[Senate Report 107-19]
[From the U.S. Government Publishing Office]
107th Congress Report
SENATE
1st Session 107-19
_______________________________________________________________________
SUMMARY OF LEGISLATIVE
AND OVERSIGHT ACTIVITIES
DURING THE 106TH CONGRESS
__________
R E P O R T
of the
COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
June 1, 2001.--Ordered to be printed
Filed under authority of the order of the Senate of May 26, 2001
__________
U.S. GOVERNMENT PRINTING OFFICE
89-010 WASHINGTON : 2001
C O N T E N T S
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Page
I. Introduction.....................................................1
II. Oversight of the Small Business Administration...................1
A. General Oversight--First Session.................... 1
B. General Oversight--Second Session................... 5
C. SBA Performance and Accountability Review........... 7
D. SBA Loan Monitoring System.......................... 10
E. Small Business Innovation Research Program.......... 11
F. Small Business Technology Transfer Research Program. 14
G. Access to Equity Capital............................ 15
H. HUBZone Program..................................... 15
I. Other Government Contracting Issues................. 24
J. Additional Oversight Issues......................... 28
III. Small Business Regulatory Issues................................29
A. OSHA's Promulgation of an Ergonomics Standard....... 29
B. S. 1156, ``Small Business Advocacy Review Panel
Technical Amendments Act of 1999''................. 41
C. SBREFA and Other Small Business Activities.......... 42
D. Federal Acquisition Regulation on Contractor
Responsibility..................................... 49
E. Family and Medical Leave Act/Unemployment Insurance
Proposed Regulation to Provide Paid Leave for New
Parents............................................ 51
F. Department of Labor, Wage and Hour Administration,
Survey of Poultry Industry......................... 51
IV. Small Business Tax Issues.......................................52
A. Deductibility of Health-Insurance Costs for the
Self-Employed...................................... 52
B. Independent Contractor Reform....................... 54
C. Tax Simplification and Filing Burdens............... 55
D. Internal Revenue Service Oversight.................. 58
E. Taxpayer Refund and Relief Act of 1999.............. 65
F. Estate Tax Reform................................... 67
G. Marriage Penalty Relief............................. 67
H. Small Business Accounting Issues.................... 67
I. Taxpayer Relief Act of 2000......................... 69
J. Other Tax Issues.................................... 71
V. Small Business Environmental Issues.............................72
A. Industrial Laundry Effluent Limitations............. 72
B. McLaughlin Gormley King/Whitmire Micro-Gen
Pesticides Application............................. 72
C. Lead TRI Rulemaking................................. 73
D. Small Business Brownfields Redevelopment Act of 1999 74
E. Ozone Depleting Substances Rulemaking............... 74
F. Acrylamide Rulemaking............................... 74
G. Compliance Assistance............................... 75
H. Nitrates Reporting Enforcement...................... 76
VI. Assisting Small Businesses in Preparing for the Year 2000 Date
Change..........................................................77
A. Legislation......................................... 77
B. Other Committee Efforts............................. 79
VII. Fighting Fraud..................................................80
A. Internet Cramming................................... 80
B. Toner Fraud......................................... 81
VIII.Slotting Allowances and Retail Competition Issues...............81
IX. Increasing Small Business Exporting.............................85
X. Creating a Dialogue Among Businesses on Education...............85
XI. Oversight of the Pension Benefit Guaranty Corporation...........86
A. General Accounting Office Studies................... 86
B. Computer Security................................... 86
XII. Bankruptcy Reform...............................................87
XIII.Hearings of the Committee.......................................88
February 5, 1999: Organizational Meeting, Markup of
Pending Legislation, and Nomination of Phyllis K.
Fong to be Inspector General of the Small Business
Administration..................................... 88
March 10, 1999: Roundtable--Oversight of the Regulatory
Flexibility Act (RFA) and the Red Tape Reduction
Act (SBREFA)....................................... 89
March 16, 1999: Hearing--The President's Fiscal Year
2000 Budget Request for the Small Business
Administration..................................... 91
April 12, 1999: Hearing--Buried Alive: Small Business
Consumed by Tax Filing Burdens..................... 93
April 21, 1999: Roundtable--Office of Advocacy and
SBIR/STTR Programs................................. 95
April 27, 1999: Roundtable--SBA's 7(a) and 504 Loan
Programs........................................... 96
May 12, 1999: Roundtable--Small Business Roundtable on
SBA's SBIC and Microloan Programs.................. 98
May 20, 1999: Roundtable--Small Business Roundtable on
SBA's Management Assistance Programs............... 99
May 20, 1999: Roundtable--Small Business Procurement... 100
May 25, 1999: Hearing--Education Success = Business
Success............................................ 102
June 14, 1999: Field Hearing--Small Business and
Environmental Technologies: The Challenges and
Opportunities...................................... 104
June 15, 1999: Forum--E-Commerce: Barriers and
Opportunities for Small Business................... 106
August 4, 1999: Roundtable--Small Business Innovation
Research (SBIR) Program............................ 107
August 13, 1999: Field Hearing--Issues Important to
Women in Businesses................................ 109
August 24, 1999: Joint Field Roundtable--Building a
Stronger Agricultural Community.................... 110
September 9, 1999: Roundtable--Business Supporting
Education.......................................... 112
September 14, 1999: Hearing--Slotting: Fair for Small
Business & Consumers?.............................. 113
October 19, 1999: Roundtable--National Conference on
Small Business Act................................. 115
October 25, 1999: Hearing--Internet Cramming: The
Latest High-Tech Fraud on Small Businesses......... 117
November 9, 1999: Roundtable--Ensuring the Maximum
Practicable Opportunity............................ 119
December 14, 1999: Forum--The Future of Small Business
Exporting.......................................... 121
February 24, 2000: Hearing--The President's Fiscal Year
2001 Budget Request for the Small Business
Administration..................................... 123
March 9, 2000: Forum--CyberCrime: Can a Small Business
Protect Itself?.................................... 125
March 28, 2000: Hearing--Swindling Small Businesses:
Toner-Phoner Schemes and Other Office Supply Scams. 126
May 18, 2000: Forum--B2B: An Emerging E-Frontier for
Small Business..................................... 128
May 23, 2000: Hearing--IRS Restructuring: A New Era for
Small Business..................................... 130
July 20, 2000: Hearing--GAO's Performance and
Accountability Review: Is the SBA on PAR?.......... 132
September 13, 2000: Roundtable--What Is Contract
Bundling?.......................................... 134
September 14, 2000: Hearing--Slotting Fees: Are Family
Farmers Battling to Stay on the Farm and in the
Grocery Store...................................... 136
September 21, 2000: Joint Hearing with the Senate
Special Committee on Aging--Pension Tension: Does
the Pension Benefit Guaranty Corporation Deliver
For Retirees?...................................... 138
October 4, 2000: Hearing--The U.S. Forest Service:
Taking a Chain Saw to Small Business............... 140
107th Congress Report
SENATE
1st Session 107-19
======================================================================
SUMMARY OF LEGISLATIVE AND OVERSIGHT ACTIVITIES DURING THE 106TH
CONGRESS
_______
June 1, 2001.--Ordered to be printed
Filed under authority of the order of the Senate of May 26, 2001
_______
Mr. Bond, from the Committee on Small Business, submitted the following
R E P O R T
I. Introduction
As Chairman of the U.S. Senate Committee on Small Business
during the 106th Congress, I organized the Committee's agenda
to focus on the highest priorities of the small business
community. The Committee has listened carefully to the concerns
expressed by small business owners across the nation. We
concentrated on those concerns, which include, among others,
small business tax issues, access to capital, regulatory
fairness, equitable government procurement, and workforce
preparedness. This report summarizes the legislative and
oversight activities of the Committee on these key issues of
concern and interest to small businesses.
II. Oversight of the Small Business Administration
A. General Oversight--First Session
During 1999, the Committee on Small Business undertook a
more aggressive approach to oversight of the programs and
activities of the Small Business Administration (SBA). The
Committee approved the nomination of Ms. Phyllis Fong to be
Inspector General of SBA. In addition, the Committee conducted
four mark-up meetings to report legislation and conducted
hearings on the President's Fiscal Year 2000 budget request for
SBA and on the impact of ``slotting allowances'' on small
businesses. To improve its oversight activities, the Committee
conducted Roundtable Meetings on programs at SBA and other
issues of importance to small businesses.
1. Action on legislation
The Committee approved eight bills in 1999, and seven were
signed into law. The eighth bill, the ``Independent Office of
Advocacy Act,'' passed the Senate and is pending before the
House Committee on Small Business. It is likely to be cleared
for the President's approval in 2000.
On February 5, 1999, the Committee marked up S. 364,
``Small Business Investment Improvement Act of 1999.'' The bill
included two technical changes in the SBIC program. The first
change removes a requirement that at least 50 percent of the
annual program level of the approved participating securities
under the SBIC Program be reserved for funding with SBICs
having private capital of not more than $20 million. The second
technical change requires SBA to issue SBIC guarantees and
trust certificates at periodic intervals of not less than 12
months.
S. 364 also made a relatively small change in the operation
of the program. This change, however, would help smaller, small
businesses to be more attractive to investors. SBICs would be
permitted to accept royalty payments contingent on future
performance from companies in which they invest as a form of
equity return for their investment. Importantly, the royalty
feature provides the smaller, small business with an incentive
to attract SBIC investment when the return may otherwise be
insufficient to attract venture capital.
Lastly, the bill increased the program authorization levels
to fund participating securities from $800 million to $1.2
billion in Fiscal Year 1999 and from $900 million to $1.5
billion in Fiscal Year 2000. This bill passed the Senate on
March 22, 1999 and was signed into law on April 5 (P.L. 106-9).
On March 25, 1999, the Chairman obtained a unanimous
consent agreement to discharge S. 388, a bill to establish a
disaster mitigation pilot program at SBA, from the Committee
and to pass the full Senate. The bill established a pilot
disaster mitigation program at the SBA. It was similar to
legislation approved unanimously by the Committee and Senate in
1998; however, the House of Representatives was not able to
consider the bill before the Congress adjourned. After passing
muster in the Senate, S. 388 was approved in the House on April
2, 1999 and signed into law on April 27, 1999 (P.L. 106-24).
Early in the year, the Committee entered into informal
discussions the House Committee on Small Business on the final
content of H.R. 774, ``Women's Business Center Act Amendments
of 1999.'' Consequently, the bill was passed by the House of
Representatives on March 16, 1999. It was held at the desk in
the Senate and on March 24, 1999, it passed the Senate
unanimously. H.R. 774 was signed into law on April 6, 1999
(P.L. 106-17).
H.R. 774 increased the authorization level for the Women's
Business Center Program to $11 million and simplified the
matching amount paid annually by the Women's Business Centers.
With passage of the bill, the SBA was permitted to continue to
fund 35 eligible Centers and provide seed funding to new
eligible applicant Centers in states not yet served by the
Program. Each center provides business and education training,
including marketing, finance, and management assistance.
The Senate Committee continued its fast-paced efforts in
early 1999 to approve bills that it considered and approved in
1998, but which were not approved by the House before
adjournment of the 105th Congress. On March 25, 1999, Chairman
Bond received unanimous consent to discharge the Committee from
further consideration of H.R. 440, ``Microloan Program
Technical Corrections Act of 1999.'' The bill passed the Senate
that same day and was signed into law on April 27, 1999 (P.L.
106-22).
The primary purpose of H.R. 440 was to improve the loan
loss reserve requirement established for lending intermediaries
operating under the Microloan Program operated by the SBA. The
bill also made certain technical corrections to the program.
On June 9, 1999, the Committee approved S. 918, ``Military
Reservists Small Business Relief Act of 1999,'' after adopting
a substitute amendment offered by the Ranking Democrat, John
Kerry. As amended the bill authorized special relief delaying
repayment of an SBA-guaranteed loan 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. Further, the bill encouraged maximum used of the
SBA's existing entrepreneurial development programs for
affected small businesses.
The bill passed the Senate on July 27, 1999, and was
referred to the House Committee on Small Business. S. 918 was
subsequently incorporated into the final version of H.R. 1568,
the ``Veterans Entrepreneurship and Small Business Development
Act of 1999,'' which was signed into law on August 17, 1999
(P.L. 106-50).
H.R. 1568, ``Veterans Entrepreneurship and Small Business
Development Act of 1999'' was approved by the House of
Representatives on June 29, 1999. At the Committee mark-up on
July 15, 1999, the Committee Members agreed unanimously to
include the full text of S. 918 in Title III (Technical
Assistance) and Title IV (Financial Assistance) of H.R. 1568.
In addition, H.R. 1568 established the Federal government's
policy to help veteran small business owners, and it further
created a government corporation to coordinate and monitor
special initiatives on behalf of veteran entrepreneurs and
veteran-owned small businesses. The bill provided assistance to
veteran-owned small businesses to enable them to start-up and
grow their businesses. It places a special emphasis on small
businesses owned and controlled by service-disabled veterans.
H..R. 1568, including the full text of S. 918, was approved
by the Senate and House of Representatives on August 5, 1999,
and signed into law on August 17, 1999 (P.L. 106-50).
On July 15, 1999, the Committee considered S. 1346,
``Independent Office of Advocacy Act,'' and adopted an
amendment offered by Senators Bond and Kerry. As amended, the
bill would provide for the independent and nonpartisan
operation of the Office of Advocacy at the SBA. S. 1346 would
establish for the first time in the Small Business Act that the
Office of Advocacy has the statutory independence and adequate
financial resources to be an advocate for the small business
community. In addition, the bill would provide for a separate
authorization to fund the Office of Advocacy, and there would
be a separate account in the SBA budget, similar to the
separate accounts for the Office of Inspector General and the
Business Loan Program.
S. 1346 was approved by the full Senate on November 5,
1999, and referred to the House Committee on Small Business.
On September 29, 1999, the Committee considered and passed
S. 791, ``Women's Business Center Sustainability Act of 1999,''
after adopting a substitute amendment offered by Senator Kerry
and an amendment offered by Senator Spencer Abraham on Federal
procurement opportunities for women-owned small businesses. As
amended, S. 791 authorized a four-year pilot program that
allows graduating and graduated Women's Business Centers to
compete for new five-year matching grants, known as
``sustainability grants.'' They also included three provisions
intended to assist the SBA in its evaluation and selection of
recompeting centers.
S. 791 incrementally raised over four years the annual
levels of authorized appropriations from $13 million in Fiscal
Year 1999 to $17 million in Fiscal Year 2003 and established
specific requirements for use of available appropriations. The
bill was approved by the Senate on November 5, 1999, and the
House on November 18, 1999. It was signed into law on December
9, 1999 (P.L. 106-165).
2. Roundtables
One of the most effective initiatives undertaken by the
Committee in 1999 was the decision to conduct Roundtable
discussions, which allowed the Committee to study issues and
legislation in detail. For each Roundtable, an extensive record
was created. The information obtained at the Roundtables in
some cases established a sufficiently detailed record that will
allow the Committee to mark-up legislation without further
hearings.
--Roundtable on the Office of Advocacy and SBIR/STTR
Programs (April 21, 1999). Statements made at this Roundtable
helped establish a record used for drafting S. 1346, the
``Independent Office of Advocacy Act,'' which was subsequently
approved by the Committee and passed the Senate on November 5,
1999.
--Roundtable on SBA's 7(a) guaranteed business loan program
and the 504 development company loan program (April 27, 1999).
--Roundtable on SBA's SBIC and Microloan Programs (May 12,
1999).
--Roundtable on SBA's Management Assistance Programs (May
20, 1999).
--Roundtable on Small Business Procurement (May 20, 1999).
--Roundtable on S. 1111, the ``National Conference on Small
Business Act.'' The testimony at this Roundtable establishes a
basis for making changes to the original version of this bill,
which the Committee will mark up in 2000.
3. Hearings
As the result of the use of Roundtables, there were only a
few Committee hearings held in 1999. On March 16, 1999, the
Committee conducted a hearing on the President's Fiscal Year
2000 budget request for SBA. Normally, at least two hearings
annually have focused on the SBA budget request. In 1999,
Roundtables produced a greater opportunity for the private
sector to discuss issues in the SBA budget before the
Committee. This was a successful change and should be continued
in the future.
The Committee also conducted a hearing into the impact of
``slotting allowances'' on small businesses. The hearing was
the result of a four month investigation by the Committee staff
and marked the beginning of a more in depth study of this
practice.
B. General Oversight--Second Session
During 2000, the Committee continued its more aggressive
approach to oversight of the programs and activities of the
Small Business Administration (SBA). The Committee devoted a
considerable amount of its time to the Small Business
Reauthorization Act of 2000. This legislation was passed on
several occasions by the full Senate, after being approved by
an 18-0 vote in the Committee. The House of Representatives was
unwilling to appoint Conferees to iron out the differences in
the Senate and House versions of the bills. Consequently, the
final bill was not approved until the December 15, 2000, the
last day of the 106th Congress. In addition, the Committee
conducted mark-ups of S. 1594, the ``Community Development and
Venture Capital Act of 2000'' and the ``Certified Development
Company Program Improvements Act of 1999'' (H.R. 2614). The
complete provisions H.R. 2614 were subsequently included in the
final version of the Small Business Reauthorization Act of
2000, which became H.R. 5667. S. 1594 was re-numbered H.R. 5663
and was incorporated along with H.R. 5667 to become part of the
Consolidated Appropriations Act 2001 (P.L. 106-554).
1. Action on legislation
The Committee approved three bills in 2000 that were passed
by the full Senate and became law as part of the Consolidated
Appropriations Act 2001 (P.L. 106-554). In addition, Chairman
Bond introduced S. Res. 311, a sense of the Senate resolution
expressing support for Federal procurement opportunities for
women-owned small businesses, which was adopted unanimously by
the Senate.
Every three years, it is Congress' role to consider and
pass legislation re-authorizing most programs at the SBA. On
March 21, 2000, the Committee marked-up S. 3121, ``Small
Business Reauthorization Act of 2000.'' As approved by the
Committee and passed by the full Senate, it included the
following major components:
Incorporated a separate bill to establish the
``Quadrennial Small Business Summit;''
Incorporated the ``Small Business Advocacy Review
Panel Technical Amendments Act of 1999'' (S. 1156),
which had passed the Senate but had not been taken up
in the House;
Incorporated the ``Independent Office of Advocacy
Act'' (S. 1346), which had passed the Senate but had
not been taken up in the House;
Established three-year authorization levels for most
of the programs at SBA;
Amended the Small Business Act and the Small Business
Investment Act making changes in the 7(a) guaranteed
business loan program, 504 Development Company program,
and the Small Business Investment Company (SBIC)
program;
Amended the HUBZone program;
Increased the authorization for the National Women's
Business Program to $1 million annually and made some
technical amendments;
Extended the SDB and Drug Free Workplace Programs.
This legislation was amended extensively and debated in the
Senate and House over an extended period of time. Although the
House refused to appoint Conferees after a Conference was
requested by the Senate and it had appointed its Conferees,
there were lengthy, intense negotiations between the staffs of
the Senate and House Committees on Small Business. The House
insisted that the sections of the Senate-passed bill on the
Independent Office of Advocacy, Quadrennial Small Business
Summit, and the Advocacy Review Panel be dropped. After over
three months of discussions and negotiations without any
concessions from the House, Chairman Bond agreed to drop these
sections in order to insure that the re-authorization bill
passed before the end of the 106th Congress.
The House insisted on a last-minute provision to expand the
power of the SBA Administrator to challenge Agency decisions to
bundled contracts to the detriment of small businesses. This
provision was dropped after the Senate Government Affairs and
Armed Services Committees blocked Senate consideration of the
final version of the legislation.
The legislation re-authorizing the SBIR Program (H.R. 2392)
was incorporated in the Small Business Reauthorization Act of
2000, as amended (H.R. 5667). This version of the bill was next
incorporated in the Consolidated Appropriations Act 2001, which
passed on the last day of the 106th Congress and was signed
into law the following week (P.L. 106-554).
On July 26, 2000, the Committee considered and approved S.
1594, the ``Community Development and Venture Capital Act of
2000.'' The Committee adopted by unanimous voice votes a
substitute amendment offered by Senator Kerry and two
amendments offered by Chairman Bond with respect to investments
in low-income urban areas and the percentage of investments to
be made in HUBZone areas. As amended, S. 1594 authorized the
establishment of a comprehensive economic development program
that seeks to stimulate venture capital investment and
intensive management assistance in small businesses located in
the country's most distressed and under-invested communities.
Specifically, S. 1594 authorized the New Market Venture
Capital Program for six years (Fiscal Years 2000-2005)
including a total of $150 million in New Market loan guarantees
(debentures) and $30 million in technical assistance grants.
The bill established the BusinessLinc program to promote
relationships between large and small businesses and authorized
$6.6 million a year for Fiscal Years 2001-2005. The bill also
established the Community Development Venture Capital Program
to provide technical assistance to community-based
organizations to enable them to make investments in businesses
located in low- and moderate-income communities and authorized
a total of $20 million over a four year period (Fiscal Years
2000-2003).
This legislation was reported unanimously from the
Committee after it adopted an amendment from Chairman Bond
which limited the New Market Venture Capital investments to
small businesses located in low-income communities, including
HUBZones. Although approved by the Committee, the bill was not
passed by the full
Senate. It became part of a package of legislation that was
worked out between Speaker Hastert and President Clinton,
referred to as the ``America Community Renewal/New Markets''
bill.
As the Congress completed its negotiations on the final
bills to be debated in the 106th Congress, S. 1594 became H.R.
5663, which was incorporated into the Consolidated
Appropriations Act 2001. H.R. 5663 passed the Congress on the
last day of the 106th Congress and was signed into law the
following week (P.L. 106-554). The final version of this bill
dropped the section creating the Community Development Venture
Capital Program, and it retained the New Market Venture Capital
Program and BusinessLinc.
On May 23, 2000, Chairman Bond introduced S. Res. 311, to
express the sense of the Senate regarding Federal procurement
opportunities for women-owned small businesses. Ten cosponsors
joined Senator in the Resolution which was introduced to
highlight the importance of women-owned small businesses to the
U.S. economy. S. Res. 311 also criticized the Administration
for its failure to achieve the 5% Federal procurement goal for
women-owned small businesses that was established in 1994 as
part of the Federal Acquisition Streamlining Act (FASA).
The Resolution urged the President to hold the heads of
each Federal agency accountable for meeting the goal. S. Res.
311 was adopted in the full Senate by unanimous consent on May
23, 2000, the day it was introduced by Chairman Bond.
2. Hearings
The number of hearings, roundtables and forums held in 2000
were fewer than in 1999. Much of the work in 1999 paid off with
legislation being enacted in 2000. For example, in 1999,
Roundtables were conducted on the Office of Advocacy, the 7(a),
Microloan, and SBIC programs, small business procurement, and
the Quadrennial Small Business Summit legislation. In 2000,
legislation on each of these programs was approved by the
Committee and passed the Senate. In some cases, as noted above,
the legislation became law, and in other cases, it was dropped
when the House Small Business Committee refused to consider and
approve it.
On February 24, 2000, the Committee conducted a hearing on
the President's Fiscal Year 2001 budget request for SBA. In the
years prior to 1999, the Committee had often held two or more
hearings annually that were focused on the SBA budget request.
The use of Roundtables have allowed the Committee to provide
the private and public sectors with greater opportunities to
discuss issues and SBA programs before the Committee.
Therefore, one hearing on the Administration's annual budget
request for SBA creates the record necessary to enable Chairman
Bond to address budget issues and to make recommendations to
the Committee on Appropriations.
c. SBA Performance and Accountability Review
As part of the Committee's monitoring and oversight efforts
to determine the SBA's ability to achieve its mission
effectively, the Committee requested that the GAO begin a
review of the SBA's mission critical programs. The review is
intended to review systemic problems in an agency, not just the
symptoms of such problems that might appear in the way a
particular program operates. The GAO has entitled this review a
``Performance and Accountability Review'' or ``PAR.''
The PAR is intended to provide an overall assessment of an
agency's major performance and management challenges. The PAR
is a comprehensive review of agency operations, including an
agency's strategic and performance planning, information-
systems management, financial management, human capital, and
budget formulation and execution. The PAR also calls for a
review of mission-critical programs and ties the problems an
agency might have with its programs to systemic issues related
to general agency operations. The Committee intends that the
reports compiled from the PAR serve as a blueprint for the
incoming administration on how operations of the SBA can be
made more efficient and effective.
On May 31, 2000, July 19, 2000, and July 20, 2000,
respectively, the GAO released its first reports prepared as a
result of the PAR. These reports were on three distinct topics,
including: (1) a report on the SBA's information technology
management; (2) testimony on the SBA's human capital
management; and (3) two reports on the 8(a) program. In a
hearing held by the Committee on July 20, 2000, Chairman Bond
requested that the SBA take steps to immediately fix the
problems identified by the GAO.
1. Information technology management
The GAO reported the results of its review of IT management
in a May 31, 2000, report entitled ``Information Technology
Management: SBA Needs to Establish Policies and Procedures for
Key IT Processes.'' The GAO found that the SBA has failed to
develop policies and procedures to manage its IT system. The
GAO report breaks out these policies into five broad
categories: (1) IT investments; (2) architecture; (3) software
development and acquisition; (4) security; and (5) human
capital. The GAO report finds that policies and procedures for
these five categories are only partially implemented, are in
draft form or do not exist in any form.
The GAO found that the SBA has failed to establish policies
and defined processes to select, control or evaluate SBA's
investment. IT investment management entails the selection,
control and evaluation of investment in the IT system. Thus,
the GAO concluded that the SBA has no assurance that its IT
projects benefit the SBA or maximize the return on investment
and cannot assure that its projects are developed within time
and budget limits and according to requirements.
The report also stated that the SBA does not have
established architecture maintenance procedures, although it
has prepared some draft policies. IT architecture is the
blueprint that guides and limits the development of the IT
systems and ensures that a structure and description exist for
the system. Thus, the GAO concluded that the SBA has no
assurance that the agency's current and future information
processing needs will be met or that new systems and software
changes will be compatible with other systems.
The GAO also found that the SBA lacks policies for software
development and acquisition to produce information systems that
meet system needs and established budget and time constraints.
As a result, the report stated that project plans and software
user needs may not be met, software acquisition plans may not
be developed and contract requirements may not be specified.
In addition, the report provided that the SBA lacks
information security procedures, including conducting periodic
risk assessments for all mission critical systems and providing
training and education to promote security awareness among
staff. In addition, the SBA has not centralized its security
management duties or established a comprehensive disaster
recovery and business continuity plan. Thus, the GAO found that
the security of SBA's systems are compromised, because security
problems are not identified or addressed, and staff is not
advised of security policies.
Finally, the report found that the SBA has no policies and
procedures to assess or address its IT staff's current and
future needs or inventory of IT knowledge and skills. It has
not evaluated its progress in improving human capital
capabilities. Thus, the GAO determined that the SBA cannot
effectively manage its hiring or retention practices.
2. Human capital
In its testimony at the July 20, 2000 hearing, the GAO
stated that its review of the SBA's human capital demonstrated
that while the SBA has defined the vision for the agency and
has begun to take steps for better managing its human capital
activities, more steps need to be taken. The GAO found that the
SBA has not conducted the workforce planing it needs to
determine whether it has the appropriate personnel to conduct
its mission now or in the future. Also, the report provides
that the SBA has not prepared for succession of its current
senior management or trained its current staff to ensure that
they can perform their current jobs. In sum, the report
provided that while the SBA has undertaken useful human capital
initiatives, these efforts are incomplete and place at risk the
success of the agency's attempt to redesign its business
processes and to transform its workplace.
3. 8(a) Program
The GAO prepared two reports on the 8(a) program during its
Performance and Accountability Review. The first report
concludes that the SBA's 8(a) database does not meet the
information needs of headquarters or district officials,
despite that fact that it was only implemented in 1995. The
second report provides that the SBA is not focusing its efforts
in the 8(a) program on the objectives of 8(a) firms.
With respect to the SBA's 8(a) database, the GAO report
finds that the SBA has incomplete contract information, does
not track its business development activities and has data
quality problems with demographic information. Like other SBA
systems, the security is inadequate. Resulting problems include
the inability of headquarters and districts to determine the
number of contracts awarded to 8(a) firms or to analyze the
best and worst practices in the districts.
The second report addresses the business assistance the SBA
provides to 8(a) firms. The report found that the assistance is
inconsistent with the goals of 8(a) companies. The GAO reported
that a substantial number of firms in the 8(a) program do not
obtain contracts, even though that is the primary reason firms
enter the program. The concentration of 8(a) contracts within a
few firms has been cited as a material weakness in this program
in the SBA's Federal Manager's Financial Integrity Act report
every Fiscal Year since 1994. Additionally, the GAO report
states that the SBA does not focus on providing 8(a) firms with
contracting assistance, but concentrates on management
assistance and ensuring that 8(a) firms have complied with
SBA's reporting requirements. As a result, participant firms
have reported widespread dissatisfaction with the program.
Additionally, the GAO reported that SBA provides management
assistance to only a small fraction of firms per year. The SBA
does this through either executive training (which has served
only about 10 percent of 8(a) firms) or through their mentor-
protege program (which, as of April 2000, only 40 such
agreements existed). The report raised the concern that much of
the executive training has been geared towards firms that are
already successful. Accordingly, the GAO recommended that the
agency should reassess whether to devote most of the 7(j)
funding they receive to develop the abilities of 8(a) firms to
obtain contracts or to restrict the business development
training to firms with a demonstrated need.
Finally, the report addresses the SBA's measure of program
success. The report provides that the SBA's measure bears no
relation to the actual success of 8(a) firms. Instead, the
report concludes that the SBA measures success by the number of
firms that complete an elementary training session and stay in
the program for nine years.
d. SBA Loan Monitoring System
The SBA is undertaking a significant effort to replace most
of its major computer systems. One of the most important of
these is the Loan Monitoring System (LMS) which will permit SBA
to keep track of its loan portfolio. Since the SBA's initial
request for funding of this system, there have been a number of
problems that have required the Committee's attention. The
House Small Business Committee requested that the GAO study the
proposals as outlined by the SBA. The GAO's efforts to date
have shown many inadequacies with the proposals outlined by the
SBA and the Committee has been working with staff from the
House Small Business Committee, the GAO and the SBA IG to
ensure that the systems development project is successful.
In the second session of the 106th Congress, the
Committee's efforts continued as part of both the Performance
and Accountability Review (PAR) conducted by GAO and the
original GAO efforts concentrating on the LMS. It is clear that
while SBA has taken many steps to improve their internal
procedures and to produce an adequate design for their system,
that many problems remain. The Committee remains concerned that
an insufficient amount of planning and design will result in
excessive spending and a system that will not meet the
expectations of both the SBA and the Congress. The Committee
intends to continue to work closely with SBA and GAO to reduce
the risk of failure and to ensure that these design problems
are rectified.
E. Small Business Innovation Research Program
1. Legislation
To prepare for the reauthorization of the Small Business
Innovation Research (SBIR) program, the Committee held two
roundtable meetings in 1999. On April 21, 1999, the Committee
held its first roundtable on the SBIR program. The participants
agreed that the program has been successful and has established
a basis for collaboration between small businesses,
universities, government, large companies, venture capital
firms, and commercial banks which increases the already proven
abilities of small businesses to innovate and commercialize
technology successfully. A significant concern of certain
participants, however, was the geographic distribution of SBIR
awards. This issue was also highlighted in a GAO report
released on June 4, 1999 (GAO/RCED-99-114), which found that
companies in one-third of the states received 85 percent of the
SBIR awards from Fiscal Year year 1993 through 1996.
To address the concerns raised by the GAO report and by
individuals active in the SBIR program in prior Committee
proceedings, the Committee held a follow-up roundtable on
August 9, 1999, to consider specifically the geographic
distribution of awards made under the SBIR program and to
examine proposals to encourage greater participation by
companies located in states that receive a disproportionately
small share of SBIR awards. At the roundtable, Chairman Bond
requested recommendations on how the Federal government could
best assist underachieving states to encourage the development
of high-technology small businesses that could, if interested,
participate in the SBIR program and alleviate the geographic
concentration of SBIR awards.
Most participants at the August roundtable agreed that
using existing state infrastructure to provide assistance to
high-technology small businesses that may participate in the
SBIR program is the most efficient and effective manner of
encouraging such participation. As businesses in different
states may have different needs, many participants also agreed
that economic development organizations in each individual
state should have the discretion to determine which activities
would best assist small firms in the state.
On March 21, 2000, the Committee marked-up the Small
Business Innovation Research Program Reauthorization Act of
2000. The bill considered by the Committee was H.R. 2392, the
House-passed legislation, with an amendment in the nature of a
substitute. The substitute amendment: (1) reauthorized the SBIR
program for ten years; (2) ensured that small businesses are
granted the same data rights when provided Federal non-SBIR
third-phase awards that they are granted when receiving phase-
one and phase-two awards; (3) required program agencies to
submit to Congress and the Office of Management and Budget
annual performance plans for program activities; (4) required
the SBA to maintain a database containing (i) the name, size,
location and identifying number of each small business
receiving a first- or second-phase award, (ii) an abstract of
the award, (iii) the Federal agency making the award, (iv) the
date and amount of the award, and (v) an identification of any
concern established for the commercial application of an award;
and (5) required agencies to report annually to the SBA on the
methodology used to calculate their extramural budgets.
In addition, the bill established the Federal and State
Technology Partnership Program (the FAST program), a proposal
of the Chairman. The FAST program is a competitive matching-
grant program to encourage states to assist in the development
of high-technology small businesses. Under the FAST program,
organizations in every state (including state economic
development agencies, small business development centers, or
any other entity involved in the development of high-technology
firms), either individually or on a regional basis, are
eligible to apply for matching grants or to enter into
cooperative agreements. Such grants or cooperative agreements
can be used to enhance or develop: (1) technology research and
development by small business concerns; (2) technology transfer
from university research to technology-based small business
concerns; (3) technology deployment and diffusion benefitting
small business concerns; and (4) the technological capabilities
of small business concerns through the establishment of
consortia comprised of state and local development agencies,
small business concerns, industries and universities. The FAST
program also permits grants to be used by states for SBIR
outreach, financial support and technical assistance,
including: (1) providing grants or loans to companies to pay a
portion or all of the cost of developing SBIR proposals; (2)
operating a mentoring network to provide technical assistance
to small businesses; and (3) encouraging the commercialization
of technology.
Prior to requesting consideration of the bill on the Senate
floor, Chairman Bond began negotiations among the leadership of
the Senate Committee on Small Business and the House Committees
on Science and Small Business to reach compromise language for
reauthorization of the Small Business Innovation Research
(SBIR) program. On July 19, 2000, the Committee substitute to
H.R. 2392 was considered on the floor. Chairman Bond offered a
Manager's amendment that was the result of the negotiations
between the three Committees with legislative jurisdiction over
the SBIR program and was an amendment in the nature of a
substitute. The Manager's amendment contained all major House
and Senate provisions, some of which had been amended to
reflect a compromise position. The Manager's amendment, and the
underlying bill, were adopted by unanimous consent. The amended
legislation was then referred to the House for approval.
Eventually, the Senate passed the Small Business Innovation
Research Program Reauthorization Act of 2000 and it was
included in the Labor, Health and Human Services and Education
appropriations act which was passed by both the Senate and
House of Representatives on December 15, 2000. The President
signed the bill into law on December 21, 2000. Additionally, at
the request of Chairman Bond, the FAST program was appropriated
$3.5 million for Fiscal Year 2001.
2. Oversight
a. Management of Agency programs
On November 18, 1999, the Committee received a report from
the Office of Inspector General (OIG) of the Department of
Health and Human Services regarding the administration of the
SBIR program at the National Institutes of Health (NIH). The
report detailed the NIH's failure to ensure that SBIR grantees
comply with invention reporting requirements and its failure to
evaluate the success of SBIR grantees at commercializing
products developed under the SBIR program.
In the report, the OIG independently reviewed 100 SBIR
phase two grants awarded in fiscal years 1994 and 1995. The OIG
verified that 12 patents were granted as a result of such
awards. The NIH, however, was only aware of one of the patents.
Each agency that provides Federal research and development
awards is required to have provisions in its funding agreements
with small businesses or nonprofit organizations that obligate
the business or organization to disclose each subject invention
to the Federal agency within a reasonable time after it becomes
known. This requirement permits the Federal government to track
such inventions so that it may exercise its rights regarding
them, including, but not limited to, its right to a
nonexclusive, nontransferable, irrevocable and paid-up license
to utilize the particular invention. According to the report,
the primary reason for NIH's ignorance of existing patents is
that the NIH had not been providing clear information to SBIR
grantees regarding invention reporting requirements or the
intellectual property rights of the Federal government that
arise from such inventions.
In response to the report, Chairman Bond sent a letter to
SBA Administrator Alvarez on November 19, 1999, requesting that
the SBA comply with its statutory obligation to oversee the
SBIR program and alleviate this problem. The letter pointed out
that the Small Business Act requires the SBA to survey and
monitor the operation of SBIR programs within participating
Federal agencies. Additionally, Chairman Bond's letter referred
to the SBA's own policy directives that require each SBIR
program agency to ensure that ``each funding agreement under
the SBIR program shall include provisions setting forth the
respective rights of the United States and the small business
concern with respect to intellectual property rights . . .''
The letter also addressed another example of unsatisfactory
record-keeping and oversight relating to the SBIR program. In
the Fall of 1999, the Committee received disturbing information
regarding the data the SBA maintains on SBIR awardees.
Specifically, the Committee learned that the GAO, in preparing
its reports on the SBIR program in 1998 (RCED-98-132) and 1999
(RCED 99-114), spent substantial resources correcting and
updating information in the SBA's database on SBIR awardees.
Chairman Bond's letter requested that the SBA describe to
the Committee how it planned to ensure that each Federal agency
with an SBIR program provides clear instruction to SBIR
grantees regarding the Federal government's intellectual
property rights and invention reporting requirements. Moreover,
the letter requested that the SBA provide information to the
Committee explaining how it is appropriately maintaining a
database on SBIR grantees. In response to Chairman Bond's
letter, the SBA began drafting a notice to the ten SBIR Federal
agencies directing them to comply with the patent reporting
requirements and is updating its database on SBIR awardees.
b. Management of the SBIR Rural Outreach Program
On April 26, 2000, Chairman Bond and several other members
of the Small Business Committee sent a letter to SBA
Administrator Alvarez regarding the SBA's handling of the SBIR
Rural Outreach Program. The Rural Outreach Program provides
grants to those states whose businesses have historically
received fewer SBIR awards than a majority of other states. The
letter was in response to an SBA decision to provide a $19,000
grant to each eligible state, regardless of the quality of a
state's proposal of the services that it planned on conducting.
The letter specifically requested the SBA withdraw its decision
and provide funding on a competitive basis. In addition, the
letter pointed to the SBA's failure to request funding for the
Rural Outreach Program in its budgets for Fiscal Years 1999,
2000 or 2001. Accordingly, the letter requested that the SBA
support full funding for the Rural Outreach Program for Fiscal
Year 2001. As a result of the letter, the SBA rescinded its
plan to provide each state with the same grant amount and,
instead, distributed grant awards based on the proposals the
states had prepared.
c. SBIR programs at the National Aeronautic and Space
Administration (NASA) and the Department of Defense
Between the end of Fiscal Year 2000 and enactment of the
Small Business Innovation Research Program Reauthorization Act
of 2000, the Department of Defense and NASA delayed the funding
of contracts with small businesses that had already been
awarded phase one and phase two contracts under those agencies'
SBIR Programs. As a result of these actions, the Committee
received information that some small businesses were prepared
to begin laying off employees because the funding that they had
relied upon was not being provided to them in a timely manner.
On November 20, 2000, Chairman Bond, along with Ranking
Member Kerry, wrote to the Secretary of Defense, William Cohen,
and the NASA Administrator, Daniel Goldin, requesting that they
utilize their discretion to fund immediately SBIR awards that
their agencies had already determined to award. Following
enactment of the SBIR Program Reauthorization Act of 2000,
Chairman Bond and Ranking Member Kerry, along with other
members of the Committee, again wrote Secretary Cohen and
Administrator Goldin to request that they make all pending SBIR
awards without further delay. Additionally, the letter
requested that the agencies set aside the full 2.5 percent of
their extramural research and development budgets for Fiscal
Year 2001 for their respective SBIR programs. In response to
the letters, Secretary Cohen and Administrator Goldin assured
Chairman Bond that their agencies were proceeding with
diligence to fund all pending SBIR awards. Secretary Cohen and
Administrator Goldin also confirmed that their agencies would
set aside at least 2.5 percent of their extramural research and
development budgets for Fiscal Year 2001 for their SBIR
programs.
f. Small Business Technology Transfer Research Program
In anticipation of Committee action to reauthorize the
Small Business Technology Transfer (STTR) Program in 2001,
Chairman Bond requested the General Accounting Office to review
certain issues related to the program. Among other matters, the
GAO is reviewing the extent to which the STTR program promotes
actual transfer of under-utilized technology from research
institutions to the commercial sector. The GAO report is due to
the Committee in late Spring of 2001.
g. Access to Equity Capital
An ongoing concern of small businesses has been access to
equity capital. In response to such concerns, Chairman Bond
requested the GAO to undertake a review of the costs and
processes of small businesses obtaining equity capital,
including conducting public offerings, engaging in private
placements of securities and receiving funds from venture
capitalists. On September 29, 2000, the GAO provided a report
to the Committee focusing on: (1) the major sources of external
equity capital for U.S. small businesses and the SBA's Office
of Advocacy estimate of its perceived needs for equity capital
financing; (2) trends for the period of 1994-1999 in small
business equity capital financing; (3) how market practices and
securities law regulations for equity capital-raising
activities could affect small business; and (4) any efforts
undertaken by Federal and state agencies to facilitate small
businesses' access to equity capital.
The Committee is reviewing the findings of the report and,
based on such findings, considering appropriate policy
responses in the 107th Congress.
h. HUBZone Program
1. Program roll-out
As of January 1, 1999, the HUBZone program enacted in the
Small Business Reauthorization Act of 1997 had still not been
officially unveiled nor were applications available to
prospective participants.
Revisions to the Federal Acquisition Regulation (FAR) had
been published as interim rules in the Federal Register on
December 18, 1998. The FAR agencies had included a
determination that ``urgent and compelling reasons'' existed
for putting the rule into effect prior to a period of public
comment. This, plus the rules' effective date of January 4,
1999, would have allowed the program to begin operations at
that time--which was already well behind the schedule set forth
in the HUBZone Act. However, SBA had not been ready to unveil
the program when the regulations were in place. (It should be
noted that Chairman Bond submitted comments on the FAR rules on
February 16, 1999).
On February 25, 1999, Chairman Bond sent a letter to
Administrator Alvarez, formally expressing concern at the delay
in unveiling the program. Chairman Bond asked Administrator
Alvarez to provide a timetable for the remaining activities
associated with unveiling the program: finishing the electronic
application, hiring an Associate Administrator for the program,
and hiring support staff. Chairman Bond also requested a
detailed explanation of how SBA used its Fiscal 1998 HUBZone
program appropriation of $2 million without managing to get the
program up-and-running. Chairman Bond requested this
information by March 5.
On March 8, 1999, Administrator Alvarez responded with a
letter that provided no timetable, but did discuss the status
of each of the remaining activities yet to be accomplished. The
letter also indicated that the agency had managed to obligate
virtually the entire Fiscal 1998 appropriation, and provided
broad categories of how those funds were allocated.
Administrator Alvarez also stated SBA had decided to delay
implementation until the comment period expired on the FAR
interim rule, thereby defeating the purpose behind the FAR
agencies' determination that ``urgent and compelling reasons''
existed for the rule to take effect on January 4 while the
comment period was still in progress.
During a Small Business Committee hearing on March 16,
1999, on the President's Fiscal 2000 budget request for SBA,
Chairman Bond hand-delivered a letter to Administrator Alvarez
expressing ``disappointment'' at the ``lack of specificity'' in
her March 8 response letter. Chairman Bond's letter requested
greater detail on SBA's use of the Fiscal 1998 HUBZone
appropriation and asked eight specific questions. Chairman Bond
also pointed out Administrator Alvarez' failure to provide a
timeline as requested. The letter also challenged SBA's
decision to wait for the FAR interim rule comment period to
expire.
During the hearing, Administrator Alvarez announced that
SBA would unveil the HUBZone program and begin accepting
applications the following Monday, March 22, 1999. On March 26,
1999, Administrator Alvarez responded to Chairman Bond's March
16 letter, confirming that SBA had begun receiving applications
that day. Administrator Alvarez provided additional information
on the Fiscal 1998 appropriation, noting that the funds had
been obligated but not necessarily been outlaid (spent) yet.
SBA transferred 10% of the HUBZone appropriation to cover the
agency's indirect costs in setting up the program (such as use
of staff detailed from non-HUBZone offices at SBA) and expected
to do the same in Fiscal 1999. Moreover, SBA obligated $350,000
of the HUBZone appropriation for grants to the Tribal Business
Information Centers (TBICs), which provide an outlet for
HUBZone information (and other SBA program information) on
Indian reservations. Of the total of $607,000 provided to the
TBICs, 58% of the funds came from the HUBZone account.
A staff discussion on April 13, 1999 provided further
detail about the Fiscal 1998 appropriation. In past years,
TBICs had received funding from the Department of Interior.
Accordingly, SBA had not requested funds for them in the past,
but had requested money for TBICs in 2000 ($1 million).
Moreover, the grants for the TBICs had not actually been
outlaid; they were simply obligated to keep the funds available
for the TBICs and to keep the funds from lapsing to the
Treasury at the end of the Fiscal Year.
2. Implementation issues
As the HUBZone program proceeded, implementation problems
arose and progress was made on some fronts to address those
problems.
Tribal Enterprises and Alaska Native Corporations. Efforts
continued during the 106th Congress concerning the eligibility
of Tribally owned enterprises and Alaska Native Corporations
for the HUBZone program. Because the HUBZone Act requires that
small businesses be 100% owned by U.S. citizens, all HUBZone
applicants needed to be owned by flesh-and-blood human beings
(who can be born or naturalized and therefore citizens). An
ownership stake by Tribes as units or by Alaska Native
Corporations disqualifies a firm from the HUBZone program under
the original legislation.
A preliminary version of legislation to correct this
problem was included as subtitle A of Title VI in S. 3121, the
Small Business Reauthorization Act of 2000, as approved by the
Committee on Small Business on March 21, 2000. However,
negotiations continued with the expectation that more
definitive language would replace subtitle A when the bill was
taken up by the full Senate. Continuing negotiations on this
issue, as well as on the commodities issue, caused a delay in
filing the Committee's report with the full Senate. The report
on the Small Business Reauthorization Act of 2000 was filed on
September 27, 2000 (S. Rpt. 106-422).
As approved in the Committee-reported version of S. 3121,
the legislation created a parallel structure in which the types
of firms eligible under the program would be listed as
``HUBZone small business concerns'' and each type of firm would
have a corresponding obligation under the program to be
certified as a ``qualified HUBZone small business concern.'' No
firm would be deemed presumptively qualified merely because of
the type of firm; it would have to do something to advance the
program's goals to participate. Alaska Native Corporations
would be able to be deemed ``qualified'' under a relaxed
standard, due to the unique nature of Alaska, and this relaxed
standard would be available to all Alaska small businesses
under a pilot program. Finally, the legislation included
language previously used by the Committee on Indian Affairs to
address Indian lands issues in Oklahoma, where the entire state
was at one time a reservation, and language to ensure that
isolated plots of lands placed into trust (e.g., in prosperous
areas far from a current reservation) would not be eligible for
HUBZone status.
The final negotiated package retained the parallel
structure and the Indian lands provisions of the Committee-
reported package. It moved the entire relaxed standard for
Alaska (for both Alaska Native Corporations and small
businesses generally) into the proposed pilot program. The
final language also altered the ``cap'' in the pilot program to
reflect corrected data supplied to the negotiators; the pilot
program would shut down if Alaska's share of contract dollars
doubled (which would indicate that the standard was probably
too relaxed). This was the intent of the Committee-reported
version, which set the cap at 1.5% of all small business
contract dollars nationally; corrected information supplied
subsequently indicated that this cap should be set at 2%. This
package was introduced into the Senate as S. 2569 on May 16,
2000. A statement by Chairman Bond and a section-by-section
analysis of the bill appear in the Congressional Record for May
16, 2000, at S4019-20.
The language ultimately replaced the ``placeholder''
subtitle A in the Committee-reported bill, except that the
Committee-reported short-title, ``HUBZones in Native America
Act of 2000,'' was retained. The pilot program was ultimately
eliminated in negotiations with the House. The language became
law as part of the Small Business Reauthorization Act of 2000
(H.R. 5667, passed by reference in Public Law 106-554, the
Consolidated Appropriations Act, 2001, Sec. 1(a)(9))
Commodities Procurement. During 1999, the Small Business
Committee was informed of a potential loophole in the manner
the HUBZone program was structured that could result in anti-
competitive results in procurement of certain agricultural
commodities in the Food for Peace program. In particular, the
allegation was that a single HUBZone small business concern
could use the benefits of the HUBZone program to lock up the
vast majority of the corn-soy blend market, causing other
vendors to abandon the product and reducing the number of
competing vendors available to bid on the product.
The concern was that the ten percent price evaluation
preference in full and open competition would be overwhelmingly
decisive for commodities that trade in a relatively narrow
price range. Ultimately, it appeared that a HUBZone firm could
contract for up to twice its plant capacity, subcontract out
the half that it would be unable to produce, and sell its corn-
soy blend to the Government at up to ten percent higher prices.
Chairman Bond agreed that this may have revealed a
potential unintended abuse with the HUBZone program's
application to commodities. However, he was unwilling to make
permanent changes to the HUBZone program based on the single
hypothetical example of corn-soy blend. Changes that might make
sense in that market might have additional unintended
consequences for other commodities. He therefore sought to put
a ceiling on any potential abuses that might result while
leaving the issue unresolved for further investigation and
correction in the 2000 small business reauthorization bill.
On June 28, 1999, Chairman Bond filed an amendment to the
Fiscal 2000 Agriculture Appropriations bill. (The amendment was
erroneously assigned two numbers as S. Amdt. 1038 and S. Amdt
1039.) This amendment would have prohibited expenditure of the
Agriculture Appropriations funds to award contracts through the
HUBZone program if more than 50% of the dollar value of the
contracts would be awarded to any single vendor. This amendment
was filed but not formally called up for consideration.
Negotiations continued on the amendment language, and the
approach outlined in S. Amdt. 1038/1039 ultimately was
abandoned as impracticable. It would be impossible to know over
the course of a year when 50% of the contracts had been awarded
to a single vendor, since the amount of commodity to be
purchased over the course of the year would not be known.
(Amounts to be purchased in a given month are determined by the
Agency for International Development, which notifies USDA's
Commodity Credit Corporation to do the actual purchasing.)
The Agriculture Appropriations bill was set aside from
Senate consideration on June 30, 1999. When the Senate returned
to the Agriculture Appropriations bill, Chairman Bond offered a
revised amendment (S. Amdt. 1527) on August 4, 1999. This
amendment placed a different limitation on HUBZone contracts,
in that a HUBZone firm would be able to receive contracts only
up to its own production capacity and would not be able to
subcontract out performance of the contract to another firm
only to sell the product to the Government at a higher price.
This amendment was offered by Agriculture Appropriations
Subcommittee Chairman Thad Cochran on behalf of Chairman Bond,
and it was agreed to by unanimous consent as part of en bloc
consideration of several pending amendments. Chairman Bond's
explanatory statement submitted for the record appears in the
Congressional Record for August 4, 1999, at S10198-99.
The Bond amendment was further modified in conference to
limit the price evaluation preference to 5% (half of the 10%
provided in the HUBZone Act) for contracts of up to 50% of the
total monthly tender for the commodity, and to 0% for amounts
above 50%. Subcontracting limitations in the Senate-passed
amendment were also retained. Finally, the conferees included
report language reminding contracting officers of their
authority under the Competition in Contracting Act of 1984 to
exclude a particular vendor in a given purchase if that vendor
has received such a large market share as to jeopardize USDA's
vendor base. Additional report language was included that this
authority did not allow USDA to make this determination for an
entire class of vendors (e.g., pre-emptively to exclude all
HUBZone vendors) but only on a case-by-case, as-needed basis.
The conference-modified Bond amendment became law as Sec. 751
of the Fiscal 2000 Agriculture Appropriations bill (Public Law
106-78 of October 22, 1999).
Having obtained a temporary bandage for the potential
problem of HUBZone purchases of commodities, Chairman Bond set
out to keep his commitment to make a long-term fix in the Small
Business Reauthorization Act of 2000. Consistent with his view
that the proper fix should be broadly applicable to all
commodities, to avoid unduly complicating the HUBZone program
with special rules, Chairman Bond sought to collect information
on the magnitude of the problem. On March 9, 2000, Senators
Bond and Kerry sent letters to Agriculture Secretary Dan
Glickman, Defense Secretary William Cohen, and Veterans Affairs
(VA) Secretary Togo West, to obtain specific information on
these agencies' purchases of commodities. (During the OSDBU
roundtable on November 9, 1999, these three agencies had been
identified as purchasers of commodities. S. Hrg. 106-401, at
24.)
Responses from the agencies revealed that the Department of
Agriculture (USDA) was substantially different in this regard
than the Departments of Defense or VA. To avoid additional
unintended consequences in those Departments, legislation
tailored to USDA commodities purchases would be appropriate.
The Committee-reported version of the Small Business
Reauthorization Act of 2000, S. 3121, therefore included a
provision (Sec. 612) waiving the 10% price evaluation
preference in full and open competition if the contracting
officer set aside at least 10% of the purchase for the HUBZone
program, if an additional 10% were set-aside for some other
small business program, or set aside at least 20% of the
purchase for the HUBZone program in the absence of other small
business program set-asides. This would use the price
evaluation preference as an incentive to get contracting
officers to set aside portions of commodities procurements for
the HUBZone program and to ensure that such procurements would
contribute approximately their fair share toward the
Government-wide goal of 23% of prime contracting dollars for
small business. The legislation was approved by the Small
Business Committee on March 21, 2000, with the understanding
that negotiations would continue on an outstanding issue: what
to do in the case where only one HUBZone firm existed, since a
set-aside is appropriate only in cases where two or more such
firms exist (two or more being required to ensure competition
in a set-aside, in which a procurement is set aside for
competition restricted to a certain class of business concern).
Final language representing the outcome of negotiations would
be spliced into the bill prior to passage by the full Senate,
in lieu of the language approved at markup. Negotiations on the
commodities procurement provision, as well as on the Tribal
enterprise and Alaska Native Corporation provision, delayed the
filing of the Committee's report on the bill until September
27, 2000.
The final language abandoned the approach of the Committee-
reported bill, of waiving the price evaluation preference as an
incentive to make set-asides. The situation in which only one
firm was a HUBZone concern (which was the case in the
procurement of corn-soy blend, the instant case that brought
the matter to the Committee's attention initially) proved
unresolvable. Instead, the final language adopted a general
prohibition on subcontracting in HUBZone purchases of
commodities, and phased-down the price evaluation preference.
The price evaluation preference would be the full 10% for the
first 25% of a commodity being procured in a given invitation
(solicitation), then would be reduced to 5% for the fraction
between 25% and 40% of the invitation, and then phased-out
entirely to 0% above 40% of the invitation.
The provision passed as part of the Small Business
Reauthorization Act (H.R. 5667), included by reference in
Sec. 1(a)(9) of the Consolidated Appropriations Act, 2001
(Public Law 106-554).
Parity with the 8(a) Program. At a staff briefing on
February 10, 2000, SBA indicated several revisions the agency
intended to pursue in the HUBZone regulations. One of those was
an automatic preference for the 8(a) program over the HUBZone
program.
On February 16, 2000, Chairman Bond wrote SBA Administrator
Aida Alvarez to comment on the intended regulatory revisions.
After supporting SBA's proposal to remove its existing
affiliation restriction on HUBZone firms, Chairman Bond
declared his absolute opposition to the automatic preference
for 8(a), as contrary to the agreement struck in the Senate
Small Business Committee during markup of the HUBZone Act in
1997.
On February 25, 2000, Administrator Alvarez responded to
Chairman Bond's letter, stating that an automatic preference
for 8(a) was already in effect under current regulations and
was not being proposed. She stated that she had committed to
protect the 8(a) program at the time the HUBZone Act was
adopted. She also stated this during a question-and-answer
period at a Small Business Committee hearing on the President's
Fiscal 2001 budget request for SBA (S. Hrg. 106-543, at 49) and
in subsequent response to written questions submitted at the
hearing (Id., at 52-54, 103-116).
During markup of the Small Business Reauthorization Act of
2000, the Committee included language to state expressly that
neither SBA nor the Federal Acquisition Regulation Council
could establish a priority for either the 8(a) or the HUBZone
program ahead of the other. The same provision would give
statutory authority for SBA's current regulations providing a
preference for firms that are both 8(a) and HUBZone certified.
On May 2, 2000, SBA Administrator Aida Alvarez wrote
Chairman Bond to express her ``strong opposition'' to the
parity language included in the Committee's markup of the Small
Business Reauthorization Act. The letter did not threaten a
Presidential veto, however.
The language on parity was dropped when the Small Business
Reauthorization Act was passed, on direction from Chairman
Bond, who determined that the bill could not be passed
otherwise.
Other Legislative Provisions. Subtitle B of the HUBZone
title (Title VI) of the Small Business Reauthorization Act of
2000 (H.R. 5667, passed by reference in Sec. 1(a)(9) of Public
Law 106-554) includes provisions to make technical corrections
in the original law, as well as corrections of a more
substantive nature. Most significant of these provisions is an
additional category of HUBZone area, to be known as
``redesignated areas.'' This provision addressed a problem that
was barely noticeable in 1999, but threatened to do major harm
in 2000.
Nonmetropolitan counties that qualified because of
disproportionately high unemployment were subject to change
annually, as the Bureau of Labor Statistics (BLS) issued new
annual unemployment statistics. In 1999, only a handful of
firms were affected by the new BLS data, because so few firms
were certified. However, in 2000, a larger number of firms
could have been affected, since more firms had been certified
and they were more widely distributed across the country.
Decertifying large numbers of firms that had not seen any
benefit to the program would have threatened the HUBZone
program by giving it a reputation as not worthwhile. Also,
counties that could change into and out of HUBZone status
annually would not attract small business concerns through the
HUBZone program, because business owners would not want to
invest in a location that would not allow them to recoup their
investments.
In recognition of this problem, the Committee included a
``grandfathering'' provision in the Small Business
Reauthorization bill (S. 3121) marked up on March 21. The
Committee-reported version sought to stabilize the designation
of qualified nonmetropolitan areas by using a three-year
average of unemployment data, then giving firms a one-year
period to conclude their activity in the HUBZone program once
their county became ineligible. This complicated provision was
subsequently simplified by providing for areas to move into a
new category of ``redesignated area'' once they ceased to be
eligible on the basis of economic data. An area could remain a
``redesignated area'' for three years. Essentially, this
ensures that an area currently qualified on the basis of
economic statistics will remain eligible for three years. To
ensure simplicity, the ``redesignated area'' classification
would also be available to counties and census tracts that
qualify on the basis of income.
Due to the imminent release of new BLS data, Chairman Bond
considered this an urgently needed provision. Accordingly, he
authorized the provision to be placed on H.R. 2614, the
Certified Development Company Program Improvements Act of 2000,
when it passed the full Senate. However, the House refused to
agree to this provision, with Members objecting to any HUBZone
provision as long as the matter of HUBZone/8(a) parity was
unresolved. When the bill was in conference, it became the
Senate Leadership's preferred vehicle for the tax relief
package (prompting a Presidential veto threat), and the small
business provisions were consolidated with the broader
reauthorization package to be passed by reference as H.R. 5545.
The ``redesignated area'' provision was retained when the final
version of the Small Business Reauthorization Act was
introduced as H.R. 5667 and passed by reference.
Subtitle B of Title VI also revised the definition of
``qualified nonmetropolitan county'' to freeze the definitions
of ``nonmetropolitan'' as of the preceding decennial census.
The Office of Management and Budget occasionally changes its
classification of certain counties as they become more
integrated into the economic life of a nearby metropolitan
area. In Chairman Bond's home state of Missouri, for example,
Andrew, Clinton, Lincoln and Warren, and Webster Counties were
added to the St. Joseph, Kansas City, St. Louis, and
Springfield metropolitan areas (respectively) after the 1990
census. These counties were effectively excluded from the
HUBZone program as a result. They were nonmetropolitan areas at
the time of the census, so no census tracts were selected in
those counties to reflect their economic position relative to
the urban area. However, once they were reclassified as
metropolitan counties, they could no longer qualify under the
HUBZone tests for nonmetropolitan counties. The rewritten
definition of ``qualified nonmetropolitan county'' keeps both
the nonmetropolitan and metropolitan classifications as of the
preceding census.
The revised definition also eliminates an erroneous
placement of the unemployment test for nonmetropolitan
counties. The original HUBZone Act had placed that test outside
the language referring to nonmetropolitan areas, potentially
making it possible for metropolitan counties to qualify if they
have high enough unemployment. Under a literal reading of the
former definition, the City of St. Louis, MO and Bronx County,
NY would be qualified nonmetropolitan counties. This is not
desirable because it does not target the program adequately for
a metropolitan environment. Designating an entire city as a
HUBZone would simply allow firms in relatively prosperous areas
of the city to win contracts, without relocating to truly
distressed areas as the program intends.
The new HUBZone provisions also extend eligibility to small
businesses owned wholly or partly by Community Development
Corporations, provided all other owners are U.S. citizens or
small business concerns, and provided they maintain a principal
office in a HUBZone and hire 35% of their employees from a
HUBZone.
SBA Revisions to the HUBZone Regulations. On February 10,
2000, SBA provided a staff briefing on a prospective rulemaking
to revise the HUBZone program. (This discussion also included
the question of the 8(a) program's automatic preference over
the HUBZone program, although that turned out to be a matter of
interpretation of existing rules rather than a new rulemaking.)
The new rules would delete the existing restrictions on
affiliates with HUBZone firms, clarify the relationship of the
HUBZone program to State and local procurement programs, revise
the definition of ``principal office,'' and provide for limited
participation by retail firms notwithstanding the non-
manufacturer rule. Chairman Bond wrote SBA Administrator Aida
Alvarez in support of eliminating the affiliation requirements
on February 16, 2000, in addition to disagreeing with SBA's
views on the 8(a) preference relative to the HUBZone program.
Administrator Alvarez responded February 25, 2000, agreeing to
remove the affiliation restriction but continuing to disagree
on the HUBZone/8(a) parity matter.
On September 19, 2000, Chairman Bond spoke about the
affiliation provision on the Senate Floor, as part of a general
speech on HUBZone implementation. He noted that seven months
had elapsed since the February staff briefing, yet the
regulations had still not been proposed. Congressional Record,
September 19, 2000, at S8732-34 (see especially S8734).
SBA published the proposed rules in the October 3, 2000,
Federal Register, at 58963, with public comment due on November
2. Chairman Bond submitted comments in support of the new rules
on November 1, 2000, and Administrator Alvarez sent an
acknowledgment letter on November 13.
Training of Federal Employees and Contracting Officers.
Following frequent reports that contracting officers for
various agencies were not carrying out the HUBZone program due
to lack of training or direction from their agencies, Chairman
Bond sent a circular letter to 15 agencies, covered by the
HUBZone Act as amended, that did more than $1 billion in
contracting in Fiscal 1999, according to the Federal
Procurement Data Center. The July 24, 2000 letter asked
specific information about what agencies had done to train
their contracting staff, what role the agency Offices of Small
and Disadvantaged Business Utilization (OSDBU) played in that
function, and where the OSDBU was located on the agency
organization chart. The 15 agencies receiving this letter were:
the Departments of Agriculture, Air Force, Army, Commerce,
Defense, Energy, Health and Human Services, Justice, Navy,
Transportation, and Veterans Affairs (VA), the Defense
Logistics Agency, the Environmental Protection Agency, the
General Services Administration, and the National Aeronautics
and Space Administration (NASA). The Air Force and the VA sent
the most comprehensive responses to the letter, while NASA's
response indicated serious deficiencies.
On October 17, 2000, Chairman Bond wrote NASA Administrator
Daniel Goldin concerning the agency's failure to act on the
HUBZone program and its failure to train its contracting staff.
The letter mentioned a further example of failure to train
contracting staff: a specific case in which NASA, by its own
admission, had improperly handled a contract under the Small
Disadvantaged Business program and had taken no corrective
action. Chairman Bond called on NASA to prepare a corrective
action plan and to report monthly on implementation of that
plan. Chairman Bond stated that his goal was to have all NASA
contracting staff trained properly by the end of Fiscal 2001.
NASA Associate Administrator for Legislative Affairs Edward
Heffernan responded briefly on November 13, 2000, but did not
provide a corrective action plan. However, NASA did commit to a
``mandatory, centrally-administered training requirement'' and
to making ``periodic status reports.'' By the end of the
calendar year, NASA had still not submitted either a corrective
action plan or a monthly report for December 15.
In a related vein, on October 9, 2000, the Federal Times
published an article by SBA's Acting Associate Deputy
Administrator for Government Contracting and Minority
Enterprise Development, Kerry Kirkland, announcing a series of
training seminars for the HUBZone program. Chairman Bond wrote
a letter-to-the-editor to the Federal Times on October 25,
2000, calling on agencies to take full advantage of SBA's
training sessions ``if they would like to avoid oversight
scrutiny.'' Chairman Bond's letter was published in the Federal
Times on November 13, 2000.
I. Other Government Contracting Issues
1. Department of Energy small business contracting
The Committee continued its oversight of the Department of
Energy's (Department) small business program, especially
concerning the Department's reporting of small business
subcontracts by certain contractors as if they were prime
contract awards by the Department itself. The Department relied
on permission granted to it in a 1991 letter from the Office of
Federal Procurement Policy (OFPP) in reporting subcontracts by
its Management and Operating (M & O) contractors as if they
were small business achievements by the Department. Moreover,
the Department sought to treat subcontracts by its Management
and Integration (M & I), and Environmental Restoration and
Management Contract (ERMC) contractors in the same manner,
arguing that the logic of the 1991 OFPP letter applied to M & I
and ERMC contractors as well as the M & O contractors that were
the subject of that OFPP letter.
Chairman Bond contended, however, that the rationale behind
the OFPP letter no longer existed. At the time of the letter,
the Department had a much closer relationship with its M & O
contractors, and it was arguable that the M & O contractors
were in practice surrogates for the Department itself. Since
the early 1990s, the Department had revised its regulations
substantially to distance itself further from the M & O
contractors. Thus, the M & O contractors no longer acted as
surrogates for the Department, and the reporting of M & O
subcontracts as prime contracts needed to stop in recognition
of current practices. Further, this approach could not be
applied to the treatment of subcontracts awarded by M & I and
ERMC contractors without approval from OFPP, since those
contracts were not the subject of the 1991 letter. It would
make no sense to extend this treatment to M & I and ERMC
contractors, however, if it no longer applied even to the M & O
contracts that prompted the original policy.
On March 2, 1999, Energy Secretary Bill Richardson
submitted the Department's proposed small business contracting
goals for Fiscal 1999 (already well underway) to SBA
Administrator Aida Alvarez. The goals included subcontracts
awarded by M & O, M & I, and ERMC contractors as part of the
agency's prime contracting goals. Administrator Alvarez
responded on May 28, 1999, directing that the Department apply
these subcontracts toward the Department's subcontracting
goals, not its prime contracting goals.
On August 11, 1999, the Department submitted another letter
to Administrator Alvarez restating its position and calling for
her to appeal to OFPP if she continued to disagree. Chairman
Bond then filed his complete brief on the matter with OFPP on
September 15, 1999, to provide his point of view. The letter
was also signed by Ranking Member John Kerry. Finally, SBA sent
a formal appeal letter to OFPP on October 7, 1999.
On November 3, 1999, OFPP issued a decision letter. OFPP
Administrator Deidre Lee directed that subcontracts awarded by
M & O, M & I, and ERMC contractors be reported as subcontract
awards, not as Department prime contract awards. This change
would take effect with the goals for Fiscal 2000, since Fiscal
1999 had concluded.
A staff briefing on January 10, 2000, indicated that SBA
was encountering difficulties achieving a 23% Government-wide
contracting goal, as required by the Small Business Act. The
change in the Department of Energy's reporting of these site
and facility contracts caused an apparent drop in the
Department's small business participation, since subcontracts
to small businesses were no longer permitted to be reported as
if they were prime contracts made by the Department. SBA
indicated they were having difficulty negotiating increased
goals for the other agencies to make up for the decline, and
sought the Committee's guidance.
On February 1, 2000, Chairman Bond wrote SBA Administrator
Aida Alvarez, saying that SBA needed to find ways to reach 23%,
since that goal was statutory. He was unable to offer a
``waiver'' from statutory requirements. On February 9, 2000,
Administrator Alvarez responded that 23% was indeed mandatory,
and saying that the Department of Energy, and other agencies,
had received challenging goals to achieve the 23% level.
The Committee continued to track the Energy Department's
efforts to improve its contracting with small business during
2000. On February 10, 2000, Senators Bond and Kerry wrote
Energy Secretary Bill Richardson, calling on him to review
whether small business teams might be able to handle some of
the smaller site and facility management contracts. The letter
also urged the Secretary to contact the existing contractors to
remind them of their obligations to subcontract to small
business. Secretary Richardson responded on April 4, with a
discussion of various initiatives underway to improve small
business participation.
A staff briefing on October 5, 2000, suggested that
adoption of a three-year plan for improving the Department's
performance, as part of the Department's annual report to the
Congress, would be helpful in giving direction to the
Department's efforts. On December 13, 2000, Senators Bond and
Kerry wrote Secretary Richardson again, encouraging the
Department to prepare and submit such a three-year plan. In
addition, the letter included several questions concerning the
Department's site and facility contracts that were renewed
during Fiscal 2000. A response was still pending at the
conclusion of the 106th Congress.
2. Department of Defense authorization
During Senate consideration of the National Defense
Authorization Act for Fiscal 2000 (S. 1059), the Small Business
Committee was informed of a pilot program in the Armed Services
Committee-reported bill that could have grave effect on small
business participation in certain contract opportunities.
Section 805 of the bill proposed to extend commercial
acquisition practices, currently available for procurement of
commercially available products, to procurement of certain
services on a pilot program basis.
The Small Business Committee has been concerned with
commercial acquisition practices in the past, often because
they result in contracts being awarded without reaching out to
small business to encourage their participation (e.g., through
small business set-asides). This concern must be balanced by
understanding that commercial acquisition has benefitted some
small businesses by allowing the Government to purchase
products as if it were any other consumer visiting a store
(i.e., finding what is available and buying that) without
demanding that the product be made to conform to special
standards unique to the Government and irrelevant to other
consumers. Not having to tailor their products to the
Government has made some small businesses able to sell their
products at lower cost to the taxpayer. However, this logic is
not likely to apply in the acquisition of services, rather than
products. Accordingly, the Small Business Committee was
concerned that commercial acquisition of services would result
in all the harm to small business of commercial acquisition
practices while delivering none of the benefits.
With Ranking Member John Kerry, Chairman Bond filed an
amendment (S. Amdt. 401) on May 26, 1999, to strike all of
Sec. 805. Ultimately, Chairman Bond agreed to a compromise
amendment (S. Amdt. 440) that would exclude these commercial
services acquisitions from streamlined acquisition procedures
under the Clinger-Cohen Act, thus lessening the possibility
that the pilot program would become yet another means of
bypassing the small business program in procurement. Senator
Kerry joined this amendment, which Armed Services Committee
Chairman John Warner offered on behalf of Senators Bond and
Kerry, and the amendment was agreed to by unanimous consent, as
part of a package of amendments considered en bloc on May 27,
1999.
During conference committee consideration of the bill,
Senators Bond and Kerry sent a letter on July 30, 1999 to Armed
Services Chairman Warner and Ranking Member Carl Levin. The
letter recounted the events leading up to the adoption of the
Bond/Kerry amendment on the Floor and urged inclusion of that
language in the conference report. Alternatively, the Senate
could recede to the House and drop the commercial services
pilot entirely.
Ultimately, the conference report removed all of the Bond/
Kerry language and further eliminated, from the report on the
pilot program to be made to the Congress, any study of the
pilot program's impact on small business. This provision was
adopted as Sec. 814 of the conference-reported bill.
3. Contractor responsibility (``blacklisting'') regulations
On July 9, 1999, the agencies that jointly promulgate the
Federal Acquisition Regulation (FAR)--the Department of
Defense, the General Services Administration, and the National
Aeronautics and Space Administration--published a proposed rule
in the Federal Register expanding the meaning of ``contractor
responsibility'' in the FAR. The FAR requires that only
contractors deemed ``responsible'' may participate in Federal
procurement. Under the proposed rule, contractors that do not
comply with Clinton Administration policy on labor, employment,
environmental, antitrust, consumer protection, or tax laws
would be deemed non-responsible and would be effectively barred
from Federal procurement. Chairman Bond filed comments opposing
the proposed rule on November 12, 1999.
4. Contract bundling
On May 18, 2000, the General Accounting Office (GAO)
released a report on contract bundling, stating primarily that
insufficient data were available on the extent and small-
business impact of the practice. Chairman Bond wrote SBA
Administrator Aida Alvarez, noting the GAO's finding that the
Federal Procurement Data Center was waiting on SBA to issue the
final contract bundling rules before modifying their data
collection procedures to gather the bundling data required
under the Small Business Reauthorization Act of 1997. He also
noted the need to hire and train sufficient Procurement Center
Representatives (PCRs) to carry out the statutory review of
bundling. Chairman Bond also noted that SBA had identified 42
cases of possible bundling that were still unresolved,
according to GAO.
On June 1, 2000, Administrator Alvarez responded that SBA
had submitted the final contract bundling rules to the Office
of Management and Budget for final clearance. She noted that,
on May 9, SBA had announced its intention to hire 13 additional
PCRs.
On June 16, Chairman Bond wrote Administrator Alvarez to
inquire about the 42 unresolved bundling cases mentioned in the
GAO report, which Chairman Bond had mentioned in his May 18
letter. On June 28, SBA Deputy Associate Administrator for
Government Contracting and Minority Enterprise Development
James Ballentine responded that only 13 cases remained
unresolved and that SBA expected to close out those cases
within 90 days.
On July 26, 2000, SBA published its final contract bundling
regulations in the Federal Register, at 45831-35.
5. Inspector General audit of the Small Disadvantaged Business Program
On June 30, 2000, SBA's Office of Inspector General
released an audit of the Small Disadvantaged Business (SDB)
certification program. Under that program, other Executive
agencies transferred funds to SBA to certify firms for the SDB
minority business contracting program. The audit found that SBA
had improperly charged $3.0 million in expenses to the SDB
certification program, and that SBA could not produce
justification for charging an additional $3.2 million to the
SDB program.
On June 29, the day before the audit was released, SBA
Administrator Aida Alvarez had promised the funds would be
returned to the agencies that provided them. On June 30, the
day the IG audit was released, Chairman Bond wrote
Administrator Alvarez to ask specifically how much she planned
to refund and how those funds would be distributed among the
contributing agencies. On July 18, Administrator Alvarez
responded that she planned to refund $3.9 million. She wrote
Chairman Bond again on August 4, indicating that the refunds
had been made on July 27, and that the amount refunded had been
$4.1 million, because of additional funds that had previously
been obligated but not expended.
6. Department of Commerce Office of Small and Disadvantaged Business
Utilization (OSDBU)
The Department of Commerce provided staff briefings on June
8 and 22, 2000, concerning a proposed reorganization that would
change the reporting relationship for the Commerce Department
OSDBU. The proposal was said to be a lateral change, in that
OSDBU would not move further down the organization chart, but
would simply report to a different person. Further, under both
current and proposed practice, OSDBU would report directly to
the Deputy Secretary for policy purposes, as the Small Business
Act required; the change would alter the reporting relationship
for budget and administrative purposes.
On June 30, 2000, Senators Bond and Kerry wrote Office of
Management and Budget Director Jacob Lew to urge that he reject
the proposed reorganization. It was not necessary to resolve
whether the change was in fact a reduction in stature for the
OSDBU. Even if it were a lateral move, it would still not be in
compliance with the Small Business Act, which did not
contemplate a bifurcated reporting relationship. Further,
budget and administrative matters are inherently policy
matters, since a policy initiative that is not funded does not
really exist. Senators Bond and Kerry called on Director Lew to
terminate the bifurcated reporting relationship, as contrary to
the Small Business Act and the President's Executive Order
12928.
On August 7, 2000, Director Lew responded that the Commerce
Department had withdrawn its proposed reorganization. He also
said that he had asked the Department to review its existing
organization to ensure compliance with both the Small Business
Act and Executive Order 12928.
7. Office of Federal Procurement Policy subcontracting guidance
On March 30, 1999, the Office of Federal Procurement Policy
(OFPP) provided the Small Business Committee an advance copy of
a proposed policy letter, to give guidance on subcontracting
opportunities and plans. OFPP solicited comment on the draft
letter. Chairman Bond filed a short comment on May 18, 1999,
urging that the letter be revised to reflect subcontracting
policy changes being developed for the new HUBZone program. The
draft policy letter had omitted discussion of the HUBZone
program-related changes.
j. Additional Oversight Issues
1. Travel by SBA employees
On June 25, 1999, the Committee requested all travel
documents for SBA employees GS-14 and above for travel during
Fiscal Year 1998 and through the date of the letter for Fiscal
Year 1999. Committee staff reviewed the documents and examined
the relevant laws, regulations and standard operating
procedures that govern travel expenditures at the SBA. The
preliminary results of that effort were troubling.
Members of the Committee assisted greatly in studying the
documents and the travel policies of SBA. Initially Senator
Coverdell's efforts resulted in concerns raised about the
travel practices at SBA. In particular, Senator Coverdell was
concerned about the practice of self-approval and self-
authorization of travel by senior agency personnel with only
minimal oversight. In addition, Senator Coverdell was concerned
about the practice of using advance teams to advance the
extensive travels of the SBA Administrator Aida Alvarez. With
the sudden death of Senator Coverdell, Senator Enzi continued
to probe the issues raised by Senator Coverdell.
Given the importance of the concerns raised by both Senator
Coverdell and Senator Enzi, that Chairman Bond felt it
necessary to assist Senator Enzi in his efforts to gain a
better understanding of SBA travel practices. Among the issues
raised by Chairman Bond and Senator Enzi were the use of an
agency hired limo service to provide home to work service,
expenditures by the SBA for makeup and hair care service for
the Administrator and the expenditures of a senior SBA employee
whose travel documents were not provided to the Committee
despite repeated requests. The SBA has implemented new
procedures to reduce the risk of fraud or abuse, but the
Committee still has not completed all aspects of its review and
intends to complete it in the 107th Congress.
2. Computer security
In response to an audit finding that there was very little
in the way of appropriate computer security policies and
procedures in use at the SBA, Chairman Bond wrote to
Administrator Alvarez to express his concern and requested that
the SBA report to the Committee on a monthly basis it efforts
to comply with the recommendations of the auditors. That effort
is ongoing.
The Committee has also worked with the IG at the EPA to
address the EPA's lack of attention to protection of agency
computers from computer hackers. In particular, the EPA lacks
any formal Internet ``firewall'' that would provide some level
of protection of agency computers. The Committee is monitoring
the EPA's efforts to rectify this important problem.
3. Million Mom March
On July 6, 2000, Chairman Bond wrote SBA Administrator Aida
Alvarez with a series of questions concerning her use of SBA
resources to promote the Million Mom March on gun control.
Administrator Alvarez had sent Administrator's Memo No. 423 of
May 12, 2000 to agency employees to provide information on the
march. It included material prepared by March organizers that
encouraged readers to register. Chairman Bond inquired about
the ethics of using Government resources to benefit an outside
organization, particularly on a subject that had nothing to do
with small business.
On July 28, 2000, Administrator Alvarez responded that the
Government resources used to promote the Million Mom March were
de minimis.
III. Small Business Regulatory Issues
A. OSHA's promulgation of an ergonomics standard
By far the dominant source of activity was responding to
the Occupational Safety and Health Administration's efforts to
promulgate a regulation on ergonomics. This generated a variety
of activities and concerns.
1. Small Business Regulatory Enforcement Fairness Act (SBREFA) panel
On March 2, 1999, a panel was convened as mandated by
SBREFA to explore the impact of this regulation on small
businesses. The draft of the proposal had been released on
February 19, 1999 in preparation for the Panel's review.
The Panel was chaired by Marthe Kent of OSHA and consisted
of Jere Glover, Chief Counsel for Advocacy from the Small
Business Administration; Don Arbuckle, Acting Administrator
Office of Information and Regulatory Affairs at Office of
Management and Budget; Joseph Woodward, Associate Solicitor for
Occupational Safety and Health, Department of Labor; and Robert
Burt, Senior Economist from OSHA. In addition, 20 small entity
representatives (SERs) representing a wide variety of
industries that would be covered by the regulation were invited
to participate in the process by providing direct input to the
Panel on how this regulation would impact their businesses, and
the problems they anticipated from attempting to comply with
it.
The Panel held teleconferences with the SERs on March 23,
24, and 25, during which the Panel and the SERs were able to
discuss different provisions of the proposal and their impact.
The three different teleconferences were necessary so that all
SERs could have a chance to participate and express their views
fully. After the teleconferences, 15 of the 19 SERs who
participated submitted written comments describing their views
on the draft proposal.
The SERs raised many specific concerns with the draft
proposal. Among these were: whether a regulation is necessary
given the reduction in recent year of reported musculoskeletal
disorders (MSDs); whether an employer was in the best position
to determine whether an MSD was work related--many felt this
determination should be made by a medical professional; and
whether OSHA had seriously underestimated the costs of
implementing the proposal including the costs for developing a
program, training, conducting job hazard analyses, controlling
jobs, covering medical management, implementing the medical
removal protection provisions, and using outside consultants.
The SERs also pointed out their inability to pass on these
costs, and some mentioned that this could lead to companies
relocating outside of the United States, or being less able to
compete with foreign companies.
The medical removal protection (MRP) provision was
especially criticized by the SERs. Under the draft proposal
this would require employers to provide, for up to six months,
an employee with 100% of their take home pay and full benefits
if they must take leave to recuperate from a work related MSD.
This provision caused many SERs to be concerned because it will
be in addition to the coverage provided by their normal
workers' compensation for which they are already paying
premiums. Many SERs felt this would lead to fraud and abuse by
employees since there is no objective way to establish whether
an MSD exists, or to measure its severity.
Another provision that drew extensive criticism was the
``one injury trigger'' which specified that if one employee
reported a work-related MSD, then the employer would be
required to implement the full ergonomics program for any
``similar jobs.'' Many SERs raised concerns about how to
determine whether a job was similar to one associated with an
MSD, and whether this meant that a company could be forced to
implement the full program based on one injury which might have
been caused by factors not part of the workplace.
Many SERs also pointed out that they felt this regulation
would lead to greater selectivity in hiring practices that
would favor those who would be less likely to incur an MSD or
trigger compliance with the regulation.
A report from the Panel was issued on April 30, 1999, which
contained the concerns as expressed by the SERs. Although the
report also disputed the validity or merits of those concerns,
or assumed the best case scenario which would mute these
concerns, it recommended various ways that OSHA should respond
to the SERs' comments: OSHA should consider alternatives to the
MRP; OSHA should clarify various terms of the standard such as
``similar jobs,'' ``feasibility,'' and personal protective
equipment; OSHA should re-examine their cost estimates in light
of SER comments regarding the number of hours required to
implement the program, the training requirements, the use of
consultants, the MRP requirements, job hazard analysis, and job
control; OSHA should discuss their assumptions underlying the
benefits estimate; and OSHA should clarify when employers have
done enough to satisfy the standard.
The report also discussed alternatives to the draft
proposed regulation and recommended that OSHA solicit comments
on alternatives such as: non-regulatory guidance; issuing only
a Safety and Health Program Standard; waiting until the
National Academy of Sciences study on whether there is
sufficient evidence to support a regulation is issued; changing
the trigger of the regulation from the one injury in the draft
proposal; changing the scope to cover only manufacturing jobs;
and exploring further whether to include the MRP provisions and
how best to include them if they are retained.
When released, the report also included all written
comments submitted to the Panel by the SERs.
2. National Academy of Sciences study on musculoskeletal disorders and
the workplace
a. Initial contact with the study
Included in the Omnibus Spending measure passed by Congress
and signed by the President at the end of the 105th Congress
for Fiscal Year 1999 was $890,000 for the National Academy of
Sciences (NAS) to conduct a literature review to determine
whether the scientific studies provide adequate data to support
a regulation on ergonomics in the workplace. These funds were
appropriated to the Department of Health and Human Services
along with a list of seven questions that the study was to
address.
The seven questions were as follows: (1) What are the
conditions affecting humans that are considered to be work-
related musculoskeletal disorders; (2) what is the status of
medical science with respect to the diagnosis and
classification of such conditions; (3) what is the state of
knowledge, characterized by the degree of certainty or lack
thereof, with regard to occupational and non-occupational
activities causing such conditions; (4) what is the relative
contribution of any causal factors identified in the literature
to the development of such conditions in the general
population, specific industries, and specific occupational
groups; (5) what is the incidence of such conditions in the
general population, specific industries, and specific
occupational groups; (6) does the literature reveal any
specific guidance to prevent the development of such conditions
in the general population, specific industries, and specific
occupational groups; and (7) what scientific questions remain
unanswered, and may require further research, to determine
which occupational activities in which specific industries
cause or contribute to work-related musculoskeletal disorders.
The contract that was executed between the National
Institute of Occupational Safety and Health (NIOSH--an agency
within the Department of Health and Human Services) and the NAS
contained the following six tasks as the scope of work: (1) an
assessment of the medical and biomechanical literature
describing the load response relationships and their
consequences for musculoskeletal structures; (2) an examination
of the contribution of the medical and behavioral science
literature to understanding links between musculoskeletal
disorders and job characteristics, organizational factors, non-
work-related activities, and variations; (3) an evaluation of
existing core data sets characterizing the patterns of
incidence occurrence in the workplace; (4) an evaluation of the
state of knowledge on prevention strategies; (5) an examination
of likely effects of changes in work and the workforce on the
incidence of musculoskeletal disorders; and (6) recommendations
for research.
The first meeting of the Panel convened for this study was
held on May 10, 1999, and included remarks from staff
representing the offices of Chairman Bond, Senator Jeffords,
Senator Nickles, and Congressman Bonilla. In their remarks the
Congressional staff emphasized Congress' intent that this study
be a de novo review of the literature and that this study
should adhere to the most stringent standards of scientific
review.
In 1998, NAS conducted a workshop on Work Tasks and
Musculoskeletal Disorders which attempted to survey the
scientific literature and assess the strengths and weaknesses
of it. It was a hastily arranged and non-scientifically
rigorous effort which merely clouded further the question of
what the scientific literature says on this subject. NIOSH had
also conducted a literature review in 1997, but this did not
examine the studies under sufficiently critical criteria such
as evaluating the weight of the evidence supporting each study.
A follow up letter to the May 10 meeting was sent to the
NAS on May 28, 1999, which reiterated the concerns expressed at
the meeting as well as elaborating on the specific reasons why
previous studies should not be considered as starting points
for this study. The letter also sought to ``ensure that the six
tasks outlined in the Panel's statement of work are designed to
address each of the seven questions delineated in the report
accompanying last year's House-passed Labor-HHS Appropriations
bill.'' This letter was signed by Senators Bond, Nickles, Enzi,
and Congressmen Talent, Blunt, Bonilla, Goodling, DeLay, and
Ballenger.
The NAS responded with a letter dated June 18, 1999, which
committed the NAS to conducting a ``comprehensive and critical
evaluation of disparate data bases and studies * * * according
to criteria adopted by the study committee.'' The letter also
stated that ``you can be assured that our project is focused on
the seven questions that were raised in your original letter.
We have sought to design the study to address the needs in your
original letter, as well as the legislation, and we appreciate
your continued input concerning Congress' intent for this
study.'' NAS also promised to ``keep your staff apprised of all
aspects of this project on a regular basis. * * *'' The letter
was signed by Drs. Alberts and Shine, the President of the NAS
and the President of the Institute of Medicine, respectively.
b. Follow-up contact with the study
On March 15, 2000, a second letter to NAS was sent from
Chairman Bond with additional signatures from Congressmen Blunt
and Bonilla. This letter expressed dismay that the NAS had not
fulfilled its commitment to keep the Congressional offices
``apprised'' of developments of the study as there had been
absolutely no contact since the letter of June 18, 1999.
Because the meeting format for the Panel does not allow outside
observers into the sessions where the literature reviews are
discussed, there is no way to determine whether NAS' efforts
are on track with Congress' intent.
This second letter also criticized the NAS for pursuing a
study that was inconsistent with the seven questions specified
by Congress when it appropriated the money for the study. A
Congressional Research Service analysis was included that
identified discrepancies between the seven questions as posed
by Congress and the six tasks that comprised the statement of
work for the contract. The letter requested a detailed oral
briefing from the NAS staff about how they were addressing
these concerns and for NAS to provide full documentation
describing the project and all committee meeting minutes.
A meeting was held on April 5, 2000, attended by staff from
the offices of Senators Bond, and Nickles, and Congressman
Bonilla, as well as the following staff from NAS: Jim Jensen
(NAS/National Research Council), Andrew Pope (Institute of
Medicine), Alexandra Wigdor (NAS), and E. William Colglazier
(NAS/National Research Council). During the course of this
meeting, the NAS representatives confirmed that the study is
being conducted in accordance with the six tasks as enumerated
in the statement of work, but that the seven questions
identified by Congress are being ``kept in mind'' and that in
the final report these questions will be ``recognizable.'' NAS
also conceded that the contract was executed without giving
Congressional offices an opportunity to review it and determine
whether it was consistent with the legislative mandate. NAS
further indicated that the literature reviews are being
performed in a number of cases by reviewers that have been
``commissioned'' by the Panel and who have not been screened
for bias or prior history of involvement in this issue. These
reviewers were selected by members of the Panel because they
were known to be ``experts.'' Furthermore, the criteria by
which the studies are being reviewed is not available to the
public, but will be included in the final report and is subject
to the peer review that the report will undergo before being
published.
c. HHS OIG audit
Also on March 15, 2000, a different letter was sent to the
Office of Inspector General at the Department of Health and
Human Services requesting an inquiry into whether the funds
that had been appropriated were being spent consistent with
Congressional intent, and whether the NAS was being responsive
to its legislative mandate.
A meeting was also held on April 11, 2000, with staff from
the Office of Inspector General of the Department of Health and
Human Services to brief them on the request that they inquire
into how the appropriated funds are being spent. The OIG agreed
to pursue the questions of whether the funds are being spent
consistent with the legislative mandate and to conduct a review
of NIOSH's oversight of this contract.
The results of this inquiry were transmitted to the
Chairman in a letter dated January 3, 2001. The Office of
Inspector General determined that although the tasks which form
the work order for the contract between HHS and NAS are not the
questions which Congress intended to be answered, those
questions will be answered in the study. Therefore the funds
appropriated for the study are being spent appropriately.
Furthermore, while NIOSH's oversight of the committee's
activities is less than might occur with other projects, this
is largely because of the NAS's policy with regard to the
involvement of sponsors and the Academy's desire to maintain
its credibility by keeping sponsor involvement and input to a
minimum. Therefore, NIOSH's oversight is appropriate under the
circumstances.
d. Report of NAS panel on musculoskeletal disorders and the
workplace, low back and upper extremities
On January 16, 2001, NAS delivered to members of Congress
and relevant agencies, the final report from the panel. The
panel concluded that a ``clear relationship'' exists between
back disorders and tasks associated with work. It also
concluded that work-related psychosocial factors such as
stress, low job satisfaction, low decision latitude, and
monotonous work are also associated with MSDs such as low back
disorder and upper extremity disorders. Additionally,
individual factors such as weight, age, and gender can play
significant roles in determining whether a person is likely to
develop an MSD. Significantly, there was also a dissent from
the consensus by one member of the panel (a hand and wrist
surgeon) who raised questions about whether studies dealing
with carpal tunnel syndrome should have been included, and
whether conclusions drawn from these studies were valid. The
report also called for more research in areas such as exposure
assessment, measures of outcomes and case definitions for
epidemiologic studies, further quantification of the
relationship between exposures and outcomes, as well as
research into specific body and scientific discipline areas.
3. Legislative activities on ergonomics
a. S. 1070/H.R. 987
On March 4, 1999, Congressman Blunt (R-MO) introduced H.R.
987, The Workplace Preservation Act, which would stop OSHA from
continuing its efforts to promulgate an ergonomics standard
until the NAS completed its study of the scientific literature.
The bill was marked up out of subcommittee on May 19, 1999, and
reported out of the Committee on Education and the Workforce on
June 23, 1999. On August 3, 1999, the House passed H.R. 987 by
217-209.
Chairman Bond introduced a companion bill, S. 1070, The
Sensible Ergonomics Needs Scientific Evidence (SENSE) Act on
May 18, 1999 which has been referred to the Committee on
Health, Education, Labor and Pensions. S. 1070 now has 48
cosponsors and has been the subject of three Dear Colleague
letters as well as countless grass roots letter campaigns and
constituent visits to Senate offices.
During the floor debate on October 7, 1999, to consider the
Labor/HHS Appropriations bill, S. 625, Chairman Bond offered
Amendment No. 1825 which was perfected by Amendment No. 2270
that would have prevented any funds appropriated to the
Department of Labor from being spent by OSHA to promulgate or
issue an ergonomics standard. The amendment survived a vote to
table, but was subsequently withdrawn by the Majority Leader,
Senator Lott, when it was clear that the Democrats would not
permit a vote on it. At the time he withdrew the amendment,
Senator Lott committed to bringing the subject of the amendment
back to be voted on by the Senate on a piece of legislation
that would pass before the end of the year. This never
occurred. S. 1070 expired at the end of the 106th Congress.
b. Northup/Enzi riders to fiscal year 2001 Labor/HHS
Appropriations Act
In the second session of the 106th Congress, Representative
Anne Northup (R-KY) introduced an amendment to the Labor/HHS
Appropriations (H.R. 4577) in the House Appropriations
committee that would block the ergonomics regulation from being
completed during Fiscal Year 2001. The amendment was accepted
on a party line vote (32-22) and set the stage for a floor
fight on the ergonomics rider. The Northup language survived a
motion to strike offered by Representative James Traficant (D-
OH) by a vote of 203-220. The Northup amendment would prevent
OSHA from spending any funds ``to promulgate, issue, implement,
administer, or enforce any proposed, temporary, or final
standard on ergonomic protection.''
With the successful amending of the Labor/HHS bill in the
House, the focus was on whether the Senate could match this
achievement. Because of Senator Specter's support for OSHA's
ergonomics regulation, it was necessary to offer the amendment
on the floor. Small Business Committee staff worked with
leadership staff as well other Senate staff to develop the
floor strategy and resources to pass an identical amendment on
the Senate's version of the Labor/HHS Appropriations Act.
Senator Enzi offered the amendment on the floor immediately
after the bill was brought up on June 22. As the first
amendment to the bill, the bill would not be allowed to move
until the ergonomics amendment was voted on. Opponents
threatened to filibuster the bill and offered various
procedural maneuvers to push the debate into the late afternoon
and evening. Finally, Senator Lott negotiated a compromise that
allowed for a vote on the ergonomics amendment and a vote on an
amendment that would add a prescription drug benefit to
Medicare. The ergonomics amendment was accepted 57-41 with all
Republicans except Senator Specter and three Democrats (Sens.
Hollings, Breaux, and Lincoln) supporting it. The language
passed was identical to the language passed in the House which
should have insured that the amendment would not be disturbed
in conference.
Throughout the summer and into the fall the conference on
the Labor/HHS bill continued to look for a compromise on the
ergonomics issue as well as Administration requests for more
funds. The Administration announced that the bill would be
vetoed if it contained the ergonomics amendment. On October 30,
a deal was announced that would allow the ergonomics regulation
to be issued, but not take effect until June 2001. This deal
was immediately killed by Republican leadership in both houses
who recognized that this would give nothing to the Republicans.
Soon after this deal fell through, Congress passed an extended
continuing resolution to fund the government past the elections
on November 8. With the extended resolution of the presidential
election, further CRs were passed until the Labor/HHS bill was
combined with the other outstanding appropriations measures
(Treasury/Postal Service, and Legislative Operations) and
passed on December 15, as Congress adjourned on the same day.
The final total for the Labor/HHS bill was $108.9 billion which
included an increase of $44 million for OSHA over the Fiscal
Year 2000 appropriation. The final package contained no mention
of the ergonomics issue at all. OSHA had published the final
rule on November 14.
4. OSHA's notice of proposed rulemaking on ergonomics
a. Comments filed by Chairman Bond
On November 23, 1999, the week after Congress adjourned on
Friday November 19, OSHA published their proposed regulation on
ergonomics in the Federal Register. The full publication was
312 pages of which the last 12 were the proposed regulatory
text. Initially, the agency set a deadline for comments to be
received by February 2, 2000. After pressure from Congress led
by Chairman Bond along with 61 other members of the Senate and
House, and a widespread outcry from all sectors of industry,
OSHA extended the deadline for comments to March 2, 2000.
The proposed rule required employers with manufacturing or
manual handling jobs to implement some elements of the full
ergonomics program regardless of whether any employees have
reported any MSDs or any symptoms have been discovered. If an
employee does report an injury in any general industry
workplace, that employer must implement the full ergonomics
program specified in the proposal or implement a modified
program called a ``Quick Fix.'' OSHA's proposal was heavily
criticized by all sectors of the business community.
Chairman Bond submitted comments to the docket on the
proposal which made the following points:
The proposal is riddled with vague terms such as
``periodically,'' ``promptly,'' ``considerable physical
effort,'' ``feasible controls,'' ``same motion over and over
again,'' and ``sitting for a long time.'' It also defines an
OSHA recordable MSD as one where the ``exposure at work caused
or contributed to the MSD or aggravated a pre-existing MSD.''
This is inconsistent with current regulatory language at 29 CFR
1904 which defines a recordable injury as one which results in
lost workdays or medical treatment without reference to work
place exposure causing or contributing to the injury. The
language relied upon by OSHA on this point has been taken from
a 1996 proposal to revise the Recordkeeping Standard at 29
C.F.R. 1904 which has yet to be finalized.
Other problems with the proposal include the Worker Removal
Protection (WRP) provision which requires employers to pay 90%
of workers' take home pay if they must take leave to recuperate
and 100% of the take home pay if they are moved to lighter duty
because of a work related MSD. Benefits are to be maintained at
the full level in both cases and this coverage is to be
available for up to six months (in the draft for the SBREFA
panel, this provision was called medical removal protection
(MRP)). Apparently, in response to the heavy criticism this
provision received in the SBREFA report, the requirement for
take home pay protection was reduced from 100% to 90%. This
would be in addition to any benefits the employee receives
through the worker's compensation coverage.
This provision would create a tremendous financial burden
on small employers and businesses in general. Although
employers are permitted to balance this requirement against
what an employee would receive under the available workers'
compensation benefits, workers' compensation typically only
provides two thirds of an employee's salary up to a specified
maximum amount. Furthermore, there is usually a waiting period
of at least one week before an employee can qualify to receive
workers' compensation benefits. Under OSHA's WRP provision, the
employee is eligible as soon as they are placed on work
restriction. Thus, employers will still have to provide
substantial payments even if an employee qualifies for workers'
compensation. In addition, in many cases, the employer may also
have to hire replacement help to fill the role vacated by the
injured employee, adding to the overall cost of this provision.
The WRP provision singles out MSD injuries for benefits
that no other injury would receive. Even such a debilitating
injury as a broken bone would only qualify an employee for the
standard workers' compensation benefits, yet if an employee
developed an MSD through activities outside of the workplace
which was aggravated by his or her workplace activities, they
could qualify to take leave and still receive 90% of their take
home pay. This provision thus creates an enormous potential,
and indeed, an incentive for fraud. It also makes this
provision inherently unfair to other employees who may suffer
more traditional, less lucrative injuries.
As a result, this provision appears to conflict with a
requirement in the Occupational Safety and Health Act which
prohibits OSHA from interfering with workers' compensation
programs. Section 4(b)(4) of the Occupational Safety and Health
Act of 1970 states:
Nothing in this Act shall be construed to supersede
or in any manner affect any workmen's compensation law
or to enlarge or diminish or affect in any other manner
the common law or statutory rights, duties, or
liabilities of employers and employees under any law
with respect to injuries, diseases, or death of
employees arising out of, or in the course of,
employment.
Occupational Safety and Health Act of 1970, 29 U.S.C.
Sec. 653(b)(4), emphasis added.
OSHA is therefore exceeding its legislative authority by
imposing the WRP provision which interferes directly with
states' worker compensation programs.
b. Other correspondence on OSHA's proposed ergonomics
regulation
On June 13, 2000, Chairman Bond sent another set of
comments to OSHA criticizing the agency for not having included
employees in the railroad industry, United States Postal
Service, and state and local governments in the economic
analysis for the regulation. The total number of employees was
over 10 million. Furthermore, OSHA admitted that they relied on
AFL-CIO data for the number of injuries suffered by employees
in the state and local government sectors. These admissions by
the agency were published in the Federal Register on May 23,
2000. Chairman Bond stated that these failures confirmed his
belief that the agency was ``clueless about the impact of the
proposed ergonomics regulation'' and called on Assistant
Secretary Jeffress to withdraw the proposed regulation.
On June 16, 2000, Chairman Bond joined with Rep. Henry
Bonilla (R-TX) and spearheaded a letter to Office of Management
and Budget Director Jack Lew requesting that OMB conduct a
thorough review of OSHA's cost estimates when the regulation is
sent over for review before being issued as a final rule. The
letter was signed by 47 other bipartisan senators and 166 other
bipartisan members of the House.
5. Department of Labor Office of Inspector General review and General
Accounting Office review of OSHA's use of contractors during
ergonomics rulemaking
On May 9, 2000, Chairman Bond requested the Office of
Inspector General (OIG) of the Department of Labor to review
OSHA's use of contractors in the ergonomics rulemaking.
Specifically, he posed the following questions:
--Is OSHA engaging contractor(s), or other third parties
unrelated to the Executive Branch, to review the comments and
testimonies submitted to the ergonomics docket (S-777), and if
so how many?
--Has OSHA done this for other rulemakings, and if yes,
which ones?
--If this is taking place for the ergonomics rulemaking,
what quality controls and other checks are in place?
--How was the contractor(s) selected?
--What are the deliverables from the contract(s)?
On June 15, 2000, Chairman Bond expanded his request to
cover whether OSHA had paid contractors to testify at their
hearings and if so how much had these contractors been paid?
On September 20, 2000, staff from the OIG briefed staff
from Chairman Bond on their findings. OSHA had engaged
contractors to review the docket and develop software to
catalog the comments submitted on the proposed ergonomics
regulation. Contractors have been used in previous rulemakings
to review and catalog comments. OSHA staff were in close
contact with the contractors to monitor quality of the software
development and assure complete summarizing of the comments.
Contractors were selected under a competitive bidding
procedure, although those used for testimony were selected
because of their expertise. The contractors selected to review
the comments and testimony were required to deliver summaries
thereof. Contractors selected to testify at the hearings
delivered their statements. OSHA paid contractors to testify at
the hearings on the following schedule: $3000 to prepare
testimony; $5000 to present testimony; $2000 to provide record
analysis and posthearing review; total of $10,000. The OIG also
concluded that their ``ability to assure a complete list [of
contractors] is impaired because systems to control and
summarize procurement actions related specifically to the
ergonomics rulemaking are nonexistent.''
On June 29, 2000, Chairman Bond joined with Senators
Jeffords, Thompson, and Enzi in requesting the GAO to review
OSHA's use of contractors and specifically expert witnesses at
the hearings for the ergonomics regulation. Specifically, the
requesters sought to learn:
--Whether OSHA directed witnesses on the drafting, content
or presentation of their testimony, or participated in editing
testimony, or preparing the witnesses to testify? What are the
documented procedures OSHA has for working with witnesses
regarding their testimony?
--What are the practices and standards regarding payment of
contractors as witnesses for regulatory agencies? What types
and amounts of payments (travel, per diem, other) does OSHA
generally give to witnesses? How does this compare with the way
OSHA paid their witnesses during the ergonomics hearings? How
do OSHA's practices during the ergonomics rulemaking compare
with other agencies?
--What are the practices and standards of OSHA and other
regulatory agencies regarding public disclosure of the fact
that witnesses are paid by the regulatory agency? Did OSHA or
its ergonomics witnesses disclose the fact that the witnesses
were being paid by OSHA, as well as the amount being paid? To
what extent do other agencies or their witnesses generally
disclose this information?
This audit was delayed because of OSHA's insistence on
negotiating a confidentiality agreement preventing GAO from
divulging specific information to the Congressional requesters.
This audit is not yet complete because OSHA neglected to reveal
the presence of documents submitted to them from the
contractors such as drafts of testimony. Negotiations are also
continuing on access to electronic mail messages that could
reveal agency involvement in shaping testimony.
6. OSHA's final ergonomics regulation
OSHA published its final regulation on ergonomics on
November 14, 2000, notwithstanding that both houses of Congress
had indicated with bipartisan majorities that OSHA should not
finalize the regulation. The Administration was able to extend
the negotiations on the ergonomics amendment to the Labor/HHS
Appropriations Act long enough to allow OSHA to complete the
regulation, notwithstanding questions about whether OSHA had
given the comments received on the proposal and testimony taken
during five weeks of hearings sufficient consideration.
Questions also remain about OMB's level of review. OMB never
admitted to having the rule under review until after it was
published as final rule. The notice in the Federal Register
totaled 609 pages.
The final rule represented a dramatic departure from the
proposed rule and is a much more burdensome and troubling
regulation than the proposed rule would have been, even though
that version would have been unacceptable. The most significant
changes in the final rule versus the proposed rule were:
--The final rule covers all general industry employers
which is essentially defined as all employers not in the
construction, maritime, or agriculture industries. The proposed
rule focused on jobs with manufacturing and manual handling
characteristics, although any employer could be covered if an
employee reported an injury. The final rule does away with the
facade and sweeps every employer not otherwise excluded under
the rule. This means an increase in the number of small
businesses covered by the regulation.
--The final regulation includes a ``screening tool'' that
employers are to use in determining whether an employee's tasks
present ergonomic risk hazards. This ``tool'' is a table of
various body positions, weights and motions with the thresholds
that OSHA has determined constitute a hazard in each case. If
an employee is exposed at these threshold levels, they are said
to have reached the ``action triggers.'' These thresholds do
not represent any level of medical or scientific consensus,
rather this table was taken directly from the Washington State
ergonomics regulation which was developed by former OSHA
ergonomics program director Barbara Silverstein. Significantly,
this ``screening tool'' and the ``action triggers'' were never
included in the proposed rule meaning that there was no
opportunity to comment on this major provision in the final
rule.
--Although the final rule attempts to clarify terms which
were criticized as vague in the proposed rule, it merely
substitutes new vague terms for the old ones. The proposed rule
would have required employers to ``eliminate hazards'' or
``reduce hazards to the extent feasible.'' The final rule
requires employers to ``control'' ``hazards'' until they are no
longer ``reasonably likely to cause'' injuries, ``reduce''
``hazards'' to extent feasible, or ``reduce'' ``hazards'' to
strict quantitative levels mandated by regulatory appendix.
Because there is no way to reliably know what ``reasonably
likely to cause'' means, employers will be forced to default to
the quantitative thresholds contained in the ``screening tool''
which lack any scientific foundation.
--The Worker Removal Protection (WRP) provision was
modified so that an employer now must provide an employee 90%
of take home pay to recover from an injury, but only for 90
days instead of the proposed six months. This still raises the
same questions as the proposed provision with respect to
conflicting with the OSH Act's prohibition on interference with
state workers' compensation laws.
--The grandfather clause was streamlined so that employers
have a year to implement the MSD management provisions which
include the WRP requirements. This was done ostensibly so that
more employers could qualify for the grandfather clause, thus
reducing opposition to the regulation. However, to qualify,
employers will still need to have OSHA's program in place,
instead of a program they may now be using.
--The final regulation will still be triggered by symptoms
reported by employees which were not caused by workplace
exposure. Under the proposed rule, the regulation was triggered
by an ``OSHA recordable'' injury which was defined to include
any injury that was caused by workplace exposures, contributed
to by workplace exposures, or a pre-existing injury which was
aggravated by workplace exposures. Under the final rule, this
definition has been moved from that of a ``recordable injury''
to that of ``work related'' and the aggravation level for a
pre-existing injury has been modified to be ``significantly''
creating more vagueness in the regulation.
This regulation has triggered extreme criticism from all
sectors of the business community. Immediately upon its issue
legal challenges were filed and over 60 parties have joined the
litigation. Organized labor has also challenged the regulation
charging that it is not protective enough since it requires an
employee to report symptoms before an employer must implement
the full ergonomics program, as compared to other OSHA
standards that require protective measures to be taken before
an injury is apparent. In addition to the litigation, a
challenge in Congress is expected under the Congressional
Review Act which gives Congress to invalidate a regulation if
both houses pass a joint resolution of disapproval and the
president signs it. The Bush administration is also expected to
consider undertaking a rulemaking to change or revoke the
ergonomics regulation.
Chairman Bond issued a statement describing the regulation
as a ``monument to regulatory excess'' and predicting that it
will ``devastate small businesses.'' He also issued a statement
supporting the legal challenges that have been filed.
The final rule took effect on January 16, 2001, just before
the Clinton Administration was concluded.
B. S. 1156, ``Small Business Advocacy Review Panel Technical Amendments
Act of 1999''
The Small Business Regulatory Enforcement Fairness Act
(SBREFA) was passed in 1996 to provide small businesses with an
opportunity to provide more input into the regulatory
rulemaking process. The signature provision of SBREFA requires
the Occupational Safety and Health Administration (OSHA) and
the Environmental Protection Agency (EPA) to convene panels
with representatives from the agency, the Small Business
Administration's Office of Advocacy, and the Office of
Management and Budget's Office of Information and Regulatory
Affairs. The panels then receive input from selected small
entity representatives (SERs) who will be impacted by the
regulation. For other agencies, SBREFA requires outreach to
small businesses to solicit their input on the impact of the
rule to their industries.
Since 1996, EPA had convened 14 panels and OSHA had
convened three. As a result of these experiences, it became
clear that some amendments to the process were necessary in
order to enhance the ability of small businesses to participate
in the panels. In addition, members of the small business
community believed it would be beneficial to small businesses
to have the IRS and the Department of Treasury included as
agencies that are required to convene review panels in addition
to OSHA and EPA.
On May 27, 1999, Chairman Bond, with Senator Kerry as an
original cosponsor, introduced the Small Business Advocacy
Review Panel Technical Amendments Act of 1999 (S. 1156). The
bill would require IRS to convene SBREFA panels in the same way
as OSHA and EPA. It would also give the Chief Counsel for
Advocacy a role in helping to select the SERs, and allow
organizations that ``primarily'' represent small entities to
serve as SERs.
S. 1156 was marked up and reported out of the Small
Business Committee on a unanimous vote on July 15, 1999, after
two amendments by Senator Wellstone were accepted. The
amendments changed the role of the Chief Counsel for Advocacy
to that of ``consulting'' in the selection of SERs, and
specified that an organization must ``primarily'' represent
small entities to qualify as an SER.
On September 28, 1999, S. 1156 was passed by the Senate
under Unanimous Consent. A companion bill in the House, H.R.
1882 was reported out of the House Small Business Committee,
but was never approved by the Ways and Means Committee which
had jurisdiction because of the IRS issue.
S. 1156 was under consideration for inclusion in the SBA
Reauthorization bill, but opposition to the IRS provisions kept
it out and it died at the end of the second session.
C. SBREFA and Other Small Business Activities
1. Roundtable on SBREFA and Regulatory Flexibility Act issues
On March 10, 1999 the Small Business Committee staged a
roundtable for interested parties to discuss issues related to
the implementation of the Regulatory Flexibility Act (RFA) and
the Small Business Regulatory Enforcement Fairness Act
(SBREFA), also known as the ``Red Tape Reduction Act,'' which
amended the RFA. Twenty-eight representatives of small business
interests participated in the discussion.
The agenda included discussions on: the coverage and
applicability of the RFA/SBREFA, including agency
interpretations of non-applicability and non-NPRM rulemaking;
RFA/SBREFA components to agency rulemakings such as the Initial
Regulatory Flexibility Analysis, Final Regulatory Flexibility
Analysis, and SBREFA Panel Review process; judicial review of
agency compliance with RFA/SBREFA; Section 610 periodic review
of rules to determine if any changes are necessary to assist
small businesses; agency responses to the compliance assistance
requirements of SBREFA; and experiences with agency enforcement
under SBREFA.
The transcript of the Roundtable was printed as S. Hrg.
106-292.
2. Agricultural issues roundtable in Kansas City, MO
The Senate and House Committees on Small Business held an
agricultural issues roundtable entitled, ``Building A Stronger
Agricultural Community'' in Kansas City, Missouri on August 24,
1999. Chairman Bond, the Chairman of the Senate Committee on
Small Business, and Congressman Jim Talent, the Chairman of the
House Committee on Small Business co-chaired the Roundtable.
Twenty one representatives of agricultural interests
participated.
The agenda included discussions on: tax issues critical to
the agricultural sector; regulatory reform and the role of
SBREFA and RFA in agricultural regulations with agencies like
EPA, the Forest Service, and the U.S. Department of
Agriculture; and ways to increase trade of agricultural
products.
The transcript of the Roundtable was printed as S. Hrg.
106-456.
3. B2B issues forum: B2B--An Emerging E-Frontier for Small Business
The Senate Small Business Committee held a forum on May 18,
2000 to explore the use of electronic commerce for Business to
Business transactions (B2B) and how this trend may affect small
enterprises. In opening the forum, Chairman Bond raised three
primary questions for the participants to address: How can
small businesses take advantage of this trend?; What obstacles
do small businesses face in trying to advantage of this trend?;
and Is this trend a benefit or a problem for small businesses?
He explained that the Committee's goal in holding this forum is
to help the small business community better understand the
opportunities that are becoming available through the use of
the Internet and the computer revolution in general. Although
many in the high technology industries are very familiar with
these possibilities, many small businesses still lag behind and
are unaware of how their businesses could benefit. Chairman
Bond described the Internet as ``the latest toolbox available''
to help small businesses compete in the marketplace.
The forum consisted of opening statements from three
panelists who described the Internet-based B2B trend, the range
of its impact, the amount of small business participation, and
how this technology can be adapted to help small firms. In
addition to the three panelists, 20 invited participants,
representing a cross section of small business and high
technology interests, engaged in a discussion following the
opening statements.
The transcript was printed as S. Hrg. 106-707.
4. GAO study of SBREFA section 610 compliance
On April 2, 1999, GAO released a study (GAO/GGD-99-55) on
how agencies were complying with Section 610 of the Regulatory
Flexibility Act which requires each Federal agency to develop a
plan to review all of its existing rules within 10 years of the
RFA and any new rules within 10 years of their implementation
that have or will have a ``significant economic impact on a
substantial number of small entities.'' The review is to
determine whether the rules should be continued without change
or should be amended or rescinded to minimize their impact on
small entities. Agencies are also required to publish an annual
notice in the Federal Register of the rules they have
designated for Section 610 review in the succeeding 12 months.
This notice is often handled through the Unified Agenda of
Federal Regulatory and Deregulatory Actions which appears each
November and April in the Federal Register, although the RFA
does not specify that this must be done in the Unified Agenda.
The report found that in the April 1998 Unified Agenda
there were 61 Federal departments, agencies and commissions.
Only seven agencies included a total of 22 Section 610 entries.
Therefore, 54 Federal departments, agencies, and commissions
had no Section 610 listings at all. Furthermore, only two of
the 22 listings appeared to satisfy the requirements of Section
610. The results were similar for the November 1988 Unified
Agenda. Only eight agencies out of 61 posted a total of 31
Section 610 entries, and only one was determined to actually
satisfy the requirements. In addition, 21 of the 31 entries
were determined to have appeared in the April 1998 Unified
Agenda and had merely been updated for the November 1998
edition.
GAO documented how agencies have different interpretations
of the requirements of Section 610. For example, agencies
differ on whether they should conduct a Section 610 review of
rules based on whether the rule had a significant economic
impact on a substantial number of small entities at the time
the rule was published, or at the time the review would have to
be conducted. GAO recommended that Congress consider clarifying
its intent in future legislation.
A follow-up symposium was conducted by GAO on February 1,
2000, to help agencies come to a more common understanding of
the requirements of Section 610. The symposium revealed
legitimate differences of opinion on how to interpret critical
terms in Section 610. Terms in the Regulatory Flexibility Act
such as ``significant economic impact'' and ``substantial
number of small entities'' are wide open to interpretation and
will determine what actions an agency takes. There was also
wide disagreement among agencies about whether Section 610
requires a review of rules based on their impact at the time of
publishing or after 10 years of implementation. Because the RFA
does not establish any specific authority to resolve these
different interpretations, agencies have been left to follow
their own interpretations leading to widely different levels
and styles of compliance.
5. EPA lead TRI inquiry
EPA's Toxic Release Inventory (TRI) program requires
entities to report use or release of certain chemicals beyond
threshold amounts. On August 3, 1999, EPA proposed to reduce
the reporting threshold for lead from 25,000 pounds per year to
10 pounds per year. The Small Business Committee met with
representatives from the metal finishing and electronic circuit
board industry who complained the rule would significantly
affect their industries and that EPA had failed to conduct the
required small business outreach to determine the rules'
impacts on small businesses and reduce its burden on small
businesses while still meeting the rules' environmental goals.
On September 8, 1999, Chairman Bond wrote EPA Administrator
Browner expressing his concern that EPA failed to conduct the
needed small business outreach and analysis mandated by the
Small Business Regulatory Enforcement Fairness Act (SBREFA) and
EPA's own small business policy. The Senator urged EPA to
conduct meaningful outreach to small businesses impacted by the
rule and reconsider its SBREFA certification of no significant
impact on any small businesses. Chairman Bond also encouraged
EPA to extend the rules' comment deadline to allow for
meaningful outreach.
Further analysis of the proposed rule and its supporting
economic analysis, and an almost complete lack of EPA action,
confirmed EPA ignored its obligation to consider the rule's
impacts on small businesses. On October 15, 1999, Chairman Bond
wrote EPA Administrator Browner requesting that the Agency
withdraw the proposed rule until the Agency gave proper
consideration to the rule's impacts on small businesses.
Chairman Bond scheduled a hearing for October 28, 1999, to
explore EPA's failure to meet its SBREFA obligations in this
case unless EPA withdrew the rule.
Preparations for the hearing included small business
testimony, CRS analysis of EPA's failures, industry
representative testimony and an invitation to EPA Administrator
Browner on October 20, 1999. On October 22, 1999, EPA responded
with an offer to conduct additional small business outreach. In
a meeting with EPA on October 26, 1999, Small Business
Committee staff expressed its concern that the input of small
businesses impacted by the rule would not impact the rule
unless EPA reconsidered its proposed rule.
On October 27, 1999, EPA agreed to extend the public
comment period for two additional months, hold three small
business stakeholder meetings in Los Angeles, Chicago and
Washington, and reconsider its impact certification and
proposed rule if the additional information and testimonies
indicated this was warranted. As a result of these concessions,
the Senator postponed the hearing indefinitely pending further
Agency action on the proposed rule.
On October 28, 1999, Chairman Bond requested GAO conduct an
investigation into the EPA's Office of Prevention, Pesticides
and Toxic Substances which was responsible for developing the
Lead TRI rule to examine its historic treatment of its SBREFA
responsibilities. EPA expects to have alternative options to
the Lead TRI rule by May 2000.
GAO concluded in its report (number GAO/GGD-00-193) that
EPA's economic analysis was flawed, although still sufficient
for EPA to rely upon it in certifying the regulation would not
have a ``sufficient economic impact on a substantial number of
small entities.'' GAO determined that the regulation could have
1 percent gross revenues impact upon as many as 1,500 small
companies, and as many as 78 companies, in 32 manufacturing SIC
codes, could experience 3 percent gross revenue impacts from
the rule. EPA's internal threshold for triggering SBREFA
requirements is for a gross revenue impact of between 1 and 3
percent. EPA agreed that the rule will have a higher impact
than originally projected, and high enough to otherwise trigger
SBREFA requirements, but EPA has declined to conduct an Initial
Regulatory Flexibility Analysis or convene a small business
review panel.
In the interim, serious questions were raised about the
science supporting EPA's rule suggesting that lead does not
meet the definition of a persistent bioaccumulative toxic (PBT)
chemical, which was the underlying reason for reducing the
reporting threshold of lead so dramatically. These science
questions have been raised by industry concerns who have
suggested EPA refer the issue to the Science Advisory Board for
an opinion. Notwithstanding these issues, on January 17, 2000,
EPA published a final rule for reducing the reporting of lead
under the TRI program. The threshold was reduced to 100 pounds
and the issue of whether lead is a ``highly bioaccumulative''
toxic was referred to the Science Advisory Board for further
review. SBA's Office of Advocacy played a significant role in
negotiating this outcome.
6. FCC treatment of small incumbent local exchange carriers (ILECs)
under the Regulatory Flexibility Act
Chairman Bond, joined by Senators Brownback and Kerry, sent
a letter on November 16, 1999 to Federal Communications
Commission Chairman William Kennard, raising concerns that the
Commission was not using an appropriate definition of a small
business, and consequently was ignoring its obligation to
conduct Initial Regulatory Flexibility Analyses before
regulations affecting ILECs were proposed.
Chairman Kennard responded on January 12, 2000 that before
issuing any proposed regulation, which requires a departure
from the size standards specified by the SBA, they work closely
with the SBA Office of Size Standards to come up with an
appropriate definition. Chairman Kennard also claimed that
since 1996 the Commission ``has consistently addressed the
impact of its rules on small ILECs in its RFA analyses.''
7. FCC treatment of small businesses in spread spectrum regulation
On August 8, 2000, Chairman Bond and Senator Kerry sent a
letter to FCC Chairman Kennard criticizing the Commission for
the Initial Regulatory Flexibility Act used in the FCC's
rulemaking to permit wide band frequency-hopping spread
spectrum systems in the 2.4 GHz band. The letter criticized the
FCC's IRFA for failing to state the purpose of the rulemaking,
failing to identify an alternative approach that would minimize
the impact on small businesses, and failing to discuss the
nature and extent of the reporting requirements and
professional skill necessary to satisfy them. The FCC also
failed to examine the impact of the rule on the purchasers and
users of this equipment. By offering such an inadequate IRFA,
the FCC failed to give interested parties an opportunity to
comment on the impact the rule will have on small businesses.
Therefore, Senators Bond and Kerry requested that the FCC not
finalize the rule until a proper IRFA was done and comments
were taken on it. These positions and requests were consistent
with comments filed by the Chief Counsel for Advocacy of SBA,
and were also supported by the House Small Business Committee.
Chairman Kennard responded in a letter on August 25, 2000.
The FCC's position was that the notice adequately described the
purpose of the rulemaking even if the IRFA did not; alternative
approaches were not necessary because this rulemaking would be
beneficial to small businesses; and similarly, the rulemaking
would not alter any recordkeeping requirements. The FCC noted
that it had received over 200 comments on the rulemaking,
including comments from small businesses enthusiastically
supporting the rule change. Nevertheless, the FCC amended its
Final Regulatory Flexibility Analysis to address the concerns
raised by the Small Business Committees and the Office of
Advocacy. In addition, Commissioners Susan Ness and Harold
Furchtgott-Roth noted in their concurring opinion that the
``Commission's IRFA in this proceeding was unquestionably
terse.'' They recognized that the Commission should pay closer
attention to the small business impacts of their decisions:
``We believe the Commission should recommit itself to a close
examination of the issues raised by the Regulatory Flexibility
Act. We have a statutory obligation to do so and the small
business community deserves nothing less.''
8. Small Business Committee hearing on the U.S. Forest Service's
treatment of small businesses
On October 4, 2000, the Senate Small Business Committee
held a hearing to examine the U.S. Forest Service's approach to
compliance with the Regulatory Flexibility Act as amended by
the Small Business Regulatory Enforcement Fairness Act
(SBREFA). The hearing was chaired by Senator Mike Enzi, who
stressed that a growing pattern of Forest Service actions are
shutting out small businesses from public lands and
contributing to the destruction of rural communities. Senators
Mike Crapo and Conrad Burns echoed the concern that the Forest
Service has ignored the impact of its regulations and not
followed the mandates of the Regulatory Flexibility Act.
The hearing featured four panels: the first panel consisted
of Senators Craig Thomas and Larry Craig; the second panel was
composed of representatives from industries that are directly
affected by U.S. Forest Service actions: logging, timber mills,
ranching, and outdoor guiding; the third panel featured two
professors who have studied the impact of Forest Service
actions on these industries; and the final panel consisted of
James Furnish, Deputy Chief, U.S. Forest Service.
Senator Thomas noted that public lands were designed for
both economic and recreational use, and these two interests
should not be pitted against each other when they can coexist.
He emphasized that local residents have been given no recourse
to the mandates from Washington. In particular, the Forest
Service's Roadless Initiative was designed from the top down,
contrary to all previous Forest Service policies and has
resulted in a proposal that would be devastating to the local
interests. Senator Larry Craig offered two conclusions from his
experience of chairing the Forests and Public Land Management
Subcommittee of the Committee on Energy and Natural Resources.
First, the Forest Service is the single most important agency
affecting small business interests in the western states,
determining the future of small businesses in many cases.
Second, there is not an agency in the Federal government that
is less sensitive to the needs of small businesses.
The second panel consisted of four small business owners
who have been adversely affected by Forest Service policies.
Jim Hurst, President, Owens & Hurst Lumber Co., Inc., testified
that big environmental groups and the large timber companies
work together to influence the Federal government to lower
timber harvest limits, which has severe implications for small
timber operators. Since the large lumber companies harvest most
of their timber on their own lands, they remain largely
unaffected by decisions of the Forest Service. Joel Bousman,
Cattle Rancher and Regional Vice President, Wyoming
Stockgrowers' Association, explained that if he loses his
Forest Service grazing permit, he would probably have to sell
his business, most likely to some type of developer, which
would sacrifice the wild and unspoiled nature of the land that
the Forest Service intends to preserve through its restrictions
on grazing permits. Del Tinsley, Owner/Publisher, Wyoming
Livestock Roundup, and Advisory Board Member, University of
Wyoming College of Agriculture stressed the need for an
economic impact study, as opposed to an environmental impact
study, to be conducted for each new rule and regulation that
the Forest Service proposes. He asserted that the ``unintended
consequences'' of these rules and regulations could be greatly
reduced, and rural communities would not be destroyed. The
final witness on the panel, Al Bukowsky, Owner/Operator,
Solitude River Trips, described the adverse impact of the
Forest Service's manipulation of the permit process. He
stressed that outfitters depend on camping permits in order to
provide their recreational services. With Forest Service
rangers closing down campsites and suspending river usage on as
little as 12 hours notice, outfitting businesses are in serious
jeopardy.
The third panel consisted of two academic experts on the
effects of Forest Service rules and regulations on small
businesses. Larry W. Van Tassel, Professor and Head of the
Department of Agricultural Economics and Rural Sociology,
University of Idaho, discussed a study he conducted that
demonstrated that reducing Forest Service grazing permits for
ranches leads to greater economic instability, lower profits,
and job losses. The study also concluded that reduced grazing
permits can increase the potential for the sale of the property
to developers with ensuing loss of habitat for wildlife and
other losses associated with converting natural land to
developed land. William McKillop, Professor Emeritus, College
of Natural Resources, University of California at Berkeley,
discussed statistics demonstrating the decline of the timber
industry in the West. He noted that this data shows that the
decline disproportionately affects the small sawmills. The
decline has also had a ripple effect, taking many other
industries down with it.
The final panel consisted of James Furnish, Deputy Chief,
U.S. Forest Service, who testified that the Forest Service
regulations do not negatively affect small businesses. He
asserted that the Forest Service takes pride in working with
SBA's Office of Advocacy to examine the effects of the agency's
regulations on small businesses. He also advanced that when
local communities face hardship, the Forest Service is
committed to helping them strengthen and diversify their
economies through the wise, and more complete use of forest
resources. Due to an objection to the Committee's request to
meet beyond the Senate's two-hour limitation, the Committee was
forced to adjourn the hearing without a full period of
questioning for Mr. Furnish. Senator Enzi noted that the
Committee would submit written questions to the Forest Service
and asked that the agency's responses be included in the
hearing's written record.
On January 12, 2001, the U.S. Forest Service published its
final rule on Roadless Area Conservation which will establish
prohibitions on road construction, road reconstruction, and
timber harvesting in inventoried roadless areas on National
Forest System lands. The Forest Service's new regulations would
impact just over 58 million acres of forest land and could
threaten countless jobs, particularly in Western states.
Chairman Bond issued a press release describing the impact
of the regulation on small businesses. Without logging
companies taking out dead wood, fuel will accumulate, leading
to another round of devastating forest fires. Additionally, the
restriction on roads and the access they provide to forest
lands is expected to curtail use of the forests by river and
tour guides, which play critical roles in helping people
appreciate the natural wilderness as well as logging that
sustains many independent small businesses. Ranchers, who
depend on forest land to provide their herds alternate acreage
for grazing, fear the new restrictions on roads ultimately will
make it impossible to get permits for such grazing in the
future. In that event, they say their private lands could not
sustain year-round grazing for cattle and would likely force
the sale of their property for other uses such as residential
development.
When the regulation was proposed in May 2000, the Forest
Service admitted that it would have a negative impact on a wide
range of small businesses. At that time, the rule did not
include the Tongass National Forest in Alaska, one of the
largest national forests in the country. However, the Forest
Service later decided to include the Tongass forest in the
final rule, thereby increasing the number of small businesses
that will be harmed by this regulation. The change could cost
up to 400 jobs dependent on the Tongass and cut timber harvests
there by 95 percent, according to Forest Service studies.
D. Federal Acquisition Regulation on Contractor Responsibility
On July 9, 1999, the Department of Defense, General
Services Administration, and National Aeronautics and Space
Administration published a proposed rule that would amend the
Federal Acquisition Regulation (FAR) to clarify coverage and
give examples of suitable contractor responsibility
considerations. In determining whether the contractor had a
``satisfactory record of integrity and business ethics,''
contracting officers would be allowed to take into account
examples such as ``persuasive evidence of the prospective
contractor's lack of compliance with tax laws, or substantial
noncompliance with labor laws, antitrust laws or consumer
protection laws. . . .'' They would also be allowed to consider
whether a contractor has ``necessary workplace practices
addressing matters such as training, worker retention, and
legal compliance to assure a skilled, stable and productive
workplace.''
In response to many complaints from small businesses that
would be affected, Chairman Bond submitted comments to the FAR
Secretariat on November 12, 1999, opposing the proposed
changes. The comments criticized the proposal for violating
contractors' due process by allowing contractors to be debarred
based on mere ``persuasive evidence.'' This standard is not a
legally recognized level of evidence and would give a
contracting officer unbridled discretion. In addition, the FAR
Secretariat wrongly claimed that the proposal would have no
impact on small businesses and thus did not conduct an Initial
Regulatory Flexibility Analysis as required by the RFA.
Chairman Bond described the proposal as ``not salvageable'' and
requested that it be withdrawn.
The Contractor Responsibility rule was re-proposed on June
30, 2000, with minor changes made to the original proposal.
Under the second proposal, contracting officers would be
required to follow a hierarchy in considering offenses and
other evidence relevant to determining whether a contractor has
a ``satisfactory record of integrity and business ethics.''
While contracting officers are to give ``greatest weight'' to
decisions within the past three years, they would still be
allowed to consider ``all relevant credible information.'' The
re-proposal also contained an Initial Regulatory Flexibility
Analysis (IRFA) in response to comments received on the first
proposal, including those from Chairman Bond, who criticized
the FAR Council for not conducting one.
Chairman Bond submitted comments on August 29, 2000,
criticizing this second proposal as still being unfair to small
contractors and calling for its withdrawal. He also pointed out
how the IRFA was incorrectly conducted. In the IRFA, the FAR
Council concluded that the regulation would not have ``a
significant economic impact on a substantial number of small
entities.'' This is the threshold for whether an IRFA should be
conducted, and not a valid conclusion for the IRFA to reach.
The FAR Council indicated that the regulation would affect
approximately 171,000 small entities, but did not indicate what
SIC codes these would be in, how this number was derived, or
what the level of impact would be. Chairman Bond also
reiterated his earlier criticism that this rule would deny
contractors' their due process by imposing a penalty before a
contractor had exhausted its legal options. Because small
businesses often have less resources to pursue legal resolution
of citations, this regulation will result in more small
businesses being penalized for citations than large businesses
who can contest them fully.
On September 28, 2000, Chairman Bond joined with 29 other
Republican Senators on a letter to Majority Leader Lott, urging
him to include S. 2986, the Just Opportunities in Bidding Act,
as an amendment to any appropriate conference report or
legislative vehicle. S. 2986 would have stopped the Contractor
Responsibility regulation from being finalized until the
General Accounting Office has reviewed the proposal and
reported to Congress on its necessity. S. 2986 was a companion
to an amendment to the Treasury/Postal Appropriations bill
passed in the House. The amendment was later dropped in
conference, and S. 2986 was never attached to a conference
report or enacted.
On September 29, 2000, Chairman Bond sent a letter to the
President urging him to withdraw the proposal on the basis that
two agencies including one which helps comprise the FAR Council
had submitted comments criticizing the proposal and arguing
against it being implemented. The General Services
Administration and the Environmental Protection Administration
had both commented that the rule would be too cumbersome and
that current regulations were adequate to protect the
government's interests.
On December 20, 2000, the FAR Council published the final
rule which reflected the changes made in the second proposal.
The final rule requires contracting officers to ``consider all
relevant credible information'' but ``give greatest weight to
violations of laws that have been adjudicated within the last
three years preceding the offer'' and establishes a hierarchy
under which to consider violations and adjudications. The final
rule also requires contracting officers to coordinate
nonresponsibility determinations with legal counsel. Finally,
the certification requirement for contractors to indicate
whether they have been convicted within the previous three
years of a felony or had a civil judgment against them was
simplified to reduce the paperwork burden.
E. Family and Medical Leave Act/Unemployment Insurance Proposed
Regulation to Provide Paid Leave for New Parents
On December 3, 1999, the Department of Labor's Employment
and Training Administration published a proposed rule which
would allow states to enact laws to provide paid leave for
parents of new born children or children placed for adoption by
allowing these parents to be eligible for state Unemployment
Insurance (UI) funds.
The Family and Medical Leave Act (FMLA) explicitly allows
employers to meet the leave requirements of the FMLA with
unpaid leave. The Federal Unemployment Tax Act (FUTA) requires
states to determine what requirements an employee must satisfy
to qualify for benefits. Typically, states have imposed
requirements of being able and available for work. The proposed
rule would allow an exception to this requirement so that new
parents could qualify for UI benefits.
Chairman Bond submitted comments on February 2, 2000,
criticizing the proposed rule as being against Congressional
intent in the FMLA and the FUTA. The Department also
misconstrued the requirements of the Regulatory Flexibility Act
and therefore wrongly certified that no small businesses would
be affected and did not conduct an Initial Regulatory
Flexibility Analysis. Finally, if implemented and pursued by
the different states, this approach would put the financial
stability of the UI funds in jeopardy, possibly causing them to
be unavailable for the truly unemployed who were intended to be
protected under FUTA. Chairman Bond called for the withdrawal
of the proposal.
On June 13, 2000, the Department of Labor issued the final
rule allowing states to provide paid leave to new parents
through their unemployment benefits programs. The Department
ignored all critical comments and issued the rule without
significant changes. The Department continued to describe the
rule as an ``experiment'' but without a definable end point or
an analytical framework to evaluate the results. Finally, the
Department continued to maintain that the rule does not trigger
the ``significant economic impact on a substantial number of
small entities'' trigger of the Regulatory Flexibility Act
because it will only apply to states. The Office of Management
and Budget determined that the regulation qualifies as a
``major rule'' for purposes of the Congressional Review Act
because it will have an impact of $100 million or more on the
economy.
F. Department of Labor, Wage and Hour Administration, Survey of Poultry
Industry
On October 29, 1999, Chairman Bond joined with Senators
Hutchinson, Lott, Cochran, Lincoln, Helms, Shelby, Sessions,
McConnell, Bunning, Roth, Biden, Coverdell, Cleland, Gramm,
Hutchison, Warner, Inhofe, Grams, Robb, and Hollings on a
letter to the Department of Labor's Wage and Hour
Administration objecting to an upcoming survey of the poultry
industry to determine compliance with overtime regulations. The
letter pointed out that the issues of the survey were in
litigation and, therefore, a survey would not generate any
useful information.
IV. Small Business Tax Issues
A. Deductibility of Health-Insurance Costs for the Self-Employed
Continuing his commitment to immediate full deductibility
of health insurance for the self-employed, Chairman Bond
introduced the Self-Employed Health Insurance Fairness Act of
1999 (S. 343) on February 3, 1999. In his floor statement and
the Dear Colleague letter that accompanied the bill's
introduction, the Chairman noted that significant progress had
been made in the prior two Congresses, but the self-employed
are still not on a level playing field with their large
corporate competitors who can deduct 100% of their health-
insurance costs.
Under the bill, the self-employed health-insurance
deduction would increase from the current level of 60% to 100%
beginning in 1999. This change represents an acceleration of
four years over current law, which provides full deductibility
starting in 2003.
The bill would also correct a disparity under current law
that bars a self-employed individual from deducting any of his
or her health-insurance costs if the individual is eligible to
participate in another subsidized health-insurance plan. This
provision affects self-employed individuals who are eligible
for, but do not participate in, a health-insurance plan offered
through a second job or through a spouse's employer. That
insurance plan may not be adequate for the self-employed
business owner, and this provision prevents the self-employed
from deducting the costs of insurance policies that do meet the
specific needs of their families. In addition, this rule
provides a significant disincentive for self-employed business
owners to provide group health insurance for their employees.
The bill would end this disparity by clarifying that a self-
employed person loses the deduction only if he or she actually
participates in another health-insurance plan.
By the end of the 106th Congress, the bill garnered 31 co-
sponsors. In addition, Chairman Bond received strong support
from the small business community and the major small business
advocacy groups for championing the self-employed health-
insurance issue in S. 343. The Chairman spoke on the need for
immediate full deductibility at several events including a
forum on small business health-care issues, which the Senate
Small Business Committee and the U.S. Chamber of Commerce
hosted on May 27, 1999, as part of Small Business Week.
During the Senate Budget Committee's consideration of the
FY2000 budget resolution, Chairman Bond prevailed in having the
Committee report address the self-employed health-insurance
issue. Specifically, the committee report to the budget
resolution states that tax relief to be provided through
revenue reconciliation should include an acceleration of the
deductibility of health insurance for the self-employed.
In a May 7, 1999, letter to Finance Committee Chairman
William Roth, Chairman Bond urged the Finance Committee to
address the issues when it considered tax provisions relating
to managed-care legislation. When the Patient's Bill of Rights
(S. 1344) was ultimately considered by the full Senate in July
1999, Chairman Bond joined with Senators Santorum and Nickles
in an amendment that provided for full deductibility beginning
in 1999 and also that corrected the ``other coverage'' issue
addressed in S. 343. The amendment (number 1234) was agreed to
by a vote of 53 to 47. The Senate later approved S. 1344 by a
vote of 53 to 47. Unfortunately, the conference on the managed-
care bill was not completed before the 106th Congress
adjourned.
Later in July 1999, Chairman Roth included 100%
deductibility of health insurance for the self-employed in the
Taxpayer Refund Act of 1999 (S. 1429). During the floor debate
on the bill, Chairman Bond filed an amendment to include the
``other coverage'' provision from his S. 343. This amendment
was accepted by unanimous consent. Full deductibility beginning
in 2000 and the ``other coverage'' provision were both included
in the final conference report to the Taxpayer Refund and
Relief Act of 1999 (H.R. 2488), which the Senate approved on
August 6, 1999, by a vote of 50 to 49. Regrettably, that bill
was vetoed by President Clinton on September 23, 1999.
In November 1999, full deductibility was included in the
package of small business tax relief to offset the negative
effects for small firms of the three-year increase in the
minimum wage. The provision would have provided 100%
deductibility beginning in 2000. Although the minimum-wage
increase and small business tax package were adopted by the
Senate as an amendment to the Bankruptcy Reform Act of 1999 (S.
625), the underlying legislation was not adopted by the Senate
until February 2000. Due to procedural hurdles, the minimum-
wage and small business tax provisions of S. 625 were not
reconciled with the corresponding House legislation. As a
result, a stand-alone minimum-wage package with small business
tax offsets was not sent to the White House during the 106th
Congress.
During the Second Session of the 106th Congress, full
deductibility of health insurance for the self-employed
continued to be a top priority for Chairman Bond and the small
business community. Chairman Bond led the effort to add
immediate full deductibility to the Marriage Tax Penalty Relief
Reconciliation Act (H.R. 4810). His perfecting amendment
(number 3851) to H.R. 4810 was adopted by voice vote on July
17, 2000, and called for full deductibility of health insurance
for the self-employed beginning in 2000. Regrettably, all
amendments to H.R. 4810 were stripped from the bill just prior
to passage in order to send a clean marriage-penalty bill to
the White House, which the President later vetoed.
As the Second Session neared its close, Chairman Bond wrote
to Senate Majority Leader Lott urging him to include full
deductibility in any legislation that the Senate considered
concerning the minimum wage. While recognizing that tax and
regulatory relief were unlikely to offset the damage that an
increase in the minimum wage would cause for small businesses,
the Chairman's September 27, 2000, letter emphasized that such
an increase should not even be considered unless a solid
package of tax relief, including 100% deductibility, was
included.
As a result of the Chairman's insistence, the conference
report to H.R. 2614 included a tax-relief package that would
have provided 100% deductibility for the self-employed
beginning in 2001. Unfortunately, the Senate was unable to vote
on that legislation prior to adjournment.
B. Independent Contractor Reform
On February 2, 1999, Chairman Bond introduced the
Independent Contractor Simplification and Relief Act of 1999
(S. 344). The bill was modeled on the Chairman's legislation in
the 105th Congress (S. 460 & S. 473), which provided clear
rules based on objective criteria for classifying a worker as
an independent contractor; a bar against retroactive
reclassifications by the Internal Revenue Service (IRS); and
the repeal of section 1706 of the 1986 Tax Reform Act, which
effectively bars an entire group of independent contractors
from the protection available in section 530 of the Revenue Act
of 1978.
In response to feedback from small business groups and some
labor organizations, Chairman Bond included an anti-abuse rule
in the new version of this legislation. This provision was
designed to prevent employers from inappropriately using the
classification rules in the bill to force workers, who should
be treated as employees, into being independent contractors.
The addition of this protection was welcomed by the small
business groups.
Prior to introducing the bill, Chairman Bond circulated a
Dear Colleague letter on January 14, 1999, urging all Senators
to support his independent-contractor legislation. By the end
of the 106th Congress, S. 344 had 13 co-sponsors.
In the Spring of 1999, Representatives Kleczka (D-WI) and
Houghton (R-NY), introduced H.R. 1525, which embodied the labor
unions' proposed solution to the independent-contractor issue.
The ``Independent Contractor Clarification Act of 1999'' would
establish a presumption under the Internal Revenue Code that a
worker is an employee. To rebut the presumption, the bill
essentially codifies the IRS' long-standing 20-factor test,
which is based on highly subjective criteria and provides no
certainty for businesses. The bill would also repeal section
530, which has provided critical, albeit limited, relief for
many businesses since it was enacted in 1978. Lastly, and
possibly most significantly, the bill would repeal the 1978 ban
on the Treasury Department's ability to issue regulations and
other guidance on this issue. This change would open the door
for the Treasury Department to define once again all the rules
governing independent contractors, despite the fact that the
abusiveness of the Treasury Department's original rules led to
the ban in the first place.
Following the introduction of H.R. 1525, a coalition of
small business groups mounted a concerted effort to educate the
Congress on the significant negative implications of the bill
for small businesses. On May 25, 1999, Representative Houghton,
Chairman of the Ways and Means Subcommittee on Oversight, held
a hearing on the impact of complexity in the tax code on
individuals and small businesses, during which several small
business and tax professional organizations submitted testimony
in opposition to H.R. 1525. Chairman Bond also submitted a
detailed written statement for the record, which emphasized the
need to address the pressing issue of worker classification,
outlined his proposal as embodied in S. 344, and described the
adverse effects that H.R. 1525 would have on small businesses
across the country.
By the close of the 106th Congress, no action had been
taken on the Chairman's legislation or any other bill
concerning the classification of independent contractors.
C. Tax Simplification and Filing Burdens
1. Hearing on small business paperwork and compliance burdens
On July 20, 1998, Chairman Bond requested that the General
Accounting Office (GAO) identify the filing and reporting
requirements that place significant burdens on small
businesses. In his letter to the GAO, the Chairman asked the
GAO to comment on ways that these burdens could be reduced or
eliminated without compromising overall compliance with the tax
code. As a result of the GAO's initial findings, the Committee
held a hearing on April 12, 1999, to examine the paperwork and
compliance burdens that the current tax system imposes on small
businesses and the self-employed.
At the hearing, the Committee heard from two small business
witnesses. The first, Brian Gloe, Co-CEO of Rosse Lithographing
Company in Kansas City, Missouri, testified that his company
makes a minimum of 186 filings with the IRS each year. He also
emphasized that the cost of tax recordkeeping and reporting are
approximately $72,000 a year, which accounts for more than 16%
of the company's net income. The Committee also heard from
Roger Harris, President of Padgett Business Services, who
documented the burden of hiring a single employee, which can
entail as many as 31 Federal forms and 25 forms in a state like
Georgia. He also testified about the overall compliance burdens
that small business owners must master including depreciation
rules, alternative-minimum taxation, estimated taxes, as well
as the added burdens that occur if the business is selected by
the IRS for an audit.
The GAO presented the results of its work on the first
phase of the Chairman's July 1998 request. The GAO testimony
revealed that a small business owner faces more than 200 IRS
forms and schedules that could apply in a given year. These
forms contain more than 8,000 lines, boxes, and data
requirements, and are accompanied by more than 700 pages of
instructions, which does not include the tax code, regulations,
rulings, and countless other guidance that the IRS issues. The
Committee also learned that 76% of small business owners hired
a tax professional to file their tax returns in 1995 (the most
recent IRS data available), and that more than 350,000 small
businesses were audited in 1995--nearly twice the rate of non-
business taxpayers. Even more troubling, the GAO reported that
more than 37% of small business audits resulted in no
additional taxes or penalties.
The final witness at the hearing was IRS Commissioner
Charles Rossotti, who reviewed the agency's modernization
plans, which will include a division dedicated to small
businesses and the self-employed. He also described a number of
initiatives the IRS is undertaking to improve the current
system. Mr. Rossotti emphasized to the Committee that the long-
term goal of the IRS is to organize the whole IRS into
operating units that have specific responsibility for serving
different groups of taxpayers, including small business, in
order to provide top quality customer service.
2. IRS paperwork unpopularity poll
During the question and answer period at the Committee's
April 12th hearing, Chairman Bond raised with Commissioner
Rossotti the issue of subjecting all the IRS' forms,
publications, and letters to a common-sense review in an effort
to provide more user-friendly communications for taxpayers. The
Commissioner agreed that such an endeavor would be useful, and
he committed to redrafting the worst offending documents if the
Committee could help identify them.
As a result, on May 26, 1999, the Chairman unveiled the
``IRS Paperwork Unpopularity Poll'' on the Committee's webpage.
In his letter to the Commissioner announcing the poll, the
Chairman noted that the poll was designed to collect
information about the IRS forms, schedules, instructions,
publications, letters, and notices most in need of common-sense
review and revision. He also stressed that ``There is much that
the IRS and Congress need to do if we are to reduce the tax
filing and recordkeeping burdens that small businesses
encounter every day. This common-sense review of IRS forms and
other documents is a first step, and one that could have far-
reaching benefits for small-business owners across the
nation.''
The Chairman's intention was to make the poll available for
one year to capture an entire filing season. The Committee
received considerable assistance from the small business
advocacy groups in alerting their members that the poll was
available.
During the Committee's May 23, 2000, hearing on the IRS'
new SB/SE Division, the Chairman delivered the results of the
poll to IRS Commissioner Rossotti. The Chairman noted that as
of May 15, 2000, the Committee received 516 votes for the
forms, schedules, instructions, publications, letters, and
notices most in need of common-sense review and revision by the
IRS. Out of those votes, the five most often cited IRS forms
and related schedules are:
1. Form 1040--U.S. Individual Income Tax Return;
2. Form 941--Employer's Quarterly Federal Tax Return;
3. Form 4562--Depreciation and Amortization;
4. Form 940--Employer's Annual Federal Unemployment
(FUTA) Tax Return;
5. Form 1065--U.S. Partnership Return of Income.
Chairman Bond presented IRS Commissioner Rossotti with a
complete compilation of the comments and recommendations that
the Committee received from the poll's participants concerning
the forms, publications, letters, and notices. He applauded the
Commissioner's willingness to examine these forms and documents
as a testament to the IRS' overall efforts to provide greater
service to America's taxpayers and as evidence of the IRS'
commitment to reducing the tax filing and recordkeeping burdens
that small businesses and the self-employed encounter every
day.
3. IRS burden estimation model
The second phase of the Chairman's July 1998 GAO evaluation
of small business tax burdens involved the IRS' efforts to
create a new model for estimating the compliance burdens facing
small business. During 1999, the agency began work on a basic
model for assessing the burdens imposed on taxpayers with wage
and investment income only. The GAO reviewed the planning
documents and the survey designed by the IRS during the Fall of
1999 and briefed Committee staff on the agency's progress. The
IRS is expected to use the new model and the survey results as
the basis for a second model designed to assess the compliance
burdens faced by small businesses and the self-employed.
During the Committee's May 23, 2000, hearing, the GAO
reported on the Chairman's request for an evaluation of the
IRS' efforts to develop the new burden-estimation model. The
GAO reported that the IRS has made progress on developing the
model and was in the process of collecting survey data on which
the model will operate. The data-collection survey was
completed during the Spring of 2000, and the burden-estimation
model is expected to be completed in the Spring of 2001. The
Committee will continue to monitor the IRS' progress on
developing the initial model and the subsequent efforts to
expand it to cover small business taxpayers.
4. Increase in employment tax threshold
In late November 2000, the Internal Revenue Service
announced an increase in the threshold for payments of
employment taxes from the current $1,000 to $2,500 beginning on
January 1, 2001. The change will reduce the compliance burdens
for nearly one million small businesses by allowing qualifying
small businesses to make employment tax payments on a quarterly
basis, instead of the current monthly schedule.
According to the IRS, the increased threshold will diminish
the potential for small businesses to make costly errors by
reducing the number of payments they must file. As a result,
the IRS will be able to send fewer notices to small businesses
concerning errors and omissions of employment-tax payments. In
addition, streamlining the payments will ease the cash-flow
burdens for many small businesses.
On November 27, 2000, Chairman Bond issued a statement,
which accompanied the IRS' news release, applauding the
increased threshold. The Chairman noted that ``This seemingly
simple change will have far reaching effects on thousands of
small businesses by reducing the compliance burdens when it
comes to employment taxes. Anytime we can eliminate the need
for a few more IRS forms means we can free up more time for
small business owners to do what they do best--run successful
businesses.''
Chairman Bond also emphasized that the IRS' announcement
was particularly timely for women-owned businesses. At the
National Women's Small Business Summit, which was held on June
4-5 in Kansas City, Missouri, the participants placed a high
priority on changes to the payroll-tax system. The change also
responded to the results of the Committee's IRS Paperwork
Unpopularity Poll, which indicated that employment taxes are a
significant burden for small businesses. The Chairman concluded
his statement by noting that the new threshold ``is a clear
signal that the IRS' new SB/SE Division is listening to the
taxpayers it serves and is helping us make meaningful changes
to the tax system.''
D. Internal Revenue Service Oversight
1. Electronic Federal Tax Payment System
Continuing his long-standing fight to provide a small
business exemption from the Electronic Federal Tax Payment
System (EFTPS), which requires businesses to deposit their
taxes electronically, Chairman Bond met with IRS Commissioner
Rossotti on March 19, 1999, to discuss the impact of EFTPS on
small enterprises. At that meeting, the Commissioner announced
that the agency would implement the Chairman's request for an
increase in the participation threshold for EFTPS from the
current $50,000 in payroll taxes to $200,000 beginning in 2000.
The Commissioner also assured the Chairman that the IRS would
continue to waive penalties in order to provide relief for
those small enterprises that have had difficulties converting
to the electronic-payment system but continue to pay their
taxes in a timely manner using the coupon system. In a March
22, 1999, letter, the Chairman applauded the IRS' action, which
will make EFTPS an optional payment system for the vast
majority of small businesses across the nation.
2. Third-party notices
A provision of the Internal Revenue Service Restructuring
and Reform Act of 1998 (Public Law 105-206) added new section
7602(c) of the Internal Revenue Code, which calls on the IRS to
notify a taxpayer when the agency determines that third parties
must be contacted as part of an examination or collection. In
February 1999, Chairman Bond learned that the IRS was
implementing this new provision in a manner contrary to its
congressional purpose of providing taxpayers with an
opportunity to provide information requested before the IRS
turns to any third party. In addition, once the IRS determines
that such information can only be obtained from third parties,
the taxpayer has a right under the new provision to reasonable
notice concerning the third parties that the IRS needs to
contact and to receive such notice before the inquiries are
made. The goal of the new provision was to minimize the damage
to taxpayers' personal reputations and business relationships
when the IRS needs to obtain information from third parties.
In a February 25, 1999, letter to IRS Commissioner
Rossotti, the Chairman expressed his concern that the agency
was sending blanket notices to all taxpayers during an audit
that warned ``the Internal Revenue Service may need to contact
third parties * * * including neighbors, employers, employees,
and banks. We may use these contacts to help us determine your
correct tax liability, identify your assets, or locate your
current address.'' The Chairman stressed that the IRS' notices
were incorrectly implementing the new taxpayer protection and
were causing unnecessary alarm as well as raising concerns
about privacy and the confidentiality of taxpayer information.
He called on the Commissioner to suspend the blanket notices
and implement the new taxpayer protection as Congress intended.
Shortly after receiving the letter, Commissioner Rossotti
telephoned the Chairman and assured him that steps would be
taken to address the third-party notice situation.
Conversations between Committee staff and representatives of
the Commissioner's office and IRS Chief Counsel also occurred.
On March 2, 1999, the Commissioner issued a written statement
acknowledging that the blanket notices were a mistake and
committing to revise the contents of the notice to be more
consistent with taxpayer rights. The Commissioner's office
indicated that the review process would take approximately a
month to complete and that the review process would include
circulating rewritten draft notices among representatives of
the tax practitioner and small business communities.
Following reports that the IRS was continuing to issue the
blanket notices, the Chairman wrote to Commissioner Rossotti on
March 10, 1999, to express his concern that taxpayers under
examination were continuing to receive these alarming notices,
even while they are being rewritten. The Chairman also stressed
that merely rewriting the notices would not solve the problem
and that the IRS should adjust its procedures so that third-
party notices are issued to taxpayers only in those exceptional
cases in which the IRS cannot first obtain all the necessary
information directly from the taxpayer. ``Then, and only then,
the notice is to provide sufficient information about whom the
IRS needs to contact for the taxpayer to mitigate the damage to
personal and business relationships, which results too often
when an IRS agent starts asking questions of a taxpayer's
friends, employer, bank, or other third parties,'' the Chairman
wrote.
On March 19, 1999, Chairman Bond met with Commissioner
Rossotti to discuss the third-party notice issue. At that
meeting, the Commissioner outlined the myriad situations in
which third-party notification was now required and the steps
he was taking to address the situation. He also indicated that
revising the notices had become a much larger project than he
had originally anticipated. The Commissioner assured the
Chairman, however, that the review was a top priority and would
include input from the tax practitioner and small business
community. Chairman Bond followed up the conversation on March
23, 1999, with a letter thanking him for the briefing and
acknowledging that the Commissioner's ``directive to Internal
Revenue Service (IRS) personnel ordering that the notices only
be sent to a taxpayer when outside contacts are required is a
critical step in resolving concerns about the notices and
implementing this new taxpayer right as Congress intended.''
At the Committee's April 12, 1999, hearing on small
business tax filing and reporting burdens, the Commissioner
testified about the agency's efforts to revise the notices and
again assured the Committee that they would be forthcoming
shortly. Following the hearing, staff obtained copies of the
draft notices. After review, the Chairman wrote the
Commissioner on April 19, 1999, to express his concern that the
new draft notices still did not implement the taxpayer
protection under section 7601(c) as envisioned by Congress. The
Chairman also offered a number of specific suggestions for
revising the notices.
Throughout the summer of 1999, Committee staff continued a
dialogue with IRS personnel about the notice revision project.
In September 1999, representatives of the Commissioner's office
and IRS Chief Counsel briefed Committee staff on the near final
rewritten notices. While every issue identified in the
Chairman's previous letters was not completely resolved, the
new notices reflected a more balanced approach designed to
protect taxpayers when third-party contracts are required and
also address several unanticipated confidentiality and
retribution issues that IRS personnel had identified through
their review efforts.
On February 15, 2000, the Committee learned through an IRS
press release that the agency had completed the revised
notices. The following day, Chairman Bond wrote to IRS
Commissioner Rossotti, noting the progress that the IRS had
made to draft notices that are more clearly written with less
potential for unnecessarily alarming the taxpayers who receive
them. The Chairman expressed his concern, however, that the
notices still do not clearly state whom the IRS intends to
contact, and only a few letters indicate the type of
information the agency expects to receive from the third
parties. In addition, the Chairman emphasized that the notices
should only be sent when third-party contacts are determined to
be absolutely necessary, and they should clearly indicate who
will be contacted and what information is needed. The IRS began
using the new revised notices in February 2000.
On December 29, 2000, the Treasury Department issued
proposed regulations concerning third-party contacts. The
proposed regulations addressed many of the Chairman's concerns,
and requested comments from the business community on issues
such as contacts with employees, contacts that may indirectly
affect the liabilities of more than one taxpayer, requests for
a record of persons contacted, the reprisal exception to the
third-party contact rules, and contacts with other government
agencies.
3. Clinton nominees to IRS Oversight Board
The 1998 IRS Restructuring and Reform Act established an
oversight board for the IRS and directed the President to
nominate, within six months of the date of enactment, July 22,
1998, six individuals from the private sector to serve on the
board.
On March 3, 1999, Chairman Bond wrote to President Clinton
concerning his failure to make any appointments within the
required time frame. The Chairman noted that while he advocated
during the debate of the Act, and continued to believe, that a
full-time independent board of governors would provide better
management of the agency, the Oversight Board established by
the Act is an important avenue for the private sector to
monitor and provide input on the administration of our tax
laws. He urged the President to satisfy his responsibilities
under the Act and send the Senate, without further delay,
nominations for each position on the IRS Oversight Board.
The President's Assistant and Director of Presidential
Personnel, Bob Nash, responded to the Chairman's letter on
April 9, 1999, indicating that the Administration ``will
expedite [the process of vetting appointment to the board] as
quickly as we possibly can and the nominations will follow
soonafter (sic).''
On May 12, 1999, press reports disclosed the names of four
individuals that President Clinton planned to nominate to fill
the six private-sector seats on the board as well as a nominee
to represent the IRS employees' union on the board. The
following day, Chairman Bond joined Senator Bob Graham in a
letter to President Clinton expressing their concern that none
of the nominees appeared to have ``the hands-on small business
background and expertise that the Act requires and Congress
intended.'' The Senators were the sponsors of the amendment to
the Act requiring that at least one private-sector member of
the board have experience and expertise in the needs and
concerns of small businesses. Shortly after this letter,
President Clinton nominated the five individuals that the
Administration had previously leaked to the press.
In June 1999, one nominee, James Wetzler, withdrew his name
from consideration after considerable criticism arose
surrounding his nomination. Mr. Wetzler had served on the IRS
Restructuring Commission in 1997 and was one of the
commissioners to vote against the concept of establishing an
oversight board for the IRS.
In August, the White House nominated George Farr, retired
Vice-Chairman of American Express to the board. In October, the
President nominated Charles Kolbe, owner of Kolbe Cattle Co.,
as the sixth private-sector member of the Oversight Board. Mr.
Kolbe's background in the agricultural sector will bring
significant experience in the needs and concerns of small
businesses and farmers to the board.
Finally, in January, 2000, President Clinton sent his last
nominee for the IRS Oversight Board--Nancy Killefer--to the
Senate for confirmation, 18-months overdue. In February, the
Senate Finance Committee held confirmation hearings on the
private-sector nominees to the Board, and on March 2, 2000, the
Finance Committee favorably reported the nominees to the
Senate.
As a result of holds placed on the nominations, the IRS
Oversight Board nominees were not confirmed by the Senate until
September 8, 2000. At that time, Chairman Bond issued a
statement praising the confirmation of the board and especially
applauding the inclusion of Charles Kolbe whose background will
bring significant experience in the needs and concerns of small
businesses and farmers to the Board. The Oversight Board held
its first meeting on September 29, 2000.
4. TRAC audit prohibition
As a result of the Committee's hearing on April 12, 1999,
concerning small business tax filing and reporting burdens,
Chairman Bond received copies of two letters sent by the IRS to
a member of the American Hotel & Motel Association pertaining
to the IRS' Tip Rate Determination and Education Program
(TRDEP). The first letter notified the taxpayer that the IRS is
conducting a ``compliance check'' on the business and invited
the taxpayer to consider the Tip Reporting Alternative
Commitment (TRAC). The second letter described the alternatives
under TRDEP, including the Tip Rate Determination Agreement and
TRAC, and again invited the taxpayer's participation in the
program.
In an April 27, 1999, letter to IRS Commissioner Rossotti,
Chairman Bond called on the Commissioner to review these
letters as part of the agency's efforts to provide clear
communications to taxpayers. The Chairman also expressed his
concerned that these letters could be viewed as strong-arming a
taxpayer into using the TRAC program and may be in conflict
with section 3414 of the IRS Restructuring and Reform Act. That
section directs the IRS to instruct its employees that ``they
may not threaten to audit any taxpayer in an attempt to coerce
the taxpayer into a Tip Reporting Alternative Commitment
Agreement.'' The Chairman called on the IRS to suspend the use
of these letters immediately until they are revised.
The Commissioner responded on May 21, 1999, by informing
Chairman Bond that the particular matter had been referred to
the Treasury Inspector General for Tax Administration (TIGTA)
for review and that the Commissioner had taken steps to ensure
that such actions do not occur again. These actions included
written direction to IRS personnel and educational training
concerning the prohibition on threatening audits to obtain TRAC
agreements.
Staff has continued to monitor this matter as well as the
TIGTA review of the cases in which the letters were used prior
to the Chairman's April 27 letter.
5. Farm income-averaging
During the 105th Congress, section 1301 of the Internal
Revenue Code was enacted and made permanent allowing farmers to
average their income. This provision was designed to help
farmers weather the current agricultural crisis and became
effective in tax year 1998. Despite the regulations having been
enacted in July of 1997, the IRS had not issued any
interpretive regulations on the new income-averaging rules as
the 1998 filing season began.
After receiving numerous complaints from farmers and their
tax consultants concerning the lack of guidance, Chairman Bond
and Senator Grassley wrote to IRS Commissioner Rossotti on
March 26, 1999, to call attention to several areas of confusion
under the rules that the regulations should address. The
Senators urged him to issue immediate guidance and to waive
penalties on farmers who filed their 1998 tax returns without
the benefit of such guidance.
On April 2, 1999, the Commissioner responded that
regulations were in the final stages and would be issued ``in
the near future.'' Staff inquiries revealed that the
Commissioner had approved the regulations and forwarded them to
the Treasury Department for final approval just after the
Senators' March 26 letter. The Commissioner also assured the
Senators that farmers would not be penalized for relying on the
limited guidance provided in the instructions and IRS
publications even though such sources are not binding
authority. The agricultural community applauded the Senators'
efforts and welcomed the ``no penalty'' assurances from the
IRS.
After several staff inquiries, the Treasury Department
finally released proposed regulations on farm income averaging
on October 7, 1999. Practitioners generally praised the
proposed regulations, while making some suggestions for
improving the guidance.
6. IRS reorganization
Based on a proposal from Chairman Bond in January 1998,
which was later incorporated into the Internal Revenue Service
Restructuring and Reform Act, the IRS continued its efforts to
restructure the agency into four operating divisions to serve
particular groups of taxpayers better. One such division will
be dedicated to the needs and concerns of small business and
self-employed taxpayers.
As part of the Committee's oversight responsibilities,
Chairman Bond joined with Representative Houghton (R-NY),
Chairman of the House Ways and Means Subcommittee on Oversight,
in a February 12, 1999, to request the GAO to conduct a review
of the IRS' overall restructuring plans and their
implementation throughout the 106th Congress. The request also
asked the GAO to identify any challenges and obstacles facing
the IRS in achieving its reorganization efforts. On March 5,
1999, Chairman Bond also initiated a separate GAO review of the
IRS' reorganization plans specifically relating to small
business and self-employed taxpayers.
Throughout the 106th Congress, staff received periodic
reports on both of these initiatives. GAO briefings focused
particularly on the IRS' new Small Business/Self-Employed (SB/
SE) Taxpayer Division, which became operational on October 1,
2000. These briefings revealed positive plans for greater up-
front education and communication efforts for taxpayers.
Initial plans also indicate that the SB/SE division will be the
largest of the four divisions and will be a catch-all for
various operations that do not fit into another division (e.g.,
estate and gift taxation). The GAO also identified various
resource and communication challenges with respect to the IRS'
overall restructuring efforts.
The GAO completed its review of the IRS' reorganization
plans relating to small business and self-employed taxpayers in
May 2000. The GAO's findings were highlighted in the
Committee's May 23, 2000, hearing on the IRS' new SB/SE
Operating Division. During the hearing the GAO reported that
the new SB/SE Division has the potential for providing improved
service for small business taxpayers, although the agency faces
several challenges as it implements the new division, including
human resource needs, technological limitations, necessary
improvements in performance management.
IRS Commissioner Rossotti also presented the Committee with
a progress report on the new SB/SE Division. He noted that the
division will focus on three components, the first of which,
Taxpayer Education and Communications, will work to improve
compliance by assisting small businesses through education and
other information before their tax returns are filed. The
second component, Customer Account Services, will work to focus
on resolving issues that arise after a tax return is filed. The
third component will consist of the traditional compliance
functions of examinations and collections.
The Committee also heard from two private-sector witnesses
on the IRS' efforts to include outsiders in its modernization
and in the plans to create the new SB/SE Division. In closing
the hearing, Chairman Bond noted that the real work of the new
SB/SE Division will begin when the new division becomes
operational, which occurred on October 1, 2000.
In an effort to continue monitoring the success of the IRS'
modernization efforts and the progress of the new SB/SE
Division, Chairman Bond asked the GAO to undertake a follow-on
review of the agency in these areas. In his September 27, 2000,
request letter, Chairman Bond asked the GAO to focus on, among
other things, the goals that the SB/SE Division has set and how
they will be measured, the steps the Division is taking to
identify the most cost effective and beneficial ways to provide
help to small businesses, the actions the Division is taking to
change the kind of service provided to small businesses and the
self-employed, and the progress the Division is making in
identifying and setting priorities for its information-system
requirements. The Committee expects that the GAO's review will
continue into the 107th Congress.
7. IRS early intervention programs
Following on the Committee's April 12, 1999, hearing on
small business tax burdens, Chairman Bond asked the GAO to
undertake a review of the IRS' early intervention programs. In
his July 26, 2000, request letter, the Chairman noted that
timely intervention by the IRS can help prevent businesses from
accumulating substantial unpaid taxes, and the associated
interest and penalties, which, if allowed to compound over
months or years, many small business taxpayers may be unable to
pay.
The GAO is expected to review existing early intervention
programs at the IRS to assess the time and resources currently
dedicated to identifying taxpayers with employment-tax
delinquencies. The Chairman also requested that the GAO examine
early intervention programs in use at other Federal agencies in
order to identify best practices that might be useful to the
IRS. The GAO will provide the Committee staff with regular
briefings, and its work is expected to continue into the 107th
Congress.
8. TIGTA review of IRS response rate to small business tax questions
In late September, 2000, the Committee learned of a study
undertaken by TIGTA concerning the accuracy of the IRS'
response to small business questions posed through the
Internet. Based on the study's findings, Chairman Bond wrote to
IRS Commissioner Rossotti and SB/SE Division Commissioner
Joseph Kehoe on September 28, 2000, to express his concern that
out of the sample of 50 questions concerning small business tax
issues, the IRS provided the small business taxpayer with the
correct answer only 54% of the time. He emphasized that a 54%
accuracy rate for the small businesses tax questions poses a
grave risk to small business owners and the self-employed who
turn to the IRS for help and rely on the accuracy of the
agency's answers at their peril. Chairman Bond requested that
the IRS take steps to improve the accuracy rate with respect to
tax questions submitted by small businesses and self-employed
individuals.
In a November 17, 2000, response, Commissioner Rossotti
agreed with the Chairman's concerns and assured the Committee
of his commitment to improving the quality of assistance that
the IRS provides to small businesses. The Commissioner stressed
that the IRS is attempting to use specialized groups of
employees focusing on narrow topic areas to improve the quality
of responses rendered. In addition, he indicated that the IRS
will make greater use of quality review programs to improve
employee training and the agency's accuracy rates.
9. TIGTA review of IRS processing of small Business AMT exemptions
The Committee learned in early December, 2000, that TIGTA
had completed a review of the IRS' handling of corporate tax
returns. The TIGTA study revealed that more than 2,000 small
corporations may have overpaid their taxes due to an
unawareness or misunderstanding of the small-corporation
exemption from the alternative minimum tax (AMT) under section
55(e) of the Internal Revenue Code. Of the small corporations
sampled by TIGTA, 93% qualified for the small-corporation
exemption and erroneously paid an average of $11,638 in AMT. As
a result, in tax year 1998 these small-corporate taxpayers
appear to have overpaid the Federal government by more than $25
million.
In a December 12, 2000, letter to IRS Commissioner Rossotti
and SB/SE Division Commissioner Kehoe, Chairman Bond noted that
there is no automatic system under which these taxpayers will
receive a refund of their overpaid taxes or even be made aware
of their error. He stressed that the small-corporate taxpayers
will only receive a refund if they realize their own mistake
and file an amended tax return. In light of this situation,
Chairman Bond called on the IRS to give prompt attention to
steps that can be taken to assist small corporations that have
overpaid their taxes and to help all small-corporate taxpayers
avoid such overpayment as a result of the AMT in the future.
The Chairman also asked both Commissioners to look into the
recommendations for addressing this issue, which TIGTA set out
in its report.
In addition to asking the IRS to address these
overpayments, Chairman Bond also wrote to the major small
business organizations. In his letter, he asked each
organization to alert its small corporate members to the TIGTA
report and urge them to review their tax returns in case a
refund was due.
The Committee also learned through staff conversations with
the IRS that the agency was endeavoring to identify the small-
corporate taxpayers who overpaid their AMT. IRS officials
indicated that the agency would be sending notices to such
taxpayers reminding them of the small-corporation exemption
from the AMT and advising them to file an amended tax return if
they are entitled to a refund.
E. Taxpayer Refund and Relief Act of 1999
As a result of the Chairman's efforts, the Taxpayer Refund
and Relief Act of 1999 included a substantial number of tax
provisions directly benefitting individual taxpayers and small
business owners. The significant provisions of the Act, which
passed the Senate on August 5, 1999, by a vote of 50 to 49, and
was vetoed by President Clinton on September 23, 1999,
included:
Rate reductions: The bill would have reduced each of the
five tax rates by 1%, which translates into a 7% reduction in
the bottom rate and a 2.5% reduction in the top rate. The
current 15% lowest rate would have dropped to 14.5% in 2001 and
then to 14% in 2003; the other rates would have dropped by 1%
in 2005. The bottom tax bracket would also have expanded by
$3,000 starting in 2006, bringing more taxpayers into the
lowest tax bracket.
Marriage penalty: The bill would have doubled the standard
deduction for married couples over the first five years; in the
second five years the income thresholds for couples in the
lowest tax bracket would also have doubled. This provision only
provides relief for couples who do not itemize. The Senate
version of the bill permitted couples who itemize to file
combined returns, which would provide greater marriage-penalty
relief.
Alternative minimum tax: The bill would have repealed the
individual alternative minimum tax (AMT) over 10 years and
would have continued to exclude from the AMT personal tax
credits (e.g., the $500 child tax credit, HOPE scholarship and
Lifetime Learning tax credit, adoption tax credit, tax credit
for the elderly and disabled, and dependent-care tax credit)
effective for tax year 1999. The bill also made significant
changes to the corporate AMT and coordinated the AMT rules so
that farmers using the new income-averaging provisions enacted
as part of the 1997 Taxpayer Relief Act would not lose a
portion of the benefits due to the AMT.
Self-employed health insurance deductibility: The bill
would have accelerated the 100% deductibility of health
insurance for the self-employed to begin in 2000 based on the
Chairman's Self-Employed Health Insurance Fairness Act. The
bill also included the Chairman's provision to ensure that the
self-employed do not lose the deduction as a result of merely
being eligible for another insurance plan.
Health care: The bill would have provided an above-the-line
deduction for employees who pay at least 50% of the health-
insurance costs, as well as a deduction for long-term care
insurance.
Small Business: In addition to the self-employed health-
insurance deduction, the conference agreement would have
increased the small business equipment-expensing limitation to
$30,000 starting in 2000, and repealed the Federal Unemployment
Tax Act (FUTA) surtax of 0.2% in 2005. The agreement also would
have increased the business-meal deduction from 50% to 65% by
2005. Additionally, the bill included two provisions to reduce
tax complexity and burdens on small banks organized as S
corporations.
Farm Provisions: The FFARRM (``Farm, Fish and Ranch Risk
Management'') account provisions of S. 642, which Chairman Bond
co-sponsored with Senator Grassley, were included in the bill
and would have become effective in 2000. The accounts would
also have been extended to fishermen.
Capital gains: The bill would have reduced the capital-
gains tax rate from 20% to 18% (10% to 8% for taxpayers in the
lowest bracket) effective January 1, 1999. Beginning in 2000,
capital gains would have been indexed for inflation. The bill
also would have reduced the ``depreciation recapture'' rate on
commercial real estate from 25% to 23%, which was intended to
help the troubled real estate industry.
Estate tax: The bill would have lowered the estate and gift
tax rates and ultimately would have repealed the ``death tax''
in 2008.
Pension provisions: The bill would have phased in an
increase in the contribution limits on IRAs and have increased
the income limit and conversion limit for Roth IRAs. It
included ``catch up'' provisions for older individuals as well
as a host of other beneficial changes to the pension rules,
which would have encouraged private retirement savings and
assisted businesses in establishing and maintaining pension
plans.
Other provisions: The bill would have extended the research
and development tax credit for five years. It would also have
extended the exclusion for employer-provided educational
assistance through 2003, and provided an array of other tax-
related educational benefits.
F. Estate Tax Reform
In July 2000, the Senate took up the Death Tax Elimination
Act (H.R. 8), which would have phased out the current estate,
gift and generation-skipping taxes over 10 years. The bill
would also have provided additional relief during the phase-out
period by reducing the tax rates and by converting the current
unified estate and gift tax credit with a tax exemption.
In his floor statement on July 12, 2000, Chairman Bond
stressed that repeal of the ``death tax'' has long been a
priority for the small business community. Following on the
heels of the National Women's Small Business Summit, held in
Kansas City, Missouri on June 4 and 5, 2000, the Chairman also
emphasized that the repeal of the estate tax was the number one
priority of small, women-owned businesses in America, which is
one of the fastest growing segments of the economy. He stressed
that the current estate-tax regime costs small business owners
both in terms of taxes that must be paid on the death of the
owner and in terms of estate planning costs to avoid or reduce
the estate tax. Chairman Bond concluded that the true victims
of the estate tax are the small business jobs that are lost
when the enterprise is forced to close in order to pay the
death taxes and those that are lost due to funds wasted on
estate planning to avoid the devastation of the estate tax.
The Death Tax Elimination Act passed the Senate on July 14,
2000, by a vote of 59 to 39. Regrettably, it was vetoed by
President Clinton on August 31, 2000.
G. Marriage Penalty Relief
Also in July 2000, the Senate took up the Marriage Tax
Penalty Relief Reconciliation Act of 2000 (H.R. 4810). The bill
would have partially eliminated the marriage penalty by
doubling the standard deduction for couples who do not itemize
and by doubling the tax brackets for low and moderate income
couples in the 15% and 28% tax brackets. The bill would also
have expanded the phase-out range of the Earned Income Tax
Credit (EITC) to $2,500 beginning in 2001, and have permanently
extended the current exclusion from the alternative minimum tax
(AMT) for personal tax credits (e.g., dependent care credit,
adoption credit, $500 child credit, etc.). The bill passed the
Senate on July 18, 2000, by a vote of 61 to 38.
The conference agreement to H.R. 4810 modified the Senate
bill by eliminating the adjustment to the 28% tax bracket and
by reducing the EITC expansion to $2,000. The conference report
was approved by the Senate on July 21, 2000, by a vote of 60 to
34. Regrettably, the bill was vetoed by the President on August
5, 2000.
H. Small Business Accounting Issues
1. Installment-sales limitation
One of the revenue raisers included in the Work Incentives
Improvement Act of 1999 (Public Law 106-170) turned out to have
unexpected adverse consequences for small business owners
seeking to sell their businesses. Despite Finance Committee
hearings on this provision, which was included in the
President's Fiscal Year 2000 budget proposal, the problems with
the provision were not identified until the Work Incentives
Improvement Act was set to be signed by the President.
Under the bill, the installment sales method of accounting
for a disposition of business property was repealed for accrual
basis taxpayers, thereby restricting it only to cash basis
taxpayers. As a result, a number of small businesses advocacy
groups informed the Committee that some small firms would have
to pay tax on the gains from selling their business or
significant assets if they used seller financing, even though
cash payments would be received over a period of years in the
future.
In an effort to discover the scope and breadth of the
problem caused by this provision, Committee staff hosted a
meeting on December 6, 1999, to dispel misinformation
circulated in the press and to focus on solutions to the issues
raised by the new provision. The meeting led to additional
conversations between the small business community and the
Treasury Department to see if there were administrative steps
that could be taken to alleviate the impact on small
businesses.
Through the leadership of Senator Conrad Burns, the severe
adverse impact of this limitation on the use of installment-
sales accounting was made clear. To remedy the unintended
result, Senator Burns introduced S. 2005, which would restore
the ability of small businesses to use seller financing in
their business transactions. This legislation enjoyed strong
bipartisan support, including the Chairman and seven other
Members of the Committee. During the Senate's consideration of
the Marriage Tax Penalty Relief Reconciliation Act of 2000,
Senator Burns' legislation was added as an amendment to the
bill by a vote of 99 to 0. The legislation was also included in
the conference report to H.R. 2614, which the Senate did not
complete prior to adjournment.
On December 15, 2000--the last day of the 106th Congress--
the House passed H.R. 3594, introduced by Congressman Herger.
This legislation paralleled Senator Burns' S. 2005 to repeal
the limitation on the use of the installment sales rules. Later
that day, the Senate overcame several holds on the legislation
and passed the bill by unanimous consent. The repeal was the
primary tax victory achieved for small business during the
Second Session and was widely heralded by the small-business
community. The bill was signed into law on December 28, 2000.
2. Small Business Tax Accounting Simplification Act of 2000
The controversy surrounding the limitations on the
installment-sales rules fed into a larger debate over the
application of the cash and accrual accounting rules for small
businesses. Throughout the 106th Congress, the Committee
received complaints from the small business community that the
IRS was aggressively trying to force small businesses to use
complex inventory and accrual accounting rules, instead of
allowing them to use the simpler cash-accounting rules as
Congress intended.
In response to the calls from the small business community
for a clarification of the cash accounting and inventory
accounting rules under the Internal Revenue Code, Chairman Bond
introduced the Small Business Tax Accounting Simplification Act
(S. 2246) on March 9, 2000. The bill sets forth a clear $5
million threshold for small businesses, below which they would
be permitted to use cash accounting in their business
operations. In addition, the bill would provide a simple test
for application of the inventory accounting rules in small
businesses. This legislation received broad support for the
small business community.
For its part, the Treasury Department issued Revenue
Procedure 2000-22, which provides a safe-harbor from the
accrual-accounting rules for small businesses with $1 million
in gross receipts. On May 4, 2000, Chairman Bond and House
Small Business Committee Chairman James Talent wrote to
Treasury Secretary Summers in support of the Administration's
effort to provide guidance and relief for small businesses
inadvertently affected by the Work Incentives Improvement Act.
In their letter, however, the Chairmen express reservations
about the Treasury Department's statutory authority to set the
threshold at $1 million, and they requested that it be raised
to $5 million which is more consistent with statutory
precedent. In addition, the Chairmen expressed their concern
that the Treasury Department's guidance did not provide an
opportunity for notice and comment by affected taxpayers since
the agency circumvented the Administrative Procedure Act, the
Regulatory Flexibility Act (RFA), and the 1996 amendments to
the RFA, contained in the Small Business Regulatory Enforcement
Fairness Act.
In his September 27, 2000, letter to Senate Majority Leader
Lott, Chairman Bond urged him to include a cash-accounting
clarification in the minimum-wage legislation to reduce small
business tax-accounting compliance burdens and provide much
needed clarity and certainty. As a result of the Chairman's
leadership, the conference report to H.R. 2614 included a
modification of the Small Business Tax Accounting
Simplification Act with a $2.5 million threshold. Regrettably,
the Senate was unable to vote on the year-end tax legislation
prior to adjournment.
I. Taxpayer Relief Act of 2000
As the Second Session drew to a close, considerable
attention was given to increasing the minimum wage and the
detrimental effects that such a change would have on small
businesses. On September 27, 2000, Chairman Bond wrote to
Senate Majority Leader Lott advising him that tax and
regulatory relief were unlikely to offset the damage that an
increase in the minimum wage would cause for small businesses
and emphasizing that such an increase should not even be
considered unless a solid package of tax relief was included.
The Chairman enumerated a list of tax priorities for small
businesses including: full deductibility of health-insurance
cost for the self-employed, repeal the limitation on the use of
installment-sales accounting, increased expensing for equipment
purchases, clarification of small-business tax accounting
rules, increased deductibility of meal expenses for small
businesses, repeal the Federal unemployment tax act (FUTA)
surtax, and pension simplification and reform.
In October 2000, the Chairman worked closely with the
Senate leadership and the Finance Committee to develop a
package of small business tax relief to offset the minimum-wage
increase. In addition, the conference report to the Committee's
Certified Development Company Program Improvements Act of 1999
(H.R. 2614) was selected as the vehicle to move this package as
well as the FSC Repeal and Extraterritorial Income Exclusion
Act of 2000 (H.R. 4986), the Comprehensive Retirement Security
and Pension Reform Act of 2000 (H.R. 1102), and a package of
Medicare adjustments. Each of the conference report's
components were introduced on October 25, 2000, in the House as
the following separate bills:
H.R. 5538 (the Minimum Wage Act of 2000);
H.R. 5542 (the Taxpayer Relief Act of 2000);
H.R. 5543 (the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000);
H.R. 5544 (the Pain Relief Promotion Act of 2000);
and
H.R. 5545 (the Small Business Reauthorization Act of
2000).
The provisions of the Taxpayer Relief Act of 2000 that
pertain to small businesses include the following:
Health care provisions: The bill would have accelerated the
100% deductibility of health insurance for the self-employed to
begin in 2001 based on the Chairman's Self-Employed Health
Insurance Fairness Act. The bill also included the Chairman's
provision to ensure that the self-employed do not lose the
deduction as a result of merely being eligible for another
insurance plan. In addition, this would have provided an above-
the-line deduction for employees who pay at least 50% of the
health-insurance costs, as well as a deduction for long-term
care insurance.
Equipment expensing: The bill would have increased the
small business equipment-expensing limitation to $35,000
starting in 2001, which will help small businesses avoid the
cost and complexity of capitalizing and depreciating equipment
purchased and enable them to use the funds made available from
immediate expensing to expand their businesses and create new
jobs.
Repeal of the limitation on installment sales: Following
Senator Burns' S. 2005, the bill would have repealed the
limitation imposed under the Work Incentives Improvement Act
and restored the ability of small businesses to use seller
financing in their business transactions.
Clarification of small-business tax accounting rules: The
bill also included Chairman Bond's Small Business Tax
Accounting Simplification Act of 2000 (S. 2246) with a modified
threshold of $2.5 million, which would have provided a
safeharbor for small firms and dramatically reduce their tax-
accounting compliance burdens and provided much needed clarity
and certainty.
Farm Provisions: The FFARRM (``Farm, Fish and Ranch Risk
Management'') account provisions of S. 642, which Chairman Bond
co-sponsored with Senator Grassley, were included in the bill
and would have become effective in 2001. The bill would also
have coordinated the farmer income-averaging rules enacted in
1997 with the alternative minimum tax (AMT) to ensure that
farmers do not lose the benefit of income averaging to the AMT.
The bill did not include Senator Brownback's Conservation
Reserve Program Tax Fairness Act (S. 2344), which Chairman Bond
co-sponsored on April 4, 2000, to force the IRS to recognize
payments under the Conservation Reserve Program as rentals from
real estate.
Pension provisions: The bill would have phased in an
increase in the contribution limits on IRAs and other types of
pension plans, improved portability of pension savings from one
plan to another, and provided a host of other beneficial
changes to the pension rules, which would have encouraged
private retirement savings and assisted businesses in
establishing and maintaining pension plans. The bill also
included ``catch up'' provisions for older individuals,
significant simplifications to the current overly complex
pension rules, and provisions for strengthening pension
security and enforcement.
Community Revitalization: The bill included provisions to
designate renewal communities and expand empowerment zones
through tax benefits such as tax credits, additional equipment
expensing, and elimination of capital gains on qualifying
assets. It would also have established a New Markets Tax
Credit, increase the low-income housing tax credit, and
expanded the private activity bond volume limits. Each of these
provisions were intended to improve impoverished communities by
attracting business investments and new-job potential. (These
provisions were later enacted as part of H.R. 4577, the
Consolidated Appropriations Act, 2001, which the House and
Senate enacted on December 15, 2000).
Other provisions: The tax relief package also would have
increased the business-meal deduction from 50% to 70%, repealed
the Federal Unemployment Tax Act (FUTA) surtax of 0.2%,
extended the Work Opportunity Tax Credit through June 30, 2004,
increased the maximum reforestation expenses qualifying for
amortization and credit, and extended availability of Medical
Savings Accounts for two years.
The conference report to H.R. 2614, including the tax
relief package for small businesses, was passed by the House on
October 26, 2000, by a vote of 237 to 174, with 1
Representative voting present. The Senate took up the
conference report just prior to the November 7, 2000, election.
Regrettably, the Senate was unable to vote on the conference
report before Congress adjourned on December 15, 2000.
J. Other Tax Issues
1. Tax relief for farmers
In a joint effort with the House Small Business Committee,
the Committee hosted a roundtable on agricultural issues in
Kansas City, Missouri, on August 24, 1999. The participants
focused on regulatory, tax, and trade issues affecting farmers
and ranchers, which are predominantly small businesses. The
roundtable was well attended and provided Chairmen Bond and
Talent with important feedback and suggestions as to issues of
import to the agricultural community. Both Chairmen committed
to pursuing opportunities to address the issues raised by the
roundtable participants during the remainder of the 106th
Congress.
2. Tax reform
The primary focus on taxes during the 106th Congress
continued to be on reforming the current tax system and
providing tax relief, especially for small businesses and the
self-employed. In order to maintain the momentum for overall
tax reform, Chairman Bond again co-sponsored the Tax Code
Termination Act (S. 627), sponsored by Senator Tim Hutchinson.
The bill would sunset the current Internal Revenue Code at the
end of 2003 in favor of a new tax system. No action occurred in
the Senate on this legislation during the 106th Congress.
V. Small Business Environmental Issues
A. Industrial Laundry Effluent Limitations
In December, 1998, EPA proposed a rule to limit effluent
emissions from the treatment of rags and other materials by
industrial laundries. The proposal included a no regulation
option with a voluntary industry program in lieu of categorical
standards. Small businesses make up over 90 percent of the
industrial laundry industry and would bear most all of the
identified impacts of the proposed regulations. In February
1999, members of the industrial laundry industry expressed
concerns to the Small Business Committee that EPA estimates of
the proposed rule's burden had been revised upwards while
estimates of the benefits of the rule were lowered.
On February 19, 1999, Chairman Bond, along with Senator
Wyden, sent a letter to EPA Administrator Browner expressing
concerns about the proposed rule and urging full Agency
consideration of the voluntary alternative. In June 1999, EPA
chose not to promulgate a categorical standard and instead
pursued the voluntary program. On September 2, 1999, Chairman
Bond received a letter from Jere Glover, Chief Counsel for
Advocacy at the Small Business Administration (SBA), sharing
this matter with the Senator as a recent success of SBA.
B. Mc Laughlin Gormley King/Whitmire Micro-Gen Pesticides Application
EPA is currently considering the application of McLaughlin
Gormley King Company (MGK) to register the pesticide
prallethrin for use in protecting food from contamination.
Prallethrin would replace a more environmentally harmful
pesticide currently in use. The new use for prallethrin would
be marketed through a Missouri based distributor Whitmire
Micro-Gen which is a small business.
In February 1999, MGK expressed its concerns to the Small
Business Committee that its application at EPA had been under
review at the Agency for seven years with no approval or
disapproval date in sight. On February 22, 1999, Chairman Bond
wrote to EPA Administrator Browner expressing his concern over
the Agency's extremely long delay in processing the application
and requesting an explanation for the Agency's conduct.
Correspondence to the Agency on this matter also came from
Representative Talent, as well as, Senators Feinstein, Grams,
and Wellstone.
EPA failed to respond to Chairman Bond's February 22
request and Chairman Bond again wrote the Agency on March 31,
1999, seeking an explanation for EPA's failure to process the
pesticides application in a timely manner and failure to
respond to his inquiry on the status of the matter. Staff of
the Senate Committee on Small Business as well as the House
Committee on Small Business met with EPA in April where the
Agency agreed to complete review of the application by the end
of 1999. In January 2000, EPA completed its review of the
application and requested further information from MGK to
approve the application. MGK is reviewing that request.
C. Lead TRI Rulemaking
EPA's Toxic Release Inventory (TRI) program requires
entities to report, the use or release of certain chemicals
beyond threshold amounts. On August 3, 1999, EPA proposed to
reduce the reporting threshold for lead from 25,000 pounds per
year down to 10 pounds per year. The Small Business Committee
met with representatives from the metal finishing and
electronic circuit board industry who complained the rule would
significantly affect their industries and that EPA had failed
to conduct the required small business outreach to determine
the rules' impacts on small businesses.
On September 8, 1999, Chairman Bond wrote EPA Administrator
Browner expressing his concern that EPA failed to conduct the
needed small business outreach and analysis mandated by the
Small Business Regulatory Enforcement Fairness Act (Red Tape
Reduction Act) and EPA's own small business policy. The
Chairman urged EPA to conduct meaningful outreach to small
businesses impacted by the rule and reconsider its Red Tape
Reduction Act determination of no significant impact. Chairman
Bond also encouraged EPA to extend the rules' comment deadline
to allow for meaningful outreach.
Further analysis of the proposed rule and its supporting
economic analysis, and an almost complete lack of EPA action
confirmed EPA short-circuited and circumvented its obligation
to consider the rule's impacts on small businesses. On October
15, 1999, Chairman Bond wrote EPA Administrator Browner
requesting that the Agency withdraw the proposed rule until the
Agency gave proper consideration to the rule's impacts on small
businesses. The Chairman scheduled a hearing for October 28,
1999 to expose EPA's failure to meet its Red Tape Reduction Act
obligations in this case unless EPA withdrew the rule.
Preparations for the hearing included small business
testimony, CRS analysis of EPA's failures, industry
representative testimony and an invitation to EPA Administrator
Browner on October 20, 1999. EPA responded on October 22, 1999
with an offer to conduct additional small business outreach. In
a meeting with EPA on October 26, 1999, Small Business
Committee staff expressed its concern that the input of small
businesses impacted by the rule would not impact the rule
unless EPA reconsidered its proposed rule.
On October 27, 1999, EPA agreed to extend the public
comment period for two additional months, hold three small
business stakeholder meetings in Los Angeles, Chicago and
Washington, and reconsider its impact certification and
proposed rule based on submitted information. As a result of
these concessions, the Chairman postponed the hearing
indefinitely pending further Agency action on the proposed
rule.
On October 28, 1999, Chairman Bond requested GAO conduct an
investigation into the EPA office responsible for developing
the Lead TRI rule to examine its historic treatment of its Red
Tape Reduction Act responsibilities.
On September 20, 2000, GAO released its report, Regulatory
Flexibility Act, Implementation in EPA Program Offices and
Proposed Lead Rule. The report found EPA's analysis highly
susceptible to the assumptions used by EPA. GAO estimations of
the rule's impacts produced an additional 1,200 small
businesses which would be significantly impacted by the rule.
Based on these concerns and inter-agency disagreement regarding
the science behind the need to lower the lead reporting
threshold, EPA postponed final action on the rule into 2001.
D. Small Business Brownfields Redevelopment Act of 1999
On July 21, 1999, Senator Jeffords introduced the Small
Business Brownfields Redevelopment Act of 1999. The bill seeks
to link the SBA's successful loan guarantee and community
development corporation programs directly to supporting
brownfields financing needs. The bill was referred to the
Committee on Small Business. Senator Jeffords wrote Chairman
Bond on September 28, 1999 in hopes that the bill would be
taken up by the Committee during reauthorization of the SBA in
2000. While supportive of the need to provide incentives for
small businesses to revitalize brownfields, members of the SBA
loan community were concerned that loan program set asides for
brownfields redevelopment would go unused without accompanying
liability relief provisions.
E. Ozone Depleting Substances Rulemaking
On August 21, 2000, Chairman Bond received a letter from
Foam Supplies, Inc., of Earth City, Missouri. Foam Supplies
wrote regarding its concerns over an EPA proposal to increase
regulation of foam materials manufactured with ozone damaging
materials such as hydrochlorofluorocarbons (HCFCs). Upon
further inquiry, Chairman Bond discovered that EPA failed to
consider adequately the impacts of its proposed regulation on
small businesses using the product as required by the Red Tape
Reduction Act. On September 26, 2000, Chairman Bond wrote EPA
to raise these concerns, determine exactly who EPA had
contacted in drafting its proposed rule, and to transmit
information on small businesses which would be impacted by the
proposed regulation.
On October 25, 2000, EPA responded to Chairman Bond's
inquiry with a list of corporations it consulted in determining
the impacts of its regulation. Unfortunately, the list was
comprised solely of large conglomerates, almost all with
revenues surpassing $1 billion.
On December 18, 2000, Chairman Bond responded to EPA's
information submission by noting EPA's failure to include small
businesses in its rulemaking as required by EPA policy and
SBREFA. Chairman Bond informed EPA of his intention to hold a
hearing by the Committee in the 107th Congress on EPA's
performance under SBREFA and its small business policy
requirements. This hearing would support legislative efforts by
the Committee to close loopholes in SBREFA which may allow
agencies to avoid meaningful inclusion of small businesses in
rulemakings.
F. Acrylamide Rulemaking
On September 18, 2000, Chairman Bond received a letter from
Pitometer, Specialty Sewer, of Hazelwood, MO. Pitometer wrote
the Chairman to express its concern over EPA's continued delay
to finalize its proposed regulation of acrylamide. That
substance is used as a grout to seal sections of sewer lines.
In 1991, EPA proposed to ban acrylamide grouts, but has never
been able to obtain inter-agency acceptance of the proposal.
Instead of formally dropping the proposal, EPA left the
proposal on the books and has periodically attempted to push it
through full approval. This situation has left a cloud over
whether acrylamide products will be banned by EPA, and has thus
constrained their usage by the sewer service industry. There
are currently no truly acceptable substitutes from a durability
and cost-effectiveness perspective, leaving small business
constituents such as Pitometer in a bind. Staff of the Small
Business Committee contacted EPA and urged that EPA seek final
resolution of the issue as soon as possible. At the end of
November 2000, EPA scheduled final action on the rule for 2001.
Chairman Bond will continue to work with EPA to ensure the
Agency fully considers the impacts of its rulemaking on
affected small businesses.
g. Compliance Assistance
1. Compliance assistance funding
EPA's Compliance Assistance program provides assistance to
entities which desire to meet their environmental obligations
but lack the resources, expertise or understanding to follow
EPA's complex and voluminous requirements. Compliance
assistance provides access for the regulated community, and
especially most small businesses, to a knowledgeable and
reliable source of information without the threat of
enforcement. Compliance assistance helps environmental
protection occur sooner and much more efficiently rather than
haphazardly and belatedly after an enforcement action.
Compliance assistance also helps reach those members of the
regulated community who may never be visited or contacted by
the limited numbers of EPA or state inspectors and thus escape
the effective reach of the Enforcement program.
Fiscal Year 2000 EPA resource documents indicated the
Agency planned to decrease funding for compliance assistance
activities in the enforcement program. The Chairman included
questions for the record subsequent to EPA's appropriations
hearing on the proposed cuts. EPA denied that it was making
cuts and instead asserted that it was increasing funding to the
very programs which appeared to receive a cut.
On September 30, 1999, Chairman Bond responded to this
false and misleading information with a letter to Administrator
Browner documenting EPA's cuts to compliance assistance and
admonishing the Agency for its misleading conduct. To ensure
sufficient funding for compliance assistance activities,
Chairman Bond included a $25 million funding floor for OECA
compliance assistance in the Fiscal Year 2000 Senate VA, HUD
appropriations bill report language which was adopted by the
Conference committee. The Chairman also requested and obtained
additional detailed resource information on the compliance
assistance program to aid in future oversight to ensure
appropriate support and funding for the program.
In December 1999, Chairman Bond received information from
EPA that it was not complying with Congressionally directed $25
million funding floor for compliance assistance.
On June 5, 2000, Chairman Bond requested information
documenting EPA's compliance assistance spending plans. Upon
receiving the EPA information, Chairman Bond determined that
EPA was not meeting Congressionally directed funding levels and
diverting funds from compliance assistance programs to other
programs such as civil enforcement. On July 12, 2000, Chairman
Bond expressed his concern to EPA over this funding issue and
requested EPA plans to meet the funding level. Staff of the
Senate Small Business Committee met with EPA officials who
reported on their compliance assistance funding.
As part of the Fiscal Year 2001 VA, HUD and Independent
Agencies appropriations law, passed on October 27, 2000,
Chairman Bond included report language reiterating the $25
million funding floor and prohibiting an EPA diversion of funds
from compliance assistance to other activities. Chairman Bond
continues to monitor EPA actions to ensure EPA devotes proper
funding levels to compliance assistance activities.
2. Small Business Compliance Assistance Centers funding
Reports came to Chairman Bond that despite public
pronouncements, EPA was reducing funding available for Small
Business Compliance Assistance Centers. The Chairman included
questions for the record subsequent to EPA's appropriations
hearing and EPA responded that the Centers remain a priority
for the Agency.
3. Aiming for excellence report implementation
In July 1999, EPA issued a report entitled ``Aiming for
Excellence, Actions to Encourage Stewardship and Accelerate
Environmental Progress.'' The report describes various
reinvention activities undertaken by the Agency over the last
few years. Included are two chapters on compliance assistance
initiatives. The Committee followed the implementation of the
Aiming for Excellence tasks and milestones to ensure EPA met
the commitments of the report to increase compliance
assistance. The tasks included efforts to plan, coordinate and
promote compliance assistance activities as well as specific
initiatives to provide compliance assistance tools for every
new economically significant regulation issued by the Agency.
In December 1999, Committee staff attended a compliance
assistance providers forum hosted by EPA in Dallas, TX and
attended by Federal and state agencies engaged in assisting
compliance by the regulated community.
On March 9, 2000, Chairman Bond requested a status update
of the compliance assistance action items in the Aiming for
Excellence report. EPA provided this update on March 28, 2000.
On October 11, 2000, Chairman Bond requested another update of
EPA's progress on achieving its compliance assistance action
items in the Aiming for Excellence report. EPA provided
Chairman Bond a status update on October 24, 2000. EPA
continues to implement compliance assistance items, albeit
behind schedule in many cases. Chairman Bond continues to
monitor EPA performance in this area to ensure they fulfill
their compliance assistance obligations.
h. Nitrates Reporting Enforcement
In May 2000, EPA sent out nearly 600 ``show cause'' letters
to facilities which omitted entries for nitrate compounds on
their Toxic Release Inventory reporting forms. EPA determined
that these facilities failed to report nitrates because they
did report using nitric acid, which ``coincidentally'' produces
nitrates upon treatment. EPA told the facilities to show cause
why the Agency should not subject them to $5,000 penalties for
each ``sin of omission,'' as EPA later described it, totaling
up to $20,000 for four reporting years.
According to EPA, over 50% of eligible facilities failed to
report nitrates to TRI. Industry places noncompliance above 80%
when facilities attempting to remedy their reports after the
fact are excluded. This huge noncompliance rate reveals a
problem more fundamental than a small number of ``bad actors''
intentionally ignoring Agency enforcement alerts. Instead, the
most likely reason for this mass noncompliance was that
facilities did not know or understand this obscure reporting
requirement. This seems likely given that the reporting
instructions for TRI run several hundred pages and instructions
regarding this issue appear in different sections in different
years. Indeed, professional consulting firms paid to know these
requirements missed this obligation. Also telling was that over
half of those failing to report are small businesses.
While these facilities did not report nitrates, the only
way EPA identified them is because they were reporting to TRI.
The Agency counter argument that these facilities were
reporting while trying to hide the toxic nature of their
activities does not make sense. These facilities omitted
nitrates but reported nitric acid itself or in many cases more
toxic substances such as trichloroethylene.
On May 24, 2000, Chairman Bond wrote to EPA to express his
concern over the Agency's decision to use limited enforcement
resources in an area with no direct environmental impact.
Additionally, the Chairman noted that other more serious and
direct environmental problems existed due to EPA's failure to
renew a sizable percentage of expired water pollutant discharge
permits. Chairman Bond suggested EPA target its enforcement
resources to cases with more environmental impact and
culpability by those involved. Subsequently, EPA offered
concerned facilities a greatly reduced settlement amount and
closed out the matter.
VI. Assisting Small Businesses in Preparing for the Year 2000 Date
Change
a. Legislation
1. Small Business Year 2000 Readiness Act of 1999
On January 27, 1999, Chairman Bond introduced the Small
Business Year 2000 Readiness Act, S. 314. The bill requires the
SBA to establish a limited-term loan program (the ``Y2K loan
program'') pursuant to which the SBA would guarantee loans made
by private lenders to assist small businesses in correcting
computer problems that could arise from the Year 2000 (Y2K)
date change. The bill permitted small businesses to use loan
proceeds for only two purposes. First, a small business could
use loan proceeds to correct the problems that could arise from
Y2K affecting its own information technology systems and other
automated systems. Second, a small business could use loan
proceeds to provide relief from economic injuries suffered as a
direct result of its own Y2K problems or some other entity's
Y2K problems.
This legislation drew on testimony given before the
Committee in 1998, from reports received by the Committee and
from meetings held with small business owners, financial
institutions, consultants, the Small Business Administration
(SBA) and other persons with an interest in the small business
community's efforts to fix their Y2K computer problem. On June
2, 1998, the Committee held a hearing on the impact of the Y2K
computer problem on small businesses. The Committee heard from
witnesses that the companies most at risk from Y2K failures are
small and medium-sized firms, not larger companies. Witnesses
testified that this anomaly is caused by two factors. First,
many small companies did not realize the extent that the Y2K
computer problem could affect their businesses. Second, many
small companies may not have the access to capital to cure such
problems before they cause disastrous results.
A study entitled ``Small Business and the Y2K Problem,''
sponsored by Wells Fargo Bank and conducted by the National
Federation of Independent Businesses echoed this testimony,
finding that an estimated four and three-quarter million small
employers were exposed to the Y2K problem. The Committee also
learned that while many small businesses were likely to be
affected by the problem, relatively few had become compliant.
The Gartner Group, an international information technology
consulting firm in Connecticut, had estimated that only 5
percent of small companies had remediated their Y2K computer
problems as of the third quarter of 1998 and that between 50
percent and 60 percent of small companies would experience at
least one mission critical failure as a result of Y2K computer
problems.
The Committee also received information indicating that
many small businesses could face large expenditures to
remediate their Y2K problems. A survey conducted by Arthur
Andersen's Enterprise Group on behalf of a nationwide small
business trade association, National Small Business United,
found that to become Y2K compliant 29 percent of small
businesses would need to purchase additional hardware, 24
percent would have to replace existing hardware and 17% would
need to convert their entire computer system. When then asked
about their most difficult challenge relating to their
information technology, more than 54 percent of the businesses
surveyed cited ``affording the cost.''
The Committee responded to this information by approving,
in the 105th Congress, the Year 2000 Readiness and Small
Business Programs Restructuring and Reform Act of 1998 (H.R.
3412, 105th Cong., 2d Sess.) which would have established a
loan program specifically designed to assist small businesses
in becoming Y2K compliant. While that bill passed the Senate by
unanimous consent on September 30, 1998, the House of
Representatives did not adopt it prior to adjournment.
So that a loan program specifically designed for the Y2K
problem would be available to as many small businesses as
possible, the Committee approved S. 314 early in the first
session of the 106th Congress. On February 2, 1999, the
Committee marked-up S. 314 by a unanimous vote. On March 2,
1999, the bill passed the Senate by a vote of 99-0. On March
23, the bill passed the House of Representatives, without
amendment, by a voice vote and the President signed the
legislation into law on April 2, 1999 (Public Law 106-8).
2. The Y2K Act
On June 9, 1999, the Senate considered legislation (S. 96)
to limit damages in civil actions arising out of Year 2000
computer problems. The bill established certain procedural
rules to govern all court claims based on the Y2K problems of a
private business and set specific limits on certain contract
claims, tort claims and class actions. This bill was strongly
supported by the small business community which was justifiably
concerned that the pervasive litigation expected as a result of
the Y2K problem would particularly harm small businesses.
Chairman Bond spoke twice on Senate floor urging his colleagues
to pass legislation to assist small businesses by establishing
procedures to efficiently resolve disputes arising from the Y2K
computer problem.
Additionally, in response to concerns raised by the small
business community, Chairman Bond co-sponsored an amendment to
S. 96 with Senator Gregg to require Federal agencies to waive
civil money penalties for blameless small businesses that in
good faith attempt to correct their Y2K problems, but
nevertheless inadvertently violate a Federal regulation or
rule. Most experts that had studied the Y2K problem agreed that
regardless of how diligent a business was at fixing its Y2K
problems, unknowable difficulties were still likely to arise
that may have placed the operations of such businesses at risk.
The amendment was intended to ensure that the Federal
government did not further punish small businesses that have
attempted to fix their Y2K problems, but were nevertheless
placed in financial peril because of these problems. On June
15, the amendment was adopted by a vote of 71 to 28. The
conference committee included language substantially similar to
the amendment in the conference report to H.R. 775, the House's
version of the Y2K limited liability bill. The conference
report was passed by both the Senate and the House and signed
by the President on July 20, 1999.
b. Other Committee Efforts
1. Funding for small business Y2K assistance
On March 25, 1999, Chairman Bond sent a letter to Senator
Gregg, Chairman of the Appropriations Subcommittee on Commerce,
Justice, State and the Judiciary, and to Senator Hollings,
Ranking Democrat of that Subcommittee, to request an earmark
appropriation of $20 million, in two-year money, specifically
for the Y2K loan program established by S. 314. The letter was
co-signed by 25 other senators. As a result of the letter, the
report to S. 1217, the bill establishing appropriations for the
Departments of Commerce, Justice, and State, the Judiciary, and
related agencies for the Fiscal Year ending September 30, 2000,
clarified that an additional $20,000,000 for Y2K guaranteed
loans was set-aside to permit small businesses to address Y2K
compliance issues.
2. Federal and State cooperation
On February 16, 1999, Chairman Bond sent a letter to the
governor of each state to request their assistance in educating
small businesses regarding the Y2K computer problem and about
the availability of the Y2K loan program, once the legislation
is enacted into law. Additionally, the letter asked for a
description of the activities each state was undertaking to
assist small businesses in becoming Y2K compliant and any
thoughts each governor may have on the activities the Federal
government could undertake to assist their efforts.
3. Y2K and the agencies
The Year 2000 (Y2K) computing crisis posed a formidable
challenge to all organizations, including the Small Business
Administration (SBA). In that regard, the Committee requested
that the GAO verify that SBA's mission critical systems are
fully prepared for Y2K. The results of the GAO efforts were
worrying in that while SBA had undertaken considerable efforts
to be ready for Y2K, they had not completed all the work that
would reduce the potential exposure of the SBA to a Y2K related
failure. The GAO reported that because Y2K efforts were
incomplete, that the SBA ``lacks reasonable assurance'' that
its systems were ready for Y2K. The Committee was concerned
about the result of the report, and requested that the SBA
immediately remedy the situation to the satisfaction of the
GAO. In this regard, the Committee required that the SBA report
its efforts to the Committee on a monthly basis and Chairman
Bond wrote a series of letters to SBA Administrator Alvarez
outlining his concerns. By the end of the year, the SBA had
rectified most of the issues to the satisfaction of the GAO and
the Committee.
At Environmental Protection Agency (EPA), the Committee was
concerned that EPA had similarly not undertaken sufficient
efforts to ensure that their mission critical systems were
fully prepared for Y2K. The Committee worked with the GAO and
staff from the EPA Inspector General (IG) to gain a better
understanding of the efforts then underway. The Committee
hosted two large scale briefings with all interested parties
where all Y2K efforts underway at the EPA were discussed. The
Committee was satisfied that the EPA had taken all the
necessary steps to reduce the likelihood of a Y2K failure at
EPA.
VII. Fighting Fraud
a. Internet Cramming
On October 25, 1999, the Committee held a hearing entitled
``Internet Cramming:// The Latest High-Tech Fraud on Small
Business'' which focused on a scam that has specifically
targeted small businesses. The scam occurs when a company
engaged in web site creation and hosting places, or ``crams,''
charges for an allegedly ``free'' web site on the phone bills
of small businesses that have not authorized the charges.
Typically, the scam begins when a telemarketer contacts a small
business and offers to design and host an individually-tailored
web site free of charge for a 30-day trial period. Regardless
of whether the small business authorizes the service or merely
requests more information in the mail, charges for the web site
may appear on its next telephone bill. In addition, the web
sites usually have little value because they contain limited or
inaccurate information about the business, frequently include
misspellings, and are not easily located on the Internet.
In response to the hearing, Chairman Bond directed the
Committee to include on its web site a description of the fraud
and a list of tips for small businesses to avoid being caught
in this scam. Chairman Bond also wrote informational columns
about this scam and tips on how to avoid being victimized that
were published by the National Federation of Independent
Business, International Mass Retail Association, the U.S.
Chamber of Commerce and the National Association of Women
Business Owners in newsletters provided to their members.
Chairman Bond also gave numerous interviews to the media to
warn businesses about this fraud.
b. Toner Fraud
On March 28, 2000, the Committee held a hearing entitled
``Swindling Small Businesses: Toner-Phoner Schemes and Other
Office Supply Scams,'' to examine the fraudulent telemarketing
of office supplies to small businesses, particularly printer
and copier toner. The hearing exposed office supply scams as an
extraordinarily widespread problem. The Committee found that
the fraudulent sale of toner alone costs businesses and non-
profit organizations one quarter of a billion dollars each
year. The Committee also found that the perpetrators of this
fraud can be very prolific. A single medium-sized telemarketer
investigated by the Federal Trade Commission (FTC) defrauded,
on average, a small business every 90 minutes of every day for
four years.
In response to the hearing, Chairman Bond announced a list
of tips for small businesses to avoid becoming a victim of
office supply fraud and committed to continuing to work with
the FTC to help deter office supply fraud. As part of that
effort and in response to testimony at the hearing that the
current civil money penalty authority of the FTC is
insufficient to deter individuals committing fraud, Chairman
Bond wrote FTC Chairman Robert Pitofsky requesting the FTC's
views on raising the maximum civil money penalty that the FTC
is permitted to claim with respect to violations of section 5
of the FTC Act. On July 6, 2000, Chairman Pitofsky responded by
stating that a significant increase in the FTC's civil money
penalty authority would signal to the public and the courts
that Congress supports the FTC's efforts to obtain compliance
with FTC orders, rules and statutes. In addition, Chairman
Pitofsky argued that the potential for considerably higher
civil money penalties would likely deter violations more
effectively.
Chairman Bond communicated with Senator John McCain,
Chairman of the Senate Committee on Commerce, Science and
Transportation (Commerce Committee), the Committee with
jurisdiction over the FTC Act, regarding increasing the civil
money penalty authority of the FTC. In response to Chairman
Bond's communication, Chairman McCain resolved that the
Commerce Committee would consider increasing the FTC's civil
money penalty authority in the 107th Congress. Chairman Bond
intends on working with Chairman McCain in the 107th Congress
to ensure that the FTC has appropriate authority to deter
potential violations of Section 5 of the FTC Act.
VIII. Slotting Allowances and Retail Competition Issues
As a result of complaints from small manufacturers to
Senator Kerry, about potential anti-competitive practices
within the grocery industry, Chairman Bond instructed Committee
staff to examine the issue. Slotting allowances are fees paid
by manufacturers of consumer products to retailers for the
privilege of placing and keeping their products on the
retailers' shelves.
As a result of the examination, the Committee became
concerned that these fees have become a mechanism by which
dominant manufacturers can drive their competition out of the
market simply by paying retailer's for control of shelf space.
Additionally, these fees can permit retailers to demand
increasingly significant payments up-front, which can be
harmful to both small manufacturers and small competing
retailers.
The majority of the small business manufacturers who were
interviewed by Committee staff and who had been negatively
affected by slotting allowances were reluctant to seek
assistance from the FTC because their fear of retaliation was
apparently overwhelming. Indeed, many of these same companies
were reluctant to even be interviewed by Committee staff.
Moreover, many small business owners who were interviewed by
Committee staff spoke of marketplace abuses with dubious
legality.
After conducting interviews with over 70 small
manufacturers, Chairman Bond determined that the Committee
should hold a hearing on this issue and such a hearing was held
on September 14, 1999. Given the fear of retaliation, it was
particularly difficult to get small manufacturers to testify
before the Committee. The Committee was successful in securing
two small manufacturers to testify, but only with a guarantee
of confidentiality. These two witnesses (Witness A & Witness B)
testified from behind a screen with voice scramblers. Their
testimony and that of a Baltimore Ice Cream manufacturer
provided vivid evidence of existing abusive practices in the
retail industry.
The second panel focused on industry-wide issues rather
than specific experiences. The first witness was Mr. Gregory
Gundlach, an Associate Professor from the University of Notre
Dame. In analyzing the problem of slotting allowances,
Professor Gundlach concluded that while slotting allowances
provide some distribution efficiencies, the result is higher
consumer prices, less consumer information and fewer consumer
choices. The next witness was Mr. Robert Skitol, an antitrust
attorney and a former Federal Trade Commission attorrney. Of
particular concern to Mr. Skitol was exclusive contracts that
effectively shut out all competition, which in turn can lead to
higher concentration, diminished competition, higher food
prices, less innovation and less choice to consumers. The final
witness of this panel was Mr. Ken Partch, who is the editor-at-
large of Supermarket Business. As a result of surveys carried
out by his publication he observed that even the industry is
divided as to the rationale for charging the fees. Mr Partch
suspected that the real reason for their existence is a desire
on the part of the retailer to get a greater amount of the
consumers dollar.
The third panel was made up of representatives from
associations that are favorable to slotting allowances. The
first witness was Mr. John Motley of the Food Marketing
Institute (FMI) who outlined the various reasons why retailers
charge the fees. The second witness was Mr. Jeffery Schmidt who
is an anti-trust attorney and testified on behalf of the
Grocery Manufacturers of America and he outlined GMA's
position, which is neutral on the issue.
In the aftermath of the hearing the committee received
numerous faxes, e-mails and phone calls from all over the
country that were supportive of the Committee's efforts. In the
months after the hearing, Committee staff interviewed another
130 small manufacturers who provided the Committee with further
evidence of marketplace abuses that harm small manufacturers
and small retailers. As a result of these communications, the
Committee established a working relationship with staff from
the Federal Trade Commission's (FTC) Bureau of Competition and
made efforts to refer potential cases of anti-competitive
practices directly to the relevant staff at the FTC. This
process is ongoing.
Chairman Bond also sent a letter on October 20th, 1999 to
Robert Pitofsky, Chairman of the FTC, requesting the FTC to
examine closely the practical effects of slotting allowances.
Chairman Bond requested the General Accounting Office (GAO) to
study the practice. Additionally, Chairman Bond requested that
the Secretary of Defense brief Committee staff on the existence
of such practices at DOD Commissaries and Exchanges.
The Committee expanded their efforts to investigate this
practice and started investigating other related practices in
other retail industries such as home improvement stores,
bookshops. The Committee also focused its efforts on current
practices involving the marketing of fresh fruit and produce
within grocery stores. The Committee also continued to meet
with all relevant associations, including the Food Marketing
Institute, Grocery Manufacturers of America, Independent Bakers
Association, United Fresh Fruit and Vegetable Association,
Western Growers Association, Florida Fruit & Vegetable
Association, the Tortillia Industry Association, the National
Grocers Association and others, to hear their concerns and to
attempt to resolve the difficulties feared by small
manufacturers.
In the beginning of the second session of the 106th
Congress, it became increasingly clear that the GAO was having
problems obtaining the necessary information to respond to the
Committee's request. The Committee attempted to assist GAO by
asking for help from the trade associations, with only minimal
success. At GAO's suggestion, the Committee provided a letter
of confidentiality to trade associations who were concerned
that corporate sensitive information might be made public as a
result of the GAO's investigation. Ultimately, the GAO's
efforts produced little information that could assist the
Committee.
In response to the Committee's letters, the FTC responded
by putting together a two-day workshop on slotting allowances
in order to gain a better understanding of the implications of
the issue. As a result of that workshop and other efforts to
study the problem, the FTC is currently preparing a preliminary
report of their findings to be published in February 2001. To
voice support for the efforts of the FTC to gain a better
understanding of the complex issues Chairman Bond sent a letter
to FTC Chairman Pitofsky on the opening day of the workshop.
The letter was signed by Senators Bond, Kerry, Kohl, Enzi,
Thomas, Shelby and Grassley.
Throughout the second session of the 106th Congress,
Committee continued its efforts to gain a better understanding
of the implications of the issue. Through its investigations,
the Committee became aware that slotting allowances were
beginning to cause serious problems in the produce industry.
The Committee undertook a series of interviews with produce
industry associations and executives. As a result of these
interviews the Committee determined that another hearing was
necessary to address the concerns of the produce industry.
The hearing was held on September 14, 2000 and was intended
to address produce industry slotting and concentration issues
and to provide an update to the efforts of the FTC and the GAO.
The hearing's first panel consisted of representatives of the
three of the most important produce trade associations in the
country. Each witness addressed the concerns within the produce
industry regarding the escalating practice of charging slotting
fees for produce and, in particular, for loose fruits and
vegetables. Each witness on the panel also stated that produce
growers and shippers are being asked by retailers to pay off-
invoice fees, which are unrelated to actual product cost,
merely to continue doing business. The witnesses also addressed
how slotting allowances and other similar fees provide up-front
profit to the retailer and, therefore, reduce the incentive
that retailers have to sell produce to consumers. One witness
addressed the price spread issue, whereby the price paid to
farmers is significantly lower than the price paid by consumers
for their products and another addressed the widespread
concerns of the industry as to the effects of retail
concentration on suppliers.
In the second panel the GAO testified that they were
unsuccessful in gaining the cooperation needed from the
industry to conduct a study on slotting fees, despite pledges
of confidentiality on the part of the GAO and the Committee.
The second witness was from the United States Department of
Agriculture (USDA), who testified about the results of a study
being conducted by USDA on trade practices in the fresh fruit
and vegetable markets. USDA testified that their studies have
found that fixed or variable fees and trade allowances have
increased in incidence and magnitude over the last five years.
The final witness was Professor Gregory Gundlach, who had also
testified in the first Committee hearing on slotting
allowances. Professor Gundlach testified about the current
state of academic and government research on slotting fees,
emphasizing that without analyzing transaction-level data, the
claims of pro-competitive or anti-competitive aspects of
slotting and similar fees cannot be proven. Professor Gundlach
also stated that the FTC has primarily focused on how slotting
fees can be used by dominant manufacturers to exclude
competitors, but the agency has not focused on the effect that
retail concentration has on increasing the bargaining power of
retailers to demand such fees. Professor Gundlach suggested
that this is an important issue that should not be ignored.
As a result of the difficulties in obtaining the necessary
information to make hard public policy decision on the effects
of these practices, Chairman Bond requested an appropriation
for the FTC from the Commerce-Justice-State Appropriations
Chairman, Senator Gregg. Senator Gregg was very supportive of
the Chairmans request and Congress appropriated $900,000 to the
FTC to allow the FTC to study the issue in sufficient detail to
allow the FTC to make a clearer determination of the pro-
competitive or anti-competitive aspects of slotting fees and
related trade practices. This study began in January 2001 and
is expected to take 16 months.
IX. Increasing Small Business Exporting
On December 14, 1999, the Committee held a forum to provide
an overview of the barriers small businesses face when
exporting and potential Federal solutions. The forum also
focused on two specific issues that small business exporters
have identified as primary concerns--financing and e-commerce.
The Forum helped identify the recommendations to help increase
small business exports.
One of the recommendations at the hearing was to provide
additional incentives to smaller banks to make export loans.
Specifically, it was recommended that the Private Export
Financing Corporation (PEFCO), a private corporation owned by
commercial banks, industrial corporations and financial service
companies, be permitted to purchase the guaranteed portion of
SBA-guaranteed loans made under the Export Working Capital
Program (EWCP). The Committee acted on such recommendation by
including in the Small Business Reauthorization Act of 2000 a
change to the Small Business Act to permit the sale of such
loans to PEFCO. That act was signed into law on December 21,
2000.
X. Creating a Dialogue Among Businesses on Education
On May 25, 1999, the Committee held a hearing to discuss
the current state of public education, how it affects small
business, and how small businesses can contribute to the
education of its future workforce. The Committee heard from
operators of small businesses, the American Management
Association, the National Alliance of Business, the U.S.
Chamber of Commerce and a local chamber of commerce that has
partnered with its school district to improve the relationship
between the business and education communities. After the
hearing, Chairman Bond sent a Dear Colleague letter to each
senator requesting them to contact the Committee if they were
interested in learning more about how businesses can become
involved in education or promoting private-sector educational
arrangements in their states.
On September 9, 1999, the Committee followed the earlier
hearing with a roundtable discussion that addressed the
opportunities the business community has to become more
involved in improving public education. The roundtable
participants consisted of a variety of representatives from
education and business associations. Chairman Bond opened the
roundtable by noting that studies conducted by the National
Federation of Independent Business (NFIB) and the U.S. Chamber
of Commerce rate education as the most pressing public policy
issue today. Chairman Bond noted that the purpose of the
roundtable was to encourage a discussion on this issue and to
showcase initiatives that are working at the State and local
levels.
To disseminate the best practices of small businesses
working with their local educational systems and encourage
nationwide implementation of the most successful practices, the
Committee requested the GAO to report on the best practices
that secondary schools and institutions of higher education use
to address the urgent need of businesses for skilled workers.
The report is due out in Fall of 2001.
XI. Oversight of the Pension Benefit Guaranty Corporation
a. General Accounting Office Studies
During 1999, the Small Business Committee began an intense
review of the Pension Benefit Guaranty Corporation (PBGC). The
first step in this review was to commission a study by the
General Accounting Office (GAO) of the PBGC's operational
efficiency and effectiveness, with particular emphasis on the
PBGC's contracting practices. A letter requesting this study
was sent to Comptroller General David Walker on February 16,
1999; the letter was signed by both Chairman Bond and Senator
Charles Grassley, Chairman of the Special Committee on Aging.
The original study request was further amplified by a March 16,
2000 request from Senators Bond, Grassley, and Breaux for
information on the total PBGC human resources (PBGC employees
plus contractor staff) and how those resources tracked with the
PBGC's changing workloads over time; a further Bond/Grassley
letter of July 25, 2000 asked questions concerning the
applicability of the Federal Acquisition Regulation (FAR) to
the PBGC.
At a September 21, 2000 joint hearing of the Senate Small
Business Committee and the Special Committee on Aging, the
General Accounting Office unveiled results of these studies.
The GAO found that the PBGC's approach to creating Field
Benefit Administration (FBA) offices had been relatively ad
hoc--creating an FBA office when a large plan failed, in order
to keep the pension plan's administrative staff available for
resolving the plan. Now that the PBGC has needed to handle
fewer large pension plan failures on a crisis-management basis,
the GAO found that the PBGC should engage in strategic planning
to determine systematically the optimal distribution of FBA
offices around the country. The GAO found that, while the
PBGC's contracting may meet minimal legal standards, the PBGC
could do more to enhance competition in contracting out the
management of the FBA offices. The GAO was critical of the
PBGC's failure to collect systematic data on each FBA office,
to determine the effectiveness of incumbent contractors, and
the GAO also was critical of the organizational placement of
the PBGC's Contracts and Controls Review Department, which the
GAO found was not truly independent under generally accepted
government auditing standards.
In a separate request on December 8, 1999, Senators Bond
and Grassley requested the Comptroller General to clarify an
October 7, 1986 opinion concerning whether the PBGC acted in a
fiduciary capacity in its management of trust assets taken over
from trusteed pension plans. The GAO responded on January 27,
2000, finding that the PBGC did not act as a fiduciary to the
extent that it was inconsistent with the PBGC's statutory
obligations as a guarantor of benefits. Although the PBGC may
be appointed a trustee, its fiduciary responsibility is not
``coextensive'' with the fiduciary responsibilities of other
trustees.
b. Computer Security
On January 11, 2000, Senators Bond and Grassley wrote PBGC
Executive Director David Strauss concerning weaknesses in the
PBGC's information systems, as revealed in a penetration study
conducted for the PBGC Inspector General by
PricewaterhouseCoopers. Senators Bond and Grassley asked Mr.
Strauss to prepare a corrective action plan and to submit
monthly reports on the implementation of that plan, beginning
on February 15, 2000. Senators Bond and Grassley stated that
they intended to see all outstanding information security
issues resolved by the end of Fiscal 2000.
Mr. Strauss responded with a corrective action plan on
February 15, 2000. Senators Bond and Grassley referred it to
PBGC Inspector General Wayne Poll on February 25, 2000, for his
opinion whether it would satisfactorily address the information
security problems. Mr. Poll responded on March 2, 2000, saying
that the plan addressed the specific issues identified in his
penetration study, but withheld judgment whether it would
ensure adequate information security.
Mr. Strauss continued to report monthly on implementation
of the corrective action plan, and reported completion on
October 13, 2000. On November 30, 2000, Mr. Poll wrote Senators
Bond and Grassley that the PBGC's implementation of the
corrective action plan ``essentially satisfied'' his concerns
over the reported security weaknesses and that it will
``effectively strengthen'' the PBGC's overall security program.
He identified two items that will require continuing attention
by the PBGC's management. Senators Bond and Grassley wrote Mr.
Strauss on December 8, 2000, thanking him for the PBGC's hard
work in implementing the corrective action plan and for his
responsiveness in submitting timely monthly reports. Senators
Bond and Grassley requested comment on Mr. Poll's two items
that require continuing attention. On December 21, 2000, Mr.
Strauss agreed with one of Mr. Poll's two items of concern:
that the PBGC's staff be reminded of security concerns
frequently, in order to prevent a relapse. On the other point,
regarding technical security standards for various PBGC
computer platforms, Mr. Strauss responded with a list of
actions taken to date as well as actions to be taken in the
future to enforce security on a continuing basis.
The status of the PBGC's information security was also a
subject of the September 21, 2000 joint oversight hearing by
the Senate Committee on Small Business and the Special
Committee on Aging. At the hearing, Mr. Poll committed to
making a follow-up penetration study. In follow-up
correspondence on October 3, 2000, Senators Bond and Grassley
re-stated their request for Mr. Poll to conduct a new
penetration study, in addition to studying the accuracy of
Initial Determination Letters (IDLs).
XII. Bankruptcy Reform
In the 106th Congress, the Senate considered the Bankruptcy
Reform Act of 1999. The Act would have amended Chapters 7 and
13 of the Bankruptcy Code to eliminate certain abusive creditor
practices and permit courts, in certain circumstances, to
dismiss a bankruptcy case or convert a Chapter 7 case to
Chapter 13. Of particular interest to the Committee, the bill
also amended Chapter 11 of the Bankruptcy Code to expedite and
simplify small business bankruptcies. The Committee advocated a
balanced approach to Chapter 11 reform that takes into
consideration the concerns of both small business debtors and
creditors.
In response to concerns of the small business community,
Chairman Bond requested Senator Grassley, the sponsor of the
legislation, to include an amendment to increase the
participation of small business creditors in Chapter 11
bankruptcy proceedings. The amendment permits a court to expand
the membership of a creditors committee to include a creditor
that is a small business if the court determines that the small
business creditor holds claims of the kind represented by the
committee and that are, in the aggregate, disproportionately
large when compared to the annual gross revenue of the small
business creditor. Further, the amendment increases a small
business' right to access information considered by a creditors
committee. As a result of Chairman Bond's actions, the
amendment was included in the final conference report on the
bankruptcy legislation that was passed by Congress prior to the
end of the 106th Congress. That conference report, however, was
subsequently vetoed by President Clinton. In the 107th
Congress, the Committee intends to continue to advocate fair
bankruptcy law for small business debtors and creditors.
XIII. Hearings of the Committee
ORGANIZATIONAL MEETING, MARKUP OF PENDING LEGISLATION, AND NOMINATION
OF PHYLLIS K. FONG TO BE INSPECTOR GENERAL OF THE SMALL BUSINESS
ADMINISTRATION--WASHINGTON, DC, FEBRUARY 5, 1999
On February 5, 1999, the Committee held its organizational
meeting for the 106th Congress. The Committee also held a
markup of two bills, and a confirmation hearing and Committee
vote on Phyllis K. Fong to be the Inspector General for the
Small Business Administration (SBA). Chairman Christopher S.
``Kit'' Bond (R-MO) prefaced the meeting by welcoming new
members to the Committee and emphasizing the bipartisan manner
by which the Committee operates as a united voice for small
business. He stressed that in the past the Committee has passed
``legislation that is very helpful to small businesses, and we
intend to continue to do that.''
At the outset of the organizational meeting, Chairman Bond
set out his broad agenda for the Committee during the 106th
Congress. He noted that the main function of the Committee is
to oversee ``the operation and effectiveness of the SBA, and
its credit, procurement, and management assistance for small
businesses.'' Chairman Bond and Senator Kerry John F. Kerry (D-
MA), Ranking Member, discussed a shared concern over economic
injury loans from the SBA to address the year 2000 (Y2K)
computer crisis and the availability of adequate funding for
the existing 7(a) loan program. Both agreed that the Committee
needs to be sensitive to any disincentive Y2K legislation may
have on people trying to prevent Y2K-related problems, and to
assure that necessary funding for the existing 7(a) loan
program will be available. Other priorities discussed were tax
relief for small businesses, 100% deductibility of health
insurance for the self-employed, implementation of the Internal
Revenue Service Restructuring and Relief Act of 1998, and
easing the tax burden on small enterprises.
Chairman Bond proposed one change in Committee Rules for
the 106th Congress, which would require witnesses coming before
the committee to submit their testimony two business days
before the hearing. Previously, the Committee Rules had
required testimony to be submitted 48 hours in advance. This
change would allow staff to circulate testimony to Committee
Members with more time for review. The Committee Rules were
adopted by unanimous consent.
The Committee also discussed that the Committee on Rules
and Administration intends to change the Fiscal Year for Senate
Committees to conform to the Federal Fiscal Year. As a result,
the Committee on Small Business will operate on a transitional
budget from March 1 until September 30, 1999, and the Committee
will not submit a budget for this period. The Chairman noted
that a full-year budget for Fiscal Year 2000 will be submitted
for the Committee during the Summer.
Having concluded the organizational meeting, Chairman Bond
began the markup of the two bills before the Committee--S. 314,
``Small Business Year 2000 Readiness Act'' (Y2K bill), and S.
364, the ``Small Business Investment Improvement Act of 1999''
(SBIC bill). The Y2K bill was introduced to ``provide
assistance and to direct attention to small business about the
need to make their computer and their software systems Y2K
compliant.'' The SBIC bill provides modifications to strengthen
the SBIC program and make it more accessible to small
businesses. After discussion by the Committee, with a quorum
present, both bills were favorably reported by the Committee by
unanimous consent.
Finally, the Committee turned to the nomination of Ms.
Phyllis K. Fong to be the SBA Inspector General. After a brief
introduction, Ms. Fong provided an opening statement in which
she expressed her desire to develop a working relationship with
the Committee and to be ``independent and responsive to all of
you.'' She emphasized that one of her priorities, if confirmed,
would be to reassess ``where the office has been and where we
should be going.'' She commended the section 7(a) and 8(a)
programs and expressed her desire to investigate new
initiatives, based on priorities and available resources. Ms.
Fong pledged to examine internal operations of the SBA,
continually monitor various systems, and to ensure that
programs function as intended. She concluded by welcoming the
input of Committee Members and their staffs in the activities
of the SBA's Office of the Inspector General. A roll call vote
was ordered by Chairman Bond that the nomination of Ms. Fong as
Inspector General of the SBA be reported favorably to the
Senate, which was approved by the Committee 16 to 0.
ROUNDTABLE--OVERSIGHT OF THE REGULATORY FLEXIBILITY ACT (RFA) AND THE
RED TAPE REDUCTION ACT (SBREFA)--WASHINGTON, DC, MARCH 10, 1999
On March 10, 1999, the Committee held a roundtable on
oversight of the Regulatory Flexibility Act (RFA) and the Small
Business Regulatory Enforcement Fairness Act (SBREFA), also
known as the Red Tape Reduction Act. The roundtable
participants consisted of 28 representatives of small business
groups from a wide cross section of the small business
community. Chairman Bond noted that the roundtable was intended
to ascertain the effect of RFA and SBREFA on government
agencies and how they affected small business. Senator Kerry
encouraged the participants to express both positive and
negative comments with regard to various government agencies
and their compliance with RFA and SBREFA.
The first topic of discussion was agency compliance with
RFA and SBREFA, which began with a discussion of coverage and
applicability. Participants cited concerns with Internal
Revenue Service's (IRS) interpretation of SBREFA and expressed
the necessity for the IRS to reverse its narrow interpretation
of both statutes. They emphasized that the IRS should be
looking for ways to ease the burden on small businesses. Other
participants commented on the failure of the Health Care
Finance Administration (HCFA) and the Environmental Protection
Agency (EPA) to comply with certain aspects of RFA or SBREFA.
Individual industries reported to the Committee on how their
members are affected by Federal agencies and their regulations,
as well as legislation passed by Congress.
The roundtable participants then turned their attention to
agency rulemakings and judicial review. This segment included
such issues as economic analysis, the role of the Office of
Advocacy, and experiences with the Occupational Safety and
Health Administration (OSHA) and the EPA. The discussion opened
with a review of the resources available to small businesses in
dealing with various agencies. One participant commented on a
deficient Initial Regulatory Flexibility Analysis for OSHA's
Safety and Health Program Rule, which was inaccurate and not
understandable by those charged with using it when the rule was
reviewed by the Small Business Advocacy Review Panel. Another
participant raised concerns about agencies making rulings
without having any knowledge about how the rulings will affect
certain industries. Participants praised the Office of Advocacy
for its work on behalf of small business, and they agreed that
the office deserved continued support. Some participants
contended that more funding is required for the Office of
Advocacy, especially in the area of economic research.
The roundtable concluded its discussion of agency
rulemakings by addressing the Small Business Advocacy Review
Panel process, which was established under SBREFA. One
participant listed three problems with the panel process: (1)
panels should be convened much earlier; (2) participants on the
panel are not getting the data they need to participate fully;
and (3) trade association representatives have not been allowed
to participate in the panels directly. Other problems were
identified with respect to OSHA and EPA, and actions they took
during the panel process. Another participant commented that
the panel process should emphasize the opportunity for small
businesses with 50 or fewer employees to participate.
The roundtable participants also addressed Section 610 of
the Regulatory Flexibility Act, which requires agencies to
review their regulations to determine their impact on small
businesses and whether any changes are in order. Suey Howe, the
Committee's Regulatory Counsel, noted that there has been some
progress with respect to agencies reviewing their regulations
under Section 610. Many of the entries on the Unified Agenda,
however, are still not in compliance with the notification
required under Section 610(c). According to one participant,
businesses need to be given the opportunity to comment on the
current rules, and under most circumstances such opportunities
do not exist. Another participant commented that the 10-year
statutory requirement for review under Section 610 is not
enough for small business; the review should be an annual
affair.
The roundtable's next agenda item was compliance
assistance. Ms. Howe emphasized that agencies are required
under SBREFA to provide informal compliance assistance, and
also to provide plain English compliance guides. One
participant commented that many agencies are placing too much
emphasis on enforcement and are doing a poor job with
compliance assistance. More resources should be committed to
reaching compliance-assistance goals, rather than punishment
techniques. Another problem highlighted was the failure of
agencies to make small businesses aware of how to access the
compliance assistance programs that are available.
The final topic of discussion for the roundtable was agency
enforcement activities. One concern, shared by several
participants, was that many small businesses are unwilling to
report complete information on enforcement issues to the Small
Business and Agriculture Ombudsman for fear of reprisals from
agencies that have a great deal of discretion in interpreting
regulations. Another problem raised by participants, relative
to the Ombudsman program, was the lack of authority for the
Ombudsman or the Fairness Boards to resolve problems with
issues of enforcement. As a result of these problems, many
individuals do not participate in the process. One participant
noted that penalty reduction efforts often will not work
because businesses are unlikely to disclose violations
voluntarily for fear of being targeted for future inspections
by the governing agency.
Chairman Bond concluded the roundtable by emphasizing the
importance of communication between small businesses and the
Committee on the effect that agencies are having on their
operations. He added that his goal is to make government more
helpful to businesses and to assure accountability of Federal
agencies regulating small enterprises.
HEARING--THE PRESIDENT'S FISCAL YEAR 2000 BUDGET REQUEST FOR THE SMALL
BUSINESS ADMINISTRATION--WASHINGTON, DC, MARCH 16, 1999
On March 16, 1999, the Committee held a hearing to review
the President's Fiscal Year 2000 budget request for the SBA.
Chairman Bond opened the hearing by emphasizing the importance
of maintaining the strength of the SBA and its advocacy for
small businesses. He stressed that the goal of the Committee is
to preserve and improve the programs that make the SBA so
valuable to small business. He also noted that it was unusual
for the SBA to seek Congressional approval of its Fiscal Year
2000 budget request when the agency was unable to provide the
Committee with an audited financial statement for its Fiscal
Year 1998 expenditures.
SBA Administrator Aida Alvarez provided the Committee with
an overview of the agency's Fiscal Year 2000 budget request.
She asserted that the proposed budget would fund record levels
of loan and venture capital assistance for America's small
businesses by building upon accomplishments like the General
Business Loan Guarantee program (known as the 7(a) loan
program), the Economic Development Loan Guarantee program
(known as the 504 loan program), and the Small Business
Investment Company (SBIC) program. She also illustrated the
potential of the Chairman's HUBZone program, which the agency
expected to initiate on March 22, 1999.
Chairman Bond raised a number of issues about the SBA's
Fiscal Year 2000 budget proposal. He expressed concern about
accountability with regards to the SBA's request for an
extension from the Office of Management and Budget (OMB) for
the agency to submit its financial statements for Fiscal Year
1998. Ms. Alvarez responded that the SBA has not identified any
problems to date, but the reason for the extension request was
due to the complex nature of the statement. Chairman Bond also
raised the question of the magnitude of the errors that the
agency's auditor, Cotton & Company, identified in the 7(a) and
504 loan programs as well as the disaster re-estimate
calculations that would be included in the financial
statements. Greg Walter, SBA Deputy Chief Financial Officer,
responded by stating that the errors have no budgetary impact
since they were in the re-estimate process, not the original
estimates that the agency prepared for the current year.
The Members of the Committee questioned the Administrator
about the SBA's Fiscal Year 2000 budget proposal. Chairman Bond
questioned the implementation of a hiring freeze. Ms. Alvarez
responded that the SBA has been under a hiring freeze for five
of the last six years, although the agency had filled 200 new
positions during the past Fiscal Year. She continued by stating
that the SBA proposed $10 million less in spending for salaries
and expenses in Fiscal Year 2000, and the agency wanted to be
able to manage that level of appropriations.
In addition to commentary on various aspects of the budget
request, Ms. Alvarez testified that the Women's Business
Centers are operating under legislation that was adopted last
year, which extended to five years the time period for
providing grants. She noted that many of the Centers are
approaching their fifth year, which requires more Federal
support. John Gray, SBA Associate Deputy Administrator for
Capital Access, testified that the SBA's asset-sales program
anticipates selling all held assets while developing a hold
model within the agency. Senator Kerry voiced concerns that the
initial asset sales not become part of the subsidy-rate
calculation.
Following the testimony from the SBA representatives, the
Committee heard from a panel of small business stakeholders.
Mark Barbash, President, National Association of Development
Companies, and Executive Director, Columbus Countywide
Development Corporation, emphasized that the recovery rate on
the 504 loan program is decreasing, not increasing, and that
the subsidy numbers are what drives the SBA to make the 504
loan program cost effective for borrowers and ultimately for
the taxpayers. Deryl K. Schuster, Chairman, National
Association of Government Guaranteed Lenders, and President,
Mid-America Division, Business Loan Center, testified that
funding for the 7(a) loan program for Fiscal Year 2000 will be
approximately $11 billion. He stated that the Administration
continues to use excessive default and repurchase estimates and
stressed that as a result of the SBA's over-estimated subsidy
rate, the 7(a) loan program has generated $851 million in
losses since credit reform in 1992, including $513 million in
the last year based on the SBA's 2000 budget.
Agnes Noonan, Executive Director, Women's Economic Self-
Sufficiency Team, testified that the Federal government has
invested in an infrastructure of women's business centers
throughout the country. She stated that the SBA's Office of
Women's Business Ownership (OWBO) has extended 65 grants since
1988, which has provided funding to 79 women's business center
sites in 36 States, the District of Columbia, and Puerto Rico.
She testified that Federal funding is critical to building a
strong network of women's business centers. To achieve that
goal, she recommended that centers reaching the end of their
five-year cycle and centers no longer funded by OWBO be allowed
to recompete for funding on a five-year cycle subject to
performance reviews.
With respect to the SBA's proposals on Small Business
Development Centers (SBDCs), Max E. Summers, State Director,
Missouri Small Business Development Centers, on behalf of the
Association of Small Business Development Centers, testified
against the agency's proposal to impose fees on SBDCs. He
stated that last year 42% of the SBDCs' counseling clients were
women and 22% were minorities. Overall they help their clients
acquire over $3 billion in loans and capital each year. Mr.
Summers testified that reducing Federal funding for this
program by 25% as proposed by the SBA would result in the loss
of Federal and matching funds critical to small enterprises.
HEARING--BURIED ALIVE: SMALL BUSINESS CONSUMED BY TAX FILING BURDENS--
WASHINGTON, DC, APRIL 12, 1999
On April 12, 1999, the Committee held a hearing to examine
the paperwork and compliance burdens that the current tax
system imposes on small businesses and the self-employed. In
his opening statement, Chairman Bond noted that most small
business owners do not mind paying their fair share of taxes,
but they do mind the countless hours of keeping the records,
filling out the forms, and worrying that they did it all
correctly. He pointed out that for more than three quarters of
small business owners, the bulk of these tasks are performed by
professional tax preparer, which cost small business owners
thousands of dollars that could instead be reinvested in their
businesses. Additionally, the Chairman questioned how a small
business owner is supposed to know which forms and schedules
are necessary, let alone how to complete them accurately, and
where that entrepreneur is supposed to find the time it all
takes and still be able to keep the business afloat.
Chairman Bond explained that the hearing was based in large
part on his July 20, 1998, request to the General Accounting
Office (GAO) that it identify the filing and reporting
requirements that place significant burdens on small
businesses. In his request, he also asked the GAO to comment on
ways that these burdens could be reduced or eliminated without
compromising overall compliance with the tax code.
The hearing consisted of three panels, the first of which
included two small business witnesses. Brian Gloe, Co-CEO,
Rosse Lithographing Company in Kansas City, Missouri, testified
that his company makes of a minimum of 186 filings with the
Internal Revenue Service (IRS) each year. He emphasized that
the cost of tax recordkeeping and reporting are approximately
$72,000 a year, which accounts for more than 16% of the
company's net income. The Committee also heard from Roger
Harris, President, Padgett Business Services, who documented
the burden of hiring a single employee, which can entail as
many as 31 Federal forms and 25 forms in a state like Georgia.
He also testified about the overall compliance burdens that
small business owners must master including depreciation rules,
alternative-minimum taxation, estimated taxes, as well as the
added burdens that occur if the business is selected by the IRS
for an audit.
On the second panel, Margaret Wrightson, Associate
Director, Tax Policy and Administrative Issues, GAO, presented
the results of GAO examination of tax filing and reporting
burdens requested by the Chairman. The GAO testimony revealed
that a small business owner faces more than 200 IRS forms and
schedules that could apply in a given year. These forms contain
more than 8,000 lines, boxes, and data requirements, and are
accompanied by more than 700 pages of instructions, which does
not include the tax code, regulations, rulings, and countless
other guidance that the IRS issues. The Committee also learned
that 76% of small business owners hired a tax professional to
file their tax returns in 1995 (the most recent IRS data
available), and that more than 350,000 small businesses were
audited in 1995--nearly twice the rate of non-business
taxpayers. Even more troubling, the GAO reported that more than
37% of small business audits resulted in no additional taxes or
penalties.
The final witness at the hearing was Charles O. Rossotti,
Commissioner of the Internal Revenue Service, who reviewed the
agency's modernization plans, which will include a division
dedicated to small businesses and the self-employed. He also
described a number of initiatives the IRS is undertaking to
improve the current system, while the new small-business
division is being developed. Mr. Rossotti emphasized to the
Committee that the long-term goal of the IRS is to organize the
whole IRS into operating units that have specific
responsibility for serving different groups of taxpayers,
including small business, in order to provide top quality
customer service.
Following the Commissioner's testimony, Chairman Bond
raised the issue of subjecting all the IRS' forms,
publications, and letters to a common-sense review in an effort
to provide more user-friendly communications for taxpayers. The
Commissioner agreed that such an endeavor would be useful, and
he committed to redrafting the worst offending documents if the
Committee could help identify them. Subsequently, on May 26,
1999, the Chairman unveiled the ``IRS Paperwork Unpopularity
Poll'' on the Committee's webpage. In his letter to the
Commissioner announcing the poll, the Chairman noted that it
was designed to collect information about the IRS forms,
schedules, instructions, publications, letters, and notices
most in need of common-sense review and revision. He also
stressed that ``There is much that the IRS and Congress need to
do if we are to reduce the tax filing and recordkeeping burdens
that small businesses encounter every day. This common-sense
review of IRS forms and other documents is a first step, and
one that could have far-reaching benefits for small-business
owners across the nation.''
ROUNDTABLE--OFFICE OF ADVOCACY AND SBIR/STTR PROGRAMS--WASHINGTON, DC,
APRIL 21, 1999
On April 21, 1999, the Committee held a roundtable to
review the SBA's Office of Advocacy and the Small Business
Innovation Research (SBIR) and Small Business Technology
Transfer (STTR) programs. Chairman Bond prefaced the roundtable
by stressing that the Office of Advocacy provides a critical
voice for small business within the Administration. He also
noted the success of the SBIR and STTR programs, which is
evident through the thousands of small firms that have received
research grants under the programs since 1982. The Chairman
pointed out some concerns with respect to the programs,
including the success of firms receiving multiple SBIR grants
to commercialize their technologies and the geographic
concentration of the SBIR awards in a few states.
The roundtable began with participants focusing on the
SBA's Office of Advocacy and its importance for small business.
Todd McCracken, President, National Small Business United,
emphasized that the Office of Advocacy serves an important role
in the regulatory process by expressing the concerns of small
businesses with regard to regulators. Many of the participants
offered support of a separate budget line item for the Office
of Advocacy in order to ensure its independence, stabilize
staffing, and provide funding for economic research. Chief
Counsel for Advocacy Jere Glover agreed that the Office of
Advocacy would be strengthened with legislation that
specifically addresses the independence of his office. Brad
Frisby, Assistant General Counsel, National Mining Association,
emphasized that the dedication of more money to the Office of
Advocacy is an investment that would result in better
regulations to the benefit of all small businesses.
During the participants' discussion of the SBIR and STTR
programs, Milt Stewart, President, Small Business High
Technology Institute, stressed that the SBIR program is a
success because it has established a basis for collaboration
between small business and the collective group of
universities, Federal government, large companies, venture
capital and commercial banks. He and other participants urged
Congress to adopt an authorization level that reflects the
importance of this program in the upcoming Fiscal Year's
appropriations bill.
Robert Weiss, Chairman, Physical Sciences, Inc., remarked
on the geographic distribution of the SBIR and STTR programs.
He stated that small firms and universities have a very broad
geographic distribution. In addition, the reason for lower
awards in many states is that they have submitted fewer
proposals. Chris Busch, SBIR Consultant, concurred with Mr.
Weiss and went on to state that Congress should sustain the
current SBIR outreach. He stressed that the outreach program
should be increased and enlarged in an effort to involve small
businesses in rural states. Rob Risser, CEO, Picometrix, and
Chairman, Small Business Technology Coalition, stated that the
ability and need to reach out to subcontract with universities
across the country is based on the specialty, not geographic
location, and is a necessary way of business for technology-
based companies.
Dan Hill, Director, SBA Office of Technology, described the
outreach activities occurring on a number of different fronts
in several states. Jon Baron, SBIR Program Manager, Department
of Defense (DOD/Defense), remarked that Congress should not
look just at who gets the SBIR funds, but also at who benefits
from the resulting technologies.
ROUNDTABLE--SBA'S 7(A) AND 504 LOAN PROGRAMS--WASHINGTON, DC, APRIL 27,
1999
On April 27, 1999, the Committee held the second in a
series of five roundtables to discuss the programs and policies
of the SBA. According to Chairman Bond, this series was
intended to provide information for the Committee, the Members,
and the staff as they prepare for the reauthorization of SBA
programs and continue the Committee's oversight of the agency.
The present roundtable focused on the two major loan programs
administered by the SBA--the Guaranteed Business Loan program
(known as the 7(a) loan program) and the Development Company
Loan program (known as the 504 loan program). In Fiscal Year
1999, these two programs will guarantee loans totaling in
excess of $12 billion to more than 40,000 small business
borrowers.
In his opening statement, Chairman Bond explained that both
7(a) and 504 loans were designed to make credit available to
small businesses, despite tight economic conditions that often
preclude banks from offering higher risk loans. Despite the
economic prosperity of the last decade, the loans continued to
serve small businesses whose credit needs were unmet by
traditional financial institutions. The roundtable discussions
were intended to bring to light many key issues affecting the
7(a) and 504 loan programs.
Overall, the roundtable participants expressed their
support for both loan programs and offered recommendations for
improvements. Deryl Schuster, President, Mid-America Division
Business Loan Center, raised the issue of loan prepayments.
Recently, an increasing number of borrowers have been prepaying
their loans, adversely affecting the subsidy rate. Prepayment
often occurs when companies withdraw early from their loans and
refinance through other lenders that offer fixed-rate loans and
lower fees. As a result, only borrowers who are unable to
refinance, frequently due to poor fiscal health, keep their SBA
loans, which could cause an increase in the credit subsidy
rate. Tony Wilkinson, President and CEO, National Association
of Government Guaranteed Lenders (NAGGL), proposed that a
penalty be imposed for prepayment of loans of 15 years or
longer, with the SBA benefitting from the resulting revenue.
Prepayments cause a contraction of the availability of funds
that the SBA can lend to other small businesses, and the
imposition of a prepayment penalty would counteract this trend.
Frank Swain, Partner, Baker & Daniels, suggested that educating
borrowers regarding loan refinancing is a public policy issue
since there are fiscal disadvantages to the borrower in rapidly
refinancing loans due to closing costs. He also proposed that a
prepayment penalty should apply only to businesses that prepay
within the first three years of the loan period.
The participants also addressed the subject of the
programs' credit subsidy rates and re-estimate of the rates.
Patricia Forbes, the Committee's Democrat Staff Director, noted
that the credit-subsidy model currently in use consistently
overestimates the capital needs of SBA loans. As a result, the
agency must fight annually for the appropriation of extra funds
that it will merely return to the Treasury at the close of the
Fiscal Year. She proposed that this process could be avoided by
lowering the default estimates in accordance with the
corrected, year-end figures. Mr. Schuster cautioned, however,
that the subsidy rate cannot be decreased so much that in times
of economic difficulty there will be insufficient funds to
support small businesses. He advocated the establishment of a
floor on subsidy-rate levels.
Lyle Frederickson, Senior Vice President, 1st Capital Bank,
raised the topic of guarantee fees. These fees subsidize the
loan programs, but in their present form they are burdensome
for lenders to collect. Also, because they are an additional,
monthly charge on the loan, the fees cause an increase in the
frequency of prepayments. He recommended that the fee be
converted to a one-time payment that would be charged when the
loan was closed, decreasing both collection costs and the
number of prepaid loans. It was also suggested that the fee
could be paid at the beginning of the loan. James Hammersley,
Director of SBA's Secondary Market Sales and 504 Sales,
countered that a fee collected at the time of the loan's
drafting would perhaps inhibit some companies from obtaining
loans.
With regard to the secondary loan market, Donna Faulk, Vice
President, Mortgage-Backed Securities, Prudential Securities,
noted that a gray area exists concerning refunding the premium
to the purchaser in the event that the investor has prepaid
using a premium pool security. In the present system, if a
broker consolidates individual loans into premium pools, the
premium is not refunded to the borrower but is instead placed
by the SBA into the master reserve fund and used to pay
delinquent loans. John Cox, Government Affairs Manager,
National Tooling and Machining Association, recommended that
the ``new market lending program'' proposal target particular
geographic regions to encourage growth. In addition, he
suggested that the program continue to rely on current lenders,
rather than endeavor to attract new ones.
With respect to the 504 loan program, Richard Jeffrey,
President, National Association of Development Companies,
recommended that the maximum size for debentures should be
increased due to the effects of inflation. Presently the
ceiling for regular debentures is $1 million, with $1.3 million
allowable for public policy areas (achieving national
objectives such as expanding exports, increasing minority
business development opportunities, developing rural areas,
revitalizing business districts). He also submitted that the
category of women-owned businesses should be added to the list
of public policy areas.
In addition, Mr. Jeffrey suggested increasing or continuing
authorizations for the Certified Development Companies (CDC)
program and extending the sunset date on 504 loans for another
three years. He also advocated establishing a new permanent
loan liquidation program for the CDCs and making permanent the
Premier Certified Lender (PCL) program, which permits loans to
be processed in a relatively short period of time with reduced
SBA involvement. Participants criticized the April 2, 1999,
regulation that prohibited CDCs from receiving referral fees
from participating third-party lenders because it did not allow
the CDCs to be compensated when they have in fact performed a
service for the borrower. With respect to multistate expansion,
it was clear that the absence of regulations governing the
practice had led to some confusion--the guidelines do not
prohibit such expansion, but neither do they outline how to
proceed. The SBA's current policy is to allow all previously
expanded CDCs to remain in their enlarged territories.
ROUNDTABLE--SMALL BUSINESS ROUNDTABLE ON SBA'S SBIC AND MICROLOAN
PROGRAMS--WASHINGTON, DC, MAY 12, 1999
On May 12, 1999, the Committee held the third in a series
of roundtable discussions to examine the programs of the SBA.
The focus of the roundtable was the SBA's Small Business
Investment Company (SBIC) and Microloan programs. The
roundtable participants included a variety of small business
representatives with experience operating within these
programs, in particular those involved in venture capital.
Chairman Bond opened the discussion by reviewing the history of
the SBIC and Microloan programs. He noted the importance of
adapting these programs to meet the needs of borrowers/
recipients, while maintaining efficiency since they are funded
through taxpayers' dollars.
Initially, the roundtable participants focused on the
importance of equity investment to small businesses, and there
was general agreement that the SBIC program has been a
successful force in bringing these equity investors to the
small business community. Don Christensen, SBA Associate
Administrator for Investment, pointed out that the
Administration's budget request for the SBIC program of $27
million for Fiscal Year 2000 would allow for $3.4 billion to be
invested through the SBICs into the small business community.
Several participants stressed the need for some of this funding
to be focused in low-to-moderate-income rural and urban areas.
Mr. Christensen also discussed the Administration's New Markets
Venture Capital program, which he explained would solicit
proposals from venture capitalists who would bring profit-
making companies into low-to-moderate-income areas.
The participants then turned to a discussion of the
traditional factors for ensuring future success of the SBICs
and their investments. Small business investors explained how
they placed their own staff in these companies to give real
hands on help since many entrepreneurs need much more than just
financial backing. The participants also applauded the SBA for
realizing that technical support is of major importance. In
addition, equity and technical support must work together in
order for an investment in a small business to be successful.
Several participants also raised issues concerning the SBA's
regulations on control, noting that venture-capital companies
are restricted in taking any real control over a company if
they use SBIC money. Although venture-capital companies argue
that accomplishing their financial goals is possible,
regulations on control are a significant nuisance. Participants
urged that the purposes of the Small Business Investment Act
should be reexamined with respect to this issue.
The discussion turned to the obstacles that prevent
investment in low-to-moderate-income areas. Ray Moncrief,
Executive Vice President, Kentucky Highlands Investment Corp.,
stressed that the Committee must understand that investors'
motives are not simply goodwill, but to produce a profit. Last
year the SBICs made $600 million worth of investments in low-
to-moderate-income areas with the average investment exceeding
$1 million. This data shows that there are examples of
successful investment in low-to-moderate-income areas, but
these successes have usually been in large, traditional
companies that have a low degree of risk. Participants stressed
that investors believe that any investment in these areas must
be sound, so that they produce jobs and a profit.
Participants noted that one major problem was getting the
necessary technical assistance in these low-to-moderate-income
areas. Participants questioned how to attract qualified
personnel to work in these areas, and how to locate and
persuade investors to invest in rural areas where the return
may only be moderate. Examples were given of lawyers and
doctors who have gone into low-to-moderate-income communities
to provide non-profit help. But as one participant pointed out,
these examples of generous people are few and far between. All
of the participants agreed there needs to be an economic reason
to encourage long-term, consistent investments in these areas.
Participants suggested that tax credits were one incentive that
would be a credible way to start investing in low-to-moderate-
income areas. Another option was a low-to-moderate-income
debenture program, which would ease or eliminate interest
payments between the SBIC and the SBA for the first few years.
This option, however, would not exempt small businesses
receiving the investment from making interest payments to the
SBIC.
The final topic that the roundtable addressed concerned the
Microloan program, which the participants generally deemed a
success. Several participants, however, called for a change to
the program's $25,000 loan cap. This restriction was put into
place in 1991, but it was never adjusted for inflation or
changes in the small business marketplace. The participants
argued that the cap should be increased to $100,000, which
would allow for the technical and general assistance needed to
cover the cost of starting a business in today's market.
ROUNDTABLE--SMALL BUSINESS ROUNDTABLE ON SBA'S MANAGEMENT ASSISTANCE
PROGRAMS--WASHINGTON, DC, MAY 20, 1999
On May 20, 1999, the Committee held the fourth in a series
of roundtables to review the SBA's programs. The present
roundtable focused on the SBA's management assistance programs.
Chairman Bond prefaced the roundtable with an overview of these
programs, which include the Small Business Development Centers
(SBDCs), the Service Corps of Retired Executives (SCORE), and
the Women's Business Centers. The Chairman noted the successes
of the programs and expressed confidence that the programs
would continue to provide valuable assistance to small
businesses in the future.
The roundtable began with a review of the SBDC program.
Woodrow McCutchen, Executive Director, Association of Small
Business Development Centers, opened the discussion by noting
his concern that the SBDC program would face a dismal future if
the proposed budget cuts for this program were enacted. He
explained that the SBDC program is based on matching funds from
the private sector. As a result, every dollar cut from Federal
funds for SBDCs will lead to a loss of private-sector funding.
Mr. McCutchen expressed his belief that a reasonable budget for
the program should be $98 million.
The participants then addressed the merits of instituting a
small fee that small businesses could pay SBDCs for counseling.
Some participants raised concerns that such fees would only
hurt the program because they would lead to paperwork and
accounting costs and small businesses in need of counseling
would likely shy away from the using SBDC services if a fee
were imposed. Other participants remarked that a fee would
prompt small businesses seeking counseling to be more prepared
on their first visit to an SBDC, by having, for example, a
business plan or solid ideas. The participants in favor of a
fee also asserted that any paperwork or accounting problems
that the SBDC might incur could be overcome by the SBDCs given
their business expertise.
The SCORE program was the next topic of discussion for the
roundtable. Emmett Gumm, President, SCORE, reviewed a number of
the program's recent successes, and he noted that the program
is run by 12,000 volunteers, with only 13 paid employees. He
asserted that SCORE needs an increase of $1.5 million primarily
to enhance its Internet services. Its web page, which receives
more than 1.3 million hits a month, allows counselors to work
with people all over the country without the additional cost to
travel. In fact, the program conducted 6,000 free e-mail
counseling sessions in April 1999 alone. SCORE's Board of
Directors plans to restructure the program so the Internet
becomes an even bigger part of its overall resources.
The final subject considered by the roundtable participants
was the Women's Business Centers program. Andrea Silbert,
President, Association of Women's Business Centers, reviewed
the program and noted that helping women-owned businesses comes
from three different areas--the SBA's Office of Women's
Business Ownership (OWBO), National Women's Business Council,
and the Association of Women's Business Center. Participants
noted that the Women's Business Center Program had the greatest
need for strengthening, primarily through accreditation.
Several participants stressed that reporting by SBDCs, SCORE,
and Women's Business Centers should be on a consistent basis in
order to provide a uniform standard by which all programs could
be evaluated. Discussion also centered on the Women's Business
Centers' web site and some of the problems surrounding its
implementation, including retaining technical staff. There were
also difficulties with the web site initiative in matching
counselors and clients in the same region, thereby allowing the
counselor to assist the client adequately at the local level as
well as through Internet counseling at the national level.
Committee staff offered numerous suggestions on how the Women's
Business Centers could handle the Internet counseling.
Final Committee staff comments suggested that the three
organizations work together on their Internet struggles with
each contributing to and learning from the others what they
have accomplished.
ROUNDTABLE--SMALL BUSINESS PROCUREMENT--WASHINGTON, DC, MAY 20, 1999
On May 20, 1999, the Committee held the fifth in a series
of roundtables on the programs of the SBA. The present
roundtable focused on small business procurement and was
attended by participants representing women and minority small
business owners and American Indian business groups. Chairman
Bond opened the roundtable by noting that the Federal goal for
procurement from small businesses is 23%. He expressed his
disappointment with the government's failure to meet this goal
and the continued practice of contract bundling by Federal
departments and agencies. Both Chairman Bond and Senator Kerry
expressed their expectation that the roundtable would raise
proposals and suggestions on how the SBA could increase the
level of procurement contracts awarded to small businesses.
The roundtable began with a discussion concerning the need
for the SBA to enforce the regulations intended to promote
Federal procurement for small businesses. Several participants
stated their dissatisfaction in the SBA's failure to live up to
its responsibility of assisting small businesses in the Federal
procurement area. The SBA participants asserted that the small
business procurement statistics were extremely skewed because
of the erroneous inclusion of certain large contracts. The SBA
representatives also noted that contracts under $25,000, which
total $9 billion, were also excluded from the statistics. As a
result, by omitting the large contracts and adding back the
small-size contracts, they contended that the percentage of
Federal procurement to small business would be much higher.
Participants on both sides of the issues maintained that
different Federal departments and agencies were using disparate
regulations to decide which contracts go to small businesses.
The SBA representatives argued that in many instances a Federal
agency will contract with a small business and will be
satisfied with its work. Thereafter, the agency will want to
use that small business again instead of offering a subsequent
contract to a new small business.
The discussion shifted from the SBA's handling of Federal
procurement to a more general evaluation of the SBA's customer
service. Participants expressed concerns that SBA employees are
merely career government employees who care little about the
small businesses they are charged with serving. Participants
also expressed frustration with the high level of bureaucracy
that many small businesses encounter when dealing with the
agency. The SBA representatives affirmed the agency's policy of
encouraging dissatisfied small businesses to contact a
supervisor about their complaint, which ensures a response from
the agency.
The roundtable moved onto the issue of women small business
owners. Several participants called for women-owned businesses
to be considered with the same presumption of social
disadvantage as minority-owned firms. Several women business
owners explained situations in which they were excluded or
discriminated against by different Federal agencies. The SBA is
charged with enforcing a goal that 5% of Federal procurement
goes to women-owned small businesses, although that goal has
not been met since it became law in 1994. Several solutions
were mentioned, including teaming different women-owned
businesses together so they could handle large Federal
contracts. Overall, the participants remarked that the SBA
needed to improve its enforcement of procurement requirements.
Other general problems discussed by the roundtable
participants were contract bundling, paperwork, and
certification. Contract bundling is a critical issue for many
small businesses. Participants noted that when a government
agency takes several projects and accepts bids on the total
cost of the projects, only large firms will bid because they
alone have the capacity to handle the entire job. While
contract bundling helps the Federal government save costs, the
participants echoed the Chairman's reflection that Federal law
and policy are intended to direct a significant portion of
government procurement dollars to small businesses. The
participants noted that the Federal small business procurement
goal has not been reached, and some participants expressed the
need for the SBA to do a better job in reaching that goal.
The roundtable participants noted that minority-owned
business certification is a difficult process to maneuver.
There was general aggravation among the participants by all of
the paperwork involved because it often led nowhere and at a
high cost. In addition, participants were frustrated at the
many different levels of certification that are usually
required of a small business--Federal, state, and local. There
was some recognition, however, that the certification process
was necessary to prevent fraud and waste of taxpayer dollars.
Committee staff also expressed interest in streamlining the
certification process.
The final issue addressed at the roundtable was the role of
tribal communities in the HUBZONE program. Participants
remarked that the existing strict guidelines unfairly keep
tribal-owned small businesses out of the HUBZone program. There
was general agreement that the tribal communities and tribal-
owned small businesses should participate in the HUBZone
program. Several participants offered suggestions for statutory
changes to make such participation possible. Participants also
focused on the issue of modifying the HUBZone program to
include Alaskan Natives.
HEARING--EDUCATION SUCCESS = BUSINESS SUCCESS--WASHINGTON, DC, MAY 25,
1999
On May 25, 1999, the Committee held a hearing to discuss
the current state of public education, how it affects small
business, and how small businesses can contribute to the
education of its future workforce. Chairman Bond prefaced the
hearing by emphasizing the importance of education in our
society, the consequences of an uneducated child, and how the
state of the nation's schools significantly affects Americans'
futures. He pointed out that, ``education is vital for our own
peace and security and it is vital to our business success.''
Senator Kerry concurred and raised concerns as to how prepared
high-school graduates are for the modern work force.
The first panel emphasized the overall decline in the basic
skills of students entering the workforce. Eric Rolfe
Greenberg, Director of Management Studies, American Management
Association, reviewed research by his organization. This
research was based on surveys of the association's 10,000
member companies. He listed three primary reasons for a recent
decline in worker employability. First, a greater share of
employable Americans are working when qualified talent is
comparatively scarce, so companies must sift through a larger
number of applicants to find workers with necessary skills.
Second, the increasing number of applicants for whom English is
a second language has contributed to the decline. Third, the
increasing complexity and technical nature of the actual work
to be performed has reduced the pool of employable workers. Mr.
Greenberg offered two solutions to these problems. Businesses
must conduct training and skill development to give employees
the skills they do not have. In addition, the business
community must provide ongoing support to local elementary and
secondary educational institutions.
Mr. Greenberg went on to describe business involvement in
local schools conducted by members of his organization. One
corporation runs an on-site Kindergarten, while another
corporation operates, a school with children from Kindergarten
through Fourth Grade. Chairman Bond emphasized the need for
supporting education for children from the time of birth until
they reach school age, as well as once they begin attending
formal schools. He cited as an example the success of the
``Parents As Teachers Program,'' which he began in Missouri.
Senator Kerry emphasized the need for business leaders to work
with local schools to prevent graduates from being unskilled,
while Senator Snowe highlighted the success of the ``Jobs for
America's Graduates Program.''
The second panel focused on efforts of businesses and
communities to meet the demands of the economy and the needs of
students. Carol L. Ball, President and CEO, Ball Publishing,
Inc., emphasized that many high-school graduates lack basic job
skills, in addition to being deficient in reading, writing, and
math. She also stated that the Chamber of Commerce, in relation
with its state and local affiliates, has worked hard to
communicate best practices especially to small businesses (less
than 100 employees). These best practices have proven to be
beneficial to businesses in regard to the hiring of employees
and training them in an ever-changing world. Barbara Seisler
Goodling, Secretary/Treasurer, Albert Seisler Machine
Corporation, addressed the problems her business and other
small businesses have had finding employees who have basic
reading and math skills and who can be relied upon to take
responsibility for themselves. She also discussed efforts by
local businesses to remove barriers for many workers seeking
employment, such as providing day care, transportation, and
matching employees' skills with potential jobs.
Edward B. Rust, Jr., Chairman and CEO, State Farm Insurance
Companies, and Chairman, National Alliance of Business,
discussed the role of businesses advocating state-level policy
initiatives to improve elementary and secondary education.
Among their goals is to improve the quality of teachers,
upgrade standards and contents of math and science education,
integrate technology, and support quality management. His
organization sponsors business roundtables, involving members
of business and education communities, which have led to
business-education coalitions in 42 states. The National
Alliance of Business is seeking to incorporate the business
principles of the Baldrige Quality Management Criteria,
sponsored by the Department of Commerce, into education at the
state, local, and school level in an effort to increase student
performance. He concluded his testimony by advocating that the
Federal government give greater flexibility to states and local
school districts while maintaining their accountability.
Kelly Fujiwara, Chair, Education Committee, Lexington/Rock
Bridge (VA) Chamber of Commerce, described a business-education
partnership program in effect in Rockbridge County, Virginia.
The program entitled ``Prep 2000,'' was designed to provide
businesses with information as to the academic preparation of
job applicants and to create a forum for educators and business
leaders to communicate their limitations and expectations. The
program also allows students to become more familiar with the
business community through luncheon programs and rewards high
achieving students with scholarships. The program has been
successful in enhancing the relationship between the schools
and the business community. She suggested that improvement can
be made by including middle schools in the services provided
and by encouraging businesses to use the program as a screening
tool to identify potential employees.
Chairman Bond asked a series of questions of the panelists
to address specific concerns. He emphasized the need to hold
students accountable for their actions and for a reprieve on
schools from burdensome Federal mandates. He also raised
concerns about the Federal government deciding how success is
measured, emphasizing local answers as opposed to national
mandates.
Chairman Bond concluded the hearing by stressing that
another Federal law or mandate was not the solution to
America's educational concerns. He stated that ``we have got to
transfer and identify that responsibility, going back to the
local community,'' emphasizing that businesses need to be
encouraged to get involved in an educational system upon which
they are so dependent.
FIELD HEARING--SMALL BUSINESS AND ENVIRONMENTAL TECHNOLOGIES: THE
CHALLENGES AND OPPORTUNITIES--BOSTON, MA, JUNE 14, 1999
On June 14, 1999, the Committee held a field hearing in
Boston, Massachusetts on small business and environmental
technologies. Chaired by Senator Kerry, the hearing focused on
issues in the marketplace concerning environmental change,
environmental enforcement, and environmental technologies. He
noted that enforcement of environmental regulations has given
birth to many new technologies, 90% of which are originating
from small businesses, although in recent years the amount of
investment and new technologies in this area has slowed
significantly.
The first panel consisted of small business owners who have
used environmentally friendly practices in their businesses.
The witnesses expressed their appreciation to the government
agencies that have helped them create environmentally friendly
businesses. In particular, the witnesses praised the EPA's
Office of Technical Assistance for helping small businesses
achieve compliance with environmental regulations. In addition,
both witnesses noted that implementation of new environmental
practices had led to an increase in productivity and a strong
rate of return. Douglas DeVries, Environmental Manager, Hyde
Manufacturing Company, which manufactures hand knives and
machine blades, testified that his company has had on average a
66% rate of return on its investments in new technologies that
have helped his company become environmentally friendly. He
offered as one example of such technology the development and
use of a metal working fluids program that has decreased the
discharge of coolants from 140,000 gallons per year to zero
gallons in each of the last eight years. Mr. DeVries and Dennis
Prifti, Co-Owner and General Manager, Fit To Print, noted that
implementing new environmentally friendly technology has been
less costly and entailed less downtime than originally
anticipated. Both witnesses were confident that other small
businesses would have similar successful experiences.
The witnesses on the second panel represented firms that
develop new technologies in the environmental field. The
witnesses emphasized the importance of government grants from
the SBA's SBIR program. They noted that while the SBIR program
helped them launch and maintain their companies, the program
was less beneficial when it came to trying to achieve the goal
of developing marketable products. The witnesses also
identified as an overall regulatory problem the many different
levels of authorities with which a company must comply in order
to develop new environmental technologies, and the fact that
few of them utilize the same standards. The panelists concluded
by noting that they saw a bright future for the environmental
industry, based in part on their prediction of strict
regulations on emissions and the discharge of pollutants, which
will force the market to develop new technologies so that small
businesses can comply with such new regulations in a cost-
effective manner.
The final panel consisted of a witness from the U.S.
Department of Commerce (DoC) and one representing the National
Small Business United (NSBU) and the Smaller Business
Association of New England. Kelly Carnes, Deputy Assistant
Secretary of Technology Policy, DoC, reviewed some successful
and some disappointing numbers with respect to the
environmental industry. On the positive side, Ms. Carnes noted
that the environmental industry is a $186 billion industry,
which employs 1.3 million Americans. It includes 33,000
companies in the private sector, 99% of which are small
businesses, that generate $18 billion worth of export revenue
per year with a trade surplus in excess of $9 billion. The
disappointing figures are those that show the downward spiral
in which the industry is caught. For example, in 1990 there
were more than $200 million of venture-capital investments in
the environmental industry, as opposed to only $30 million in
1996. While the NASDAQ is appreciating at 22% annually and the
Dow is increasing at 16%, the environmental industry is only
gaining 6% annually. Of the total global market, American firms
control only 10% of the market while French and German
companies have 20%. The witnesses made several recommendations
on how to stimulate the environmental industry and the public
to implement new environmental policies and procedures. Ms.
Carnes and Richard Herring, General Manager, Gloucester
Company, Inc., agreed that minimum standards regarding
environmental issues need to be set for all industries, with
incentives for the companies who go above and beyond that base-
level standard. The witnesses also recommended that the
standards and regulations become more consistent among agencies
and levels of government and that the public become more aware
of the strides that still need to be taken to achieve a truly
environmentally friendly business community.
Senator Kerry concluded the hearing by suggesting that the
EPA's statistical arm be removed from the agency and that the
Census Bureau be required to provide the government's
statistics on how the EPA is performing and how the environment
itself is fairing.
FORUM--E-COMMERCE: BARRIERS AND OPPORTUNITIES FOR SMALL BUSINESS--
WASHINGTON, DC, JUNE 15, 1999
On June 15, 1999, the Committee held a forum on the
barriers and opportunities for small business in electronic
commerce (``e-commerce''). The forum consisted of 5 panelists
and 16 participants from various governmental and non-
governmental segments of the computer and Internet fields.
Chairman Bond opened the forum by reviewing the successes and
downfalls of small business in e-commerce. He pointed out that
according to a University of Texas report, e-commerce accounted
for the creation of 1.2 million jobs and $300 billion of
revenue in 1998. Chairman Bond also noted that Congress is
currently considering several issues that will have a direct
effect on e-commerce including: Internet taxation, encryption,
and electronic crimes.
The first panelist, John Alden, Senior Vice President of
Sales, Primary Network, described the structure of the Internet
and how small businesses can integrate into it. The Internet
can be broken down into three parts: access, content, and e-
mail. Of these three, he stressed that e-mail is the number one
reason that people have Internet connections. It allows a
person to communicate with anyone around the world that has an
e-mail address. He stated that all three components are easy to
obtain, usually at a low monthly fee. Mr. Alden also raised two
concerns currently confronting small business. First, the need
for a high-speed connection when a company has several
workstations on a network. Second, he noted that suppliers are
jumping past their usual small business vendor and going
straight to the customer via the Internet. This practice is
occurring in part because the bypassed small business vendor
usually does not have the capital or technical staff to
communicate with customers as efficiently as the large
suppliers.
Keith A. Rhodes, Director, Office of Computer and
Information Technology Assessment, GAO, was the next panelist,
and he explained the issues that a small business owner must
consider when deciding whether to become involved in e-
commerce. First, the company must decide if its personnel has
sufficient computer literacy and technical support for the
company to engage in e-commerce. Second, the company must
decide how it will present its business on the Internet--where
will it advertise and how its web page will be designed in
order to attract customers. Third, the company must understand
that once it begins business via the Internet, the company will
be open for business 7 days a week, 24 hours a day. As a
result, the company will need the capacity to handle the
success of increased business in a consistent and professional
manner.
The third panelist, Ken Perez, Senior Vice President of
Marketing, CyberCash, Inc. described several new innovations
that have occurred with respect to e-commerce. He noted that
the Internet industry has conceived some integrated solutions
that allow customers to go to a single source for all necessary
information to enable a company to engage in business online.
Questions about Internet access, storage, catalog software, and
credit-card processing can all be answered and obtained from a
single source based on a monthly fee ranging from $20 to $300.
These integrated solutions have lowered the cost for small
businesses to enter the online industry thereby lowering the
financial risk. Mr. Perez also provided statistics on the
success of e-commerce for small businesses. At the end of 1999,
there will be 1.1 million small businesses online and engaged
in e-commerce. Seventy-one percent of small businesses with e-
commerce sites indicate that the Internet is key to their
success. Mr. Perez concluded his remarks by identifying some
steps that need to be taken for small businesses to continue
their success in e-commerce. For instance, much of the software
currently available for developing e-commerce sites is designed
for large corporations; small businesses need software
specifically created to meet their needs. Also advertising
needs to be more economical. Mr. Perez recommended that payment
for advertisement should occur after a true sales lead has been
generated, instead of before.
Harris Miller, President, Information Technology
Association of America, and Eric Fredell, International Trade
Specialist, DoC, both described how the Internet has led to an
increase in trade between businesses that, without the
Internet, would not be conducting business with each other.
Both panelists noted the reduced cost and increased speed of
responses to business proposals, which the Internet has
facilitated. It was emphasized that the laws and regulations
that the government might impose on the Internet pose a
potentially significant challenge to e-commerce. Both panelists
proposed that the government allow e-commerce to stay free and
open.
The remaining time during the forum was dedicated to a
discussion of the issues raised by the panelists with questions
and comments from the other forum participants. A number of
participants called attention to the enormous expansion in e-
commerce, which has occurred due to a lack of regulations
blocking or slowing it down. In particular, participants noted
that there are currently no taxes or regulations to stifle
investment in and the productivity of e-commerce. Several
participants observed that there is a need for faster
connectivity, but that this problem will be resolved in time.
In general, all of the participants expressed the view that
small businesses must become involved in e-commerce to compete
in the 21st century.
ROUNDTABLE--SMALL BUSINESS INNOVATION RESEARCH (SBIR) PROGRAM--
WASHINGTON, DC, AUGUST 4, 1999
On August 4, 1999, the Committee held a roundtable on the
geographic distribution of awards made under the Small Business
Innovation Research (SBIR) program. The roundtable was attended
by 33 participants, including representatives of small
businesses active in the SBIR program and small business
advocacy groups, officials of Federal agencies that have SBIR
programs, and representatives of organizations assisting small
businesses desiring to participate in the SBIR program. An
additional nine participants joined the roundtable via
teleconference from Columbia, Missouri.
The roundtable addressed the geographic distribution of
SBIR awards and examined proposals to encourage greater
participation by companies located in states that receive a
disproportionately smaller share of SBIR awards. Chairman Bond
noted that during Fiscal Years 1993 through 1996, companies in
one-third of the states received 85 percent of the SBIR awards.
Companies on the East and West Coasts received the vast
majority of these awards, while companies in the South, Midwest
and Rocky Mountain states generally received very few awards.
For example, the General Accounting Office (GAO) reported that
in Fiscal Year 1997, companies in Massachusetts and California
received 202 and 326 Phase II awards, respectively, out of
approximately 1,400 awards nationally. Chairman Bond indicated
that the best way to encourage small businesses to participate
in the SBIR program in the under-represented states is to
provide a comprehensive outreach and assistance program in such
states.
The first topic of discussion during the roundtable
centered on utilization of the Experimental Program to
Stimulate Competitive Research (EPSCoR) to assist potential
SBIR awardees. The EPSCoR program provides grants to
universities to increase research and development activities in
states historically receiving fewer research grants. Many
agencies with SBIR budgets also have EPSCoR programs. Susan
Kladiva, Director of Energy, Resources and Science Issues,
Resources, Community and Economic Development Division, GAO,
and Kesh Narayanan, Director, Industrial Innovation Programs,
National Science Foundation (NSF), noted that unlike other
agencies, the NSF has linked its EPSCoR program to its SBIR
program. First, SBIR proposals from states with EPSCoR
activities that are ranked in the ``highly recommended'' or
``recommended'' category in the review process, but were not
selected because of funding restraints, receive a second review
and an opportunity to be funded through EPSCoR. Second, NSF has
used EPSCoR funds to provide grants to universities to afford
technical assistance for businesses applying for SBIR awards
(referred to as ``Phase 0'' funding). Other participants,
including Carl Ray, SBIR/STTR Program Manager, National
Aeronautics and Space Administration (NASA), acknowledged the
usefulness of the NSF's efforts and discussed ways that
agencies, such as NASA, could likewise coordinate their EPSCoR
programs with their SBIR programs.
The second topic of discussion focused on how best to
coordinate SBIR outreach with state-based organizations,
including universities, state agencies and consortiums. Several
participants, including Bruce Gjovig, Director, Center for
Innovation, University of North Dakota, and Chris Busch, an
SBIR Consultant, agreed that the most efficient and effective
manner of encouraging participation in the SBIR program by
small businesses in states not historically receiving a large
number of awards is to use existing state infrastructure to
provide assistance to interested and qualified small
businesses.
The discussion then turned to the existing SBIR outreach
program established by Congress in 1997. Under that outreach
program, the SBA provides grants, on a competitive basis, to
underperforming states. States provide matching funds and
administer the outreach programs. Daniel Hill, Assistant
Administrator, Office of Technology, SBA, noted that at the
time of the roundtable, awards had yet to be provided to states
under this program.
The final topic discussed was legislation introduced by
Senator Carl Levin (D-MI) to establish a mentoring program
whereby the SBA would provide grants of between $50,000 and
$200,000 to associations representing small businesses. These
associations would establish mentoring organizations that
employ ``volunteers'' to provide technical assistance
(including, marketing, proposal writing, accounting, audit
assistance, etc.) to small businesses seeking SBIR grants and
located in low participation areas in states. Most participants
agreed that mentoring is an important aspect to assisting small
businesses in the SBIR program. However, many participants
raised concerns about the legislation, including that (1) it
attempts to create a program to provide technical assistance
without leveraging existing resources (i.e., state universities
and state or Federal agencies); (2) the grants are more likely
to go to either national associations or to states that have
enough success in the SBIR program that they have formed or
have the ability to form an association of small businesses
active in the SBIR program; and (3) the size of the grants may
preclude a nationwide scope.
Chairman Bond closed the roundtable by announcing
intentions to review the options for SBIR outreach and
assistance as the Committee drafts legislation to reauthorize
the SBIR program.
FIELD HEARING--ISSUES IMPORTANT TO WOMEN IN BUSINESSES--TROY, MI,
AUGUST 13, 1999
On August 13, 1999, the Committee held a field hearing to
discuss issues of importance to women in small business. The
field hearing was chaired by Senator Abraham Spencer (R-MI). In
his opening statement, he noted that the hearing was designed
to focus attention on both the successes and obstacles that
women business owners have experienced. He also stressed the
need to identify new ways that government can better assist
women business owners.
The first panel of witnesses consisted of representatives
from Women's Business Centers and provided the Committee with
first-hand knowledge of the inner workings of these centers and
how they might be improved. The witnesses described the
business development programs available to women business
owners, in particular, the Women's Initiative for Self-
Employment (WISE) and the Center for Empowerment & Economic
Development (CEED). The panelists also addressed the needs of
women-owned businesses and emphasized the critical need for
access to capital, both in terms of debt and equity resources.
Carolyn Arnold, Owner, Under the Rainbow of Love Learning
Center, described the many denials she received from banks when
requesting a business loan, despite having proven not only that
her business had been successful, but that it had obvious
potential to expand. Ms. Arnold, turned to the CEED program
where she did not encounter the same problems that she had with
the banks.
The panelists noted that the lack of access to market
opportunities from the private sector as well as the government
decrease the potential revenue that women-owned companies can
earn. In addition, the witnesses pointed out that the Federal
government continues to fall short of its goal of directing 5%
of primary Federal contracts to women-owned businesses.
The first panel also discussed other obstacles facing
women-owned businesses seeking to compete in the private
sector, including equality issues. Nikki Olyai, President and
Chief Executive Officer, Innovision Technologies, testified
about the barriers that women-owned businesses encounter when
trying to bid on contracts or enforce contractual agreements.
She stated that most large companies have completely
disregarded her company's attempts to make a competitive bid,
despite public indications that they were seeking greater
diversification. When dealing with contractual terms, Ms. Olyai
testified that many corporations think they can take unfair
advantage of women-owned businesses. She opined that when a
woman business owner tries to get a company to respect the
terms of a contract, the other party will often threaten to
terminate the business relationship.
The second panel consisted of witnesses from the private
sector representing women's business associations. The
panelists discussed social security reform, increasing Federal
procurement for women-owned businesses, reducing taxes, and
easing government regulation. The witnesses agreed that the
Social Security system needs to be reformed and that Congress
should avoid using Social Security surpluses for other
programs, thereby forcing taxes to remain at a high level.
Pamela Boyd, Owner, Workforce, Inc., and National Public Policy
Representative, Greater Detroit Chapter of the National
Association of Women Business Owners, also advocated that
workers should be permitted to invest a portion of their
payroll taxes in individually directed personal retirement
accounts.
With regard to tax issues, the panel focused primarily on
the estate tax and strongly advocated its repeal. Jan Roncelli,
President/Owner, Bermar Associates, Inc., noted that it is not
fair for an individual and her company to pay income taxes
throughout the life of the owner and then be taxed again upon
the owner's death. Through a personal example involving her
business, Ms. Roncelli, stressed that individuals affected by
the estate tax have to invest too much time and money in estate
planning to protect their businesses from being devastated by
the tax. Finally, she argued that the amount of revenue that
the estate tax produces is too low to justify the burdens of
the tax.
Lastly, the panel addressed the need for reform of
government regulations. Noreen Dyczkowski, President, Advanced
Display & Exhibits, Inc., and Chairperson, Women's Business
Forum of the Troy Chamber, stated that the biggest problem in
this area is the large amount of complicated paperwork a
business owner must fill out to take advantage of beneficial
government programs. Senator Abraham mentioned that he had
introduced a bill that would require that all Federal paperwork
be available online in an effort to reduce some of these
burdens, thus allowing people to fill out required paperwork
online and to respond immediately to any resulting problems.
Ms. Dyczkowski agreed that such a change would be beneficial.
JOINT FIELD ROUNDTABLE--BUILDING A STRONGER AGRICULTURAL COMMUNITY--
KANSAS CITY, MO, AUGUST 24, 1999
On August 24, 1999, the Committees on Small Business of the
Senate and House of Representatives held a joint roundtable in
Kansas City, Missouri, to discuss tax, regulatory, and trade
issues of concern to the agricultural community. Chairman Bond
and House Small Business Committee Chairman Jim Talent (R-MO)
presided over the roundtable and were joined by 24 participants
representing various agricultural sectors as well as
researchers, collectives, and advocates.
In their opening remarks, both Chairmen highlighted the
current crisis in commodity prices and the need for steps to be
taken in various areas to assist struggling farmers and
ranchers. Chairman Bond expressed his hope that the roundtable
would help identify issues of primary concern to the
agricultural community and possibly suggestions for improving
the current situation facing agricultural businesses.
The first topic addressed by the roundtable concerned tax
issues of importance to the agricultural community. The estate
or ``death'' tax generated many comments about its impact on
family farms and how much it can cost families both in terms of
estate planning and in actual taxes. Tom Waters, Chairman,
Missouri Levee and Water Drainage District Association,
provided a descriptive account of the process he went through
to file forms after his father passed away. Legal fees for
handling the procedure amounted to $93,000, excluding the
amount of the tax. Participants also discussed the pending
proposal in Congress to create accounts that would permit
farmers and ranchers to even out the cycles of high and low
revenues. These accounts, called Farm, Fish, and Ranch Risk
Management (FFARRM) were included in the Taxpayer Refund and
Relief Act of 1999, which President Clinton vetoed. The need
for this type of account was bolstered by an extensive forecast
presented by Abner Womack, Executive Director, Food Agriculture
Policy Research Institute, who predicted that prices would not
be turning up soon because of too much supply in most
agricultural commodities. Participants also raised concerns
about how capital gains taxes have hurt farmers who try to sell
their land when they want to retire, and how the marriage
penalty can hurt farmers when their spouses work off the farm.
The roundtable participants next turned to the regulatory
burdens facing farmers and specifically whether they had
participated in or benefitted from the procedures implemented
by agencies under the Small Business Regulatory Enforcement
Fairness Act (SBREFA). Under this law, OSHA and the EPA are
required to convene panels of small businesses to review
regulations before they are proposed and to conduct Regulatory
Flexibility Analyses, which describe the impact of the
regulations on small businesses. Other agencies are required to
conduct just the Regulatory Flexibility Analyses. Both chairmen
stressed the importance of monitoring agency compliance with
this law, and Chairman Talent pointed out that agencies are now
aware of their obligations, although they do not always fulfill
them. The chairmen encouraged all participants to seek
opportunities to be involved in the EPA and OSHA rulemakings
that are covered by SBREFA and to challenge the agencies to
make sure that they are complying with the law. Toward that
end, Jim Guest, President, Missouri Pork Producers Association,
indicated that he had been contacted by the EPA to be part of a
panel on an upcoming clean-water rule dealing with animal
waste.
Another regulatory area that received considerable
attention by the participants was the Endangered Species Act
and the Fish and Wildlife Service enforcement of the law.
Richard Fordyce, a farmer and a Member of the Missouri Farm
Bureau, described his experience at a hearing where he argued
to keep the Topeka Shiner (a fish) off of the Endangered
Species List (ESL). Mr. Fordyce and others instead wanted to
make a voluntary effort at helping the Topeka Shiner survive.
Unfortunately, representatives of the Fish and Wildlife Service
were unable to answer questions about specific actions that
needed to be taken to protect the fish. In spite of efforts to
the contrary, the agency added the Topeka Shriner to the ESL.
Mr. Fordyce indicated that the agency had apparently made its
decision well before the hearing and that the science used to
support the decision was not current and did not reflect the
need for balance in pursuing the objectives of the statute.
Participants also raised concerns about the validity of science
supporting regulations in conjunction with the EPA's recent
decision to ban the use of certain pesticides under the Food
Quality Protection Act.
The roundtable's final topic dealt with trade issues
affecting farmers and ranchers. The participants generally
agreed that the agricultural industry is being injured by the
inability of the United States to have its agricultural
commodities sold as widely as possible in many countries. Mr.
Womack described how domestic prices of certain commodities
(soybeans, corn, wheat, pork, etc.) would increase
significantly if U.S. businesses could sell slightly larger
amounts of these commodities abroad. Additionally, such exports
would reduce current stockpiles, which are depressing commodity
prices. The participants expressed general frustration about
the United States' failure to pursue aggressively trade
agreements that would foster greater exports of these goods.
They also noted the prevalence of sanctions being imposed for
diplomatic reasons, which seem only to hurt producers whose
products cannot be sold in the sanctioned countries. To that
end, the participants welcomed the recent addition to the
United States Trade Representative's office of an agricultural
specialist.
ROUNDTABLE--BUSINESS SUPPORTING EDUCATION--WASHINGTON, DC, SEPTEMBER 9,
1999
On September 9, 1999, the Committee held a roundtable on
opportunities for the business community to become involved in
improving public education. The roundtable participants
consisted of a variety of representatives from education and
business associations. Chairman Bond opened the roundtable by
noting that studies conducted by the National Federation of
Independent Business (NFIB) and the U.S. Chamber of Commerce
rate education as the most pressing public policy issue today.
The Chairman explained that education is important to the small
business community given the current difficulties small firms
are having in terms of finding and retaining skilled employees.
Chairman Bond noted that the purpose of the roundtable was to
encourage a discussion on this issue and to showcase
initiatives that are working at the State and local levels.
The roundtable's first topic of discussion focused on
education activities at the state level. John Dornan, Executive
Director, Public School Forum of North Carolina, provided
examples of how school and business partnerships have resulted
in successful improvements to the quality of education. He
attributed that success to the commitment of national business
organizations and the assistance of a great many small
businesses. Other participants stressed that the business
community's interest in higher standards, teacher quality and
certification, and its commitment to the continued pursuit of
educational reforms are instrumental to improving the quality
of education. Roberts Jones, President, National Alliance of
Business, and others noted that small businesses can improve
local education with little effort by requesting school
transcripts before offering employment, as this sends a
significant message about the importance of academic
achievement to the students. Participants also stressed that
businesses can assist educators by donating technology and by
providing onsite training for teachers at local businesses so
that they can better understand the business world. To explain
why more businesses have not entered into partnerships with
their local school systems, Ruby Bradley-Cain, President and
Chief Executive Officer, RBC International, Inc., representing
the National Association of Women Business Owners (NAWBO), and
others questioned the level of paperwork and bureaucracy
required for businesses to get involved. Other participants
expressed concern that such partnerships were lacking in focus
without guidance from the state.
The second topic of discussion centered on education
activities at the local level. A number of participants
emphasized that the needs of school systems had changed and
that business involvement was critical to ensure that the
quality of education was reflective of the needs of the
business community. In addition, it was noted that the debate
was not just about providing qualified employees for the
business community, but about providing students with the
skills necessary for the world that they are entering. Bret
Lovejoy, Executive Director, American Vocational Association,
described the extensive partnerships that his association had
created with the auto industry and the hospitality industry
through funding, vocational training and mentoring. He noted
that the association's members benefitted from this program by
attracting employees that might otherwise not consider
employment in these industries. Daniel Merenda, President and
Chief Executive Officer, National Association of Partners in
Education, and many other participants emphasized the need for
local leadership to coordinate and encourage businesses to get
involved and to provide businesses with a plan that allows them
to help local school systems effectively.
HEARING--SLOTTING: FAIR FOR SMALL BUSINESS & CONSUMERS?--WASHINGTON,
DC, SEPTEMBER 14, 1999
On September 14, 1999, the Committee held a hearing to
examine the effect on small businesses and consumers of
``slotting'' allowances in the retail grocery industry.
Slotting allowances are fees charged to manufacturers for the
placement of products on retailers' shelves. In his opening
statement, Chairman Bond noted that ``slotting allowances have
generated a considerable amount of suspicion.'' Because of
these fees small business products are often excluded from the
marketplace simply because the small business cannot afford the
heavy payments sought by retailers. Chairman Bond noted that
``it almost seems to be a practice cloaked in secrecy,'' making
it difficult for Committee staff to even get information on
this issue. He stressed that all of the small businesses
interviewed by Committee staff reported considerable fear of
retaliation from dominant competitors and retailers for
speaking out, with some providing first-hand experiences of
such retaliation. Senator Kerry echoed the Chairman's concerns
and emphasized his desire to see fair competition in the
marketplace.
The three small business witnesses on the first panel
provided first-hand experiences concerning slotting fees. Two
of the small businesses testified anonymously from behind a
screen and with a voice scrambler because of the fear that
testifying would prompt retaliation. Witness B described
experiences with a dominant competitor, which effectively
controls the retailers' shelves, and is focused on gaining a
greater market share. As a result of its control over shelf
space, the dominant manufacturer can drive down competitors'
sales and essentially eliminate the competition, which in many
cases are small businesses. Witness B's business is in
jeopardy, not because it has an inferior product, and not
because there is a lack of consumer demand, but because
dominant manufacturers are literally buying the market. Witness
A testified about the impact that dominant manufacturers have
in terms of their market power. Given the demand for higher
profits, retailers are excluding small businesses at a greater
rate than ever before. Witness A also expressed concern that
even after paying the fee, a manufacturer's product could be
taken off the shelf within a short period of time. Witness A
concluded by saying that with the virtually unlimited resources
of large conglomerates, small business and ultimately the
consumer pay the price for this concentration of retail power.
The third small business witness, Scott Garfield, Vice
President, Lee's Ice Cream, Baltimore, Maryland, described his
attempt to get local grocery stores interested in his highly
acclaimed ice cream products. He discovered that even though
his company made a great product that was well known in the
area, the grocery stores were only interested in how much money
he would pay them to stock the ice cream in their stores. Mr.
Garfield testified that based on his experience and the money
he lost trying to break into the market, the grocery business
is currently no place for a small manufacturer. He concluded
his testimony by stressing that the consumer is harmed by a
limitation of choice and like Witness A, asserted that the
extra cost that a manufacturer pays in slotting allowances is
ultimately passed on to the consumer.
The second panel focused on industry-wide issues relating
to slotting fees. Gregory Gundlach, Associate Professor,
College of Business Administration, University of Notre Dame,
described his extensive studies on slotting allowances and
outlined the wide variety of payments that retailers demand
from manufacturers. He estimated that slotting allowances
amount to $9 billion a year or approximately 16% of all new-
product introduction costs. Mr. Gundlach noted that while
slotting allowances provide some distribution efficiencies, the
result is higher consumer prices, less consumer information,
and fewer consumer choices. Unfortunately, small manufacturers
often end up paying a disproportionate amount of slotting fees
in comparison to dominant manufacturers. He noted that the
practice is becoming more commonplace and that slotting fees
are being charged for established products, as well as new, and
at every stage of a product's retail life. In addition,
slotting fee practices are becoming prevalent in other retail
environments.
Robert Skitol, an antitrust attorney appearing on behalf of
the American Antitrust Institute, outlined the various
applicable antitrust statutes and their history. He expressed
particular concern about exclusive contracts that effectively
shut out all competition, and in turn, lead to higher
concentration, diminished competition, higher food prices, less
innovation, and less choice to consumers. Kenneth Partch,
Editor-at-Large, Supermarket Business magazine, testified that
the majority of companies in the grocery industry ignore the
relevant antitrust laws. According to studies conducted by
Supermarket Business, the fees charged can be as much as
$10,000 or more per item. In addition, Mr. Partch observed that
the grocery industry itself is divided as to the rationale for
charging the fees, although he suspected that the real reason
for their existence is the retailers' desire to get a greater
share of consumer dollars. Mr. Skitol called for the Federal
Trade Commission (FTC) to take proactive steps to conduct an
extensive, industry-wide investigation, and upon its
completion, draft new enforcement guidelines with respect to
slotting fees. While such a study would take time, he stressed
that the FTC could use its merger-enforcement authority to
expand the focus of merger approvals to include buying-power
issues.
The third panel was comprised of association
representatives, some of whose members charge slotting
allowances. John Motley, Senior Vice President, Food Marketing
Institute (FMI), outlined the principal reasons why FMI's
members charge slotting allowances. He stressed that roughly
20,000 new products are introduced each year and suggested that
slotting fees enable a retailer to weed out the good from the
bad. He also pointed out that many of these new products fail
to sell. As a result, the slotting fee is merely an insurance
against failed products and an assurance to the retailer that
the manufacturer is committed enough to share the risk of a
failure. Mr. Motley cautioned that if slotting allowances were
made illegal, small business would be at a greater disadvantage
in trying to get their products on the shelf. Jeffery Schmidt,
an antitrust attorney appearing on behalf of the Grocery
Manufacturers of America (GMA), noted that GMA does not have an
opinion as to the validity of the arguments for or against
slotting fees. Mr. Schmidt noted that research GMA has
conducted indicates that the number of new products introduced
each year is much closer to 1,100 rather than the 20,000 that
is more commonly quoted. He concluded by testifying that GMA
does not believe that additional governmental intervention in
this area is necessary.
Chairman Bond concluded the hearing by pointing out that
the FTC had done little work on slotting fees and that based on
the testimony of the witnesses, he would request that the
agency focus greater attention on this issue. He also said that
he would request the General Accounting Office (GAO) and others
to conduct a thorough investigation into the use of slotting
fees as outlined by the witnesses.
ROUNDTABLE--NATIONAL CONFERENCE ON SMALL BUSINESS ACT--WASHINGTON, DC,
OCTOBER 19, 1999
On October 19, 1999, the Committee held a roundtable to
review the National Conference on Small Business Act (S. 1111),
a bill introduced by Chairman Bond in May 1999. The Chairman
opened the roundtable by highlighting the important role that
small businesses play in the U.S. economy, both in rural towns
and inner cities. The bill would require that the Federal
government sponsor a national conference every four years to
highlight the successes of small businesses and to focus
national attention on the problems that may be hindering the
ability of small businesses to start up and grow. The Chairman
stressed that it is important to build on the past successes of
the three White House Conferences on Small Business. Senator
Kerry emphasized the importance of bringing a group of small
business advocates together through the roundtable to discuss
ideas for creating a regular national small business
conference.
The roundtable began with some participants giving their
views on the need for a national conference focusing on small
business issues. Mark Schultz, President and CEO, Research
Institute for Small and Emerging Businesses, discussed his role
as Executive Director of the 1995 White House Conference on
Small Business. Mr. Schultz noted that his directive was to
provide the small business community with an independent,
bipartisan, and open forum. He pointed out that four years
after the 1995 conference, 90% of the recommendations adopted
by the small business delegates have been implemented in whole
or in part. He also commented about the successes and obstacles
facing the conference organizers. Mr. Schultz suggested that
the title, ``White House Conference on Small Business,'' was an
obstacle, since it implied that the forum would be political,
and he believed a more generic, nonpartisan name would be best.
Terry Neese, speaking on behalf of the NAWBO, emphasized
her support for having the conference every four years and
expressed her belief that future conferences should be de-
politicized, with the Executive Branch playing a lesser role
than in previous conferences. Eric Blackledge, President,
Blackledge Furniture, and an active former White House
Conference delegate, stressed the importance of electing
delegates from their individual states rather than relying on
political appointment of delegates. Larry Mocha, President, Air
Power Systems Company, Inc., discussed his role as the Chairman
of the Governor's Oklahoma Conference on Small Business,
following his service as a delegate to the 1995 conference. He
underscored the importance of organizing small business owners
at the state level, so that the state conference would provide
meaningful ideas for the next conference on small business.
As a group, the roundtable participants agreed that an
independent commission is an appropriate organization for
overseeing the National Conference on Small Business. Further
discussion centered on the importance of electing small
business delegates. The participants agreed that the majority
of delegates should be elected. The participants also agreed
that the more small business owners involved in the process,
the better the results. In addition, there was a consensus that
alternate delegates served a useful role in the 1995 conference
and that there should be a provision in the law to allow for
some alternate or substitute delegates from each state. Ms.
Neese expressed concern that some employers transported
employees to the state conventions in 1995 to vote in favor of
their employers' election as delegates to the 1995 conference.
Mr. Schultz stated that this problem had not been anticipated;
consequently, rules need to be established to ensure that
people who were voting were participating in a substantive
manner. Mr. Schultz urged that limits be imposed on voting
participation at the state conferences restricting it to owners
and officers of small businesses.
The roundtable included some discussion about how
frequently a national conference on small business should be
held. Mr. Blackledge stressed the importance of holding a
conference every four years. Judy Obermayer, President,
Adhesive Mart, Inc., expressed reservations about allowing
sufficient time for the state conferences to be effective. Mr.
Schultz suggested that the four-year cycle leading up to a
national conference begin at the same time the previous
conference concludes. This would allow sufficient time to
prepare for the succeeding conference.
Participants were concerned that holding both state and
regional conferences would be too great an undertaking to
coordinate, and recommendations were made to eliminate all
regional conferences or to hold only regional conferences in
lieu of state conferences. Mr. Schultz pointed out that he had
a staff of 30 people who coordinated and planned the
conferences. There was a consensus among participants that one
or more independent, nonpartisan businesses would be better
suited to conduct the state and national conferences rather
than relying on the national conference staff.
A lively conversation occurred among participants about
issue development for the state and national conferences.
Giovanni Coratolo, Director, Small Business Policy, U.S.
Chamber of Commerce, raised concerns about Federal agencies
being responsible for issue development when it is often the
case that the same Federal agencies are the ones causing
problems for small businesses. He emphasized that the focus of
the national conference should not be too heavily weighted
toward legislative ideas and that greater attention be given to
resolution of regulatory problems. In addition, Ms. Obermayer
recommended that future national conferences focus not just on
what is wrong, but also on the small business impact of what is
likely to happen in the future.
The roundtable concluded with a discussion about whether
conference delegates should set the top issues identified by
the national conference in a priority order. Although the
delegates to the 1995 White House Conference were not supposed
to rank key issues, they ended up doing so by publishing the
votes on the top 60 issues. It was agreed that future national
conferences should continue to rank the top issues in priority
order. In addition, Edith Quick, Principal, Quick Tax &
Accounting Service, stressed the importance of follow up by the
delegates on key issues after the conclusion of the conference.
As a tax chair from the 1995 conference, she reported that the
tax chairs continue to hold periodic conference calls to share
ideas on the promotion of issues raised at the last conference.
Chairman Bond brought the roundtable to a close after stressing
the important role played by delegates during the post-
conference follow-up period, when they bring key issues and
solutions directly to the attention of their U.S.
Representatives and Senators.
HEARING--INTERNET CRAMMING: THE LATEST HIGH-TECH FRAUD ON SMALL
BUSINESSES--WASHINGTON, DC, OCTOBER 25, 1999
On October 25, 1999, the Committee held a hearing to
examine the practice of Internet cramming. In his opening
statement, Chairman Bond explained that ``cramming,''
generically, involves the placement of unauthorized,
misleading, or deceptive charges for services or products
unrelated to a consumer's telephone service on the consumer's
telephone bill. ``Internet cramming,'' specifically, enables
web site design and hosting companies to place a charge for a
``free'' web site on the phone bill of a small business,
church, or non-profit organization without proper
authorization. The Chairman noted that prior to the hearing,
Committee staff spoke to approximately 100 small businesses
victimized by Internet cramming and found that only one
business was even aware that it had a ``free'' web site and
that the company was being charged for it on its telephone
bill. The hearing exposed Internet cramming as a carefully
constructed, multi-million dollar scam targeting approximately
a million small businesses nationwide.
On the first of four panels, Stanley Czerwinski, Associate
Director, and John Finedore, Assistant Director, Housing and
Community Development Issues, Resources, Community and Economic
Development Division, GAO, provided the Committee with
background on cramming and its latest use via the Internet.
They testified that cramming was the second most common cause
of written consumer complaints received by the FTC and the
fourth most common complaint at the Federal Communications
Commission (FCC)--an increase of 3000% in two years. In
addition, they revealed that although there was a slight
downward trend in the number of complaints received at the
Federal level, their ongoing research indicated that state-
level complaints were still increasing in a majority of states.
Three victims of Internet cramming made up the second panel
and testified about their personal experiences with this issue.
Peter Franchino, Co-Owner, Elam Biggs Bed & Breakfast, Grass
Valley, California, described how he and four other local bed-
and-breakfast proprietors had become victims of cramming. He
explained that he agreed to receive information regarding a
``free'' web site but never received any information.
Nevertheless, charges were placed on his phone bill, and he
spent months attempting to have them removed. David Pickering,
a member of the First Baptist Church of Mexico, Missouri,
testified that his church was entirely unaware that it was the
victim of cramming until contacted by the Committee on Small
Business. He stated that Committee staff contacted the church
after identifying the church on a suspected Internet crammer's
web site. Mr. Pickering said that his church unknowingly paid
for the ``free'' website for approximately nine months. The
third witness, Susan Toney, Office Manager, Creative Car Works,
testified that she received and reviewed a ``free'' web site
package; however, she immediately canceled the service because
the web site developed was unsatisfactory. Ms. Toney noted that
despite promptly canceling the web site service, she was
charged for two months, which took nine months to have the
charges reversed.
The third panel, comprised of former telemarketing
employee, a police officer and the manager of a telemarketing
operation, testified about how Internet crammers operate. The
former telemarketing employee, Kelly Cramer, a college student
in Eau Claire, Wisconsin, testified about her experience
working, while in a high school work-study program, for a
company accused of Internet cramming. Ms. Cramer revealed that
she quit her job because she was uncomfortable engaging in what
she felt were unfair and fraudulent practices. Ms. Cramer's
father, David Cramer, Police Officer, Eau Claire, Wisconsin,
testified that he conducted an investigation when his daughter
informed him of the telemarketer's tactics and found that Ms.
Cramer's boss had a lengthy criminal history. Joel Bittner,
Operations Manager, North County Distributions, testified about
telemarketing tactics used by Internet-cramming companies and
provided an insider's view into the cramming scam.
On the final panel, Jodie Bernstein, Director, Bureau of
Consumer Protection, FTC, testified about enforcement actions
and new regulations against Internet cramming. In addition, she
announced a new settlement with U.S. Republic Communications,
Inc., a company accused of Internet cramming. Under the
settlement, U.S. Republic Communications, Inc. is to maintain a
$1.8 million letter of credit payable to the FTC, which will be
used to provide refunds to an estimated 124,000 small
businesses involved in their alleged cramming activities.
At the close of the hearing, Chairman Bond announced a list
of tips for small businesses to heed in order to avoid becoming
a victim of cramming. He also stated his commitment to continue
working closely with the FTC, FCC, and the Department of
Justice (DoJ). The Chairman stated that he would closely review
legislative options to stop unauthorized charges and require
better disclosure of charges on telephone bills.
ROUNDTABLE--ENSURING THE MAXIMUM PRACTICABLE OPPORTUNITY--WASHINGTON,
DC, NOVEMBER 9, 1999
On November 9, 1999, the Committee held a roundtable to
consider issues affecting small business procurement policy and
programs. The participants included Directors of the Offices of
Small and Disadvantaged Business Utilization (OSDBU), or their
representatives, from 30 Federal agencies. The roundtable also
considered the problem of contract bundling, the potential of
subcontracting opportunities, the ability of contracting
officers to manage the various programs, and the need to
address specific implementation issues affecting the HUBZone
and Small Disadvantaged Business (SDB) programs.
In his opening remarks, Chairman Bond noted that OSDBUs
have special expertise in carrying out the procurement programs
aimed at small business. He emphasized that the OSDBUs'
experiences would be a vital resource that the Committee would
draw upon in its efforts in 2000 to reauthorize the programs
administered by the SBA. Moreover, he noted that the OSDBUs
will be taking on new responsibilities under the contract-
bundling provisions adopted in the 1997 reauthorization
legislation, helping to ensure that bundling occurs only when
``necessary and justified'' under the terms of the Small
Business Act.
Durie White, Chair, OSDBU Interagency Council, and
Director, OSDBU, Department of State (State), opened the
discussion by describing the role of an OSDBU in negotiating
with the SBA to establish goals for small business
participation in contracts awarded by an OSDBU's parent agency.
In addition, OSDBUs provide assistance to individual small
businesses on specific problems with the agency, such as
getting payment, providing contacts within the agency, and
enhancing e-commerce opportunities. Other participants noted
that their roles varied somewhat depending on whether their
agency was centralized or decentralized. Ralph Thomas,
Associate Administrator, OSDBU, NASA, said his agency tended to
rely more heavily on Small Business Specialists located at
NASA's 10 centers throughout the Nation.
The participants provided mixed views on their agencies'
experiences with contract bundling and the use of
subcontracting to ensure continued small business
participation. Ernest Woodson, Senior Procurement Analyst,
Office of Enterprise Development, GSA, mentioned that
subcontracting, as a tool to offset bundling, raises
enforcement issues. Small business subcontractors complain
that, even when included in subcontract plans submitted by
successful large business prime contractors, they do not always
receive actual work during the performance of the contracts.
Mr. Thomas indicated that his agency has addressed this problem
in cost-plus contracts by withholding 15% of the award fees.
Mr. Thomas and Robert Neal, Director, OSDBU, DoD, both noted
that a prime contractor's failure to subcontract in accordance
with plans can be held against that prime contractor in
evaluating its past performance during consideration for future
procurement opportunities. Mr. Neal also noted that Defense
Department subcontracting dollars to small business have
remained steady, not increasing to offset prime contracting
dollars lost due to bundling. Tim Foreman, Deputy Director,
OSDBU, DoD, said the Department was preparing a study to
ascertain the effects contract bundling have on small business
more definitively.
Scott Denniston, Director, OSDBU, Department of Veterans
Affairs (VA), suggested that establishing a statutory
Government-wide subcontracting goal might give the agencies
additional leverage in negotiating subcontracting plans with
prime contractors. It could provide a benchmark for evaluating
a prime contractor's particular goals in its subcontracting
plan. Mr. Foreman expressed concern that current law already
provides too many goals for contracting officers to monitor
effectively, and for this reason a subcontracting goal would
compound that problem. Mr. Thomas stressed that a statutory
subcontracting goal could also provide an excuse for a prime
contractor to reduce its subcontracting efforts, thereby making
the goal a ceiling rather than a floor.
Turning to the HUBZone program, the roundtable participants
raised concerns about several implementation issues. Mr. Neal
noted that the requirement that a qualified firm must have its
principal office located in a HUBZone seems to be unnecessarily
restrictive and limits contracting opportunities that otherwise
would be available to participating firms. Instead, he
emphasized the need for HUBZone residents to be employed by
firms working on Federal contracts awarded through the program,
shifting the focus to whether job opportunities are directed to
the people who need them rather than on whether a firm's office
is located in a HUBZone. Jeanette Brown, Director, OSDBU, EPA,
echoed this concern with respect to contracts to clean up
Superfund sites.
The OSDBU directors were generally not as concerned about
the requirement that a HUBZone firm hire 35% of its workforce
from HUBZone residents. Sarah Summerville, Director, OSDBU,
Department of Energy (DoE), pointed out that relaxing that
provision would reduce the HUBZone program's effectiveness in
creating job opportunities in HUBZone areas. She noted that
information technology (IT) firms hire more than just IT
specialists, such as administrative staff, so a scarcity of
trained IT professionals in HUBZone areas should not
automatically preclude participation by IT firms. Mr. Denniston
remarked that one IT firm in Fairfax County, Virginia, had been
able to meet the 35% threshold, by hiring and busing employees
to their offices from the District of Columbia. Lloyd Alderman,
Director, OSDBU, Defense Logistics Agency, suggested that the
SBA consider regulations to check compliance with the 35%
threshold based on employment levels over a period of time,
rather than as of a particular date, which would allow for
fluctuations as a company hires new employees to perform a
contract.
The roundtable also focused on the Small Disadvantaged
Business (SDB) program. Some participants suggested that firms
were not applying for certification because its benefits did
not seem to justify the effort and cost. Tracey Pinson,
Director, SADBU, Department of the Army, noted that the
benefits tend to accrue to large prime contractors, who get
credit for meeting SDB goals if they subcontract to certified
SDB firms, and who therefore have reason to encourage their SDB
subcontractors to apply. Thelma Toler, Small Business
Specialist, OSDBU, Executive Office of the President, commented
that she regularly receives complaints from potential
participants about the certification costs and the time
consumed by the necessary paperwork. Mr. Thomas suggested that
certification applications would increase once firms begin to
lose contracting opportunities for failure to be certified.
The roundtable concluded with Chairman Bond thanking the
OSBDU directors for sharing their insights and experiences,
which will be helpful to the Committee in developing its
reauthorization agenda.
FORUM--THE FUTURE OF SMALL BUSINESS EXPORTING--WASHINGTON, DC, DECEMBER
14, 1999
On December 14, 1999, the Committee held a forum to provide
an overview of the barriers small businesses face when
exporting and potential Federal solutions. The forum also
focused on two specific issues that small business exporters
have identified as primary concerns--financing and e-commerce.
Five panelists made presentations to the Committee. In
addition, the forum was attended by 17 participants, including
representatives of small businesses active in exporting and
officials from Federal agencies that promote and assist small
business exporting.
Chairman Bond stressed the importance of international
trade for small businesses and the positive effects that
increasing such trade will have on the nation's economy. Small
businesses account for more than 50% of the gross domestic
product, and since 1992 they have provided most of the
approximately 20 million net new jobs added to the economy.
Chairman Bond pointed out that while the number of small
businesses exporting has increased in recent years, that number
is still relatively low. He also stressed that the failed round
of trade negotiations in Seattle demonstrates that it is
imperative that associations and businesses educate their
members, employees, and customers about the importance of
international trade to the country's economic prosperity.
The first panelist was Edmund Rice, President, Coalition
for Employment Through Exports, who described the barriers that
exist that preclude small businesses from exporting and the
obstacles current small exporters encounter as they try to
create a market for their goods internationally. Mr. Rice spoke
specifically about the need for increased coordination of the
trade promotion programs that exist in seven cabinet
departments and eight independent agencies. Kirk Robertson,
Executive Vice President, Overseas Private Investment
Corporation (OPIC), spoke about OPIC's vision for expanding
overseas opportunities for U.S. small businesses and the work
ongoing at OPIC to achieve that objective, including the
programs OPIC has available to assist small businesses with
exporting.
John Mueller, Chairman, G&W Electric Company, appearing on
behalf of the National Electrical Manufacturers Association,
addressed the problems small businesses have selling products
to foreign governments and stressed the need for more open and
transparent procurement by other countries. He also emphasized
the need for development of voluntary standards within
industries to facilitate international trade.
Gerald Smith, President, Transcon Trading Company, and
member of the Advisory Board for the Export-Import Bank of the
United States, discussed the financing needs of small exporters
and the extent to which the current government financing
programs address those needs. Mr. Smith stated that the primary
reason that small businesses are unable to access government
export financing programs is that private banks are not
generally interested in the smaller transactions that small
businesses typically conduct. Larger banks have little economic
incentive to participate in small business export loans, while
smaller community banks generally do not have the export trade
financing knowledge to make them comfortable with such lending.
The final panelist, Harris Miller, President, Information
Technology Association of America and President of the World
Information Technology and Services Alliance, addressed the
legal and societal obstacles to increasing exporting
opportunities through e-commerce and options for overcoming
those obstacles. Mr. Miller stressed the need for a single
government Internet portal to provide information to small
businesses on exporting.
Following the presentations, the panelists and participants
addressed how the Federal government could increase small
business exporting opportunities for small businesses. The
discussion focused primarily on two issues: (1) the need for
financing and (2) increased coordination and promotion of
export programs at the various Federal agencies. The
participants and panelists agreed that the Federal agencies
offering financing programs should make a concerted effort to
increase participation in and small business access to
government export financing programs. This would include
reaching out to non-bank lenders and to small community banks
and providing them with training on export finance issues.
Additionally, the participants and panelists agreed that
greater coordination by Federal agencies and better promotion
of the information and programs available to small business
owners will have a positive impact on the number of small
businesses taking advantage of export opportunities.
Chairman Bond closed the forum by announcing that the
Committee will closely review the legislative options raised by
the participants and panelists to ensure that the Federal
government is providing effective exporting assistance to small
businesses.
HEARING--THE PRESIDENT'S FISCAL YEAR 2001 BUDGET REQUEST FOR THE SMALL
BUSINESS ADMINISTRATION--WASHINGTON, DC, FEBRUARY 24, 2000
On February 24, 2000, the Committee held a hearing on the
President's Fiscal Year 2001 budget request for the SBA.
Chairman Bond opened the hearing with a recitation of the
successful role played by small businesses in the U.S. economy,
and the record of successes that the SBA has achieved, in large
part due to its credit and management assistance programs. He
noted that during the past decade, there has been enormous
growth in the SBA's 7(a), 504, Microloan and SBIC programs,
with tens of billions of SBA-guaranteed dollars having been
loaned or invested in small businesses. The SBDC program and
SCORE programs have allowed the SBA to deliver management
assistance and counseling to millions of small business owners
and budding entrepreneurs.
Chairman Bond also noted that the Administration's budget
request proposed ambitious plans for various new initiatives,
such as the New Markets Program, which includes the HUBZone
program, authored by Chairman Bond in 1997. He noted that $5
million in the Fiscal Year 2001 budget request is earmarked for
the HUBZone Program, which the SBA has been very slow to
implement. He recommended that the 1,000 centers and sub-
centers under the SBDC program start distributing information
to small business owners about the HUBZone program.
Chairman Bond also expressed some concerns about the New
Markets Venture Capital (NMVC) program and took issue with the
SBA's contention that the regular SBIC program was not helping
local economies, such as San Jose, California. He pointed out
that over the past three years, SBICs had made 98 investments
totaling $67 million in 37 small businesses within the San Jose
city limits. These investments are creating new jobs helping to
fuel the local economy.
Concerns were also raised about why the SBA's budget
request called for the creation of new programs when the agency
was having great difficulty managing its core small business
programs. Although the SBA has received budget increases in
recent years, its offices supporting key technological SBA
programs are underfunded or understaffed according to reports
received by the Committee. Chairman Bond cited four key areas
where the SBA is failing to meets its mission requirements: (1)
the GAO issued a report critical of the SBIR program; (2) the
SBA Inspector General prepared an audit critical of the 7(a)
guaranteed business loan program; (3) the Farm Credit
Administration (FCA) issued a report critical of the SBA's
management of the Small Business Lending Company (SBLC)
program; and (4) the independent auditor of the SBA's Fiscal
Year 1998 financial statements cited three material weaknesses
calling into question the agency's internal controls designed
to reduce the risks in its operations.
Additional evidence of the agency's difficulties was found
in the problems it continues to encounter in developing the
Loan Monitoring System, a computer system to monitor the SBA's
credit programs and the participating lenders. Although
Congress had appropriated $24 million over the past three
years, the SBA had not been able to complete planning for its
first iteration. The agency, however, is anxious to spend money
to implement the new system in spite of the planning delays.
Chairman Bond included a status report from the GAO describing
the delays in completing the initial planning phase of the
computer system.
Senator Kerry, commended SBA Administrator Aida Alvarez for
submitting a sound budget request. He pointed out that he
supports the NMVC program and the funds requested for the
program. Senator Kerry cited his bill, the Community
Development and Venture Capital Act, as a way to spur
investments in inner cities and low- and moderate-income areas
in rural counties. Senator Wellstone made a statement
emphasizing his support for the Community Development Venture
Capital Demonstration Program, which has been included in
Senator Kerry's bill.
SBA Administrator Alvarez testified on behalf of the
Administration. She devoted much of her oral testimony in
support of the NMVC program and the funding needed to implement
the program should it be authorized. During questioning after
her prepared testimony, Chairman Bond announced that he and
Senator Kerry would request that the GAO undertake a review of
economic stimulus programs that are complementary to or overlap
with the NMVC proposal. Ms. Alvarez also reviewed some of the
success stories at the SBA, reciting statistics about the SBIC
and 7(a) programs, and she discussed the new budget initiative
to provide $15 million in grants for Phase III
commercialization efforts by SBIR program participants.
In reviewing the Agency's efforts to make itself more
technologically relevant, the Administrator stated that 69% of
the loan transactions will be processed electronically by
Summer 2000, representing 79% of the loan dollars guaranteed by
the SBA. Ms. Alvarez pointed out how this change would create
enormous efficiencies at the Agency; however, in the follow-up
questions, Ms. Alvarez admitted that this change would occur in
theory only. The actual number of transactions made
electronically would be lower, and lenders would be free to
continue to use alternate means to transmit this data to the
SBA, such as fax machines and the U.S. Postal Service.
Chairman Bond questioned the Administrator about the lack
of progress to implement the Loan Monitoring System (LMS). Ms.
Alvarez called on Kris Marcy, SBA's Chief Operating Officer, to
help her respond to Chairman Bond's questions. Ms. Marcy
explained that the LMS is a work in progress, thus
acknowledging that there is much work to complete. She
explained that the SBA has received $16 million from Congress,
of which $7 million has been spent. Nine million dollars is
``sitting'' in an organization called FEDSIM at the GSA, and it
can be spent as needed on system development. An additional $8
million has been appropriated but not released by the Senate
and House Appropriations Committees.
Chairman Bond questioned Ms. Alvarez about the staffing
levels in the Office of Advocacy to which she deferred to Russ
Orban, SBA's Assistant Chief Counsel for Advocacy. Mr. Orban
explained there are 47 employees in the Office of Advocacy, a
decrease from 62 positions in 1993. Ms. Alvarez went on to
explain that the Agency would be reducing Fiscal Year 2001
staffing about 5% from Fiscal Year 2000, which includes adding
86 new employees at SBA.
FORUM--CYBERCRIME: CAN A SMALL BUSINESS PROTECT ITSELF?--WASHINGTON,
DC, MARCH 9, 2000
On March 9, 2000, the Committee held a forum on cybercrime
and its effect on small business. The forum followed up on the
Committee's June 15, 1999, forum on e-commerce, which outlined
many of the advantages and dangers of conducting business in
the new electronic economy. Chairman Bond opened the cybercrime
forum by reviewing the benefits of the new economy and
contrasting them with the increasing number of computer crimes
and their impact on small businesses. He also noted that the
purpose of the forum was to increase awareness of and encourage
discussion about these issues among small businesses.
The forum consisted of a panel of four experts on
cybercrime as well as representatives from a variety of
business associations and government agencies. The first
panelist was Joan Neptune, General Manager, LC Communication,
who described her experience of having hackers attack her
company and attempt to extort $30,000. Her report of the
incident to the United States Secret Service resulted in an
investigation that tracked the hackers to Germany, where they
were apprehended. While the hackers received a relatively light
sentence in the German courts, the resulting impact on Ms.
Neptune's company was devastating. Damage caused by the
hackers, curtailed services, and reduced consumer confidence
caused the ultimate destruction of the business.
The second panelist was Mary Riley, Special Agent,
Assistant to the Special Agent in Charge, United States Secret
Service. Agent Riley testified about the difficulties involved
with cybercrime investigations, the need to collect information
from many jurisdictions, the problems involved in locating
hackers in foreign countries, local laws, the need for greater
technical knowledge of the investigators, and the potential for
harm to the victim due to reduced consumer confidence.
The third panelist, Scott Charney, Partner, Pricewater
houseCoopers LLP, testified that the size of the problem is
vastly understated as many incidents are never reported to law
enforcement. He outlined many alternatives available for a
business to protect itself. He cautioned, however, that these
systems are expensive, and it is often difficult to obtain
experienced staff. The final panelist was Mr. Roger Farnsworth,
Manager of Product Marketing, Cisco Systems Inc. Mr. Farnsworth
described the technology that is available for a small business
to protect itself against cybercrime incidents. He also
testified that small businesses should treat electronic crime
as it would any other type of criminal threat and that small
businesses can and should take steps to protect itself.
The first topic of discussion was penalties for electronic
crimes. Mr. Charney outlined the various laws and the
associated mandatory sentences within the United States but
noted that international cases are much harder to prosecute. Of
greater concern is the perception that the detection rate is
very low and thus many hackers feel that they are unlikely to
get caught. As a follow up, Agent Riley outlined the efforts by
Federal law enforcement officials to create links with other
law enforcement organizations, both domestically and
internationally, to improve the coordination of cybercrime
investigations. In response to a question about where a small
business person should go to report a cybercrime, Agent Riley
said that there are many different law enforcement agencies,
including local, state, and Federal, that could potentially
investigate an electronic crime. She noted that the Federal
government does not have the resources to investigate every
cybercrime and that they frequently refer the case to other
agencies for investigation.
Mr. Farnsworth and Mr. Charney cautioned that despite the
problems with these types of crimes, small businesses or
consumers should not be deterred from using the Internet to
conduct business. This was particularly important given that
the industry is working toward a more secure Internet and that
law enforcement has been much more responsive to these types of
crimes.
Participants and panelists agreed that the lack of
experienced employees represented a major problem to all types
of businesses. Many initiatives were discussed including H1-B
visas and other technical training programs. Ms. Neptune
pointed out, however, that in this difficult labor market such
skills are in high demand, and there is a significant problem
of losing experienced people.
Chairman Bond concluded the roundtable by announcing that
he would be writing to U.S. Attorney General Janet Reno to
request that the DoJ provide a single point of contact for the
reporting of computer crimes. He also announced that he would
be writing to FBI Director Louis Freeh to request that the
National Infrastructure Protection Center undertake outreach
initiatives to small business associations in order to improve
awareness of computer-security issues.
HEARING--SWINDLING SMALL BUSINESSES: TONER-PHONER SCHEMES AND OTHER
OFFICE SUPPLY SCAMS--WASHINGTON, DC, MARCH 28, 2000
On March 28, 2000, the Committee held a hearing to examine
the fraudulent telemarketing of office supplies to small
businesses, particularly printer and copier toner. The hearing
exposed office supply scams as an extraordinarily widespread
problem. The Committee found that the fraudulent sale of toner
alone costs businesses and non-profit organizations one quarter
of a billion dollars each year. The Committee also found that
the perpetrators of this fraud can be very prolific. A single
medium-sized telemarketer investigated by the FTC defrauded, on
average, a small business every 90 minutes of every day for
four years.
In his opening statement, Chairman Bond explained that
while these scam artists employ many tactics to persuade
organizations to purchase their products, typically they will
represent that they are associated with the firm's regular
supplier of photocopier toner and falsely claim that prices are
about to increase. A fraudulent telemarketer, however, will
generally avoid quoting a specific price and quantity over the
phone because the prices they charge for supplies are
substantially higher than prices available from reputable
suppliers--up to ten times higher.
The Committee also found that these telemarketers will also
use deceptive means to collect payments. For example, invoices
may not arrive until a week or two after the merchandise so
that the inflated price is not as obvious and there is a
reasonable chance that the supplies have already been used. The
scam artists also spend significant energy on collection
efforts, and if they find an organization that is willing to
pay for their products, they will typically ``reload'' and send
unordered merchandise and invoices for as long as the
organization continues to pay.
The hearing consisted of four panels. The first panel
included representatives from two small businesses and a St.
Louis, Missouri, charity who testified about their personal
experiences as targets of fraudulent telemarketers selling
toner cartridges. Joan Bailey, Administrative Assistant,
Brownstone Real Estate Company, testified that she was
contacted by a telemarketer who misrepresented that the
telemarketer was the realty company's normal supplier of copier
toner. The telemarketer also stated that toner prices were
increasing. The telemarketer pointed out, however, that the
real estate company would be permitted to purchase toner at a
lower price. Based on these representations, Ms. Bailey ordered
what she believed to be four toner cartridges. Her company,
however, received only one cartridge for which it was billed
$549 plus $60.40 for shipping and handling. The real estate
company typically purchases four cartridges for $371. Linda-
Easton Saunders, Database/LAN Administrator, Prospect
Associates, testified that a telemarketer contacted her to sell
a toner cartridge, which it represented was a newly
manufactured cartridge that was part of a pilot program by a
leading-manufacturer and that would last longer than regular
cartridges. The trial toner cartridge turned out to be
remanufactured, not approved by the manufacturer, and twice the
regular price. Finally, George Everding, Communications
Coordinator, Feed My People, testified that he was called by a
telemarketer and consented to an order of four toner cartridges
for $329.00. The charity was ultimately billed for $1,316.00
for toner cartridges that Mr. Everding believes the charity
never received.
Peter Grosfeld, a former manager of a telemarketing
company, testified on the second panel that his former employer
instructed telemarketers to misrepresent their identity and
misrepresent that toner was about to increase in price
significantly. Additionally, he testified that his former
employer would coerce consumers into paying invoices, by using
tactics such as playing tapes for customers containing
contrived verifications of sales and by requiring restocking
fees for returned items. Mr. Grosfeld also stated that the
civil money penalties levied against his former employer were
merely a ``cost of doing business'' given the profits the
company was making. He recommended that the civil money
penalties imposed on businesses should be increased to provide
a deterrent to deceptive business practices.
The third panel consisted of William Duffy, President and
Chief Executive Officer, Imaging Supplies Coalition for
International Intellectual Property Protection, Inc., an
association of office equipment manufacturers, and Ms. Tricia
Burke, Vice President, Office Equipment Company, Inc., a small
office product dealer. Mr. Duffy testified that the fraudulent
telemarketing of office supplies is becoming more prolific,
citing a 100% increase in the revenue impact of this fraud in
the last three years. While he addressed the steps
manufacturers are taking to decrease this type of fraud, Mr.
Duffy also stated that larger civil money penalties should be
imposed on convicted fraudulent telemarketers. Ms. Burke
addressed the effects this type of fraud has had on her
business, as well as the steps her company has taken to protect
its customers.
Jodie Bernstein, Director, Bureau of Consumer Protection,
FTC, testified on the fourth panel. Ms. Bernstein announced the
results of the FTC's recent enforcement actions against
fraudulent telemarketers, including the largest civil penalty
imposed for a violation of the FTC's Telemarketing Sales Rule.
Ms. Bernstein also announced the launch of an extensive, grass-
roots-based business education campaign called Project BOSS
(Banish Office Supply Scams). Finally, she suggested that to
provide a greater deterrent to this type of fraud, Congress may
want to consider raising the maximum civil money penalty that
the FTC is permitted to impose for violations of Section 5 of
the FTC Act.
At the close of the hearing, Chairman Bond announced a list
of tips for small businesses to avoid becoming a victim of
office supply fraud and committed to continuing to work with
the FTC to help deter office supply fraud.
FORUM--B2B: AN EMERGING E-FRONTIER FOR SMALL BUSINESS--WASHINGTON, DC,
MAY 18, 2000
On May 18, 2000, the Committee held a forum to explore the
subject of Internet-based business-to-business (B2B)
transactions and how this trend may affect small enterprises.
In opening the forum, Chairman Bond raised three primary
questions for the participants to address: How can small
businesses take advantage of this trend? What obstacles do
small businesses face in trying to take advantage of this
trend? Is this trend a benefit or a problem for small
businesses? He explained that the Committee's goal in holding
this forum was to help the small business community better
understand the opportunities that are becoming available
through the use of the Internet and the computer revolution in
general. Although many in high-technology industries are very
familiar with these possibilities, many small businesses still
lag behind and are unaware of how their businesses could
benefit. Chairman Bond described the Internet as ``the latest
toolbox available'' to help small businesses compete in the
marketplace.
The forum started with opening statements from three
panelists who described the Internet-based B2B trend, the range
of its impact, the amount of small business participation, and
how this technology can be adapted to help small firms. The
first panelist was Rick Villars, Vice President for Internet
and e-commerce, International Data Corporation (IDC), who
described the extent of Internet-based e-commerce and the
proportion attributed to small business. According to Mr.
Villars, in the year 2000, B2B e-commerce will reach $210
billion, accounting for 78% of all e-commerce worldwide. By
2004, B2B e-commerce will reach $2.2 trillion or 88% of all e-
commerce. U.S. companies will lead this trend with an estimated
$924 billion in transactions by 2004. Although U.S. small
businesses have a 61% rate of Internet usage, Mr. Villars noted
that they will only account for 28% of B2B e-commerce in 2000.
He attributed this low level largely to the fact that small
businesses frequently connect to the Internet through a dial-up
modem that does not maintain a permanent connection, thereby
making it impossible to use the Internet for selling
merchandise. New application service providers and web hosting
technologies may help alleviate this disparity. Mr. Villars
also described some of the various formats for e-commerce, such
as trading communities, industry exchanges, and auctions sites,
which he referred to collectively as e-marketplaces.
Angie Kim, President, EqualFooting.com, was the second
panelist. Ms. Kim's company offers small businesses Internet-
based purchasing opportunities similar to larger companies. As
a result, small businesses can get the benefit of large volume
purchasing that typically give large companies a 10% to 30%
cost advantage. They can also save time by getting different
price quotes via their computer instead of having to go through
multiple catalogs. Ms. Kim discussed the benefits and
difficulties for small businesses seeking to operate over the
Internet. One problem she identified is for small firms to
develop their networks to generate traffic for their web site.
Ms. Kim noted that small businesses can address this issue by
joining an e-marketplace or exchange for their goods such as
EqualFooting.com.
The third panelist was Krish Krishnan, President and CEO,
NetCompliance, Inc., which offers regulatory compliance
assistance via the Internet. Mr. Krishnan described how the
Internet has improved the delivery of information and
communication to a wider audience. He cited statistics from
Goldman Sachs that indicate small businesses accounted for $114
billion in e-commerce sales in 1999 and will account for $1.5
trillion by 2004. NetCompliance's web site offers users
compliance assistance with all the regulations with which a
particular industry would have to comply. Mr. Krishnan gave as
an example gas stations that have to comply with Federal,
state, and in some cases local environmental rules as well as
safety and health regulations. NetCompliance identifies the
relevant regulations and provides on-line filing for any forms
that can be submitted in this manner. The site also offers
employee training that can be completed by employees using the
business' computer rather than having to take classes at remote
locations. Mr. Krishnan encouraged Congress to require agencies
to allow electronic filing of forms to make the requirement
easier and faster for businesses.
In addition to the three panelists, 20 invited participants
representing a cross section of small business and high-
technology interests, took part in the forum. A discussion
among the participants, panelists, Committee staff, and Members
followed. Comments ranged widely from experiences of the
association members who were engaged in e-commerce to
cautionary descriptions of problems small businesses faced when
trying to enter the e-marketplace. One participant noted that
Internet-based auctions were too competitive for small
businesses to be able to do well in them. Large businesses with
wider profit margins on the other hand, could absorb the lower
prices that auctions typically generate because small
businesses do not have as great a margin on their products to
be able to sell at such lower prices. Small businesses' product
lines also may not be as diverse as those of large companies,
which means that they will not have other products that might
be able to make up for resulting losses.
Participants were also asked what Congress could do to help
encourage small businesses to get more involved in e-commerce.
The consensus was that Congress should, at a minimum, do no
harm. Congress should also focus on educating small businesses,
perhaps by staging forums with computer demonstrations
throughout the country. Some participants expressed support for
the e-signature legislation that would give customers the
ability to provide a ``signature'' on-line to verify their
identity.
Chairman Bond closed the forum by thanking all the speakers
and participants. He predicted that within a few years,
Internet-based B2B transactions will become commonplace and a
major component in the small business community's approach to
doing business.
HEARING--IRS RESTRUCTURING: A NEW ERA FOR SMALL BUSINESS--WASHINGTON,
DC, MAY 23, 2000
On May 23, 2000, the Committee held a hearing to examine
the IRS' new operating division dedicated to small businesses
and the self-employed. In his opening statement, Chairman Bond
stressed that one of the most pervasive issues confronting
small business owners continues to be their interaction with
the IRS. He noted that nearly two years ago, Congress passed
sweeping legislation, the Internal Revenue Service
Restructuring and Reform Act of 1998, to transform one of the
nation's most feared regulatory enforcement agencies. Congress'
goal in that legislation was for the IRS to become an agency
that balances the taxpayers' need for outstanding service with
the agency's duty to collect tax revenues in a fair and uniform
manner. For small businesses, a significant part of the IRS'
transformation is expected to occur through the reorganization
of the agency into four operating divisions, with the Small
Business/Self-Employed (SB/SE) Division dedicated to the
particular needs of small business taxpayers.
The hearing consisted of three panels of witnesses. On the
first panel, Charles O. Rossotti, Commissioner, IRS, provided
the Committee with an overview of the steps that the agency is
taking in the near term to provide better customer service and
reduce the compliance burdens on small business taxpayers.
These steps include new and broader information for small
businesses on the IRS web site; a second edition of the CD-ROM
with business and tax information for small businesses; and
improvements in electronic filing and payment of taxes. The
Commissioner also described a new initiative that will permit
taxpayers to authorize the IRS to deal directly with third-
party tax preparers simply by checking a box on their tax
return.
Commissioner Rossotti also presented a progress report to
the Committee on the IRS' new SB/SE Division, which is expected
to ``stand up'' or become operational on October 1, 2000. He
noted that the division will focus on three components, the
first of which, Taxpayer Education and Communications, will
work to improve compliance by assisting small businesses
through education and other information before their tax
returns are filed. The second component, Customer Account
Services, will work to focus on resolving issues that arise
after a tax return is filed. The third component will consist
of the traditional compliance functions of examinations and
collections.
Following the Commissioner's testimony, Chairman Bond
presented him with the results of the Committee's year-long
``IRS Paperwork Unpopularity Poll,'' which developed out of the
Committee hearing on April 12, 1999. Through the poll, the
Committee collected input from small business owners on the IRS
forms, instructions, publications, letters, and notices most in
need of revision. Chairman Bond applauded the Commissioner's
willingness to examine these forms and documents. He noted that
it is a testament to the IRS' overall efforts to provide
improved service to America's taxpayers and an important step
toward reducing the tax filing and recordkeeping burdens that
small businesses and the self-employed encounter every day.
The second panel consisted of witnesses from the GAO.
During his introduction of the panel's lead witness, Cornelia
Ashby, Associate Director for Tax Policy and Administration
Issues, GAO, Chairman Bond released the GAO's report on the
IRS' efforts to construct a model that will estimate the tax
burdens imposed on America's taxpayers. The Chairman noted that
the first stage of this model focuses on taxpayers with wage
and investment income and is expected to assess the prefiling,
filing, and postfiling burdens that these taxpayers encounter.
The model will serve as the foundation for the second stage,
which is expected to include a burden model applicable to small
business taxpayers.
In her testimony, Ms. Ashby described the GAO's evaluation
of the new burden model, and she reported on the agency's
examination of the IRS' plans for the new SB/SE Division. With
respect to the new division, she described the GAO's survey of
small businesses to identify the problems that they have
historically had in dealing with the IRS, and the GAO's review
of the difficulties that IRS has had in dealing with the
diverse nature of small business taxpayers. Finally, she
described how the IRS expects the new SB/SE Division to address
these issues. Ms. Ashby concluded that the new division has the
potential for providing improved service for small business
taxpayers, and she identified several challenges facing the
agency as it implements the new division, including human
resource needs, technological limitations, and necessary
improvements in performance management.
The third panel consisted of two private-sector witnesses
who serve on IRS advisory panels. Sandra Abalos, President,
Abalos & Associates, testified via videoconferencing from
Phoenix, Arizona. Ms. Abalos is a member of the IRS Electronic
Tax Administration Advisory Committee, and she provided the
Committee with her insights into the plans for the new SB/SE
Division. She focused significant attention on the IRS' efforts
to encourage and improve electronic tax filing and stressed
that the agency needs to incorporate small business feedback
into its planning process if it is going to develop an
electronic filing program that small businesses will embrace.
Ms. Abalos stressed that such a program must be viewed as a
voluntary option for small business and not as another
government mandate.
The final witness was Roy Quick, Jr., EA, Principal, Quick
Tax & Accounting Services. Mr. Quick is also a member of the
IRS Advisory Council, and he provided the Committee with his
perspective on the new SB/SE Division as well as some of the
agency's efforts to provide taxpayer education in the prefiling
stage in order to reduce errors and provide better compliance.
Mr. Quick praised a number of initiatives in the education and
outreach areas that the IRS is currently implementing, and he
recommended some changes to improve those efforts to the
benefit of small business taxpayers.
In closing the hearing, Chairman Bond noted that while
great efforts have gone into the planning for the SB/SE
Division, the real work will begin when the new division
becomes operational. To ensure that the IRS' improvements in
small business service do not stop in the planning stages, he
announced that he would be asking the GAO to undertake a new
evaluation of the SB/SE Division and report back to the
Committee next year on the changes and improvements that the
agency has made for small business taxpayers.
HEARING--GAO'S PERFORMANCE AND ACCOUNTABILITY REVIEW: IS THE SBA ON
PAR?--WASHINGTON, DC, JULY 20, 2000
On July 20, 2000, the Committee held an oversight hearing
on the SBA's information technology management, human capital
management, and the 8(a) business development programs. The
hearing was the first in a series the Committee plans to hold
on the Performance and Accountability Review (PAR) that the GAO
is conducting at the SBA.
In his opening statement, Chairman Bond introduced the PAR,
which entails a comprehensive review of the major performance
and management challenges that are critical to an agency's
mission, and how such challenges affect an agency's ability to
administer its core programs. The Committee and the GAO
formulated the PAR to help root out systemic agency problems.
The SBA was the first agency subject to a PAR and will serve as
a test case for the GAO's plan to apply the PAR to other
Federal agencies.
David Walker, the Comptroller General of the United States,
was the sole witness on the first panel. He addressed the
importance of strategic oversight, noting that the focus of
such oversight should shift to reviewing overall agency
management and effectiveness and that the PAR is intended to
provide such an assessment. He explained that a PAR entails a
review of mission-critical programs and ties the agency's
program problems to systemic issues related to general agency
operations. Mr. Walker also explained the three primary reasons
that the GAO selected the SBA for the first application of PAR.
First, the SBA is a small agency that permits the GAO to hone
the prototype for use in evaluating other agencies. Second, the
SBA is in transition from a programmatic agency that conducts
most activities in-house to a regulatory agency that oversees
the conduct of out-sourced activities. Finally, the GAO and the
Inspector General (IG) of the SBA have raised many concerns
over the last several years about how the SBA operates its core
programs.
The second panel consisted of three GAO officials who
addressed the first three areas reviewed under the SBA's PAR.
Stanley Czerwinski, Associate Director, Housing and Community
Development Issues, Resources, Community and Economic
Development Division, GAO, testified about the GAO's two
reports on the 8(a) business development program. He stated
that the GAO found that the 8(a) program, as it is currently
operated, does not meet the needs of the firms that use the
program. In addition, the database that the SBA created to
track the program does not contain the information the agency
needs to manage the program effectively. Furthermore the
business assistance provided by the SBA under the program does
not focus on the businesses that truly need such assistance.
According to the GAO's survey of firms participating in the
8(a) program, while 86% of the firms surveyed joined the 8(a)
program to obtain contracts, only a very small percentage of
firms in that program obtain contracts. Mr. Czerwinski
testified that the SBA focuses on providing 8(a) firms with
management assistance rather than contracting assistance,
despite the fact that many firms in the 8(a) program already
have substantial management experience.
The next witness on the second panel was Joel Willemssen,
Director, Civil Agencies Information Systems, Accounting and
Information Management Division, GAO, who testified about the
GAO's report on the SBA's management of its information
technology. He stated the GAO found that policies and
procedures for the five categories examined are only partially
implemented, are in draft form, or do not exist in any form. As
a result, the SBA cannot ensure that its information technology
meets current or future needs or that it has the human capital
to implement the necessary reforms.
The final witness on the second panel was Michael Brostek,
Associate Director, Federal Management and Workforce Issues,
General Government Division, GAO. Mr. Brostek testified about
the GAO's report on the SBA's management of its human capital.
He stated that while the SBA has undertaken useful human
capital initiatives, these efforts are incomplete and place at
risk the success of the agency's attempt to redesign its
business processes and to transform its workplace. Mr. Brostek
noted that the SBA has not conducted the workforce planning it
needs to determine whether the agency has the appropriate
personnel to conduct its mission now or in the future. He also
explained that the SBA has not prepared for succession of its
current senior management or trained its current staff to
ensure that they can perform the duties and responsibilities of
senior management.
The third panel consisted of Aida Alvarez, Administrator,
SBA, who testified at length about the various programs the
agency operates to assist small businesses, and she provided
statistics on the outputs of such programs. She added that the
SBA intends to make the commitment of resources and effort
necessary to improve its information technology management. She
agreed that the GAO's recommendations will help the SBA develop
information technology management. Ms. Alvarez also stated that
the SBA has begun a comprehensive workforce planning effort by
taking steps to manage its human capital activities better,
including development of job descriptions and related training
or retraining. She echoed some of the GAO's recommendations,
stating that the SBA also must take the following steps:
develop a succession plan for current senior management,
reinstate management training, estimate the number of employees
needed with certain skills, and ensure adequate employee
training. Additionally, she noted that the SBA has begun to
transform itself by transitioning its employees from making and
servicing loans to overseeing private sector partners engaged
in these activities.
Ms. Alvarez concluded her remarks by agreeing that
improvement is needed in tracking assistance provided to 8(a)
firms and measuring the program's performance. She stated that
7(j) funding limitations prevent the agency from providing
management and technical assistance to 8(a) firms. She agreed,
however, with the GAO's recommendation that the SBA must do
more to improve the 8(a) program and assist the small
businesses that it is designed to benefit.
ROUNDTABLE--WHAT IS CONTRACT BUNDLING?--WASHINGTON, DC, SEPTEMBER 13,
2000
On September 13, 2000, the Committee held a roundtable
comprising the Directors of the OSDBUs to consider matters
related to contract bundling. The roundtable focused on the
July 26, 2000, final regulations of the SBA, implementing the
anti-bundling provisions of the Small Business Reauthorization
Act of 1997. Specifically, the roundtable discussed whether
small business advocates (including the SBA's Procurement
Center Representatives and the OSDBUs) would have timely
information about prospective bundling to enable their
intervention. Also, the roundtable discussed the meaning of
``measurably substantial'' benefits, which under the law and
regulations permits a prospective bundling to be considered
``necessary and justified.''
In his opening remarks, Chairman Bond noted the importance
of sound regulations to ensure a workable process for
monitoring and controlling contract bundling. In FY1999, the
government purchased $199 billion in goods and services through
more than 10.5 million contract actions. These contracts
averaged out to $378,000 in purchasing, and 20 contract actions
for every minute of every day. An ongoing administrative review
process is essential to ensure effective oversight of that
volume of activity. Chairman Bond observed that publication of
final bundling rules allows the Federal Procurement Data Center
to make the necessary revisions to collect systematic data on
bundling.
Stan McCall, Small Business Specialist, NASA, commented
that an ongoing relationship between the agency purchasers and
the SBA's Procurement Center Representatives (PCRs) will help
ensure that any significant matters are reviewed by a small
business advocate. Ken Bryan, Director, OSDBU, DoJ, however,
said that the scarcity of PCRs made it difficult to ensure such
reviews. Linda Williams, Deputy Administrator, Office of
Government Contracting and Minority Enterprise Development,
SBA, agreed that PCR coverage was not sufficient, but she noted
that the SBA has hired an additional 13 PCRs to help address
that deficiency.
Tracey Pinson, Director, Small and Disadvantaged Business
Utilization (SADBU), Department of the Army, said that the
Defense Department's Form 2579 required signatures from the
contracting office's SADBU representative, as well as the PCR,
if a PCR is assigned to that office. Mirinda Jackson, Deputy
Associate Administrator, Office of Enterprise Development,
General Services Administration (GSA), observed that GSA Form
89 similarly allows a PCR to sign off on GSA procurements that
are not set aside for small business. These forms help ensure
that at least one small business advocate reviews the
acquisition strategy.
The roundtable also examined the elements constituting a
contract to help determine when the bundling regulations might
apply. Mike Gerich, Deputy Associate Administrator, Office of
Federal Procurement Policy, stated that a contract differs from
a contract action; contract actions may also include
modifications to existing contracts. Also, orders placed under
an existing contract would not necessarily be considered new
contracts, although some agencies are adopting supplemental
procurement regulations to clarify that point. Mike Green,
Deputy Director, OSDBU, Department of Agriculture, emphasized
the potential for Government-wide Acquisition Contracts (GWACs)
to become de facto bundled procurements by allowing many
agencies to purchase goods or services off a single contract.
Previously each agency might have had its own separate
contract. Esther Aguilera, Director, OSDBU, DoE, said GWACs
have a tendency to expand into new requirements and that the
contract modifications must also be monitored. Durie White,
Operations Director, OSDBU, Department of State, and Chair,
OSDBU Directors' Interagency Council, warned that GWACs pose
special problems for OSDBUs to monitor since their agency's
procurement offices are purchasing off contracts awarded by
another agency.
With respect to specific standards used in the SBA
regulations, Mr. McCall was concerned about too much focus on
measuring potential benefits from bundling and not enough
attention to its costs in reducing competition and effect on
the tax base. Robert Neal, Director, OSDBU, DoD, noted that
consolidations and efficiencies tend to encourage reliance on
mature firms with established past-performance records, rather
than emerging start-ups. He commented that the cost-benefit
analysis tools developed under OMB Circular A-76 could be
useful in assessing costs and benefits in contract bundling.
Anthony DeLuca, Director, SADBU, Department of the Air Force,
stated that the effects of contract bundling on small business
and on the economy in general are not yet known.
Scott Denniston, Director, OSDBU, VA, warned that the
OSDBUs often are challenged by simply attempting to find out
what is happening. His office resorts to reading the Commerce
Business Daily as a way of finding out about VA procurements
that may not otherwise be called to his attention. He noted
that the procurement forecast published by his office should
provide guidance to small businesses to market themselves to
the VA as potential vendors of the forecasted purchases. Robert
Neal emphasized that OSDBUs do not sign contracts. Thus, the
commitment of the senior agency leadership tends to determine
success or failure in an agency's small business program.
Jeanette Brown, Director, OSDBU, EPA, said that contracting
officers and program managers made the actual decisions about
where to spend procurement dollars and that the small business
program needs to ensure greater accountability on their part.
Sharron Harris, Director, OSDBU, Department of Agriculture,
stated that senior agency leadership often was concerned with
the success of an agency's project, and unless the senior
leadership understood how small business could enhance the
agency's ability to succeed, their tendency was effectively to
discourage contracting officers from relying on small business.
The roundtable adjourned following a discussion by Mr. Neal
of the preliminary findings his office was discovering in a
review of 10 contract consolidation cases.
HEARING--SLOTTING FEES: ARE FAMILY FARMERS BATTLING TO STAY ON THE FARM
AND IN THE GROCERY STORE--WASHINGTON, DC, SEPTEMBER 14, 2000
On September 14, 2000, the Committee held its second
hearing on slotting allowances, which occurred exactly a year
from the first Committee hearing on this issue. The hearing
provided an opportunity for the Committee to receive an update
on the status of government efforts to understand slotting
allowances and to gain a better understanding of these fees as
they pertain to the marketing of fresh produce.
Chairman Bond recounted what the Committee had learned
through its prior hearing and continued investigation of
slotting fees. Specifically, he cited information received by
the Committee that large-chain retailers routinely demand
substantial up-front slotting payments from manufacturers to
put products on the shelf or to keep them on the shelf. In
addition, the Committee learned that the products of small
businesses are often excluded simply because they cannot afford
the excessive payments. A significant obstacle to understanding
the actual effect of slotting allowances on competition,
however, is the lack of detailed data available to government
and academic researchers. Chairman Bond emphasized that in
order to make policy decisions about this issue, Congress and
the relevant Federal agencies must be able to examine
transaction-level data covering the amount that retailers
collect, how the fees are negotiated, and the use of such fees.
Chairman Bond also addressed the request the Committee made
to the GAO to gather such information from retailers and
manufacturers. He noted that the retail-grocery and food-
manufacturing industries have been unwilling to provide data to
the GAO on what is actually occurring in the marketplace. The
industries' apparent resistance to an open and frank dialogue
on the use and effects of slotting fees raises significant
suspicion that these fees are regularly employed in an anti-
competitive manner and are not merely a risk-sharing mechanism
that reflects actual costs of retailers. Given the industry's
reluctance to provide information, Chairman Bond announced that
he had secured $900,000 in the Commerce, Justice, State and the
Judiciary appropriations bill for the FTC to conduct an in-
depth study into slotting fees and their competitive effects.
The hearing's first panel consisted of Thomas Stenzel,
President and CEO, United Fresh Fruit and Vegetable
Association; David Moore, President, Western Growers
Association; and Michael Stuart, President, Florida Fruit &
Vegetable Association. Each witness addressed the concerns
within the produce industry regarding the escalating practice
of charging slotting fees for produce and, in particular, for
loose fruits and vegetables. Each witness on the panel also
stated that produce growers and shippers are being asked by
retailers to pay off-invoice fees, which are unrelated to
actual product cost, merely to continue doing business. Mr.
Stenzel emphasized that transparency of industry practices will
rein in the abuses that currently occur in the market. He also
addressed how slotting allowances and other similar fees
provide up-front profit to the retailer, thereby reducing
retailers' incentive to sell produce to consumers.
Mr. Moore testified that retailers are not reducing retail
prices for produce when there is a corresponding reduction in
the price a grower receives for produce. He stated that when
combined with the fees charged for the privilege of doing
business, the price received by growers can force them to sell
their commodities at a loss. This not only harms produce
growers, but denies consumers a choice of products. Finally,
Mr. Stuart testified about the retail concentration in the
grocery industry and indicated that as supermarket chains have
become fewer and larger, they have developed considerable
bargaining advantages over their produce suppliers, many of
whom are small to medium-sized family businesses. The result
has been that retailers continually try to reduce the prices
paid to growers, thus jeopardizing the growers' ability to stay
in business.
Lawrence Dyckman, Director of Food and Agriculture Issues,
Resources, Community, and Economic Development Division, GAO;
Susan Offutt, Administrator, Economic Research Service (ERS),
U.S. Department of Agriculture; Gregory Gundlach, Professor,
Mendoza College of Business, University of Notre Dame, appeared
on the second panel. Mr. Dyckman testified that the GAO was
unsuccessful in gaining the cooperation needed from the
industry to conduct a study on slotting fees. He stated that
neither grocery companies nor food manufacturers would make
detailed information on slotting fees available to the GAO,
despite a pledge by the GAO that it would take steps to ensure
confidentiality of the documentation and a pledge by the
Committee that it would not seek information that would
identify any particular manufacturer or retailer outlet.
Ms. Offutt testified about the preliminary results of a
study conducted by the ERS on trade practices in the fresh
fruit and vegetable markets. She stated that the ERS has found
that fixed or variable fees and trade allowances have increased
in incidence and magnitude over the last five years. The ERS
did not, however, review the effect that such fees have on
produce growers and shippers, and Ms. Offutt confirmed that the
ERS intends to review this issue in future studies. Finally,
Mr. Gundlach testified about the current state of academic and
government research on slotting fees, emphasizing that without
analyzing transaction-level data, the claims of pro-competitive
or anti-competitive aspects of slotting and similar fees cannot
be proven. He also stated that the FTC has focused on how
slotting fees can be used by dominant manufacturers to exclude
competitors, but the agency has not focused on the effect that
retail concentration has on increasing the bargaining power of
retailers to demand such fees. Mr. Gundlach suggested that this
is an important issue that should be examined by the FTC.
Chairman Bond concluded the hearing by announcing that the
Committee would follow up with the FTC to receive assurances
that it will use the additional $900,000 in the Commerce,
Justice, State and the Judiciary appropriations bill to collect
detailed information on slotting allowances and related
practices so that public policy decisions can be made on this
issue.
JOINT HEARING WITH THE SENATE SPECIAL COMMITTEE ON AGING--PENSION
TENSION: DOES THE PENSION BENEFIT GUARANTY CORPORATION DELIVER FOR
RETIREES?--WASHINGTON, DC, SEPTEMBER 21, 2000
On September 21, 2000, the Committee held a joint hearing
with the Special Committee on Aging to conduct oversight of the
Pension Benefit Guaranty Corporation (PBGC). The hearing
examined three major issues: (1) the ability of the PBGC to
deliver timely and accurate determinations of benefit levels to
retirees whose pension plans have failed and been taken over by
the PBGC, (2) the security of the PBGC's information systems,
(3) and the appropriateness of the PBGC's contracting
practices.
In his opening statement, Chairman Bond commented on the
particular interests of the Committee on Small Business in
overseeing the PBGC. Because defined-benefit pension plans pay
insurance premiums to the PBGC, and because most pension plans
(like most businesses) are small, the Committee has a
responsibility to monitor whether participating plans are
receiving adequate and appropriate benefits for their premiums.
The Committee also has a long-standing concern with government-
contracting practices that may enhance or impede small business
participation.
The first two witnesses testified about individual
experiences with the PBGC. Thomas A. Parks, a resident of Cedar
Rapids, Iowa, told the Committee of his experiences and
problems attempting to ascertain his definitive benefit level
under the Kwik-Way Manufacturing Company's pension plan, which
had failed and had been taken over by the PBGC. Mr. Parks noted
that early in his interaction with the PBGC, he had received a
check drawn from a bank other than the one the PBGC had
previously indicated and drawn against a pension plan to which
Mr. Parks had no connection. He subsequently received a
duplicate check drawn on the correct bank for the correct plan,
and he returned the erroneous amount. Mr. Parks wrote the PBGC
in April of 1996 to recount a series of errors, including the
erroneous check, and received no clarifying response. When Mr.
Parks finally received his definitive statement of benefits, it
differed from the estimate originally supplied him by the Kwik-
Way plan administrator by only five cents per month. He noted
that the PBGC's determination occurred eight years after the
agency had first become involved with the Kwik-Way plan
failure.
Bonne McHenry, a former employee of the Integrated
Management Resources Group [the PBGC's contract manager for its
Atlanta Field Benefit Administration (FBA) office], recounted
her observations from her work for the PBGC. Ms. McHenry noted
that the definitive statement of benefits, known as an Initial
Determination Letter (IDL), is the most important document a
pensioner receives from the PBGC. She commented that the PBGC
had sent out IDLs with inaccurate benefit amounts, erroneous
plan options selected, and incorrect names and Social Security
numbers. Some IDLs had invalid data entered into the wrong
fields, such as benefit levels printed in the space reserved
for dates. She stated that, when participants who received such
incorrect IDLs contacted her, she was able to consult the
source documents from the failed plan and determine the correct
information, which suggested that these errors arose when the
plan information was transferred to the PBGC database. Ms.
McHenry stated that she did not believe the PBGC's management
was responsive to Atlanta employees' concerns about these
errors.
Wayne Robert Poll, Inspector General (IG), PBGC, testified
that his office had conducted a penetration test of the PBGC's
computer systems. He noted that prior to conducting the
penetration study of computer security, he had informed three
members of the PBGC's management that he would be conducting
such a study. However, the computer systems were still found to
be vulnerable. Mr. Poll indicated that the PBGC did not have an
information security program and employees were not
sufficiently aware of security concerns. His team was able to
penetrate the PBGC's computer systems by dialing in from remote
locations and by obtaining unauthorized access from computers
at the agency. The team was able to gain systems-administrator
level of access to the PBGC computers, giving them the ability
to create, delete, and modify data in the PBGC database. Mr.
Poll indicated that he would be conducting a follow-up
penetration study after the PBGC had completed its
implementation of his recommendations from the previous test.
Mr. Poll also reported on studies he had conducted
concerning the issuance of IDLs, particularly their timeliness.
He found that approximately half of the IDLs were issued more
than seven years after the PBGC became the trustee of a failed
plan. Moreover, even when the PBGC had completed all of the
calculations necessary to determine a participant's benefit
levels, the agency often required an additional year to prepare
the benefit letter and send it. Mr. Poll noted that when he
first examined this issue, the PBGC sent out only 35% of IDLs
within a year of completing these calculations. A follow-up
study indicated that this percentage had later increased to
80%.
In addition, Mr. Poll commented that the PBGC's management
did not seem sensitive to the impact that delayed IDLs have on
the participants. The agency management thought that since
participants received an estimated benefit payment until the
definitive level was determined, the pensioners were not
significantly harmed. Mr. Poll noted that this view was not
shared by pensioners, who reported economic hardships, such as
having to repay the PBGC for estimated benefits that turned out
to be a higher amount than the actual benefits to which they
were entitled.
Barbara Bovbjerg, Associate Director, Health, Education,
and Human Services Division, GAO, discussed findings of a GAO
report on the PBGC's contracting practices. The report,
requested by Chairman Bond and Chairman Charles Grassley (R-
IA), Special Committee on Aging, found that the PBGC had begun
to rely heavily on contractors to address a large workload that
accumulated due to several large pension plan failures in the
mid-1980s. Although the PBGC's workload has diminished
significantly due to economic strength and fewer new failures,
the PBGC continues to rely heavily on contractors without a
systematic plan to coordinate contracts with expected
workloads.
Ms. Bovbjerg also expressed concern that the PBGC's
contracting practices were not designed to maximize competition
and cited instances in which procurement strategies appeared to
be designed to favor incumbent contractors. She also observed
that the PBGC did not collect management data specific to each
contractor-operated office to help assess the contractor's
performance. Finally, she reported that the PBGC's contracting
audit office was not organizationally placed to ensure
independent judgment in reviewing contracts. Robert H. Hast,
Assistant Comptroller General for Special Investigations, GAO,
also testified about certain contracting matters that came to
the GAO's attention in the course of its contract-management
study, which would be referred to the DoJ for further
investigation.
David Strauss, Executive Director, PBGC, stated that he had
confidence in the integrity of the PBGC's contracting staff and
submitted for the record a history of past investigations into
the contracting matter discussed by Mr. Hast. Mr. Strauss
stated that he welcomed any further information from the GAO
that would help put the allegations to rest. Mr. Strauss also
emphasized the PBGC's commitment to carrying out its
obligations under the Employee Retirement Income Security Act
(ERISA) to ensure continuous payment of benefits to pensioners.
He stated that, in most cases, the estimated benefit payments
made prior to the calculation of the definitive benefit levels
have been very close to the correct amount. Mr. Strauss stated
that he welcomed the recommendations of the IG and the GAO and
indicated that the PBGC had been implementing the computer-
security recommendations made by the IG.
HEARING--THE U.S. FOREST SERVICE: TAKING A CHAIN SAW TO SMALL
BUSINESS--WASHINGTON, DC, OCTOBER 4, 2000
On October 4, 2000, the Committee held a hearing to examine
the effect of U.S. Forest Service rules and regulations on
small businesses. The hearing was chaired by Senator Mike Enzi
(R-WY), who stressed that a growing pattern of Forest Service
actions are shutting out small businesses from public lands and
contributing to the destruction of rural communities. Senator
Enzi noted that large timber companies are not affected by
having the public lands closed off to them; in some ways, they
are even helped. These large companies have private sources in
the American Southeast and Canada that allow them to keep their
mills running. In contrast, the small mills are closing because
of Forest Service policies, which results in increased market
share for the large lumber companies.
Senator Enzi criticized the Forest Service for the agency's
approach to the RFA. He stressed that, through the RFA,
Congress has shown that it wants small businesses to be a
partner with the Forest Service in developing rules and
regulations that will let a healthy environment and small
businesses flourish side by side. He pointed out that the
current Administration has lost this sense of balance,
preferring instead to promulgate regulations solely for the
stated purpose of ``saving the environment,'' without any
attention being paid to their effect on small businesses.
Senator Enzi concluded by emphasizing that a healthy
environment must have a healthy economy, and small businesses
are the best hope to preserve the environmental resources for
the future.
Senators Mike Crapo (R-ID) and Conrad Burns (R-MT) echoed
the concern that the Forest Service has ignored the impact of
its regulations and not followed the mandates of the RFA.
Senator Crapo stressed that the Forest Service has not been
held accountable for the economic impact of the agency's rules
and regulations, noting for example the agency's Roadless
Initiative. Senator Burns added that natural resources are
going to waste while mills are being abandoned and roads are
being closed. He called the Committee's attention to a slice of
a large tree that had died as a result of pine borer beetles.
Although the tree was close to a road, it would not be
harvested under the Forest Service's Roadless Initiative
because access would be impossible. He emphasized that leaving
this timber to decay was not only a waste of available timber,
but would also contribute to the fuel build up in the forests,
which led to the massive fires of this summer.
The first panel included two Senators from the Northwestern
United States. Senator Craig Thomas (R-WY) noted that public
lands were designed for both economic and recreational use, and
these two interests should not be pitted against each other
when they can coexist. He emphasized that local residents have
been given no recourse to the mandates from Washington. In
particular, the Forest Service's Roadless Initiative was
designed from the top down, contrary to all previous Forest
Service policies, and has resulted in a proposal that would be
devastating to the local interests. Senator Larry Craig (R-ID)
offered two conclusions from his experience of chairing the
Forests and Public Land Management Subcommittee of the
Committee on Energy and Natural Resources. First, the Forest
Service is the single most important agency affecting small
business interests in the western states, determining the
future of small businesses in many cases. Second, there is not
an agency in the Federal government that is less sensitive to
the needs of small businesses. Senator Craig proposed to remedy
this situation by creating an independent Office of Small
Business Advocacy inside the Forest Service that would have the
responsibility for approving the regulatory flexibility
analyses and the agency's compliance with the RFA before a
regulation could be issued.
The second panel consisted of four small business owners
who have been adversely affected by Forest Service policies.
Jim Hurst, President, Owens & Hurst Lumber Co., Inc., testified
that Forest Service regulations were a direct threat to the
rural, western culture, which is dominated by small businesses.
He noted that big environmental groups and the large timber
companies work together to influence the Federal government to
lower timber harvest limits, which has severe implications for
small timber operators. Since the large lumber companies
harvest most of their timber on their own lands, they remain
largely unaffected by decisions of the Forest Service. Joel
Bousman, Cattle Rancher, and Regional Vice President, Wyoming
Stockgrowers' Association, explained that the Federal
government could put him out of business with one stroke of the
pen. As a rancher, his business depends on grazing. He stressed
that if he loses his grazing permit, he would have either to
downsize or buy more land; neither would be feasible. Instead,
he would probably have to sell his business, most likely to
some type of developer, which would sacrifice the wild and
unspoiled nature of the land that the Forest Service intends to
preserve through its restrictions on grazing permits. Mr.
Bousman also described how his two sons hope to continue
operating the ranch, but they may not be able to if the grazing
permits are further reduced.
Del Tinsley, Owner/Publisher, Wyoming Livestock Roundup,
and Advisory Board Member, University of Wyoming College of
Agriculture, echoed many of the same concerns as the other
witnesses on the panel. He stressed the need for an economic
impact study, as opposed to an environmental impact study, to
be conducted for each new rule and regulation that the Forest
Service proposes. He asserted that the ``unintended
consequences'' of these rules and regulations could be greatly
reduced, and rural communities would not be destroyed. The
final witness on the panel, Al Bukowsky, Owner/Operator,
Solitude River Trips, described the adverse impact of the
Forest Service's manipulation of the recreational-permit
process. He stressed that outfitters depend on camping permits
in order to provide their recreational services. With Forest
Service rangers closing down campsites and suspending river
usage on as little as 12 hours notice, outfitting businesses
are in serious jeopardy. Mr. Bukowsky recalled that there used
to be a time when Forest Service rangers and outfitters worked
together, and he expressed the hope that such a time would
return soon.
The third panel consisted of two academic experts who
expounded on the effects of Forest Service rules and
regulations on small businesses. Larry W. Van Tassel, Professor
and Head of the Department of Agricultural Economics and Rural
Sociology, University of Idaho, discussed a study he conducted
that demonstrated that reducing Forest Service grazing permits
for ranches leads to greater economic instability, lower
profits, and job losses. The study also concluded that reduced
grazing permits can increase the potential for the sale of the
property to developers with ensuing loss of habitat for
wildlife and other losses associated with converting natural
land to developed land. William McKillop, Professor Emeritus,
College of Natural Resources, University of California at
Berkeley, discussed statistics demonstrating the decline of the
timber industry in the West. He noted that this data shows that
the decline disproportionately affects the small sawmills. The
decline has also had a ripple effect, taking many other
industries down with it.
The final panel consisted of James Furnish, Deputy Chief,
U.S. Forest Service, who testified that the Forest Service
regulations do not negatively affect small businesses. He
asserted that the Forest Service takes pride in working with
the SBA's Office of Advocacy to examine the effects of the
agency's regulations on small businesses. He also advanced that
when local communities face hardship, the Forest Service is
committed to helping them strengthen and diversify their
economies through the wise, and more complete use of forest
resources. Due to an objection to the Committee's request to
meet beyond the Senate's two-hour limitation, the Committee was
forced to adjourn the hearing without a full period of
questioning for Mr. Furnish. Senator Enzi noted that the
Committee would submit written questions to the Forest Service
and asked that the agency's responses be included in the
hearing's written record.