 
Regulatory Flexibility Act and the Red Tape Reduction Act is 
triggered by compliance with APA's notice and comment 
requirements. Consequently, when an agency claims that it does 
not have to comply with the notice and comment requirements, it 
can seek to avoid the procedural safeguards in these laws as 
well. The GAO found many instances in which agencies stated 
that because APA notice and comment were not required, then the 
Regulatory Flexibility Act was not applicable or that a 
Regulatory Flexibility analysis was not required. This topic 
was discussed during the Committee's hearing on two rules 
issued by the Health Care Financing Administration (HCFA). Both 
were issued as final rules with an opportunity to comment 
without HCFA first issuing a notice of proposed rulemaking. The 
GAO report will assist the Committee's ongoing oversight of 
agency compliance with Regulatory Flexibility and the Red Tape 
Reduction Act.

               III. REGULATORY REFORMS FOR SMALL BUSINESS


                      A. Mandates Information Act


Legislation

    Chairman Christopher S. ``Kit'' Bond joined Senator Spencer 
Abraham in introducing the Mandates Information Act (S. 389) 
early in 1997. S. 389 would amend the Unfunded Mandates Reform 
Act of 1995, which the Chairman also supported, to allow a 
point of order against legislation that would impose private-
sector mandates costing more than $100 million. Under S. 389, 
the Congressional Budget Office (CBO) would provide Congress 
with detailed information on the effects of such mandates, 
including the effect on consumer prices, workers' wages, job 
creation and small business growth. In his capacity, as a 
member of the Budget Committee, Senator Bond provided an 
opening statement in support of S. 389, for a February 12, 
1997, Budget Committee hearing on the bill. Senator Bond 
encouraged the Budget Committee to consider the important 
benefits of this bill.
    On June 4, 1997, during Small Business Week, the Committee 
held a hearing on S. 389. To facilitate movement of S. 389, the 
Budget Committee waived its jurisdiction, and the Governmental 
Affairs Committee approved it on June 17, 1997. Although the 
companion bill, H.R. 3534, passed the House on May 19, 1997 by 
a vote of 279 to 132, S. 389 did not reach the Senate Floor 
prior to adjournment.

           B. Congressional Office of Regulatory Analysis Act


Legislation

    On February 25, 1998, Chairman Christopher S. ``Kit'' Bond 
joined Senator Richard Shelby as an original cosponsor of the 
Congressional Office of Regulatory Analysis Act (S. 1675) to 
create a Congressional Office of Regulatory Analysis (CORA). 
Patterned after the CBO, but on a smaller scale, CORA would be 
a professional, nonpartisan office to analyze major and non-
major regulations and help Congress fulfill its oversight 
powers provided under the Congressional Review Act. The bill 
would put first priority on analysis of major rules, second 
priority on non-major rules recommended for analysis by a 
Congressional committee, and third priority on non-major rules 
recommended for review by individual Members of Congress. The 
bill would also consolidate within CORA certain activities 
assigned to the CBO under the Unfunded Mandates Reform Act of 
1995 and duties assigned the General Accounting Office (GAO) 
under the Congressional Review Act. In addition, CORA would 
prepare an annual report on the estimated total cost of 
regulations.
    Although the House version of CORA was approved by four 
committees, it was not considered by the full House of 
Representatives. Absent consideration by the House, which was 
expected to precede Senate action, the legislation was not 
considered by the Senate during the 105th Congress.

                         C. Section 610 Reforms


Background

    Under section 602 of the Regulatory Flexibility Act, 
agencies are required to publish a ``regulatory flexibility 
agenda'' in April and October of each year to inform the public 
of agency rulemakings that are likely to have a significant 
economic impact on a substantial number of small entities. The 
Unified Agenda of Regulatory and Deregulatory Actions is 
published to meet this requirement as well as other 
requirements. Section 610(a) of the Act requires agencies to 
publish a plan for the periodic review of their existing rules 
that have or will have a significant economic impact on small 
entities. That plan must provide for the review of all such 
rules within 10 years of their publication as a final rule. 
Section 610(c) requires agencies to publish a notice that 
includes a list of existing rules that have a significant 
economic impact on a substantial number of small entities, 
which are to be reviewed in accordance with section 610 during 
the next 12 months. The notice must include a brief description 
of each rule, the need for and legal basis of the rule, as well 
as an invitation for public comment on the rule. In recent 
years, agencies have included in the Unified Agenda the 
announcement of rules to be reviewed under section 610.

Committee Action

    In response to a request from this Committee, the GAO 
prepared an April 22, 1997, report (GAO/GGD/OGC-97-77R) on 
whether agencies were using the Unified Agenda appropriately to 
satisfy the notification requirements in section 610(c). The 
GAO identified 21 entries labeled ``Section 610 Review'' in the 
November 29, 1996, edition of Unified Agenda, but concluded 
that none of these entries satisfied all the requirements of 
section 610(c). The GAO offered recommendations to improve 
agencies' compliance with section 610(c) and to assist the 
public in identifying the rules to be reviewed. The GAO later 
updated its April 1997 report by examining agencies' entries in 
the October 29, 1997, edition of the Unified Agenda. In its 
February 12, 1998, report and testimony for the House Committee 
on Small Business (GAO/GGD-98-61R and GAO/T-GGD-98-64), the GAO 
concluded that 31 of the 34 entries in the Agenda labeled 
``Section 610 Review'' were not in compliance with section 
610(c). The GAO recommended that the Office of Management and 
Budget's Office of Information and Regulatory Affairs and the 
Regulatory Information Service Center, which prepares the 
Unified Agenda, ensure that future entries labeled ``Section 
610 Review'' comply with section 610(c) so that the public is 
not misled.

Legislation

    On June 27, 1997, Senators Fred Thompson and Carl Levin 
introduced S. 981 to provide comprehensive regulatory reform 
through cost-benefit analysis and risk assessment. Many small 
business organizations that supported the bill were especially 
interested in the provision that would provide for periodic 
review of existing regulations. The review of rules was opposed 
by several environmental groups. The staff of the Committee on 
Governmental Affairs consulted with the Committee on Small 
Business to craft alternate language that would retain the 
support of small business. Revisions to section 610 were 
recommended.
    On March 10, 1998, by a vote of eight to four, the 
Committee on Governmental Affairs amended and approved the 
Chairman's mark, which included a provision to revive section 
610. Supported by small business, the changes would (1) require 
agencies to develop new plans for the periodic review of rules, 
with those plans being revised every five years; (2) provide 
the opportunity for small businesses to comment on the draft 
plans proposed by agencies before they become final; and (3) 
require the agencies to publish the conclusion of their reviews 
of rules under section 610. During the summer of 1998, 
negotiations between the sponsors of S. 981 and the 
Administration produced a compromise bill that did not include 
the section 610 language because of opposition from the 
Administration. S. 981 never reached the Senate Floor.

                   D. Environmental Compliance Tools


Background

    On April 28, 1998, Chairman Bond convened a hearing 
entitled ``Environmental Compliance Tools for Small Business.'' 
Witnesses provided testimony on the complexity of environmental 
regulations and the importance of compliance assistance 
designed to help small businesses comply with the laws and 
regulations administered by the Environmental Protection 
Agency.

Legislation

    Earlier in the 105th Congress, Senator Conrad Burns 
introduced the Small Business Regulatory Assistance Act of 1998 
(S. 1957), a bill to provide compliance assistance related to 
regulations issued by the EPA, OSHA, and the IRS. Responding to 
comments from the small business community, Senator Burns 
developed the ``Small Business Environmental Assistance Pilot 
Programs'' amendment. The pilot would establish an Advisory 
Committee on Small Business Environmental Assistance Programs 
to review existing environmental compliance assistance programs 
and to recommend the future course for such programs. Second, 
the Small Business Administration would be authorized to 
establish a demonstration grant program, based on the 
recommendations and strategy developed by the Advisory 
Committee, to provide four-year grants to certain small 
business development centers to provide environmental 
compliance assistance to small businesses in partnership with 
existing programs.

Committee Action

    Chairman Bond accepted Senator Burns' amendment on 
September 15, 1998, when the Committee marked up H.R. 3412, the 
Chairman's Year 2000 Readiness and Small Business Programs 
Improvement Act. H.R. 3412 passed the Senate on September 30, 
1998; however, the House did not consider the bill prior to 
adjournment.

                     IV. SMALL BUSINESS TAX ISSUES


       A. Deductibility of Health Insurance for the Self-employed


Background

    One of the top concerns raised by small business owners 
during the 105th Congress continued to be the deductibility of 
health-insurance costs by the self-employed. At the start of 
the Congress, self-employed individuals could deduct only 40% 
of their health-insurance costs, while their corporate 
competitors were able to deduct the full cost of health 
insurance for their employees. This inequity and the 
competitive disadvantage caused by the tax law are significant 
reasons for the lack of health-insurance coverage for more than 
five million Americans in families headed by self-employed 
persons.

Legislation

    In response to the concerns raised by the small business 
community, including the delegates to the 1995 White House 
Conference on Small Business, Chairman Christopher S. ``Kit'' 
Bond together with Senators Olympia Snowe and Don Nickles 
introduced the Home-Based Business Fairness Act of 1997 (S. 
460) on March 18, 1997. The lead provision of this legislation 
called for full deductibility of health insurance for self-
employed individuals beginning in 1997. With strong support 
from small business owners, the bill received considerable 
support in the Senate and was the subject of a hearing by the 
Senate Finance Committee's Subcommittee on Taxation and IRS 
Oversight on June 5, 1997.
    The momentum for increasing the deductibility of health 
insurance for the self-employed continued to grow as the Senate 
took up tax legislation in the summer of 1997. During the 
debate, an amendment supported by the Chairman and Committee 
Members was added to the bill that would accelerate the 
deduction substantially. When it was signed into law on August 
5, 1997, the Taxpayer Relief Act of 1997 included a provision 
that finally broke the 80% barrier and increased the 
deductibility of health-insurance costs for the self-employed 
to 100%. While the full deduction was phased in over ten years, 
the bill significantly increased the deduction in most of the 
intervening years.
    Following on the success in achieving full deductibility as 
part of the Taxpayer Relief Act, the Chairman affirmed his 
commitment to accelerate the phase-in period at the earliest 
date possible. Momentum continued to build for further change 
throughout 1998, with the Chairman and Committee Members 
working to identify opportunities to reach 100% deductibility 
at a faster rate. As the Second Session of the 105th Congress 
drew to a close, attention turned to an omnibus appropriation 
bill and the potential for including the self-employed health-
insurance issue. With the strong support of the small business 
community, the Omnibus Consolidated and Emergency Supplemental 
Appropriations Act of 1999 moved the effective date for full 
deductibility from 2007 to 2003. In addition, the bill phased 
in the higher deductibility rates during the intervening period 
as follows: 60% in 1999 through 2001, 70% in 2002, and 100% in 
2003. Chairman Bond applauded this provision for providing an 
additional deductible amount for the self-employed each year, 
but reaffirmed that full and immediate tax parity for the self- 
employed will continue to be a top priority in the 106th 
Congress.

Committee Action

    The Committee held hearings that addressed the 
deductibility of health insurance for the self-employed on 
February 6, March 25, April 3, and October 22, 1997.

                        B. Home-Office Deduction


Background

    A significant issue identified by home-based business 
owners is the home-office deduction. After the Supreme Court's 
1993 decision, Commissioner v. Soliman, the only home-based 
businesses that could deduct the costs associated with their 
home office were those that saw their clients in the homes. As 
a result, the home-office deduction was not available to 
service providers like construction contractors, landscaping 
professionals, and sales representatives, who must by necessity 
perform their services outside of the home.

Legislation

    The Home-Based Business Fairness Act, introduced by the 
Chairman and Senators Snowe and Nickles, incorporated the 
legislation that Senator Orrin Hatch introduced earlier in the 
year, which defines a home office to include one where the 
individual performs his or her essential administrative and 
management activities, such as billing and recordkeeping, 
provided that the business owner performs these activities on a 
regular, ongoing, and non-incidental basis and has no other 
office in which to perform them.
    Home-based business owners across the country rallied in 
support of this legislation, arguing that the Soliman decision 
puts small businesses operated out of the owners' homes at a 
competitive disadvantage. A business owner that rents or buys a 
store front from which to operate his or her business can 
deduct the rent or depreciate the cost of the property as a 
business expense. Yet a home-based business, under the Soliman 
decision, cannot deduct the same costs because the office is in 
the owner's home. In addition, the decision ignores the current 
trend of more Americans working from home due to corporate 
downsizing, a desire to spend more time with their children, 
and entrepreneurship.
    Restoration of the home-office deduction received strong 
support in the Senate, and after hearings on the Chairman's 
bill before the Senate Committee on Small Business and the 
Finance Committee's Subcommittee on Taxation and IRS Oversight, 
the issue was included in the Taxpayer Relief Act of 1997. As a 
result, beginning in 1999, a home-based business will be 
permitted to deduct the associated costs of an office in the 
owner's home if it is used for administrative or management 
activities of the business, provided that there is no other 
office where the owner conducts substantial administrative or 
management activities.

Committee Action

    The Committee held hearings that addressed the home-office 
deduction on February 6, March 25, and April 3, 1997.

                    C. Independent-Contractor Reform


Background

    As in the 104th Congress, small businesses continued to 
urge Congress to clarify the definition of an independent 
contractor. Over the past three decades, the Internal Revenue 
Service (IRS) has relied on a 20-factor test based on the 
common law to determine whether a worker is an employee or an 
independent contractor. The test is a complex set of extremely 
subjective criteria with no clear weight assigned to any of the 
factors. As a result, a small business owner is not able to 
predict which of the 20 factors will be most important to a 
particular IRS agent, and finding a certain number of these 
factors in any given case does not guarantee the outcome.
    Moreover, the IRS' determination inevitably occurs two or 
three years after the parties have determined in good faith 
that they have an independent-contractor relationship. A 
business recipient of the services forced to reclassify the 
independent contractor as an employee must pay the payroll 
taxes the IRS says should have been collected in the prior 
years, plus interest and penalties. In addition, the 
reclassified worker may have a portion of his or her business 
expenses disallowed by the IRS, which again results in 
additional taxes, interest and penalties. This situation is 
stifling the entrepreneurial spirit of many small business 
owners who find that they do not have the flexibility to 
conduct their businesses in a manner that makes the best 
economic sense and that serves their personal and family goals.

Legislation

    The final feature of Chairman Bond's Home-Based Business 
Fairness Act was a simple and clear safe-harbor based on 
objective criteria for classifying a worker as an independent 
contractor. The bill also provides a bar against retroactive 
reclassifications by the IRS. In addition, the bill repeals 
section 1706 of the 1986 Tax Reform Act, which effectively bars 
an entire group of independent contractors from the protection 
available in section 530 of the Revenue Act of 1978. These 
provisions were also separately introduced as S. 473.
    While the independent-contractor provisions of the 
Chairman's bill received strong endorsements from a wide 
variety of business groups, including the National Federation 
of Independent Business and the Small Business Legislative 
Council, they were not included in either the Senate or House 
version of the Taxpayer Relief Act of 1997, which were 
considered during the summer of 1997. Instead, the House Ways 
and Means Committee included an expansive safe-harbor that 
Representative Donna Christensen had introduced during the 
104th Congress. The Senate version of the bill was silent on 
the issue of independent-contractor reform.
    During the conference on the Taxpayer Relief Act, the 
Chairman and other Members of the Committee wrote to the 
conferees urging them to craft a bipartisan agreement on a 
safe-harbor for independent contractors and protection against 
retroactive reclassification. A number of small business groups 
also urged the House and Senate conferees to consider the 
Chairman's provisions in S. 460 as such a compromise solution. 
Regrettably, the Clinton Administration informed the conferees 
that its top objection to the tax bill was the House's 
independent-contractor reform provisions. Consequently, the 
final tax bill did not address this critical issue for 
entrepreneurs.
    In March 1998, Senator Connie Mack introduced as a stand-
alone bill the provisions from the Chairman's Home-Based 
Business Fairness Act concerning the repeal of section 1706. 
Repealing this provision of the 1986 Tax Reform Act would 
permit companies that hire certain technical workers, such as 
computer consultants, the same protection against IRS 
reclassification that has long been available to other 
companies. Again, due to the Administration's opposition, this 
provision was not addressed in the tax package that was 
ultimately included in the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act of 1999, which was passed and 
signed into law at the end of the Congress.

Committee Action

    The Committee held hearings that addressed the worker-
classification issue on February 6, March 25, April 3, and 
October 22, 1997.

                   D. IRS ``Stealth Tax'' Regulations


Background

    At the start of the 105th Congress, the Treasury Department 
issued a proposed regulation that ostensibly defined who is a 
``limited partner'' for employment tax purposes. The result of 
the proposed regulation, however, would be to subject all 
income received by many limited partners to self-employment tax 
(i.e., Social Security and Medicare taxes). As a result, many 
limited partners would have to pay self-employment taxes not 
just on their income from the services they perform, but also 
on the return they receive for investing in the partnership. 
The IRS' proposed regulations became known as the ``stealth 
tax'' regulations.

Legislation

    Following the promulgation of the proposed regulations, 
Chairman Bond wrote to IRS Commissioner Margaret Richardson on 
March 10, 1997, requesting an explanation for why the agency 
failed to conduct a regulatory flexibility analysis on the 
proposed regulations, which plainly impose a collection-of-
information burden on small businesses. With no response from 
the IRS and the outcry from the small business community 
mounting, the Chairman again wrote to Commissioner Richardson 
on April 4, 1997, calling her attention to the fact that in 
addition to failing to comply with the Small Business 
Regulatory Enforcement Fairness Act, the proposed regulation's 
new definition of ``limited partner'' was tantamount to a tax 
increase on many limited partners without Congressional 
approval. Finally, on April 9, 1997, the Chairman together with 
18 other Senators wrote to Treasury Secretary Robert Rubin 
requesting that the proposed regulations be withdrawn.
    On June 5, 1997, Senators Richard Shelby and Chairman Bond 
introduced the Stealth Tax Prevention Act (S. 831), which would 
provide for Congressional review of regulations like the 
``stealth tax'' regulations if they increase Federal revenue. 
While this bill was not addressed by the Senate, the Taxpayer 
Relief Act of 1997 included a moratorium on the Treasury 
Department issuance of the ``stealth tax'' regulations in final 
form in order for Congress to have adequate time to find a 
statutory solution to the issue. The moratorium expired on June 
30, 1998, but as a result of the persistent pressure from the 
Chairman, it appears that the Treasury Department may refrain 
from issuing final regulations until Congress provides 
legislative guidance on the issue.

                       E. IRS Nursery Regulations


Background

    On August 22, 1997, the Department of the Treasury issued 
temporary and proposed regulations concerning the uniform 
capitalization rules under section 263A of the Internal Revenue 
Code. Representatives of the nursery industry, which is 
dominated by small nursery growers, expressed concern that the 
new regulations would have a significant, negative impact on 
nurseries by narrowing the availability of a statutory 
exemption for certain ``farming businesses'' under the tax 
accounting rules. As a result, these small businesses would be 
subject to considerably greater regulatory burdens and 
compliance costs.

Legislation

    In response to these concerns, Chairman Bond wrote to 
Treasury Secretary Rubin and Acting IRS Commissioner Michael 
Dolan on September 19, 1997, requesting that the regulations be 
withdrawn for their failure to comply with the requirements of 
the Regulatory Flexibility Act and the Small Business 
Regulatory Enforcement Fairness Act and for their negative 
effects on small business. On October 14, 1997, IRS Chief 
Counsel Stuart Brown responded to the letter suggesting that 
the regulations merely clarify the definition of ``farming 
business'' but do not change it, and that because no small 
businesses will be affected, no regulatory flexibility analysis 
was required. The reaction from the nursery industry clearly 
indicated that the agency did not comprehend the number of 
small businesses that would be negatively affected.
    In response to a flood of public comments, including the 
Chairman's letter, the IRS issued a formal announcement on 
November 28, 1997, stating that the regulations would not 
change who is eligible for the farming exemption relied upon by 
the nursery industry. The nursery industry declared the 
announcement to be a victory for its members. While Chairman 
Bond applauded the agency's decision, he pledged to review the 
final regulations when they are issued to ensure that the 
farming exemption is preserved.

                F. Electronic Federal Tax Payment System


Background

    A provision of the 1993 North American Free Trade Agreement 
(NAFTA) legislation required the IRS to collect an increasing 
percentage of business taxes electronically. This new 
collection requirement will be phased in through 1999. To 
implement the requirement, the IRS developed the Electronic 
Federal Tax Payment System (EFTPS), which is based on the 
dollar amount of employment taxes that a business paid two 
years prior. Initially, EFTPS applied only to the largest of 
businesses. Beginning in 1997, however, businesses with 
employment tax liabilities in excess of $50,000 were required 
to use the system, which caused enormous concern within the 
small business community. As a result, the Small Business Job 
Protection Act extended the date that these small businesses 
must start participating by six months to July 1, 1997.

Legislation

    Early in the 105th Congress, Senator Nickles introduced 
legislation (S. 570) that would raise the threshold for 
businesses required to participate in the EFTPS program to $5 
million in payroll taxes, rather than the current $50,000 
level. This change would effectively make participation in the 
EFTPS system voluntary for most small businesses and would 
permit small enterprises to use EFTPS if it makes good business 
sense, but without being subject to a government mandate.
    While this legislation was pending and as the extended 
deadline for small businesses to participate in EFTPS 
approached, Chairman Bond urged the IRS to waive penalties 
voluntarily for one year to permit Congress time to make 
statutory changes and allow small businesses time to adjust to 
EFTPS without the fear of penalties. He also called on the 
agency to use its statutory authority to create a more 
reasonable small business exemption from the EFTPS mandate. On 
June 2, 1997, the IRS agreed to part of the Chairman's request 
and announced that no penalties would be imposed before 
December 31, 1997, on small businesses required to use EFTPS. 
In addition, the Chairman succeeded in further extending the 
penalty moratorium through June 30, 1998, as part of the 
Taxpayer Relief Act of 1997. Prior to that date, the IRS again 
extended the moratorium through the end of 1998. Finally, on 
November 18, 1998, the IRS announced that it would again extend 
the penalty waiver for an additional six months. As a result, 
small businesses can continue to use paper coupons through June 
30, 1999, without incurring a 10% penalty as they make the 
transition to EFTPS.
    In addition to ensuring that small businesses would not be 
penalized for trying to meet the requirements of EFTPS, the 
Chairman maintained a dialogue with representatives of the two 
Treasury Finance Agents (e.g., NationsBank and First National 
Bank of Chicago), which administer the EFTPS system. The 
Chairman's goal was to improve communications with the small 
business community and clarify the many misunderstandings about 
the EFTPS program. While S. 570 was not enacted during the 
105th Congress, the Chairman continued his oversight of the 
EFTPS program in an effort to minimize the adverse impact on 
affected small businesses.

                     G. Capital-Gains Tax Reduction


Background

    Relief from the capital-gains tax was identified as a 
significant issue for small businesses during the 105th 
Congress. Advocates of a rate reduction asserted that it would 
assist small business owners directly in their operations as 
well as provide a much-needed source of capital for new start-
up companies and for expansion of existing enterprises, by 
encouraging investors to recognize built-in gains. The small 
business community also supported expansion of the special 
capital-gains tax rules for investments in small companies, 
especially modifications that would permit gains to be deferred 
so long as they are reinvested in another qualifying small 
business. Such a provision would provide successful 
entrepreneurs with an additional pool of capital in order to 
create a new success story.

Legislation

    In response to the capital access concerns raised by the 
business sector, the Taxpayer Relief Act of 1997 reduced the 
capital-gains tax rate to 20% for most individual taxpayers 
(10% for individuals in the lowest tax bracket), and further 
reduced the rate to 18% (8% for individuals in the lowest 
bracket) beginning in 2001 for assets held for five years or 
more. At the insistence of the Clinton Administration, however, 
the new 20% rate applied only to gains from the sale of capital 
assets held for more than 18 months, rather than 12 months 
under prior law. This extension of the holding period resulted 
in enormous complexity and compliance burdens on all taxpayers 
with capital-gain transactions.
    With the strong support of Chairman Bond, the Taxpayer 
Relief Act also expanded the 50% exclusion for individuals who 
sell stock in a small business acquired at original issuance 
and held for at least five years. Under the bill, the amount of 
gain that constitutes a minimum tax preference for purposes of 
the alternative minimum tax was reduced from 50% of the 
excluded gain to 42%. In addition, the bill permits an 
individual to roll over gains from the sale of stock in a 
qualified small business held for more than six months, 
provided that the individual uses the proceeds to purchase 
other qualified small business stock within 60 days of the 
sale. These changes to the special treatment for capital gains 
on the sale of small business stock will encourage continued 
investment in small corporations and provide much-needed 
capital for their growth and development.
    During the conference on the IRS Restructuring and Reform 
Act (H.R. 2676), the conferees added a provision to restore the 
capital-gains holding period to 12 months. The restored 12-
month holding period was effective for transactions occurring 
after January 1, 1998, and is a major victory for small 
businesses in terms of reducing compliance costs while 
preserving the lower capital-gains tax rates.

Committee Action

    The Committee held a hearing that addressed the capital-
gains issue on October 22, 1997.

                          H. Estate Tax Reform


Background

    The estate tax, or more accurately the ``death tax,'' 
continued to be a top concern for small businesses during the 
105th Congress. This tax is increasingly devastating small, 
family-owned businesses and farms. Recent statistics indicate 
that over two-thirds of these enterprises are being forced to 
sell or liquidate their operations in order to pay this tax. As 
a result, less than one-third of family-owned businesses are 
passed on to a second generation, and only about one-eighth are 
passed to a third generation. The families are not the only 
losers in this case--every small, family-owned business and 
farm forced into liquidation by the ``death tax'' often has a 
direct, concrete effect on employment in the local community. 
Moreover, the justification for this tax has come under 
increased scrutiny since it generates only about 1% of the 
Federal revenues.

Legislation

    During the First Session of the 105th Congress, Senator 
Charles Grassley introduced the Estate Tax Relief for the 
American Family Act of 1997 (S. 479). With the support of 
Chairman Bond, this legislation served as the basis for the 
estate-tax provisions included in the Taxpayer Relief Act, 
which incrementally raised the estate-tax exemption for all 
individuals from $600,000 to $1 million by 2006. The bill also 
provides a $1.3 million exemption for qualifying family-owned 
businesses beginning in 1998. Both changes to the estate-tax 
law were a substantial victory for the small business 
community.

Committee Action

    The Committee held hearings that addressed estate taxes on 
March 25, April 3, and October 22, 1997.

                   I. Alternative Minimum Tax Reform


Background

    Early in the 105th Congress, the IRS issued guidance 
concluding that certain installment sales by farmers would be 
treated as a preference item for purposes of the alternative 
minimum tax (AMT). Due to the economic difficulties already 
plaguing the farming industry, the IRS' decision caused a 
considerable public outcry. Representatives of the farming 
industry argued that installment contracts are widely used for 
cash management purposes, and the IRS' new position would cause 
grave consequences across the country.
    Small businesses in general also raised concerns about the 
growing complexity and compliance burdens of the AMT. With 
differing depreciation schedules and rules for other items, the 
AMT causes businesses to keep multiple sets of books and 
perform complex calculations when preparing their tax returns. 
In addition, because most small businesses do not have a full-
time employee to handle these accounting and tax issues, most 
firms must hire outside professionals, which further increases 
the compliance costs for these businesses.

Legislation

    In response to concerns raised by the farming industry, 
Senator Grassley introduced legislation (S. 181) that would 
overrule the IRS' new position on the treatment of installment 
sales by farmers. The Chairman and several other Members of the 
Committee cosponsored this legislation, and with the strong 
support of the farming industry it was included in the Taxpayer 
Relief Act of 1997.
    The Taxpayer Relief Act also provided an exemption for 
small businesses from the corporate alternative minimum tax 
beginning in 1998. In order to qualify, the business must have 
gross receipts of less than $5 million. The Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 
1999 also included relief from the AMT by exempting for tax 
year 1998 certain tax credits, such as the $500 child tax 
credit, HOPE scholarship and Lifetime Learning tax credit, the 
adoption tax credit, the tax credit for the elderly and 
disabled, and the dependent-care tax credit. Together these 
changes will substantially reduce the burdensome recordkeeping 
and compliance burdens for many small enterprises and their 
owners.

                       J. Tax Relief for Farmers


Background

    Due to a spate of weather-related problems and the global 
economic turmoil, farmers, who are predominantly small business 
owners, suffered considerable financial difficulties during the 
105th Congress. In addition to calling for assistance through 
conventional farming programs, many small business farmers and 
ranchers urged Congress to provide relief through tax 
provisions that would help the industry weather the current 
crisis.

Legislation

    In addition to AMT relief described above, the 105th 
Congress provided important tax relief for American farmers. 
During the First Session, in response to appeals from the 
farming industry, Chairman Bond and Members of the Committee 
joined in a letter to House and Senate conferees on the 
Taxpayer Relief Act of 1997, urging them to include income-
averaging provisions for farmers. As a result of these efforts, 
the Act permitted farmers to average their income from farming 
operations over the prior three years. The provision is 
effective for taxable years 1998, 1999, and 2000.
    Early in the Second Session, Senator Conrad Burns 
introduced legislation (S. 1879), to extend permanently the 
income-averaging provisions enacted in the Taxpayer Relief Act. 
Senator Grassley also introduced the Farm and Ranch Risk 
Management Act (S. 2078), which would permit farmers to 
establish Farm and Ranch Risk Management (FARRM) accounts to 
ease the effects of bad harvest years. Under the bill, a farmer 
would be able to deduct contributions to a FARRM account up to 
20% of his income. The account balance could be used during the 
following five years to support the farm, and distributions 
would be subject to tax in the year withdrawn.
    The Omnibus Consolidated and Emergency Supplemental 
Appropriations Act of 1999 included a number of provisions that 
will provide tax relief for farmers across the country. In 
addition to making income-averaging permanent for farmers, the 
Act permitted farmers to carry back net operating losses (NOLs) 
for five years, instead of the two-year period applicable to 
other businesses. This provision will provide immediate help 
for farmers by permitting them to offset current losses against 
prior years' income and receive a tax refund.
    The Act also provided that ``production flexibility 
contract'' payments under the Farm Bill will be subject to tax 
only in the year the payment is actually received, not when the 
farmer has a constructive right to them. This will provide 
relief in 1998 by deferring the tax by one year for farmers who 
may not actually receive their payments until 1999.

                           K. Pension Reform


Background

    Pension reform continued to be an important issue for small 
businesses during the 105th Congress. With concerns rising 
about the long-term solvency of the Social Security Trust Fund, 
attention also focused on the complexity of the current rules 
governing private pension plans and ways to encourage more 
small enterprises, which continued to lag behind larger 
businesses, to offer retirement benefits to their employees.

Legislation

    Early in the First Session, Senator William Roth, together 
with Chairman Bond and other Members of the Committee on Small 
Business, introduced the Savings and Investment Incentive Act 
of 1997 (S. 197). The bill served as the basis for a number of 
provisions in the Taxpayer Relief Act of 1997 concerning 
individual retirement accounts (IRAs), including an increase in 
the income limits for individuals making deductible 
contributions to IRAs. The Act also repeals the active-
participation rule under previous law that precludes one 
spouse, who is not covered by an employer-sponsored pension 
plan, from making deductible contributions to an IRA if the 
other spouse is covered by an employer-sponsored plan.
    The Taxpayer Relief Act also includes the provisions from 
S. 197 that create ``IRA Plus Accounts,'' contributions to 
which are not deductible but the earnings in which can be 
withdrawn free of tax if the account is open for at least five 
years and the owner reaches the age of 59\1/2\. These accounts 
have subsequently become known as Roth IRAs. In addition, the 
Act includes provisions from S. 197 that permit penalty-free 
withdrawals from IRAs for first-time home buyers and for 
educational expenses.
    Senator Judd Gregg also introduced pension legislation 
during the First Session. The Women's Investment and Savings 
Equity (WISE) Act of 1997 (S. 620), included reforms to promote 
pension participation especially by women. In particular, the 
bill called for the elimination of the active participation 
rule for spouses covered by employer-sponsored pension plans, 
which was later included in the Taxpayer Relief Act of 1997. In 
addition, the WISE Act would permit retirement contributions to 
be made while an individual is on maternity or paternity leave 
and would permit ``catchup contributions'' by parents returning 
to work after periods of non-participation in a pension plan.
    At the close of the First Session, the Savings Are Vital to 
Everyone's Retirement (SAVER) Act was signed into law. This 
legislation called for several national summits on retirement 
savings, the first of which was held in 1998. In part, the bill 
called on the summit participants to focus on pension reform 
for small businesses. Chairman Bond recommended several 
individuals to serve as delegates to the summit, and Senate 
Majority Leader Trent Lott ultimately appointed four of 
Chairman Bond's six nominees. The summit was held June 4 and 5, 
1998, and provided recommendations for improving the retirement 
savings system in this country.

                    L. IRS Restructuring and Reform


Background

    On June 25, 1997, the National Commission on Restructuring 
the Internal Revenue Service presented its report detailing the 
finding and recommendations of the Commission's year-long 
examination of the IRS. The report described an agency sorely 
in need of reorganization and of modernization with regard to 
its computer equipment and procedures. The Senate Finance 
Committee highlighted these difficulties at the IRS during 
three days of hearings, held in September 1997. These hearings 
focused national attention on abusive behavior by IRS employees 
against taxpayers. Additional hearings were held by the Finance 
Committee in May 1998, which examined complaints by taxpayers, 
including small businesses, about the agency's conduct and 
failure to respect the rights of taxpayers.

Legislation

    Following the release of the National Commission on 
Restructuring the Internal Revenue Service's report, Senators 
Bob Kerrey and Charles Grassley introduced the Internal Revenue 
Service Restructuring and Reform Act of 1997 (S. 1096), which 
provided significant reforms to the operation of the IRS and 
improvements to the taxpayer rights provisions in the tax code. 
Later in October 1997, the House of Representatives passed 
companion legislation, and the Clinton Administration reversed 
its long-standing opposition to the bill.
    With Senate consideration of the IRS reform legislation 
deferred until early 1998, Chairman Bond sent a letter to a 
wide range of small business organizations requesting their 
ideas on how the IRS could be restructured to serve all 
taxpayers better and seeking proposals for improving taxpayer 
rights. In addition, the Committee held hearings on IRS 
restructuring and reform in February and March of 1998, at 
which witnesses testified about the enormous obstacles that 
taxpayers face when dealing with the IRS. The witnesses also 
evaluated a number of proposals and made recommendations for 
improving taxpayer rights for small business owners.
    In response to the hundreds of individuals and small 
business owners who called and wrote with suggestions and the 
Committee's hearings, Chairman Bond developed a package of 
proposals to provide relief for a broad spectrum of taxpayers, 
from single parents and married couples to small business 
owners and farmers. Specifically, the Putting the Taxpayer 
First Act (S. 1669) included proposals for restructuring the 
IRS, improving taxpayer rights, and expanding electronic filing 
of tax and information returns.
    A significant provision of the bill called for 
restructuring the IRS along customer lines so that taxpayers 
with similar characteristics and needs, such as individuals, 
small businesses and the self-employed, and large companies 
would be able to go to an IRS service center dedicated to them 
and with personnel specially trained in issues relevant to 
them. On January 28, 1998, IRS Commissioner Charles Rossotti 
announced that the IRS would implement a customer-based 
reorganization along the lines suggested by Chairman Bond.
    Later in March, the IRS announced that it would implement 
another provision of the Chairman's Putting the Taxpayer First 
Act, namely an advisory board to help the agency with plans to 
expand electronic filing. In a letter to IRS Commissioner 
Rossotti, Chairman Bond praised the proposal and urged the 
Commissioner to implement two other provisions from his bill. 
The first would ensure that electronic filing remains a 
voluntary option for taxpayers, not another government mandate. 
The second would require the IRS to comply with the procedural 
safeguards of the Regulatory Flexibility Act of 1980, and the 
1996 amendments in Senator Bond's Small Business Regulatory 
Enforcement Fairness Act (known as the Red Tape Reduction Act), 
when preparing strategic plans and regulations on electronic 
filing. These statutes require the IRS to conduct small 
business outreach, analyze the impact of regulations on small 
entities, and minimize those impacts whenever possible.
    The Finance Committee marked up the Internal Revenue 
Service Restructuring and Reform Act (H.R. 2676) at the end of 
March 1998. Chairman Roth's mark added several provisions from 
Chairman Bond's ``Putting the Taxpayer First Act.'' The final 
legislation, which was signed into law on July 22, 1998, 
contained a substantial number of provisions from Chairman 
Bond's bill, including a requirement that the IRS restructure 
its operations to serve specific groups of taxpayers with 
similar characteristics and needs; greater due process 
protections for taxpayers to guard against unreasonable 
seizures by the IRS; expansion of the current attorney-client 
privilege of confidentiality to cover accountants and other tax 
practitioners who provide tax advice; reform of the penalty and 
interest rules; a requirement that the IRS establish an 
independent administrative appeals process for taxpayers; a 
prohibition against the IRS contacting third parties, such as a 
business' customers or suppliers, without notifying the 
taxpayer first; and a prohibition on communications between an 
appeals officer and the IRS auditor or collection agent 
handling the case without permitting the taxpayer to be 
present.
    The legislation also included Chairman Bond's provision 
stating that a taxpayer may recover attorney's fees and costs 
when the IRS discloses information about the taxpayer without 
permission and when an IRS employee improperly browses a 
taxpayer's records. This provision clarified the Taxpayer 
Browsing Protection Act (S. 522), which was signed into law on 
August 5, 1997. That bill prohibited browsing of taxpayer 
records by employees of the IRS. Under the bill, any employee 
convicted of browsing will be subject to a fine of up to $1,000 
or imprisonment of up to one year, or both, and will be 
dismissed from employment with the IRS. The bill also requires 
the IRS to notify taxpayers whose records are the subject of 
browsing.

Committee Action

    The Committee held hearings on IRS restructuring and reform 
on February 12 and March 2, 1998.

                       M. Fundamental Tax Reform


Background

    The momentum for fundamental tax reform continued to build 
throughout the 105th Congress, and small businesses played an 
important role in demonstrating the counterproductive effects 
of the current tax code. On September 22, 1997, the National 
Federation of Independent Business started a national campaign 
to end the Internal Revenue Code. This campaign ultimately led 
to one million signatures on a petition calling for the repeal 
of the current tax law and a fervent plea from small businesses 
across the country for a fairer tax system with lower cost and 
compliance burdens.

Legislation

    In September 1997, Senator Tim Hutchinson introduced S. 
1225, which would terminate the tax code by December 31, 2001. 
The bill also sets forth principles for a new tax system. 
Subsequently, Senator Sam Brownback introduced legislation (S. 
1233) that would end the code by December 31, 2000, except 
self-employment and Social Security withholding. On November 
10, 1997, Senator Hutchinson introduced S. 1520, which combined 
the two previous bills ending the tax code on December 31, 
2001.
    Based on these initiatives, Chairman Bond convened a 
hearing of the Committee on October 22, 1997, to examine how 
fundamentally reforming the current tax system would affect 
small businesses. The major small business groups testified at 
the hearing and presented a spectrum of views about whether 
Congress should modify the existing tax code or completely 
replace it with a new system, such as a flat tax or national 
sales tax.
    On June 17, 1998, the House approved legislation to 
terminate the tax code by December 31, 2002, provided that a 
replacement system is adopted by July 4, 2002. The Senate 
considered similar legislation as an amendment to the Fiscal 
Year 1999 Treasury/Postal Appropriations bill (S. 2312), 
although the amendment was ultimately defeated.
    With the enactment of the IRS restructuring and reform 
legislation in 1998, the Chairman noted that H.R. 2676 was a 
solid step forward in protecting taxpayers but that the long-
term problem remains for small businesses--the Internal Revenue 
Code is unduly complicated and imposes enormous, unnecessary 
burdens on taxpayers. To continue the efforts he started during 
the First Session to evaluate replacement tax systems and ways 
to simplify the current tax law, Chairman Bond sent letters to 
a variety of small business organizations requesting their 
input. In addition, the Committee established a suggestion box 
on its Internet home page to solicit ideas for fundamental tax 
reform. Hundreds of individuals and small business owners 
responded to these initiatives, providing important suggestions 
for enacting fundamental tax reform.
    The Chairman also requested that the General Accounting 
Office (GAO) identify the filing and reporting requirements 
that place significant burdens on small businesses. In his July 
20, 1998, letter Chairman Bond asked the GAO to comment on ways 
that these burdens could be reduced or eliminated without 
compromising overall compliance with the tax code. Although a 
long-term project, this request is anticipated to result in GAO 
recommendations that can be used to promote improvements at the 
administrative level and as the basis for future legislative 
initiatives.

Committee Action

    The Committee held a hearing on fundamental tax reform and 
small business on October 22, 1997.

                      N. Internet Tax Freedom Act


Background

    Throughout the 105th Congress, the Internet continued to 
develop as a new frontier for individuals and businesses in 
this country and around the world. Over the past several years, 
the growth of the Internet and the volume of business 
transactions over this electronic medium has expanded 
exponentially. By some estimates it will grow even faster in 
the years to come, playing an increasingly important role in 
the national and global economy. As a result of this explosive 
growth, many businesses, especially small entrepreneurs, have 
had to contend with a number of obstacles. Chief among them is 
the enormous number, complexity, and ambiguity of tax laws that 
could apply to business transactions over the Internet. 
According to some estimates, a business could be subject to as 
many as 30,000 taxing jurisdictions just for doing business 
over the Internet.
    Early in the 105th Congress, support began to build for a 
moratorium on multiple and discriminatory taxation of Internet 
commerce. With small firms playing a major role in this new 
marketplace, the issue took on heightened importance for the 
small business community.

Legislation

    Senator Ron Wyden introduced the Internet Tax Freedom Act 
(S. 442) in March 1997, and Senator Gregg introduced the 
Internet Fairness and Interstate Responsibility Act (S. 1888) 
the following year. Senator Wyden's legislation served as the 
basis for the legislation reported by the Senate Commerce 
Committee and the Finance Committee during the Second Session.
    While the Commerce and Finance Committees' version of the 
Internet Tax Freedom Act differed in the details, both called 
for a moratorium on state and local taxation of Internet access 
(e.g., a monthly service provided by companies like America 
Online) as well as on multiple and discriminatory taxes on 
electronic commerce (i.e., additional or specific taxes imposed 
on electronic commerce that are not levied on other forms of 
commerce such as mail order sales). Each version also 
established a commission to make recommendations to Congress on 
Internet taxation by state and local governments as well as on 
international taxation and international trade issues. The 
commission is to include representatives of the Federal 
government, state and local governments, businesses engaged in 
electronic commerce, and consumer groups.
    When the Senate considered the Internet Tax Freedom Act in 
September, Chairman Bond proposed an amendment to the managers 
that would specifically designate that small business be 
included as a representative of the electronic commerce 
industry on the commission. The managers accepted the 
amendment, and it was unanimously approved by the Senate. The 
Chairman also supported an amendment to include a 
representative of local retail businesses on the commission, 
which was approved. The legislation was passed by a vote of 96 
to 2 on October 8, 1998.
    Because of the pending adjournment and differences with the 
House version of the Act, the Senate-passed Internet Tax 
Freedom Act was included as part of the Omnibus Consolidated 
and Emergency Supplemental Appropriations Act of 1999 (H.R. 
4328). This legislation, which provided for a three-year 
moratorium on state and local taxation and a 19-member 
commission (including a small business representative as 
proposed by Chairman Bond), was signed into law on October 21, 
1998.

                  O. Extension of Expiring Provisions


Background

    Several provisions of the tax code were due to expire 
during the 105th Congress. Small businesses historically have 
derived important benefits from a number of these provisions, 
including the exclusion for employer-provided educational 
assistance for undergraduate education, the research and 
development tax credit, the work-opportunity tax credit, and 
the welfare-to-work tax credit. The Committee heard from many 
small business owners and advocacy groups throughout the 
Congress urging continuation of these important tax provisions.

Legislation

    The Taxpayer Relief Act of 1997 extended several expiring 
tax provisions that are important to small business. 
Specifically, the bill extended the exclusion for employer-
provided educational assistance for undergraduate education 
until June 1, 2000. The bill also extended the research tax 
credit, the deduction for contributions of stock to private 
foundations, and the work-opportunity tax credit, each through 
June 30, 1998. In addition, the bill made permanent the tax 
credit for orphan drug testing.
    Subsequently, the 1999 Omnibus Consolidated and Emergency 
Supplemental Appropriations Act again extended several of these 
popular provisions of the tax code that had expired, or would 
do so soon. The Act retroactively restored the research and 
development tax credit, the work-opportunity tax credit, and 
the welfare-to-work tax credit through June 30, 1999. The 
Generalized System of Preferences and the Trade Adjustment 
Assistance program were also extended through the same date. 
The Act also made permanent the fair market value deduction for 
contributions of appreciated stock to private foundations.

                         P. Payroll Tax Relief


Background

    One of the greatest financial burdens borne by small 
businesses under the current tax law is the payroll tax. 
Specifically, these taxes are the employer's matching 
contribution to the Social Security and Medicare taxes withheld 
from employees' wages. These taxes constitute an enormous fixed 
cost, which can be reduced only by cutting salaries or 
eliminating employees. Moreover, the self-employed are even 
harder hit since they must pay both the employer's and 
employee's share of these taxes, which amount to 15.3% of their 
gross revenue. Small businesses have also repeatedly stressed 
that the filing requirements that come with payroll-tax 
reporting cost them excessive amounts of time and money to 
ensure that they are in compliance.

Legislation

    On April 15, 1997, Senator John Ashcroft reintroduced the 
Working Americans Wage Restoration Act (S. 579), which allows a 
deduction from adjusted gross income for payroll taxes paid by 
employees through wage withholding and increases the deduction 
for self-employment taxes. Critics of the bill argued that its 
enormous cost could not be justified as consistent with the 
overriding effort to achieve and maintain a balanced Federal 
budget. The Senate did not consider this bill during the 105th 
Congress.
    At the Committee's October 22, 1997, hearing on fundamental 
tax reform, several witnesses urged that efforts to reform the 
tax code and restructure the Social Security system must keep 
in mind the enormous burden that payroll taxes place on small 
employers and the self-employed.

                          V. WORKPLACE ISSUES


                             A. OSHA Reform


                1. OSHA's Cooperative Compliance Program


Background

    In October of 1997, Chairman Bond met with Charles 
Jeffress, then the nominee to be Department of Labor Assistant 
Secretary for Occupational Safety and Health, and sent a 
follow-up letter to him regarding small employers' concerns 
about the Occupational Safety and Health Administration's 
(OSHA) Cooperative Compliance Program (CCP). Chairman Bond 
urged OSHA to work with employers seeking in good faith to 
comply with OSHA standards and to reduce occupational injuries 
and illnesses.
    On January 21, 1998, the U.S. Chamber of Commerce, joined 
by several other trade associations, filed a suit in Federal 
court challenging OSHA's authority to implement the CCP, 
asserting that OSHA had not conducted an appropriate rulemaking 
that provided notice and opportunity for comment when 
developing the CCP enforcement strategy targeting specific work 
sites for participation and possible inspection. The U.S. Court 
of Appeals for the D.C. Circuit granted a motion to stay the 
implementation of the CCP on February 17, 1998 (the deadline 
for employers to advise OSHA of whether they accepted OSHA's 
``invitation'' to participate in the CCP) pending the court's 
decision on the merits of the suit. Oral arguments were 
scheduled for December 1998. OSHA is currently conducting 
inspections in accordance with its interim strategy, which the 
court ruled on April 6, 1998, was not subject to the stay.

                             2. Ergonomics


Background

    OSHA's intention to issue an ergonomic standard continued 
to cause small employers great concern during the 105th 
Congress. Early in the year, House Appropriations Committee 
Chairman Bob Livingston secured discretionary funding for the 
National Academy of Sciences (NAS) to study existing research 
on ergonomics and the workplace. In April, Chairman Christopher 
S. ``Kit'' Bond joined Senators Judd Gregg, Kay Bailey 
Hutchison, Don Nickles, Slade Gorton, Larry Craig and Lauch 
Faircloth in a letter asking Senator Arlen Specter to remove 
his objections to the study. Due to Senator Specter's 
objections, the study was not conducted, and the NAS and the 
National Research Council instead held a two-day seminar on 
ergonomics on August 21-22, 1998.

Committee Action

    On September 3, 1998, at the full Committee markup of the 
Fiscal Year 1999 Labor-HHS Appropriations bill, Chairman Bond 
supported Senator Gregg's amendment to provide $890,000 for 
NAS' Institute of Medicine to conduct a review of all available 
scientific literature examining the cause-and-effect 
relationship between repetitive tasks in the workplace and 
musculoskeletal disorders. The vote produced a 14 to 14 tie, 
preventing adoption of the language. However, during 
negotiations on the Fiscal Year 1999 Omnibus Appropriations 
bill, the conference agreed to House language that called for a 
NAS study on ergonomics. As signed into law on October 21, 
1998, the Act included $890,000 for the NAS study, although it 
did not require that the Institute of Medicine conduct the 
study. OSHA is expected to issue its proposed rule on 
ergonomics in August 1999, which is prior to completion of the 
NAS study.

                     B. Labor-Management Relations


                       1. NLRB Reform Legislation


Background

    In September 1995, the National Labor Relations Board 
(NLRB) initiated a rulemaking, which it has since abandoned, 
that would have made it easier to approve requests for 
designation of single-site bargaining units without a hearing. 
The business community opposed the rulemaking.

Legislation

    Chairman Bond cosponsored legislation that would codify 
current practices to require the NLRB to conduct a hearing to 
consider a petition for approval of a single-site bargaining 
unit. The bill would require the NLRB to consider specific 
factors to determine the appropriateness of a single-site 
bargaining unit when multiple sites are involved and there is 
no stipulation or consent as to the appropriateness of a single 
unit. With the support of Senator Bond, Congress imposed 
restrictions on the NLRB so that no funds appropriated in 
Fiscal Years 1996, 1997, or 1998 could be used for the 
rulemaking.

                            2. Union Salting


Background

    ``Salting'' is a technique used by unions in organizational 
and other types of campaigns. 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 NLRB alleging the employer failed to hire 
the salt because of union affiliation.

Legislation

    Chairman Bond was a cosponsor of the Truth in Employment 
Act of 1997 (S. 328) and Senator Tim Hutchinson's revised 
version, S. 1981, to amend the National Labor Relations Act 
(NLRA) to prohibit salting. Chairman Bond supported the bills 
in order to restore balance between the rights of workers and 
employers. S. 1981 would prohibit controversial salting 
campaigns used by some unions to impose economic harm to non-
union employers, while maintaining the right of all workers to 
choose whether or not to be represented by a union. Under the 
bill, only employees and applicants seeking to work in good 
faith would be entitled to the protections provided under the 
NLRA. On September 14, 1998, S. 1981 was pulled from the Senate 
floor after a 52 to 42 vote on a cloture motion, falling eight 
votes shy of the 60 votes needed on the motion.

                            3. Minimum Wage


Legislation

    With the support of President Clinton, Senator Ted Kennedy 
introduced legislation to increase the minimum wage to $6.15 by 
January 1, 2000. Having sought to provide targeted relief to 
offset the burdens of an increased minimum wage on small 
business during the 1996 debate, Chairman Bond again 
articulated the concerns of small businesses regarding the 
impact this proposal would have on the economy and job 
creation. Senator Kennedy offered his minimum wage proposal as 
an amendment to the bankruptcy bill on September 22, 1998. A 
motion to table the Kennedy amendment was agreed to by a vote 
of 55 to 44.

                         C. Drug-Free Workplace


Background

    The Drug-Free Workplace Act (H.R. 3853) is a bill to 
initiate a demonstration program designed to aid small business 
in the establishment of drug-free workplace programs through 
Fiscal Years 1999 and 2000 and to encourage states to offer 
other incentives for the same. The Committee has been aware 
that the abuse of drugs and alcohol in the workplace is a 
significant hazard to working Americans and a serious drain on 
the economy in terms of lost productivity, increased health 
costs and wasted potential. Small businesses employ the vast 
majority of American workers.

Legislation

    H.R. 3853 authorizes the Small Business Administration to 
award grants to intermediary organizations to provide technical 
and financial assistance to small businesses to establish drug-
free workplace programs. The bill authorizes $10 million over 
two years, of which $1 million or 10% of the funds appropriated 
can be used by small business development centers to assist 
employers in establishing drug-free workplace programs.
    On June 24, 1998, H.R. 3853 was received in the Senate 
after passing the House of Representatives, and was referred to 
the Senate Committee on Small Business. On September 15, 1998, 
the Committee considered H.R. 3853. Senator Paul Coverdell, who 
was the sponsor of the Senate companion bill, S. 2203, offered 
an amendment in the nature of a substitute. H.R. 3853 as 
amended was approved by a unanimous vote of 18 to 0. The Drug-
Free Workplace Act was included in the Omnibus Appropriations 
Act of 1999, which was signed into law on October 21, 1998 and 
provided $4 million for the program in Fiscal Year 1999.

     VI. ACCESS TO CAPITAL: SMALL BUSINESS ADMINISTRATION PROGRAMS


              A. 504 Certified Development Company Program


Background

    Over the last several years, the Committee has devoted 
considerable attention to the 504 Certified Development Company 
program. One of the main concerns has been reports and 
testimony from the Small Business Administration (SBA) and the 
Office and Management and Budget (OMB) about low recoveries 
made by the SBA following a default by the borrower under the 
504 loan program. Under current law, the SBA liquidates and 
forecloses almost every loan made under the 504 loan program. 
In 1996, in response to the continuing problem of the SBA 
obtaining low levels of recoveries on 504 loans, Chairman 
Christopher S. ``Kit'' Bond sponsored the Small Business 
Programs Improvement Act included in Public Law 104-208. Among 
other provisions, this legislation established a pilot program 
permitting approximately 20 certified development companies 
(CDCs) to liquidate loans they originated.
    During the Committee's review of the President's Fiscal 
Year 1999 budget request for the SBA, the Committee received 
testimony that the CDCs have proven capable of performing 
liquidation and foreclosure activities under the pilot 
liquidation program. The Committee also received testimony 
that, because the CDCs do not have permanent authority to 
engage in liquidations, the SBA has not credited the recoveries 
accomplished by the CDCs under the pilot program in subsidy 
rate calculations for the 504 loan program. This failure to 
credit recoveries received by the CDCs causes losses to be 
overestimated in such calculations.

Legislation

    Based on these concerns, on July 31, 1998, the Chairman 
introduced the Small Business Programs Restructuring and Reform 
Act of 1998 (S. 2407). Section 5 of the bill would have made 
the pilot liquidation program permanent by requiring the SBA to 
permit certain CDCs to foreclose on and liquidate defaulted 
loans that they have originated under the 504 loan program. The 
National Association of Development Companies strongly endorsed 
Section 5 of S. 2407.
    At a Committee markup on September 15, 1998, the Small 
Business Restructuring and Reform Act of 1998 was included in 
the Year 2000 Readiness and Small Business Programs 
Restructuring and Reform Act of 1998 (H.R. 3412) that the 
Committee reported by a vote of 18-0. The Senate passed H.R. 
3412 by unanimous consent on September 30, 1998. The House of 
Representatives took no action on the Senate-passed version of 
H.R. 3412.

              B. Small Business Investment Company Program


Background

    In 1958, Congress created the Small Business Investment 
Company (SBIC) program to help small business owners obtain 
investment capital. Forty years later, small businesses 
continue to experience difficulty in obtaining investment 
capital from banks and traditional investment sources. SBICs 
are frequently their only sources of investment capital. In 
1992 and 1996, the Committee worked closely with the SBA to 
correct earlier deficiencies in the law in order to ensure the 
future of the program. Today, the SBIC program is expanding 
rapidly in an effort to meet the growing demands of small 
business owners for debt and equity investment capital.
    The SBIC program lends government-guaranteed venture 
capital to SBA-licensed SBICs, which is matched with private 
capital and invested in small businesses. In 1996, the 
Committee completed work on the Small Business Investment 
Company Improvement Act of 1996 (S. 1784), which was signed 
into law on September 30, 1996 (P.L. 104-208). This legislation 
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.

Legislation

    The Committee's efforts to improve the SBIC program and to 
attract well-managed and well-funded SBICs to increase the 
availability of investment capital for small business owners 
continued in 1997. The Small Business Reauthorization Act of 
1997 (P.L. 105-135) made important changes in the SBIC program 
to permit manageable program growth while strengthening the 
SBA's oversight of the program. The law gives the SBA the 
option to make five-year leverage commitments, conforming the 
program to typical investment strategy patterns. In addition, 
the law permits the SBA to use fees collected from the SBICs 
for licensing and examinations to offset the agency's costs of 
performing these necessary functions.
    On September 30, 1998, the Senate passed unanimously the 
Year 2000 Readiness and Small Business Programs Restructuring 
and Reform Act of 1998 (H.R. 3412), which had earlier passed 
the House of Representatives as a bill making three technical 
changes to the SBIC program. All three changes were included in 
an expanded version of H.R. 3412 and were approved by the 
Senate. The first change would have removed a requirement that 
at least 50% of the annual program level of the approved 
participating securities under the SBIC program be reserved for 
funding SBICs having private capital of not more than $20 
million. The requirement has become obsolete following the 
SBA's imposition of its leverage-commitment process and 
Congressional approval for the SBA to issue five-year 
commitments for SBIC leverage.
    The second House change to the SBIC program would have 
clarified the rules for the determination of an eligible small 
business or small enterprise that is not required to pay 
Federal income tax at the corporate level, but that is required 
to pass income through to its shareholders or partners by using 
a specified formula to compute its after-tax income.
    The third House provision would have required the SBA to 
issue SBIC guarantees and trust certificates at periodic 
intervals of not less than twelve months. The current 
requirement is six months. This change will give maximum 
flexibility for the SBA and the SBIC industry to negotiate the 
placement of certificates that fund leverage and obtain the 
lowest possible interest rate.
    When the Committee marked up H.R. 3412, it approved a 
relatively small change in the operation of the program. This 
change, however, would help smaller, small businesses to be 
more attractive to investors. The SBICs would be permitted to 
accept royalty payments contingent on future performance from 
companies in which they invest as a form of equity return for 
their investment.
    The SBA already permits the SBICs to receive warrants from 
small businesses, which give the investing SBIC the right to 
acquire a portion of the equity of the small business. By 
pledging royalties or warrants, the small business would be 
able to reduce the interest that would otherwise be payable by 
the small business to the SBIC. Most importantly, the royalty 
feature provides the smaller, small business with an incentive 
to attract SBIC investments when the return may otherwise be 
insufficient to attract venture capital.
    During the Committee's consideration of H.R. 3412, it 
approved an amendment to increase the program authorization 
levels to fund participating securities. In Fiscal Year 1999, 
the authorization level would have increased from $800 million 
to $1 billion; in Fiscal Year 2000, it would have increased 
from $900 million to $1.2 billion. The two increases were 
approved by the Committee based on reports that demand in the 
SBIC program was growing at a rapid rate, and higher 
authorization levels are necessary if the SBIC program is going 
to meet the demand for investment capital from the small 
business community.
    After Senate passage of H.R. 3412, the House of 
Representatives was not able to consider the bill with the 
Senate amendments prior the adjournment of the 105th Congress. 
It was understood, however, that the House Committee on Small 
Business intended to take up the SBIC provisions contained in 
H.R. 3412 as passed by the Senate early in the 106th Congress.

              C. SBAExpress and LowDoc Pilot Loan Programs


Background

    On September 18, 1998, the SBA and the President announced 
the expansion of two pilot lending programs, SBAExpress and 
LowDoc, administered by the SBA under its 7(a) loan program. 
Among other changes, the SBA raised the maximum loan amount for 
the two pilot programs to $150,000 from $100,000 and 
significantly increased the number of lenders eligible to 
participate in the SBAExpress program by permitting most 
preferred lenders and certain certified lenders to originate 
SBAExpress loans. The SBAExpress and LowDoc pilot programs 
account for one-eighth and one-quarter of all loan volume under 
the 7(a) program, respectively.
    Following the SBA's announcement of the expansion of these 
programs, Chairman Bond sent a letter to the SBA Administrator, 
Aida Alvarez, on September 28, 1998, expressing concern about 
the expansion of these pilot programs without providing prior 
notice to the Committee. These pilot programs are not 
specifically authorized by statute, and the SBA has issued no 
regulations governing them. As a result, the SBA is able to 
make changes to the programs without comment by interested 
parties, circumventing the Administrative Procedure Act, the 
Regulatory Flexibility Act and the Red Tape Reduction Act (P.L. 
104-121). Moreover, such changes may affect the subsidy rate of 
the 7(a) program, which may significantly affect the program 
level established by Congress.
    Current law does not require the SBA to perform an analysis 
of the effect any change in a pilot program, or the initiation 
of a pilot program, will have on the subsidy rate for the 7(a) 
program. The Committee has, in fact, received information that 
the SBA did not perform such a detailed analysis prior to 
expanding the LowDoc and SBAExpress pilot programs. Moreover, 
current law does not require the SBA to report to the 
Committees on Small Business of the Senate and House of 
Representatives on the performance of such programs. In his 
September 28, 1998, letter to Administrator Alvarez, Chairman 
Bond stressed that it is essential for the SBA to provide basic 
information on the operation of its pilot programs to the 
Committees on Small Business of the Senate and House of 
Representatives so they may properly perform their oversight 
responsibilities.

Legislation

    Because of these concerns, Chairman Bond introduced the 
Year 2000 Small Business Readiness Act (S. 2372), which 
contains two reporting requirements relating to pilot programs 
under the 7(a) program. First, S. 2372 would require the SBA to 
report to the Senate and House Committees on Small Business 
prior to making any changes to a pilot program it administers 
under the 7(a) loan program or the initiation of any pilot 
program under the 7(a) program, if such change or initiation 
may affect the subsidy rate estimates for the 7(a) program. 
Second, the legislation would require the SBA to report to the 
Senate and House Committees on Small Business on the number and 
amount of loans made under all pilot programs commenced under 
the 7(a) loan program; the number of lenders participating in 
such programs; and the default rate, delinquency rate, and 
recovery rate for loans made under such pilot programs.
    As noted above, S. 2372 was included in the Year 2000 
Readiness and Small Business Programs Restructuring and Reform 
Act of 1998 (H.R. 3412) marked up by the Committee on September 
15, 1998. The Committee reported H.R. 3412 by a vote of 18-0. 
The Senate passed H.R. 3412 by unanimous consent on September 
30, 1998. The House of Representatives took no action on the 
Senate-passed version of H.R. 3412.

                              D. Oversight


                 1. SBA's Lender Examination Procedures


Background

    Over the last several years, Chairman Bond has paid 
particular attention to the SBA's examination of lenders 
originating loans under the 7(a) program. The Chairman 
sponsored the Small Business Programs Improvement Act (SBPIA) 
which requires, among other matters, that the SBA perform 
annual or more frequent examinations of lenders participating 
in the Preferred Lender Program. These lenders are authorized 
to originate 7(a) loans without the SBA's prior review and, 
over the last two fiscal years, have originated approximately 
50% of the dollar volume of loans in the 7(a) program.
    On-site lender reviews are essential to ensure that all 
lenders participating in the 7(a) program are complying with 
the SBA requirements and are engaging in prudent lending 
practices. Without such reviews, it is much more difficult for 
the SBA to determine whether a lender's loan origination 
procedures are placing government funds at risk. At the time of 
the Committee's March 18, 1998, hearing on the SBA's Fiscal 
Year 1999 budget request, the SBA had not begun examinations of 
lenders as required by the SBPIA, even though such examinations 
were mandated in 1996. Accordingly, in conjunction with the 
Committee's March 18, 1998, hearing, Chairman Bond urged the 
SBA to commence such examinations promptly. The Chairman 
requested, and received, specific information from the 
Administrator on the SBA's schedule for completing examinations 
for each preferred lender and detailed information with respect 
to the SBA's plans on conducting such examinations. The SBA 
began conducting on-site reviews of preferred lenders in May 
1998.
    In addition, on June 11, 1998, the General Accounting 
Office (GAO) released a report requested by Chairman Bond 
entitled ``Few Reviews of Guaranteed Lenders Have Been 
Conducted.'' Chairman Bond requested the report to determine 
how the SBA conducts on-site reviews to monitor participating 
lenders' compliance with the agency's 7(a) loan program 
policies and procedures, and what actions the SBA is taking to 
comply with the requirement under SBPIA that the agency 
implement a program to provide an annual review of each lender 
participating in the Preferred Lender Program.
    The GAO report found that, until just prior to the report's 
publication, the SBA had not complied with its own operating 
procedures that require periodic monitoring of lenders 
originating government-guaranteed loans under the 7(a) program 
or complied with the examination requirements in the SBPIA. The 
report specifically provides that in the five SBA district 
offices reviewed by the GAO, the SBA had not conducted reviews 
of 96% of the lenders in those districts in the past five 
years. Moreover, the GAO found no evidence that 625 of the 744 
lenders that had been in the 7(a) program for at least one year 
had ever been reviewed. The report, however, acknowledged that 
the SBA had recently begun a program to conduct on-site reviews 
of all preferred lenders so as to comply with the SBPIA. 
Because of this recent action, the report concluded that it is 
too early to tell how successful the program will be.
    The GAO report also details that, in the last five years, 
SBA's Inspector General has conducted audits at only three 
Small Business Lending Companies (SBLCs), one audit consisting 
of a review of only three loans. SBA regulations require its 
Inspector General periodically to audit all SBLCs originating 
loans under the 7(a) program. SBLCs are lenders that originate 
small business loans under the SBA's 7(a) loan program but are 
not depository institutions. As such, their lending activities 
and safety and soundness are generally not monitored by Federal 
or state banking regulators.

Committee Action

    In conjunction with the Committee's March 18, 1998, hearing 
on the SBA's Fiscal Year 1999 budget request, Chairman Bond 
urged the SBA to promptly commence SBLC reviews by requesting 
from the Administrator information on the number of 
examinations the SBA Inspector General has completed in the 
last two years. The Chairman also requested that the 
Administrator explain in detail the SBA's plans to examine the 
safety and soundness of such lenders on a regular basis. The 
SBA commenced a program on September 28, 1998, to audit 
regularly the safety and soundness of licensees under the SBLC 
program, and the SBA has contracted with the Farm Credit 
Administration to conduct such audits. The Committee will 
continue to work with the GAO and the SBA Office of Inspector 
General to monitor SBA's efforts to examine regularly the 
lending practices and safety and soundness of SBLCs.
    On October 26, 1998, Chairman Bond, along with 
Representative James Talent, Chairman of the House Committee on 
Small Business, sent a letter to Administrator Alvarez 
expressing concern that the SBA intended to expand the number 
of licensed SBLCs beyond the existing fourteen licensees. The 
letter stressed that because the SBA has only recently begun to 
audit the safety and soundness and lending activities of SBLCs, 
it is imprudent to expand the SBLC program prior to the SBA and 
the Committees evaluating the results of such SBLC audits and 
examinations. In response to this letter, Administrator Alvarez 
indicated that the agency will not lift the moratorium on 
licensing SBLCs. However, the Administrator confirmed that the 
SBA has formulated preliminary plans to license new nonbank 
lenders (titled ``New Market Lending Companies'') to originate 
loans under the 7(a) program, but that the agency intends to 
establish financial resource requirements that meet or exceed 
those currently in place for other 7(a) lenders. The Committee 
intends to watch and evaluate closely the SBA's efforts in this 
area.

                             2. Asset Sales


Committee Action

    As a result of pressure brought by the Committee and the 
OMB on the SBA since 1997, the SBA unveiled plans to conduct 
private sector sales of loans and other assets held by the 
agency. These sales, scheduled to commence in 1999, would 
include repurchased and defaulted notes, as well as real estate 
and other property securing such notes.
    To assist the Committee in evaluating the SBA's asset sale 
efforts, on August 21, 1998, Chairman Bond sent a letter to 
Administrator Alvarez requesting reports commissioned by the 
SBA addressing sales of its assets in private markets. The 
reports received by the Committee detail the asset disposal 
method that will result in the highest net cash generation for 
the SBA, determine the optimum sale time for SBA assets, and 
contain estimates of the amounts that the SBA should obtain by 
selling such assets. If the SBA fails to obtain an appropriate 
return for such assets, it may result in a higher subsidy rate 
for the applicable loan programs. The Committee will continue 
to monitor the SBA's asset sale efforts.

      3. Securitization of the Unguaranteed Portion of 7(a) Loans


Background

    The Small Business Programs Improvement Act (SBPIA), 
enacted September 30, 1996, prohibits the sale of any 
unguaranteed portion of a 7(a) loan after March 31, 1997, until 
the SBA issues a final regulation that applies uniformly to 
depository institutions and other lenders and that sets forth 
the terms and conditions of such sales, including maintenance 
of reserve requirements and other safeguards to protect the 
safety and soundness of the 7(a) program. This provision was 
included in the statute because, while it appeared that market 
forces were adequately protecting investors of securitized 
unguaranteed portions of 7(a) loans, the SBA had not issued 
regulations requiring that lenders maintain a reserve to ensure 
that they retain significant exposure on the loans they 
originate.
    On February 26, 1997, the SBA proposed a regulation in 
response to the SBPIA recommending that each lender (bank and 
nonbank) retain a continuing economic interest equal to 5% of 
the face value of each loan included in a securitization. The 
proposed regulation noted that nearly all respondents to the 
SBA's earlier advance notice of rulemaking recommended that 
lenders retain at least a 5% tangible economic interest in the 
total amount of a guaranteed loan. The SBA, however, did not 
finalize this proposed rule, but instead issued an interim rule 
on April 2, 1997, that permitted the agency to approve 
securitizations on a case-by-case basis. Despite not issuing a 
final rule in conformity with the SBPIA, the SBA continued to 
permit lenders to sell the unguaranteed portion of 7(a) loans 
under the interim rule. Moreover, the SBA continued to 
discriminate between bank and nonbank lenders by permitting, in 
1997, an SBLC to securitize the unguaranteed portion of 7(a) 
loans without maintaining a 5% reserve to protect the SBA from 
loss, while requiring a Federally-regulated depository 
institution to maintain such a reserve. These actions were in 
clear defiance of the statutory requirement in the SBPIA.

Committee Action

    On December 10, 1997, Chairman Bond sent a letter to 
Administrator Alvarez expressing grave concern over the SBA's 
failure to comply with the requirements of the SBPIA relating 
to securitization of the unguaranteed portions of 7(a) loans. 
The letter also questioned Administrator Alvarez regarding 
reports in the media that the SBA's approval of a 
securitization by an SBLC, without retention of a reserve, was 
deemed to be ``politically fixed'' by career officials at the 
SBA. Finally, the letter requested the SBA to suspend the 
securitization program until the agency had promulgated a final 
regulation in conformity with the SBPIA. Administrator Alvarez 
responded on December 17, 1997, that the SBA would continue to 
approve securitizations on a case-by-case basis prior to 
issuing a final rule in compliance with the SBPIA.
    Following this response, the Chairman sent a second letter 
to Administrator Alvarez on January 22, 1998, in which he re-
emphasized his serious concerns about the SBA's management of 
the securitization program. Administrator Alvarez responded on 
February 2, 1998, stating that the SBA has been developing a 
``new rule'' to govern the securitization program. In 
conjunction with the Committee's hearing on March 18, 1998, 
regarding SBA's proposed Fiscal Year 1999 budget, Chairman Bond 
questioned Administrator Alvarez several times regarding SBA's 
compliance with the securitization requirements in the SBPIA, 
as well as her intentions regarding approving securitizations 
of the unguaranteed portions of 7(a) loans prior to the 
issuance of a final rule.
    On May 18, 1998, the SBA published a proposed rule that 
would permit all participating lenders to sell, securitize, 
sell a participating interest in or pledge the unguaranteed 
portion of 7(a) loans. The proposed rule requires a lender to 
retain a subordinated tranche on a securitization of 
unguaranteed portions of 7(a) loans that is equal to the 
greater of (i) twice the loss rate experienced on the lender's 
SBA loans over a ten-year period or (ii) 2% of the unguaranteed 
portion of the securitized loans. The industry has generally 
responded positively to this proposed rule, which is likely to 
be finalized in early 1999.

                 E. Small Business Year 2000 Readiness


Background

    On June 2, 1998, the Committee held a hearing on two 
issues: problems faced by small businesses conducting 
electronic commerce (e-commerce) and the effect the Year 2000 
(Y2K) computer problem will have on small businesses. The Y2K 
problem is a result of programmers over the years writing 
computer code that used only two digits to represent years. 
This means that certain computers and processors in automated 
systems will fail because such systems will not recognize the 
year 2000, but will mistake it for 1900.
    At the hearing, the Committee received testimony that the 
companies most at risk from Y2K failures are small- and medium-
sized industries, not larger companies. Witnesses testified 
that this anomaly is caused by two factors. First, many small 
companies have yet to realize the extent the Y2K computer 
problem affects their businesses. Second, many small companies 
may not have the access to capital to cure such problems before 
they cause disastrous results. The Committee also received 
information that only 15% of all businesses with less than 200 
employees have even begun to inventory the automated systems 
that may be affected by this computer glitch, much less begun 
fixing such systems. Moreover, a study on Small Business and 
the Y2K Problem sponsored by Wells Fargo Bank and conducted by 
the National Federation of Independent Business found that an 
estimated 4.75 million small employers are exposed to the Y2K 
problem.

Legislation

    In response to the testimony at the hearing and to mitigate 
the effect on the economy that small business exposure to the 
Y2K problem may have, Chairman Bond introduced the Small 
Business Year 2000 Readiness Act (S. 2372) on July 30, 1998. 
The bill was cosponsored by Senators Robert Bennett, Olympia 
Snowe and Frank Lautenberg.
    The legislation was intended to serve the dual purpose of 
providing small businesses with necessary capital to continue 
operating after January 1, 2000. It was also designed to make 
financial institutions and small firms more aware of the Y2K 
problem by providing a specific solution for financial 
institutions with small business customers that are not Y2K 
compliant. The legislation would have required the SBA to 
establish a limited-term loan program, which would sunset after 
October 31, 2001. Under that program, the SBA would guarantee 
50% of the principal amount of a loan made by a private lender 
to assist small businesses in correcting Y2K computer problems 
with the loan amount capped at $50,000. The guarantee limit and 
loan amount were designed to limit the exposure of the 
government and ensure that eligible lenders retain sufficient 
risk so that they make sound underwriting decisions. The 
legislation would have further permitted lenders to process and 
document Y2K loans using the same internal procedures they 
currently use on loans of a similar type and size not governed 
by a government guarantee, in the same manner as the existing 
SBAExpress pilot program.
    The bill further provided that each lender designated as a 
Preferred Lender or Certified Lender by the SBA would be 
eligible to participate in the Y2K loan program. This would 
include approximately 1,000 lenders that have received special 
authority from the SBA to originate loans under the SBA's 
existing 7(a) loan program.
    At a Committee markup on September 15, 1998, S. 2372 was 
included in Chairman Bond's Year 2000 Readiness and Small 
Business Programs Restructuring and Reform Act of 1998 (H.R. 
3412). The Committee reported H.R. 3412 by a vote of 18-0 and 
the Senate passed the bill by unanimous consent on September 
30, 1998. The House of Representatives took no action on the 
Senate-passed version of H.R. 3412.

             F. Proposed 7(a) and 504 Loan Program Changes


Committee Action

    The Year 2000 Readiness and Small Business Programs 
Restructuring and Reform Act of 1998 (H.R. 3412), as reported 
by the Committee, contained changes to the 7(a) loan program 
and the 504 loan program. First, the bill would have required 
appraisals of real estate collateral for 7(a) and 504 loans by 
state licensed or certified appraisers only if more than 
$250,000 of the loan proceeds are used to acquire, construct or 
improve real property. Currently, OMB requires all agencies 
that manage credit programs to ensure that all credit 
transactions over $100,000 have an appraisal prepared by a 
state licensed or certified appraiser. The increase in the 
appraisal requirement threshold was adopted as an amendment 
sponsored by Senator John Kerry at the Committee markup. 
Chairman Bond supported the amendment following receipt of a 
letter from the SBA, approved by OMB, stating that it had no 
objection to raising the appraisal threshold amount.
    Second, H.R. 3412 would have also repealed a provision 
requiring that the SBA pay a lender under the 7(a) loan program 
100 basis points less than the interest rate on a loan when a 
lender is paid the guaranteed portion of a defaulted 7(a) loan. 
In 1996, Congress enacted this requirement anticipating that it 
would decrease subsidy costs of the 7(a) program substantially. 
This has not proved to be the case, and Chairman Bond supported 
the amendment to H.R. 3412 because the paperwork burden caused 
by this provision has been disproportionately high compared to 
the savings achieved. As noted above, the House of 
Representatives took no action on the Senate-passed version of 
H.R. 3412.

                      VII. WOMEN-OWNED BUSINESSES


                  A. Survey of Women-Owned Enterprises


Background

    A top priority for women's business organizations was to 
ensure that the Commerce Department conduct a new Survey of 
Women-Owned Business Enterprises (SWOBE). This survey was 
jeopardized by the Administration's decision to have the Small 
Business Administration (SBA) pay for the survey rather than 
the Commerce Department. In 1998, the SBA obtained permission 
from Congress to reprogram $1 million for the survey. The SBA 
also reprogrammed $500,000 in Fiscal Year 1997 for the survey.

Committee Action

    At the Committee's March 18, 1998, hearing on the 
President's Fiscal Year 1999 Budget Request for the SBA, 
Chairman Christopher S. ``Kit'' Bond inquired about the 
additional $1 million being requested by the SBA for SWOBE. The 
Administrator and SBA staff responded that additional funds 
might be required in Fiscal Year 2000. In response to written 
questions submitted by the Chairman, the Administrator reported 
the cost for SWOBE to be: $527,814 in Fiscal Year 1997; 
$991,000 in Fiscal Year 1998; $750,000 in Fiscal Year 1999; and 
$500,000 for Fiscal Year 2000. Consistent with these estimates, 
the Fiscal Year 1999 Omnibus Appropriations Act provided a 
line-item of $800,000 for SWOBE.

                   B. Women's Business Center Program


Background

    In preparation for reauthorizing the SBA, the Chairman 
focused attention on SBA programs serving women during a 
hearing on oversight of the SBA's non-credit programs. The 
National Association of Women Business Owners urged the 
Committee to consider ways to improve SBA programs to serve the 
needs of women better. Procurement, access to capital, and 
business education and training were again named as top 
priorities for women business owners.

Legislation

    In response to the comments provided by women business 
owners, on June 12, 1997, Chairman Bond joined Senators Pete 
Domenici and John Kerry as the lead sponsors of the Women's 
Business Center Act (S. 888). This legislation increased the 
authorization for Women's Business Centers from $4 million to 
$8 million, doubling the request submitted by the 
Administration. The bill also extended the number of years the 
Centers could be eligible to receive funding from three to five 
and enabled Centers currently in their third year to apply for 
an additional two years of eligibility.
    Chairman Bond continued to demonstrate his commitment to 
the Women's Business Center program during the Second Session 
of the 105th Congress. The Women's Business Center program 
authorizes the SBA to award grants to locally-run Centers for 
business education training, including marketing, finance, and 
management assistance. In 1998, Chairman Bond introduced 
legislation to increase the authorization level for the program 
from $8 million to $12 million beginning in Fiscal Year 1999. 
With the support of the Association of Women's Business 
Centers, the legislation also included a requirement that the 
General Accounting Office (GAO) conduct a baseline and follow-
up study on the SBA's administration of the program. The 
Chairman's bill was unanimously approved in Committee on 
September 15, 1998, and passed the Senate on September 30, 
1998; however, the House did not consider the bill prior to 
adjournment. The Chairman will continue his efforts to 
strengthen and expand this program during the 106th Congress.

                 VIII. HUBZONES AND FEDERAL PROCUREMENT


                         A. HUBZone Act of 1997


Background

    During the 105th Congress, the Small Business 
Administration (SBA) began implementing the HUBZone program, 
which was enacted as Title VI of the Small Business 
Reauthorization Act of 1997. The SBA published its proposed 
HUBZone rules in the Federal Register of April 2, 1998. On May 
1, 1998, Chairman Christopher S. ``Kit'' Bond submitted written 
comments to the SBA on the proposed rules, most notably 
concerning the SBA's ``trial balloon'' to limit HUBZone small 
businesses to those of at least 16 employees and no more than 
one-half of the maximum size standard normally applicable for a 
particular Standard Industrial Classification (SIC) code. 
Chairman Bond argued that the SBA did not have the authority to 
impose additional limitations beyond those written into the 
HUBZone statute. The SBA dropped its additional size standard 
ideas when it published final rules on June 11, 1998, noting 
Chairman Bond's argument in its ``Section-by-Section Analysis'' 
explaining the change. Conforming changes in the Federal 
Acquisition Regulation were published as an interim final rule 
in December 1998.
    During 1998, it became apparent that the HUBZone 
legislation included some technical errors that, left 
uncorrected, could result in dramatically different 
interpretations of the law than that intended by the Congress. 
The most significant problems concerned the Act's definition of 
``qualified census tracts'' and ``qualified nonmetropolitan 
county.'' As expressed in Committee reports at the time the 
HUBZone Act was enacted, those definitions were to be mutually 
exclusive; thus, in metropolitan areas, HUBZones would be 
defined only at the census tract level, while in 
nonmetropolitan areas, the definition would be on a county-by-
county basis. Drafting errors in the legislation omitted the 
restrictive language and misplaced one test (the unemployment 
test for nonmetropolitan counties). Thus, for example, Bronx 
County, New York, due to its high level of unemployment, would 
qualify as a ``qualified nonmetropolitan county'' despite its 
urban character. This counterintuitive result potentially 
undermines the program by diffusing the program's attempt to 
target areas most in need.

Legislation

    To address this problem, along with some minor non-
substantive changes, Chairman Bond included a package of 
technical corrections in the Small Business Programs 
Restructuring and Reform Act of 1998 (S. 2407), which he 
introduced on July 31, 1998. This package was included in the 
Year 2000 Readiness and Small Business Programs Restructuring 
and Reform Act of 1998 (H.R. 3412) passed by the Committee on 
Small Business on September 15, 1998. The measure also passed 
the Senate by unanimous consent on September 30, 1998, but was 
not considered by the House before the 105th Congress 
adjourned.

                          B. Contract Bundling


Background

    In 1988, President Reagan signed a bill setting a goal that 
20% of the total value of Federal prime contracts be awarded to 
small businesses. In 1997, testimony and other evidence 
accumulated by the Committee outlined a series of actions by 
the Administration that could remove many prime contract 
opportunities from the reach of thousands of small businesses.

Legislation

    The Committee included in the Small Business 
Reauthorization Act of 1997 (P.L. 105-135) a special subtitle 
that responds to the Federal government's practice of 
``bundling'' or consolidating smaller contracts into very large 
contracts. Contract bundling often prevents small businesses 
from competing for contracts or ultimately obtaining them 
because of the size or geographic dispersion of the contract. 
This practice, intended to reduce short-term administrative 
costs, can result in a monopolistic environment with a few 
large businesses controlling the market supply.
    The Small Business Reauthorization Act of 1997 focuses 
attention on this issue by clearly defining contract bundling. 
The Act also raised the government-wide goal for small 
businesses to 23% of prime contract dollars. Further, the law 
strengthens the role of the SBA to appeal decisions of Federal 
agencies that decide to bundle smaller contracts into larger 
contracts, including the right of the SBA Administrator to make 
an appeal directly to the head of the agency or department. The 
Act also established in law, for the first time, that all 
Federal agencies report through the Federal Procurement Data 
System all contract actions involving bundled requirements with 
an anticipated contract award value exceeding $5 million. This 
reporting requirement will permit the Committee to obtain 
accurate information on the number of contracts being diverted 
from small businesses to large businesses.
    The new law also directed the SBA to publish proposed rules 
in the Federal Register not later than 120 days after 
enactment, which would have been April 1, 1998. Final rules 
were to be published within 270 days of enactment, or not later 
than August 29, 1998. Neither statutory deadline was met.

         C. Reporting of Small Business Contracting Statistics


Legislation

    Chairman Bond included in H.R. 3412 provisions to tighten 
Congressional oversight of Executive Branch reporting of small 
business contracting statistics. In April 1998, the Department 
of Energy's (DOE) Office of Inspector General issued a report 
criticizing the DOE's collection and presentation of its 
statistics on agency contracting with small business. Among 
other things, the DOE had inaccurately reported high goals and 
achievements for such contracting, by excluding the value of 
certain contract expenses from its base number of total prime 
contracts. Most disturbingly, these changes initially were 
approved by the SBA on the grounds that the DOE had a ``unique 
situation'' regarding these expenses. Although this approval 
was later revoked when the SBA was informed that the ``unique 
situation'' was not in fact unique, the SBA's initial approval 
and later revocation were not formally disclosed to the 
Congress, the Committee, or the public. As part of the small 
business legislation adopted by the Committee and approved by 
the Senate, provisions intended to put these matters on the 
public record were adopted. Negotiations with the SBA resulted 
in compromise language on this subject, which was incorporated 
into the bill through a floor amendment (S. Amdt. 3674) that 
was adopted by unanimous consent when H.R. 3412 was adopted, 
also by unanimous consent, on September 30, 1998.

Committee Action

    At the invitation of the Committee on Energy and Natural 
Resources, Chairman Bond submitted written questions on the 
DOE's statistics reporting during the nomination hearings of 
Bill Richardson to be Secretary of Energy on July 22, 1998, and 
Gregory Friedman to be Inspector General of the Department of 
Energy on September 17, 1998. The responses of Secretary-
Designate Richardson were unsatisfactory, as he argued in favor 
of DOE's position to exclude the contract expenses in question 
from the base of total contract dollars. He did, however, 
commit in general terms to increase small business contracting 
opportunities. Inspector General-Designate Friedman was asked 
more general questions about the role of the IG in monitoring 
these situations and he committed to a follow-up meeting with 
DOE management to review their responses to the April 1998 
report.

               D. Small Business Research and Development


Background

    In 1982, Congress established the Small Business Innovation 
Research (SBIR) program because small businesses are principal 
sources of innovation in the United States. In order to remain 
competitive in the global economy, the United States has 
historically depended heavily on innovation through research 
and development (R&D). Our dependence on small business for 
innovation is significant.
    The SBIR program requires agencies with extramural R&D 
budgets of $100 million or more to set aside not less than 2.5% 
of that amount for R&D conducted by small businesses. It is a 
three-phase program. Phase I is designed to determine the 
scientific and technical merit and feasibility of a proposed 
research idea. A Phase I grant award cannot exceed $100,000. 
Phase II is designed to develop the idea further, taking into 
consideration such matters as the idea's commercialization 
potential. Phase II grant awards cannot exceed $750,000. Phase 
III is the commercialization phase. It is funded by non-Federal 
funds for the commercial application of the technology or non-
SBIR Federal funds for continued R&D under government 
contracts.
    Ten years after Congress originally approved the SBIR 
program, it was re-authorized by the Small Business Research 
and Development Enhancement Act (P.L. 102-564, October 28, 
1992). The principal purposes of the 1992 Act were to: (1) 
expand and improve the SBIR program; (2) emphasize the 
program's goal of increasing the private sector's 
commercialization of technologies; and (3) increase small 
business--participation in the program by women-owned small 
business concerns and by socially and economically 
disadvantaged small business concerns.
    The 1992 Act also established the Small Business Technology 
Transfer (STTR) program, a new pilot program. Congress intended 
to create an easy-to-use vehicle for moving ideas from research 
institutions to the marketplace where they can best benefit the 
U.S. economy. The STTR program accomplishes this goal by 
linking small businesses with creative ideas to universities, 
nonprofit scientific and educational institutions, and Federal 
laboratories. Under the STTR program, R&D that benefits our 
national defense, promotes health and safety, or improves our 
highways and airports can move from the early R&D state to the 
marketplace. The STTR program ensures that innovative ideas 
developed by universities and nonprofit organizations, in 
partnership with quality small businesses, serve an active role 
in building our nation's economy. The ``Small Business 
Reauthorization Act of 1997'' (P.L. 105-135) extended the STTR 
program for four years, through the end of Fiscal Year 2001.
    The 1992 Act directed the General Accounting Office (GAO) 
to undertake two reports on the SBIR program. The first report 
was submitted to the Senate and House Committees on Small 
Business on March 8, 1995.
    In April 1998, the GAO issued its second comprehensive 
report on the state of the SBIR program. Subsequently, in June 
1998, the GAO addressed the report in testimony before the 
Committee. The message was clear: this is a worthwhile program 
that is running very well. There are 10 Federal agencies that 
participate in the program, and the GAO concluded they are 
adhering to the program's funding requirements. Competition has 
been intense among small business R&D firms in response to 
solicitations from the 10 agencies. The GAO found, however, it 
was very rare for an agency to make an award when the agency 
received only one proposal in response to a solicitation.
    The GAO report raised some concerns about the success of 
multiple-award recipients of SBIR grants. In particular, the 
GAO pointed out that the average levels of sales and additional 
developmental funding for the multiple-award recipients are 
lower than those for non-multiple-award recipients. On average, 
multiple-award recipients--sales are $12,000 lower than those 
for non-multiple-award recipients, while the levels of 
additional developmental funding are almost $90,000 lower for 
the multiple-award recipients.
    The GAO's analysis of the Department of Defense's (DOD) 
data shows differences that are even more pronounced. Survey 
data from the DOD showed that annual sales are more than 
$250,000 lower for multiple-award recipients, and the average 
levels of additional developmental funding for multiple-award 
recipients are more than $175,000 lower than those for non-
multiple-award recipients.

Legislation

    The Year 2000 Readiness and Small Business Programs 
Restructuring and Reform Act of 1998 (H.R. 3412), as reported 
by the Committee, would have removed the sunset date for the 
SBIR program, effectively making the program permanent. 
Testimony before the Committee and the findings of the GAO 
clearly supported this action.
    As approved by the Committee, the bill also required each 
agency subject to the SBIR program to use the same formula set 
forth by the Director of the Office of Management and Budget in 
calculating extramural budgets.
    Members of the Committee continue to express their concern 
about the high concentration of SBIR awards in a small number 
of states, with nearly 80% of awards going to businesses 
located in six states. In 1997, the Congress approved a special 
program that directs the SBA to award grants for outreach 
activities in states where SBIR participation is low. The 
Committee, accordingly, included in H.R. 3412 a provision 
directing existing Federal outreach activities, such as the 
electronic commerce (e-commerce) resource centers and the 
procurement technical assistance centers, to conduct specific 
outreach activities to support the SBIR program funded out of 
their existing budgets. The Committee intends to continue to 
review closely the success of activities at the SBA and the 
agencies subject to the SBIR program to conduct effective 
outreach activities in states receiving small numbers of SBIR 
awards.
    Although H.R. 3412 passed the Senate unanimously on 
September 30, 1998, the House of Representatives did not 
consider the bill before Congress adjourned for the year. It 
will be necessary for Congress to enact legislation in the 
106th Congress extending the SBIR program before the program 
terminates on September 30, 2000.

                            IX. HEALTH CARE


Background

    Chairman Christopher S. ``Kit'' Bond led the fight to 
reduce the adverse impact of two Health Care Financing 
Administration (HCFA) regulations that had devastating effects 
on small businesses and small non-profits in home-health care. 
Language in the Balanced Budget Act (BBA) of 1997 directed HCFA 
to issue a series of regulations intended to curb the rising 
cost of home-health care and to rid the Medicare and Medicaid 
programs of firms engaged in fraud and abuse. HCFA, however, 
issued regulations in response to that Congressional directive 
that exceeded Congressional intent, driving many reputable 
home-health care providers out of business.
    The first regulation was issued under Section 4312(b) of 
the BBA, which requires home-health care agencies to obtain a 
surety bond that is not less than $50,000. In contrast, HCFA's 
regulations required home-health agencies to obtain bonds for 
the greater of $50,000 or 15% of their annual Medicare 
receipts. These bonds were essentially financial guarantees, 
requiring collateral or personal indemnification equaling 100% 
of the bond's face value, intended by HCFA to ensure repayment 
of overpayments made by Medicare. With more than 85% of home-
health care providers being small businesses, the bonds were 
unreasonably expensive and unobtainable. HCFA also ignored the 
procedural safeguards under the Administrative Procedure Act 
and the Regulatory Flexibility Act of 1980 in developing the 
rule by failing to issue a notice of proposed rulemaking prior 
to the final rule and failing to conduct an appropriate 
Regulatory Flexibility analysis.
    HCFA's Interim Payment System (IPS) regulation caused even 
greater uncertainty regarding the future availability of home-
health care. The BBA required HCFA to develop an IPS to limit 
reimbursement for services provided on or after October 1, 
1997. HCFA's resulting IPS rule, however, was too severe, 
causing many home-health agencies to close their doors. In 
addition, HCFA's progress on the more favorable prospective 
payment system (PPS), which was to be in place by October 1, 
1999, was behind schedule.

Legislation

    On June 10, 1998, Chairman Bond introduced S. J. Res. 50, a 
resolution of disapproval to strike HCFA's regulation to 
implement the surety bond requirement. S. J. Res. 50 was the 
first resolution introduced under Subtitle E of the Red Tape 
Reduction Act, known as the Congressional Review Act, that 
gained broad-based support in the Senate and House. With 60 
Senate cosponsors, the resolution precipitated HCFA's 
suspension of the surety bond rule pending completion of a 
General Accounting Office study and, potentially, the 
development of a new proposal. As the result of an agreement 
between HCFA and Chairman Bond and Senators Charles Grassley 
and Max Baucus, HCFA issued a Federal Register notice on July 
31, 1998, suspending the deadline for compliance with the 
surety rule. HCFA further agreed to not enforce the rule: (1) 
without providing at least 60 days notice and (2) not before 
February 15, 1999. That date was established as the Senators 
wanted to ensure that HCFA's actions would take place when 
Congress was in session and able to respond.
    On July 15, 1998, Senator Bond introduced the Medicare 
Home-Health Care Beneficiary Protection Act of 1998 (S. 2354), 
to place a moratorium on the IPS pending the development of an 
alternate payment system. During the September 3, 1998, 
Committee markup of the Labor, HHS, Appropriations bill, 
Senator Bond offered his IPS bill as an amendment. Although he 
was forced to withdraw the amendment because of cost concerns, 
Senator Bond persisted, producing an eleventh hour solution in 
the Omnibus Appropriations Act for Fiscal Year 1999. Signed 
into law on October 21, 1998, this measure increased payments 
to home-health care providers, and it delayed until October 1, 
2000, HCFA's proposed 15% reduction in reimbursements. The law 
will ensure continued access to home-health care for seniors 
and the disabled across the nation.
    In November 1998, HCFA issued an additional notice 
clarifying that it would not make claims against any surety 
bonds prior to a new deadline for compliance. HCFA also advised 
the intermediaries holding bonds to return them to any home-
health agency that requests this in writing. During the 106th 
Congress, the Committee will closely monitor HCFA's work on the 
surety bond, the revised IPS and the forthcoming PPS 
regulations.

Committee Action

    On July 15, 1998, Chairman Bond convened a hearing of the 
Committee on Small Business to focus attention on HCFA rules. 
In response to information gathered at the hearing and HCFA's 
refusal to participate, Chairman Bond sent a letter to the 
Department of Health and Human Services on July 24, 1998. The 
Chairman's letter called on Secretary Donna Shalala to work 
with Congress to enact an immediate moratorium on the IPS and 
to withdraw the suspended surety bond regulations.

                 X. REFORM OF CONSUMER BANKRUPTCY LAWS


Legislation

    Chairman Christopher S. ``Kit'' Bond supported the Consumer 
Bankruptcy Reform Act of 1998 (S. 1301), which passed the 
Senate on September 23, 1998. If enacted, the bill would have 
increased the amount collected by small business creditors from 
debtors in bankruptcy. The bill established a ``means test'' 
for Chapter 7 bankruptcies, by permitting a court to dismiss a 
Chapter 7 case or convert it to Chapter 13 if the court finds 
``abuse'' of the bankruptcy system. Under current law, Chapter 
13 requires consumers to establish a repayment plan (that 
generally lasts between three and five years) for their debts, 
while Chapter 7 allows consumers to liquidate their assets and 
eliminate most unsecured debts. To determine ``abuse,'' the 
bill required a court to review whether (1) the debtor could 
pay at least 30% of nonpriority, unsecured claims from 
disposable income and (2) the debtor filed the petition in bad 
faith. The bill, however, prohibited motions to be brought to 
convert or dismiss Chapter 7 cases if a debtor's family has 
monthly income of no more than ``the national median family 
monthly income'' for a family of equal size. The bill also 
would have eliminated certain abusive creditor practices.
    The House of Representatives passed its version of consumer 
bankruptcy reform legislation on June 10, 1998. The conference 
report reconciling the Senate and House versions of this 
legislation was not approved by the Senate prior to adjournment 
of the 105th Congress.

                         XI. TELECOMMUNICATIONS


                       A. FCC Access Charge Rule


Background

    In its May 16, 1997, Report and Order, the Federal 
Communications Commission (FCC) modified the methods by which 
local-exchange carriers charge long-distance carriers for 
access to their network. The Report and Order also 
substantially increased the costs faced by long-distance 
carriers who utilize the local-exchange carriers tandem 
switches. The Committee was concerned about the FCC's failure 
to analyze the impact of changes to the pricing of interstate 
access service both on small long-distance carriers and on 
certain small retail businesses that use long-distance 
services.

Committee Action

    On November 20, 1997, Chairman Christopher S. ``Kit'' Bond 
and Senator John Kerry, the Committee's Ranking Member, sent a 
joint letter on Regulatory Flexibility compliance to the FCC. 
The Committee's letter noted the opportunity provided the FCC 
by the Petitions for Reconsideration and encouraged the FCC to 
reassess the impact of its recent decisions on both small 
business long-distance carriers and the small business 
retailers that such carriers serve. Because the Report and 
Order were scheduled to go into effect on January 1, 1998, 
Chairman Bond and Ranking Member Kerry urged prompt 
consideration of these issues and the Petition for 
Reconsideration pending at the FCC.

                   B. FCC Telephone Directories Rule


Background

    In June 1998, the producers of independent telephone 
directories contacted the Committee regarding the potential 
impact of a pending FCC rulemaking to implement provisions of 
the Telecommunications Act of 1996. Congress intended Section 
222(e) of the Act to increase competition and enhance the 
ability of independent publishers to compete with directories 
wholly owned by telephone companies. Although the market is 
dominated by directory subsidiaries of telephone companies, 
independent directory producers have successfully developed 
competitive products. More than 80% of independent directory 
producers are small businesses. Small businesses involved in 
directory publishing were concerned that the FCC rule to 
determine the ``reasonable'' price for subscriber list 
information might not recognize the minimal cost imposed on 
telephone companies when providing such information to 
requesting independent directory producers.

Committee action

    On July 17, 1998, Chairman Bond and Ranking Member Kerry 
wrote the FCC Chairman William Kennard urging the FCC to 
conduct a thorough Regulatory Flexibility analysis prior to 
issuing a final rule and to ensure the rule achieved the 
competition Congress intended by protecting small businesses 
from market abuses. On September 3, 1998, Chairman Kennard 
responded, acknowledging the statutory preference for 
competition. He assured Chairman Bond that these concerns would 
be part of the record contemplated by the FCC staff and the 
Commission in this rulemaking. Currently, the FCC is working on 
its final report and order, with the SBA's Office of Advocacy 
assisting with the Regulatory Flexibility analysis.

                     XII. HEARINGS OF THE COMMITTEE


              ``Women-Owned and Home-Based Businesses''--
                   Washington, D.C., February 6, 1997

    On February 6, 1997, the Committee held a hearing on issues 
affecting women-owned and home-based businesses. Chairman 
Christopher S. ``Kit'' Bond convened the hearing to examine the 
obstacles facing women business owners and home-based 
businesses, as well as small businesses'' access to capital, 
and effects of Federal procurement policy. In addition, the 
hearing focused on the burdens imposed by the tax laws, in 
particular, independent-contractor classification, the home-
office deduction and health insurance for the self-employed.
    All of the witnesses testified that there are many 
obstacles facing small business owners, many that have little 
or no effect on big business. The first witness, Carolyn A. 
Stradley, President and Chief Executive Officer, C & S Paving, 
Inc., provided a first-hand account of the hardships she 
overcame to become a small business owner. Susan Peterson, 
President, Founder, and Chief Executive Officer of Susan 
Peterson Productions, Inc., and Ms. Stradley noted that the 
fastest growing economic segment and vital component of our 
society and economy are women-owned businesses. Ms. Peterson 
and several other witnesses pointed out that there are eight 
million women-owned businesses, and over the years women-owned 
firms have had a better success rate than the average American 
firm. However, Phyllis Hill Slater, President of Hill Slater, 
Inc., pointed out that marginalization often occurs for women 
business owners. The witnesses noted, as a prime example, the 
Federal agencies failure to meet the 5% prime contracting goal 
for women suppliers in the Federal Acquisition Streamlining Act 
of 1994 (FASA). Bonny Filandrinos, President of Staffing 
Solutions, Inc., pointed out that small businesses can neither 
afford nor do they have the same resources that big businesses 
have to hire consultants and experts to help them ensure 
compliance with government regulations.
    The witnesses also stressed that women-owned small 
businesses lack Federal procurement opportunities. Ms. Stradley 
and Ms. Slater noted that only 2% of the $176 billion awarded 
through Federal contracting has gone to women-owned firms, 
while women employ one in four workers in America. Ms. Slater 
also stated that the Federal government procurement market 
remains virtually closed to women suppliers. In addition M. 
Carole Wiedorfer, owner of M. Carole Wiedorfer CPA, testified 
that many women start their home-based businesses to obtain 
greater control over their compensation.
    Access to capital also poses a problem to small businesses, 
and women-owned firms in particular, according to the 
panelists. Ms. Stradley pointed out that increased access to 
capital for women business owners is needed because they still 
have lower levels of capital than their male counterparts. 
Moreover, as Ms. Filandrinos pointed out, women do not have the 
same financial backing as men do. Andrea Silbert, Executive 
Director and Co-Founder, Center for Women and Enterprise, 
agreed and stressed the added need for education and training, 
both of which are provided by Women's Business Centers like 
her's in Boston, Massachusetts.
    In the tax area, many witnesses agreed that independent-
contractor status is a top issue affecting small businesses. 
Bill Trembly, President of Trembly Associates, Inc., testified 
that tax laws imposed by the government often affect hiring 
decisions, and as a result, businesses frequently take 
inefficient steps simply to fall within Internal Revenue 
Service (IRS) guidelines. Mr. Trembly, along with Ms. 
Wiedorfer, suggested that the 20-factor common law test for 
independent-contractor status is too difficult to figure out 
and too subjective. They concluded that independent-contractor 
qualifications are inefficient because they cause business 
owners to spend unnecessary amounts of time, money, and effort 
on compliance, which is never assured due to the ambiguous 
rules that favor the IRS. Mr. Trembly suggested, as an 
alternative to this and the overall complexity of the tax law, 
that a flat tax should be enacted.
    Two final issues plaguing small businesses were also 
discussed at the hearing: the home-office deduction and the 
deductibility of health-insurance costs by the self-employed. 
As a result of the Supreme Court's 1993 Soliman decision, the 
home-office deduction has been dramatically narrowed and now 
requires a home-based business to see clients in the home, 
which is impossible for many entrepreneurs like plumbers, 
landscapers, and salespersons. Ms. Wiedorfer explained that the 
current state of the law places many home-based businesses at a 
competitive disadvantage with their large competitors, which 
can deduct all of their office expenses. She pointed out that 
the benefit of the deduction is reduced if the home-based 
business has no earned income for the year, since no tax 
deduction is allowed. Ms. Wiedorfer testified that under 
current law the Federal regulations and tests are too difficult 
to interpret, which makes the home-office deduction inefficient 
and impossible in many cases.
    Health-insurance deductibility for the self-employed also 
poses a concern for many entrepreneurs. Big businesses are 
allowed to deduct the cost of their health-insurance coverage, 
while small businesses are not. Sal Risalvato, owner of 
Riverdale Texaco and Precision Alignment Center, testified that 
he did not realize he could not deduct his own health-insurance 
costs until he was audited and found that he must count his 
insurance as income. Mr. Risalvato and Ms. Wiedorfer agreed 
that this is unfair because big business can deduct all of 
their health-insurance costs, creating a great inequality among 
small and large businesses.

          ``Nomination of Aida Alvarez To Be Administrator of 
          the United States Small Business Administration''--
                  Washington, D.C., February 12, 1997

    On February 12, 1997, the Committee held a hearing on the 
confirmation of Aida Alvarez, whom President Clinton nominated 
to be the Administrator of the Small Business Administration 
(SBA). In his opening statement, Chairman Bond reviewed Ms. 
Alvarez' qualifications to serve as SBA Administrator. In 
particular he noted that she had served as the Director of the 
Office of Federal Housing Enterprise Oversight (OFHEO) from 
1993 to 1997. While noting a few of the relevant differences 
between OFHEO and the SBA, including staff size, budget, and 
range of influence; Chairman Bond indicated that he and Ms. 
Alvarez had discussed how her work at OFHEO, which oversees 
Fannie Mae and Freddie Mac, the largest government-sponsored 
enterprises, will help her administer the SBA. He stressed that 
while the SBA has served the small business community well, no 
organization can sustain success without complete assessment of 
its operations.
    During the hearing Senators Spencer Abraham and Alfonse 
D'Amato testified in strong support for Ms. Alvarez. They both 
praised her work as the first director of OFHEO and commended 
her for being the first person of Puerto Rican heritage and the 
first Hispanic woman to hold a Cabinet-level position. Senator 
Abraham added that he believed she will be a strong advocate 
for small business. Senator D'Amato also voiced the support of 
Senator Daniel Patrick Moynihan for Ms. Alvarez' confirmation.
    In her testimony, Ms. Alvarez provided the Committee with a 
brief description of her personal history. She explained that 
her family moved to New York from Puerto Rico and her mother 
subsequently started a restaurant in a blue-collar neighborhood 
where, Ms. Alvarez testified, she learned both the satisfaction 
and frustration of owning a small business. Ms. Alvarez also 
described her qualifications and how her time at OFHEO and her 
professional career had thoroughly prepared her to lead the 
SBA. She explained that rather than listing statistics, she 
preferred to describe to the Committee what she had been 
hearing from the small business community. She testified that 
the small business community wanted an SBA Administrator who 
will convey their concerns to the President, and she stressed 
that, if confirmed, she would be that voice.
    Ms. Alvarez concluded by briefly stating her three-part 
vision for the SBA. First, she wants the agency to be on the 
leading edge of financial management, which is critically 
important to the financial community, taxpayers and 
entrepreneurs, and the protection of the public trust. Second, 
she reiterated that she will be an effective voice in the 
Administration as a strong advocate for small business. 
Finally, she added that, if confirmed, she would look to create 
additional ways to maximize leveraging opportunities, such as 
through partnering with both the government and the private 
sector. She concluded her testimony by expressing her 
commitment to working closely with the Congress as the SBA 
executes its mission of serving the needs of small business.
    Following the hearing, the Committee unanimously 
recommended to the Senate that Ms. Alvarez be confirmed as SBA 
Administrator.

         ``The President's Fiscal Year 1998 Budget Request for 
          the United States Small Business Administration''--
                  Washington, D.C., February 26, 1997

    On February 26, 1997, the Committee held a hearing to 
review the Fiscal Year 1998 budget request for the Small 
Business Administration. The hearing provided a forum for 
discussion of the budget requests between the Committee Members 
and SBA Administrator Aida Alvarez. Citing the importance of 
the Committee's role in passing legislation to empower the 
small business community, Chairman Bond requested that Ms. 
Alvarez provide an outline of the Fiscal Year 1998 budget 
request and its impact on small businesses. Additionally, he 
stressed the importance of providing funding to those programs 
that achieve their goals and eliminating those that fail to do 
so in order to free up capital for the growing small business 
community.
    During the hearing, Ms. Alvarez testified that the 
Administration is committed to providing assistance to small 
businesses. The SBA's Fiscal Year 1998 budget request was 
$701.6 million, compared to its Fiscal Year 1997 appropriation 
of $852.4 million. Ms. Alvarez noted that the figure would 
allow the SBA to continue operation of existing programs. She 
continued by highlighting the SBA's goals for the agency 
reflected in the Fiscal Year 1998 budget. Financial objectives 
of the SBA's request include: $18 million to improve the 
agency's financial management systems and oversight of its loan 
portfolio and participating lenders; $1 million to conduct more 
sophisticated analysis of loan performance; $1.9 million to buy 
technology and systems, as well as staffing, to reform and 
modernize the 8(a) program; $8.5 billion program level for 7(a) 
loans; $2.3 billion program level for 504 debentures; $832 
million for SBIC debentures and participating securities; and 
$44 million for microloans.
    In addition to her financial breakdown of the SBA budget 
request, Ms. Alvarez pointed out issues that the SBA plans to 
address in the upcoming Fiscal Year, including shifting many of 
its traditional loan-related activities to the private sector, 
continued centralizing of its loan servicing and processing 
functions, and meeting deadlines included in ``last year's 
omnibus appropriations bill to ensure a timely transformation 
of its credit programs.'' She also set out as goals for the 
agency assistance to families on welfare in finding work 
through the SBA Microloan program and through cooperation with 
other Federal agencies. She also stated her objective of 
continued education assistance to nearly one million small 
businesses by restoring the 7(j) business development 
assistance to previous levels. In addition, Ms. Alvarez 
committed the agency to expanded business assistance programs 
by adding 10 to 12 new Women's Business Centers, increasing the 
number of Business Information Centers by 10 to 12, and 
continuing support for the Service Corps of Retired Executives 
(SCORE) and the Small Business Development Center (SBDC) 
program. Ms. Alvarez concluded by promising to follow the newly 
created Regulatory Fairness Board and the efforts of the Small 
Business and Agricultural Ombudsman to reduce the paperwork and 
regulatory burdens on small business.

  ``S. 208, The HUBZone Act of 1997''--Washington, D.C., February 27, 
                                  1997

    On February 27, 1997, the Committee held a hearing on the 
HUBZone Act of 1997 (S. 208). The hearing, the third in a 
series of hearings intended to evaluate the ``nation's failure 
to create new job opportunities and economic growth in 
distressed inner cities and rural communities,'' provided 
testimony from four witnesses who discussed how the Act would 
improve these rural and inner city conditions. Chairman Bond 
stated that S. 208 would infuse cash into economically 
distressed areas to create jobs and move people from welfare to 
work. He further explained that to categorize an area as a 
HUBZone, it must have an excessively high poverty and 
unemployment rate. Chairman Bond encouraged the witnesses to 
provide an insight into how the Act would affect their 
geographic areas.
    The first two witnesses, Barry Corona, President and Chief 
Executive Officer, Production Products Manufacturing & Sales, 
Inc., and Glynn Loope, Executive Director of the Allegheny 
Highlands Economic Development Authority, provided first-hand 
accounts of how they made improvements in their distressed 
neighborhoods by creating jobs and attracting investments. Mr. 
Corona grew up in an inner city where he later opened his own 
business and hired most of his employees from the area. As the 
owner of a minority company doing business with the Federal 
government, he testified that S. 208 is a piece of legislation 
that can make a difference in many communities by providing 
jobs, which he believes provides an answer to many of America's 
social problems.
    Mr. Loope based his support for S. 208 on his experience 
with the Appalachian area of Virginia. He testified that the 
Act could bring the Federal government outside of the Capital 
Beltway for procurement opportunities. Mr. Loope stated that S. 
208 could provide Federal funds to raise the median family 
income to the norm of a state by providing work opportunities. 
He also pointed out that technology and telecommunications can 
advance the purposes of the HUBZone Act by allowing investors 
all over the world to have contact with small businesses with 
which they may never have had contact. Both witnesses agreed 
that S. 208 could help bring individuals from welfare to work 
and improve the areas implementing the Act.
    The second panel of witnesses raised some concerns about 
the Act, although they too favored many of its goals. Ursula 
Powidzki, Managing Director, Baltimore Advisors, Inc., offered 
some insight into the dangers of a guaranteed market through 
the HUBZone Act. She was concerned that the Act does not cover 
heavily represented industries in urban areas and questioned 
what effects the Act would have on businesses moving into 
HUBZones. Ms. Powidzki also testified about the effects of 
changes in Federal defense expenditures and how the 
discontinuation of programs could affect HUBZones.
    The final witness, Fabio Sampoli, Senior Vice President, 
The Greater New Haven Chamber of Commerce, also expressed 
apprehension concerning S. 208, while pointing out its positive 
aspects. Mr. Sampoli voiced opposition to legislation that 
interferes with the working of the free-market economy. 
Nevertheless, he testified that unrestrained and unchecked 
development leads to suburban growth, which can be detrimental 
to economic development in inner cities. Mr. Sampoli stated 
that he has seen this in his State of Connecticut and 
emphasized that inner cities need economic revitalization by 
providing new jobs. He also agreed with the Act's requirement 
that, for a small business to qualify, it must draw 35% of its 
employee base from a HUBZone.
    The hearing provided important information concerning the 
feasibility of enacting S. 208. While some witnesses expressed 
skepticism about certain aspects of the program, a consensus 
existed with regard to the viability of the HUBZone 
legislation, specifically in providing for economic 
revitalization to impoverished inner cities and rural 
communities.

 ``Entrepreneurship in America: Cultivating Maine Grown Businesses''--
                     Bangor, Maine, March 25, 1997

    On March 25, 1997, the Committee held a hearing in its 
series on ``Entrepreneurship in America.'' The hearing focused 
on cultivating small businesses in Maine and was held at 
Rangley Hall of the Eastern Maine Technical College in Bangor, 
Maine. In their opening statements, Chairman Bond and Senator 
Olympia Snowe stressed that there are three important forces 
for economic growth in Maine and nationwide: home-based 
enterprises, women-owned businesses, and family-owned firms.
    The first panel of witnesses focused on access to capital 
for women-owned businesses, especially in Maine. Patricia 
LeBlanc, Owner, Founder, and President, LeBlanc's Food 
Enterprises, Inc.; Julia Comeau, President, Downeast Temps 
Staffing Services; and Lewis H. Payne, Executive Vice President 
and Senior Lending Officer, Bar Harbor Banking and Trust 
Company, testified that women business owners generally have a 
more difficult time obtaining bank loans than men, although the 
situation is continuing to improve. Mr. Payne stated that this 
issue is particularly important in Maine because women-owned 
businesses are an essential part of the economy in the northern 
and eastern parts of the state. The witnesses also noted that 
while access to capital is important, small businesses need 
assistance with developing good business plans and require 
support in making the plans work in order to ensure ongoing 
success and growth.
    The second panel testified about the needs and concerns of 
family-owned businesses. Jinger Duryea, President, C.N. Brown; 
Charles P. Garland, President, Garland MFG Company; and Kevin 
D. Hancock, Executive Vice President, Hancock Lumber Company, 
Inc., focused primarily on the destructive impact of Federal 
estate taxes. They stressed that estate taxes are punitive in 
nature and discourage businesses from being passed on from one 
generation to the next. Mr. Hancock emphasized that there 
should be an immediate and significant reform to the existing 
law, and he noted that the estate tax law is a perfect example 
of Federal laws conflicting with Federal priorities--promoting 
the continued growth and development of small businesses.
    The third panel examined the issues facing home-based 
business owners. Alice Bredin, President, Bredin Business 
Information; James C. Harriger, Independent Sales 
Representative; and Daniel T. Crowley, Vice President, Screen 
Scene Inc., testified that one of the top concerns of home-
based business owners is that health-insurance costs are not 
fully deductible for self-employed individuals. They urged the 
Committee to work for full deductibility and offered their 
strong support for the Home-Based Business Fairness Act, which 
was introduced by the Chairman and Senator Snowe. The witnesses 
testified that the provisions of the bill--restoration of the 
home-office deduction, full deductibility of health-insurance 
costs for the self-employed, and clarification of the status of 
independent contractors--would enable current owners of home-
based businesses to reach their potential and help others start 
up and expand new home-based businesses.

  ``Entrepreneurship in America: Impacts of Meat Inspection on Small 
            Business''--Great Falls, Montana, April 2, 1997

    On April 2, 1997, the Committee held a field hearing, part 
of its continuing series on ``Entrepreneurship in America,'' 
dealing with the impact of meat inspection on small business. 
As described by Senator Conrad Burns, who chaired the hearing, 
its purpose was to focus attention on labeling and inspection 
of imported meat and cost sharing of inspection fees. Senator 
Burns prefaced the hearing by noting that prior effort to 
resolve these issues had not adequately addressed the concerns 
of small businesses. He expressed the hope that the hearing 
would make progress toward that goal and underscore the need 
for legislative changes, which he expected to offer 
subsequently.
    All of the witnesses testified about the importance of meat 
inspection and proper labeling. The first panel of witnesses 
consisted of Lynn Cornwell, President of Montana Stockgrowers 
Association, George Paul, Legislative Director of the Montana 
Farmers Union, and Robert Hanson, Vice President of Montana 
Farm Bureau Federation, who testified that imported meat was 
not properly labeled as to the country of origin. They also 
emphasized the need for improved inspection of meat in the 
United States by increasing the percentage of meat inspected in 
each batch. Mr. Hanson also raised concerns about the use of 
United States Department of Agriculture (USDA) stamps on 
imported meat. He pointed out that the inspection quality of 
other countries might not be the same as that in the United 
States. He proposed changing the inspection stamp to read 
``Import Approved but not U.S. Inspected.'' Paul Thompson, 
Director of the Western Region Food Safety and Inspection 
Service, USDA, agreed with other witnesses that imported meat 
should have a higher standard of inspection than the current 
level. Mr. Cornwell addressed the issues of cost-sharing 
programs and interstate shipping and suggested that consumers 
share the cost of improvements to food safety measures so the 
fees are not borne by beef cattle producers alone. He also 
asserted that interstate shipment of meat and poultry products 
should no longer be banned because this prohibition gives 
unfair economic advantage to large meat processors and foreign 
competitors.
    Bonnie Crary, representing the Montana Cattlewomen's 
Association, also stressed the importance of proper labeling 
and inspection of meat. She pointed out that contamination can 
occur on any level. As a result, she recommended that each 
batch of meat that leaves the plant be inspected so that if it 
gets contaminated later, the contamination can be traced back 
to the point of origin. Rick Cook, Vice President of Vaughn 
Meat Packing Inc., testified about the financial aspect of meat 
inspection. The final witness, Robert Robinson, Director of 
Food and Agriculture Issues, Resources, Community, and Economic 
Development Division, U.S. General Accounting Office, explained 
the inspection process and defended current methods of 
inspection by arguing that they adequately protect public 
safety.

    ``Entrepreneurship in America: Solutions for Tax and Regulatory 
     Fairness for Small Business''--Casper, Wyoming, April 3, 1997

    On April 3, 1997, the Committee held a field hearing in its 
continuing series on ``Entrepreneurship in America.'' The goal 
of the hearing was to bring together small business owners and 
government officials to provide input on how government can 
best serve America's small businesses. Chaired by Senator Mike 
Enzi, the hearing included an examination of regulations facing 
small businesses, as well as ways to reduce paperwork and 
administrative burdens. In addition, the hearing focused on 
balancing environmental regulations with the needs of 
businesses and introducing ways to make such laws more 
flexible.
    Senator Enzi prefaced the hearing in his opening statement 
by noting that small businesses create almost ``100% of this 
country's new jobs, and they employ more than 65% of Americans 
working in the private sector.'' Small businesses today find 
themselves buried under mounds of mandates and regulations, 
which are often too broad and inflexible for people to 
understand. The Committee heard testimony from small business 
owners, two Wyoming state representatives, as well as the 
Wyoming Department of Environmental Quality.
    All of the witnesses testified that there are substantial 
regulatory obstacles facing small business owners, which make 
it harder for them to survive. In particular, several witnesses 
focused on the burdens imposed by the tax laws and regulations. 
Eli D. Bebout, Majority Leader, Wyoming House of 
Representatives, and President, Nucor Oil & Gas, Inc., along 
with several other witnesses, noted that more tax incentives 
would help small businesses compete with larger companies. John 
J. Hines, Member, Wyoming House of Representatives, emphasized 
that changing the estate tax law is critical to helping small 
businesses stay in business. Diane Wolverton, State Director, 
Wyoming Small Business Development Center, noted that home-
based businesses face many tax obstacles because the IRS views 
them with skepticism, and she pointed out that many home-based 
business owners believe that if they claim the home-office 
deduction, they will most likely be audited. Several witnesses 
expressed concern about the self- employment tax, and David R. 
Reetz, President, Powell Valley Economic Development Alliance, 
First National Bank of Powell, alerted the Committee to the 
problems that small businesses face when they use independent 
contractors, which are often necessary for specific jobs.
    The Committee also received considerable testimony about 
the effects of environmental regulations on small businesses. A 
number of the witnesses testified about the importance of 
striking a balance between cost-effective regulations and 
protecting the environment. Representative Bebout and Terry 
Oldfield, Vice President, MiniMart Corporation, Casper, 
Wyoming, recommended placing more emphasis on the socioeconomic 
effects of regulations, and gathering more scientific 
information before placing new restrictions on businesses. Bob 
O'Neil, Director of Human Resources, Grand Teton Lodge Company, 
noted the difficulties small companies face just to keep up 
with all of the regulations, as well as differentiating between 
the rules administered by Federal and state agencies. Dennis 
Hemmer, Director, Wyoming Department of Environmental Quality, 
testified about the importance of emphasizing compliance and 
compliance assistance for small businesses. He noted that many 
small businesses make errors due to ignorance of the law and 
that regulators should focus on ways to help businesses avoid 
liability while protecting the environment.
    Witnesses also expressed concern about the Occupational 
Safety and Health Administration (OSHA). Frank S. Galeotos, 
Director, Wyoming Department of Employment, discussed the main 
problem of enforcing OSHA regulations. He noted that many small 
businesses do not know all of the rules, nor do they have the 
capacity, in terms of people, skills, and finances to comply 
with all of the regulations, which makes full compliance very 
difficult. He also testified that not all of the rules apply or 
make sense when they are applied on a uniform basis. He 
suggested creating incentives, such as a voluntary program 
under which a business that volunteers to make a safety plan 
will not be subject to fines on inspection. Mr. Galeotos and 
other witnesses also suggested implementing incentives for 
Workers'' Compensation programs as opposed to fines.
    Two final issues raised at the hearing were the non-
deductibility of self-employed health- insurance costs and the 
Family and Medical Leave Act. Witnesses noted that large 
companies are currently allowed to deduct employees'' health-
insurance costs in full, while owners of small businesses can 
only deduct a portion of their cost. In essence, they are 
penalized because they are small businesses instead of 
encouraged to provide health care coverage. On the issue of 
family and medical leave, both Mr. O'Neil and Mr. Oldfield 
expressed opposition to broadening the Family and Medical Leave 
Act and instead suggested compensatory time and more flexible 
scheduling.

        ``S. 208, The HUBZone Act of 1997''--Washington, D.C., 
                             April 10, 1997

    On April 10, 1997, the Committee held a hearing on the 
HUBZone Act of 1997 (S. 208), a bill to help create jobs for 
those most in need and stimulate investment in communities that 
need revitalization. The purpose of the hearing included 
examination of the HUBZone Act, the challenges of implementing 
the Act, and the effects it may have on small businesses 
currently participating in the 8(a) program administered by the 
SBA.
    Chairman Bond prefaced the hearing in his opening statement 
by commending the SBA's recent inclusion of the first Community 
Development Corporation-affiliated company into the 8(a) 
program. He noted, however, that it is an important tool the 
SBA should use along with other tools, such as HUBZones, to 
help create new jobs. The Committee heard testimony from 
several witnesses concerning these issues.
    All of the witnesses testified that there is a great need 
to help the nation's economically challenged urban and rural 
communities, especially those in which the labor pool is 
greatly underutilized. However, the witnesses' opinions 
differed when discussing the best way to help those 
communities--either through HUBZones or the current 8(a) 
program. Aida Alvarez, SBA Administrator, testified that the 
Clinton Administration believes that much work can be done 
under the current law to obtain the objectives that the HUBZone 
Act seeks to accomplish. While she acknowledged that there is 
room for improvement in the current 8(a) program, she noted 
that the Administration's empowerment-contracting approach 
preserves administrative flexibility, builds on existing 
initiatives in empowerment zones and enterprise communities, 
and allows testing of new approaches through a phased approach. 
Ms. Alvarez, along with several other witnesses, raised 
concerns about the difficulties of implementing and enforcing 
the provisions of the HUBZone Act.
    Another concern expressed by several witnesses was the 
effect that HUBZones might have on minority- and women-owned 
businesses. Anthony W. Robinson, President, Minority Business 
Enterprise Legal Defense Fund, was troubled that the 
legislation makes HUBZone small businesses a higher priority 
than small businesses owned by socially and economically 
disadvantaged individuals. Mr. Robinson also had reservations 
that the bill may redirect Federal procurement in ways that 
threaten minority- and women-owned businesses across the board.
    The Committee also received considerable testimony from 
witnesses who viewed the current 8(a) program as not going far 
enough to help troubled urban and rural communities and 
testified that the HUBZone approach will better aid these 
areas. James F. Hoobler, SBA Inspector General, suggested a 
pilot HUBZone program for a multi-year period in a carefully 
selected, limited number of rural and urban underutilized 
business zones. He emphasized that Congress should appropriate 
the necessary funds to the SBA for management and oversight of 
the program. Sandra Newman, Chief Executive Officer, Raritan 
Container Company, testified that the HUBZone Act could benefit 
whole communities by creating meaningful incentives for small 
businesses to operate and provide employment directly in 
America's most distressed areas. Ms. Newman also noted that the 
bill will create a new class of small businesses eligible for 
Federal government contract set-asides and preferences. Pete 
Homer, President and Chief Executive Officer, National Indian 
Business Association, provided testimony about the difficult 
economic conditions in Native American communities. Mr. Homer 
noted that the HUBZone Act may help break the cycle of poverty 
by providing contract set-asides, sole-source contracting 
opportunities, and an economic incentive for companies to 
invest in the Indian business community.

              ``Oversight of SBA's Non-Credit Programs''--
                    Washington, D.C., April 24, 1997

    On April 24, 1997, the Committee held a hearing on the non-
credit programs of the SBA. Chairman Bond opened the hearing by 
emphasizing the importance of SBA's entrepreneurial assistance, 
which the agency carries out primarily through the SBDCs, 
SCORE, the Women's Business Centers, and international trade 
programs. He noted that the witnesses were asked to testify 
about their experience with these programs and to share with 
the Committee any recommendations for improvement.
    To provide a perspective on the SBA's entrepreneurial 
assistance programs, the Chairman began the hearing with two 
panels consisting primarily of students who testified about the 
importance of starting business education at an early age. Jean 
M. Buckley, Senior Vice President, Junior Achievement, 
testified that Junior Achievement is a non-profit organization 
whose mission is ``to educate and inspire young people to value 
free enterprise, business, and economics in order to improve 
the quality of their lives.'' The organization reaches more 
than 2.7 million students worldwide. The student witnesses on 
the first panel testified about their participation in Junior 
Achievement. Through personal anecdotes, the students testified 
that the program is extremely beneficial for learning business 
skills and values, and they urged that it be introduced in 
every high school in the United States.
    The second panel included students who had also 
participated in business education programs, including Future 
Farmers of America (FFA), and who had succeeded in their own 
business ventures. The students described their experiences in 
the business world and testified that access to business 
education programs gave them the motivation and guidance 
necessary to make their business operations a success. Marilyn 
Kourilsky, Ph.D., Vice President, Center for Entrepreneurial 
Leadership, Inc., Ewing Marion Kauffman Foundation, testified 
about the goals and operation of the student programs that the 
Center for Entrepreneurial Leadership conducts, and she noted 
that these programs provide not only practical benefits but 
also give students the self-esteem, confidence, and the courage 
to start a successful enterprise in the business world.
    Jeanne Sclater, Acting Associate Deputy Administrator for 
Economic Development, SBA, reviewed for the Committee the SBA's 
various business assistance programs. She noted that the SBA's 
education services are important to the individual small 
businesses and to the country's economy as well, because they 
serve as a resource for small business owners to develop the 
tools they need to succeed. Ms. Sclater also reviewed the 
Administration's Fiscal Year 1999 budget request for these 
programs and proposed legislative changes to certain of the 
SBA's non-credit programs.
    The Committee also received detailed testimony on the SBA's 
SCORE and SBDC programs. Frederic W. Thomas, President of 
SCORE, noted that as an SBA Resource Partner, SCORE gives 
entrepreneurs access to seasoned business professionals who can 
offer guidance on how to start, operate, grow, buy, and sell 
small businesses. He also reviewed various proposals for 
improving and expanding the program, which were included in the 
Administration's budget request. Sam Males, State Director, 
Nevada Small Business Development Center, and President, 
Association of Small Business Development Centers, testified 
that the SBDCs constitute the largest integrated management 
technical assistance program for small businesses in the United 
States. He noted that the amount of assistance provided by the 
SBDCs has picked up extraordinarily over the past six years, 
and he described the various types of assistance that are 
available to small business owners through the SBDCs in each 
state. Mr. Males also expressed his concerns that the 
Administration's budget request called for a significant cut in 
funding for the SBDCs.
    The final two witnesses testified about the impact of SBA 
non-credit programs on sectors of the small business community. 
S. Terry Neese, Corporate and Public Affairs Liaison, National 
Association of Women Business Owners, provided a historical 
perspective on the Office of Women Business Ownership and the 
National Women's Business Council. She also stressed the 
importance of business education and training to the success of 
women business ownership in this country. Ms. Neese noted, 
however, that the current Administration's commitment to these 
efforts has been lacking. She provided the Committee with 
several recommendations for strengthening these efforts. Ms. 
Neese and Susan Eckerly, Director, Federal Governmental 
Relations--Senate, National Federation of Independent Business 
(NFIB), both expressed their support for the SBA's Office of 
Advocacy. Ms. Eckerly, however, noted that NFIB's surveys 
indicate that a top concern of small business is the burden of 
government regulations. She urged the Office of Advocacy to 
increase its efforts to address the regulatory burdens and 
compliance costs as the advocate for small businesses within 
the Administration.
    The hearing provided the Committee with valuable 
information on the SBA's non-credit programs and served as the 
basis for important parts of the legislation to reauthorize the 
agency, which the Committee took up later in the session.

 ``Oversight of SBA's Finance Programs''--Washington, D.C., May 7, 1997

    On May 7, 1997, the Committee held an oversight hearing on 
the finance programs of the SBA. The hearing was the first of 
two hearings to review the operating results of the SBA's 
finance programs focusing specifically on the 504 loan program 
and the Small Business Investment Company (SBIC) program. In 
his opening statement, Chairman Bond emphasized that the 
testimony provided by the witnesses would be extremely 
important as the Committee prepared to reauthorize these 
programs later in the year. The Chairman also focused 
considerable attention on the other SBA lending program, the 
7(a) loan program, and the Administration's failure to provide 
full and complete information to date on that program, which 
the Committee addressed in the following hearing.
    The first panel of witnesses focused on the 504 loan 
program, which provides financing for small businesses to 
purchase and improve facilities. Both witnesses emphasized that 
the 504 program must be reauthorized if it is to survive. Since 
the program relies only on fees charged in relation to 504 
loans, Congress must renew the authority to collect the fees if 
the program is to continue with a zero subsidy. Mark Barbash, 
Vice President of Congressional Relations, National Association 
of Development Companies, and Executive Director, Columbus 
Countrywide Development Corporation, also urged the Committee 
to focus on the subsidy rate calculations provided by the 
Office of Management and Budget (OMB). He and Steve Dusek, 
Chief Executive Officer, Prairieland Economic Development 
Corporation, emphasized that OMB must be held accountable for 
accurate subsidy rate estimates in order for the 504 program to 
remain stable and continue to provide its valuable financing 
assistance for small enterprises. Messrs. Barbash and Dusek 
provided the Committee with several legislative proposals to 
strengthen the program, including recommendations on the 
Premier Certified Lenders program and on multiple borrowers and 
the partial lease-out of projects.
    The witnesses on the second panel testified about the SBIC 
program, which provides critical capital for small businesses 
through investment. All three witnesses urged the Committee to 
reauthorize the SBIC program for an additional three-year 
period with modifications to the authorization levels for 
debentures and participating securities issued under the 
program. C. Walter Dick, Chairman, National Association of 
Small Business Investment Companies, and General Partner, 
Pioneer Capital Corporation, Pioneer Ventures, L.P. 1, and 
Pioneer Ventures, L.P. 2, provided the Committee with anecdotal 
evidence of the SBIC program's success, and he offered several 
suggestions for legislative enhancements that would improve the 
program.
    N. Whitney Johns, Chief Executive Officer, Whitney Johns & 
Company, focused on women-owned businesses in particular, 
noting that approximately 8 million women-owned businesses in 
the country employ one out of every four workers in the economy 
and account for $2.3 trillion in sales. She stressed that while 
women-owned businesses constitute such a significant portion of 
the market, they still face considerable difficulties when it 
comes to accessing capital. She recommended program changes 
that would enable more women-owned businesses to benefit from 
the capital available under the SBIC program. Stanley W. 
Tucker, Member of the Board, National Association of Investment 
Companies, and President, Maryland Small Business Development 
Financing Authority Management Group, Inc., also called the 
Committee's attention to the continuing capital gap faced by 
minority-owned businesses and asserted that the SBIC program is 
an appropriate place to address that issue.

         ``Oversight of the SBA's Finance Programs--Part II''--
                     Washington, D.C., May 15, 1997

    On May 15, 1997, the Committee held the second part of its 
hearing on the finance programs administered by the SBA. 
Following on the testimony received on the 504 loan program and 
the SBIC program, Chairman Bond focused this hearing on the 
SBA's 7(a) Guaranteed Business Loan program. In his opening 
statement, Chairman Bond stressed the importance of the 7(a) 
loan program for the thousands of small businesses that rely on 
it for financing and new business startups.
    The Chairman noted, however, his concerns about recent 
revelations by the SBA that there would be a funding shortfall 
in the 7(a) program, and he expressed his reservations about 
the loan cap that the SBA imposed on the program to address 
that situation. He urged the SBA Administrator and the Clinton 
Administration to provide full and complete information to the 
Committee on the situation concerning the 7(a) program, and he 
was optimistic that a bipartisan solution could be achieved to 
keep this important loan program operating efficiently and 
effectively.
    The Committee first heard testimony from Aida Alvarez, SBA 
Administrator, who focused much of her testimony on the 
$500,000 cap on loans under the 7(a) program. She testified 
that the loan cap was necessary to assure that the SBA does not 
run out of lending authority under the 7(a) program before the 
year's end. She explained that the cap was set at $500,000 
because available data showed that 90% of the loan applications 
would still qualify at that level. She also indicated that 
while only about 10% of the loan applications exceeded the cap, 
these larger loans would consume 40% of the SBA's available 
loan authority. Ms. Alvarez testified that these larger loans 
are less likely to go to rural areas, women-owned firms, and 
new startup businesses--borrowers who have historically faced 
barriers to accessing credit. Instead, the large loans tend to 
be those that have longer terms and that are secured by real 
estate.
    Ms. Alvarez also testified about the Fiscal Year 1999 
budget request for the 7(a) program. She noted that the 
Administration requested authorization of $10 billion for the 
program, an increase of $1.5 billion over the Fiscal Year 1998 
appropriations request. She also committed the agency to 
identifying improvements to the program to lower its costs and 
increase lending to small businesses. Toward those ends, Ms. 
Alvarez announced that she would be forming a task force to 
review the program and present the Committee with 
recommendations for changes that would preserve and protect the 
loan program.
    The second panel consisted of two witnesses representing 
the lenders that implement the SBA's 7(a) program. Both 
witnesses agreed that the 7(a) program is one of the most 
beneficial programs currently available for small businesses to 
grow and create jobs in this country. They also emphasized 
their opposition to the loan cap recently imposed by the SBA. 
Deryl K. Schuster, President, Mid-America Division, Business 
Loan Center, and Chairman, National Association of Government 
Guaranteed Lenders, Inc. (NAGGL), pointed out that in addition 
to the assistance that the program provides for small 
businesses, numerous studies have verified that the 7(a) 
program is in fact a net generator of revenue for the Federal 
government. He concluded that restrictions, such as the loan 
cap, are counterproductive on many fronts.
    Anthony R. Wilkinson, President and Chief Executive 
Officer, NAGGL, emphasized that the 7(a) program pays for 
itself many times over, making it effectively cost free. He 
testified that in every year except for one since the Credit 
Reform Act was put in place, borrowers under the 7(a) program 
have paid fees well in excess of the program's cost. Because of 
that fact and in light of the current shortfall facing the 7(a) 
program, Mr. Schuster called for a complete revision of the 
procedure for calculating the subsidy rate for the loan 
program. Mr. Schuster concluded by assuring the Committee that 
NAGGL is committed to working with the SBA and Congress to 
identify ways to make the 7(a) program more efficient and cost 
effective.

      ``Entrepreneurship in America: The Impact of OSHA and Other 
             Agencies''--Great Falls, Montana, May 31, 1997

    On May 31, 1997, the Committee on Small Business held 
another hearing in its series on ``Entrepreneurship in 
America.'' The hearing was held in Great Falls, Montana, and 
was chaired by Senator Burns. It was intended to examine the 
impact of OSHA and other Federal government agencies on small 
businesses. Senator Burns stressed that the Federal government 
needs to be sensitive to the policies that can hurt small 
businesses, and he indicated that OSHA can be a real asset for 
businesses in terms of helping businesses provide safe 
workplaces. He emphasized, however, that OSHA could work more 
cooperatively with small businesses to encourage compliance.
    Several witnesses testified about the inefficiency of OSHA 
and its negative effect on small businesses. John McFarland, 
Owner, Conrad Building Center, conveyed his personal experience 
with the evolution of increased government regulations in the 
area and the resulting pressures they place on businesses. He 
pointed out that highly paid executives must often be hired to 
comprehend and administer these regulations, while the blue 
collar workers have to be laid off to offset the additional 
cost. Sidney Rispens, General Manager and Corporate Secretary, 
Intercontinental Truck Body, agreed with Mr. McFarland, stating 
that OSHA's effects on small business are deeply felt, 
primarily in terms of cost. Mr. Rispens emphasized that the 
cost to maintain and follow regulation is astronomical.
    Mr. Rispens warned about differences between state and 
Federal health and safety regulations, noting that at times 
state and Federal inspectors contradict each other on the items 
considered to be substandard. Tom K. Hopgood, Executive 
Secretary and Counsel, Montana Beer & Wine Wholesalers 
Association, acknowledged that regulations by state and Federal 
agencies are often extensive and do not correspond to 
individual businesses' needs. Mr. Hopgood also testified that 
OSHA's efforts to implement strict workplace ergonomic 
standards are not based on sound scientific evidence and in 
turn will have a disastrous effect on businesses.
    David Folsom, Safety and Health Supervisor, Safety Bureau, 
Employment Relations Division, Montana Department of Labor and 
Industry, noted that the Safety Bureau offers workplace safety 
and health assistance to Montana businesses. In particular, the 
Bureau's Assistance to Business Clinics extend formal training 
sessions on OSHA's General Industry and Construction Standards. 
The purpose of these clinics is to provide a forum in which 
interested employers and employees can obtain information on 
workplace safety and health issues. They also conduct training 
programs that help interested parties receive hands-on 
experience. Elaine Demery, President, Nelson, Coulson, & 
Associates, Inc., and Chair, Small Business Fairness Board, 
Region VIII, agreed that clearer interpretation of OSHA's 
regulations would ensure equal enforcement and fairness when it 
comes to small businesses. Ms. Demery testified about the 
Ombudsman program and Fairness Boards created by the Small 
Business Regulatory Enforcement Fairness Act (SBREFA), one goal 
of which is to help government and small businesses work 
together more efficiently. She emphasized that the Fairness 
Boards hold regional meetings that are open to the public to 
hear concerns and complaints about agency conduct and 
enforcement actions.
    Bart Chadwick, Regional Administrator, Region VIII, OSHA, 
testified about the new OSHA and how it is different and more 
efficient than the agency has been in prior years. He noted 
that OSHA serves a vital purpose of preventing employers from 
taking advantage of their employees. He also pointed out that 
the agency ensures access to means, methods, and procedures 
that can help reduce injury and provide an acceptable workplace 
for every worker.

       ``Small Business Perspectives on Mandates, Paperwork, and 
              Regulation''--Washington, D.C., June 4, 1997

    On June 4, 1997, the Committee held a hearing on small 
business perspectives on mandates, paperwork, and regulation. 
Chairman Bond convened the hearing during Small Business Week 
to explore the Federal government's efforts to reduce or 
eliminate unfunded mandates, excessive paperwork requirements, 
and Federal regulations that burden small businesses. 
Specifically, the hearing reviewed the implementation of the 
Paperwork Reduction Act of 1995 and discussed the Mandates 
Information Act of 1997, a bill designed to complete the work 
of the Unfunded Mandates Reform Act of 1995.
    Chairman Bond opened the hearing by commending Senator Dirk 
Kempthorne and his Unfunded Mandates Reform Act, which provides 
Congress with the valuable information on legislation and 
agency rules that would impose unfunded mandates on state and 
local governments and the private sector. He noted, however, 
that more needs to be done to ensure that Congress has 
sufficient information on private sector mandates, especially 
regarding the costs imposed on consumers and small businesses.
    Senator Spencer Abraham testified about the Mandates 
Information Act of 1997, legislation he introduced to force 
Congress to take into account the costs of unfunded mandates on 
the private sector. Senator Abraham noted that the bill is 
intended to identify and reduce unnecessary costs on American 
workers, consumers, and small businesses. The Mandates 
Information Act of 1997 would establish a new parliamentary 
point-of-order against any bill that will impose private-sector 
mandates exceeding a $100 million cost threshold. 
Representative Gary Condit, the sponsor of the bill in the 
House of Representatives, testified that the bill would require 
the Congressional Budget Office (CBO) to estimate the impact of 
such unfunded mandates on consumer costs, worker wages, and the 
availability of goods and services.
    All of the witnesses testified that while the Unfunded 
Mandates Act of 1995 was a beginning, more needs to be done to 
help control the costs of mandates imposed by Congress. Angela 
Antonelli, Deputy Director for Economic Policy Studies, The 
Heritage Foundation, provided testimony on implementation of 
the Unfunded Mandates Reform Act of 1995, and noted that while 
it has had limited success, it needs to be strengthened. Ms. 
Antonelli expressed her support of the Mandates Information Act 
of 1997. Bob Spence, Vice President and Chief Financial 
Officer, Faultless Laundry Company, representing the United 
States Chamber of Commerce, testified that the Chamber is in 
full support of the Mandates Information Act, and hopes that it 
will lead to full disclosure and better accountability by the 
Federal government.
    David Marsh, Owner, Marsh Plating Corporation, testified 
about his involvement with the EPA's Common Sense Initiative 
and the agency's compliance with Chairman Bond's Red Tape 
Reduction Act [i.e., Small Business Regulatory Enforcement 
Fairness Act of 1996 (SBREFA)]. Mr. Marsh commented on the 
benefit of the Red Tape Reduction Act's requirement that EPA 
sit down with small businesses and receive their comments on 
draft regulations before the regulations are proposed by EPA. 
He stressed that this process improves the likelihood of the 
regulated community understanding the agency's objectives and 
the agency developing a rule that is better suited to 
compliance by small businesses. Mr. Marsh noted that EPA did 
not comply with the law when developing its National Ambient 
Air Quality Standards for ozone and particulate matter.
    Michael Brostek, Associate Director, Federal Management and 
Workforce Issues, General Government Division, General 
Accounting Office (GAO), testified about the government's weak 
efforts under the Paperwork Reduction Act of 1995. The Act 
requires the Federal government to set goals to achieve at 
least a 10% paperwork burden reduction in 1996 and also in 
1997, and then 5% reductions in each year through 2001. 
Chairman Bond noted that the OMB apparently decided to rewrite 
the law to suit the regulators better by ignoring the 1996 and 
1997 levels and shooting for an aggregate 25% reduction by the 
end of Fiscal Year 1998. The GAO confirmed that the government-
wide reductions will not even come close to the target set by 
Congress.
    Philip Hauck, President, Counselor Publishing Company, 
testified that in order for agencies to achieve a reduction in 
paperwork, their leadership at every level must develop a plan 
that achieves the goal rationally, but makes sure the goal is 
attained. Mr. Hauck noted the importance of holding specific 
individuals responsible, not just the entire agency.

 ``Oversight of SBA's Microloan Program''--Washington, D.C., June 12, 
                                  1997

    On June 12, 1997, the Committee held an oversight hearing 
on the Microloan Demonstration Program administered by the SBA. 
Chairman Bond opened the hearing by noting that the Microloan 
program, established as a pilot program in 1992, provides 
critical capital for small businesses. The program focuses on 
borrowers seeking no more than $25,000 who are not normally 
served by other SBA credit programs or traditional lending 
sources. Chairman Bond also discussed the ongoing controversy 
surrounding the SBA's imposition of a lending cap on loans 
under the 7(a) program, and he noted that efforts were underway 
to resolve questions about the shortfall in the program as well 
as questions about its subsidy rate.
    The first panel consisted of witnesses who had a long 
history of experience dealing with the Microloan program. 
Several witnesses offered anecdotal evidence of the program's 
benefits for small businesses, and the panel urged the 
Committee to make the program permanent. Prathiba Mathews-
Wheeler, Microloan Program Manager, Center for Business 
Innovation, Inc., and Katherine McKee, Associate Director, 
Center for Community Self-Help, explained that the program 
helps micro-businesses that are typically too high a risk for 
conventional lenders and that cannot obtain essential capital 
for growth and development from other sources. Ms. Mathews-
Wheeler testified that a critical component of the Microloan 
program is the technical assistance that each borrower receives 
in the areas of management, marketing, human resources, 
finance, and accounting. She noted that this assistance helps 
borrowers be successful and is a contributing factor to her 
company's low loan-loss rate for Microloans. The witnesses also 
offered a number of suggestions for improving the program, 
including modification of the loan loss reserve rate, and 
greater flexibility in structuring loans and providing 
technical assistance under the program. Several witnesses also 
urged the Committee to target minority and disadvantaged 
entrepreneurs through the program and to evaluate the program 
as an option for helping low-income individuals to transition 
from welfare to work.
    Angela Fair, Loan Officer, Arkansas Enterprise Group, led 
the second panel with several additional success stories of 
small businesses that received Microloans. One of the Arkansas 
Enterprise Group's borrowers, George White, Delta Vending 
Enterprises, also testified, and described how he would not 
have been able to start his vending machine business and employ 
three people without the loans he received under the program. 
John F. Else, Ph.D., President, Institute for Social and 
Economic Development, testified that his organization focuses 
primarily on welfare recipients and low-income individuals. Dr. 
Else noted that through Microloan funding, the Institute for 
Social and Economic Development has been able to help these 
individuals start their own businesses and develop enterprises 
that employ other low-income people and welfare recipients. The 
witnesses also offered a number of suggestions for improving 
the program and expanding its benefits to help more people 
start their own businesses.

 ``Entrepreneurship in America: Fairness in Regulatory Enforcement''--
                 Kansas City, Missouri, August 19, 1997

    On August 19, 1997, Chairman Bond and Representative James 
Talent, Chairman of the House Committee on Small Business, 
presided over a joint hearing of the Senate and House 
Committees in Kansas City, Missouri. The field hearing 
continued the ``Entrepreneurship in America'' series of 
hearings, which highlights the experiences of small business 
owners across the country. Chairman Bond focused this hearing 
on the Red Tape Reduction Act [also known as the Small Business 
Regulatory Enforcement Fairness Act (SBREFA)], and in 
particular the provisions of the Act that address agency 
enforcement actions. The Committees' goals were to learn 
whether the messages heard from agencies in Washington, 
regarding compliance with the Act, were being carried back to 
their regional offices and reflected in the treatment received 
by small businesses that interact with the agencies.
    The first panel consisted of small business owners, and 
witnesses described their recent and notable experiences with 
various Federal agencies. On behalf of the Kansas City Chamber 
of Commerce, Bob Spence, Vice President and Chief Financial 
Officer, Faultless Laundry Company, testified about his 
company's experience with the Immigration and Naturalization 
Service (INS). Because of his interaction with the INS in 1994, 
Mr. Spence was not inclined to contact the agency for 
compliance assistance and was hesitant to trust other agencies' 
offers of assistance. His reluctance to seek a cooperative 
relationship with Federal agencies stems from the INS raid of 
his company and the issuance of a penalty despite the company's 
cooperation and prior assurances by the INS that no penalty 
would be imposed if the company cooperated. Chairman Bond noted 
that earlier inspections by INS-trained auditors did not 
discover problems with the same paperwork that led to the raid 
in 1994. If the INS' own inspectors did not detect problems 
with the paperwork, Chairman Bond noted, it is hard to 
understand how the average employer is expected to grasp such 
subtleties.
    Sherman Titens, President, Coordinating Committee for 
Automotive Repair (CCAR), and Executive Director, CCAR-
GreenLink, testified about the positive experience his trade 
association and industry is having with the EPA. Based on an 
EPA grant, CCAR-GreenLink has established an Internet site to 
provide compliance assistance information to the auto repair 
industry. The reception from the industry has been tremendous. 
Mr. Titens noted that CCAR-GreenLink does not heavily advertise 
its support from an EPA grant because of concerns that such an 
association might discourage members of the industry from 
seeking assistance from the organization. Chairman Bond 
commended CCAR-GreenLink and stressed the importance of the 
availability of such information so that employers can know 
what is expected of them by a regulatory agency and be able to 
comply.
    The first panel also included Ed Hatfield, Human Resources 
Manager, Cook Brothers Insulation, Inc., who testified on 
behalf of the Associated Industries of Missouri (AIM), a 
statewide trade organization that had formed a special task 
force in response to member companies' concerns about 
enforcement practices at OSHA. In 1996, OSHA announced a 
targeted inspection strategy for Missouri employers called 
Missouri 500. The program was flawed in its design, and 
statements of Joseph Dear, then-head of OSHA, implied that 
employers targeted by the program had bad safety and health 
programs. Following pressure from Chairman Bond and other 
members of the Missouri Congressional delegation, OSHA withdrew 
the program and offered public apologies to employers. More 
recently, OSHA advised employers in Missouri of a new national 
initiative, called the Cooperative Compliance Program. Mr. 
Hatfield alerted the Committee to employers' concerns with the 
program, namely its close similarity to the program withdrawn 
in 1996. In response to this initiative, AIM and its members 
have met with OSHA and sought improvements to the program. As 
of this hearing, AIM had offered an alternate proposal to OSHA 
and was awaiting a response from the agency.
    Two members of the Regional Fairness Boards, Scott George, 
General Manager, Mid America Dental, Hearing & Vision Center, 
and Elaine Demery, President and Chief Executive Officer, 
Nelson, Coulson, and Associates, Inc., testified on the status 
of their efforts. Despite the slow start, the Board members 
were glad to be a part of the process, and they indicated that 
change in agency attitudes and conduct toward small businesses 
have been noticeable. Mr. George stressed that the fear of 
retaliation from Federal agencies is continually cited by small 
businesses as a reason not to come forward and participate in 
the process. Chairman Bond agreed with the Board members that 
more needed to be done to remove this fear from chilling 
participation and providing an honest assessment of agencies' 
performance with respect to small business.
    The last panel included Peter Barca, Small Business and 
Agricultural Ombudsman (Ombudsman), as well as representatives 
from the Kansas City regional offices of the EPA and OSHA. Each 
of the witnesses spoke of efforts being undertaken by the 
agencies to implement the Red Tape Reduction Act and to create 
a more cooperative relationship between small business and the 
Federal government. Mr. Barca concurred with the Fairness Board 
members that fear of retaliation is a recurring theme. All 
witnesses agreed that more needed to be done to advise small 
businesses of the tools provided by the Red Tape Reduction Act 
and to improve communication between small business and the 
government.
    Marcia Drumm, Deputy Regional Administrator, Region VII, 
OSHA, noted that while OSHA has historically focused on 
citations and penalties, it is now reinventing itself and 
developing new programs with substantial input from employers 
and workers. For example, OSHA's consultation program is a 
primary vehicle for assisting small businesses. A company may 
receive free, confidential consultation, available upon 
request, without the fear of an OSHA inspector showing up at 
its door. Ms. Drumm also testified that OSHA reduces penalties 
depending on the size of the establishment, good faith of the 
employer, and history of previous violations. William Rice, 
Deputy Regional Administrator, Region VII, EPA, testified about 
the EPA's ongoing commitment to work with small businesses to 
address their special needs. He noted that the EPA has 
implemented programs that are intended to minimize the 
regulatory burden and serve as an incentive for compliance. Mr. 
Rice pointed out that Region VII has excellent technical 
assistance programs that a small business can contact without 
fear that the information will be passed on for possible 
enforcement. He also stressed that outreach is extremely 
important and that his Region has a wide variety of work under 
way to get the information out, both about existing regulations 
as well as identifying more cost-effective methods for 
complying with them.

 ``Small Business and Fundamental Tax Law Reform''--Washington, D.C., 
                            October 22, 1997

    On October 22, 1997, the Committee held a hearing on 
fundamental reform of the Federal tax law from the perspective 
of small business. The hearing sought to elicit the views of 
national small business groups on what the optimal tax system 
would be for small business if Congress could start from 
scratch. The witnesses were also asked for suggestions on 
meaningful steps that Congress should take to lessen the tax 
burden on small businesses in the short run, while Congress 
creates and implements a ``small business friendly'' tax code 
for the long run.
    Chairman Bond prefaced the hearing by stressing that a 
growing problem in this country is the complexity of the tax 
system and the need for fundamental reform. He noted that while 
the IRS is in desperate need of reform and taxpayer's rights 
must be strengthened, the underlying problem is that the 
current tax law is too complicated and burdensome on taxpayers. 
In fact, small businesses spend an estimated 5% of their 
revenues just to comply with the tax laws; that does not 
include the revenues required to pay their taxes. Chairman Bond 
stressed that the only way that the current, overly complicated 
tax code is going to change is if the citizens and 
entrepreneurs of this country call on Congress and the 
President to prepare, draft, and implement a better solution.
    The Committee heard from a panel of seven witnesses 
representing small businesses across the country and in a 
variety of industries. In general, the witnesses agreed that 
the current tax law is too cumbersome simply to be ``fixed,'' 
and it should be replaced with a simpler and fairer tax system. 
While there was no clear consensus among the witnesses on what 
form the new tax system should take, Jack Faris, President and 
Chief Executive Officer, NFIB, urged Congress to sunset the 
current tax code. He suggested that Congress then craft two 
replacement plans--a flat tax and a national sales tax--and 
allow the American taxpayers to decide on the optimal system 
through a national referendum during the presidential election 
in the year 2000. Terry Neese, Past President and Corporate and 
Public Consultant, National Association of Women Business 
Owners, and Chief Executive Officer and Founder, Terry Neese 
Personnel Services, recommended as an alternative that Congress 
establish five working groups, including one representing small 
business, to develop a proposal for restructuring the current 
tax system that would be presented to Congress for 
consideration.
    Charles E. Kruse, Member, Board of Directors, American Farm 
Bureau Federation, and President, Missouri Farm Bureau 
Federation, pointed out that the current tax code is 
particularly onerous for farmers and ranchers. He noted that 
the law taxes some income multiple times because of the 
individual income tax, the corporate income tax, the 
alternative minimum tax, the capital-gains tax, and the estate 
tax. Mr. Kruse stressed that whatever form a new tax system 
takes it must eliminate multiple taxation of the same income.
    John S. Satagaj, President and General Counsel, Small 
Business Legislative Council, stressed that small businesses 
derive consider

able benefits from provisions of the current tax law, and a new 
tax system may require that small businesses give up some of 
those benefits. He emphasized that Congress should give careful 
consideration in reforming the tax code to ensure that small 
businesses do not ultimately face an even greater tax burden. 
Mr. Satagaj noted that the flat tax and the sales tax have 
their benefits but both also have significant problems. With a 
flat tax, individuals may be able to fill out their taxes on a 
postcard, but there are still going to be rules on the business 
side concerning what is income and what expenses can be 
deducted to arrive at taxable income. With a sales tax, the 
characterization issues may be eliminated, but small businesses 
will face a new set of complexities and burdens as they are 
forced to be the nation's tax collectors.
    Karen Kerrigan, President, Small Business Survival 
Committee, and other witnesses offered a number of principles 
to guide the creation of a new tax law. Ms. Kerrigan advised 
that the new law should: (1) produce a low tax rate to promote 
economic growth, not tax capital; (2) factor in the detrimental 
effects of inflation; (3) be clear and simple to understand; 
(4) minimize the incentives for tax avoidance; and (5) limit 
the government's ability to increase expenditures. She also 
stressed that in developing a new tax law, attention must be 
paid to the transition rules to avoid causing individual and 
business taxpayers undue harm as they move to a new tax system. 
Ms. Neese emphasized that simplifying the tax code must focus 
in large part on eliminating the thresholds, phase-ins, phase-
outs, limitations, differing treatment, exceptions, exemptions, 
exclusions, and effective dates that pervade the current law.
    Two witnesses focused particular attention on the issue of 
payroll taxes. Todd McCraken, President, National Small 
Business United (NSBU), described the results of NSBU's annual 
survey of small business owners, which revealed that the 
payroll tax is the greatest burden for small businesses. He 
noted that payroll taxes are a fixed expense for small 
businesses and can be reduced only if the business fires 
employees or cuts their wages. Mr. McCraken also pointed out 
that payroll tax reform is connected with resolving the 
difficulties facing the Social Security system, and he asserted 
that the debate on fundamental tax reform must also focus on 
Social Security restructuring. Bennie L. Thayer, President and 
Chief Executive Officer, National Association for the Self-
Employed, emphasized that the self-employed are especially hard 
hit when it comes to payroll taxes because they must pay both 
the employee's and the employer's share of the taxes. He also 
noted that self-employed individuals are the least likely to 
have a private retirement plan. As a result, the self-employed 
are the most vulnerable to proposals that would reform the 
Social Security system by raising taxes and cutting benefits.
    The witnesses offered a number of suggestions for improving 
the current tax code as Congress develops a replacement tax 
system. Most of the panelists stressed the need for reforming 
the IRS to provide better service for taxpayers and the need 
for improving taxpayer rights. Other recommendations included 
accelerating the deductibility of health insurance for the 
self-employed, decreasing the capital-gains tax rates, 
expanding the estate-tax exemptions, clarifying the status of 
independent contractors, and extending income averaging for 
farmers.

 ``IRS Reform: What America's Taxpayers Need Now''--Washington, D.C., 
                           February 12, 1998

    On February 12, 1998, the Committee held a hearing on the 
need to reform and restructure the IRS. The purpose of the 
hearing, summarized by Chairman Bond, included examination of 
the challenges small businesses face when dealing with the IRS 
and the tax laws, suggestions on ways to improve taxpayers' 
rights, and observations about the impact of the IRS on the 
lives of women business owners. In addition, the hearing 
focused on ways to improve the customer service focus of the 
IRS.
    Chairman Bond prefaced the hearing in his opening statement 
by commenting on the difficulties small businesses face when 
dealing with the IRS because they are expected to comply with 
the same rules and regulations as large companies. Small 
businesses, however, cannot afford to hire lawyers and 
accountants to help guide them through the regulatory process. 
Chairman Bond also stated his intention to introduce the 
``Putting the Taxpayer First Act'' (S. 1669), which would 
provide relief for a wide range of taxpayers, from single 
mothers to small business owners.
    All of the witnesses testified that there is a great need 
to restructure the IRS and improve the rights of taxpayers. 
Virginia Kirkpatrick, President/Owner, CVK Personnel Management 
& Training Specialists, shared personal testimony of the 
difficulties she encountered with the IRS, and stressed the 
importance of improving communication between taxpayers and the 
agency. Ms. Kirkpatrick, along with several other witnesses, 
noted the importance of having IRS personnel recognize that the 
vast majority of citizens want to pay their taxes properly and 
on time, and she stressed that they should be treated with 
respect.
    Ron Morgan, Partner, Husch & Eppenberger, LLC, emphasized 
that taxpayer clinics for low-income individuals would go a 
long way toward improving the current system. He recommended 
broadening the criteria for funding such clinics to allow them 
also to represent small businesses. Mr. Morgan provided the 
Committee with examples of the difficulties that small 
businesses face when being audited while trying to keep their 
businesses running. Mr. Morgan, along with Edith Quick, 
Principal, Quick Tax & Accounting Service, commended the 
Chairman's proposal to allow judicial review before the IRS 
seizes a taxpayer's property, noting it will ensure that the 
agency has followed the proper procedures.
    Roger Harris, President, Padgett Business Services, 
commended the Committee for understanding that the proposed IRS 
oversight board can be effective only if it can review the 
examination and collection policies of the IRS. Mr. Harris 
recommended organizing the IRS along customer lines and 
providing specialized training for IRS personnel so they 
understand the issues relevant to specific groups of taxpayers 
like small businesses. He also suggested creating a separate 
appeal process that will work independently of the audit 
function, which would give taxpayers a better opportunity for a 
fair hearing. Jack Doll, President, Marjon, Inc., dba Hertz 
Rent-A-Car, provided personal testimony on the complications 
that arose at his company when the IRS employees conducting the 
audit were not trained on the particular issues relevant to the 
field they were examining.
    The Committee also received testimony about the impact of 
the IRS on the lives of women business owners. Nancy Workman, 
Vice President, Workman Construction Co., noted that home-based 
businesses, many of which are owned by women, face many tax 
obstacles because the IRS views them with skepticism. For 
example, she pointed out that many home-based business owners 
believe that if they claim the home-office deduction, they will 
most likely be audited. Ms. Workman expressed her belief that 
most women are very intimidated by the IRS and its collection 
methods. Elizabeth Nielson, CPA, President, Nelson & 
Associates, P.C., reiterated the belief of many witnesses that 
the tax system is simply too complicated and needs to be 
simplified. Ms. Nielson also testified that the IRS lacks in 
service and responsiveness to its customers and needs to be 
held accountable for its actions.

          ``Entrepreneurship in America: Focus on the IRS''--
                    Marietta, Georgia, March 2, 1998

    On March 2, 1998, the Committee held a field hearing in its 
continuing series on ``Entrepreneurship in America'' dealing 
with the impact of the IRS on small business. The purpose of 
the hearing, summarized by Senator Paul Coverdell who chaired 
the hearing, was to focus attention on the random audit 
practices of the IRS and its adverse effect on small business. 
Senator Coverdell prefaced the hearing by discussing the ``IRS 
Accountability Act'' (S. 2008) that he introduced in 1997, 
which would limit the agency's ability to undertake random 
audits. He expressed the hope that the hearing would make 
progress toward the goal of IRS reform and underscore the need 
for legislative changes.
    Millard Choate, Chief Executive Officer, Choate 
Construction Company, shared personal testimony about the 
hardships he endured when the IRS wrongfully accused his 
business of tax evasion in both 1992 and 1993. For each year, 
he was found to have been in complete tax compliance, but his 
business suffered from the publicity and legal fees that he 
incurred with respect to the trial. He testified that he 
supports the collection of taxes but proposed limitations so 
the IRS would focus on true tax evaders. Ronald Blasi, 
Professor of Law, Georgia State University College of Law, 
testified that some low-income individuals are paying 
substantially more taxes than they actually owe. He suggested 
that the government should provide more funding for pro bono 
law clinics so taxpayers with limited education, skills, or 
financial resources can receive qualified representation in tax 
disputes with the IRS.
    The final witness, Gerry Harkins, General Manager, Southern 
Pan Services Company, and Member, National Commission on 
Restructuring the Internal Revenue Service, testified that the 
vast majority of IRS employees are conscientious, hard-working, 
and caring individuals concerned with their jobs and the 
taxpayers. The problem lies in the tax code that is nearly 
impossible to administer. Mr. Harkins proposed reforms that 
would clarify the tax law and make it easier to follow. Given 
its complexity, he warned against over-reform by trying to 
micromanage the IRS.

         ``The President's Fiscal Year 1999 Budget Request for 
        the Small Business Administration''--Washington, D.C., 
                             March 18, 1998

    On March 18, 1998, the Committee held a hearing to review 
the President's Fiscal Year 1999 budget request for the SBA. 
Chairman Bond opened the hearing by stressing that because the 
SBA's budget is relatively small, each program must be examined 
closely to guard against unnecessarily large programs or 
misguided expenditures that will cause other programs to be cut 
out or suffer from a lack of funding. He also noted the 
importance of providing the SBA with the time and funding 
necessary to design, develop, and implement a modernized 
information management system for the agency.
    SBA Administrator Aida Alvarez provided the Committee with 
an overview of the agency's Fiscal Year 1999 budget. She 
discussed several areas of the proposed budget, including the 
growth in the General Business Loan Guarantee program, also 
known as the 7(a) loan program, noting that for 1999 the SBA is 
proposing an $11 billion program level. This increase of 
roughly $1.8 billion would be the highest level ever for the 
program. She also illustrated the historical pattern for the 
Economic Development Loan Guarantee program, also know as the 
504 loan program, and noted that the new budget estimates of $3 
billion for 1998 and 1999 show significant growth over the 1997 
level. The new budget also proposes to lower the fees for the 
504 loan program for the second straight year.
    With respect to the Women's Business Centers, the 1999 
budget would more than double their funding. With the $9 
million budget request, which is $1 million over the current 
authorization, Ms. Alvarez projected that the SBA would be able 
to set up an additional 30 new centers, reaching the goal of 
establishing a Woman's Business Center in every state. She also 
recognized the continuing need for government-sponsored 
business development and training, especially in the 
procurement area. The SBA requested $9.5 million for the 
business training program through which the SBA provides 
specialized training and executive development assistance to 
firms in the Minority Enterprise Development program, also 
known as the 8(a) program. Ms. Alvarez confirmed that the 
agency is on track to initiate the HUBZones program, and the 
budget includes 31 new positions for its implementation.
    The Members of the Committee raised a number of issues 
about the SBA's Fiscal Year 1999 budget proposal. Chairman Bond 
expressed concern about his understanding that little or no 
carryover from Fiscal Year 1998 would be available to support 
the Fiscal Year 1999 SBIC program. Ms. Alvarez responded that 
to date the SBA expected a $10 million carryover for next 
year's budget. She indicated that the SBA is counting on using 
only $972 million of the $1.3 billion available in 1998, and 
that $10 million is included in that estimate. However, she 
admitted that using all of the $1.3 billion would eliminate any 
carryover.
    Chairman Bond, along with other Committee Members, was also 
apprehensive about the SBA's proposed increase in interest 
rates on disaster loans because the Committee has consistently 
declined to approve recommendations from the Administration to 
increase interest rates over the years. Ms. Alvarez testified 
that the SBA requested $901 million for disaster loans in 1999. 
She also stated that the agency's proposal to set the rates 
charged to borrowers at the Treasury cost of funds and to cap 
the rate at 6% would not increase the monthly loan payments for 
most borrowers because the SBA can lengthen the terms of the 
loan. She noted that the proposal would reduce subsidy rates 
from 22.36% to 5.93%. Ms. Alvarez expressed her belief that the 
Fiscal Year 1999 budget proposal would have less of a negative 
impact on the borrower than any other similar proposal offered 
in the past.
    In response to Senator Kerry's questions regarding 
technical assistance and welfare-to-work initiatives, John 
Gray, Associate Deputy Administrator for Capital Access, noted 
that the SBA's goal is to get two or three different sources of 
funding for technical assistance and target the funding to both 
welfare-to-work recipients and recipients not connected with 
that program. Currently, the overall program funding is $72 
million, but the SBA has determined it will need an additional 
$20 million if the agency is to reach a target of 23% technical 
assistance. He noted, however, that 14% to 20% is a reasonable 
level of technical assistance.
    The hearing record also includes statements for the record 
offered by private sector witnesses as well as their responses 
to post-hearing questions posed by Chairman Bond. Ellen Golden, 
Senior Program Officer, Microenterprise and Women's Business 
Development, Coastal Enterprises, Inc. (CEI), provided several 
examples of how CEI has coordinated with the SBA and its 
resource partners in Maine to develop services that complement 
rather than duplicate those already available in the state. W. 
Kenneth Yancey, Jr., Executive Director, Service Corps of 
Retired Executives (SCORE) Association, furnished information 
on SCORE's efforts to coordinate with Women's Business Centers 
at the local level. Currently, proposals for new Women's 
Business Centers require that both SCORE and SBDCs act as local 
resource partners, and SCORE chapters and members are 
encouraged to use the Centers as a resource.
    James L. King, President, Association of Small Business 
Development Centers, and State Director, New York State Small 
Business Development Center, noted that 36.4% of the SBDCs' 
clients nationwide are women, and he pointed out that SBDCs 
incorporate the assistance of SCORE volunteers and the services 
of Women's Business Centers whenever possible. He also 
commented on the useful and valuable purpose of the Women's 
Business Program of providing intensive services to women 
entrepreneurs. The success of the SBDC program was highlighted 
by a report written by James Chrisman, Ph.D., Venture 
Development Faculty of Management, University of Calgary, 
entitled ``The Economic Impact of Small Business Development 
Center Counseling Activities in the United States: 1994-1995.''
    C.W. Dick, Immediate Past Chairman and Member, Board of 
Governors, National Association of Small Business Investment 
Companies, and General Partner, Pioneer Capital Corporation, 
Pioneer Ventures, L.P. 1, and Pioneer Ventures, L.P. 2, 
testified that legislation enacted to make five-year 
commitments available to SBICs has made a sizable improvement 
in the SBIC program and one that will continue to have a major 
impact on the amount of private capital that will be invested 
in SBICs. Mr. Dick also suggested that the SBIC program level 
ceilings for Fiscal Years 1998, 1999, and 2000 be raised to $1 
billion for both the participating securities and debenture 
programs. Paula Klepper, Vice President for Congressional 
Relations, National Association of Development Companies, and 
President, Mid-Atlantic Business Finance Co., stressed that, 
while the 504 loan program recovery rate is expected to decline 
in Fiscal Year 1999 from 34.27% to 30.67%, greater effort 
should be put into improving loan recoveries in the 504 
program. Ms. Klepper suggested that the SBA be given the 
authority to expand and administer the Certified Development 
Companies (CDC) liquidation pilot program and make it 
permanent. She also recommended that the SBA and CDC staffs 
undertake a joint effort to increase the recovery rate.
    Christopher Sikes, Executive Director, Western 
Massachusetts Enterprise Fund (WMEF), commented on the 
Microloan program. He stated that WMEF does not use the 
Microloan guarantee pilot program, but instead finances loans 
with its own money to save on administrative costs and to gain 
a sense that the fund ``owns'' the loans. Mr. Sikes also 
recommended that technical assistance grants not be tiered so 
that such grants are lowered on a loan-by-loan basis as a loan 
matures. He stressed that microloan programs do not work on a 
loan-by-loan basis but on a program-wide basis.

  ``Environmental Compliance Tools for Small Business''--Washington, 
                          D.C., April 28, 1998

    On April 28, 1998, the Committee held a hearing on 
environmental compliance tools for small businesses. The 
hearing included an examination of environmental compliance 
tools for small businesses, the effectiveness of existing 
compliance tools, and the experience of small businesses 
seeking assistance in their efforts to comply with 
environmental regulations. In addition, the hearing focused on 
environmental audits and how this tool can be used by small 
business owners. This hearing followed up on issues raised at 
the August 1997 field hearing held jointly with the House 
Committee on Small Business to obtain testimony from small 
business owners about regulatory enforcement actions.
    Chairman Bond opened the hearing by noting the differences 
in perception of compliance assistance between small businesses 
and policymakers. To help clarify the meaning of compliance 
assistance, the Red Tape Reduction Act requires Federal 
agencies that regulate small companies to create and implement 
informal compliance assistance programs. Chairman Bond noted 
that the EPA has one of the most extensive programs to provide 
compliance assistance to the regulated community, including its 
small business programs. He noted that this was a ``mixed 
blessing'' because it illustrates the complexity of 
environmental regulations and the difficulty small businesses 
face in trying to comply.
    All of the witnesses testified that small businesses need 
compliance assistance programs to comply fully with 
environmental regulations. The witnesses also agreed that the 
ultimate goal should be voluntary compliance. Benjamin Cooper, 
Senior Vice President, Government Affairs, Printing Industries 
of America, testified that under the EPA's Small Business 
Assistance Program (507 program), each state that has to submit 
a state implementation plan must have a small business 
assistance program; however, not every state has implemented 
these programs to the extent it should. Mr. Cooper testified 
that this is partially due to a lack of funding, and he 
recommended grant programs instead of the current use of permit 
fees. Elizabeth Glass Geltman, Professor of Environmental Law, 
George Washington University, testified that because small 
businesses do not have as much money, manpower, or resources as 
large businesses to comply with environmental regulations, they 
must be handled differently. She noted that many states are 
trying alternative regulatory styles including partnerships 
between governments and businesses, voluntary cleanup programs, 
no-action letters, and pay-as-you-go advice from state 
agencies.
    Jim King, State Director, New York State Small Business 
Development Center, along with other witnesses, testified that 
most small business owners want to obey the law but cannot 
always do so due to a lack of information, expertise, time, 
staff, and money. He also noted that Federal environmental laws 
and regulations are often applied differently within various 
regions, and small business owners are frustrated by the 
confusing and conflicting answers they often receive. Scott 
Orr, Montana House of Representatives, Vice Chair, Energy, 
Environment, Natural Resources and Agriculture Task Force, 
American Legislative Exchange Council, and President/Owner, 
S.J. Orr Services, Inc., expressed his belief that the EPA has 
accomplished the big tasks, in terms of water and air cleanup, 
and the remainder of its goals can be completed with half the 
budget and half the employees.
    Mr. King testified that the SBDC program works with nearly 
600,000 small businesses across the country each year, and many 
of those businesses do not have the employees or the staff to 
handle compliance issues. He noted that small business owners 
need quick and understandable answers to come into voluntary 
compliance. Mr. Cooper and other witnesses expressed their 
support for the SBDC program and emphasized that there could 
potentially be a positive role for the SBDCs to play in 
compliance assistance. David Marsh, Owner and Chief Executive 
Officer, Marsh Plating Corporation, however, expressed his 
belief that while the SBDCs offer hands-on assistance for new 
businesses in terms of planning and financial advice, they are 
not an appropriate source for expert compliance information.
    The Committee also received testimony on environmental 
audits and confidentiality. Mr. King noted that business owners 
are afraid to go to the environmental agencies and discuss 
information with the regulator who may later turn around and 
perform an audit. He recommended a non-regulatory third party 
that can provide confidential environmental assistance to small 
businesses and allow them to reduce their pollution emissions 
voluntarily without the fear of possible punitive action as the 
result of the request for help. Mr. Marsh added his concern 
that because firms fear enforcement, they may not take the 
necessary steps to uncover violations and correct them. Mr. 
Cooper testified that small businesses should conduct 
assessments and reviews, not audits, and should be able to ask 
for confidential help to fix any problems they may find. Ms. 
Geltman encouraged Congress to enact legislation encouraging 
environmental audits.

  ``Nomination of Fred P. Hochberg To Be Deputy Administrator of the 
                 SBA''--Washington, D.C., May 14, 1998

    On May 14, 1998, the Committee held a confirmation hearing 
on the nomination of Fred P. Hochberg to be Deputy 
Administrator of the SBA. The purpose of the hearing was to 
review Mr. Hochberg's qualifications and to examine his views 
on the SBA and its role in assisting small businesses. Chairman 
Bond opened the hearing by reiterating the importance of the 
SBA Deputy Administrator position, and he noted that in 1990 
the Committee voted to make it a presidential appointment 
subject to the advice and consent of the Senate. He stressed 
that, due to the major responsibilities involved in being 
second in charge of the SBA, a thorough review of Mr. 
Hochberg's credentials was necessary.
    Senator Alfonse D'Amato and Representative Steve Forbes 
introduced Mr. Hochberg as their constituent and expressed 
their support for his nomination as Deputy Administrator of the 
SBA. They expressed the belief that his practical experience in 
small businesses will serve him well in this position. Aida 
Alvarez, SBA Administrator, testified that Mr. Hochberg's 
experience and his concern for small business customers will 
help the SBA prepare small businesses for success in the 21st 
century.
    The Members of the Committee expressed several areas of 
concern about Mr. Hochberg's nomination. In response to 
questions regarding irregularities in his campaign 
contributions in 1996, Mr. Hochberg explained that certain 
contributions were incorrectly attributed to him by the 
Democratic National Committee (DNC), and that other 
contributions were improperly classified as soft money, causing 
him to exceed the Federal campaign contribution limit. He 
advised the Committee that the DNC has corrected its records 
and has transferred the relevant contributions to a soft dollar 
account.
    Several Members of the Committee questioned Mr. Hochberg 
about specific SBA programs, including the recently enacted 
Historically Underutilized Business Zone (HUBZone) program. As 
a general response to the concerns raised, Mr. Hochberg 
testified that the HUBZone program is a ``key ingredient in the 
arsenal of tools that the SBA has to advance the small business 
community, to advance jobs in depressed areas, and to ensure 
that small businesses get their fair share of Federal 
contracting.'' Another area of concern to several Members of 
the Committee was the availability of technical assistance to 
help small businesses. Ranking Member Kerry noted the 
importance of technical expertise in the Microloan program and 
raised concerns over the lack of funding to provide more 
technical assistance. Mr. Hochberg agreed that technical 
assistance is an essential part of microlending, and he noted 
that the SBDC program is also a form of technical assistance. 
He reaffirmed his commitment to work with the Administrator and 
the Senate to increase technical assistance. Mr. Hochberg 
expressed his belief that the SBA can help bring the outside 
resources, consultants, and support small businesses need to 
grow and succeed.
    In response to Senator Snowe's questions regarding programs 
to help women-owned businesses, Mr. Hochberg noted that the 
Administration's Fiscal Year 1999 budget requests $9 million so 
that the SBA can open a Women's Business Center in every state 
in the country. The money would provide specific technical 
assistance, guidance, and counseling to women-owned businesses. 
Senator Snowe also questioned Mr. Hochberg on the SBA's 
progress in providing assistance to small businesses to deal 
with the Year 2000 (Y2K) computer problem. Mr. Hochberg 
discussed the SBA's website, which provides information on Y2K 
and how to deal with the problem, and he stated that the SBA is 
committed to making sure small businesses in every community 
are aware of the problem before the year 2000 so they have time 
to make the necessary changes.
    At the conclusion of the hearing, the Committee unanimously 
voted to recommend that the Senate confirm Mr. Hochberg as 
Deputy Administrator of the SBA.

 ``E-Commerce and Y2K: What's Ahead for Small Business?''--Washington, 
                           D.C., June 2, 1998

    On June 2, 1998, the Committee held a hearing on two 
related issues--the expansion of the use of electronic commerce 
(e-commerce) among small businesses and the potential effects 
of the Year 2000 (Y2K) problem on small businesses. The purpose 
of the hearing, summarized by Chairman Bond, was to examine the 
dependence of small businesses on e-commerce and how the 
evolution of e-commerce is likely to affect small businesses. 
Moreover, the hearing examined the challenges small businesses 
may face on January 1, 2000, from the Y2K problem, when many 
computers will interpret the date ``1/1/00'' as January 1, 
1900, due to a programming error in older software. The hearing 
also focused on the role that the Federal government should 
play in solving the Y2K problem and evaluated the efforts of 
the SBA to raise awareness among small businesses about the 
potential problems that may occur.
    Chairman Bond opened the hearing by emphasizing the 
important role that small businesses play in our economy--99% 
of all businesses in the United States are small, and over 50% 
of all workers are employed by small businesses. Chairman Bond 
addressed the growing role of e-commerce among small business 
operations, observing that many small businesses use e-commerce 
to generate demand for their products and services, fulfill and 
manage orders, simplify payment, and supply ongoing product 
support. Chairman Bond then addressed the Y2K problem and its 
likely effect on small businesses. Y2K awareness has been slow; 
many small businesses do not realize they may have a problem. 
Originally the SBA thought Y2K would not be a problem for small 
businesses. The agency, however, recently revised its position 
and has set up a Y2K website and started an awareness campaign 
about the Y2K problem for small enterprises. Chairman Bond 
expressed his concern about a recent Wall Street Journal 
article, which states that 40% of small businesses say they 
have no plans to do anything about the possibility of computer 
glitches resulting from the century date change.
    Several witnesses testified as to the great opportunities 
for small businesses to compete and expand through e-commerce. 
James Yasso, Vice President of Intel Architecture Business 
Group, and General Manager, Reseller Products Division, Intel 
Corporation, stressed that high performance personal computers, 
in conjunction with the Internet will put small businesses on 
equal ground with big businesses by increasing efficiency and 
improving competitiveness. Mr. Yasso noted, however, that the 
computer industry must develop products and services that are 
designed for small business and that will simplify the 
installation and use of connected computers and the Internet, 
as over two-thirds of small business owners believe they lack 
the expertise to use existing technology effectively. Tom 
Luedtke, Deputy Associate Administrator for Procurement, 
National Aeronautics and Space Administration (NASA), testified 
that one of NASA's main goals is to make e-commerce easier for 
small businesses that do business with that agency, especially 
businesses that have not traditionally done business with the 
Federal government. The cornerstone of the agency's program is 
the NASA Acquisition Internet Service, a web-based service that 
provides immediate access to advance procurement notices, 
solicitations, backup information, regulations, and other 
policy information.
    While e-commerce and the Internet can help small businesses 
expand and compete, the Committee learned that the Y2K problem 
can prove disastrous to those companies that do not update 
their computers. Harris Miller, President, Information 
Technology Association of America, testified that the companies 
most at risk are small and medium companies, many of whom 
believe that they are immune to the problem, or that it has 
already been fixed. Unfortunately, this is not the case, and 
those companies that ignore the problem risk losing their 
businesses as a result of this computer anomaly. To combat this 
problem, Mr. Miller suggested that the SBA go beyond its 
current efforts and launch a national public service 
advertising campaign, educating both businesses and consumers. 
He also suggested that the SBA offer incentives and assistance, 
such as low interest loans to small businesses to fix their Y2K 
problems, and that the Federal government should lead by 
example and fix its own Y2K problems.
    David Eddy, President, Software Sales Group, Inc., 
acknowledged the tremendous reluctance to tackle this 
``unplanned, unbudgeted, and unwanted'' problem. Mr. Eddy 
agreed with Mr. Miller's suggestions and recommended a massive 
national educational and training curriculum to train teams 
with the skills to help a small business in each aspect of Y2K 
compliance--from assessing a problem to reporting on its 
progress.
    David Schaefer, Vice President, Armfield, Harrison & 
Thomas, Inc., provided the Committee with the perspective of a 
small business owner, a property and casualty insurance agent 
and a risk management advisor for small- and medium-sized 
businesses. Mr. Schaefer offered personal testimony about the 
amount of preparation and expense his own agency has endured to 
prepare for Y2K, and he expressed grave concerns about the 
state of American businesses with respect to the Y2K issue. Mr. 
Schaefer noted that, while a company may update its own 
systems, many external risks can affect them as well as 
liability factors. He was very concerned that existing 
indifference and general ignorance about the extent of the 
problem will make the situation much worse for our economy.

     ``Oversight of the Small Business Innovation Research (SBIR) 
               Program''--Washington, D.C., June 4, 1998

    On June 4, 1998, the Committee held a hearing on the Small 
Business Innovation Research (SBIR) program. The hearing 
examined the strengths and weaknesses of the SBIR program, 
which requires Federal agencies with extramural research and 
development (R&D) budgets of $100 million or more to set aside 
no less than 2.5% of that amount for small businesses. The SBIR 
program is divided into three phases. Phase I is designed to 
determine the scientific and technical merit and feasibility of 
a proposed research idea, with funding for individual Phase I 
awards limited to $100,000. Phase II considers the idea's 
commercialization potential, with individual awards up to 
$750,000. Finally, Phase III entails the use of non-Federal 
funds for commercial application of the technology or non-SBIR 
funds for continued R&D under government contracts.
    Chairman Bond opened the hearing by noting the 
accomplishments of the SBIR program since its inception in 
1982. He observed that when the program began only 0.2% of the 
covered agencies' R&D budgets were set aside for SBIR awards, 
and by 1992 that percentage had increased to 2.5%, which 
allowed the number of small businesses participating in the 
program to multiply. Chairman Bond noted a study by the GAO 
indicating that only one-third of the states receive 85% of the 
SBIR awards. States such as Missouri, Montana, Idaho, Maine, 
and others received 11 or fewer awards in Fiscal Year 1996, 
while California and Massachusetts received 628 awards or more. 
Chris Busch, Ph.D., SBIR Consultant, agreed with Chairman 
Bond's concerns and asserted that many rural states are the 
ones with the fewest awards, only two out of every 100 
submitted. He recommended that the SBIR program become more 
aggressive and take action to help small businesses overcome 
these barriers.
    All of the witnesses testified that the SBIR program was a 
great asset to small businesses and that the program should be 
continued. The witnesses also agreed that the ultimate goal of 
the program was to involve more small businesses and thereby 
expand the program. While highlighting the success of the 
program, the witnesses also noted several areas for 
improvement. Charles W. Wessner, Ph.D., Program Director, Board 
on Science, Technology, and Economic Policy, National Research 
Council, proposed that the process for awarding Phase II grants 
needs to be accelerated. He pointed out the commercially useful 
time horizon of an idea may be shorter than the time it takes 
for an SBIR application to be processed. Robin Frank Risser, 
Vice Chairman, Small Business Technology Coalition, and Co-
Founder and Chief Executive Officer, Picometrix, Inc., 
testified that significant delays, between the time proposals 
are submitted and the time contracts are awarded, can harm both 
the proposing company and the project.
    Susan D. Kladiva, Associate Director, Energy, Resources and 
Science Issues, Resources, Community, and Economic Development 
Division, GAO, pointed out that some agencies are using 
different interpretations of the extramural budget definition, 
which may lead to incorrect calculations of their extramural 
research budgets. She recommended that the SBA provide 
additional guidance to participating agencies on how to 
calculate their extramural budgets. Arthur P. Brigham, III, 
Chairman of the Board, High Performance Materials, Inc., dba 
HPM, Inc., urged the Committee to consider greater absolute 
funding, which is currently capped at 2.5% of the external R&D 
budget. Mr. Brigham stated that if both internal and external 
funds are considered, 2.5% is a very small portion of an 
agency's overall R&D budget. He also suggested that contract 
limits be expanded to $150,000 in Phase I and $1.25 million in 
Phase II, and he recommended that the set-aside percentage be 
increased significantly above the existing 2.5%. In addition, 
he stressed that these percentages should be adjusted for 
inflation.

  ``Entrepreneurship in America: Expansion of Microlending''--Boston, 
                      Massachusetts, July 13, 1998

    On July 13, 1998, the Committee held a hearing in its 
series on ``Entrepreneurship in America,'' in Boston, 
Massachusetts. The hearing, chaired by Senator John Kerry, the 
Committee's Ranking Member, examined the microlending program 
and its effect on small businesses. Senator Kerry emphasized 
the strengths of the SBA's microlending program on small 
companies, noting that since it's inception in 1992, more than 
7,000 microloans have been extended to entrepreneurs, with the 
majority going to women and minorities. Ranking Member Kerry 
acknowledged weaknesses in the program, and he pointed out that 
the program is currently offered only in certain areas, with a 
handful of states having no SBA microlending programs. He 
concluded that the microlending program was a valuable asset to 
small businesses, and it should be expanded to cover every 
state.
    All of the witnesses testified that the microlending 
program provides critical assistance for many small businesses. 
Some witnesses, however, expressed frustrations with the 
program. John Gray, Associate Deputy Administrator for Capital 
Access, SBA, noted that one of the biggest frustrations with 
the program is the lack of technical assistance. The program 
consists of only 35 intermediaries and two non-lending 
technical assistance providers. He indicated that the low 
number of intermediaries is directly correlated to the small 
number of technical assistance programs. Mr. Gray also 
demonstrated that the number of microlending programs has 
decreased since its height in 1995.
    David F. Westgate, President, Fall River Office of Economic 
Development, and President, South Eastern Economic Development 
Corporation (SEED), emphasized that the real need for 
microloans and technical assistance is to increase small 
business growth and development. The SEED program has assisted 
30 new and expanding microloan enterprise businesses in the 
South Eastern community. He stated that one major problem was 
the lack of technical assistance not only in the South Eastern 
community but everywhere microloans are distributed. 
Christopher Sikes, Executive Director, Western Massachusetts 
Enterprise Fund, and Board Member, Association for Enterprise 
Opportunity, stressed the need for technical assistance and 
noted an acute awareness of the impact of any reduction in 
technical assistance below the 20% level. He recommended that 
the percentage be moved to 25% for more support. Mr. Sikes 
stressed that, due to their highly technical and highly 
competitive nature, many businesses need to be extremely savvy, 
which puts a premium on the availability of technical 
assistance.
    James C. Kaddaras, Executive Director, Working Capital 
Inc., provided the Committee with anecdotal information about 
the Microloan program and small businesses. His company 
provides customers, many of whom have no other source of 
capital, with credit, education, and training. Mr. Kaddaras 
stressed a real need for technical assistance to ensure that 
every business has a chance to succeed.
    Eugene Severens, Director, Nebraska Microenterprise 
Partnership Fund, raised the idea of state intermediaries to 
assist business owners better. He urged the Committee to 
consider having the SBA provide lending capital and technical 
assistance grants for state-level intermediaries, asserting 
that such assistance will result in more comprehensive 
geographic coverage. Mr. Severens stated that state-level 
intermediaries not only further the SBA's objective of serving 
entire states but also insure a higher level of performance and 
accountability. Joseph Kriesberg, Deputy Director, 
Massachusetts Association of Community Development 
Corporations, and Chair, Public Policy Committee, Massachusetts 
Micro Enterprise Coalition, agreed with the state 
intermediaries recommendation. He testified that state 
intermediaries could allow for some standardization and 
consistency across the field but not in a rigid ``one size fits 
all'' way. He asserted that having state intermediaries would 
allow microlending to reach more people and reach deeper into 
the communities, which would provide all entrepreneurs with 
better service.

  ``Home-Health Care: Can Small Agencies Survive New Regulations?''--
                    Washington, D.C., July 15, 1998

    On July 15, 1998, the Committee held a hearing on new 
regulations promulgated by HCFA on the home-health care 
industry. The purpose of the hearing, as summarized in Chairman 
Bond's opening statement, was to examine the impact of the 
Interim Payment System (IPS) and the surety bond regulations on 
small home-health care businesses and to elicit suggestions for 
ways to improve the regulations. In addition, the hearing 
explored whether HCFA had followed the requirements under the 
Regulatory Flexibility Act and the Small Business Regulatory 
Enforcement Fairness Act in developing the new regulations.
    In his opening statement, Chairman Bond noted that 
according to HCFA's own data, 85% of home-health agencies are 
small businesses. While he expressed his support for rooting 
out fraud and abuse in the Medicare and Medicaid programs, he 
emphasized that HCFA's IPS and surety-bond regulations are 
driving honest, ethical, high integrity, quality providers out 
of business. Chairman Bond stated that, in his view, HCFA's 
surety-bond rule goes far beyond the intent of Congress and 
that HCFA is seeking to use surety bonds to insure against 
overpayments rather than prevent fraud and abuse. He also noted 
that Medicare's and Medicaid's cost-reimbursement systems 
should not force small businesses to subsidize the cost of 
their patients' care. Chairman Bond advised the Committee that, 
due to the Senate's intervention, HCFA had agreed to suspend 
the deadline for home-health agencies to comply with the 
surety-bond requirement and to revisit this rulemaking.
    All of the witnesses testified that HCFA's new regulations 
are having devastating effects on small home-health care 
providers all over the country and that something must be done 
before more businesses close their doors. Carole Burkemper, 
R.N., B.S.N., Chief Executive Officer, Great Rivers Home Care, 
Inc., testified that funding to agencies like hers has been 
reduced by 31% to 81% below the actual cost of providing care. 
She stressed that, due to these drastic IPS funding cuts, many 
elderly people are being denied reasonable and necessary home 
care. Ms. Burkemper stated that prior to the IPS, Great Rivers 
Home Care consistently operated at nearly $1 million below its 
cost limits, but under the IPS the agency will be reimbursed 
$1.5 to $1.8 million less than the actual cost of providing 
care. Delia Young, President, Delia Young & Associates 
Healthcare Consultants, praised Congress for attempting to 
abolish waste and fraud in the Medicare system, particularly as 
it is administered through home-health agencies. She testified, 
however, that HCFA has overstepped its boundaries and is 
placing the future of the home-health care industry in danger. 
Ms. Young voiced her belief that home-health care and teaching 
prevention techniques has been extremely effective, especially 
in rural and urban inner cities.
    Lynn Hardy, R.N., Executive Director, Duplin Home Health 
Care & Hospice, provided the Committee with anecdotal evidence 
of the burdens that the new regulations have placed on home-
health care agencies. Due to the implementation of IPS, 
patients have to be assigned a priority to ensure that 
resources can be matched with needs, thus rationing care. Ms. 
Hardy explained that current reimbursement for Medicare home-
health services is based upon the lower of cost or charges at 
or below the Medicare cost cap limit or a per beneficiary cap 
limit. She recommended splitting the beneficiary limit into two 
components or blending the cap computation. Ms. Hardy also 
stressed the need for legislation that will ensure access to 
care for the beneficiary that requires skilled care on an 
ongoing basis. Bonnie Matthews, Vice President, Post Acute 
Services, South Shore Hospital System, requested that Congress 
pass reform legislation that provides fair and equitable 
reimbursement to the home-health care industry. She noted that 
Medicare currently does not reimburse for pre-filling 
prescriptions, monitoring chronic illnesses, or for personal 
care services by a home-health aide unless a skilled service, 
such as nursing, is associated with the care.
    Bob Reynolds, Resident Agent, Medicare Surety, Franey & 
Parr, spoke on behalf of the National Association of Surety 
Bond Producers, and expressed concerns about the surety bond 
requirement for home-health agencies participating in the 
Medicare and Medicaid programs. Mr. Reynolds explained that a 
home-health agency has difficulty obtaining the surety bond 
currently required by HCFA because it is basically a financial 
guaranty bond that will cover the overpayments that HCFA often 
makes to home-health agencies. HCFA does not allow these 
agencies to make a profit, and they usually cannot acquire a 
significant amount of net worth with little or no business 
outside the Medicare and Medicaid programs. He stressed that 
insurance companies do not want to risk losing money by writing 
financial guaranty bonds to agencies operating at cost or even 
at a loss. Mr. Reynolds suggested that Congress intended for 
HCFA to issue an anti-fraud bond that would cover financial 
losses to the Medicare and Medicaid programs resulting from the 
dishonest activities of a home-health care agency.
    Jere W. Glover, Chief Counsel for Advocacy, Small Business 
Administration, expressed the SBA's concerns that HCFA did not 
follow the Regulatory Flexibility Act and the Small Business 
Regulatory Enforcement Fairness Act. He testified that the 
agency failed to study the impact that the regulations would 
have on small businesses, and he noted that in his four years 
as Chief Counsel for Advocacy, HCFA's regulations have had the 
most detrimental impact on small businesses to date, as defined 
by the number of businesses that have closed their doors. The 
SBA hopes this hearing will send a strong message to HCFA that 
the agency must comply with the law and realize the devastating 
impact its regulations are having on small businesses across 
the country.

  ``Can Small Business Compete With Campus Bookstores?''--Washington, 
                        D.C., September 24, 1998

    On September 24, 1998, the Committee held a hearing on 
unfair competition by campus bookstores operated by tax-exempt 
educational institutions. Senator Lauch Faircloth, who presided 
over the hearing, noted real problems with campus bookstores 
having a monopoly over off-campus businesses. He stressed the 
need for a more competitive environment and described a bill 
(S. 2490) he introduced to address this problem by prohibiting 
Federal aid from being received by colleges that directly or 
indirectly discriminate against off-campus businesses.
    All of the witnesses testified that a monopoly against off-
campus businesses exists and each emphasized the need for 
change. The witnesses also agreed that those paying the 
greatest price for this monopoly are the students and their 
parents. Graham Gillette, President, Pinnacle Communications, 
LLC, testified that off-campus retailers are denied access to 
freshman mailing lists because colleges and universities 
consider them confidential information. These lists, however, 
enable on-campus stores to advertise and build customer loyalty 
before students realize that there is an alternative. He also 
testified that universities such as Iowa State are implementing 
university debit-card programs for students to purchase their 
books, but only at on-campus stores. He warned that programs 
like this one could virtually eliminate any off-campus 
competition. Anthony Samu, President, United States Student 
Association, agreed that the debit-card program available on 
some campuses harms small business.
    William D. Gray, President, Gray's College Bookstore, and 
National Chairman, Campus Area Small Business Alliance, 
expressed strong support for S. 2490. He added that the bill 
should also cover all campus business enterprises such as 
restaurants, laundries, and bookstores. He concluded that the 
legislation will put an end to favoring on-campus over off-
campus bookstores. Rob Karr, Vice President, Government and 
Members Relations, Illinois Retail Merchants Association, 
emphasized the need for this legislation and testified that 
Illinois has already begun to implement amendments to dissuade 
universities from their anti-competitive practices. He also 
observed that the school debit-card program truly hindered off-
campus businesses by barring them from participation.

                                  
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