[Senate Report 106-422]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 838
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-422

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



 
               SMALL BUSINESS REAUTHORIZATION ACT OF 2000

                                _______
                                

   September 27 (legislative day, September 22, 2000.--Ordered to be 
                                printed

                                _______
                                

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

                              R E P O R T

                         [To accompany S. 3121]

    The Committee on Small Business reported on original bill 
(S. 3121) to reauthorize programs to assist small business 
concerns, and for other purposes, having considered the same, 
reports favorably thereon without amendment and recommends that 
the original bill do pass.

                                CONTENTS

                                                                   Page
 I. Introduction......................................................1
II. Description of Bill...............................................2
III.Committee Vote...................................................29

IV. Cost Estimate....................................................29
 V. Evaluation of Regulatory Impact..................................36
VI. Section-by-Section Analysis......................................36

                            I. INTRODUCTION

    The Small Business Reauthorization Act of 2000 is a 
Committee bill to re-authorize most programs at the Small 
Business Administration (SBA) for Fiscal Years 2001, 2002, and 
2003. In addition, the bill makes changes in several existing 
programs, incorporates two bills that have previously passed 
the Committee, and authorizes a national small business summit 
every four years. The Committee adopted an en bloc amendment by 
unanimous consent, and the bill was subsequently adopted by a 
unanimous vote of 18-0.
    Starting in 1999, the Committee conducted a series of 
hearings, roundtable discussions, and forums to address key 
small business issues, the operations at the SBA, and most of 
the Agency's programs for small businesses. On February 5, 
1999, the Committee conducted the first of ten Roundtable 
discussions it held in 1999 on key small business issues. The 
Roundtables were attended by Members of the Committee on Small 
Business and participants from the public who have special 
knowledge of the matters being discussed. The Roundtables gave 
the Committee the opportunity to explore in depth key issues 
and subjects of great interest to the small business community. 
The Small Business Reauthorization Act of 2000 has addressed 
issues that were highlighted in the Roundtable discussions.
    The Small Business Reauthorization Act of 2000 includes the 
funding levels for the major credit and non-credit management 
assistance programs at the SBA. The details of the funding 
levels for the next three fiscal years are set out in chart 
form under the chapter, ``II. Description of Bill, Title I:0 
Reauthorization of Small Business Programs.''
    Three times over the past two decades, the Federal 
government has sponsored a national White House Conference on 
Small Business. The conferences have been viewed as successful 
attempts to highlight the priorities of the small business 
community. The Committee has received many recommendations from 
past conference participants to hold national small business 
conferences on a regular basis. Title II of the Acts includes 
the framework for the Quadrennial Small Business Summit Act. 
Following Chairman Bond's introduction of S. 1111, the 
``National Conference on Small Business Act,'' numerous members 
of the small business community and representatives of small 
business organizations met before the Committee in a Roundtable 
session to discuss the legislation. Title II reflects the 
recommendations and changes discussed at the Committee 
Roundtable.
    In 1996, the Congress adopted the Small Business Regulatory 
Enforcement Fairness Act (SBREFA), which is designed to assist 
small business confronted with the tidal wave of regulatory 
hurdles at Federal agencies. After the Committee's Roundtable 
on Oversight of SBREFA on March 16, 1999, Senator Bond and 
Senator Kerry introduced ``The Small Business Advocacy Review 
Panel Technical Amendments Act of 1999'' (S. 1156). This bill 
was subsequently approved by the Committee on May 27 and passed 
the full Senate unanimously on September 28, 1999. Although it 
has been before the House Committee on Small Business and Ways 
and Means since last year, the House of Representatives has not 
brought the bill to the full House for a vote. 
Consequently,when this Committee marked up the Reauthorization Act of 
2000, it included the Senate-passed S. 1156 as a separate title of the 
Act to spur action on the bill.
    Similarly, the Committee conducted a Roundtable discussion 
on SBA's Office of Advocacy on April 21, 1999. A key issue 
before the Committee was the threat posed to the independence 
of the Office of Advocacy. Since 1993, the staff had been cut 
dramatically, and its research budget was stagnant. At the same 
time, Congress had imposed significant new responsibilities on 
the Office with its passage of SBREFA and amendments to the 
Regulatory Flexibility Act (RFA). Following reports about the 
dependence of the Office of Advocacy on the SBA Administrator 
for budget and staffing and the report from the General 
Accounting Office that senior Advocacy staff, although 
acceptable to the Chief counsel and not political appointees, 
can be hired noncompetitively, which has the potential for 
political influence, the Committee marked up and approved the 
``Independent Office of Advocacy Act of 1999'' (S. 1346). This 
bill was passed unanimously by the Committee on July 15, 1999, 
and it was approved by the Senate on November 5, 1999, and has 
been pending before the House Small Business Committee. In 
order to generate new momentum to pass this important 
legislation before Congress adjourns in Fall 2000, the 
Committee agreed to include this bill as a separate title to 
the Act.
    Since the Congress last enacted an omnibus re-authorization 
bill for the SBA in 1997, the economic climate and 
circumstances surrounding the SBA credit programs have changed. 
Consequently, the Committee has approved program changes to 
each credit program. Many are technical and minor and are 
discussed in the chapter of this report describing the contents 
of the bill and in the section-by-section chapter.
    It is important to highlight some of the changes in the 
bill. For the first time, the Committee is approving a pre-
payment penalty for 7(a) loans repaid during the first three 
years after origination. The maximum loan guarantee size for 
7(a) and 504 loans is increased from $750,000 to $1,000,000. As 
a follow-up to the 1997 SBA re-authorization bill, the 
Committee has approved a provision authorizing the SBA to 
undertake an expanded check on the criminal histories of loan 
applicants through the FBI's National Crime Information Center 
computer system.
    The Small Business Investment Companies' (SBIC's) Debenture 
Program reached a milestone by achieving a credit subsidy 
estimate of less than ``0''. In order to insure that the fees 
paid by the SBICs on guarantees issued by SBA in FY 2001 and 
subsequent years during which the SBIC program has a ``0'' 
credit subsidy rate, the Committee adopted a provision 
directing SBA to reduce the fees paid by SBICs by an amount 
necessary to insure the credit subsidy rate does not fall below 
zero.
    The Microloan program has undergone some significant 
amendments approved by the Committee. In particular, the number 
of Microloan intermediaries is authorized to grow from 200 to 
350 in FY 2003.
    The Committee adopted unanimously an amendment offered by 
Senator Landrieu to extend the life of the National Women's 
Business Council for three years and to increase its annual 
authorization from $600,000 to $1,000,000.
    Prior to the death of our colleague and fellow Committee 
Member, Senator Paul Coverdell, the Committee adopted a two 
year extension of the Drug Free Workplace Program, which had 
been a long standing priority for the senior Senator from 
Georgia.
    The Committee also embarked on a new initiative to create a 
special presence on Indian Reservations for the Small Business 
Development Center program. The Committee approved, for the 
first time, the Native American Small Business Development 
Center (NASBDC) Network. It is the Committee's intention that 
this new program will provide a special, dedicated management 
assistance presence on or near Native American reservations 
that will be able to provide target management and technical 
assistance to one of the neediest segments of our population.

                        II. DESCRIPTION OF BILL


          Title I: Reauthorization of Small Business Programs

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

                                                       PROGRAM LEVELS FOR SBA REAUTHORIZATION BILL
                                                     [In millions of dollars unless otherwise noted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               SBA 3 year authorization request             Reauthorization bill
                     Program                        Current    FY01 budget -----------------------------------------------------------------------------
                                                   level FY00    request        2001         2002         2003         2001         2002         2003
--------------------------------------------------------------------------------------------------------------------------------------------------------
7(a) (in billions)..............................        $9.8         11.5        $14.5         15           16          $14.5        $15          $16
504 (in billions)...............................         3.5          3.75         5            5.25         5.5          4            4.5          5
SBIC:
    Debentures..................................       800          500        1,000        1,200        1,400        1,500        2,500        3,000
    Participating Securities....................     1,350        2,000        2,000        2,500        3,000        2,500        3,500        4,000
Microloan:
    Technical Assistance........................        23.2         45.0         59           80          100           45           60           70
    Direct Loans................................        29           60           75           80           85           60           80          100
    Guaranetted Loans...........................     (\1\)            0           40           40           40           50           50           50
Delta...........................................     1,000            0            0            0            0          500          500          500
Surety Bond Guarantee:
    General Program.............................     1,800        1,700        2,000        2,000        2,000        4,000        5,000        6,000
    Preferred Program...........................  ...........  ...........  ...........  ...........  ...........     (\2\)        (\2\)        (\2\)
SCORE...........................................         3.5          5.0          5.9          8            8.5          5            6            7
SBDC............................................        84.5         85           95           95           95          125          125          125
HUBZone.........................................         2.0          5.0          6            6            6            7.5          7.5          7.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 Carryover.
2 50% of total.

             Title II: Quadrennial Summit on Small Business

    The Quadrennial Small Business Summit Act is a revision of 
S. 1111, the ``National Conference on Small Business Act.'' 
Senator Christopher S. Bond introduced the latter bill in the 
Senate on May 24, 1999, and it is pending before this 
Committee. The Act will create a permanent, independent 
commission to carry on the work that the previous White House 
Conferences on Small Business have accomplished. The Commission 
will conduct national and state small business summit; 
delegates from every state will attend these summits. The 
Committee revised S. 1111 in response to guidance received from 
representatives of small businesses and organizers of prior 
conferences. The Committee received substantial input at its 
October 1999 Roundtable on S. 1111 (October Roundtable).
    The Quadrennial Small Business Summit is designed to focus 
the nation's attention on small business in two ways. First, 
the Summit will highlight their successes in order to recognize 
their accomplishments and contributions to the economy. Second, 
the Summit will educate the nation about the obstacles small 
businesses face and will devise solutions to their problems. 
For example, the Summit will likely identify federal, state, 
and local laws or regulations that may be deterrents to 
starting a business or hindrances to their growth. The role of 
women and minorities as small business owners will be 
considered at the Quadrennial Summit as well. ``Running for 
delegate, debating the issues, learning the process and systems 
within the Executive Branch and the Congress * * * helps [women 
small business owners] take their businesses to the next 
level,'' explained Terry Neese, a past National President of 
the National Association of Women Business Owners, at the 
October Roundtable.
    Each summit will generate priorities for the small business 
community and recommendations on the implementation of these 
priorities. The solid attendance and overwhelming success of 
the prior conferences in implementing the recommendations 
demonstrate the need for continuing conferences. At least 90% 
of the 60 legislative and regulatory recommendations generated 
at the June 1995 White House conference have been fully or 
partially implemented. 20,000 small business owners attended 59 
State Conferences, and 2,000 delegates represented them at six 
regional meetings that culminated in that National Conference.
    For the past sixteen years, small businesses have been the 
fastest growing sector of the U.S. economy. When large 
businesses were restructuring and laying off significant 
numbers of workers, small businesses not only filled the gap, 
but their growth actually caused a net increase in new jobs. 
Today, small businesses employ over half of all workers in the 
United States and generate nearly 55% of the gross domestic 
product. Small businesses have played a vital role in the 
prosperous economy the U.S. has enjoyed for the past eight 
years.
    Due to the significant role of small businesses in our 
economy, in both rural towns and inner cities, the Committee 
believes it is important that the Federal government sponsor a 
national summit every four years to highlight the successes of 
small businesses, to identify problems that may hinder their 
ability to start up and grow, and to focus national attention 
on those problems. Because most small businesses do not have 
the resources to retain full-time representatives to express 
their views to the Federal government, a national summit would 
provide the opportunity for small businesses to present their 
concerns to the executive and legislative branches. As Senator 
Christopher S. Bond noted at the October Roundtable:

          They, [the small businesses], are too busy running 
        their businesses to devote much attention to educating 
        government officials on what is going well, what is 
        going poorly, and what needs improvement for the small 
        business community. The National Conference will give 
        small businesses an opportunity every four years to 
        make its mark on Congress and the Executive Branch.

    The Quadrennial Small Business Summit would be established 
under the provisions in Title II. The national Quadrennial 
Summit would occur every four years during the second year 
after a presidential election. Delegates from each state will 
attend, including the District of Columbia, the Commonwealth of 
Puerto Rico and the U.S. Virgin Islands. State Summits for the 
delegates in each state will be held prior to the Quadrennial 
Summit. The Committee authorizes $5 million to carry out each 
Quadrennial Summit.

                          Summit Participants

Quadrennial Commission on Small Business

    Title II would create an independent, bipartisan 
Quadrennial Commission on Small Business made up of eight 
appointed small business advocates and the Small Business 
Administration's Chief Counsel for Advocacy. At least eighteen 
months before the Quadrennial Summit on Small Business, the 
President will appoint four members to the commission, and the 
Majority and Minority Leaders of the Senate and the House of 
Representatives will each appoint one. Commissioners should be 
distinguished individuals with knowledge and experience in 
fields related to small business. The duties of the Quadrennial 
Commission are to conduct the Quadrennial and State Summits and 
to bring together individuals interested in issues affecting 
small businesses. The Quadrennial Commission will appoint an 
Advisory Committee of ten persons who were participants at the 
previous Quadrennial Small Business Summit, or for the initial 
Quadrennial Summit, persons who were participants in the last 
White House Conference on Small Business, to advise on rules 
and process of the Summits. The Chief Counsel will serve as a 
resource for the Quadrennial Commission by providing background 
information and other administrative materials.

State delegates

    Delegates to the Quadrennial Summit must be owners or 
officers of small businesses. The Governors and U.S. Senators 
from each state will each name a delegate and alternate 
delegate from their respective states. U.S. Representatives 
will name a delegate and an alternate from their respective 
Congressional districts, and the President will name a delegate 
and an alternate from eachstate. The delegates will meet at 
meet once prior to the Quadrennial Summit, at their respective State 
Summits. However, states having a population of more than 10 million 
must meet at least twice prior to the Quadrennial Summit. At these 
Summits, delegates will work to identify issues of critical concern to 
small businesses. The state delegates may elect leadership, such as a 
delegation chairperson, and must also elect three delegates and three 
alternate delegates to the Quadrennial Summit. The Quadrennial 
Commission will serve as a resource to the state delegates by assisting 
with issue development and planning of State Summits.

     Title III: Small Business Involvement in Government Regulation

    The Small Business Advocacy Review Panel Technical 
Amendments Act of 1999, which was originally introduced as S. 
1156, clarifies and amends certain provisions of law enacted as 
part of the Small Business Regulatory Enforcement Fairness Act 
of 1996. The Act passed the Senate unanimously on September 28, 
1999, and was referred to the Committees on Small Business and 
Ways and Means in the House of Representatives. The Committee 
decided to include the Act as a separate title in this 
legislation in order to spur action by the Congress on this 
very important bill.
    Title III focuses on Section 244 of the Small Business 
Regulatory Enforcement Fairness Act of 1996, which amended 
chapter 6 of title 5, United States Code (commonly known as the 
Regulatory Flexibility Act or SBREFA). As a result, each 
``covered agency'' (which under current law are only OSHA and 
EPA) is required to convene a Small Business Advocacy Review 
Panel (panel) to receive advice and comments from small 
entities. Specifically, under Section 609(b), each covered 
agency is to convene a panel of Federal employees, representing 
the Office of Information and Regulatory Affairs within the 
Office of Management and Budget, the Chief Counsel of Advocacy 
of the Small Business Administration, and the covered agency 
promulgating the regulation. The Panel receives input from 
small entities prior to publishing an Initial Regulatory 
Flexibility Analysis for a proposed rule with a significant 
economic impact on a substantial number of small entities. Not 
later than 60 days after the panel is convened, it must produce 
a report containing comments from the small entities and the 
panel's own recommendations. The report is provided to the head 
of the covered agency, who reviews it and, where appropriate, 
modifies the proposed rule, initial regulatory analysis, or the 
decision on whether the rule significantly impacts small 
entities. The panel report then becomes a part of the 
rulemaking record.
    In 1996, SBREFA expressly included the Internal Revenue 
Service (IRS) under the Regulatory Flexibility Act and directed 
it to conduct and publish Initial and Final Regulatory 
Analyses. However, the Treasury Department has interpreted the 
law essentially to exclude the Treasury Department and the IRS 
from being covered. Title III clarifies which interpretative 
rules involving the Internal Revenue Code would be subject to 
compliance with SBREFA and the Regulatory Flexibility Act. In 
addition, the IRS would be required under Title III to convene 
a Small Business Advocacy Review Panel for rules that would 
have a significant economic impact on a substantial number of 
small entities in the same way as OSHA and EPA have been doing 
since SBREFA went into effect. The Committee is confident that 
the IRS will be able to implement the panel process as required 
under the bill without jeopardizing tax administration, just as 
OSHA and EPA have been able to implement the process without 
sacrificing their policy objectives.
    Specifically, Title III strikes the language in Section 603 
of title 5 that included IRS interpretative rules under the 
Regulatory Flexibility Act, ``but only to the extent that such 
interpretative rules impose on small entities a collection of 
information requirement.'' The Treasury Department has 
misconstrued this language in two ways. First, the Treasury 
Department determined that the Regulatory Flexibility Act does 
not apply unless the IRS imposes a requirement on small 
businesses to complete a new OMB-approved form. In so doing, 
the IRS has failed to consider theburdens imposed on small 
business taxpayers of complying with new IRS regulations. Second, in 
the limited circumstances where the IRS has acknowledged imposing a new 
reporting requirement, the Treasury Department has limited its analysis 
of the impact on small businesses to the burden imposed by any new tax 
form with which a taxpayer must comply, as opposed to the burden 
imposed by the new regulators requirement and the new form. As a 
result, the Treasury Department and the IRS have made Regulatory 
Flexibility Act compliance unnecessary and duplicative of compliance 
with the Paperwork Reduction Act. To address this problem, Title III 
revises the fifth sentence in Section 603 to read as follows:

          In the case of an interpretative rule involving the 
        internal revenue laws of the United States, this 
        chapter applies to interpretative rules (including 
        proposed, temporary and final regulations) published in 
        the Federal Register for codification in the Code of 
        Federal Regulations.

    The remaining provisions of the bill address the mechanics 
of convening a panel, the selection of the small entity 
representatives invited to submit advice and recommendations to 
the panel, and the publication of the panel reports.
    This Title would lengthen, by 30 days, the time that small 
entity representatives, participating in the panel process, 
have to review the usually technical and voluminous materials 
to be considered during panel deliberation. The Committee is 
concerned that this task would be almost impossible for the 
average small businessperson who spends most of his or her time 
actually running a business. For those small business owners 
who would like to participate but do not have a great deal of 
time to review technical data, the bill requires OSHA, EPA and 
IRS to prepare detailed summaries of background data and 
information, if a small entity representative requests that 
they do so.
    Title III would also allow a small entity representative to 
make an oral presentation to the panel. The Committee is aware 
that many small entity representatives expressed a desire to 
make oral presentations, and learned that this opportunity was 
not available. This legislation would make it clear that 
agencies are to provide this opportunity.
    Many small entities have expressed their interest in 
reviewing the panel report before the rule is proposed. This 
Title would require the panel report, including any written 
comments submitted by the small entity representatives, to be 
printed in the Federal Register with the proposed rule, or as 
soon as practicable, but no later than 180 days after the date 
the head of the agency receives the report.

     THE ROLE OF THE CHIEF COUNSEL FOR ADVOCACY IN PANEL SELECTIONS

    The role of the Chief Counsel for Advocacy in the selection 
of small entities to serve on the panels is enhanced by 
specifying that the selections are to be made by the agency 
promulgating the regulation ``in consultation'' with the Chief 
Counsel. The original language of S. 1156 required that the 
Chief Counsel ``concur'' with the agency's selections. During 
its consideration of S. 1156 in July 1999, the Committee 
adopted Senator Wellstone's recommendation that the language be 
changed to ``consultation with.'' The Committee realizes that 
it is the agency that convenes these panels and appoints the 
small entity representatives who will participate. The 
Committee wishes to emphasize the importance of consultation 
between covered agencies and the Chief Counsel for Advocacy on 
the selection of small entity representatives for a panel. The 
Committee intends for covered agencies to view the Chief 
Counsel as a resource for identifying small entity 
representatives and for covered agencies to accommodate 
reasonable suggestions from the Chief Counsel for panel 
participants.

              DEFINITION OF A SMALL ENTITY REPRESENTATIVE

    The bill also expands the definition of a small entity 
representative to make clear that an organization that 
``primarily represents the interests of one or more small 
entities'' may participate in the Panels. ``[W]hat we are being 
told by [an agency] * * * often is that trade association 
representatives cannot participate in the panels * * * well, 
small business * * * cannot send people to Washington on a 
regular basis,'' noted Robin Wiener, Executive Director of the 
Institute of Scrap Recycling Industries at the Committee's 
March 1999 Roundtable on Oversight of the Regulatory 
Flexibility Act and the Red Tape Reduction Act. Through another 
amendment offered by Senator Wellstone, this expansion was 
clarified to provide that only those organizations that 
``primarily'' represent small businesses would qualify to 
participate in the panel process. This amendment addressed a 
concern that organizations that are dominated by large entities 
could have been considered small entity representatives under 
the original bill language. The Committee intends for 
organizations whose primary mission is the advocacy of 
individual small entities, or whose membership is restricted to 
individual small entities, to be included as possible small 
entity representatives. The Committee does not intend this to 
include organizations whose primary purpose is to advocate on 
behalf of businesses generally irrespective of size, 
organizations that advocate on behalf of members of a 
particular industry regardless of the size of those members, or 
those whose membership includes entities other than individual 
small entities. Individuals representing ``primarily'' small 
entities are also permitted to participate in the panel 
process.
    The Committee's intention is to ensure that the small 
entities and small businesses that are affected by regulations 
from OSHA, EPA, and IRS have the opportunity to participate 
directly in the rulemaking process at the point when their 
views can have the most effect. In short, the bill is intended 
to continue and expand on the early success that this process 
has held for small businesses with EPA and OSHA. As Senator 
Wellstone said during the markup on March 21, 2000: ``A SBREFA 
panel is the best opportunity, perhaps the only opportunity, 
for real world small business owners to directly influence the 
federal rule making process. Trade groups and business 
associations have ample access already. I believe my amendment 
will keep SBREFA process focused on small businesses, which is 
where it should be focused.''

   Title IV: Office of Advocacy of the Small Business Administration

    The Independent Office of Advocacy Act (S. 1346) was 
approved by the Committee on July 15, 1999, and later passed 
unanimously by the Senate. Since that time, the bill has been 
pending before the House Committee on Small Business. The 
Independent Office of Advocacy Act provides for an effective, 
independent advocate for small business within the Federal 
government, unrestricted by the views or policies of the Small 
Business Administration (SBA/Agency) or any other agency. The 
bill is designed to make the Office of Advocacy and the Chief 
Counsel for Advocacy a full, independent advocate within the 
Executive Branch acting on behalf of the small business 
community. The Committee adopted this bill for a second time as 
Title IV of the Small Business Reauthorization Act of 2000 in 
order to spur action in the House of Representatives. The 
Committee believes it is a critical and necessary step if the 
Office of Advocacy is to improve its effective representation 
of small business interests.
    Title IV will strengthen the Office of Advocacy's 
uniqueness within the Executive Branch. The Chief Counsel for 
Advocacy will continue to be a wide-ranging advocate, whose 
office will be funded by a separate appropriations account. 
This financial independence will increase the Chief Counsel's 
freedom to take positions contrary to the Administration's 
policies toward small business and to advocate change in 
government programs and attitudes as they impact small 
business.
    The Title for the first time sets forth the statutory 
independence for the Office of Advocacy and provides the Office 
with separate financial resources, so that it can be a truly 
independent advocate for the small business community. The 
Office of Advocacy ``[has] to be not only the watchdog, * * * 
but occasionally, when necessary, * * * a pit bull. And to be 
the pit bull, you have to be respected. You have to be feared. 
For prestige you need funding, you need the independence, and 
you need the research expertise,'' asserted one representative 
of small business at the Committee's April 1999 Roundtable on 
the Office of Advocacy (April Roundtable). In addition to the 
statement of the Office's independence, the bill provides for a 
separate authorization to fund the Office of Advocacy. As 
designed in this bill, its annual budget would be a separate 
account in the SBA budget, similar to the separate account for 
the Office of Inspector General. SBA is directed to provide 
appropriate and adequate office space at the SBA headquarters 
and its field office locations, together with equipment, office 
supplies, and communications facilities and services as are 
necessary to support the requirements of the Office of 
Advocacy.
    Each appropriation request submitted by the Administration 
to the Congress would also provide for the number of full-time 
employees who would work within the Office of Advocacy. The 
Chief Counsel for Advocacy would not need the approval of the 
SBA Administrator to hire staff. The Title continues the 
practice of allowing the Chief Counsel to hire individuals 
critical to the mission of the Office of Advocacy without going 
through the normal competitive procedures directed by federal 
law and the Office of Personnel Management (OPM).
    Section 404 sets forth in detail the functions of the 
Office of Advocacy as intended by the Congress. The Chief 
Counsel will manage the Office of Advocacy. The Chief Counsel 
will be appointed by the President from civilian life, with the 
advice and consent of the Senate and without regard to the 
person's political affiliation. To be eligible for the 
position, the nominee cannot have served in any position at SBA 
during the preceding five years of the appointment.
    Because of the independent nature of the office, the 
Committee established the office so that the incumbent Chief 
Counsel would not feel that his or her job were in jeopardy by 
taking a position critical of or in opposition to an 
Administration initiative. To strengthen this position, the 
bill provides that the President must notify the Congress 30 
days in advance before removing the Chief Counsel from office.
    Seciton 404 sets forth the primary functions of the Office 
of Advocacy, which the Committee views as wide-ranging the 
comprehensive, as are the needs and problems confronting small 
businesses nationwide. ``[T]he small business community, * * * 
truly want[s] to see, * * * the independence established so 
that we have that advocate, that voice, that clout that we can 
lean upon,'' commented Bennie Thayer, President of the National 
Association for the Self-Employed, at the April Roundtable. In 
setting forth the responsibilities of the Office of Advocacy, 
the Committee intends for the Office to serve as a focal point 
to receive complaints, criticisms and suggestions concerning 
the policies and programs of the federal government that affect 
small businesses.
    The Committee believes that the authority enunciated in 
Section 404 is significant, and it included a specific 
subsection (g), ``Information From Federal Agencies,'' to 
enable the Office and the Chief Counsel to carry out its 
responsibilities. Basically, the Committee directs each Federal 
agency to provide to the Chief Counsel all information that the 
Chief Counsel believes is necessary to carry out the 
responsibilities of the Office of Advocacy.
    In addition, Section 404 spells out special powers that are 
conferred on the Chief Counsel. With respect to those 
individuals who are considered necessary to carry out the 
duties of the Office, the Chief Counsel may hire and terminate 
employment without regard for the civil service laws and 
regulations. This section is intended to include the regular 
staff of the office of Advocacy and such consultants and 
experts that the Chief Counsel may choose to hire on a 
temporary or intermittent basis. The hiring authority rests 
with the Chief Counsel. Nothing in the Act should be 
interpreted to require that the Chief Counsel obtain the 
approval, concurrence or review by the SBA Administrator or any 
other person within the Administration. The authority of the 
Chief Counsel to hire staff, consultants and experts will be 
limited by the personnel ceiling and the appropriations 
approved annually by the Congress.
    The bill requires and authorizes the Chief Counsel to 
submit certain reports to the President and the Congress, 
including an annual report on the Regulatory Flexibility Act. 
The Committee believes strongly that the Office of Advocacy 
should continue to be independent and not submit reports nor 
publications for review by the Administration before they are 
released. In order for the Committee to carry out its 
responsibilities on behalf of the small business community, it 
is important that it receive regular reports from the Chief 
Counsel that have not been submitted to the Office of 
Management and Budget or any other Federal department or agency 
for editing and/or approval.
    The bill authorizes such sums as are necessary to carry out 
the responsibilities of the Office of Advocacy. ``[W]ithout a * 
* * separate independent budget * * * the office of Advocacy is 
in big trouble and is totally at the whim of the [SBA] 
administrator. Which means effectively it has no 
independence,'' observed Denny Dennis, Senior Research Fellow 
at the National Federation of Independent Business, at the 
April Roundtable. The amounts appropriated to the Office should 
remain available until spent and should not be constrained by 
fiscal year limitations. This subsection is intended to give 
the Chief Council the flexibility to respond to matters that 
come before the Office of Advocacy without the pressures of 
obligating funds, perhaps prematurely, prior to the end of a 
fiscal year.
    Since there is a sitting Chief Council for Advocacy who has 
been reviewed and approved by the Committee and the full 
Senate, it is the intention of the Committee that the incumbent 
will continue to serve subject to the requirements of this 
bill, once enacted.

                        Title V: Credit Programs


                     sec. 501 section 7(a) program

    The committee has been concerned that the availability of 
smaller 7(a) guaranteed business loans has not been keeping 
pace with the demands of the small business community. In 1994, 
SBA initiated the LowDoc pilot loan program to make loans of 
$100,000 and less more readily available. In 1995, the Congress 
established a guarantee level of 80% for LowDoc loans. As 
requested in the Administration's 2001 Budget, during 
consideration of H.R. 2615 in the House of Representatives, the 
80% guarantee was extended up to loans of $150,000. The 
Committed joins with the House action to increase the size of 
the LowDoc loans. In addition, the Committee agreed to increase 
the guaranteed percentage from 80% to 85% in anticipation that 
small business lenders will be more willing to focus on the 
smaller sized loans.
    In 1988, the Congress acted to establish the maximum 7(a) 
loan guarantee amount at $750,000. In order to keep up with 
inflation, the Committee bill increases the maximum guaranteed 
amount to $1 million. Although a strict inflationary increase 
in the maximum guaranteed amount would be closer to $1.25 
million, the Committee believes it is prudent to limit the 
increase to $1 million, which will leave sufficient resources 
in the program for smaller loans.
    The Committee bill also establishes a ceiling on the 
maximum loan size of $2 million. It has been reported to the 
Committee that the 7(a) guarantee has been used in conjunction 
with large loans in excess of $2 million. Under the Federal 
Credit Reform Act of 1991, appropriated subsidy dollars are 
used based on the gross amount of the loan. In these cases, the 
SBA loan guarantee is a relatively small portion of the loan, 
and the Committee has questioned whether these loans meet the 
``credit elsewhere'' standard for 7(a) loans and whether this 
is a good use of appropriated subsidy dollars. Therefore, the 
Committee agrees with the House of Representatives and has 
approved a ceiling of $2 million for the gross amount of a 7(a) 
loan.
    In an effort to reduce the size of the credit subsidy rate, 
in 1997 congress adopted a provision to reduce SBA's liability 
for accrued interest on 7(a) loans that are in default. Section 
501 deletes this provision since the intended savings from this 
provision have failed to materialize.
    For the past three years, the Committee has received 
reports about the increased number of early prepayments of 
large, long term SBA-guaranteed 7(a) loans. Previously, as the 
result of an increase in prepayments, the credit subsidy rate 
was adjusted upwards for Fiscal Year 1998. Subsequently, the 
number of prepayments continued to climb. In some cases, it has 
been reported to the Committee that some small businesses were 
using the 7(a) program for short term bridge financing, when 
the program is designed to help small businesses obtain long 
term credit at a reasonable interest rate. The effect of early 
prepayments is to reduce the availability of long term 7(a) 
loans to small businesses that cannot obtain credit elsewhere.
    The prepayment penalty approved by the Committee would 
assess a fee to the borrower forearly prepayment of any 7(a) 
loan with a term of 15 years or more. A penalty or fee will be assessed 
against any prepayment in excess of 25% of the outstanding amount of 
the loan during any of the first three years after disbursement. Five 
percent will be assessed in the first year, three percent in the second 
year, and one percent in the third year. If a prepayment in excess of 
25% is made, the penalty will be assessed against the entire 
outstanding balance of the loan.
    In 1995, Congress increased the guarantee fees charged to 
7(a) borrowers in order to reduce the credit subsidy rate for 
the 7(a) program. The Committee agrees with provision, 
suggested by SBA and adopted by the House of Representatives, 
which simplifies the guarantee fee schedule. For loans totaling 
$150,000 or less, the guarantee fee would be two percent of the 
guarantee amount; for loans greater than $150,000 but less than 
$700,000, the fee would be three percent; and for loans of 
$700,000 or more, the guarantee fee would be three and \1/2\ 
percent. In addition, the Committee approved a new provision 
designed to be an incentive for lenders to focus more on 
smaller loans. This provision allows a lender to retain 25% of 
the guarantee fee for loans of $150,000 or less.
    In 1997, Congress approved a new provision for the 504 
Certified Development Company program which allows borrowers to 
lease out 20% of the property being financed so long as the 
remaining 80% is occupied by the borrower. The Committee 
approved a similar provision for 7(a) borrowers. This new 
provision permits the property to be financed with a 7(a) loan 
20 percent or less of the business space will be rented to 
tenants with the borrower occupying the remaining space.
    In December 1999, the Inspector General cited the failure 
of the SBA to require criminal history background checks in its 
loan program to be one of ten most serious management 
challenges facing the Agency. Studies indicate that borrowers 
who do not disclose past criminal histories have higher rates 
of default on SBA loans than those who either disclose their 
records or have no criminal histories. Since SBA does not have 
statutory authority to perform routine background checks, the 
IG reports that losses on SBA loan programs are higher than 
necessary.
    The Small Business Reauthorization Act of 1997 (P.L. 105-
135) authorized, but did not mandate, that SBA undertake an 
expanded check on criminal histories of loan applicants. Absent 
a specific legislative requirement to check the applicants' 
criminal histories, the IG has informed the Committee the SBA 
will not be granted the access by the FBI to the National Crime 
Information Center which can check on the applicant's criminal 
history.
    According to the SBA IG, verification of the criminal 
history of all business loan applicants would allow SBA to:
          (1) Detect fraudulent loan applications early in the 
        approval process;
          (2) Reduce the Government's losses by preventing 
        fraudulent loans from being disbursed; and
        (3) Provide a heightened level of deterrence through 
        increased enforcement actions.
    The SBA IG reports there is no other effective, efficient 
method available to achieve these goals while allowing for the 
uninterrupted flow of the loan process. In response to the 
convincing case made by the SBA IG, the Committee included a 
provision directing SBA to conduct criminal background checks 
on all loan applicants through the FBI's National Crime 
Information Center computer system.

             sec. 502. small business investment companies

    The provisions adopted in Section 502 generally make some 
technical improvements to the operations of the SBIC Program. 
Under current law, national banks, member banks of the Federal 
Reserve, and nonmember insured banks as permitted by State law 
are allowed to invest in SBICs. The Committee approved a 
provision to allow any Federal savings association to make 
similar investments in SBICs.
    The Committee also approved a provision to clarify the what 
is meant by the term ``long-term'' as found in Section 103 of 
the Small Business Investment Act. It is the Committee's 
understanding that the SBI has construed ``long term'' to mean 
a minimum of five years for all SBIC investments other than 
those made to ``disadvantaged businesses,'' when ``long term'' 
is construed to mean four years. The Committee believes the 
Agency's interpretation of ``long-term'' to be overly 
restrictive. Under the Generally Accepted Accounting Principles 
(GAAP), the accounting principles that govern business commerce 
in the United States, the term ``long-term'' is defined as any 
period of time greater than one year. Therefore, the Committee 
has adopted a definition of ``long-term'' to be a period of 
time of not less than one year.
    The President's FY 2001 budget request for SBA, as amended, 
included a ``0'' credit subsidy rate for the SBIC Debenture 
program. The Committee has been informed by SBA staff that the 
income generated by fees paid by the SBICs to SBA will actually 
exceed the amounts needed to fund the reserve account required 
under the Federal Credit Reform Act of 1990 (2 U.S.C. 661a). 
The Committee believes it is important that the SBICs should 
not be required to pay more in fees than is necessary to bring 
the credit subsidy rate to ``0''. Therefore, the Committee 
adopted a provision, similar to the one it adopted for the 504 
Development Company Program in 1996, which directs the SBA to 
reduce the annual fee paid by the SBIC from 1 percent to the 
amount necessary to reduce the credit subsidy rate to ``0''. 
The new provision applies to the SBIC Debenture and 
Participating Securities programs.
    The Committee approved a technical change that permits a 
qualifying SBIC to make a quarterly tax distribution any time 
during the applicable calendar quarter. Under current law, 
SBICs may make prioritized payment distributions, profit 
distributions, and other optional distributions on any date 
with prior SBA approval. Tax distributions, however, may only 
be made at the end of calendar year quarters. The SBIC 
community has informed the Committee that the practical impact 
of this restriction is that SBICs are forced to delay otherwise 
permitted interim distributions (including tax distributions) 
to the end of a quarter or split their distributions into two 
distributions. Postponing an entire distribution to the end of 
a quarter has negative cash flow and internal rate of return 
(IRR) implications. Consequently, most SBICs decide to split 
their distributions, making tax distributions at the end of the 
calendar quarter, while making all other distributions at any 
timeduring the quarter. Splitting distributions requires the 
preparation, submission, and SBA review of two sets of documents. The 
result is an inefficient use of time and resources by SBA and the 
SBICs.

                      Sec. 503. Microloan Program

    This section makes programmatic and technical changes to 
the Small Business Administration's microloan program to make 
it more flexible to meet credit needs, more accessible to micro 
entrepreneurs across the nation, and more streamlined for 
lenders to make loans and provide management assistance. The 
Committee is very supportive of this program and worked with 
industry and the SBA to develop these changes.
    Congress created the microloan program as a pilot in 1991 
(Public Law 102-140) to reach very small businesses that were 
not being served by traditional lenders of SBA's credit 
programs. Often minorities, women, and low-income individuals, 
these microentrepreneurs needed very little money to launch a 
business, but they could not get loans because they were 
considered unreliable or risky borrowers by traditional credit 
markets. Their often weak or non-existent credit histories or 
limited business experience caused traditional commercial 
lenders to shy away from making such loans. To fill this credit 
need, the Microloan program was designed to provide loans to 
non-profit intermediary lenders, who in turn provide fixed-rate 
loans of not more than $25,000, and on average, loans less than 
$10,000, to very small businesses. In addition, lending 
intermediaries receive an annual grant from the SBA to provide 
on-going technical assistance to small businesses. The 
technical assistance is fundamental to this program because it 
teaches microentrepreneurs how to manage a successful business, 
and running a successful business is key to loan repayment.
    As industry experts and micro borrowers have testified 
numerous times, the link between financing and technical 
assistance is critical to the success of micro enterprise, in 
general, and the SBA microloan program, in particular. The low 
default rates of loans are evidence of the tremendous success 
of this program. Since the first microloan was made in 1992, 
the Federal government has had only one default in its loans to 
the intermediary loan providers. Equally impressive, the 
lending intermediaries have had losses of only three to five 
percent from small businesses, and the losses are fully covered 
by the mandatory loss reserve that each intermediary must 
maintain. Because of this successful track record, in 1997 the 
Congress voted to transform the Microloan program from a 
demonstration program to a permanent part of the array of SBA 
credit assistance programs.
    There are currently 156 intermediaries and 19 non-lending 
technical assistance providers in the SBA Microloan Program. To 
date, the lending intermediaries have made 10,230 loans worth 
some $105 million. The SBA reports that for every microloan, 
1.7 jobs are created. The average loan to a microentrepreneur 
is about $10,000, with interest rates averaging 11 percent and 
an average term of 39 months.
    Microentrepreneurs range from the single mother on public 
assistance, who borrows a few hundred dollars to buy sewing 
equipment and supplies to start her own alterations shop, to a 
mechanic who borrows a few thousand dollars to buy tools to 
start a repair shop.
    Across the country, microloans and technical assistance are 
working, assisting individuals with the tools to successfully 
start and manage their own businesses. The SBA's Massachusetts 
Small Business Person of the Year for 2000 more than proves 
that. Lowell Gray of Lynn, Massachusetts obtained a $25,000 SBA 
microloan when his business needed it most and turned a small 
software company into Shore.net--an Internet service provider--
with 85 employees. He recently sold it for an astounding $43 
million. In Kansas City, Missouri, the Center for Business 
Innovation (KC-CBI) is about to make its second loan to a 
microentrepreneur who was in poverty when she applied for her 
initial loan. Two years after her initial microloan, her 
revenues have gone from less than $20,000 to $90,000 per year, 
and she is ready to expand her business.
    Since the microloan program was started in 1991, it has 
grown from 35 to 156 intermediaries. The market has also 
changed. Thus, as the Committee reviewed the program for 
reauthorization, it worked with trade associations representing 
microlenders, the Small Business Administration, and individual 
microlenders to craft legislation that would meet market needs 
and foster the success of the program.
    Chief among those changes, in large part to reflect 
inflation, is increasing the maximum loan amount and average 
loan sizes. The maximum loan amount would increase from $25,000 
to $35,000; the average loan size for each intermediary's 
portfolio would increase from $10,000 to $15,000. For 
speciality lenders, those making smaller loans and receiving 
additional technical assistance to make them, this legislation 
would raise their average loan size from $7,500 to $10,000.
    According to Mary Mathews of the Association for Enterprise 
Opportunity (AEO), who participated in a Committee Roundtable 
entitled ``SBA's SBIC and Microloan Programs'' on May 12, 1999, 
and represented the 500 members of AEO, Congress should raise 
the maximum loan size of $25,000 because it is not worth as 
much today as it was in 1991, when the amount was established. 
In fact, according to an economist at the SBA's Office of 
Advocacy, the value of $25,000 in 1991 is worth only $20,200 
today. Said another way, if a borrower took out a $25,000 loan 
in 1991, and wanted to have the same purchasing power today as 
then, he or she would need to borrow $31,000. Separately, the 
National Association of SBA Microloan Intermediaries (NASMI) 
urged the Committee to increase the limit. The Committee 
concurs that the limits should be increased to $35,000 to 
accommodate inflation and market changes.
    This section also makes the program more flexible. First, 
it eliminates the requirement that intermediaries make ``short-
term'' loans. This change will allow intermediaries greater 
latitude in developing microloan products by offering their 
borrowers revolving lines of credit, such as for seasonal 
contract needs. Second, this bill broadens the eligibility 
criteria for intermediaries. Instead of requiring 
intermediaries to have one year of experience making microloans 
to startup, newly established or growing small businesses and 
providing technical assistance to its borrowers, this 
legislation would deem a prospective intermediary eligible if 
it has equivalent experience. Third, it raises the threshold 
for the comparable credit test from $15,000 to $20,000. Since 
1991, intermediaries have been allowed to make loans greater 
than $15,000, and not for more than $35,000, only if the 
borrower demonstrated that it was unable to get comparable 
credit, at comparable rates, from another lender. Fourth, it 
eliminates the restriction on how much technicalassistance 
funding an intermediary can use for pre-loan assistance. Currently, 
intermediaries are limited to using 25 percent of their technical 
assistance funds to assist prospective borrowers. This change endorses 
using the judgment of the lender to allocate technical assistance 
appropriately. Fifth, it increases the percentage of technical 
assistance grant funds that an intermediary can use for subcontracting 
technical assistance. Currently, intermediaries can only subcontract 25 
percent, and this legislation would raise it to 35 percent.
    Another program change this section makes addresses the 
need for more non-lending technical assistance providers (TA 
providers). Current law limits the number of TA providers to 25 
nationally, with a maximum of one per state. In a 1996 Report 
to Congress, SBA provided data indicating that for every dollar 
granted under the non-lending technical assistance program, 
approximately five dollars were leveraged from the private 
sector. At the request of the Administration, this Committee 
agrees to increase the number of TA providers to 55 from 25 so 
that there can be one in each state and in the District of 
Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and 
American Samoa. In addition, again to reflect inflation and 
increased costs, the Committee is raising the maximum grant 
amount to each TA provider from $125,000 to $200,000.
    On numerous occasions, from a microloan field hearing in 
Boston in 1998 to the Committee's microloan roundtable in 1999, 
industry has underscored the need to make the program more 
accessible to more borrowers across the country, whether they 
live in a rural or urban area. Right now, there are 156 
intermediaries out of the 200 Congressionally authorized. Three 
states--Alaska, Louisiana and Wyoming--do not have any 
intermediaries, though they are working to find appropriate 
participants. While inadequate appropriations for technical 
assistance are partially to blame for the inability of the 
program to grow and add intermediaries, the industry groups, 
local economic development leaders and the SBA have asked 
Congress to expand the program. This bill not only increases 
the appropriation for direct mircoloans and technical 
assistance for each of the next three years to allow the 
program to expand, but it also takes a balanced approach to 
increasing the number of intermediaries authorized. Starting in 
FY2001, SBA would be authorized to fund 250 intermediaries, in 
FY2002 it could fund 300, and in FY2003 it could fund 350. This 
allows SBA to make this program available nationwide.
    Lastly, as Congress expands the program and increases the 
number of lending intermediaries around the country, we want to 
make sure that new intermediaries have the benefits of lessons 
learned by other more experienced lending intermediaries. 
Because the micorlending industry is still very young, there 
are few sources of conventional training available to 
prospective and new intermediaries. According to the National 
Association of SBA Microloan Intermediaries, experienced SBA 
microlenders are called upon frequently to assist new 
intermediaries in addressing issues with their loan fund, from 
financial management and marketing to targeting loan funds 
effectively to a population or business sector. While these 
experienced intermediaries do their best to respond to the 
needs of their colleagues, they currently lack the resources to 
respond effectively and efficiently to the growing needs of the 
field. This section addresses that need and includes an 
amendment offered by Senator Snowe, and agreed to by unanimous 
consent, to establish a peer-to-peer mentoring program for SBA 
intermediaries and organizations seeking to become microlending 
intermediaries. Specifically, SBA would be allowed to use up to 
$1 million of annual appropriations for technical assistance 
grants to subcontract with one or more national trade 
associations of SBA microlending intermediaries to provide 
peer-to-peer mentoring. The Committee strongly supports this 
concept, because it will help make the program available 
nationwide. While maintaining its high quality and low loss 
rates.

             Sec. 504. Small Business Lending Company Fees

    The SBA initiated in FY 1999 an annual examination of each 
Small Business Lending Company (SBLC). SBA has currently 
licensed 14 SBLCs to make loans under the 7(a) guaranteed 
business loan program. Each SBLC is approved to originate 7(a) 
loans under SBA's Preferred Lenders Program. In order to help 
defray the cost of conducting the annual examinations, the 
Committee approved a provision that requires each SBLC to 
reimburse SBA for the cost of the annual examination. SBA is 
directed to use the fees paid by the SBLCs to pay for the cost 
of the examinations and other oversight expenses.

                         Sec. 505. Surety Bonds

    The SBA recommended to the Committee that it increases the 
maximum size of surety bond that can be guaranteed by SBA from 
$1.25 million to $2 million. In April 1986, the Congress 
approved an increase in the maximum size from $1 million to 
$1.25 million. In the intervening 14 years, inflation has 
eroded the effectiveness of this limit on the guarantee size. 
Therefore, the Committee adopted the recommendation to increase 
the surety limit up to $2 million for each individual contract. 
In addition, the Committee approved an extension of the 
Preferred Surety Bond Program through September 30, 2003.

                Sec. 506. Development Company Debentures

    At the request of the SBA, the Committee approved a 
technical amendment clarifying the minimum interest rate to be 
charged on 504 debentures that are guaranteed by the Federal 
government.

                       Title VI: HUBZone Program

    The HUBZone program aims to direct portions of Federal 
contracting dollars into areas of the country that in the past 
have been out of the economic mainstream. HUBZone areas, which 
include qualified census tracts, poor rural counties, and 
Indian reservations, often are relatively out-of-the-way places 
that the stream of commerce passes by, and thus tend to be in 
low or moderate income areas. These areas can also include 
certain rural communities and tend generally, to be low-traffic 
areas that do not have a reliable customer base to support 
business development. As a result, business has been reluctant 
to move into these areas. It simply has not been profitable, 
without a customer base to keep them operating.
    The HUBZone Act seeks to overcome this problem by making it 
possible for the Federal government to become a customer for 
small businesses that locate in HUBZones. While a small 
business works to establish its regular customer base, a 
Federal contract can help it stabilize its revenues and remain 
profitable. This gives small business a chance to get a 
foothold and provides jobs to these areas. New business and new 
jobs mean new life and hope for these communities.
    Since the HUBZone Act was adopted in the Small Business 
Reauthorization Act of 1997, the Small Business Administration 
has been implementing the program. On March 22, 1999, SBA began 
accepting applications from interested firms. Experience to 
date has revealed several difficulties with implementation, 
which the Committee has sought to rectify in this legislation.

Subtitle A--HUBZones in Native America Act

    One such problem was an unintended consequence of wording 
in the 1997 legislation that inadvertently excluded Indian 
Tribal enterprises and Alaska Native Corporations from 
participation. The definition of ``HUBZone small business 
concern'' specified that eligible small businesses must be 100% 
owned and controlled by U.S. citizens. This provision sought to 
insure that HUBZone benefits, financed by the American 
taxpayer, should be available only for U.S. beneficiaries.
    However, since citizens are ``born or naturalized'' under 
the fourteenth Amendment, ownership by citizens implies 
ownership by individual flesh-and-blood human beings. Corporate 
owners and Tribal government owners are not ``born or 
naturalized'' in the usual meanings of those terms. Thus, the 
Small Business Administration found that it had no authority to 
certify small businesses owned wholly or partly by Alaska 
Native Corporations and Tribal governments.
    Since Native American communities were always intended to 
benefit from HUBZone opportunities, the Committee has included 
language to make such firms eligible. On many reservations, 
particularly the isolated ones, the only investment resources 
available are the Tribal governments. Excluding those 
governments from investing in their own reservations means, in 
practical terms, excluding those reservations from the HUBZone 
program entirely. Similarly, Alaska Native Corporations have 
corporate resources that are necessary to make real investments 
in rural Alaska and to provide jobs to Alaska Natives who 
currently have no hope of getting them.
    The Committee was guided by three broad principles in 
crafting this legislation. First, no firm should be made 
eligible solely by virtue of who it is. For example, Alaska 
Native Corporations will not be eligible solely because they 
are Alaska Native Corporations. Instead, Alaska Native 
Corporations and Indian Tribal enterprises should be eligible 
only if they agree to advance the goals of the HUBZone program: 
job creation and economic development in the areas that need it 
most.
    Second, the Committee sought to make the HUBZone program 
conform to existing Native American policy. The Committee is 
aware of controversy over whether to change Alaska Native 
policy so that Alaska Natives exercise governmental 
jurisdiction over their lands, just like Tribes in the Lower 48 
States do on both their reservations and trust lands. However, 
that issue is outside this Committee's jurisdiction. The Alaska 
Native Claims Settlement Act (ANCSA) of 1971 deliberately 
refrained from creating Alaska Native jurisdictions in Alaska, 
and this Committee's legislation is intended to conform to 
existing practice in ANCSA.
    The third principle underlying this bill is that Alaska 
Natives and Indian Tribes should participate on as even a 
playing field as possible. Exact equivalence is not possible 
because the Federal relationship with Alaska Natives differs 
significantly from the relationship with Indian Tribes, and 
also because Alaska is a very different State from the Lower 
48. However, ANCSA provided that Alaska Natives should be 
eligible to participate in Federal Indian programs ``on the 
same basis as other Native Americans.''

Subtitle B--Other HUBZone provisions

    Subtitle B contains several technical changes to clarify 
interpretive issues concerning the original HUBZone Act, as 
well as new language to correct an unforeseen situation 
regarding procurement of commodities. This subtitle also 
includes new language to reiterate more explicitly the 
Committee's position on the relationship of the HUBZone program 
to other contracting programs. Ffinally, subtitle B makes a 
further amendment to the categories of eligible HUBZone firms, 
to include the HUBZone program as one of the tools Community 
Development Corporations can use in rebuilding their 
communities and neighborhoods.
    The Committee's bill includes a technical correction to the 
definition of ``qualified census tract.'' It also makes two 
major substantive changes to the definition of ``qualified 
nonmetropolitan county.''
    First, the definition is clarified to ensure that 
nonmetropolitan counties in the HUBZone program are those that 
were considered to be such as of the time of the last decennial 
(10 year) census. The HUBZone program relies on census tracts 
selected in metropolitan areas based on the last census, so 
that a metropolitan county--in order to have such census 
tracts--must have been considered metropolitan at that time. A 
nonmetropolitan county may be eligible as a HUBZone based on 
income data collected during the census or on unemployment data 
produced annually by the Bureau of Labor Statistics.
    During the ten-year period between each census, some 
counties become so integrated into the commercial activities of 
a metropolitan area that they are moved from the 
nonmetropolitan category to the metropolitan category. Such 
counties would become ineligible for HUBZone participation. 
They would not have been metropolitan counties at the time of 
the last census, so no qualified census tracts would have been 
selected there. They would also no longer be nonmetropolitan 
counties, so the income and unemployment tests available to 
such counties would no longer apply. Thus, counties that change 
from nonmetropolitan to metropolitan, in the period between 
each census, would become ineligible until the next census is 
taken. The Committee corrects this problem by freezing, for 
HUBZone purposes, the categories of metropolitan and 
nonmetropolitan counties as they stood at the time of the last 
census.
    The second major change to the definition of ``qualified 
nonmetropolitan county'' is the addition of a grandfathering 
clause. Because of Labor Statistics (BLS) issues new county-
level unemployment data annually, nonmetropolitan counties may 
shift into and out of eligibility on a yearly basis. The 
Committee believes that this type of movement is too fluid for 
a program that should be stable in its first few years. 
Companies will be confused about the merits of the program if 
firms lose and gain eligibility from year to year. A company 
will not want to invest in such a county only to have it 
suddenly become ineligible, due to new BLS data, before the 
company has even had the opportunity to recoup its investment 
by participating in the HUBZone program.
    The Committee legislation seeks to stabilize this situation 
by looking at the unemployment picture over a three-year period 
for nonmetropolitan counties. It also provides that companies 
in such a county will have a one-year period to pursue HUBZone 
opportunities and wrap up its activities under the program, 
after such a county becomes ineligible due to new BLS data. A 
similar one-year period is provided for changes that may result 
due to enactment of this legislation.

Commodities procurement

    In 1999, the Committee became aware of potential 
implementation problems in HUBZone procurements of certain 
commodities, particularly food-aid commodities purchased by the 
Department of Agriculture (USDA), that could lead to unintended 
and anti-competitive results. Because bids for commodities 
generally tend to fall within a narrow range of prices, the 10% 
price evaluation preference that currently exists could be 
overwhelmingly decisive. In such purchases, a handful of 
HUBZone firms could secure significant portions of these 
markets. This, in turn, could prompt other vendors to abandon 
these markets, thus reducing USDA's vendor base and reducing 
competition. These are results that would be contrary to the 
goals set forth in Sec. 2 of the Small Business Act. The 
Committee notes that this may not be as true for processed 
commodities as for raw commodities, since processing introduces 
other variables that could increase the range of costs and, 
therefore, the range of bids.
    To prevent irreparable harm to USDA's vendor base until the 
matter could be addressed more comprehensively in this 
legislation, Chairman Bond sponsored a proviso in the Fiscal 
2000 Agriculture Appropriations Act. As adopted in the 
conference report, Sec. 751 of that Act limited the price 
evaluation preference to 5% for up to half of the total dollar 
value of each commodity in a particular tender (solicitation). 
It also prohibited contract awards to a HUBZone firm that would 
be of such magnitude as to require the firm to subcontract to 
purchase the commodity being procured, since such a scenario 
would simply allow these firms to purchase commodities from 
subcontractors and in turn sell them to the Government at 
inflated prices.
    The legislation reported by this Committee seeks to address 
this issue on a more permanent basis. The Committee is aware 
that USDA relies upon a complex computer program to evaluate 
commodities bids, and thus the Committee seeks to set a long-
term policy that will not require frequent and expensive 
changes to this software. Although the Committee legislation 
reduces the level of HUBZone program incentives that otherwise 
would be available under the HUBZone Act, this bill still seeks 
to ensure substantial awards to HUBZone concerns, while 
protecting existing incentives available to other types of 
small business concerns. The Committee intends that these 
incentives help commodities procurements contribute their fair 
share toward achieving the Government-wide goal of 23% of prime 
contract dollars to small business concerns, but without the 
anti-competitive effects of awarding overwhelming shares of the 
market to HUBZone firms.

Relationship to other contracting preferences

    In 1997, when this Committee considered legislation to 
create the HUBZone program, the prospective impact of that 
program on existing small business programs was a very 
controversial issue. This Committee was then, and is now 
committed to advancing the interests of all types of small 
businesses, and accordingly sought to ensure that the HUBZone 
program would not compete with other contracting incentives, 
particularly the 8(a) program. As we stated in our report on 
the legislation:

          It should be noted that the HUBZone Program is not 
        designed to compete with SBA's 8(a) Program. One of the 
        amendments adopted by the Committed during its markup 
        of this legislation places a HUBZone small business 
        concern at the same level of contracting preferences as 
        an 8(a) small business concern. The bill, as amended, 
        gives the procuring agency's contracting officer the 
        flexibility to decide whether to target a specific 
        procurement requirement for the HUBZone Program or the 
        8(a) Program. Small Business Reauthorization Act of 
        1997, Senate Report 10-62, at 26.

    The Committee is concerned that SBA has misinterpreted the 
intent of the committee and has created, through regulatory 
means, an order of precedence that places the 8(a) program 
ahead of the HUBZone program in all cases. In February 25, 
2000, correspondence to the Chairman, the Administrator stated 
that this was necessary to protect the 8(a) program, and she 
noted that protecting the 8(a) program had been a condition of 
her endorsement of the HUBZone legislation in 1997.
    The Committee shares the Administrator's commitment to 
protecting the 8(a) program andunderstands the concerns of the 
minority contracting community. For this reason, the Committee adopted 
language in 1997 to allow contracting officers the flexibility to 
decide which program is appropriate for a prospective opportunity. The 
Committee not only pledged to protect the 8(a) program but also 
incorporated that pledge into specific legislation to give force to 
that commitment.
    It is the strong belief of the Committee that contracting 
officers are ideally situated to carry out this mandate. 
Contracting officers are the ones who carry out the various 
procurement goals and track their progress as the year 
proceeds. If a contracting officer discovers that his or her 
purchasing center or procurement office, as well as the agency 
overall, is falling behind on its share of the 5% SBD goal (of 
which 8(a) is a part), he or she must have the flexibility to 
place new contracting opportunities in the 8(a) program to 
ensure the goal is met. Likewise, if the contracting officer 
discovers that his or her agency is falling behind on the 
HUBZone goal, he or she needs the flexibility provided by law 
to award new contracting opportunities through the HUBZone 
program.
    The Committee believes it is inappropriate for SBA to 
deviate from an approach that was stated in our Committee 
report and reflected in the statutory language adopted by both 
Houses of Congress and signed by the President. To create an 
order of precedence that places either 8(a) or the HUBZone 
program ahead of the other is to limit the discretion of the 
contracting officer as provided by law. The Committee believes 
the real threat to 8(a) and to the HUBZone program, as well as 
to other small business contracting initiatives, comes from 
contract bundling and acquisition streamlining.
    Accordingly, the Committee has included language to 
explicitly state that 8(a) and the HUBZone program are on a 
level playing field in terms of contracting preference. The 
Committee does not consider this to be a change in the law, but 
merely a restatement of existing law.
    The Committee has also included language to ratify SBA's 
regulations to place first priority on firms eligible for both 
the 8(a) and HUBZone programs. If a firm qualifies for both 
programs, and a contract is awarded instead to a firm that 
qualifies for only one program, the firm that qualifies for 
both has arguably been denied the advantages of one of the 
programs to which it is statutorily entitled. The Committee 
strongly concurs with SBA's position on HUBZone 8(a) concerns 
and gives it statutory force through this legislation.

Community development corporations

    For reasons similar to the problems preventing HUBZone 
program participation by Indian Tribal enterprises and Alaska 
Native Corporations, small businesses owned by Community 
Development Corporations were also inadvertently made 
ineligible by the original HUBZone Act language. The Committee 
has included language to correct this problem. As with Tribal 
enterprises and Alaska Native Corporations, addressed in 
Subtitle A of this Title, Community Development Corporations 
are not made automatically eligible. These firms must agree to 
advance the job-creation goals of the HUBZone program. 
Specifically, as other businesses must do, these enterprises 
must maintain their principal office in a HUBZone and employ 
35% of their workforce from one or more HUBZones.
    The Committee has also included technical corrections to 
Sec. Sec. 8(d)(4)(D) and 3(p)(5)(C) of the Small Business Act.

     Title VIII: National Women's Business Council Reauthorization

    Senator Landrieu offered an amendment, which was 
unanimously adopted by the Committee, to re-authorize the 
National Women's Business Council for three years, from FY 2001 
to 2003, and to increase the annual appropriation from $600,000 
to $1 million. The increase in funding will allow the Council 
to: support new and ongoing research; produce and distribute 
reports and recommendations prepared by the Council; and create 
an infrastructure to assist states in developing women's 
business advisory councils, coordinate summits and establish an 
interstate communication network.
    The increase will also be used to assist Federal agencies 
meet the procurement goal for women-owned businesses 
established by Congress in 1994 under section 15(g) of the 
Small Business Act. By law, Federal agencies must strive to 
award women-owned small businesses at least 5 percent of the 
total amount of Federal prime contract dollars. The Committee 
feels strongly that Federal agencies should meet the five-
percent goal, and it supports the Council's plan to expand its 
efforts to increase the percentage of prime contracts that go 
to women-owned businesses. Based on current data, women are not 
receiving awards proportionate to their presence in the 
economy. For example, women-owned businesses make up 38 percent 
of all small businesses,\1\ yet women-owned businesses received 
only 2.42 percent of the $189 billion in Federal prime 
contracts in FY1999.\2\
---------------------------------------------------------------------------
    \1\ Research from the National Foundation for Women Business Owners 
(NFWBO) Women-Owned Businesses, Top 9 Million in 1999 (1999), Economic 
clout increases as employment, revenues grow.
    \2\ Federal Procurement Data System, Reporting on Annual 
Procurement Preference Goaling Achievements--Part II.
---------------------------------------------------------------------------
    According to the National Foundation for Women Business 
Owners, over the past decade the number of women-owned 
businesses in this country has grown by 103 percent to an 
established 9.1 million firms. They generate almost $3.6 
trillion in sales annually and employ more than 27.5 million 
workers. With the impact of women-owned businesses on our 
economy increasing at an unprecedented rate, Congress relies on 
the Council to serve as its eyes and ears as it anticipates the 
needs of this burgeoning entrepreneurial sector. Since it was 
established in 1988, the Council, which is bi-partisan, has 
provided important unbiased advice and counsel to Congress.
    This bill allows the Council to continue to perform its 
duties at the level it has done so far, as well as expand its 
activities to support initiatives that are creating the 
infrastructure for women's entrepreneurship at the state and 
local level.

                  Title VIII: Miscellaneous Provisions


      SEC. 801. NATIVE AMERICAN SMALL BUSINESS DEVELOPMENT CENTERS

    Accompanying the FY 2001 budget request was an SBA request 
to establish Native American Small Business Development Center 
(NASBDC) Network. The purpose of the request is to stimulate 
the economies of Native American reservations through the 
creation and expansion of small business ownership. The NASBDC 
would be modeled after SBA's Small Business Development Center 
(SBDC) Program, and funding would be provided from a separate 
line item.
    As a group, the nearly 2 million Native Americans are among 
the poorest in the United States. Unemployment averages 45% 
among Native Americans who live on or near reservations. The 
poverty rate is more than three times the national average, and 
the median household income is less than two-thirds the 
national average. Many Native American households lack such 
basic necessities as telephones, electricity, running water and 
indoor plumbing. The reservations and surrounding communities 
are overwhelmingly rural and geographically isolated. The more 
than 555 Federally recognized Tribes are extraordinarily 
diverse in language, culture, land base and natural resources.
    The Committee believes that small business ownership is one 
of the most important economic development tools for Native 
Americans. The NASBDC Network is needed because a strong small 
business management and technical assistance base needs to be 
established to help Native Americans take advantage of the 
benefits stemming from small business ownership. In the past, 
SBA has been hampered by the lack of culturally appropriate 
vehicles to deliver this type of service. Frequently, SBA has 
been confronted by barriers, such as the vast distances and 
widely dispersed reservations populations that have hampered 
its ability to deliver its programs.
    The NASBDC Network would not duplicate the SBDC Program. 
Rather, it will complement the successful SBDC model. Under the 
Committee's bill, SBA would be authorized to fund one Native 
American business or economic development organization or a 
tribal organization which will distribute funds to service 
centers. The service centers will provide business management 
and technical assistance in a cost-effective and culturally 
tailored manner. All service centers will be located on or near 
Native American reservations. The creation of this culturally 
appropriate and site-specific device creates the bridge to 
bring SBA and SBA-sponsored services to Native American 
communities. The Committee believes the NASBDC has the 
potential to stimulate reservation economies through the 
creation and expansion of small businesses.

                        SEC. 802. COSPONSORSHIP

    As a means of leveraging the scarce resources at SBA, the 
Agency engages in a variety of cosponsorships with public and 
private sector organizations. Current statutory language refers 
only to training as a permitted cosponsored activity with for-
profits entities. SBA defines training as beinglimited to 
narrower topics of interest to relatively small numbers of business 
owners or those in certain types of businesses. There are, however, 
broader business-related topics, such as the effective use of 
technology, e-commerce, exporting/importing, about which all small 
businesses should be informed and educated.
    The SBA has recommended that the terms ``information and 
education'' be added to the types of assistance that can be 
provided to small businesses. SBA believes this change will 
give it the flexibility in the types of assistance that can be 
provided to small businesses. The Committee agreed with the 
SBA's recommendation, concluding that while traditional 
training in these areas may also be offered, the need to reach 
broader audiences with timely, updated information and 
education is vital to the success of the largest number of 
small businesses.

                  Sec. 803. FRAUD AND FALSE STATEMENTS

    This section would ensure that a false statement made to 
the SBA, in connection with an SBIC activity, would have the 
same penalty as making a false statement to an SBIC. 18 U.S.C. 
1014 does not mention SBA; however, it makes it a crime to make 
a false statement or report to an SBIC. This technical change 
would make it clear that it would be a criminal violation of 18 
U.S.C. 1014 to make a false statement to SBA in connection with 
SBIC activity, with more severe penalties under this section 
than are granted under 15 U.S.C. 645(a) or 18 U.S.C. 1001, 
which are criminal statutes used for false statements made in 
most SBA assistance programs. The Committee believes the 
greater penalties under this section are more appropriately 
imposed for the greater loss often occasioned when the SBA and 
the public suffer a loss under the SBIC program. Additionally, 
this amendment would enable the courts to assess civil 
penalties for such violations pursuant to 12 U.S.C. 
1833a(c)(1).

            Sec. 804. FINANCIAL INSTITUTION CIVIL PENALTIES

    This technical amendment seeks to insure that individuals 
who make false statements to SBICs and/or SBA are subject to 
the civil penalties set forth under the Financial Institutions 
Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 12 
U.S.C. 1833a, which permits the imposition of monetary fines 
for violations, or conspiracies to violate, certain criminal 
statutes, including 18 U.S.C. 1001. For purposes of FIRREA, 18 
U.S.C. 1001 must involve a false statement made to a Federally 
insured financial institution, or, if Section 804 becomes law, 
to a Federal lending agency or a Federal guarantor, including 
SBA.

                 Sec. 805. VERY SMALL BUSINESS PROGRAM

    This section would extend the Very Small Business Program 
pilot. The pilot program is targeted at firms seeking to do 
business with the Federal government with 15 or fewer employees 
and with less than $1 million in annual receipts. To date, SBA 
has had insufficient experience and data to evaluate the 
program, which SBA failed to implement until March 4, 1999, 
more than four years after Congress enacted the program. The 
Committee anticipates that new reporting requirements set forth 
in the Federal Procurement Data System will provide SBA with 
sufficient data to evaluate the program over the next three 
years.

                             Sec. 806. SDB

    The Federal Acquisition Streamlining Act of 1994 (P.L. 103-
355; 15 U.S.C. 644 note) establishes procurement procedures to 
help small business concerns owned and controlled by socially 
and economically disadvantaged individuals to meet certain 
Federal procurement goals. The procurement procedures are 
scheduled to terminate on September 30, 2000. The Committee 
approved an extension of the program for three years, through 
September 30, 2003.

            Sec. 807. SUBCONTRACTING PREFERENCE FOR VETERANS

    This section would clarify that service-disabled veterans 
are on the same preference level as small disadvantaged 
businesses (SBDs) and women-owned small businesses for Federal 
contracting opportunities. When the Congress enacted the 
Veterans Entrepreneurship and Small Business Development Act 
(P.L. 106-50), it was not absolutely clear that the contracting 
preferences were to apply specifically to service-disabled 
veterans. The Committee intends for this section to clear up 
any misunderstandings that might remain.

                        Sec. 808. SIZE STANDARDS

    Section 808 establishes a new size standard of 200 
employees for fresh fruit and vegetable packing houses. The SBA 
currently classifies fresh fruit and vegetable packing houses 
as being primarily engaged in the wholesale distribution of 
fresh fruits and vegetables (Standard Industrial Classification 
(SIC) code 5148), which has a 100-employee size standard. This 
standard can be increased to 125 employees when it applies to a 
labor surplus area. Senator Dianne Feinstein of California 
brought this matter to the attention of the Committee. She 
explained that the fresh fruit and vegetable packing houses are 
labor intensive businesses, which use a substantial numbers of 
employees during the harvest seasons, and they are not similar 
to warehouse distribution businesses. The Committee agreed with 
Senator Feinstein's request for help and approved a the new 
size standard.

                 Sec. 809. DRUG-FREE WORKPLACE PROGRAM

    In 1998, the Congress enacted the Drug-Free Workplace 
Demonstrate Program under the leadership of Senator Paul 
Coverdell of Georgia. The purpose of the program is to provide 
financial and technical assistance to small business concerns 
seeking to establish a drug-free workplace program. The law 
authorized $10 million in FY 1999 and 2000. Section 809 extends 
the Drug-Free Workplace Program for FY 2001 and 2002 and 
authorizes $10 million for the two year period.

                          III. COMMITTEE VOTE

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following votes were recorded on March 21, 
2000.
    A motion by Senator Bond to adopt the amendment offered by 
Senator Landrieu to extend the authorization of the National 
Women's Business Council for Fiscal Years 2001, 2002, and 2003 
passed by a unanimous voice vote.
    A motion by Senator Kerry to adopt the amendment offered by 
Senator Snowe to provide peer-to-peer assistance under the 
Microloan program passed by a unanimous voice vote.
    A motion by Senator Bond to adopt the Small Business 
Reauthorization Act of 2000 as amended, to re-authorize the 
programs of the Small Business Administration, and for other 
purposes, was approved by a unanimous 18-0 recorded vote, with 
the following Senators voting in the affirmative: Bond, Kerry, 
Burns, Coverdell, Bennett, Snowe, Enzi, Fitzgerald, Crapo, 
Voinovich, Abraham, Levin, Harkin, Lieberman, Wellstone, 
Cleland, Landrieu, and Edwards.

                           IV. COST ESTIMATE

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed in the 
following letter from the Congressional Budget Office.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 25, 2000.
Hon. Christopher S. Bond,
Chairman, Committee on Small Business,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Small Business 
Reauthorization Act of 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark Hadley 
and Megan Carroll (for federal costs), and Shelley Finlayson 
(for the state and local impact).
            Sincerely,
                                           Steven Lieberman
                                    (For Dan L. Crippen, Director).
    Enclosure.

Small Business Reauthorization Act of 2000

    Summary: The bill would authorize appropriations for fiscal 
years 2001 through 2003 for the Small business Administration 
(SBA) and would make a number of changes to SBA loan programs 
and programs that involve preferences for government 
contracting.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing this legislation would cost about 
$3.7 billion over the 2001-2005 period. Of this total, about 
$600 million is from amounts specifically authorized in the 
bill for SBA programs--primarily for administrative expenses. 
The remaining $3.1 billion would be primarily for the subsidy 
costs of SBA loan programs.
    These costs include $227 million over the 2001-2005 period 
for agencies other than SBA to carry out programs that would be 
reauthorized by the bill. Implementing the changes to the 
HUBZone program contained in the bill would also increase costs 
to other federal agencies, by several million dollars a year, 
but we cannot estimate the impact of those changes.
    CBO estimates that enacting the bill also would result in 
an increase in direct spending of $28 million in fiscal year 
2000 for the cost of modifying loan guarantees. Because the 
bill would affect direct spending, pay-as-you-go procedures 
would apply.
    The legislation contains an intergovernmental mandate as 
defined in the Unfunded Mandates Reform Act (UMRA), but CBO 
estimates that states would incur no cost to comply with this 
mandate. Thus, the threshold established by the act ($55 
million in 2000, adjusted annually for inflation) would not be 
exceeded. In general, the bill would benefit state, local, and 
tribal governments, and any costs to such governments would be 
incurred voluntarily. The bill contains no new private-sector 
mandates as defined in UMRA.
    Major Provisions: Title I would establish the maximum 
amounts of small business loans to be made by SBA in 2001, 
2002, and 2003. It also would authorize appropriations for the 
Service Corps of Retired Executives (SCORE), technical 
assistance grants to recipients of microloans, and certain 
activities of the Small Business Development Centers (SBDCs). 
Title I would authorize such sums as may be necessary for the 
disaster loan program and for administrative expenses necessary 
to carry out the Small Business Act and the Small Business 
Investment Act.
    Title III would require the Internal Revenue Service (IRS) 
to convene panels, prior to publishing regulations (including 
interpretive rules), to analyze the potential impact of those 
regulations on small businesses.
    Title IV would authorize the appropriation of such sums as 
may be necessary for the Office of Advocacy within SBA.
    Title V would make a number of changes in SBA's credit 
programs. It would:
           establish prepayment penalties and authorize 
        SBA to guarantee a higher percentage of certain general 
        business loans,
           require SBA to reduce the annual fee paid by 
        borrowers under two Small Business Investment Company 
        (SBIC) programs if the subsidy cost of those programs 
        would otherwise be less than zero, and
           require small business lending companies to 
        pay the costs of examinations by SBA.
    Title VI would expand the HUBZones program to allow more 
businesses and communities within Indian reservations or in 
Alaska to participate in the program.
    Title VII would extend the provisions of the Federal 
Acquisition Streamlining Act of 1994 that provide federal 
contracting preferences to qualified small disadvantaged 
businesses, and would authorize SBA to conduct criminal 
background checks on borrowers or lenders.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of implementing the bill's provisions is shown 
in Table 1. CBO estimates that the bill would result in outlays 
of $3.7 billion over the 2001-2005 period; nearly all of that 
amount is for SBA spending that is subject to appropriation. 
The estimatedoutlays do not include additional costs for 
expanding the HUBZones program, which could total several million 
dollars a year. CBO has insufficient information on how this provision 
would be implemented to estimate these costs. The costs of this 
legislation fall within budget functions 370 (housing and commerce 
credit) and 450 (community and regional development).

             TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF THE SMALL BUSINESS REAUTHORIZATION ACT OF 2000
----------------------------------------------------------------------------------------------------------------
                                                                     By fiscal year, in millions of dollars--
                                                                 -----------------------------------------------
                                                                   2000    2001    2002    2003    2004    2005
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION

Small Business Administration:
    SBA Spending Under Current Law:
        Estimated Authorization Level 1.........................     861       0       0       0       0       0
        Estimated Outlays.......................................     865     298      70      24       0       0
    Changes to SBA Spending:
        Estimated Authorization Level...........................       0   1,131   1,207   1,253      11      12
        Estimated Outlays.......................................       0     736   1,096   1,202     414      74
    SBA Spending Under the Bill:
        Estimated Authorization Level...........................     861   1,131   1,207   1,253      11      12
        Estimated Outlays.......................................     865   1,034   1,166   1,226     414      74
Other Agencies:
    Estimated Authorization Level 2.............................       0      48      49      51      52      53
    Estimated Outlays...........................................       0      30      40      47      51      52
Total Additional Spending Under the Bill
    Estimated Authorization Level...............................       0   1,179   1,256   1,304      63      65
    Estimated Outlays...........................................       0     766   1,136   1,249     465     126

                                           CHANGES IN DIRECT SPENDING

Estimated Budget Authority......................................      28       0       0       0       0       0
Estimated Outlays...............................................      28       0       0       0       0       0
----------------------------------------------------------------------------------------------------------------
\1\ The 2000 level is the amount appropriated for SBA for that year.
\2\ In addition to the amounts shown in the table, CBO expects that Title VI (HUBZones program) would impose
  costs on agencies other than the SBA but we cannot estimate those costs.

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted by the end of fiscal year 2000 and that 
the necessary amounts will be appropriated by the start of each 
fiscal year. Outlay estimates are based on historical spending 
rates for existing or similar programs.

Spending subject to appropriation

    Most of the bill's budgetary effects would come from 
reauthorizing existing SBA programs and would consist primarily 
of the subsidy costs of direct and guaranteed loans. Provisions 
of the bill unrelated to SBA--primarily those affecting 
government procurement--also would add to the cost of 
implementing the legislation.
    Small Business Administration. The bill would reauthorize 
all of the programs of SBA through 2003. In addition, the bill 
would provide separate authority for the Office of Advocacy and 
for existing programs to assist businesses owned by Native 
Americans. Based on information from SBA and historical 
spending patterns for the agency, CBO estimates that these 
authorizations, if funded, would result in outlays of about 
$3.5 billion (including about $2.2 billion for loan programs) 
over the 2001-2005 period.
    Loan Programs. The bill would authorize SBA to guarantee 
loans and make direct loans to businesses totaling about $23 
billion in 2001, $26 billion in 2002, and $28.6 billion in 
2003. It would authorize the agency to make an indefinite 
amount of disaster loans over the 2001-2003 period. Table 2 
shows the loan levels authorized by the bill for SBA's 
guaranteed and direct business loans and CBO's estimate of the 
amounts of disaster loans, as well as the estimated subsidy 
cost and administrative expenses for those loans.
    The Federal Credit Reform Act of 1990 requires 
appropriation of the subsidy costs and administrative costs for 
operating credit programs. (The subsidy cost is the estimated 
long-term cost to the government of a direct loan or loan 
guarantee, calculated on a net present value basis, excluding 
administrative costs.) The bill does not provide an explicit 
authorization for either the subsidy or administrative costs 
for the guaranteed, direct, or disaster loans.
    The estimated subsidy rate for the different types of 
business loans and loan guarantees offered by SBA ranges from 
zero to about 9 percent. Most are 2 percent or less and the 
average is 1.1. percent, based on the past performance of these 
loans. Based on historical data for these loan programs and 
incorporating program changes required by this bill, CBO 
estimates that the subsidy costs for the authorized levels of 
guaranteed and direct business loans would be $264 million in 
2001, $298 million in 2002, and $326 million in 2003.Based on 
recent administrative costs for SBA's loan programs, CBO estimates that 
the administrative costs for the business loan programs would be about 
$134 million in fiscal year 2001, $138 million in fiscal year 2002, and 
$142 million in fiscal year 2003.

                  TABLE 2.--ESTIMATED SBA LOAN LEVELS, SUBSIDY COSTS, AND ADMINISTRATIVE COSTS
----------------------------------------------------------------------------------------------------------------
                                                                    By fiscal year, in millions of dollars--
                                                               -------------------------------------------------
                                                                  2001      2002      2003      2004      2005
----------------------------------------------------------------------------------------------------------------
                                             Authorized Loan Levels

Guaranteed and Direct Business Loans..........................    23,110    26,130    28,650         0         0
Disaster Loans................................................       871       885       900         0         0

                                               Loan Subsidy Costs

Guaranteed and Direct Business Loans:
    Estimated Authorization Level.............................       264       298       326         0         0
    Estimated Outlays.........................................       170       270       303       103         6
Disaster Loans:
    Estimated Authorization Level.............................       174       177       180         0         0
    Estimated Outlays.........................................        87       158       178        90        18

                                            Loan Administration Costs

Guaranteed and Direct Business Loans:
    Estimated Authorization Level.............................       134       138       142         0         0
    Estimated Outlays.........................................       134       138       142         0         0
Disaster Loans:
    Estimated Authorization Level.............................       141       145       150         0         0
    Estimated Outlays.........................................       141       145       150         0         0
----------------------------------------------------------------------------------------------------------------

    Assuming that demand for SBA's disaster loans over the next 
three years will be at the average historical rate for the past 
six years, adjusted for inflation, CBO projects that SBA would 
make disaster loans totaling about $871 million in 2001, $885 
million in 2002, and $900 million in 2003 and that 
administrative costs for the disaster loan program would be 
about $141 million in 2001, $145 million in 2002, and $150 
million in 2003. The estimated subsidy rate for disaster loans 
is about 20 percent based on the historical performance of 
these loans.
    Non-Credit Programs. The bill would provide specific 
authorizations of appropriations for SBDCs, SCORE, technical 
assistance for recipients of SBA microloan, quadrennial small 
business summits, the women's business council, the drug-free 
workplace program, and various programs to benefit businesses 
owned by Native Americans. CBO estimates that outlays from 
these authorizations would total $592 million over the next 
five years.
    Examination fees. Section 505 would require small business 
lending companies to pay the costs of any examination by SBA. 
Based on the amount SBA currently spends to examine small 
business lending companies, CBO estimates this provision would 
increase collections, which are an offset to discretionary 
spending, by $1 million annually over the 2001-2005 period.
    Background Checks. Section 706 would authorize SBA to 
conduct criminal background checks on borrowers or lenders 
participating in SBA's loan programs using the National Crime 
Information Center computer system at the Federal Bureau of 
Investigation (FBI). The FBI charges $24 for each check. Based 
on information from SBA, we expect the agency would pursue 
about 25,000 background checks in 2001. CBO estimates 
implementing this section would cost $0.6 million in that year. 
As SBA raises the number of background checks, annual costs 
would rise gradually to about $3 million by 2005.
    Other Programs. In addition, the bill would authorize such 
sums as may be necessary to cover SBA's costs of carrying out 
the Small Business Act and the Small Business Investment 
Company Act. CBO estimates that the general administrative 
costs to carry out these acts would be $223 million in fiscal 
year 2001, $231 million in fiscal year 2002, and $241 million 
in fiscal year 2003, assuming appropriation of the necessary 
amounts. (The estimate of general administrative costs excludes 
the program-specific administrative expenses for business and 
disaster loans.) Finally, the bill would authorize the 
appropriation of such sums as may be necessary for the Office 
of Advocacy within SBA. Based on information from SBA, CBO 
estimates that the office will spend $6 million to $7 million 
annually.
    Price Preferences. Title VII would extend the provisions of 
the Federal Acquisition Streamlining Act of 1994 that provide 
federal contracting preferences to qualified small 
disadvantaged businesses. Under the price preferences 
provision, small disadvantaged businesses may be deemed the 
lowest bidder for certain federal contracts if their price is 
not more than 10 percent greater than the lowest bidder. Small 
disadvantaged businesses received federal contracts worth about 
$6 billion in 1999. Based on the experience of a similar 
program within the Department of Defense, CBO expects the total 
value of contracts awarded using price preferences would be 
about $1.2 billion each year over the 2001-2005 period, and the 
preference would add an average of about three percent to the 
cost of the contracts. CBO estimates this provision would cost 
about $150 million over the 2001-2005 period.
    HUBZones Program. Title VI would expand the HUBZones 
program, which provides federal contracting set-asides and 
preferences to qualified small businesses located in certain 
economically distressed, urban and rural communities. Title VI 
would allow more businesses and communities within Indian 
reservations and Alaska to participate in the program and could 
cost several million dollars a year. CBO cannot estimate how 
much those changes may increase spending, however, because we 
do not know how many more communities would participate in the 
program or what administrative resources would be required to 
carry it out.
    Regulatory Review Panels. Title III would require the IRS 
to convene panels to analyze the potential impact of 
regulations on small businesses prior to publication. We expect 
that the bill would apply to about 50 IRS regulations each 
year. Based on this number of regulations and the experiences 
of similar panels at the Environmental Protection Agency and 
the Occupational Safety and Health Administration, CBO 
estimates that implementing Title III would cost the IRS about 
$13 million in 2001 and similar amounts in subsequent years. 
Annual costs would rise gradually to about $16 million by 2005.

Direct spending

    Title V would modify the expected cost of the guarantees 
SBA has provided for existing loans. According to OMB's 
Circular A-11, Preparation and Submission of Budget Estimates: 
``If the modification is mandated in legislation, the 
legislation itself provides the budget authority to incur the 
subsidy cost obligation (whether explicitly stated or not).'' 
As a result, CBO estimates that the bill would increase direct 
spending by a total of $28 million in the year of enactment 
through changes in SBIC programs and SBA's general business 
program.
    Small Business Investment Companies. Through two SBIC 
programs, SBA guarantees 10-year loans made to venture capital 
firms. To offset the subsidy cost of those guarantees, SBA 
charges venture capital firms that participate in the program a 
fee of 1 percent of the loan amount each year, resulting in 
receipts of about $50 million a year. Section 503 would require 
SBA to reduce the 1 percent fee if the subsidy cost of those 
programs would otherwise be less than zero.
    For fiscal year 2000, the Administration estimates that the 
subsidy rate is 1.8 percent for one of the SBIC programs and 
zero for the other. If, in the future, SBA determines the 
subsidy cost of either of these loan guarantees to be less than 
zero (that is, a ``negative subsidy''), section 503 would 
require the agency to reduce the fees. CBO estimates that there 
is about a 15 percent chance that the subsidy rate for these 
programs could be less than zero, so enacting this provision 
would cost $50 million by eliminating the possibility for a 
negative subsidy for the guarantees that are outstanding under 
these programs. This cost represents the present value of fees 
that could be eliminated by the bill and the likelihood that 
the fees would have to be reduced. Such fees would otherwise be 
collected annually over the remaining term of the loan 
guarantees.
    General Business Guarantees. Section 501 would establish 
penalties for the prepayment of guaranteed loans during the 
first three years that the loans are outstanding. In addition 
section 501 would eliminate a provision of law that allows SBA 
to pay interest on guaranteed general business loans that have 
defaulted at a rate 1 percent less than the borrower's interest 
rate between the time of default and the time SBA purchases the 
loan. Section 508 would allow SBA to guarantee up to 85 percent 
of the balance of a loan if the balance is not more than 
$150,000. Section 508 also would simplify and reduce fees SBA 
charges under the general business guarantee program. CBO 
estimates that these provisions would result in no net change 
in the subsidy associated with new loans, because the increased 
cost from lowering the guarantee fees would be offset by the 
new prepayment penalties.
    Borrowers of existing loans have already paid the guarantee 
fee but would be subject to prepayment penalties under section 
501. Based on information from SBA, we anticipate that about 
$33 billion of loans approved since 1997 will be outstanding 
near the end of fiscal year 2000. We estimate that borrowers 
would prepay about $1.3 billion within three years of receiving 
their loans, and that prepayment penalties would reduce the 
subsidy costs of existing general business guarantees by about 
$22 million.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. CBO 
estimates the bill would increase direct spending by $28 
million in the year of enactment because it would modify the 
subsidy costs of existing loans and loan guarantees.

----------------------------------------------------------------------------------------------------------------
                                                       By fiscal year, in millions of dollars--
                                    ----------------------------------------------------------------------------
                                      2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010
----------------------------------------------------------------------------------------------------------------
Changes in outlays.................     28      0      0      0      0      0      0      0      0      0      0
Changes in receipts................      0      0      0      0      0      0      0      0      0      0      0
----------------------------------------------------------------------------------------------------------------

    Estimated impact on state, local, and tribal governments: 
The legislation contains an intergovernmental mandate as 
defined in UMRA because it would preempt state statute of 
limitations laws as they relate to certain enforcement actions 
brought by SBA under the Small Business Investment Act of 1958. 
This mandate would impose no costs on state, local, or tribal 
governments because it is narrow and because it would not 
require states to take any action.
    The bill also would authorize appropriations for SBA's 
programs for fiscal years 2001 through 2003, some of which 
would directly benefit state, local, and tribal governments. 
For example, the bill would expand the HUBZones program to 
target assistance to Native American and tribally-owned small 
businesses. In addition, the Small Business Development Center 
program provides funds to state and local governments, public 
and private institutions of higher education, and state-
chartered development corporations to establish and operate 
small business development centers. Any costs associated with 
providing matching funds to participate in SBA programs are 
voluntary and expected to be minimal.
    Estimated impact on the private sector: This bill would 
impose no new private-sector mandates as defined in UMRA.
    Estimate prepared by: Federal Costs: Mark Hadley and Megan 
Carroll. Impact on State, Local, and Tribal Governments: 
Shelley Finlayson. Impact on the Private Sector: Patrice 
Gordon.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                   V. EVALUATION OF REGULATORY IMPACT

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

                    VI. SECTION-BY-SECTION ANALYSIS


                        Title I: Authorizations

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

              Title II: Quadrennial Small Business Summit


Section 202. Definitions

    This section defines key words and terms included in the 
title.

Section 203. National And State summits on Small Business

    This section states that a national Quadrennial Summit on 
Small Business will occur every four years during the second 
year after a presidential election. Prior to the Quadrennial 
Summit, there will be State Summits for the delegates in each 
state.

Section 204. Purposes of quadrennial summits

    This section sets forth the reasons for having a 
Quadrennial Summit on Small Business.

Section 205. Summit participants

    Subsection (a) directs the Quadrennial Commission to 
conduct Quadrennial and State Summits to bring together 
individuals interested in issues affecting small businesses.
    Subsection (b) sets forth the procedures for selecting 
delegates to the State and Quadrennial Summits. A delegate must 
be an owner or officer of a small business. The Governors and 
U.S. Senators will each appoint a delegate and alternative 
delegate from their respective states. U.S. Representatives 
will each appoint a delegate and alternate from their 
respective congressional districts, and the President will 
appoint a delegate and alternate from each state. The delegates 
will be able to conduct meetings and will attend a State Summit 
in their respective states before the Quadrennial Summit is 
held.
    Subsection (c) describes the role of SBA's Chief Counsel 
for Advocacy with respect to the Summit.
    Subsection (d) explains that the delegates will be 
responsible for their own expenses and will not be reimbursed 
from appropriated funds.
    Subsection (e) directs the Quadrennial Commission to 
appoint an Advisory Committee of 10 persons who were 
participants at the last preceding Quadrennial Summit.
    Subsection (f) states that all State and Quadrennial 
Summits will be open to the public and no fee greater than $15 
can be charged to people who wish to attend a summit.

Section 206. Quadrennial Commission on Small Business

    Subsection (a) authorizes the establishment of a 
Quadrennial Commission on Small Business.
    Subsection (b) defines the membership of the Quadrennial 
Commission, which numbers nine in total. It will include the 
SBA Chief Counsel for Advocacy, 4 members appointed by the 
President, 2 members from the Senate (1 majority, 1 minority), 
and 2 members from the House of Representatives (1 majority, 1 
minority). The appointments will be made 18 months before the 
opening date of the Quadrennial Summit and will expire six 
months after the Quadrennial Summit has concluded.
    Subsection (c) sets forth the election of a Chairperson.
    Subsection (d) permits the Quadrennial Commission to enter 
into contracts with public agencies, private organizations, 
academic institutions, and independent, nonpartisan 
organizations to carry out the State and Quadrennial Summits.
    Subsection (e) directs the Quadrennial Summit to consult 
with the Office of Advocacy at SBA, Congress, and Federal 
agencies in carrying out the State and Quadrennial Summits.
    Subsection (f) requires that the Quadrennial Commission 
submit a report to the Chairperson and Ranking minority Members 
of the Senate and House Committees on Small Business within 6 
months after the conclusion of the Quadrennial Summit.
    Subsection (g) establishes a quorum of 4 members of the 
Quadrennial Commission for purposes of transacting business.
    Subsection (h) requires the Quadrennial Commission to hold 
its first meeting within 20 days after the appointment of all 
members and at least every 30 days thereafter.
    Subsection (i) states that vacancies on the Quadrennial 
Commission will be filled in the same manner as the original 
appointments were made.
    Subsection (j) authorizes the Quadrennial Commission to 
hire an Executive Director and the staff necessary to conduct 
the State and Quadrennial Summits.
    Subsection (k) authorizes the Quadrennial Commission to 
reimburse its members for travel expenses, including per diem.

Section 207. Authorization of appropriations; availability of funds

    This section authorizes $5 million to cover all expenses 
incurred under this Title. It states that funds from SBA may 
not support the Quadrennial Summit unless specifically 
earmarked for that purpose.

     Title III: Small Business Involvement in Government Regulation


Section 302. Findings and purposes

    This section sets forth Congressional findings on the 
impact of regulations on small businesses and the early 
successes of the Small Business Regulatory Enforcement Fairness 
Act.

Section 303. Ensuring full analysis of potential impacts on small 
        entities of rules proposed by certain agencies

    This section clarifies the process for selection of the 
small entity representatives and the timing of the panel's 
activities. Small entity representatives affected by the draft 
proposal are to be identified by the covered agency in 
consultation with the Chief Counsel for Advocacy. The number of 
days provided for this process is extended from 15 to 30 days. 
Small entity representatives may request the opportunity to 
present their comments orally. The panel is to be convened not 
earlier than 30 days after the covered agency transmits 
information to the identified small entity representatives. 
Once the Panel has convened, it has up to 60 days to review the 
small business comments and to report to the head of the 
covered agency. The panel report is to be printed in the 
Federal Register within 180 days after the date the agency head 
receives the report or as part of the publication of the notice 
of proposed rule making, whichever is earlier.

Section 304. Definitions

    This section expands the definition of a ``covered agency'' 
to include the Internal Revenue Service. Currently, only EPA 
and OSHA are included. The definition of a ``small entity 
representative'' eligible to participate on a Panel is also 
specified as a small entity, or an individual or organization 
that ``primarily represents the interests of 1 or more small 
entities.''

Section 305. Collection of information requirement

    This section deletes language that limited the scope of IRS 
interpretative rules covered by The Regulatory Flexibility Act. 
It amends Section 601 to strike the definitions for 
``collection of information'' and ``recordkeeping.'' Also, the 
section amends the fifth sentence in Section 603(a) to read:

          In the case of an interpretative rule involving the 
        internal revenue laws of the United States, this 
        chapter applies to interpretative rules (including 
        proposed, temporary and final regulations) published in 
        the Federal Register for codification in the Code of 
        Federal Regulations.

Section 306. Effective date

    This section provides that the Act will be effective 90 
days after the date of enactment.

                Title IV. Independent Office of Advocacy


Section 402. Findings

    This section describes the need for an effective, 
independent advocate for small business within the Federal 
government that is not restricted by the views or polices of 
the Small Business Administration (SBA/Agency) or any other 
agency. This section also sets forth the important role the 
Office of Advocacy plays in providing research, information and 
its expertise on small business matters to the Congress and the 
Executive Branch.

Section 403. Purposes

    Subsection 1 states that the purpose of the Act is to 
ensure that the Office of Advocacy has the statutory 
independence and adequate financial resources to be an advocate 
for small businesses.
    Subsection 2 requires the Office of Advocacy to keep the 
Senate and House Small Business Committees and the SBA 
Administrator informed on matters of importance to small 
businesses.
    Subsection 3 provides that there will be a separate 
authorization for the Office of Advocacy.
    Subsection 4 states that the Office of Advocacy will 
continue to monitor Agency compliance with the Regulatory 
Flexibility Act and will report annually to the Congress. 
Subsection 5 states that the purpose of the Act is to enhance 
the role of the Office of Advocacy in the panel review process.

Section 404. Office of Advocacy

    Subsection (a) sets forth a new Section 32 of the Small 
Business Act (15 U.S.C. 631, et seq.) describing the Office of 
Advocacy.
    Subsection (a) of Section 32 of the Small Business Act 
defines the terms ``Chief Counsel'' and ``Office'' as used in 
Section 32. Subsection (a) sets forth a new Section 32 of the 
Small Business Act (15 U.S.C. 631, et seq.) describing the 
Office of Advocacy.
    Subsection (b) of Section 32 establishes within SBA the 
Office of Advocacy and designates the Chief Counsel for 
Advocacy to manage the Office. This subsection sets forth the 
restrictions on who may be nominated by the President to serve 
as Chief Counsel. Subsection (b) also requires SBA to submit a 
separate budget request each year for the Office of Advocacy.
    Subsection (c) of Section 32 describes the primary 
functions of the Office of Advocacy.
          (1) The Office shall examine the role played by small 
        business within the U.S. economy;
          (2) Directs the Office to assess the effectiveness of 
        Federal subsidy and assistance programs;
          (3) The Office is directed to measure the direct 
        costs of regulation on small business;
          (4) Determine the impact of the U.S. tax system on 
        small businesses;
          (5) Study the ability of the private sector to meet 
        the credit needs of small business and determine the 
        impact of government demands for credit on small 
        businesses;
          (6) Determine the availability of credit and 
        management assistance to small businesses;
          (7) Evaluate the efforts of Federal agencies and the 
        private sector to help minority-owned and women-owned 
        small businesses;
          (8) Make recommendations to help in the development 
        and strengthening of minority and women-owned small 
        businesses;
          (9) Directs the Office of Advocacy to make 
        recommendations to help small businesses expand to 
        their full potential and to assess any common reasons 
        for small businesses' successes and failures;
          (10) Assess the benefits of developing a set of 
        criteria to be used to define small businesses;
          (11) Make recommendations to correct issues and 
        regulations harmful to small business;
    Subsection (d) of Section 32 describes additional functions 
of the Office of Advocacy. It will serve as a focal point for 
receipt of complaints, criticisms and suggestions concerning 
the policies and programs of the Federal government that affect 
small businesses. The Office will counsel small businesses on 
how to resolve their difficulties with the Federal government. 
The Office will represent the interests and views of small 
businesses before other Federal agencies, and it will encourage 
both private and public entities to disseminate information 
about services and programs for small businesses. Lastly, 
Subsection (d) directs the Office of Advocacy to carry out its 
responsibilities under the Regulatory Flexibility Act.
    Subsection (e) of Section 32 outlines the staff and powers 
of the Office of Advocacy. The Chief Counsel has the authority 
to hire staff for the Office of Advocacy and is exempt from the 
standard civil service laws governing competitive hiring.
    Subsection (f) of Section 32 directs SBA to provide the 
Office of Advocacy with adequate office space in the 
headquarters and field offices. SBA shall also provide 
equipment, office supplies, and communications facilities and 
services as are necessary.
    Subsection (g) of Section 32 allows the Chief Counsel to 
obtain from each Federal agency such information as needed to 
carry out the responsibilities of the Office of Advocacy.
    Subsection (h) of Section 32 directs the Chief Counsel to 
submit an annual report on Agency compliance with the 
requirements of the Regulatory Flexibility Act. Further, the 
Chief Counsel can prepare and submit to the President and 
Congress such reports as he or she deems necessary. Consistent 
with current practice, in no case shall a report from the 
Office of Advocacy be submitted in advance to OMB for approval 
or Administration clearance.
    Subsection (i) of Section authorizes to be appropriated 
such sums as are necessary for the Office of Advocacy.
    A new Subsection (c) permits the incumbent Chief Counsel 
for Advocacy to continue to serve in that position after date 
of enactment of this Act in accordance with the requirements of 
Section 32 of the Small Business Act.

                        Title V. Credit Programs


Section 501. Section 7(a) program

    Subsection (a) increases the guarantee percentage on loans 
of $150,000 or less to 85%. The 80% guarantee level currently 
extends only to loans of $100,000 or less. The purpose of this 
change is to encourage banks to increase the availability of 
small loans.
    Subsection (b) increases the maximum guarantee amount to $1 
million from $750,000. The maximum gross loan amount is capped 
at $2 million. The largest loan would be one of $2 million 
which would be eligible for a guarantee of 50%. The maximum 
size loan with a 75% guarantee would be $1.33 million.
    Subsection (c) removes the provision added in 1996 that 
reduced the SBA's liability for accrued interest on a loan in 
default.
    Subsection (d) will permit a lender to assess a fee to the 
borrower for early prepayment of any loan with a term of 15 
years or greater. Early prepayment is defined as any voluntary 
prepayment.

Section 502. Small Business investment companies

    Subsection (a) of Section 502 would permit any Federal 
Savings Association to make investments directly in Small 
Business Investment Companies (SBICs).
    Subsection (c) would amend the Small Business Investment 
Act of 1958 to establish a statute of limitations for SBC 
liquidations that is consistent with the laws governing FDIC 
and RTC bank liquidations.
    Subsection (d) would permit the SBA to suspend or remove 
officer, directors, employees, agents, or other participants in 
the management or conduct of an SBIC who are involved in 
violations of the Small Business Investment Act of 1958.
    Subsection (e) defines ``long term'' when used in 
connection with equity capital or loan funds invested in small 
businesses to be a period of one year or more.
    In addition, subsection (e) provides that when the credit 
subsidy rate for the SBIC Debenture or Participation Securities 
program falls below zero, the one percent annual fee paid by 
the SBIC on the outstanding Debenture or Participating Security 
will be reduced by such an amount so that the credit subsidy 
rate is zero. SBA is not authorized to collect fees that cause 
the credit subsidy rate to fall below zero.
    Subsection (e) would permit qualifying SBICs to make a 
quarterly tax distribution at any time during the applicable 
calendar quarter. Under current law, tax distribution may be 
made only at the end of calendar quarters.

Section 503. Microloan program

    Subsection (a)(1) increase the maximum loan amount from 
$25,000 to $35,000.
    Subsection (a)(2) raises the average loan size from $7,500 
to $10,000 for speciality micro lenders, who make smaller loans 
and receive additional technical assistance to make them. This 
is consistent with increasing the maximum loan amount.
    Subsection (a)(3) eliminates the requirement that 
intermediaries make ``short-term'' loans. This change will 
allow intermediaries greater latitude in developing microloan 
products by offering their borrowers revolving lines of credit, 
such as for seasonal contract needs.
    Subsection (a)(4) broadens the eligibility criteria for 
intermediaries. Instead of requiring intermediaries to have one 
year of experience making microloans to startup, newly 
established or growing small businesses and providing technical 
assistance to its borrowers, this legislation would deem a 
prospective intermediary eligible if it has ``equivalent'' 
experience.
    Subsection (a)(5) raises the threshold for the comparable 
credit test from $15,000 to $20,000.
    Subsection (a)(6) eliminates the restriction on how much 
technical assistance funding an intermediary can use for pre-
loan assistance. Currently, intermediaries are limited to using 
25 percent of their funds to assist prospective borrowers. This 
change allows an intermediary to allocate as much technical 
assistance as appropriate.
    This subsection also increase the percentage of technical 
assistance grant funds that an intermediary can use to 
subcontract out technical assistance. Currently, intermediaries 
can only subcontract 25 percent, and this legislation would 
raise this limit to 35 percent.
    Subsection (a)(7) increases the number of non-lending TA 
providers from 25 to 55 so that there can be one in each state 
and in the District of Columbia, Puerto Rico, the U.S. Virgin 
Islands, Guam, and American Samoa. This subsection also raises 
the maximum annual grant amount to each non-lending TA provider 
from $125,000 to $200,000 to reflect inflation and increased 
costs.
    Subsection (a)(8) increase the average loan size for each 
intermediary's portfolio from $10,000 to $15,000.
    Subsection (a)(9) increases the number of intermediaries 
authorized to 250 in FY2001, to 300 in FY2002, and to 350 in 
FY2003. The increases are designed to allow SBA to make this 
program available nationwide.
    Subsection (a)(10) establishes a peer-to-peer mentoring 
program for SBA intermediaries and organizations seeking to 
become microlender intermediaries. Specifically, SBA would be 
allowed to use up to $1 million of annual appropriation for 
technical assistance grants to subcontract with one or more 
national trade associations of SBA microlender intermediaries 
to provide peer-to-peer mentoring.

Sec. 504. Small Business Lending Company fees

    This section directs Small Business Lending Companies 
(SBLCs), which are non-banking lending institutions that are 
licensed and regulated by the SBA, to pay the full of the 
annual examination performed by SBA and each SBLC. When the 
SBLC pays the money to SBA, it can be spent by SBA to offset 
the cost of the examination and to perform other program 
oversight.

Sec. 505. Surety bonds

    This section increases from $1,250,000 to $2,000,000 the 
maximum contract amount that can be guaranteed under the Surety 
Bond Guarantee Program. It also extends the sunset date for the 
Preferred Surety Bond Guarantee Program to September 30, 2003.

Sec. 506. Development Company debentures

    This section clarifies that the minimum interest rate for 
504 debentures must be acceptable to the Secretary of the 
Treasury.

                       Title VI. HUBZone Program


                 Subtitle A--HUBZones in Native America


Section 1. Short title

    Subtitle A of the bill is dubbed the ``HUBZones in Native 
America Act of 2000.'' This short-title emphasizes the 
geography-based nature of the HUBZone program, directing 
contracting opportunities to the areas that need economic 
development assistance.

Section 602. HUBZone Small Business concern

    The bill amends the definition of ``HUBZone small business 
concern'' to include small businesses owned by one or more 
U.S.. citizens (current law), Alaska Native Corporations and 
their subsidiaries, joint ventures, and partnerships, as 
defined under the Alaska Native Claims Settlement Act (ANCSA) 
of 1971, and small businesses owned by one or more Indian 
Tribal governments. Some Tribal governments have also created 
companies to do their business for them, so they can waive 
sovereign immunity against those companies without waiving it 
against the Tribe itself. Small businesses owned by these 
companies would also be eligible.

Section 603. Qualified HUBZone Small Business concern

    Subsection (a) amends the definition of ``qualified HUBZone 
small business concern'' to indicate what each of the ``HUBZone 
small business concerns'' must do in order to advance the goals 
of the program and be qualified. Each type of firm added to the 
definition of ``HUBZone small business concerns'' has a 
corresponding obligation imposed on it to be ``qualified.'' 
They have to maintain some kind of nexus to a HUBZone to 
participate.
    Small businesses in general must have a principal office in 
a HUBZone designated area, and 35% of their employees must 
reside in a HUBZone. Alaska Native Corporations and their 
subsidiaries would need to meet at least one of the following 
criteria: (a) maintain a principal office in an Alaska HUBZone; 
(b) engage at least 35% of the employees working on a contract 
awarded through the HUBZone program to perform their work in an 
Alaska HUBZone; or (c) hire at least 35% of their workforce 
from Alaska HUBZone residents or from an Alaska Native Village. 
Tribal enterprises would be required to have 35% of their 
employees performing a HUBZone contract either reside within an 
Indian reservation or within any HUBZone adjoining a 
reservation. This allows Tribal enterprises to use a place-of-
performance standard similar to Alaska Native Corporations. 
However, it is slightly more restrictive than the rule that 
applies to small businesses in general, whose employees may 
come from any HUBZone to meet the 35% threshold. Since Tribal 
enterprises are government-owned entities (owned wholly or 
partly by Tribal governments), this provision limits their 
scope to the reservations governed by their respective owners.
    Subsection (b) of this section is the ``HUBZone Pilot 
Program for Sparsely Populated Areas.'' This subsection 
attempts to address concerns that small businesses in Alaska, 
like Alaska Native Corporations, are likely to face 
insurmountable practical problems that prevent their 
participation in the HUBZone program even if they are eligible 
on paper. Population patterns and lack of infrastructure make 
it unlikely that Alaska small businesses will be able to meet 
the regular requirements of a principal office in a HUBZone and 
35% of their employees resident in a HUBZone. Thus, the bill 
includes a three-year pilot program extending to Alaska small 
businesses the same participation standards that would apply to 
Alaska native Corporations. it also makes sense 
administratively for all of Alaska to have the same set of 
basic rules for all program participants.
    However, since this does represent a relaxing of the 
current HUBZone criteria, the pilot program has a cap in order 
to prevent abuse. If the share of small business contract 
dollars awarded to Alaska were to double its current level, as 
a percentage of the small business dollars awarded to the 
nation as a whole, the pilot would shut down for the next 
fiscal year. The Committee believes that if Alaska's share were 
to double during the course of the pilot program, that would 
indicate the rules had been relaxed too much.
    Finally, subsection (c) is a technical correction directing 
the SBA Administrator to put certified firms onto the List of 
Qualified Small Business Concerns. Current law requires the 
Administrator to certify firms and also to maintain a list of 
firms, but does not direct that firms be placed onto the list 
once their eligibility has been certified.

Section 604. Other definitions

    The Committee appreciates the counsel of the Committee on 
Indian Affairs in designing the definition of ``Indian 
reservation,'' which refers generally to the definition of 
``Indian country'' at 18 U.S.C. Sec. 1151, with exceptions. 
Since reservation and trust areas are deemed Hub Zones without 
any explicit test of economic need, a Tribe could otherwise 
purchase a plot of land in a prosperous area, have it placed 
into trust status, and have it deemed a HUBZone. Using scarce 
economic development resources like the HUBZone program, on 
areas that are already developing without such assistance, is 
not the highest and best use of those limited resources. The 
Committee intends to direct HUBZone benefits away from such 
areas and toward areas of greater need. However, this 
definition would still allow Tribes to continue current 
practices of trying to acquire lots, within their reservations, 
to eliminate the ``checkerboard'' pattern of reservations that 
have plots within them not owned by the Tribe.
    The definition of ``Indian reservation'' provides a special 
rule for Oklahoma, which was all reservation at one time. If 
all of Oklahoma were to be deemed a HUBZone, the program 
benefits would flow to businesses in their current locations, 
without requiring job creation in distressed areas of Oklahoma. 
To avoid this problem, the definition focuses the HUBZone 
program on Oklahoma lands currently in trust or eligible for 
trust status under existing regulation.

                  Subtitle B--Other HUBZone Provisions


Section 611. Definitions

    Subsection (a) corrects the reference in the definition of 
``qualified census tract,'' to refer to Internal Revenue Code 
section 42(d)(5)(C)(ii).
    Subsection (b) clarifies the definition of ``qualified 
nonmetropolitan county'' to provide that counties will be 
deemed metropolitan or nonmetropolitan according to their 
classification at the time of the last decennial census. It 
also stabilizes the selection of qualified nonmetropolitan 
counties according to their unemployment numbers, by looking at 
three years of data rather than one year. Finally, this 
subsection grandfathers for a one-year period those firms 
located in areas that become ineligible under the program due 
to changes in their economic statistics or to the changes 
adopted in this legislation.

Section 612. Eligible contracts

    This provision limits the application of the HUBZone price 
evaluation preference for purchases of commodities. It intends 
to protect existing small business set-asides and programs used 
in commodity purchases. However, the provision also seeks to 
use the HUBZone price evaluation preference to ensure that 
commodities contracts contribute their fair share toward 
achievement of the Government-wide goal of 23% of prime 
contract dollars to small business concerns, by ensuring 
substantial HUBZone firm participation where possible.
    This section also includes language to ratify SBA's 
existing regulations awarding priority to contractors that are 
eligible for both 8(a) and the HUBZone program. This practice 
tends to encourage use of both programs. The language prohibits 
any rulemaking, either by SBA or in the FAR, to create an 
automatic preference for firms eligible only for one of the two 
programs, to keep the programs from competing with each other. 
The Committee does not view this latter prohibition as a new 
policy, but merely as a restatement of the Committee's 
intentions as expressed during consideration of the HUBZone Act 
in 1997.

Section 613. Correction of HUBZone reference

    In adopting the HUBZone Act in 1997, the Congress made a 
series of technical and conforming changes to the Small 
Business Act, to ensure that various provisions applicable to 
several small business programs were also made applicable to 
the HUBZone program. (See Sec. 603 of the Small Business 
Reauthorization Act of 1997, 111 Stat. 2592 at 2631.) This 
section makes a comparable change that was inadvertently 
omitted in the 1997 legislation.

Section 614. Community development

    This provision further amends the definitions of ``HUBZone 
small business concern'' and ``qualified HUBZone small business 
concern,'' as amended by sections 602 and 603 of this 
legislation, to allow Community Development Corporations to 
participate in the HUBZone program. Participating firms will be 
required to maintain a principal office in a HUBZone and to 
hire 35% of their employees from HUBZones.

Section 615. Reference correction

    This is a technical correction. During adoption of the 
HUBZone Act in 1997, subclauses (IV) and (V) were redesignated 
as items (aa) and (bb) attached to subclause (III) of section 
3(p)(5)(A)(i). This provision makes subparagraph (C) conform to 
this change.

      Title VII. National Women's Business Council Reauthorization


Section 702: Duties of the Council

    Subsection 9a) specifies the duties of the National Women's 
Business Council. In addition to its duties under existing law, 
the bill directs the Council, among other things, to provide 
advice and counsel to the President and Congress on economic 
matters important to women business owners, promote 
implementation of policy agenda, initiatives and 
recommendations issued at the 1998 National Women's Economic 
Forum, assist Federal agencies in meeting the 5% women's 
procurement goal under the Small Business Act, and support new 
and ongoing research.
    Subsection (b) concerns the Council's interaction with the 
Interagency Committee on Women's Business Enterprise. It does 
not amend existing law.
    Subsection (c) concerns Council meetings. It does not amend 
existing law.
    Subsection (d) sets out the deadline, contents and 
recipients of the Council's recommendations and reports.
    Subsection (e) permits the Administrator to submit separate 
views or recommendations along with the Council's 
recommendations or reports.

Section 703: Membership of the Council

    This section removes the expired deadlines for the 
President to appoint Council members that provided guidance 
when the Council was first established. Those guidelines are 
now obsolete.

Section 704: Repeal of procurement project; State and local economic 
        networks

    This section removes the expired project procurement 
requirements authorized by P.L. 105-135 to study Federal 
contracting to women-owned businesses. The reports have already 
been completed and submitted to Congress and the President 
(``Statistical Study on Federal Government Contracting: Women-
Owned Business,'' published in 1998, and ``Best Practices 
Guide: Contractingwith Women, published in 1999.) This 
subsection also directs the Council to work with government officials 
and business leaders to develop the infrastructure for women's business 
enterprise.

Section 705: Studies, other research, and issue initiatives

    Subsection (a) sets out the Council's authority and 
permissible purposes to conduct studies, research and 
initiatives.
    Subsection (b) sets out the contract authority for the 
studies, research and initiatives.

Section 706: Authorization of appropriations

    This section authorizes an appropriation increase from 
$600,000 to $1 million to carry out this section for each FY 
2001-2003. $550,000 shall be available to carry out Sections 4 
and 5. The Council must review and approve its operating budget 
before it obligates or expends any funds authorized under this 
section.

                  Title VIII. Miscellaneous Provisions


Section 801. Native American Small Business Development Centers

    This section establishes the Native American Small Business 
Development Center (NASBDC) Network. Subsection (a) defines the 
terms used in this section.
    Subsection (b) authorizes the SBA to establish the NASBDC 
Network and a Tribal Electronic Commerce Small Business 
Resource Center and sets forth the purpose of the Network.
    Subsection (c) explains that the services that are to be 
provided by the NASBDC Network include management and technical 
assistance, electronic commerce information, and other services 
normally provided by the regular Small Business Development 
Center program.
    Subsection (d) sets forth the matching requirement in order 
for a NASBDC to receive a contract, grant or cooperative 
agreement. With limited exception, the NASBDC must obtain one 
non-Federal dollar for each four Federal dollars in the first 
and second years of the term of the assistance, one non-Federal 
dollar for each three Federal dollars in the third and fourth 
years, and one non-Federal dollar for each Federal dollar in 
the fifth and succeeding years.
    Subsection (e) authorizes $3,000,000 for FY 2001 and each 
subsequent fiscal year. In addition, $500,000 is authorized in 
FY 2001 and each subsequent fiscal year to fund the 
establishment and implementation of one Resource Center.

Section 802. Cosponsorship

    This section is primarily a technical re-wording of the 
existing cosponsorship authority at the SBA. The section adds 
the terms ``information and education'' to the types of 
assistance that can be provided to small businesses, which will 
give SBA more flexibility in the types of assistance it can 
provide to small businesses.

Section 803. Fraud and false statements

    This section would ensure that a false statement made to 
the SBA, in connection with an SBIC activity, would carry the 
same penalty as making a false statement to an SBIC.

Section 804. Financial institution civil penalties

    This section would ensure that individuals who make false 
statements to an SBIC or the SBA are subject to civil penalties 
set forth under the Financial Institutions Reform, Recovery, 
and Enforcement Act of 1989 (FIRREA).

Section 805. Very Small Business Program

    This section would extend the sunset date for the Very 
Small Business Program to September 30, 2003.

Section 806. SDB

    This section would extend until September 30, 2005, the 
Federal procurement procedures to help obtain the contracting 
goals for small business concerns owned and controlled by 
socially and economically disadvantage individuals.

Section 807. Subcontracting preference for veterans

    This section would establish that service-disabled veterans 
are on the same preference level as Small Disadvantaged 
Businesses (SDBs), women-owned small businesses, and HUBZone 
concerns for Federal contracting opportunities.

Section 808. Size standards

    Subsection (a) would replace the reference to the Standard 
Industrial Classification (SIC) industry classification system 
with the new North American Industry Classification System 
(NAICS).
    Subsection (b) would increase the agricultural size 
standard to $750,000 from $500,000.
    Subsection (c) would create a new size standard of 200 
employees for fresh fruit and vegetable packing houses.
    Subsection (d) would require an agency that wishes to 
prescribe a different size standard to publish its intent as 
part of a proposed rule. Currently, the agency must first seek 
public comment through an Advanced Notice of Proposed 
Rulemaking before publishing a proposed rule. This subsection 
would eliminate the need to first seek public comment through 
an Advanced Notice of Proposed Rulemaking.

Section 809. Drug-Free Workplace Program

    This section would extend the small business Drug-Free 
Workplace Program for fiscal years 2001 and 2002.

                                  
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