[Senate Report 106-84]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 166
106th Congress                                                   Report
                                 SENATE
 1st Session                                                     106-84

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         MILITARY RESERVISTS SMALL BUSINESS RELIEF ACT OF 1999

                                _______
                                

                 June 23, 1999.--Ordered to be printed

                                _______


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

                              R E P O R T

                         [To accompany S. 918]

    On June 9, 1999, the Committee on Small Business considered 
S. 918. The Committee adopted a substitute amendment offered by 
the Ranking Democrat, John Kerry. As amended, the bill 
authorizes two types of financial assistance and encourages 
maximum use of the Small Business Administration's (SBA) 
existing entrepreneurial development programs for small 
businesses that have been adversely affected by the departure 
of an essential employee who is a military reservist ordered to 
active duty during a period of military conflict, such as the 
Kosovo conflict, after adopting Senator Kerry's amendment in 
the nature of a substitute. Having considered S. 918, as 
amended, the Committee reports favorably thereon without 
further amendment and recommends that the bill do pass.

                       I. DESCRIPTION OF THE BILL

    The Military Reservists Small Business Relief Act of 1999 
(S. 918) seeks to assist military reservists called to active 
duty and the small businesses that employ them. During and 
after the Persian Gulf War in the early 1990's, the Committee 
heard from reservists whose businesses were harmed, severely 
crippled, or even lost, by their absence. The House Committee 
on Small Business in March 1991 heard testimony from numerous 
veterans, including representatives of the National Guard and 
Reserve community, who owned small businesses prior to being 
called to active duty. They found the problems faced by 
reservists and their small businesses were of a varied nature 
and included cash-flow problems, difficulties with training an 
appropriate alternate manager on very short notice to run the 
business during the period of service, lost clientele upon 
return, and on occasion, bankruptcy.
    These hardships can occur during a period of national 
emergency or during a period of contingency operation when 
troops are deployed overseas. For example, in 1993, the 
National Guard in Missouri was deployed for two months to help 
with the devastating flood of the Missouri and Mississippi 
Rivers that left 14 miles of Missouri river-front land under 
water. While on active duty, two reservists, one with a 
successful hair salon and another with a painting business, 
lost so many of their clients they eventually had to close 
their small businesses. One of them resigned from the National 
Guard after that experience because he felt it had taken too 
big a toll on his life. In New England, a physician and 
Lieutenant Commander in the Navy Reserve, who had been in 
private medical practice for ten years, went bankrupt after six 
months while serving as a flight surgeon in the Persian Gulf 
War. The bankruptcy affected not only the reservist and his 
wife, but also his two employees and their families. After one 
year on duty, he returned home to face civilian life without a 
business or a job.
    To help such reservists and their small businesses, the 
Committee seeks to provide credit and management assistance to 
small businesses when an essential employee (i.e., an owner, 
manager or vital member of the business' staff) is a reservist 
called to active duty. The Committee believes that the bill 
will help address some of the most common problems faced by 
small businesses. Financial assistance in the form of loans, 
loan deferrals and managerial guidance are effective ways to 
minimize the adverse financial demands of the call to active 
duty. They not only ameliorate financial difficulties but also 
strengthen small businesses. This helps remove many of the 
worries a reservist may face about the survivability of the 
business and the security of his or her future employment upon 
return to civilian life.
    To meet these goals, the bill authorizes the SBA to provide 
loan deferrals and low-interest economic injury loans to small 
businesses adversely affected by the call-up of certain 
military reservists. It applies to Operation Allied Force or 
any other contingency operation occurring on or ending after 
March 24, 1999, the date President Clinton authorized calling 
reservists to active duty for Operation Allied Force. In 
addition, the bill applies to future contingency operations 
during periods of military conflict, any future period of war 
declared by Congress, or any future period of national 
emergency declared by either the Congress or the President. A 
small business will be eligible for such assistance if the 
reservist in question is an essential employee of the business; 
namely, if the reservist is an owner, manager or employee of 
the business whose managerial or technical expertise is 
critical to the successful day-to-day operations of the small 
business.
    The bill authorizes a deferral of loan repayments on any 
SBA direct loan, including a disaster loan, for an eligible 
small business. Such a deferral will be effective until 180 
days after the reservist is released or discharged from active 
duty. The bill also authorizes the SBA to reduce the interest 
rate on those direct loans.
    With respect to direct microloans, the SBA is directed to 
encourage its microlenders (lending intermediaries) to offer 
similar deferrals to microborrowers whose essential employee is 
a reservist called to active duty. The Committee envisions the 
SBA will adjust the repayment terms of the microlender 
proportionate to the extent to which the microlender has 
deferred repayments from its small business borrowers adversely 
affected by a military call-up of reservists. The bill also 
directs the SBA to publish guidelines within 30 days of 
enactment of this legislation to help its lending partners in 
the 7(a) guaranteed business loan program and the 504 
Development Company program develop procedures for providing 
loan repayment relief to small businesses that have been 
adversely affected by the departure of an essential employee to 
active military duty. The Committee recognizes that, depending 
upon the status of the loan and whether it has been sold by the 
lender in the secondary market, a deferral may be difficult or 
impossible to arrange. Nonetheless, in light of the reservist's 
call to service to our nation, the Committee urges lenders 
participating in the 7(a) and 504 loan programs to be as 
creative and generous as possible in assisting these small 
businesses during a time of military conflict and for a 
reasonable period after the reservist returns from service.
    The bill also establishes a low-interest economic injury 
loan program to be administered by the SBA through its disaster 
loan program. These loans will be available to provide interim 
operating capital to a small business that suffers substantial 
economic injury as a result of the departure of its essential 
employee to active duty and cannot obtain credit elsewhere. 
``Essential employee'' is given the same meaning as in the 
deferral section of the bill. Under the bill, substantial 
economic injury occurs when the small business cannot pay its 
debts or ordinary operating expenses or is likely to be unable 
to market, produce or provide a product or service that it 
ordinarily markets, produces or provides. The interest rates on 
these loans will be calculated in the same manner as other 
economic injury disaster loans but will in no case exceed four 
percent per annum. An affected small business may apply for a 
loan under this authority from the date that the military 
reservist is ordered to active duty until 90 days after his or 
her release from active duty.
    To address the management needs of any small business whose 
owner or manager must depart suddenly to report to active duty, 
this bill relies on the existing entrepreneurial development 
programs of the SBA. They are well-suited to counsel and train 
prospective managers and are located in each state. Often, 
however, small businesses are not aware these services exist 
and are available at little or no cost. This bill directs the 
SBA and its private-sector partners to advertise their 
entrepreneurial development and 54 management assistance 
programs, such as Business Information Centers, Women's 
Business Centers, Small Business Development Centers and SCORE 
(Service Corps of Retired Executives), and to make them 
available to small businesses that are losing or have lost an 
essential employee to a military call-up. Such outreach should 
continue so long as Operation Allied Force continues and for 
120 days thereafter. The Committee expects the SBA will 
actively implement this responsibility and will work with the 
Department of Defense to identify and notify the active-duty 
reservists whose businesses or small business employers would 
benefit from these counseling and training programs.
    The bill also directs the SBA Administrator, within 30 days 
of enactment of this legislation, to publish any guidelines 
deemed necessary to implement the legislation. Although this is 
a very tight time frame, the Committee believes that prompt 
implementation is necessary to address the needs of small 
businesses whose essential employees are already, or are soon 
to be, serving on active duty in Operation Allied Force.

                           II. COMMITTEE VOTE

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following votes were recorded on June 9, 1999. 
A motion by Senator Kerry to adopt the substitute amendment 
passed by unanimous voice vote. A motion by Senator Bond to 
adopt the Military Reservists Small Business Relief Act of 
1999, with an amendment in the nature of a substitute, was 
approved by a unanimous 17-0 recorded vote, with the following 
Senators voting in the affirmative: Bond, Kerry, Burns, 
Coverdell, Bennett, Snowe, Enzi, Fitzgerald, Crapo, Abraham, 
Levin, Harkin, Lieberman, Wellstone, Cleland, Landrieu and 
Edwards.

                           III. 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 indicated by the 
Congressional Budget Office in the following letter.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 16, 1999.
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 S. 918, the Military 
Reservists Small Business Relief Act of 1999.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Megan 
Carroll and Mark Hadley.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 918--Military Reservists Small Business Relief Act of 1999

    Implementing S. 918 would probably increase discretionary 
spending over the 2000-2004 period by an average of less than 
$500,000 a year. CBO also estimates that enacting the bill 
would increase direct spending by about $1 million in fiscal 
year 1999; therefore, pay-as-you-go procedures would apply. S. 
918 contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act and would not 
affect the budgets of state, local, or tribal governments.
    S. 918 would authorize the Small Business Administration 
(SBA) to modify and expand certain loan programs. Section 2 
would allow the SBA to defer principal and interest payments 
due on small business loans if a military reservist is called 
to active duty during a period of military conflict and the 
reservist is an essential employee of the small business. The 
deferral would last from the date on which the reservist is 
ordered to active duty until 180 days after the reservist is 
released. Section 2 also would allow the SBA to reduce the 
interest rate for loans qualifying for a deferral. In addition, 
S. 918 would encourage lenders and intermediaries to grant 
similar deferrals for loans guaranteed by the SBA. Finally, 
section 3 would expand the disaster loan program to include 
small businesses that suffer substantial economic injury as a 
result of an essential employee being ordered to active duty 
during a period of military conflict.
    The Federal Credit Reform Act of 1990 requires 
appropriation for the subsidy costs and administrative costs of 
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 and excluding 
administrative costs. Implementing sections 2 and 3 of the bill 
could result in additional subsidy costs for making new loans. 
Any such costs would be subject to appropriation of the 
necessary amounts. Although CBO cannot predict the number, 
timing, or extent of future military conflicts or the number of 
small businesses that would be affected, the costs are not 
likely to be significant in most years. We estimate that 
additional subsidy costs would average less than $500,000 a 
year.
    Section 2 would also increase direct spending because it 
would raise the expected cost of existing loans to small 
businesses. 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).'' CBO estimates that enacting this 
provision would probably increase direct spending by about $1 
million, based on information from the SBA. We estimate that 
the deferral provision would affect fewer than 500 small 
business disaster loans (out of the 70,000 outstanding), with 
an average loan size of $50,000, and that the deferment of 
principal and interest payments would increase the average 
subsidy costs on those loans by about 5 percentage points. The 
increase in subsidy costs would be recorded as an outlay in the 
year in which the legislation is enacted. For the purposes of 
this estimate, CBO assumes that S. 918 will be enacted during 
fiscal year 1999.
    The CBO staff contacts for this estimate are Megan Carroll 
and Mark Hadley. This estimate was approved by Robert A. 
Sunshine, Deputy Assistant Director for Budget Analysis.

                  iv. evaluation or 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 assistance authorized by this 
legislation.

                       v. changes in existing law

    In the opinion of the Committee, it is necessary to 
dispense with the requirement of rule XXVI(12) of the Standing 
Rules of the Senate in order to expedite the business of the 
Senate.

                    vi. section-by-section analysis

    Section 1. Short Title. This section states the short title 
of the bill is the ``Military Reservists Small Business Relief 
Act of 1999.''
    Section 2. Repayment Deferral for Active Duty Reservists. 
To be eligible, a small business must have at least one 
essential employee who is a military reservist called to serve 
on active military duty during a period of military conflict. 
An ``essential employee'' is one who is an owner, a manager or 
employee who is responsible for the performance of the business 
on a day-to-day basis.
    A ``period of military conflict'' is defined as a period of 
war declared by Congress, a period of national emergency 
declared by Congress or the President, or a period of a 
contingency operation under title 10 of the United States Code, 
section 101(a). The current conflict in Kosovo is considered a 
contingency operation under that section.
    The period of deferral for direct loans commences on the 
date the essential employee is ordered to active duty and ends 
180 days after the essential employee is discharged or released 
from active duty. During the period of deferral, the SBA may 
also reduce the interest rate on the deferred loan.
    With respect to the SBA's microloan program under section 
7(m) of the Small Business Act, this section directs the SBA to 
encourage microlenders to make similar deferrals for their 
microborrowers whose essential employee is called to active 
duty in a military conflict such as that in Kosovo. This 
section also directs the SBA to encourage lenders participating 
in the SBA's 7(a) guaranteed loan program and section 504 
development company program to offer similar deferrals to their 
small business borrowers whose essential employee is ordered to 
active duty. Finally, this section directs the SBA to publish 
guidelines implementing the deferral provision for microloans, 
7(a) guaranteed loans and 504 development company loans within 
30 days of enactment of the bill.
    Section 3. Disaster Loan Assistance for Military 
Reservists' Small Businesses. This section amends subsection 
7(b) of the Small Business Act (15 U.S.C. 636(b)) to authorize 
the SBA to make a low-interest disaster loan to any small 
business that suffers substantial economic injury because its 
essential employee is a military reservist called to active 
duty during the Kosovo conflict or any similar period of 
military conflict. The interest rate will be set using the same 
formula the SBA uses for other economic injury disaster loans. 
The cap on all disaster loan assistance is $1.5 million, the 
same as for other types of disaster loans. One notable 
difference between this economic injury disaster loan and 
others is the absence of a disaster declaration requirement.
    This section adopts the same definitions as section 2 and 
defines ``substantial economic injury'' as economic harm to a 
business that results in its inability to meet its obligations, 
to pay its ordinary and necessary operating expenses, or to 
market, produce, or provide a product or service that it 
ordinarily markets, produces or provides. Eligible small 
businesses may apply for this assistance during the period 
beginning on the date the reservist is ordered to active duty 
and ending 90 days from the reservist's release or discharge 
from active duty.
    Section 4. Business Development and Management Assistance 
for Military Reservists' Small Businesses. This section amends 
section 8 of the Small Business Act (15 U.S.C. 637) by adding a 
new subsection (l) that directs the SBA, together with its 
private-sector partners, to make its entrepreneurial 
development and management assistance programs, such as the 
Business Information Centers, Women's Business Centers, Small 
Business Development Centers and SCORE (Service Corps of 
Retired Executives), available to provide business counseling 
and training to any small business adversely affected by the 
deployment of troops, either active duty or reservists, in 
support of any current or future period of military conflict. 
This section also directs that during Operation Allied Force 
and for 120 days thereafter, the SBA shall actively promote the 
assistance it offers to help small businesses adversely 
affected by the deployment of troops, including publicity with 
respect to loan deferrals and economic injury loans authorized 
under this legislation and its entrepreneurial development 
programs.
    Section 5. Guidelines. This section directs the SBA 
Administrator to issue such guidelines as are necessary to 
implement this legislation within 30 days of the date of 
enactment.
    Section 6. Effective Dates. Except for economic injury 
loans under section 3, the effective dates of these provisions 
shall be the date of enactment of the legislation. For loans 
under section 3, the eligible borrower must have suffered 
substantial economic injury during a period of military 
conflict occurring or ending on or after March 24, 1999.

                                  
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