[House Report 108-800]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-800
_______________________________________________________________________

                                     

                                                 Union Calendar No. 485


                         SUMMARY OF ACTIVITIES

                               __________

                                A REPORT

                                 of the

                      COMMITTEE ON SMALL BUSINESS

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS




 December 29, 2004.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed
                         LETTER OF TRANSMITTAL

                              ----------                              

                          House of Representatives,
                               Committee on Small Business,
                                 Washington, DC, December 29, 2004.
Hon. Jeff Trandahl,
Clerk, House of Representatives,
Washington, DC.
    Dear Mr. Trandahl: On behalf of the Committee on Small 
Business of the U.S. House of Representatives, I am pleased to 
transmit the attached Summary of Activities of the Committee on 
Small Business for the 108th Congress.
    This report is submitted in compliance with the 
requirements of Rule XI, clause 1(d), of the Rules of the House 
of Representatives with respect to the activities of the 
Committee, and in carrying out its duties as stated in the 
Rules of the House of Representatives.
    The purpose of this report is to provide a reference 
document for Members of the Committee, the Congress and the 
public which can serve as a research tool and historic 
reference outlining the Committee's legislative and oversight 
activities conducted pursuant to Rule X, clause 1(o), 2(b)(1) 
and 3(g), of the Rules of the House of Representatives. This 
document is intended to serve as a general reference tool, and 
not as a substitute for the hearing records, reports and other 
Committee files.
    Sincerely,
                                        Donald A. Manzullo,
                                                          Chairman.


                            C O N T E N T S

                              ----------                              
                                                                   Page
Chapter I--Introduction..........................................     1
    1.1  Historical Background...................................     1
    1.2  Extracts from the Rules Of the House of Representatives.     2
    1.3  Number and Jurisdiction of Subcommittees................     3
    1.4  Disposition of Legislation Referred to the Committee....     4
Chapter II--The Small Business Administration....................     7
    2.1  SBA Programs in General.................................     7
    2.2  SBA Business Loans......................................     8
    2.3  Disaster Assistance Loans...............................     9
    2.4  Small Business Investment Companies.....................    10
    2.5  Procurement Assistance..................................    10
    2.6  Entrepreneurial Development.............................    11
    2.7  Surety Bond Guarantees..................................    13
    2.8  Technology and Innovation...............................    13
    2.9  Export Assistance.......................................    15
    2.10  Office of Advocacy.....................................    16
Chapter III--Hearings and Meetings Held by the Committee on Small 
  Business and Its Subcommittees, 108th Congress.................    19
    3.1  Full Committee..........................................    19
    3.2  Subcommittee on Workforce, Empowerment and Government 
      Programs...................................................    20
    3.3  Subcommittee on Regulatory Reform and Oversight.........    20
    3.4  Subcommittee on Tax, Finance and Exports................    20
    3.5  Subcommittee on Rural Enterprises, Agriculture and 
      Technology.................................................    21
Chapter IV--Publications of the Committee on Small Business and 
  Its Subcommittees, 108th Congress..............................    23
    4.1  Reports.................................................    23
    4.2  Hearings Records........................................    23
Chapter V--Summary of Legislative Activities of the Committee on 
  Small Business, 108th Congress.................................    27
    5.1  H.R. 205 National Small Business Regulatory Assistance 
      Act of 2003................................................    27
    5.2  H. Res. 368--Honoring the 50th Anniversary of the Small 
      Business Administration....................................    34
    5.3  H.R. 923--Premier Certified Lenders Program Improvement 
      Act of 2003, P.L. 108-232..................................    36
    5.4  H.R. 1166--To amend the Small Business Act to expand and 
      improve the assistance provided by Small Business 
      Development Centers to Indian tribe members, Native 
      Alaskans, and Native Hawaiians.............................    39
    5.5  H.R. 1460--Veterans Entrepreneurship Act of 2003, P.L. 
      108-183....................................................    42
    5.6  H.R. 1772--Small Business Advocacy Improvement Act of 
      2003.......................................................    46
    5.7  H.R. 2345--Regulatory Flexibility Improvements Act of 
      2003.......................................................    49
    5.8  H.R. 2802--Small Business Reauthorization and 
      Manufacturing Revitalization Act of 2003...................    51
    5.9  H.R. 3915--To provide for an additional temporary 
      extension of programs under the Small Business Act and the 
      Small Business Investment Act of 1958 through April 2, 
      2004. P.L. 108-205.........................................    63
    5.10  H.R. 4062--To provide for an additional temporary 
      extension of programs under the Small Business Act and the 
      Small Business Investment Act of 1958 through June 4, 2004, 
      and for other purposes. P.L. 108-217.......................    64
    5.11  H.R. 4478--To provide for an additional temporary 
      extension of programs under the Small Business Act and the 
      Small Business Investment Act of 1958 through July 23, 
      2004, and for other purposes...............................    73
    5.12  H.R. 5008--To provide an additional temporary extension 
      of programs under the Small Business Act and the Small 
      Business Investment Act of 1958 through September 30, 2004, 
      and for other purposes. P.L. 108-306.......................    74
    5.13  H.R. 5108--Small Business Reauthorization and 
      Manufacturing Assistance Act of 2004 Key elements of H.R. 
      5108 were incorporated into Division K of the Consolidated 
      Appropriations Act, 2005 (H.R. 4818--P.L. 108-447).........    75
    5.14  S. 141--To Improve the Calculation of the Federal 
      Subsidy Rate with respect to Certain Small Business Loans. 
      P.L. 108-8.................................................    81
    5.15  S. 1895--A bill to temporarily extend the programs 
      under the Small Business Act and the Small Business 
      Investment Act of 1958 through March 15, 2004, and for 
      other purposes. P.L. 108-172...............................    83
Chapter VI--Summary of Other Legislative Activities of the 
  Committee on Small Business....................................    85
    6.1  Committee Meetings......................................    85
        6.1.1  Organizational Meetings...........................    85
        6.1.2  Oversight Plan for the 108th Congress.............    85
    6.2  Budget Views and Estimates..............................    90
        6.2.1  Fiscal Year 2004 Budget...........................    90
        6.2.2  Fiscal Year 2005 Budget...........................    98
Chapter VII--Summary of Oversight, Investigations, and Other 
  Activities of the Committee on Small Business and Its 
  Subcommittees..................................................   109
    7.1  Summary of Committee Oversight Plan and Implementation..   109
    7.2  Summaries of the Hearings Held by the Full Committee on 
      Small Business.............................................   109
        7.2.1  The SBA FY 2004 Budget............................   109
        7.2.2  Small Business Access and Alternatives to Health 
          Care...................................................   111
        7.2.3  RESPA Reform and Economic Effects on Small 
          Business...............................................   112
        7.2.4  Changes to SBA Financing Programs Needed for 
          Revitalization of Small Manufacturers..................   115
        7.2.5  Will We Have an Economic Recovery Without a Strong 
          U.S. Manufacturing Base?...............................   117
        7.2.6  IRS Compliance with the Regulatory Flexibility Act   118
        7.2.7  Are Big Businesses Receiving Contracts That Were 
          Intended For Small Businesses?.........................   120
        7.2.8  The WTO's Challenge to the FSC/ETI Rules and the 
          Effect on America's Small Businesses...................   121
        7.2.9  The Visa Approval Backlog and its Impact on 
          American Small Business................................   123
        7.2.10  Revitalizing America's Manufacturers: SBA 
          Business and Enterprise Development Programs...........   124
        7.2.11  Globalization of White-Collar Jobs...............   126
        7.2.12  Foreign Currency Manipulation and its Effect on 
          Small Manufacturers and Exporters......................   129
        7.2.13  Saving the Defense Industrial Base...............   131
        7.2.14  Doctors as Small Businesses, field hearing, 
          Frederick, Maryland....................................   133
        7.2.15  Assisting Small Businesses Through the Tax Code: 
          Recent Gains and What Remains to be Done...............   134
        7.2.16  Small Business Access to Health Care.............   135
        7.2.17  Attracting Economic Growth in Rural America......   137
        7.2.18  The WTO's Challenge to the FSC/ETI Rules and the 
          Effect on America's Small Businesses...................   139
        7.2.19  National Small Business Week: Small Business 
          Success Stories........................................   140
        7.2.20  Is America Losing Its Lead In High-Tech: 
          Implications For The U.S. Defense Industrial Base......   141
        7.2.21  The Offshoring Of High-Skilled Jobs: Part II.....   142
        7.2.22  Lowering The Cost Of Doing Business In The United 
          States: How To Keep Our Companies Here.................   143
        7.2.23  Increasing the Competitiveness of U.S. 
          Manufacturers in Pennsylvania..........................   144
        7.2.24  Real Estate Settlement Procedure Act Regulations: 
          Working Behind Closed Doors to Hurt Small Businesses 
          and Consumers..........................................   145
        7.2.25  Can U.S. Companies Compete Globally using 
          American Workers?......................................   147
        7.2.26  The President's Proposed Budget for the Small 
          Business Administration FY 2005........................   149
        7.2.27  Availability of Capital and Federal Procurement 
          Opportunities to Minority-Owned Small Businesses.......   150
        7.2.28  Spike in Metal Prices: What Does it Mean for 
          Small Manufacturers?...................................   152
        7.2.29  Spike in Metal Prices--Part II...................   154
        7.2.30  Improving the Regulatory Flexibility Act--H.R. 
          2345...................................................   156
        7.2.31  Red Tape Reduction: Improving the Competitiveness 
          of America's Small Manufacturers.......................   157
        7.2.32  Careers for the 21st Century: The Importance of 
          Education and Worker Training for Small Business.......   159
        7.2.33  The Rebate of Value-Added Taxes at the Border and 
          the Competitive Disadvantage for U.S. Small Businesses.   161
        7.2.34  How We Can Make Our Trade Laws Work for America's 
          Small Business.........................................   162
    7.3  Summaries of the Hearings Held by the Subcommittee on 
      Workforce, Empowerment and Government Programs.............   164
        7.3.1  Improving and Strengthening the SBA Office of 
          Advocacy...............................................   164
        7.3.2  Status of Small Business Manufacturing in the 
          Midwest, field hearing, St. Peters, MO.................   165
        7.3.3  Hearing on the Current and Future States of the 
          SBIR, FAST and MEP Programs............................   166
        7.3.4  Federal Procurement Policy: Is the Federal 
          Government Failing Certain Industrial Sectors?.........   168
        7.3.5  The Rising Cost of Health Care for Small Business 
          Owners, field hearing, Charleston, SC..................   169
        7.3.6  Opportunities for Economic Growth and Job 
          Creation, field hearing, Newnan, GA....................   170
        7.3.7  Federal Prison Industries Effects on the U.S. 
          Economy and the Small Business Environment, Joint 
          Subcommittee hearing with the Subcommittee on 
          Workforce, Empowerment and Government Programs and the 
          Subcommittee on Tax, Finance and Exports...............   171
        7.3.8  Union Salting of Small Business Worksites.........   172
        7.3.9  The Benefits of Health Savings Accounts...........   174
        7.3.10  Would an Increase in the Federal Minimum Wage 
          Help or Hinder Small Business?.........................   175
        7.3.11  The Department of Labor's Overtime Regulations 
          Effect on Small Business...............................   176
        7.3.12  Excellence in Action: Government Support of 
          Disabled Veteran-Owned Businesses, Joint Subcommittee 
          hearing with the Subcommittee on Workforce, Empowerment 
          and Government Programs and the House Veteran's Affairs 
          Committee's Subcommittee on Benefits...................   178
    7.4  Summaries of the Hearings Held by the Subcommittee on 
      Regulatory Reform and Oversight............................   180
        7.4.1  Improving and Strengthening the SBA Office of 
          Advocacy...............................................   180
        7.4.2  Federal Agency Treatment of Small Business........   180
        7.4.3  CRS Regulations and Small Business in the Travel 
          Industry...............................................   181
        7.4.4  Contract Bundling and Small Business Procurement..   182
        7.4.5  What is OMB's Record in Small Business Paperwork 
          Relief?................................................   184
        7.4.6  Spam and its Effects on Small Business............   185
        7.4.7  Increasing the Competitiveness of U.S. 
          Manufacturers..........................................   186
        7.4.8  What is the Administration's Record in Relieving 
          Burden on Small Business?--Part I......................   187
        7.4.9  Challenges to Small Business Growth...............   188
        7.4.10  Small Businesses Creating Jobs and Protecting the 
          Environment............................................   190
        7.4.11  Reforming Regulation to Keep America's Small 
          Businesses Competitive.................................   191
        7.4.12  Department of Labor's Enforcement Actions Against 
          Small Business.........................................   192
        7.4.13  What is the Administration's Record in Relieving 
          Burden on Small Business?--Part II.....................   193
        7.4.14  Small Business Liability Reform..................   194
    7.5  Summaries of the Hearings Held by the Subcommittee on 
      Tax, Finance and Exports...................................   195
        7.5.1  Small Business Asset Expensing....................   195
        7.5.2  Overcoming Obstacles Facing the Uninsured.........   197
        7.5.3  The Chilean Free Trade Agreement: Opening Doors to 
          South American Markets.................................   198
        7.5.4  Removing Roadblocks to Success: How can the 
          Federal Government Help Small Businesses Revitalize the 
          Economy, field hearing, Denver, CO.....................   200
        7.5.5  Small Business Exporting and the Southern 
          California Economy, field hearing, Long Beach, CA......   201
        7.5.6  Federal Prison Industries Effects on the U.S. 
          Economy and the Small Business Environment, Joint 
          Subcommittee hearing with the Subcommittee on 
          Workforce, Empowerment and Government Programs and the 
          Subcommittee on Tax, Finance and Exports...............   202
        7.5.7  The August 14, 2003 Blackout: Effects on Small 
          Business and Potential Solutions.......................   202
        7.5.8  H.R. 1818, The Workforce Health Improvement 
          Program Act: Healthy Employees, Healthy Bottom Line....   203
    7.6  Summaries of the Hearings Held by the Subcommittee on 
      Rural Enterprises, Agriculture and Technology..............   205
        7.6.1  Litigating the Americans with Disabilities Act....   205
        7.6.2  Traversing the Twists and Impacts of the Highway 
          Beautification Act Upon Small Businesses...............   207
        7.6.3  Endangered Farmers and Ranchers: the Unintended 
          Consequences of the Endangered Species Act.............   208
        7.6.4  The Future of Rural Telecommunications: Is the 
          Universal Service Fund Sustainable?....................   210
        7.6.5  Challenges that Small Businesses Face Accessing 
          Homeland Security Contracts............................   212
        7.6.6  A Small Business Component to the Federal Flight 
          Deck Officer Program--It's a Win-Win Scenario..........   213
        7.6.7  The Endangered Species Act's Impact on Small 
          Businesses and Farmers, field hearing, St. Joseph, MO..   215
        7.6.8  The Benefits of Tax Incentives for Producers of 
          Renewable Fuels and its Impact on Small Businesses and 
          Farmers................................................   217
        7.6.9  Tax Incentives for Homeland Security Related 
          Expenses...............................................   219
        7.6.10  The Impact of High Natural Gas Prices on Small 
          Farmers and Manufacturers..............................   220


                                                 Union Calendar No. 485
108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-800

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



 
                         SUMMARY OF ACTIVITIES

                                _______
                                

 December 29, 2004.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

    Mr. Manzullo of Illinois, from the Committee on Small Business, 
                        submitted the following

                              R E P O R T

                         SUMMARY OF ACTIVITIES

                              CHAPTER ONE


                              INTRODUCTION

    This is the fifteenth summary report of the standing 
Committee on Small Business. The action by the House of 
Representatives in adopting the House Resolution 988 on October 
8, 1974, provided that the committee be established as a 
standing committee, and upgraded the Permanent Select Committee 
on Small Business by giving the Committee legislative 
jurisdiction over small business matters in addition to the 
oversight jurisdiction it had historically exercised.
    The adoption of the House rules in the 94th through 108th 
Congress confirmed this action and continued the process begun 
on August 12, 1941, when, by virtue of House Resolution 294 
(77th Congress, 1st session), the Select Committee on Small 
Business was created. In January 1971, the House designated the 
Select Committee as a permanent Select Committee; and, on 
October 8, 1974, the 93rd Congress, recognizing the importance 
of the work performed on behalf of this nation's small 
businesses, provided that the Committee should thereafter be 
established as a standing committee.

1.1  Historical Background

    The history of the Select Committee on Small Business from 
its inception in 1941 during the 77th Congress through 1972, 
the end of the 92nd Congress, may be found in House Document 
93-197 (93rd Congress, 2nd session), entitled ``A History and 
Accomplishments of the Permanent Select Committee on Small 
Business.''
    The Committee is bipartisan in recognition that the 
nation's small business people represent a major segment of our 
business population and our nation's economic strength. This 
committee, continuing its vital oversight responsibilities, 
serves as the advocate and voice for small business as well as 
the focal point for small business legislation.
    In recognition of the importance of the Committee, the 
House of Representatives has established the Committee's 
membership at 36 Members. The following Members were named to 
constitute the Committee in the 108th Congress:
    Republicans included:
        Donald A. Manzullo (IL), Chairman; Roscoe G. Bartlett 
        (MD) Vice Chairman; Sue W. Kelly (NY); Steve Chabot 
        (OH); Patrick J. Toomey (PA); Jim DeMint (SC); Sam 
        Graves (MO); Edward L. Schrock (VA); W. Todd Akin (MO); 
        Shelley Moore Capito (WV); Bill Shuster (PA); Marilyn 
        N. Musgrave (CO); Trent Franks (AZ); Jim Gerlach (PA); 
        Jeb Bradley (NH); Bob Beauprez (CO); Chris Chocola 
        (IN); Steve King (IA); Thaddeus G. McCotter (MI).
    Democrats included:
        Nydia M. Velazquez (NY), Ranking Minority Member; 
        Juanita Millender-McDonald (CA); Tom Udall (NM); G.K. 
        Butterfield (NC); Eni F. H. Faleomavaega (AS); Donna M. 
        Christensen (VI); Danny K. Davis (IL); Grace F. 
        Napolitano (CA); Anibal Acevedo-Vila (PR); Ed Case 
        (HI); Madeleine Z. Bordallo (GU); Denise L. Majette 
        (GA); Jim Marshall (GA); Michael H. Michaud (GA); Linda 
        T. Sanchez (CA); Brad Miller (NC); (Vacancy).

1.2  Extracts From the Rules of the House of Representatives

                              ----------                              


                                 RULE X

                       ORGANIZATION OF COMMITTEES

             COMMITTEES AND THEIR LEGISLATIVE JURISDICTIONS

    1. There shall be in the House the following standing committees, 
each of which shall have the jurisdiction and related functions 
assigned by this clause and clauses 2, 3, and 4. All bills, 
resolutions, and other matters relating to subjects within the 
jurisdiction of the standing committees listed in this clause shall be 
referred to those committees, in accordance with clause 2 of rule XII, 
as follows:
          * * * * * * *
(o) Committee on Small Business.
    (1) Assistance to and protection of small business, including 
financial aid, regulatory flexibility, and paperwork reduction.
    (2) Participation of small-business enterprises in Federal 
procurement and Government contracts.

                   GENERAL OVERSIGHT RESPONSIBILITIES

    2. (b)(1) In order to determine whether laws and programs 
addressing subjects within the jurisdiction of a committee are being 
implemented and carried out in accordance with the intent of Congress 
and whether they should be continued, curtailed, or eliminated, each 
standing committee (other than the Committee on Appropriations) shall 
review and study on a continuing basis--
          (A) The application, administration, execution, and 
        effectiveness of laws and programs addressing subjects within 
        its jurisdiction;
          (B) The organization and operation of Federal agencies and 
        entities having responsibilities for the administration and 
        execution of laws and programs addressing subjects within its 
        jurisdiction;
          (C) any conditions or circumstances that may indicate the 
        necessity or desirability of enacting new or additional 
        legislation addressing subjects within its jurisdiction 
        (whether or not a bill or resolution has been introduced with 
        respect thereto); and
          (D) future research and forecasting on subjects within its 
        jurisdiction.
    (2) Each committee to which subparagraph (1) applies having more 
than 20 members shall establish an oversight subcommittee, or require 
its subcommittees to conduct oversight in their respective 
jurisdictions, to assist in carrying out its responsibilities under 
this clause. The establishment of an oversight subcommittee does not 
limit the responsibility of a subcommittee with legislative 
jurisdiction in carrying out its oversight responsibilities.
    (c) Each standing committee shall review and study on a continuing 
basis the impact or probable impact of tax policies affecting subjects 
within its jurisdiction as described in clauses 1 and 3.

                      SPECIAL OVERSIGHT FUNCTIONS

          * * * * * * *
    3. (k) The Committee on Small Business shall study and investigate 
on a continuing basis the problems of all types of small business.

1.3  Number and Jurisdiction of Subcommittees

    There will be four subcommittees as follows:
          --Workforce, Empowerment and Government Programs 
        (seven Republicans and six Democrats)
          --Regulatory Reform and Oversight (seven Republicans 
        and six Democrats)
          --Tax, Finance and Exports (eight Republicans and 
        seven Democrats)
          --Rural Enterprises, Agriculture and Technology (six 
        Republicans and five Democrats)
    During the 108th Congress, the Chairman and ranking 
minority member shall be ex officio members of all 
subcommittees, without vote, and the full committee shall have 
the authority to conduct oversight of all areas of the 
committee's jurisdiction.
    In addition to conducting oversight in the area of their 
respective jurisdiction, each subcommittee shall have the 
following jurisdiction:

             WORKFORCE, EMPOWERMENT AND GOVERNMENT PROGRAMS

    Oversight and investigative authority over problems faced 
by small businesses in attracting and retaining a high quality 
workforce, including but not limited to wages and benefits such 
as health care.
    Promotion of business growth and opportunities in 
economically depressed areas. Oversight and investigative 
authority over regulations and other government policies that 
impact small businesses located in high risk communities.
    Opportunities for minority, women, veteran and disabled-
owned small businesses, including the SBA's 8(a) program.
    General oversight of programs targeted toward urban relief.
    Small Business Act, Small Business Investment Act, and 
related legislation.
    Federal Government programs that are designed to assist 
small business generally.
    Participation of small business in Federal procurement and 
Government contracts.

                    REGULATORY REFORM AND OVERSIGHT

    Oversight and investigative authority over the regulatory 
and paperwork policies of all Federal departments and agencies.
    Regulatory Flexibility Act.
    Paperwork Reduction Act.
    Competition policy generally.
    Oversight and investigative authority generally, including 
novel issues of special concern to small business.

                        TAX, FINANCE AND EXPORTS

    Tax policy and its impact on small business.
    Access to capital and finance issues generally.
    Export opportunities and oversight over Federal trade 
policy and promotion programs.

             RURAL ENTERPRISES, AGRICULTURE AND TECHNOLOGY

    Promotion of business growth and opportunities in rural 
areas.
    Oversight and investigative authority over agricultural 
issues that impact small businesses.
    General oversight of programs targeted toward farm relief.
    Oversight and investigative authority for small business 
technology issues.
    The adoption of the House Rules in the 94th through the 
108th Congresses confirmed this action and continued the 
process begun on August 12, 1941, when, by virtue of House 
Resolution 294 (77th Congress, 1st session), the Select 
Committee on Small Business was created. In January 1971, the 
House designated the Select Committee as a Permanent Select 
Committee; and, on October 8, 1974, the 93rd Congress, 
recognizing the importance of the work performed on behalf of 
this nation's small businesses, provided that the Committee 
should thereafter be established as a standing committee.

1.4  Disposition of Legislation Referred to the Committee

    A total of 47 House bills and five Senate bills were 
referred to the Committee on Small Business during the 108th 
Congress. The Committee acted on 19 bills in some fashion, of 
which three reports were filed. Eleven bills on which the 
Committee acted upon were signed into law either individually 
or as part of broader legislation. The House of Representatives 
also passed one Committee-drafted resolution to commemorate the 
50th anniversary of the Small Business Administration (SBA) 
that did not require Senate passage or presidential signature. 
For a more detailed summary of the Committee's legislative 
activities, please refer to Chapter Three of this report.
    The Committee expended most of its legislative time and 
effort in attempting to reach an accommodation to pass a 
historic and comprehensive SBA reauthorization bill (H.R. 
2802). Unfortunately, despite unanimous passage in the 
Committee on July 24, 2003, this normally non-controversial 
legislation could not be brought to the House floor for a vote 
due to several contentious provisions within H.R. 2802 that 
were insisted upon by the minority. The Senate passed their 
version of SBA reauthorization on September 26, 2003 (S. 1375) 
but it was also not able to pass the House despite being held 
at the desk (not formally referred to the Committee). Thus, 
some of the legislative record of the Committee for the 108th 
Congress consists of a series of temporary extensions of SBA 
programs (Public Law 108-172, Public Law 108-205, part of 
Public Law 108-217, and Public Law 108-306) during 2003 and 
2004. SBA programs were again extended on September 30, 2004 
and on November 20, 2004 in the overall continuing resolution 
authored by the Appropriations Committee for all the non-
defense programs of the federal government (Public Law 108-309 
and Public Law 108-416, respectively).
    To provide a greater degree of certainty in the long-term 
future of SBA programs, the Committee negotiated with the 
Senate Small Business and Entrepreneurship Committee a common 
SBA reauthorization bill. Both Chairman Donald Manzullo and 
Senate Small Business & Entrepreneurship Committee Chair 
Olympia Snowe introduced companion bills (H.R. 5108/S. 2821) on 
September 21, 2004. This new compromise SBA reauthorization 
bill contained key provisions of H.R. 2802, S. 1375, S. 2724 
(declaring that the National Veterans Business Development 
Corporation is a private, not governmental, entity), Section 6 
of H.R. 205 (protecting the privacy rights of Small Business 
Development Center clients) H.R. 4119 (reauthorization of the 
Paul D. Coverdell Drug-Free Workplace Program), and H.R. 5260 
(reauthorization of the Advisory Committee on Veterans Business 
Affairs). About 80 percent of the provisions of H.R. 5108/S. 
2821 were added to the Consolidated Appropriations Act, 2005 
(H.R. 4818) as Division K with some further additions requested 
by the Administration and the Senate. H.R. 4818 became Public 
Law 108-447 when the President signed the bill on December 8, 
2004. Also, the SBA appropriations section of Division B, Title 
V of H.R. 4818 effectuated the core of H.R. 4853 into law by 
allowing up to 48 percent of the funds in the Women Business 
Center program to be reserved for sustainability grants in 
Fiscal Year 2005.
    The Committee is also proud of its legislative record in 
twice rescuing the SBA's 7(a) loan program in the 108th 
Congress, which had the practical effect of freeing up an 
additional $3.8 billion in 2003 (Public Law 108-8) and $3 
billion in 2004 (Public Law 108-217) for small business 
lending. In addition, the Committee was able to work through 
the technicalities of allowing qualified Certified Development 
Companies (CDCs) under the Premier Certified Lender Program 
(PCLP) within the 504 loan program to elect to use a risk-based 
approach, as found in the private sector, to calculate their 
loan loss reserve requirements (Public Law 108-232). Passage of 
this legislation also had the practical effect of freeing up 
more capital to lend to expanding small businesses while still 
protecting the interests of the taxpayer. Finally, the 
Committee was able to work with the Veterans Affairs Committee 
to pass the Veterans Entrepreneurship Act (Public Law 108-183) 
that provides discretionary authority to federal procurement 
officials to set-aside contracts to service-disabled veteran-
owned small businesses. Further, Public Law 108-183 permits the 
use of G.I. bill educational benefits for self-employment 
training and allows states the right to approve various 
entrepreneurial courses run by Small Business Development 
Centers (SBDCs) and the National Veterans Business Development 
Corporation.
    The Committee also passed four bills that did not see 
timely action by the Senate (H.R. 205, H.R. 1166, H.R. 1772, 
and H.R. 4478). However, one key component of H.R. 205, 
(Section 6) dealing with protecting the privacy rights of SBDC 
clients, was incorporated into H.R. 5108/S. 2821, which was 
subsequently folded into H.R. 4818 (Public Law 108-447). The 
Committee also worked with the Government Reform Committee and 
did not assert its jurisdiction in order to insure expeditious 
passage of the Paperwork and Regulatory Improvements Act (H.R. 
2432). However, H.R. 2432, now appended to H.R. 2728, also did 
not see timely action in the Senate.
    The Committee held one hearing on the Regulatory 
Flexibility Improvements Act (H.R. 2345) but no further 
legislative action was taken. The Committee was also very 
active in gaining broad bi-partisan support and endorsements 
for the Equal Access to Justice Reform Act (H.R. 2282) but no 
formal legislative action was taken in time before the 108th 
Congress adjourned.
    Finally, the Committee was very active on other legislation 
that was not directly referred to the Committee but had a large 
impact upon small business. This included the Jobs and Growth 
Reconciliation Act (Public Law 108-27), which accelerated the 
2001 tax cuts to small businesses; the American Jobs Creation 
Act of 2004 (Public Law 108-357), which provided nine percent 
tax relief to manufacturers, regardless of size or 
incorporation status; the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (Public Law 108-
173), which included Health Savings Accounts (HSAs); the Death 
Tax Repeal Permanency Act (H.R. 8); the Small Business Health 
Fairness Act, which creates Association Health Plans (H.R. 
660); the HEALTH Act (H.R. 5) to reform our medical liability 
system; the Federal Prison Industries Competition in 
Contracting Act (H.R. 1829), which removed the mandatory 
sourcing preference for FPI; the U.S. Patent & Trademark Fee 
Modernization Act (H.R. 1561), which provided a lower fee 
structure for small entities filing patents; and the Junk Fax 
Prevention Act of 2004 (H.R. 4600) to reverse the Federal 
Communications Commission (FCC) proposed rule that required 
written consent prior to a business sending a fax to a 
recipient. The key element of H.R. 1829 (permanently removing 
FPI's mandatory source requirement) and almost all of H.R. 1561 
were incorporated into the Consolidated Appropriations Act, 
2005 (Public Law 108-447)
                              CHAPTER TWO

                   THE SMALL BUSINESS ADMINISTRATION

    The Committee has both legislative and oversight 
jurisdiction over the Small Business Administration (SBA), 
which was created in 1953, inter alia, to provide opportunities 
for entrepreneurship, inventiveness, and the creation and 
growth of small businesses; to provide procurement assistance 
to small businesses seeking to contract with the federal 
government; to help assure the availability of capital to small 
businesses; and to provide assistance to victims of disasters.
    During the 108th Congress, the Committee held a number of 
hearings and passed several bills that focused on the mission 
and performance of the SBA. A review of the legislative 
activities of the Committee appears in Chapter Five and a 
synopsis of the hearings held by the Committee may be found in 
Chapter Seven of this report.
    The major programs of the SBA are briefly described below.
2.1  SBA Programs in General
    SBA has approximately 5,310 employees in the field 
(including 2,378 temporary disaster employees) with 721 at the 
headquarters in Washington, D.C. There are currently 10 
regional offices, 68 district and nine staffed branch offices, 
two commercial loan servicing centers, one liquidation center, 
one liquidation and guaranty purchase center, four disaster 
home loan servicing centers, four disaster area offices and one 
disaster operations center, six Government Contracting Area 
Offices, and three loan processing centers. The SBA provides 
small business loan guarantees, direct loans for physical 
damage and economic injury to disaster victims, assistance to 
small businesses who are seeking to compete in the federal 
procurement arena and to obtain contracts, as a well as 
management, marketing and technical assistance provided by 
Small Business Development Centers (SBDCs) and the Senior Corps 
of Retired Executives (SCORE). The SBA also administers a 
surety bond program for small businesses that are not able to 
obtain bonding elsewhere.
    An independent entity within SBA, the Office of Advocacy, 
headed by the Chief Counsel for Advocacy appointed by the 
President and confirmed with the advice and consent of the 
Senate, serves as an advocate for small businesses both in the 
Legislative and Executive branches of government primarily in 
the area of insuring that proposed rules and regulations do not 
unduly harm small business. The SBA also oversees the 
implementation of the Small Business Innovation Research (SBIR) 
and Small Business Technology Transfer (STTR) programs that 
provide research and development opportunities for small 
businesses.
2.2  SBA Business Loans
    One of the major purposes for SBA is to help assure that 
capital is available to small businesses who cannot obtain 
credit elsewhere and that demonstrate the ability to repay. 
Subject to appropriations, loans are made for a wide variety of 
purposes, e.g., plant acquisition, construction, conversion or 
expansion, including acquisition of land, material, supplies, 
equipment, and working capital. SBA administers three major 
loan programs known as the 7(a), 504, and Microloan programs.
    SBA's largest business loan guarantee program is the 7(a) 
program. In Fiscal Year (FY) 2003, 67,306 7(a) loans were made 
in the amount of approximately $10.49 billion and in FY 2004 
there were 81,133 such loans made in the amount of $12.7 
billion. Banks and other lending institutions make loans and 
the SBA guarantees up to $1,000,000 \1\ of a private sector 
loan of up to $2,000,000. Generally, the SBA guarantees up to 
85 percent of loans of $150,000 or less and 75 percent of loans 
greater than $150,000.
---------------------------------------------------------------------------
    \1\ Between April 5, 2004 and September 30, 2004, the 7(a) loan 
guarantee limit was temporarily raised to $1.5 million as part of the 
rescue package that saved the 7(a) program in FY 2004 (Public Law 108-
217). A surcharge of 0.25 percent was added to the upfront borrower fee 
on the amount of the guaranteed-portion of the loan above $1 million, 
on top of the 3.5 percent upfront fee the borrower was already paying.
---------------------------------------------------------------------------
    The Small Business Reauthorization and Manufacturing 
Assistance Act of 2004 (H.R. 5108/S. 2821), most of which was 
added to the Consolidated Appropriations Act, 2005 (Division K 
of P.L 108-447) and signed into law on December 8, 2004, 
stabilized and strengthened the popular 7(a) loan guarantee 
program by maintaining current fee structure, thus eliminating 
the need for federal subsidies, saving taxpayers between $70 
million and $80 million. In addition, Public Law 108-447 raised 
the maximum 7(a) loan guarantee level from $1 million to $1.5 
million (with an accompanying 0.25 percent upfront front 
borrower fee surcharge on the amount of the guarantee above $1 
million) and raises the maximum loan amount from $250,000 to 
$350,000 for paperwork-friendly SBA Express loans.
    The 504 loan program was established to encourage economic 
development, create and preserve job opportunities, and foster 
growth and modernization of small businesses. A small business 
may apply to a Certified Development Company (CDC), licensed by 
SBA, to finance part of a proposed 504 project. The SBA 
guarantees debentures of up to $1,000,000 ($1,300,000 where 
certain economic redevelopment objectives are met). The 
guarantees are for 100 percent of the debenture that represents 
40 percent of the total project costs. The balance of the costs 
is provided by a 10 percent or more contribution by the 
borrower, and a private sector loan to finance the remaining 50 
percent. There are currently 269 licensed CDCs. In FY 2003, 
CDCs made 6,863 504 loans totaling $3.14 billion and in FY 
2004, CDCs made 8,357 504 loans totaling $3.86 billion.
    The Small Business Reauthorization and Manufacturing 
Assistance Act of 2004--(H.R. 5108/S. 2821), that was added to 
the Consolidated Appropriations Act, 2005 (Division K of P.L 
108-447) also expanded the 504 loan program at no additional 
expense to the taxpayer. Public Law 108-447 increased the 
maximum loan debenture size in the 504 program to $1.5 million; 
$2 million for projects where certain economic redevelopment 
objectives are met; and $4 million for small manufacturers. It 
also increased the job requirement test to $50,000 of guarantee 
for every one job created or retains (up from $35,000); 
$100,000 in the case of a project of a small manufacturer; and 
$75,000 for areas generally considered to need greater economic 
development.
    The Microloan program is designed to provide capital to 
very small enterprises that cannot be served even by the other 
access to capital programs of the SBA. The program has two 
types of loans: (1) direct and (2) guaranteed. SBA directly 
provides loans to 169 intermediaries who in turn make loans of 
up to $35,000 to small businesses. Also, SBA guarantees 100 
percent of loans to the intermediaries by banks. SBA funds 
grants to intermediaries and other qualified organizations to 
provide marketing, management, and technical assistance to 
borrowers. In FY 2003, intermediary lenders made 2,442 loans in 
the amount of $29,000,000. In FY 2004, intermediary lenders 
made 2,399 loans in the amount of $23,000,000.
2.3  Disaster Assistance Loans
    Under the Disaster Assistance Program, SBA makes direct 
loans rather than loan guarantees. There are three kinds of 
disaster loans: (1) home disaster loans, (2) physical disaster 
business loans, and (3) economic injury business loans. The 
owner of a home may apply for a home disaster loan to cover 
physical damage to his or her primary residence and personal 
property, and those not owning their primary residence may 
apply for a loan with respect to physical loss of their 
personal property. Almost any business, non-profit entity, or 
charity (big or small) whose real or personal property was 
damaged in a declared disaster may apply for a physical 
disaster business loan.
    A small business located in a declared disaster area may 
apply for an economic injury disaster loan, if the small 
business has suffered a substantial economic loss as a direct 
result of the disaster that has caused it to be unable to meet 
its obligations as they mature or to pay its ordinary and 
necessary operating expenses. A small business whose owner or 
an essential employee is a Military Reservist or a member of 
the National Guard may apply for an economic injury disaster 
loan, if the small business has suffered or is likely to suffer 
substantial economic injury as a result of the individual's 
absence while on active duty during a period of a military 
conflict.
    After a series of devastating hurricanes struck Florida and 
other states east of the Mississippi in the summer of 2004, the 
108th Congress passed two emergency supplemental appropriations 
statutes that provide a total of $16.475 billion to areas 
stricken by the hurricanes and other natural disasters. As part 
of the recovery effort, SBA received $929 million to cover the 
cost and administration of SBA disaster loans.
    In FY 2003, SBA approved 25,856 disaster loans totaling 
$885,211,500. In FY 2004, SBA approved 28,510 disaster loans 
totaling $883,490,400.
2.4  Small Business Investment Companies
    SBA licenses and regulates venture capital companies that 
specialize in investing in small businesses. These Small 
Business Investment Companies (SBICs) provide equity capital or 
long-term financing and may assist those small companies 
invested in with technical and managerial advice.
    Capital for investment has been raised traditionally by 
investors in a SBIC and by debentures guaranteed as to both 
principal and interest by SBA (which usually are equal to two 
or three times the SBICs private capital). SBICs relying upon 
debenture leverage primarily invest in debt securities of small 
businesses that have cash flows sufficient to service the 
outstanding debentures. SBA guaranteed $305.5 million in 
debentures in FY2003, and $440.3 million in FY2004.
    In 1992, legislation was enacted creating a new SBIC 
participating securities program. SBA guarantees the principal 
and pays the purchasers of participating securities the 
interest as it comes due on behalf of a SBIC. When the SBIC 
becomes profitable, the SBIC repays SBA the interest advanced 
and a share of the profits. The participating securities 
program permits investment in new enterprises that do not have 
established records of profitability. Three hundred and 
seventy-seven (377) new financings totaling $1.12 billion in 
equity investments were made in FY 2003. Three hundred and 
seven (307) new financings totaling $1.45 billion in equity 
investments were made in FY 2004.
    The New Markets Venture Capital (NMVC) program, enacted 
into law in 2000, provides capital to small enterprises located 
in low-income areas. SBA can enter into participation 
agreements with newly formed venture capital companies and 
guarantees securities to allow them to make equity investments 
in small businesses located in low-income areas. In addition, 
SBA can make grants to NMVC SBICs so that they can provide 
managerial assistance to small businesses in which they have 
invested. In FY2003, six NMVC companies received final approval 
for a total of $2,694,164.
2.5  Procurement Assistance
    SBA is tasked with the responsibility of helping small 
businesses get their fair share of the total prime contract and 
subcontracting dollars spent by federal agencies for goods, 
services, property, and construction. By statute, small 
business are required to receive at least 23 percent of the 
total value of all prime contracts awarded for each fiscal 
year. Other Government-wide minimum goals are established by 
statute for small business concerns owned and controlled by 
service-disabled veterans, three percent; qualified HUBZone 
small business concerns, three percent; small business concerns 
owned and controlled by socially and economically disadvantaged 
(SDB) individuals, five percent; and, small business concerns 
owned and controlled by women, five percent.
    In FY 2003 (the latest data for this information), the 
federal government exceeded its goals for small businesses 
overall and SDBs (23.61 percent and 7.01 percent respectfully). 
However, the goals for women-owned small businesses, 
Historically Underutilized Businesses (HUB)Zones, and service-
disabled veterans were not met (2.98 percent, 1.23 percent, and 
0.20 percent respectfully). Nevertheless, event though the 
goals were not achieved, record amounts of prime contract 
dollars went to these small businesses ($8.3 billion for women, 
$3.4 billion for HUBZones, and $459 million for service-
disabled veterans).
    SBA Procurement Center Representatives (PCRs), generally 
located at federal agencies that have major procurement 
activities, are tasked with the responsibilities of identifying 
contacting opportunities for small businesses, attempting to 
break up large requirements so that small businesses can 
participate as prime contractors, and assisting small 
businesses in competing for government contracts. SBA 
Commercial Market Representatives (CMRs) are responsible for 
assisting small businesses obtain subcontracts with prime 
contractors who have signed subcontracting plans with federal 
agencies. SBA certifies small businesses as eligible for the 
8(a), SDB, and HUBZone programs. Also, SBA is authorized to 
certify to a contracting officer that a small business is 
competent to perform a particular government procurement (or 
sale) contract.
    In January 2004, the Procurement Marketing and Access 
Network (PRONET) was integrated with the Department of 
Defense's Central Contractor Registration (CCR) database. CCR 
permits small businesses to list their capabilities on the 
Internet and is the official database of firms certified under 
the 8(a), SDB, and HUBZone programs. However, CCR does not 
provide contracting opportunities directly to small businesses 
listed. SBA sets size standards that define whether a business 
entity is small and eligible under federal programs and 
preferences reserved for small businesses. Size standards are 
established for types of business activities, generally, under 
the North American Industry Classification System (NAICS). 
Business development assistance is provided under 7(j) of the 
Small Business Act to small businesses owned and controlled by 
economically and socially disadvantaged individuals.
2.6  Entrepreneurial Development
    The SBA's economic assistance programs support those 
seeking to start a business and those desiring to grow and 
expand an existing small business by providing individual 
counseling, management training, procurement and marketing 
assistance with guidance materials and workshops. Assistance is 
provided at service locations throughout the United States, 
Puerto Rico, and the U.S. Virgin Islands, and electronically by 
means of various Internet sites. The facilities that deliver 
entrepreneurial development assistance include: approximately 
1,100 SBDCs, 10,844 SCORE volunteers, 86 Business Information 
Centers (BICs), nine Tribal Business Information Centers 
(TBICs), four Veterans Business Outreach Centers, and 86 
Women's Business Centers (WBCs).
    SBDCs are funded by both federal and state appropriations. 
SBA administers the program through grants generally to state 
governments and agencies. Most SBDCs are affiliated with state 
college and university systems. They assist small businesses 
and aspiring entrepreneurs with business problems concerning 
personnel, administration, marketing, sales, merchandizing, 
finance, accounting, business management, and participation in 
international markets. SBDCs may not charge a fee for 
counseling services. Modest fees are charged for workshops and 
business related training and courses. In FY 2003, SBDCs served 
687,535 clients. In FY2004 SBDCs served an estimated 730,176 
clients.
    SCORE has 389 chapter locations (at least one in every 
state) where volunteer counselors provide practical business 
advice and training services to over 331,000 clients annually. 
All counseling is provided free of charge to clients. Annual 
congressional appropriations are used to reimburse counselors 
for mileage and incidental expenses. E-mail counseling is 
provided over the Internet.
    The network of BICs is established through partnerships 
between the SBA and for-profit entities, other agencies, and 
non-profit organizations. BICs provide up-to-date computer 
technology, hardware and software, and a large library of 
business related publication and videos. On-site counseling in 
many BICs are provided by SCORE volunteers and SBDC counselors. 
In FY2004, BICs served 168,640 clients.
    WBCs provide assistance and one-on-one counseling to women 
entrepreneurs with respect to technology, financial and 
management planning, problem-solving, access to capital, 
marketing, business administration, and selling to the federal 
government. The on-line Women's Business Center provides 
around-the-clock Internet access to business information to 
help start a business, resolve business problems, or grow an 
existing enterprise through federal contracting or exporting 
opportunities. In FY2004, WBCs counseled and trained 122,712 
clients.
    The National Women's Business Council is a source of 
independent advice to the President, federal agencies, and 
Congress with regard to entrepreneurship and the impact of 
federal polices and programs upon women who want to start and 
grow business enterprises. The council has focused on issues 
involving the award of federal prime contracts and subcontracts 
to women-owned small businesses and barriers to women 
entrepreneurs obtaining access to credit and investment 
capital.
    Veterans Business Outreach Centers helped 10,811 veterans 
from February 2004 through August 2004 with assistance in 
gaining access to capital, resolving business and management 
problems, and starting and growing small businesses. In 
addition, SBA has entered into agreements with the Association 
of Small Business Development Centers, the Department of Labor, 
and works with the Department of Veterans Affairs to provide 
outreach and needed business administration and entrepreneurial 
services to veterans and service-disabled veterans.
    The current Native American Initiative is not a replacement 
for the TBIC Program. Rather, it is an initiative developed 
because of an appropriation from Congress in FY 2003 and FY 
2004. The SBA Entrepreneurial Development, Office of Native 
American Affairs, implemented the new initiative in FY 2003 in 
which SBA worked closely with American Indian tribal 
governments, tribal colleges, Indian organizations, other 
federal agencies and the private sector to supplement and 
support the Indian nations' plan for economic stimulus in 
Indian country. In FY04, SBA's resource partners assisted 
18,438 Native American entrepreneurs through the SDBC, SCORE, 
BIC, and WBC programs.
2.7  Surety Bond Guarantees
    Small business contractors and subcontractors who seek 
public and private construction contracts are often required to 
furnish surety bonds guaranteeing the completion of the 
contracted work. The SBA provides assistance to such 
contractors by extending guarantees of up to 90 percent to 
surety insurance companies. These guarantees enable small 
contractors to obtain bonding more easily. The SBA's bonding 
assistance is accomplished through the Prior Approval Program 
or the Preferred Surety Bond Program. Bid bonds as well as 
performance and/or payment bonds may be guaranteed on contracts 
up to $2,000,000.
    The SBA will pay a surety participating in the Prior 
Approval Program 90 percent guarantee for SDBs and HUBZones 
regardless of contract size up to $2 million, and 90 percent 
guarantee for all contractors with contracts $100,000 or less. 
Otherwise, SBA will pay a surety in an amount not to exceed an 
administrative ceiling of 80 percent guarantee for all 
contracts over $100,000 for small businesses other than SDBs 
and HUBZones. Under the Preferred Surety Bond program, the 
SBA's guarantee is limited to 70 percent of the bond for all 
small businesses for all contracts and contractors regardless 
of contract size. In FY 2003, SBA provided 8,974 bid and final 
bond guarantees on contracts valued at $594 million. In FY 
2004, SBA provided 7,803 bid and final bond guarantees on 
contracts valued at $598 million.
    The Small Business Reauthorization and Manufacturing 
Assistance Act of 2004 (H.R. 5108/S. 2821), most of which was 
added to the Consolidated Appropriations Act, 2005 (Division K 
of P.L 108-447) and signed into law on December 8, 2004, also 
amended the SBA's surety bond program. First, Public Law 108-
447 clarifies that the $2 million limit on surety bonds applies 
to the bond guarantee and not to the contract size. It also 
made the Preferred Surety Bond program permanent.
2.8  Technology and Innovation
    It is the free enterprise system, and not government 
programs, that make the United States the world leader in 
innovation and technology. Small businesses are at the 
forefront of research and development and have been more 
prolific in creating new jobs through innovation and 
technology.
    However, there are two government programs, the Small 
Business Innovation Research (SBIR) and the Small Business 
Technology Transfer (STTR) programs, which have successfully 
provided innovative research and developed products for 
government and commercial use.
    SBA's Office of Technology provides oversight, monitoring, 
evaluation, and reporting for these programs. In FY 2004, SBA 
awarded approximately 21 cooperative agreements in the amount 
of $1,978,950 pursuant to the Federal and State Technology 
Partnership (FAST) program. The grants are to provide technical 
assistance to high-tech small businesses to enhance their 
market competitiveness. In addition in FY 2004, SBA awarded 
five cooperative agreements in the amount of $247,350 to 
provide statewide outreach to small businesses in rural states 
that have received few SBIR and STTR awards.
    The SBIR program has been in existence since 1982. Unlike 
the STTR program, the SBIR program does not require, but 
permits, a cooperative venture between a for-profit small 
business and a researcher from a university, federal laboratory 
or a nonprofit research institution for the purpose of 
developing commercially viable products. However, the project's 
principal investigator must be employed by the small business.
    A small business to be eligible must be: (1) independently 
owned and operated and other than the dominant firm in the 
field which it is proposing to carry out SBIR projects, (2) 
organized and operated for profit, with 500 employees or less, 
(3) the primary source of employment for the project's 
principal investigator at the time of award and during the 
period when the research is conducted, and (4) at least 51-
percent owned by U.S. citizens or lawfully admitted permanent 
resident aliens.
    Agencies that spend more than $100 million for external 
research, and research and development must set aside 2.5 
percent of their R&D budget for awards under SBIR. There are no 
additional moneys appropriated to support this program. At 
present, there are ten agencies that qualify for the program. 
The agencies are: Department of Defense, Department of Energy, 
National Aeronautics and Space Administration, National Science 
Foundation, Department of Agriculture, Department of Commerce, 
Department of Education, Environmental Protection Agency, 
Department of Health and Human Services, and Department of 
Transportation.
    The ten agencies listed above designate research and 
development topics for which small businesses may submit 
proposals for project funding. The proposals are evaluated by 
the agency based on (1) the qualifications of the small 
business, (2) the value of the project to the agency and the 
degree of innovation, and (3) the market potential of the 
product to be developed. Once funded, a project goes through 
three phases. Each phase is funded separately.
    Phase I is the start-up portion of the project and may be 
funded up to $100,000. This phase lasts approximately six 
months and is for the purpose of exploring the scientific, and 
technical aspects of the project. Phase II may last up to two 
years and may be funded in an amount up to $750,000. During 
this period, research and development continues and the 
commercial potential explored. Only projects that successfully 
complete Phase I can be considered for funding in Phase II. 
Phase III is the point in the project that the idea moves from 
the laboratory to the production facility to the market place. 
No SBIR funds may be used to pay for Phase III. The funding 
must come from the private sector or non-SBIR federal funding. 
In FY2003, 4,465 Phase I funding agreements were awarded 
totaling $455,386,000 and 1,759 Phase II funding agreements 
were awarded totaling $1,214,714,000.
    The STTR program is independent of the SBIR program with 
which it is frequently confused. The STTR program requires a 
cooperative venture between a for-profit small business and a 
researcher from a university, federal laboratory, or a non-
profit research institution for the purpose of developing 
commercially viable products from ideas spawned in a laboratory 
environment. For a federal agency to participate in the 
program, it must have an extramural budget for research or 
research and development that exceeds $1 billion for any fiscal 
year. Presently, there are five federal agencies that meet the 
funding requirement. They are: Department of Defense, 
Department of Energy, Department of Health and Human Services, 
National Aeronautics and Space Administration, and National 
Science Foundation.
    To be eligible for an STTR award a small business must have 
no more than 500 employees, and be independently owned and 
operated with its principal place of business in the United 
States. In addition, the small business may not be the dominant 
entity in the field in which the project is contained and must 
be primarily owned by U.S. citizens. To be eligible to 
participate in the program, a research entity must be a non-
profit institution as defined by the Stevenson-Wyler Act of 
1980 or a federally funded research and development center as 
determined by the National Science Foundation under the 
provisions of section 35(c)(1) of the Office of Federal 
Procurement Policy Act.
    The program requires that the research and development 
project be conducted jointly by a small business and a research 
institution in which not less than 40 percent of the work is 
performed by the small business, and that not less than 30 
percent of the work is performed by the research institution. 
Though the venture is cooperative in nature, the small business 
is responsible for the overall management and control of each 
project.
    The statute mandates that each award go though three 
phases. Phase I is the start-up part of a particular project 
and entails, as may be possible, a determination of the 
scientific, technical, and commercial merits of the concepts 
underlying a particular award. Phase II provides an opportunity 
to further develop the concepts to meet the objectives of the 
particular award. Only projects that successfully complete 
Phase I can be considered for funding under Phase II. Phase III 
is the point at which the project moves from the laboratory to 
commercial application or further cooperative research and 
development. No STTR funds may be used to pay for Phase III. 
The funding must come from the private sector or non-STTR 
federal funding. In FY 2003, 379 Phase I funding agreements 
were awarded in the amount of $41,135,227 and Phase II funding 
agreements were awarded totaling $50,676,227.
2.9  Export Assistance
    SBA is authorized to promote increased participation of 
small businesses in international trade. To assist small 
businesses in exporting abroad, SBA works with the Department 
of Commerce and other federal agencies to identify business 
opportunities and to assist in financing the sale of U.S. made 
products to foreign buyers. SBA works with the Department of 
Commerce, the Export-Import Bank, Department of Agriculture, as 
well as SBDCs and SCORE, in maintaining a network of 16 U.S. 
Export Assistance Centers (USEACs) that provide information and 
counseling with respect to export marketing and financing. 
USEACs are SBA's primary outlet for delivering export services 
to small businesses. Small businesses may obtain free 
consultation through the Export Legal Assistance Network (ELAN) 
program, which enables those interested in starting export 
operations to consult with international trade attorneys from 
the Federal Bar Association, and access to publications on 
international trade and export marketing.
    The SBA's financial assistance has several loan programs, 
depending upon the purpose for which the funds are to be used. 
Exporters can obtain funds for fixed asset acquisitions during 
startup or expansion and for general working capital needs 
through the 7(a) loan program. Export Trading Companies can 
qualify for SBA's business loan guarantee program, provided 
that they are for profit entities and have no bank equity 
participation. The Export Working Capital program authorizes 
SBA to guarantee 90 percent of a private sector loan of up to 
$750,000 for working capital. Loans made under this program 
generally have a 12-month maturity but two one-year extensions 
may be obtained.
    The loans can be for single or multiple export sales and 
can be expended for pre-shipment working capital and post-
shipment exposure coverage, but the proceeds cannot be used to 
obtain fixed assets. Through the 7(a) loan program, the SBA can 
provide export assistance by guaranteeing international trade 
loans, that provide long-term financing to small businesses 
engaged in international trade, as well as those businesses 
adversely impacted by import competition. In FY 2003, SBA 
guaranteed 1,679 export loans worth an estimated $398,109,334. 
In FY 2004, SBA guaranteed 2,316 export loans in the total 
amount of $562,191,362.
    The Small Business Reauthorization and Manufacturing 
Assistance Act of 2004 (H.R. 5108/S. 2821), most of which was 
added to the Consolidated Appropriations Act, 2005 (Division K 
of P.L 108-447) and signed into law on December 8, 2004, also 
expanded the scope of the international trade loan programs at 
the SBA. Public Law 108-447 authorizes the use of International 
Trade (IT) Loans to refinance existing debt to make it 
consistent with all other 7(a) loans. The provisions also allow 
the findings by the International Trade Commission (ITC) or a 
Trade Adjustment Assistance Center (TAAC) as proof that a small 
business has been adversely affected by foreign imports. 
Finally, Public Law 108-447 raises IT loan guarantee limit from 
$1,250,000 to $1,750,000 and the Export Working Capital 
guarantee limit from $750,000 to $1,250,000.
2.10  Office of Advocacy
    The Office of Advocacy was created in 1976, pursuant to 
Title II of Public Law 94-305, with various stated ``primary 
functions'' and other ``continuing'' duties. The law provides 
for the President to appoint a Chief Counsel of Advocacy, 
subject to the advice and consent of the Senate. The mandated 
mission of the Office of Advocacy is to represent and advance 
small business interests before the Congress and federal 
agencies for the purpose of enhancing small business 
competitiveness.
    The statutorily prescribed ``primary functions'' of the 
Office of Advocacy include: (1) examining the role of small 
business in the American economy; (2) assessing the 
effectiveness of all federal subsidy and assistance programs 
available to small business; (3) measuring the cost and impact 
of government regulations on small business and making 
legislative and non-legislative recommendations for the 
elimination of unnecessary or excessive regulations; (4) 
determining the impact of the tax structure on small business 
and making legislative and other proposals for reform of the 
tax system; (5) studying the ability of the financial markets 
to meet the credit needs of small business; (6) determining 
availability and delivery methods of financial and other 
assistance to minority enterprises; (7) evaluating the efforts 
of federal departments and agencies, business and industry to 
assist minority enterprises; (8) recommending ways to assist 
the development and strengthening of minority and other small 
businesses; (9) recommending ways for small business to compete 
effectively and to expand, while identifying common causes for 
small business failures; (10) developing criteria to define 
small business; and, (11) evaluating federal and private 
industry efforts to assist veterans and service-disabled 
veterans.
    In addition, there are a number of ``continuing'' duties of 
the Office of Advocacy, which include: (1) serving as a focal 
point for receiving complaints and suggestions regarding 
federal agency policies and activities that affect small 
business; (2) counseling small businesses on problems in their 
relationships with the federal government; (3) proposing 
changes in policies and activities of all federal departments 
and agencies to better fulfill the purposes of the Small 
Business Act; (4) representing small business before other 
federal departments and agencies whose policies and activities 
may affect small business; and (5) enlisting the cooperation of 
others in the dissemination of information about federal 
programs that benefit small business.
    In 1980, the Regulatory Flexibility Act (Public Law 96-354) 
enlarged the responsibilities of the Office of Advocacy to 
include the monitoring of federal agencies' compliance with the 
Act's requirements, performing regulatory impact analyses, and 
making annual reports to Congress. Also in 1980, Public Law 96-
302 required the SBA Administrator to establish and maintain a 
small business economic database to provide Congress and the 
Executive with information on the economic condition of the 
small business sector.
    The statute prescribed 12 categories of data and required 
an annual report on trends. Although none of these database 
functions were expressly delegated to the Office of Advocacy by 
statute, the SBA Administrator has historically assigned these 
functions to the Office of Advocacy. The Office of Advocacy 
also has regional advocates who monitor small business and 
regulatory activities at the State level and disseminate 
relevant information about small business issues.
    The Office of Advocacy estimates that in 2003 (the latest 
date for this information), their efforts saved small 
businesses $6 billion in compliance costs by stopping or 
changing potentially damaging regulations.


                             CHAPTER THREE

 HEARINGS AND MEETINGS HELD BY THE COMMITTEE ON SMALL BUSINESS AND ITS 
                     SUBCOMMITTEES, 108th CONGRESS

3.1  Full Committee

------------------------------------------------------------------------
                    Date                               Subject
------------------------------------------------------------------------
February 4, 2003...........................  Roundtable: President's
                                              Economic Stimulus
                                              Proposal.
February 25, 2003..........................  Roundtable: The Burden of
                                              Regulations on the Small
                                              Business Community.
February 26, 2003..........................  Meeting to consider and
                                              adopt Committee Rules and
                                              Oversight Plan for the
                                              108th Congress;
                                              Washington, D.C.
February 26, 2003..........................  U.S. Small Business
                                              Administration's Budget FY
                                              2004.
March 4, 2003..............................  Roundtable: Federal
                                              Regulatory Burden.
March 5, 2003..............................  Small Business Access and
                                              Alternatives to Health
                                              Care.
March 11, 2003.............................  RESPA Reform and Economic
                                              Effects on Small Business.
March 20, 2003.............................  Changes to SBA Financing
                                              Programs Needed for
                                              Revitalization of Small
                                              Manufacturers.
April 9, 2003..............................  Will We Have an Economic
                                              Recovery Without a Strong
                                              U.S. Manufacturing Base?
May 1, 2003................................  IRS Compliance with the
                                              Regulatory Flexibility
                                              Act.
May 7, 2003................................  Are Big Businesses Being
                                              Awarded Contracts Intended
                                              for Small Businesses?
May 14, 2003...............................  The WTO's Challenge to the
                                              FSC/ETI Rules and the
                                              Effects on America's Small
                                              Businesses.
June 4, 2003...............................  The Visa Approval Backlog
                                              and its Impact on American
                                              Small Business.
June 11, 2003..............................  Revitalizing America's
                                              Manufacturers: SBA
                                              Business and Enterprise
                                              Development Programs.
June 18, 2003..............................  The Globalization of White-
                                              Collar Jobs: Can America
                                              Lose These Jobs and Still
                                              Prosper?
June 25, 2003..............................  Foreign Currency
                                              Manipulation and its
                                              Effect on Small
                                              Manufacturers and
                                              Exporters.
July 9, 2003...............................  Saving the Defense
                                              Industrial Base.
July 14, 2003..............................  Doctors as Small
                                              Businesses, field hearing,
                                              Frederick, MD.
July 23, 2003..............................  Assisting Small Businesses
                                              Through the Tax Code,
                                              Recent Gains and What
                                              Remains to be Done.
August 25, 2003............................  Small Business Access to
                                              Health Care.
September 2, 2003..........................  Roundtable: Opportunities
                                              for Economic Growth and
                                              Job Creation.
September 4, 2003..........................  Attracting Economic Growth
                                              for Rural Economies.
September 10, 2003.........................  The WTO's Challenge to the
                                              FSC/ETI Rules and the
                                              Effect on America's Small
                                              Businesses.
September 17, 2003.........................  National Small Business
                                              Week: Small Business
                                              Success Stories.
October 16, 2003...........................  Is America Losing its Lead
                                              in High Tech: Implications
                                              for the US Defense
                                              Industrial Base.
October 20, 2003...........................  The Offshoring of High
                                              Skilled Jobs.
October 29, 2003...........................  Roundtable: End of Session
                                              Review on the State of
                                              U.S. Manufacturing.
November 20, 2003..........................  Lowering the Cost of Doing
                                              Business in the United
                                              States: How to Keep Our
                                              Companies Here.
December 1, 2003...........................  Increasing the
                                              Competitiveness of U.S.
                                              Manufacturers.
January 6, 2004............................  Real Estate Settlement
                                              Procedure Act Regulations:
                                              Working Behind Closed
                                              Doors to Hurt Small
                                              Businesses and Consumers.
January 21, 2004...........................  Can U.S. Companies Compete
                                              Globally Using American
                                              Workers?
February 4, 2004...........................  Roundtable: Are We Making
                                              as Much Progress as We
                                              Think?
February 11, 2004..........................  How Does the President's FY
                                              '05 Budget Request Affect
                                              Small Business?
February 17, 2004..........................  Availability of Capital and
                                              Federal Procurement
                                              Opportunities to Minority-
                                              Owned Small Businesses,
                                              field hearing, Chicago,
                                              IL.
February 25, 2004..........................  Business Meeting to approve
                                              the Committee's Budget
                                              Views and Estimates on the
                                              President's FY '05 Budget
                                              Request.
March 10, 2004.............................  Spike in Metal Prices--What
                                              Does it Mean for Small
                                              Manufacturers?
March 25, 2004.............................  Spike in Metal Prices--Part
                                              II.
May 5, 2004................................  Improving the Regulatory
                                              Flexibility Act (H.R.
                                              2345).
May 12, 2004...............................  Women Entrepreneurship:
                                              Successes and Challenges.
May 19, 2004...............................  Red Tape Reduction:
                                              Improving the
                                              Competitiveness of
                                              America's Small
                                              Manufacturers.
June 2, 2004...............................  Careers for the 21st
                                              Century: How Education and
                                              Worker Training Can Help
                                              Small Business.
July 7, 2004...............................  The Rebate of Value Added
                                              Taxes at the Border and
                                              the Competitive
                                              Disadvantage for U.S.
                                              Small Businesses.
July 14, 2004..............................  Trade Fairness: How to Make
                                              Our Trade Laws Work for
                                              America's Small
                                              Businesses.
------------------------------------------------------------------------

3.2 Subcommittee on Workforce, Empowerment and Government Programs

------------------------------------------------------------------------
                    Date                               Subject
------------------------------------------------------------------------
April 1, 2003..............................  Joint Subcommittee hearing
                                              with the Subcommittee on
                                              Regulatory Reform and
                                              Oversight, Improving and
                                              Strengthening the SBA
                                              Office of Advocacy.
April 28, 2003.............................  Status of Small
                                              Manufacturing in the
                                              Midwest, field hearing,
                                              St. Peters, MO.
May 6, 2003................................  Current and Future States
                                              of the SBIR, FAST and MEP
                                              Programs.
July 22, 2003..............................  Federal Procurement Policy:
                                              Is the Federal Government
                                              Failing Certain Industrial
                                              Sectors?
August 25, 2003............................  The Rising Cost of Health
                                              Care for Small Business
                                              Owners.
September 2, 2003..........................  Opportunities for Economic
                                              Growth and Job Creation,
                                              field hearing, Newnan, GA.
October 1, 2003............................  Joint Subcommittee hearing
                                              with the Subcommittee on
                                              Tax, Finance and Exports,
                                              Federal Prison Industry's
                                              Effects on the U.S.
                                              Economy and the Small
                                              Business Environment.
February 26, 2004..........................  Union ``Salting'' of Small
                                              Businesses.
March 18, 2004.............................  Benefits of Health Savings
                                              Accounts.
April 29, 2004.............................  Would an Increase in the
                                              Federal Minimum Wage Help
                                              or Hinder Small Business?
May 20, 2004...............................  Department of Labor's
                                              Overtime Regulations
                                              Effect on Small Business.
July 15, 2004..............................  Joint Subcommittee hearing
                                              with the House Veteran's
                                              Affairs Committee's
                                              Subcommittee on Benefits,
                                              Excellence in Action:
                                              Government Support of
                                              Disabled Veteran-Owned
                                              Businesses.
------------------------------------------------------------------------

3.3  Subcommittee on Regulatory Reform and Oversight

------------------------------------------------------------------------
                    Date                               Subject
------------------------------------------------------------------------
April 1, 2003..............................  Joint Subcommittee hearing
                                              with the Subcommittee on
                                              Workforce, Empowerment and
                                              Government Programs,
                                              Improving and
                                              Strengthening the SBA
                                              Office of Advocacy.
May 15, 2003...............................  The Cost of Regulations to
                                              the Small Business
                                              Community.
June 26, 2003..............................  CRS Regulations and Small
                                              Business in the Travel
                                              Industry.
July 15, 2003..............................  Contract Bundling and Small
                                              Business Procurement.
July 18, 2003..............................  Joint Subcommittee hearing
                                              with House Government
                                              Reform's Subcommittee on
                                              Energy Policy, Natural
                                              Resources and Regulatory
                                              Affairs, What is OMB's
                                              Record in Small Business
                                              Paperwork Relief?
October 30, 2003...........................  Spam and its Effects on
                                              Small Business.
November 17, 2003..........................  Increasing the
                                              Competitiveness of U.S.
                                              Manufacturers, field
                                              hearing, Spartanburg, SC.
January 28, 2004...........................  Joint Subcommittee hearing
                                              with House Government
                                              Reform's Subcommittee on
                                              Energy Policy, Natural
                                              Resources and Regulatory
                                              Affairs, The
                                              Administration's Record in
                                              Relieving Burden on Small
                                              Business.
March 1, 2004..............................  Challenges to Small
                                              Business Growth, field
                                              hearing, Augusta, GA.
April 22, 2004.............................  Small Businesses Creating
                                              Jobs and Protecting the
                                              Environment.
May 20, 2004...............................  Keep America's Small
                                              Businesses Competitive.
June 17, 2004..............................  Department of Labor's
                                              Enforcement Actions
                                              Against Small Business.
July 20, 2004..............................  Joint Subcommittee hearing
                                              with House Government
                                              Reform's Subcommittee on
                                              Energy Policy, Natural
                                              Resources and Regulatory
                                              Affairs, Small Business
                                              Paperwork Relief Act
                                              Implementation.
July 22, 2004..............................  Small Business Liability
                                              Reform.
------------------------------------------------------------------------

3.4  Subcommittee on Tax, Finance and Exports

------------------------------------------------------------------------
                    Date                               Subject
------------------------------------------------------------------------
April 3, 2003..............................  President's Proposal to
                                              Increase Expensing for
                                              Small Businesses.
May 8, 2003................................  Overcoming Obstacles Facing
                                              the Uninsured: How the Use
                                              of Medical Savings
                                              Accounts, Flexible
                                              Spending Accounts and Tax
                                              Credits Can Help.
June 12, 2003..............................  The Chilean Free Trade
                                              Agreement: Opening Doors
                                              to South American Markets.
August 27, 2003............................  Removing the Roadblocks to
                                              Success: How Can the
                                              Federal Government Help
                                              Small Businesses
                                              Revitalize the Economy?
August 28, 2003............................  Small Business Exporting
                                              and the Southern
                                              California Economy, field
                                              hearing, Long Beach, CA.
October 1, 2003............................  Joint Subcommittee hearing
                                              with the Subcommittee on
                                              Workforce, Empowerment and
                                              Government Programs,
                                              Federal Prison Industry's
                                              Effects on the U.S.
                                              Economy and the Small
                                              Business Environment.
October 8, 2003............................  August 2003 Blackout on
                                              Small Businesses and
                                              Possible Solutions.
July 8, 2004...............................  H.R. 1818, the Workforce
                                              Health Improvement Program
                                              Act: Healthy Employees-
                                              Healthy Bottom Line.
------------------------------------------------------------------------

3.5  Subcommittee on Rural Enterprises, Agriculture and Technology

------------------------------------------------------------------------
                    Date                               Subject
------------------------------------------------------------------------
April 8, 2003..............................  Litigating the Americans
                                              with Disabilities Act.
May 15, 2003...............................  The Impact of the Highway
                                              Beautification Act on
                                              Small Businesses Across
                                              America.
July 17, 2003..............................  Endangered Farmers and
                                              Ranchers: The Unintended
                                              Consequences of the
                                              Endangered Species Act.
September 25, 2003.........................  The Future of Rural
                                              Telecommunications: Is the
                                              Universal Service Fund
                                              Sustainable?
October 21, 2003...........................  Challenges that Small
                                              Businesses Face Accessing
                                              Homeland Security
                                              Contracts.
January 15, 2004...........................  A Small Business Component
                                              to the Federal Flight Deck
                                              Officer Program: A Win-Win
                                              Scenario, field hearing,
                                              Paulden, AZ.
February 23, 2004..........................  The Endangered Species Act,
                                              field hearing, St. Joseph,
                                              MO.
May 6, 2004................................  The Benefits of Tax
                                              Incentives for Producers
                                              of Renewable Fuels and its
                                              Impact on Small Businesses
                                              and Farmers.
July 21, 2004..............................  Tax Incentives for Homeland
                                              Security Related Expenses
                                              (H.R. 3562).
September 22, 2004.........................  Impact of High Natural Gas
                                              Prices on Small
                                              Manufacturers and Farmers.
------------------------------------------------------------------------

                              CHAPTER FOUR

PUBLICATIONS OF THE COMMITTEE ON SMALL BUSINESS AND ITS SUBCOMMITTEES, 
                             108TH CONGRESS

4.1  Reports

------------------------------------------------------------------------
            House Report Number                     Title and date
------------------------------------------------------------------------
108-153....................................  Report to accompany H.R.
                                              923, To amend the Small
                                              Business Investment Act of
                                              1958 to allow certain
                                              premier certified lenders
                                              to elect to maintain an
                                              alternative loss reserve;
                                              June 12, 2003.
108-162....................................  Report to accompany H.R.
                                              1772, To improve small
                                              business advocacy; June
                                              18, 2003.
108-325-Part I.............................  Report to accompany H.R.
                                              2802, To reauthorize the
                                              Small Business Act and the
                                              Small Business Investment
                                              Act of 1958; October 21,
                                              2003.
------------------------------------------------------------------------

4.2  Hearing Records

------------------------------------------------------------------------
                 Serial No.                   Date, title and committee
------------------------------------------------------------------------
108-1......................................  February 26, 2003, U.S.
                                              Small Business
                                              Administration's Budget FY
                                              2004, Full Committee.
108-2......................................  March 5, 2003, Small
                                              Business Access and
                                              Alternatives to Health
                                              Care, Full Committee.
108-3......................................  March 11, 2003, RESPA
                                              Reform and Economic
                                              Effects on Small Business,
                                              Full Committee.
108-4......................................  March 20, 2003, Changes to
                                              SBA Financing Programs
                                              Needed for Revitalization
                                              of Small Manufacturers,
                                              Full Committee.
108-5......................................  April 1, 2003, Improving
                                              and Strengthening the SBA
                                              Office of Advocacy, Joint
                                              Subcommittee hearing with
                                              the Subcommittee on
                                              Regulatory Reform and
                                              Oversight and Subcommittee
                                              on Workforce, Empowerment
                                              and Government Programs.
108-6......................................  April 3, 2003, President's
                                              Proposal to Increase
                                              Expensing for Small
                                              Businesses, Subcommittee
                                              on Tax, Finance and
                                              Exports.
108-7......................................  April 8, 2003, Litigating
                                              the Americans with
                                              Disabilities Act,
                                              Subcommittee on Rural
                                              Enterprises, Agriculture
                                              and Technology.
108-8......................................  April 9, 2003, Will We Have
                                              an Economic Recovery
                                              Without a Strong U.S.
                                              Manufacturing Base?, Full
                                              Committee.
108-9......................................  April 28, 2003, Status of
                                              Small Manufacturing in the
                                              Midwest, field hearing by
                                              the Subcommittee on
                                              Workforce, Empowerment and
                                              Government Programs, St.
                                              Peters, MO.
108-10.....................................  May 1, 2003, IRS Compliance
                                              with the Regulatory
                                              Flexibility Act, Full
                                              Committee.
108-11.....................................  May 6, 2003, Current and
                                              Future States of the SBIR,
                                              FAST and MEP Programs,
                                              Subcommittee on Workforce,
                                              Empowerment and Government
                                              Programs.
108-12.....................................  May 7, 2003, Are Big
                                              Businesses Being Awarded
                                              Contracts Intended for
                                              Small Businesses?, Full
                                              Committee.
108-13.....................................  May 8, 2003, Overcoming
                                              Obstacles Facing the
                                              Uninsured: How the Use of
                                              Medical Savings Accounts,
                                              Flexible Spending Accounts
                                              and Tax Credits Can Help,
                                              Subcommittee on Tax,
                                              Finance and Exports.
108-14.....................................  May 14, 2003, The WTO's
                                              Challenge to the FSC/ETI
                                              Rules and the Effects on
                                              America's Small
                                              Businesses, Full
                                              Committee.
108-15.....................................  May 15, 2003, The Cost of
                                              Regulations to the Small
                                              Business Community,
                                              Subcommittee on Regulatory
                                              Reform and Oversight.
108-16.....................................  May 15, 2003, The Impact of
                                              the Highway Beautification
                                              Act on Small Businesses
                                              Across America,
                                              Subcommittee on Rural
                                              Enterprises, Agriculture
                                              and Technology.
108-17.....................................  June 4, 2003, The Visa
                                              Approval Backlog and its
                                              Impact on American Small
                                              Business, Full Committee.
108-18.....................................  June 11, 2003, Revitalizing
                                              America's Manufacturers:
                                              SBA Business and
                                              Enterprise Development
                                              Programs, Full Committee.
108-19.....................................  June 12, 2003, The Chilean
                                              Free Trade Agreement:
                                              Opening Doors to South
                                              American Markets,
                                              Subcommittee on Tax,
                                              Finance and Exports.
108-20.....................................  June 18, 2003, The
                                              Globalization of White-
                                              Collar Jobs: Can America
                                              Lose These Jobs and Still
                                              Prosper?, Full Committee.
108-21.....................................  June 25, 2003, The Effect
                                              of Foreign Currency
                                              Manipulation on Small
                                              Manufacturers and
                                              Exporters, Full Committee.
108-22.....................................  June 26, 2003, CRS
                                              Regulations and Small
                                              Business in the Travel
                                              Industry, Subcommittee on
                                              Regulatory Reform and
                                              Oversight.
108-23.....................................  July 9, 2003, Saving the
                                              Defense Industrial Base,
                                              Full Committee.
108-24.....................................  July 14, 2003, Field
                                              Hearing, Doctors as Small
                                              Businesses, Frederick, MD.
108-25.....................................  July 15, 2003, Contract
                                              Bundling and Small
                                              Business Procurement,
                                              Subcommittee on Regulatory
                                              Reform and Oversight.
108-26.....................................  July 17, 2003, Endangered
                                              Farmers and Ranchers: The
                                              Unintended Consequences of
                                              the Endangered Species
                                              Act, Subcommittee on Rural
                                              Enterprises, Agriculture
                                              and Technology.
108-27.....................................  July 18, 2003, What is
                                              OMB's Record in Small
                                              Business Paperwork
                                              Relief?, Joint
                                              Subcommittee hearing with
                                              Subcommittee on Regulatory
                                              Reform and Oversight and
                                              House Government Reform's
                                              Subcommittee on Energy
                                              Policy, Natural Resources
                                              and Regulatory Affairs.
108-28.....................................  July 22, 2003, Federal
                                              Procurement Policy: Is the
                                              Federal Government Failing
                                              Certain Industrial
                                              Sectors?, Subcommittee on
                                              Workforce, Empowerment and
                                              Government Programs.
108-29.....................................  July 23, 2003, Assisting
                                              Small Businesses Through
                                              the Tax Code, Recent Gains
                                              and What Remains to be
                                              Done, Full Committee.
108-30.....................................  August 25, 2003, Small
                                              Business Access to Health
                                              Care, Full Committee.
108-31.....................................  August 25, 2003, The Rising
                                              Cost of Health Care for
                                              Small Business Owners,
                                              Subcommittee on Workforce,
                                              Empowerment and Government
                                              Programs.
108-32.....................................  August 27, 2003, Removing
                                              the Roadblocks to Success:
                                              How Can the Federal
                                              Government Help Small
                                              Businesses Revitalize the
                                              Economy?, Subcommittee on
                                              Tax, Finance and Exports.
108-33.....................................  August 28, 2003, field
                                              hearing, Small Business
                                              Exporting and the Southern
                                              California Economy, Long
                                              Beach, CA, Subcommittee on
                                              Tax, Finance and Exports.
108-34.....................................  September 2, 2003, Field
                                              hearing, Opportunities for
                                              Economic Growth and Job
                                              Creation, Newnan, GA,
                                              Subcommittee on Workforce,
                                              Empowerment and Government
                                              Programs.
108-35.....................................  September 4, 2003,
                                              Attracting Economic Growth
                                              for Rural Economies, Full
                                              Committee.
108-36.....................................  September 10, 2003, The
                                              WTO's Challenge to the FSC/
                                              ETI Rules and the Effect
                                              on America's Small
                                              Businesses, Full
                                              Committee.
108-37.....................................  September 17, 2003,
                                              National Small Business
                                              Week: Small Business
                                              Success Stories, Full
                                              Committee.
108-38.....................................  September 25, 2003, The
                                              Future of Rural
                                              Telecommunications: Is the
                                              Universal Service Fund
                                              Sustainable?, Subcommittee
                                              on Rural Enterprises,
                                              Agriculture and
                                              Technology.
108-39.....................................  October 1, 2003, Federal
                                              Prison Industry's Effects
                                              on the U.S. Economy and
                                              the Small Business
                                              Environment, Joint
                                              Subcommittee hearing with
                                              the Subcommittee on
                                              Workforce, Empowerment and
                                              Government Programs and
                                              the Subcommittee on Tax,
                                              Finance and Exports.
108-40.....................................  October 8, 2003, August
                                              2003 Blackout on Small
                                              Businesses and Possible
                                              Solutions, Subcommittee on
                                              Tax, Finance and Exports.
108-41.....................................  October 16, 2003, Is
                                              America Losing its Lead in
                                              High Tech: Implications
                                              for the US Defense
                                              Industrial Base, Full
                                              Committee.
108-42.....................................  October 20, 2003, The
                                              Offshoring of High Skilled
                                              Jobs, Full Committee.
108-43.....................................  October 21, 2003,
                                              Challenges that Small
                                              Businesses Face Accessing
                                              Homeland Security
                                              Contracts, Subcommittee on
                                              Rural Enterprises,
                                              Agriculture and
                                              Technology.
108-44.....................................  October 30, 2003, Spam and
                                              its Effects on Small
                                              Business, Subcommittee on
                                              Regulatory Reform and
                                              Oversight.
108-45.....................................  November 17, 2003, field
                                              hearing, Increasing the
                                              Competitiveness of U.S.
                                              Manufacturers,
                                              Spartanburg, SC,
                                              Subcommittee on Regulatory
                                              Reform and Oversight.
108-46.....................................  November 20, 2003, Lowering
                                              the Cost of Doing Business
                                              in the United States: How
                                              to Keep Our Companies
                                              Here, Full Committee.
108-47.....................................  December 1, 2003,
                                              Increasing the
                                              Competitiveness of U.S.
                                              Manufacturers, Full
                                              Committee.
108-48.....................................  January 6, 2004, Real
                                              Estate Settlement
                                              Procedure Act Regulations:
                                              Working Behind Closed
                                              Doors to Hurt Small
                                              Businesses and Consumers,
                                              Full Committee.
108-49.....................................  January 15, 2004, field
                                              hearing, A Small Business
                                              Component to the Federal
                                              Flight Deck Officer
                                              Program: A Win-Win
                                              Scenario, Paulden, AZ,
                                              Subcommittee on Rural
                                              Enterprises, Agriculture
                                              and Technology.
108-50.....................................  January 21, 2004, Can US
                                              Companies Compete Globally
                                              Using American Workers?,
                                              Full Committee.
108-51.....................................  January 28, 2004, What is
                                              the Administration's
                                              Record in Relieving Burden
                                              on Small Businesses?,
                                              Joint Subcommittee hearing
                                              with Subcommittee on
                                              Regulatory Reform and
                                              Oversight and House
                                              Government Reform
                                              Committee's Subcommittee
                                              on Energy Policy, Natural
                                              Resources and Regulatory
                                              Affairs.
108-52.....................................  February 11, 2004, How Does
                                              the President's FY '05
                                              Budget Request Affect
                                              Small Business?, Full
                                              Committee.
108-53.....................................  February 17, 2004, Field
                                              Hearing on the
                                              Availability of Capital
                                              and Federal Procurement
                                              Opportunities to Minority-
                                              Owned Small Businesses,
                                              Chicago, IL, Full
                                              Committee.
108-54.....................................  February 23, 2004, field
                                              hearing, The Endangered
                                              Species Act, St. Joseph,
                                              MO, Subcommittee on Rural
                                              Enterprises, Agriculture
                                              and Technology.
108-55.....................................  February 26, 2004, Union
                                              ``Salting'' of Small
                                              Businesses, Subcommittee
                                              on Rural Enterprises,
                                              Agriculture and
                                              Technology.
108-56.....................................  March 1, 2004, field
                                              hearing, Challenges to
                                              Small Business Growth,
                                              Augusta, GA, Subcommittee
                                              on Regulatory Reform and
                                              Oversight.
108-57.....................................  March 10, 2004, Spike in
                                              Metal Prices-What Does it
                                              Mean for Small
                                              Manufacturers?, Full
                                              Committee.
108-58.....................................  March 18, 2004, Benefits of
                                              Health Savings Accounts,
                                              Subcommittee on Workforce,
                                              Empowerment and Government
                                              Programs.
108-59.....................................  March 25, 2004, Spike in
                                              Metal Prices-Part II, Full
                                              Committee.
108-60.....................................  April 22, 2004, Small
                                              Businesses Creating Jobs
                                              and Protecting the
                                              Environment, Subcommittee
                                              on Regulatory Reform and
                                              Oversight.
108-61.....................................  April 29, 2004, Would an
                                              Increase in the Federal
                                              Minimum Wage Help or
                                              Hinder Small Business?,
                                              Subcommittee on Workforce,
                                              Empowerment and Government
                                              Programs.
108-62.....................................  May 5, 2004, Improving the
                                              Regulatory Flexibility Act
                                              (HR 2345), Full Committee.
108-63.....................................  May 6, 2004, The Benefits
                                              of Tax Incentives for
                                              Producers of Renewable
                                              Fuels and its Impact on
                                              Small Businesses and
                                              Farmers, Subcommittee on
                                              Rural Enterprises,
                                              Agriculture and
                                              Technology.
108-64.....................................  May 12, 2004, Women
                                              Entrepreneurship:
                                              Successes and Challenges,
                                              Full Committee.
108-65.....................................  May 19, 2004 Red Tape
                                              Reduction: Improving the
                                              Competitiveness of
                                              America's Small
                                              Manufacturers, Full
                                              Committee.
108-66.....................................  May 20, 2004, Keep
                                              America's Small Businesses
                                              Competitive, Subcommittee
                                              on Regulatory Reform and
                                              Oversight.
108-67.....................................  May 20, 2004, Department of
                                              Labor's Overtime
                                              Regulations Effect on
                                              Small Business,
                                              Subcommittee on Workforce,
                                              Empowerment and Government
                                              Programs.
108-68.....................................  June 2, 2004, Careers for
                                              the 21st Century: How
                                              Education and Worker
                                              Training Can Help Small
                                              Business, Full Committee.
108-69.....................................  June 17, 2004, Department
                                              of Labor's Enforcement
                                              Actions Against Small
                                              Business, Subcommittee on
                                              Regulatory Reform and
                                              Oversight.
108-70.....................................  July 7, 2004, The Rebate of
                                              Value Added Taxes at the
                                              Border and the Competitive
                                              Disadvantage for U.S.
                                              Small Businesses, Full
                                              Committee.
108-71.....................................  July 8, 2004, H.R. 1818,
                                              the Workforce Health
                                              Improvement Program Act:
                                              Healthy Employees-Healthy
                                              Bottom Line, Subcommittee
                                              on Tax, Finance and
                                              Exports.
108-72.....................................  July 14, 2004, Trade
                                              Fairness: How to Make Our
                                              Trade Laws Work for
                                              America's Small
                                              Businesses, Full
                                              Committee.
108-73.....................................  July 15, 2004, Excellence
                                              in Action: Government
                                              Support of Disabled
                                              Veteran-Owned Businesses,
                                              Joint Subcommittee hearing
                                              with the Subcommittee on
                                              Workforce, Empowerment and
                                              Government Programs and
                                              the House Veteran's
                                              Affairs Committee's
                                              Subcommittee on Benefits.
108-74.....................................  July 20, 2004, Small
                                              Business Paperwork Relief
                                              Act Implementation, Joint
                                              Subcommittee hearing with
                                              House Government Reform's
                                              Subcommittee on Energy
                                              Policy, Natural Resources
                                              and Regulatory Affairs.
108-75.....................................  July 21, 2004, Tax
                                              Incentives for Homeland
                                              Security Related Expenses
                                              (H.R. 3562), Subcommittee
                                              on Rural Enterprises,
                                              Agriculture and
                                              Technology.
108-76.....................................  July 22, 2004, Small
                                              Business Liability Reform,
                                              Subcommittee on Regulatory
                                              Reform and Oversight.
108-77.....................................  September 22, 2004, Impact
                                              of High Natural Gas Prices
                                              on Small Manufacturers and
                                              Farmers, Subcommittee on
                                              Rural Enterprises,
                                              Agriculture and
                                              Technology.
108-A......................................  October 29, 2003,
                                              Roundtable: End of Session
                                              Review on the State of
                                              U.S. Manufacturing.
108-B......................................  September 2, 2003,
                                              Roundtable: Opportunities
                                              for Economic Growth and
                                              Job Creation, Newnan, GA.
108-C......................................  March 4, 2003, Roundtable:
                                              Federal Regulatory Burden.
108-D......................................  February 4, 2003,
                                              Roundtable: President's
                                              Economic Stimulus
                                              Proposal.
108-E......................................  February 25, 2003,
                                              Roundtable: The Burden of
                                              Regulations on the Small
                                              Business Community.
108-F......................................  February 4, 2004,
                                              Roundtable: Are We Making
                                              as Much Progress as We
                                              Think?
------------------------------------------------------------------------

                              CHAPTER FIVE

 SUMMARY OF LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL BUSINESS, 
                             108TH CONGRESS

5.1  H.R. 205--National Small Business Regulatory Assistance Act of 
        2003

                          Legislative History

    1/7/2003: Referred to the House Committee on Small 
Business.
    4/8/2003  1:46pm: Mr. Manzullo moved to suspend the rules 
and pass the bill.
    4/8/2003  1:47pm: Considered under suspension of the rules.
    4/8/2003  2:08pm: At the conclusion of debate, the Yeas and 
Nays were demanded and ordered. Pursuant to the provisions of 
clause 8, rule XX, the Chair announced that further proceedings 
on the motion would be postponed.
    4/8/2003  5:22pm: Considered as unfinished business.
    4/8/2003  5:29pm: On motion to suspend the rules and pass 
the bill Agreed to by the Yeas and Nays: (2/3 required): 417-4 
(Roll no. 116)
    4/8/2003  5:29pm: Motion to reconsider laid on the table 
Agreed to without objection.
    4/9/2003: Received in the Senate and Read twice and 
referred to the Committee on Small Business and 
Entrepreneurship.

                          Need for Legislation

    During the past 20 years, the Federal Register--the 
compendium of federal regulatory initiatives and changes--
almost doubled in size from 42,000 pages to a record 83,289 
pages in 2000. This crush of federal dictates is particularly 
troubling to small businesses that find it increasingly 
difficult to meet these burgeoning regulatory requirements 
while at the same time trying to successfully operate their 
businesses in an expanding competitive global environment. 
Often, small business owners do not learn about their failure 
to comply with a regulation or that a new regulatory 
requirement has been imposed until an inspector or auditor 
walks through the door.
    The result is neither beneficial to the small business 
owner nor the federal government. Federal regulations exist to 
achieve some statutory objective; noncompliance hinders the 
reaching of these statutory goals. Small business owners 
certainly would be more interested in complying with federal 
regulations than paying penalties and fines. However, the 
amount of information, including regulations and concomitant 
guidance, simply overwhelms small firms.
    In 1996, Congress took action in an effort to alleviate 
this problem. The Small Business Regulatory Enforcement 
Fairness Act provided that federal agencies are required to 
produce plain-English compliance guides for any regulation that 
would have a significant economic impact on a substantial 
number of small businesses. Of course, if small business owners 
do not know about the regulatory changes, the existence of such 
compliance guides does little to assist them. Some mechanism 
must exist to make small businesses more aware of their 
regulatory obligations.
    Even more important than making small businesses aware of 
the regulations is providing them with assistance needed to 
understand and comply with the regulations. A regulation may 
only take up 10 or 11 pages of text, but the explanation for 
what those 10 or 11 pages mean may encompass as much as 300 
hundred pages of dense, triple-columned, single-spaced pages in 
the Federal Register. Most small business owners do not have 
the time to go through this dense prolixity. And even if they 
did, they would not understand it unless they were 
knowledgeable in the field. The Committee believes that greater 
assistance must be provided to small business owners in helping 
them comply with complex regulatory issuances. Otherwise, a 
divide could develop between those businesses, usually large, 
with the resources to comply and those, usually small, without 
such resources. The small businesses will be at risk for 
penalties, fines, and audits while large businesses will not. A 
regulatory compliance assistance program operated through the 
small business development centers could provide substantial 
assistance in ensuring such a divide does not occur.
    The Small Business Administration oversees a number of 
mechanisms for delivering advice to small business owners. One 
of the most effective is the Small Business Development Center 
(SBDC) program. Operated in conjunction with colleges and 
universities, the SBDCs assist small businesses in solving 
problems concerning the operations, manufacturing, engineering, 
technology, exchange and development, personnel administration, 
marketing, sales, merchandising, finance, accounting, and 
business strategy development. The SBDCs utilize the resources 
and the expertise of colleges and universities. In addition, 
the SBDCs, like the Agricultural Extension Service, also 
provide a focal point for information retrieval, coordination 
of federal and state government services, and referral to 
experts. Historically, SBDCs have focused on financial, 
management, and marketing activities of small businesses 
despite the requirement that they also provide regulatory 
compliance assistance.
    SBDCs can provide an effective mechanism for dispensing 
regulatory compliance information and advice. However, 
regulatory compliance, unlike many of the other activities 
undertaken by the small business development centers, has 
significant legal consequences. Therefore, a program to examine 
how the regulatory compliance assistance will operate in 
selected SBDCs is a preferred strategy to simply providing an 
authorization of additional funding so that SBDCs can provide 
regulatory compliance assistance.

                      Section-by-Section Analysis

Section 1. Short title

    Designates the bill as the ``National Small Business 
Regulatory Assistance Act of 2001.''

Section 2. Purpose

    This section expresses the purpose of the legislation--to 
establish a pilot project within certain SBDCs to provide and 
coordinate regulatory compliance assistance to small 
businesses.

Section 3. Definitions

    The definitions of the Small Business Act shall apply to 
this pilot program unless a different definition is utilized in 
the new Sec. 36 created by this Act. In those cases in which 
the definition is different, the definitions in new Sec. 36 
shall apply to the pilot program created by this Act.

Section 4. Small Business Regulatory Assistance Program

    This section establishes the pilot program by creating a 
new Section 36 of the Small Business Act.
    Section 36(a)(1) defines the term ``Administrator'' as the 
Administrator of the Small Business Administration.
    Section 36(a)(2) defines the term ``Association'' to be the 
association established pursuant to Section 21 of the Small 
Business Act, which represents the majority of SBDCs. That 
organization is the Association of Small Business Development 
Centers.
    Section 36(a)(3) defines the term ``Participating Small 
Business Development Center'' as a SBDC selected to participate 
in the pilot program established under this section.
    Section 36(a)(4) defines the term ``Program'' as the 
regulatory assistance program established under this section.
    Section 36(a)(5) defines the term ``Regulatory Compliance 
Assistance'' as assistance provided by a participating SBDC to 
a small business concerning compliance with federal 
regulations.
    Section 36(a)(6) defines the term ``Small Business 
Development Center'' means a small business development center 
described in section 21 of the Small Business Act.
    Section 36(a)(7) defines the term ``State'' to include all 
fifty states and the District of Columbia, the Virgin Islands, 
and Guam.
    Section 36(b) authorizes the Administrator of the Small 
Business Administration to establish a pilot program for 
selected small business development centers to provide small 
businesses with regulatory compliance assistance.
    Section 36(c)(1) authorizes the Administrator to enter into 
arrangements with SBDCs selected under this section for the 
provision of regulatory compliance assistance.
    The participating SBDCs are required to provide access to 
information and resources on regulatory compliance, including 
contact information for federal and state compliance and 
technical assistance similar to those established under section 
507 of the Clean Air Act Amendments of 1990. Numerous other 
federal and state agencies have non-punitive compliance 
assistance programs (such as the federal Occupational Safety 
and Health Administration) and the Committee expects that the 
participating SBDCs will maintain all necessary contact 
information with those federal and state agencies. Furthermore, 
the Committee expects that the quality of coordination of these 
assistance resources will be a significant factor in selecting 
the SBDCs for the pilot project.
    Section 36(c)(1) also requires that the selected SBDCs 
establish various training and educational activities. The 
Committee expects that selected centers will utilize their 
contacts with federal and state agencies to obtain compliance 
pamphlets, videos, books, and any compliance guides issued 
pursuant to the Small Business Regulatory Enforcement Fairness 
Act. In addition, the Committee expects that participating 
centers will hold lectures and seminars on regulatory 
compliance including updates on compliance based on regulatory 
changes. The Committee expects that the Administrator will 
consider the quality of proposed educational programs in 
determining which centers are selected to participate in the 
pilot program.
    Section 36(c)(1)(C) also mandates that the selected SBDCs 
provide confidential counseling on a one-on-one basis at no 
charge to small businesses seeking regulatory compliance 
assistance. The Committee recognizes that compliance with 
regulations inculcates legal rights and responsibilities of 
small business owners. Therefore, section 36(c) prohibits any 
regulatory compliance counseling that would be considered the 
practice of law in the jurisdiction in which the SBDC is 
located or in which such counseling is conducted. Furthermore, 
the Committee supports efforts in which the participating 
development centers establish contacts with lawyers in the 
community willing to provide seminars and other consultative 
service on regulatory compliance matters.
    Section 36(c)(1) also requires the provision of technical 
assistance. Such counseling may include the arrangement of 
meetings with technical experts known to the participating 
small business development centers as long as such counseling 
again is done on a one-on-one basis at no charge to the small 
business.
    Section 36(c)(1)(E) makes explicit the Committee's concern 
that small businesses are directed to those individuals who 
have appropriate credentials and certifications to provide 
regulatory compliance assistance. While the Committee fully 
understands that many very successful businesses, including 
Microsoft, Apple, and Dell Computer, started in garages and 
those businessmen are quite capable of providing advice on 
starting, financing, and marketing a business, they are not 
necessarily qualified to provide guidance on compliance with 
OSHA, EPA, or IRS regulations. In fact, due to the potential 
legal consequences resulting from a small business owner 
following incorrect guidance, the Committee determined that it 
is necessary to make explicit the requirement that the 
participating centers only refer businesses to individuals with 
appropriate expertise in the regulatory compliance matter for 
which advice is sought.
    Section 36(c)(2) requires each participating center to file 
a quarterly report with the Administrator. The report shall 
provide a summary of the compliance assistance provided under 
the pilot program. The report also must contain any data and 
information obtained by the participating SBDC from a federal 
agency concerning compliance that the federal agency intends to 
be disseminated to small business concerns. The Committee 
believes that this latter requirement will enable the 
Administrator or the Chief Counsel for Advocacy to raise issues 
of agency inconsistencies, to the extent that they exist, to 
the appropriate decisionmakers.
    Section 36(c)(2) requires that reports be filed with the 
Administrator in an electronic format. The Committee expects 
the Administrator to promulgate regulations that will provide 
for a consistent format of the report. The Committee believes 
that such consistency is necessary for the accurate compilation 
of data and proper assessment of the effectiveness of the pilot 
program.
    Section 36(c)(2) also permits, but does not require, 
participating SBDCs to make interim reports if such reports are 
necessary or useful. For example, a participating SBDC may 
receive inconsistent compliance information from a federal 
agency. By alerting the Administrator prior to the issuance of 
the quarterly report, the federal agency may be able to issue a 
clarification that may eliminate confusion, save compliance 
costs, and improve small business compliance.
    One of the critical concerns to small businesses is that 
discussions of compliance assistance could be revealed to 
federal agencies, which would lead to fines and penalties. 
Furthermore, the Committee is concerned that SBDCs have been 
revealing the names of businesses, which seek their advice to 
the Administrator for functions unrelated to the financial 
auditing of SBDCs. The Committee believes that such behavior is 
simply intolerable. Without any assurances of privacy, small 
businesses will be less likely to use small business 
development centers. And this would be especially true for 
regulatory compliance assistance efforts. The Committee 
recognizes the concern about revealing the names of businesses 
that utilize the resources of SBDCs. Therefore, section 
36(c)(1)(D) prohibits the disclosure of the names or addresses 
of any concern receiving compliance assistance under this pilot 
program unless the Administrator is ordered to make such 
disclosure pursuant to a court order or civil or criminal 
enforcement action commenced by a federal or state agency. The 
Committee expects that participating SBDCs will only respond to 
formal agency requests such as civil investigative demands, 
subpoenas, requests from Administrator's Associate 
Administrator for Small Business Development Centers when 
performing a financial audit of the SBDC, or requests from the 
Inspector General of the Small Business Administration. The 
Committee expects the SBDCs will not provide information 
concerning the identity of businesses simply upon the verbal 
request of a federal or state agency.
    Section 36(d) requires the Administrator to act as 
repository of data and information submitted by the 
participating SBDCs. Given the oversight role and importance of 
the Associate Administrator for Small Business Development 
Centers, section 36(d) requires that the functions of 
maintaining the database be housed with the Associate 
Administrator. The Committee believes that a central repository 
is necessary in order to determine whether federal agencies are 
providing consistent compliance information on a national 
basis. However, the Committee expects that the information 
received under this subsection be made available to other 
offices within the Small Business Administration, particularly 
the Chief Counsel for Advocacy and the Small Business and 
Agriculture Regulatory Ombudsman so those offices can more 
effectively carry out their mission of representing the 
interests of small businesses before federal agencies.
    Section 36(d) also requires that the Administrator to issue 
an annual report to the President and the Committees on Small 
Business of the Senate and the House Representatives. The 
report will contain: (a) data on the types of information 
provided by the participating SBDCs; (b) the number of small 
businesses that contacted the participating SBDCs; (c) the 
number of small businesses assisted by participating SBDCs; (d) 
information on the outreach activities of the participating 
SBDCs; (e) information regarding each case known to the 
Administrator in which participating SBDCs provided conflicting 
advice regarding compliance with federal regulation to one or 
more small businesses; (f) and any recommendations for 
improving the regulatory environment of small businesses. The 
Committee believes that this information is necessary to 
properly evaluate the utility of the pilot program. More 
importantly, the report will reveal whether similarly situated 
small businesses are receiving consistent regulatory compliance 
assistance. In preparing the report, the Committee recognizes 
that the Administrator may wish to consult with the Chief 
Counsel for Advocacy and the Small Business and Agriculture 
Regulatory Ombudsman. The Committee supports such consultative 
efforts but notes that the Administrator may not delegate the 
responsibility of preparing the report required by this 
subsection to any office within the Small Business 
Administration except the Associate Administrator for Small 
Business Development Centers.
    Section 36(e) limits participation in the pilot program 
only to those SBDCs certified under Sec. 21(k)(2) of the Small 
Business Act. The Committee is limiting participation in the 
pilot program to those SBDCs selected are of the highest 
quality. Some SBDCs have not completed their certification 
programs. Nevertheless, some of these centers may be developing 
or already have exceptional regulatory compliance assistance 
programs. The Committee does not believe that such centers 
should be prohibited from participating in the pilot program. 
Therefore, Sec. 36(e)(2) authorizes the Administrator to waive 
the requirement for certification if the center is making a 
good faith effort to obtain such certification.
    Section 36(f) requires the Administrator to select two 
participating state programs from each of the Small Business 
Administration's ten federal regions as those regions exist on 
the date of enactment of this Act. The Administrator shall 
consult with the Association and give the Association's 
recommendations substantial weight. The Administrator is 
required to complete the selection of the participating centers 
within 60 days after the regulations to implement the pilot 
program have been promulgated.
    Section 36(g) ensures that no matching funds currently 
allocated to the operation of the SBDCs will be utilized to 
fund the pilot program. In order to ensure proper funding, the 
Committee is authorizing a separate funding authorization for 
the program.
    Section 36(h) establishes the procedures for distributing 
grants among the selected state programs. The formula is based 
on the principle that a state that has a smaller population 
also will have, in absolute terms, fewer small businesses than 
a larger state. The formula therefore allocates funds according 
to the relative size of each state. The Committee believes that 
the minimum funds needed to initiate a state program will be 
$200,000. Because the Committee has authorized $5,000,000, it 
is making extra resources available to the larger states that 
will require more resources to initiate the pilot project.
    Section 36(i) requires the Comptroller General of the 
United States to provide a report three years after the 
establishment of the pilot program evaluating the effectiveness 
of the program. The report also should contain any suggested 
modifications to the pilot program. Finally, the Comptroller 
General should provide its opinion concerning whether the 
program should be continued and expanded to include more SBDCs. 
The report shall be transmitted to the Committees on Small 
Business of the Senate and House of Representatives. The 
Committee expects that the pilot program will be sufficiently 
successful to expand the program to other SBDCs.
    Section 36(j) limits the operation of the pilot program 
only to the funds appropriated in advance for the program. 
Section 36(j) provides an authorization of appropriations of 
$5,000,000 for fiscal year 2002 and each year thereafter. 
Section 36(j) also prohibits the Administrator from using other 
funds, including other funds made available for the operation 
of SBDCs, to operate this pilot project. The Committee 
authorized the additional appropriations because it determined 
that funding of the regulatory compliance program should not 
detract from the available funding for the delivery of other 
SBDC programs.

Section 5. Promulgation of regulations

    Section 5 authorizes the Administrator to promulgate 
regulations to implement this pilot program no later than 180 
days after the enactment of the Act. Such regulations only 
shall be promulgated after the public has been given an 
opportunity for notice and comment. The Committee believes that 
the Administrator can and should accomplish the issuance of 
regulations within the deadline set by statute. The Committee 
considers this Act to be some other law for purposes of section 
603 of Title 5 of the United States Code.
    The regulations shall include the priorities for the type 
of assistance to be provided, standards relating to the 
educational, technical, and support services to be provided by 
the Association to the participating centers, and standards for 
work plans that the participating centers will provide to the 
Administrator. The Committee believes that given the potential 
interest in the program by SBDCs, it is appropriate for the 
Administrator to have a set of standards by which it can 
determine which state programs shall be chosen. More 
importantly, the standards will provide an appropriate baseline 
for the Comptroller General's evaluation of the pilot project.
    Section 5 also requires the Administrator to develop 
appropriate standards for ensuring the technical qualifications 
of experts to whom small businesses will be referred. The 
Committee does not intend that someone must have a college or 
advance degree to qualify. For example, a contractor licensed 
in a state with 20 years experience (who is a high-school 
graduate) may be as well equipped to provide advice on 
compliance with OSHA construction standards as a professor of 
civil engineering. On the other hand, that same contractor 
might not be an appropriate individual to provide tax 
compliance advice. The Committee does not expect that this 
aspect of the Administrator's regulations shall be all 
encompassing, i.e., delineate every profession and the 
appropriate qualifications. However, the Committee does expect 
that the Administrator will recognize, as qualified, those 
individuals certified by nationally-recognized accrediting 
bodies (whose members must demonstrate substantial educational 
and practical experience), meet educational and work standards 
established by a federal agency, or are licensed to practice a 
particular profession or job pursuant to state law. The 
Committee expects that the regulations will provide 
participating centers with enough information that the centers 
can determine whether the person providing the advice is 
competent in the field of regulation.

Section 6. Privacy requirements applicable to Small Business 
        Development Centers

    Section 6 amends section 21 of the Small Business Act. The 
Committee has been contacted on a number of occasions by SBDCs 
that employees of the Small Business Administration have 
attempted to obtain the names and addresses of businesses that 
sought the services of SBDCs. The Committee believes that any 
attempts by the Administrator or the employees of the Small 
Business Administration to obtain the names and addresses of 
persons seeking SBDC assistance is inappropriate because it 
would act as a disincentive for small businesses to utilize the 
centers.
    Section 6 prohibits the Administrator, any other employee 
of the Small Business Administration, or any agent of the 
Administrator (including contractors) from obtaining the names 
and addresses of businesses that sought assistance. The 
Committee's bill provides for two exceptions: (1) if the 
Administrator is ordered by a court in any civil or criminal 
action initiated by federal or state agency; or (2) the 
Administrator requires the information while undertaking a 
financial audit of the SBDC.
    To ensure that the Administrator does not unduly abuse the 
second exception for disclosure, section 6 requires the 
Administrator to promulgate regulations specifying when such 
disclosures in an audit shall be made. The Committee expects 
that the regulations will strictly limit disclosure during the 
audit process and severely circumscribe those individuals who 
will have access to the audit information during the audit. The 
Committee recognizes that the information collected during the 
audit may have to be retained for a variety of purposes, such 
as management reviews by the Inspector General or Congressional 
oversight. The Committee expects the Administrator's 
regulations to cover who, if anyone, shall have access to the 
raw data, including the names and addresses of the SBDCs' 
users, after the audit is complete. The Committee does not 
intend that information obtained during the audit concerning 
identifiable individuals or businesses that are retained by the 
Administrator shall be releasable pursuant to the Freedom of 
Information Act.

5.2  H. Res. 368--Honoring the 50th Anniversary of the Small Business 
        Administration

                          Legislative History

    9/16/2003: Referred to the House Committee on Small 
Business.
    9/16/2003  3:59pm: Mr. Manzullo moved to suspend the rules 
and agree to the resolution.
    9/16/2003  3:59pm: Considered under suspension of the 
rules.
    9/16/2003  4:21pm: On motion to suspend the rules and agree 
to the resolution Agreed to by voice vote.
    9/16/2003  4:21pm: Motion to reconsider laid on the table 
Agreed to without objection.

                          Need for Legislation

    H. Res. 368 supports the goals and ideals of National Small 
Business Week, which began on September 15, 2003, and the 
events surrounding the 50th anniversary of the founding of the 
Small Business Administration (SBA). The resolution also 
commends the SBA's Administrator and employees and reaffirms 
that the SBA plays an important role in assisting small 
businesses.

                      Section-by-Section Analysis

    Whereas the Nation's economy is built on and draws its 
strength from the creativity and entrepreneurship of its 
people;
    Whereas the Nation's 25 million small businesses employ 
more than half of all private sector employees, pay 44.5 
percent of the total United States private payroll, and 
generate 60 to 80 percent of all net new jobs annually;
    Whereas the men and women who own and operate the Nation's 
small businesses make a vital contribution to the Nation's 
prosperity through their ongoing work to create new 
technologies, products, and services;
    Whereas small businesses produce 13 to 14 times more 
patents per employee than large patenting firms, and these 
patents are twice as likely as large firm patents to be among 
the 1 percent most cited;
    Whereas the Small Business Administration was officially 
established in 1953 and for the past 50 years has played a 
vital role in ensuring that the door to the American Dream is 
truly open to all entrepreneurs;
    Whereas the mission and high calling of the Small Business 
Administration is to champion the interests of the Nation's 
entrepreneurs for the benefit of all Americans;
    Whereas the Small Business Administration is marking its 
50th anniversary by celebrating the accomplishments of small-
business owners across the country throughout the year; and
    Whereas the President has designated the week beginning on 
Monday, September 15, 2003, as ``National Small Business 
Week'': Now, therefore, be it
    Resolved, That the House of Representatives--
    (1) supports the goals and ideals of National Small 
Business Week, and the events surrounding the 50th anniversary 
of the founding of the Small Business Administration;
    (2) commends the Administrator and the employees of the 
Small Business Administration for their work on behalf of the 
Nation's small businesses; and
    (3) reaffirms that the Small Business Administration, 
through its loan, technical assistance, and entrepreneurial 
development programs, plays an important role in assisting 
small businesses to ensure a brighter, stronger future for this 
Nation.

5.3  H.R. 923--Premier Certified Lenders Program Improvement Act of 
        2003, Public Law 108-232

                          Legislative History

    2/26/2003: Referred to the House Committee on Small 
Business.
    5/22/2003: Committee Consideration and Mark-up Session 
Held.
    5/22/2003: Ordered to be Reported (Amended) by Voice Vote.
    6/12/2003  3:35pm: Reported (Amended) by the Committee on 
Small Business. H. Rept. 108-153.
    6/12/2003  3:36pm: Placed on the Union Calendar, Calendar 
No. 75.
    6/24/2003  10:35am: Mr. Manzullo moved to suspend the rules 
and pass the bill, as amended.
    6/24/2003  10:36am: Considered under suspension of the 
rules.
    6/24/2003  10:48am: At the conclusion of debate, the Yeas 
and Nays were demanded and ordered. Pursuant to the provisions 
of clause 8, rule XX, the Chair announced that further 
proceedings on the motion would be postponed.
    6/24/2003  1:11pm: Considered as unfinished business.
    6/24/2003  1:18pm: On motion to suspend the rules and pass 
the bill, as amended Agreed to by the Yeas and Nays: (2/3 
required): 416-3 (Roll no. 303).
    6/24/2003  1:18pm: Motion to reconsider laid on the table 
Agreed to without objection.
    6/25/2003: Received in the Senate and Read twice and 
referred to the Committee on Small Business and 
Entrepreneurship.
    5/18/2004: Senate Committee on Small Business and 
Entrepreneurship discharged by Unanimous Consent.
    5/18/2004: Passed Senate without amendment by Unanimous 
Consent.
    5/18/2004: Cleared for White House.
    5/19/2004: Message on Senate action sent to the House.
    5/20/2004: Presented to President.
    5/28/2004: Signed by President.
    5/28/2004: Became Public Law No: 108-232.

                          Need for Legislation

    The purpose of this legislation is to amend the Small 
Business Investment Act of 1958 to allow certain Premier 
Certified Lenders (PCL) under the Small Business 
Administration's (SBA) 504 Certified Development Company (CDC) 
Program, to elect to maintain an alternative loss reserve. In 
the 1990's, Congress made a variety of changes to SBA's 504 CDC 
Program to lower the default rate and eliminate its annual 
appropriation so that it operates solely on user-fees. The 504 
CDC Program provides small businesses with long-term, fixed-
rate financing for the purchase of fixed assets such as land, 
buildings, and equipment generally for business expansion 
purposes. The loans are made by CDCs, usually non-profit 
corporations organized to contribute to the economic 
development of a particular community or region.
    Unlike the SBA's other main flagship access to credit 
program, the 7(a) general business loan guarantee program, 
there is a job-creation component to every CDC project before 
it is approved (usually, for every $35,000 guaranteed, one job 
has to be created or retained). The SBA guarantees debentures 
issued by a CDC for 40 percent of a project cost, up to $1 
million (or up to $1.3 million in certain cases if the project 
serves one of nine public policy goals). The debentures are 
sold on the market to private investors.
    To model a similar effort in the 7(a) program, Congress 
also established a Premier Certified Lender Program (PCLP) that 
gives discretion to certain qualified CDCs to approve 504 loans 
subject to the borrower being eligible and available loan 
authority. In return for this lower regulatory oversight, these 
PCLP CDCs must maintain a higher loss reserve (the amount of 
money set aside to cover bad loans) than regular CDCs.
    Some PCLP CDCs believe that this amount of reserves is well 
beyond what is prudently required because their vast experience 
in making 504 loans has caused them to become sophisticated in 
weeding out bad risks. Requiring PCLP CDCs to maintain 
unnecessarily large loss reserve accounts reduces their ability 
to serve additional small businesses and to attract new lenders 
to join the program.

                      Section-by-Section Analysis


Section 1. Short title

    The short title is the ``Premier Certified Lenders Program 
Improvement Act of 2003.''

Section 2. Loss reserves of premier certified lenders temporarily 
        determined on the basis of outstanding balance of debentures

    Paragraph (6) of section 508(c) of the Small Business 
Investment Act of 1958 is amended by adding a new subparagraph 
(B) that permits the Administrator of the SBA to allow PCLP 
CDCs to withdraw from loss reserves amounts that are in excess 
of 1 percent of the total outstanding balance of all the 
debentures to which the loss reserve is applicable. However, 
such withdrawal may not be made with respect to a debenture 
before 100 percent of the contributions (in cash or letters of 
credit) are made to the loss reserve attributable to that 
debenture. The reduction based on outstanding balance is 
temporary and is effective for a 2-year period beginning 90 
days after enactment of the bill.

Section 3. Alternative Loss Reserve Pilot Program for Certain Premier 
        Certified Lenders

    Subsection (c) of Section 508 of the Small Business 
Investment Act of 1958 is amended by adding a new paragraph (7) 
that creates a new alternative loss reserve which a qualified 
high loss reserve PCL may elect to implement with respect to 
any eligible calendar quarter. A qualified high loss reserve 
PCL that makes an election with respect to any calendar 
quarter, shall before the last day of such quarter, ensure that 
its loss reserve is no less than the greater of $100,000 or the 
loss reserve amount determined by an independent auditor to be 
sufficient to protect the Federal Government from risk of loss.
    Before the end of a calendar quarter for which an election 
is in effect, the head of the PCL and the auditor must certify 
to SBA that the loss reserve is sufficient to protect the 
Federal Government from risk of loss. The form and content of 
the certificate is to be established by the Administrator of 
the SBA. At the end of each calendar quarter for which an 
election is in effect, the Administrator may permit the 
qualified high loss reserve PCL to withdraw from the loss 
reserve any amounts in excess of the greater of $100,000 or the 
auditor certified loss reserve.
    In any subsequent quarter that the alternative loss reserve 
does not apply, the qualified high loss reserve PCL must make a 
contribution to its loss reserve as the Administrator shall 
determine, but not in excess of the loss reserve that would 
have been applicable had no election been made. The 
contributions may be in one lump sum or a series of payments, 
as the Administrator shall determine.
    To be designated by the Administrator as a ``qualified high 
loss reserve PCL,'' as defined in the Act, the PCL CDC must: 
(1) have a loss reserve that is not less than $100,000; (2) 
employ an established risk management system that analyses the 
risk of loss associated with its portfolio of loans and grades 
the risk of loss of each loan; and (3) meet or exceed 4 out of 
the 5 ``specified risk management benchmarks,'' as defined in 
the Act, i.e., currency rate, delinquency rate, default rate, 
liquidation rate, and loss rate. If the qualified high loss 
reserve PLC does not meet or exceed 4 out of 5 of the 
management benchmarks, and noncompliance lasts for 180 days, 
the PLC must make such payment(s) into the loss reserve to meet 
the usual loss reserve requirements. The Administrator may 
waive the requirement with respect to meeting the benchmarks.
    Also defined for purposes of the Alternative Loss Reserve 
Pilot Program are the terms ``qualified independent auditor,'' 
``PCLP loan,'' ``eligible calendar quarter,'' and ``calendar 
quarter.'' A ``qualified independent auditor'' means an auditor 
that is paid by the qualified high loss reserve PCL; is 
independent of such PCL; and has been approved by the 
Administrator during the preceding year. ``PCLP loan'' means 
any guaranteed 504 loan. ``Eligible calendar quarter'' means 
the first calendar quarter that begins after the end of the 90-
day period beginning with the date of enactment of the Act and 
ending 7 succeeding calendar quarters thereafter. The term 
``calendar quarter'' means; (1) the period which begins on 
January 1 and ends on March 31 of each year; (2) the period 
that begins on April 1 and ends on June 30 of each year; (3) 
the period which begins on July 1 and ends on September 30 of 
each year; and (4) the period which begins on October 1 and 
ends on December 31 of each year.
    The Administrator has 45 days to issue and implement final 
regulations required to administer and perform oversight of the 
Alternative Loss Reserve Pilot Program. The regulations shall 
be published in the Federal Register and transmitted to 
Congress. The regulations shall provide for, but not be limited 
to, the requirements that auditors must meet to be approved and 
the terms upon which a PCL may qualify for admittance to the 
Program, including the effectiveness of the PCL's risk 
management system.
    The Act would create a bureau within SBA dedicated to 
oversight of the Alternative Loss Reserve Pilot Program. The 
``Bureau of PCLP Oversight'' is to be staffed by persons 
presently employed by SBA. The Committee intends that the 
persons assigned to the Bureau would have expertise in 
oversight of 504 lending and be properly trained to perform the 
functions required. No additional amounts are authorized to be 
appropriated for this purpose. The Bureau is to be fully 
operative 90 days after enactment. The SBA Office of Inspector 
General is required to report to Congress on the preparedness 
of the Bureau.
    A qualified high loss reserve PCL must reimburse the 
Federal Government for 15 percent (an increase from 10 percent) 
of any loss attributable to a debenture issued by the company 
during any period for which an election is in effect. A study 
of the Alternative Loss Reserve Pilot Program is to be 
performed by a Federal agency experienced in community 
development lending and financial regulation or with a member 
of the Federal Financial Institutions Examinations Council. 
Members of the Council include: the Board of Governors of the 
Federal Reserve System, the Federal Deposit Insurance 
Corporation, the National Credit Union Administration, the 
Office of the Comptroller of the Currency, and the Office of 
Thrift Supervision. The study is to examine the extent to which 
statutory requirements have caused overcapitalization in the 
loss reserves maintained by CDCs participating in the PCLP. 
Also to be studied are the alternatives for establishing and 
maintaining loss reserves sufficient to protect the Federal 
Government from loses associated with guaranteeing securities 
issued under the PCLP. The study and report are to be completed 
and transmitted to the Committee on Small Business of the House 
of Representatives and the Committee on Small Business and 
Entrepreneurship of the Senate within 90 days of enactment of 
this Act. An amount not to exceed $75,000 is authorized for the 
study and report.

5.4  H.R. 1166--To Amend the Small Business Act To Expand and Improve 
        the Assistance Provided by Small Business Development Centers 
        to Indian Tribe Members, Native Alaskans, and Native Hawaiians

                          Legislative History

    3/6/2003: Referred to the House Committee on Small 
Business.
    3/31/2003  3:35pm: Mr. Shuster moved to suspend the rules 
and pass the bill.
    3/31/2003  3:36pm: Considered under suspension of the 
rules.
    3/31/2003  3:54pm: At the conclusion of debate, the Yeas 
and Nays were demanded and ordered. Pursuant to the provisions 
of clause 8, rule XX, the Chair announced that further 
proceedings on the motion would be postponed.
    3/31/2003  6:58pm: Considered as unfinished business.
    3/31/2003  7:04pm: On motion to suspend the rules and pass 
the bill Agreed to by the Yeas and Nays: (\2/3\ required): 378-
14 (Roll no. 94).
    3/31/2003  7:04pm: Motion to reconsider laid on the table 
Agreed to without objection.
    4/1/2003: Received in the Senate and referred to the 
Committee on Small Business and Entrepreneurship.

                          Need for Legislation

    Approximately 60 percent of Indian tribe members and Native 
Alaskans live on or in the immediate vicinity of Indian lands 
and suffer from an average unemployment rate of 45 percent. 
Presently, Indian tribe members and Native Alaskans own more 
than 197,000 business enterprises and generate revenues in 
excess of $34 billion.
    The service industry, the largest sector, accounts for 17 
percent of the Native American businesses, and 15.7 percent of 
the total revenues. The second largest sector is construction, 
which accounts for 13.9 percent of the businesses and 15.7 
percent of the total revenues. The third largest sector, the 
retail trades, accounts for 7.5 percent of the businesses and 
13.4 percent of the total revenues.
    The number of businesses owned by Indian tribe members and 
Native Alaskans grew by 84 percent during the period from 1992 
to 1997, while businesses, generally, grew by only seven 
percent. During the same period, the gross receipts for Indian 
tribe members and Native Alaskan business owners increased by 
179 percent, in comparison with the business community, as a 
whole, where the gross receipts for the same period grew only 
by 40 percent.
    In the past, the SBDC program with more than 1000 offices 
throughout the United States has provided cost-effective 
business counseling and technical assistance to small 
businesses. For example, clients receiving long-term counseling 
under the program in 1998 generated additional tax revenues of 
$468 million, which was approximately six times the cost of the 
program to the Federal government.
    By using the existing infrastructure of the SBDC program, 
it is anticipated that small businesses owned by Indian tribe 
members, Native Alaskans, and Native Hawaiians, who receive 
services under the Act, will have a higher survival rate than 
the average small businesses not receiving such services. 
Further, increased assistance through SBDC counseling has in 
the past been able to reduce defaults under Small Business 
Administration (SBA) lending programs.
    The business counseling and technical assistance, provided 
for under this Act, is critical on Indian land where, without 
such assistance, similar services are scarce and expensive. 
Past and current efforts by SBDCs to assist Native American 
populations located on or along reservation lands have proven 
difficult. In addition, the lack of resources makes it 
difficult to raise an equal amount of matching funds to 
specifically assist Native Americans.

                      Section-by-Section Analysis


Section 1. Findings and purposes

    Subsection (a) states the findings of Congress that include 
the fact that (1) the average unemployment rate for Indian 
tribe members and Native Alaskans who live on or adjacent to 
Indian lands is 45 percent, (2) Indian tribe members and Native 
Alaskans own more than 197,000 businesses that generate more 
than $34 billion in revenues, (3) for the period 1992-1997, the 
number of businesses owned by Indian tribe members and Native 
Alaskans grew by 84 percent and gross receipts grew by 179 
percent, as compared with seven percent and 40 percent, 
respectively, for businesses generally, (4) the SBDC program is 
cost effective in that additional tax revenues generated by 
businesses counseled under the program in 1998 were 
approximately six times the cost of the program, (5) using the 
existing SBDC infrastructure it is anticipated that those 
receiving services under the Act will have a higher survival 
rate than those not receiving such services, (6) business 
counseling and technical assistance provided on Indian lands is 
critical because such services are presently scarce and where 
available are expensive, and (7) SBDC business counseling has 
proven to be effective in reducing the default rate of 
businesses who have received counseling and who participated in 
one or more SBA loan program. The Committee believes that 
because of the SBDC program's success and proven track record, 
utilizing the existing SBDC network will enhance the success of 
H.R. 2538.
    Subsection (b) states the purpose of the Act which includes 
assisting Indian tribe members, Native Alaskans, and Native 
Hawaiians by: increasing jobs and enhancing economic 
development on Indian lands; creating new small businesses and 
expanding existing ones; providing management, technical, and 
research assistance; seeking the advice of Tribal Councils on 
where business development assistance is most needed; and, 
ensuring full access under the Act to existing business 
counseling and technical assistance available through the SBDC 
program.

Section 2. Small Business Development Center Assistance to Indian tribe 
        members, Native Alaskans, and Native Hawaiians

    Adding a new subsection providing for an additional grant 
program to assist Indian tribe members, Native Alaskans, and 
Native Hawaiians amends the Small Business Act. An SBDC, 
located in an eligible State and funded by SBA, may apply for 
an additional grant to be used solely for providing services, 
as set forth in the Small Business Act with respect to the SBDC 
program, to assist with outreach, development, and enhancement 
on Indian lands of small business startups and expansions owned 
by Indian tribe members, Native Alaskans, and Native Hawaiians.
    Because the majority of Native Americans live on or 
adjacent to Indian lands, where economic opportunities are 
limited, the Committee expects the SBDCs to be located on or in 
close proximity to Indian lands. Although Native Americans who 
do not live on Indian lands may seek the assistance of these 
centers, the Committee believes that assistance should go to 
aid with outreach, development, and enhancement on Indian lands 
of small business startups and expansions owned by Indian tribe 
members, Native Alaskans, and Native Hawaiians. Native 
Americans located near existing centers or sub-centers are 
encouraged to continue to utilize those existing resources.
    An eligible State is defined as a State that has a combined 
population of Indian tribe members, Native Alaskans, and Native 
Hawaiians that comprises at least one percent of the State's 
total population, as shown by the most recent census. Each 
applicant is required to complete a grant application that 
shall include information as to: (1) the applicants ability to 
provide training and services to a representative number of 
Indian tribe members, Native Alaskans, and Native Hawaiians, 
(2) the proposed location of the SBDC site, (3) the amount of 
grant funds needed, and (4) the extent of prior consultation 
with local Tribal Councils.
    No applicant may receive more than $300,000 in any one 
fiscal year, but no matching funds are required. Within 180 
days after the Act is enacted, the Administrator is required to 
issue final regulations with respect to the grant program 
established by the Act. In promulgating the regulations, the 
Administrator must provide notice of the proposed regulations 
and an opportunity for public comment. In addition, the 
Administrator must consult with the Association of Small 
Business Development Centers. The regulation must establish 
standards relating to (1) educational, technical, and support 
services to be provided by SBDCs receiving grants, and (2) any 
work plan that is required to be submitted by an applicant.
    The Committee believes that setting standards will help 
ensure that the grants will be awarded to the most qualified 
State programs and provide a mechanism by which the 
Administrator can evaluate the success of the program.
    The section defines the following terms: ``Associate 
Administrator,'' ``Indian Lands,'' ``Indian Tribe,'' ``Indian 
Tribe Member,'' Native Alaskan,'' and ``Native Hawaiian.''
    The section authorizes $7 million to be appropriated for 
each of fiscal years 2002 through 2004. Funds appropriated for 
the program created by the Act are in addition to funds 
appropriated for the SBDC program generally and for other 
particular SBDC programs. Monies specifically appropriated for 
that purpose might only fund the program created under the Act.

Section 3. State consultation with Local Tribal Councils

    This section amends section 21(c) of the Small Business Act 
by adding a new subsection (9) that requires that a State 
receiving grants under the program created by the Act shall 
request the advice of local Tribal Councils on how best to 
provide assistance to Indian tribe members, Native Alaskans, 
and Native Hawaiians and where to locate satellite centers to 
provide such assistance.

5.5  H.R. 1460--Veterans Entrepreneurship Act of 2003--Key Elements of 
        H.R. 1460 Were Incorporated Into H.R. 2297, Public Law 108-183

                          Legislative History

    3/27/2003: Introductory remarks on measure.
    3/27/2003: Referred to the Committee on Veterans' Affairs, 
and in addition to the Committee on Small Business, for a 
period to be subsequently determined by the Speaker, in each 
case for consideration of such provisions as fall within the 
jurisdiction of the committee concerned.
    3/27/2003: Referred to House Veterans' Affairs.
    4/24/2003: Referred to the Subcommittee on Benefits.
    4/30/2003: Subcommittee Hearings Held.
    5/7/2003: Subcommittee Consideration and Mark-up Session 
Held.
    5/7/2003: Forwarded by Subcommittee to Full Committee 
(Amended) by Unanimous Consent.
    5/15/2003: Committee Consideration and Mark-up Session 
Held.
    5/15/2003: Ordered to be Reported (Amended) by Voice Vote.
    3/27/2003: Referred to House Small Business.
    6/5/2003  2:54pm: Reported (Amended) by the Committee on 
Veterans' Affairs. H. Rept. 108-142, Part I.
    6/5/2003  2:56pm: House Committee on Small Business Granted 
an extension for further consideration ending not later than 
July 7, 2003.
    6/23/2003  2:44pm: Mr. Smith (NJ) moved to suspend the 
rules and pass the bill, as amended.
    6/23/2003  2:44pm: Considered under suspension of the 
rules.
    6/23/2003  3:04pm: At the conclusion of debate, the Yeas 
and Nays were demanded and ordered. Pursuant to the provisions 
of clause 8, rule XX, the Chair announced that further 
proceedings on the motion would be postponed.
    6/24/2003  1:18pm: Considered as unfinished business.
    6/24/2003  1:30pm: On motion to suspend the rules and pass 
the bill, as amended Agreed to by the Yeas and Nays: (\2/3\ 
required): 421-0 (Roll no. 304).
    6/24/2003  1:30pm: Motion to reconsider laid on the table 
Agreed to without objection.
    6/24/2003  1:30pm: The title of the measure was amended. 
Agreed to without objection.
    6/25/2003: Received in the Senate and Read twice and 
referred to the Committee on Veterans' Affairs.
    11/19/2003: H.R. 2297, which passed the House of 
Representatives on October 8, 2003 by a vote of 399-0, laid 
before Senate by unanimous consent.
    11/19/2003: Passed Senate with an amendment, which included 
Sections 2 and 3 of H.R. 1460 now Sections 305 and 308 of H.R. 
2297, by Unanimous Consent.
    11/19/2003: Message on Senate action sent to the House.
    11/20/2003  2:57pm: Mr. Smith (NJ) moved that the House 
suspend the rules and agree to the Senate amendment.
    11/20/2003  3:22pm: On motion that the House suspend the 
rules and agree to the Senate amendment Agreed to by voice vote 
(text as House agreed to Senate amendment).
    11/20/2003  3:22pm: Motion to reconsider laid on the table 
Agreed to without objection.
    11/20/2003: Cleared for White House.
    12/5/2003: Presented to President.
    12/16/2003: Signed by President.
    12/16/2003: Became Public Law No. 108-183.

                          Need for Legislation

    This legislation makes a variety of changes to veteran's 
benefits, including promoting veteran small business 
development. Key portions of H.R. 1460 were incorporated into a 
more comprehensive veterans bill (H.R. 2297) to permit the use 
of G.I. bill educational benefits for self-employment training; 
allow states the right to approve various entrepreneurial 
courses run by Small Business Development Centers (SBDCs) and 
the National Veterans Business Development Corporation (NVBDC); 
and grant discretion to federal contracting officers to set-
aside contracts up to $3 million ($5 million for manufacturers) 
to service-disabled veteran-owned small businesses. The 
government-wide three percent small business procurement goal 
for service-disabled veterans passed into law in 1999 has never 
been met (in 2003, only 0.20 percent of the value of government 
contracts went to service-disabled veteran small business 
owners). The purpose of Public Law 108-183 (as it relates to 
the jurisdiction of the Small Business Committee) is to give 
another tool to government contracting officers to reach the 
three percent contracting goal for small businesses owned by 
service-disabled veterans. On May 5, 2004, the Small Business 
Administration (SBA) and the Federal Acquisition Regulatory 
(FAR) Council issued an interim rule to immediately implement 
the discretionary set-aside contract authority for service-
disabled veteran business owners. On October 21, 2004, the 
President signed an Executive Order to require heads of federal 
agencies to provide increased contracting and subcontracting 
opportunities for service-disabled veteran small business 
owners.

                  Relevant Section-by-Section Analysis

    Section 1 would provide that this Act may be cited as the 
``Veterans Entrepreneurship and Benefits Improvement Act of 
2003.''
    Section 2(a) (Section 305 in H.R. 2297) would amend section 
3675 of title 38, United States Code, by adding a new 
subsection authorizing a State Approving Agency to approve 
entrepreneurship courses offered by a qualified provider of 
entrepreneurship courses. This section would also define 
``entrepreneurship course'' as a non-degree, non-credit course 
of business education that enables or assists a person to start 
or enhance a small business enterprise. Current law sections 
3675(a) and 3675(b)(1) and (2) regarding approval of accredited 
courses do not apply to an entrepreneurship course offered by a 
qualified provider of entrepreneurship courses and a qualified 
provider of entrepreneurship courses by reason of such provider 
offering one or more entrepreneurship courses.
    Section 2(b) would amend section 3471 of title 38, United 
States Code, to provide that the Secretary shall not treat a 
person as already qualified for the objective of a program of 
education offered by a qualified provider of entrepreneurship 
courses solely because such person is the owner or operator of 
a business.
    Section 2(c) would amend subsection (b) of section 3452 of 
title 38, United States Code, by including entrepreneurship 
courses offered by a qualified provider in the definition of 
program of education.
    Section 2(d) would amend subsection (c) of section 3452 of 
title 38, United States Code, to include any qualified provider 
of entrepreneurship courses in the definition of educational 
institution.
    Section 2(e) would further amend section 3452 by defining 
the term ``qualified provider of entrepreneurship courses'' as 
(1) a small business development center described in section 21 
of the Small Business Act (15 U.S.C. 648) and (2) the National 
Veterans Business Development Corporation (established under 
section 33 of 15 U.S.C. 657(c)), insofar as the Corporation 
offers or sponsors an entrepreneurship course (as defined in 
section 3675(c)(2) of title 38, United States Code).
    Section 2(f) would provide that the changes made by this 
section shall apply to courses approved by State Approving 
Agencies after the date of the enactment of this Act.
    Section 3 (Section 308 in H.R. 2297) would amend the Small 
Business Act (15 U.S.C. 631 et seq.) by redesignating section 
36 as section 37 and by inserting after section 35 a new 
section 36 establishing a procurement program for small 
business concerns owned and controlled by service-disabled 
veterans.
    New section 36(a) would furnish contracting officers with 
discretionary authority to award a sole source contract to any 
small business concern owned and controlled by service-disabled 
veterans if the following three criteria are met: (1) such 
concern is determined to be a responsible contractor with 
respect to performance of such contract opportunity and the 
contracting officer does not have a reasonable expectation that 
two or more small business concerns owned and controlled by 
service-disabled veterans will submit offers for the 
contracting opportunity; (2) the anticipated award price of the 
contract (including options) will not exceed (A) $5,000,000, in 
the case of a contract opportunity assigned a standard 
industrial classification code for manufacturing; or (B) 
$3,000,000, in the case of any other contract opportunity; and 
(3) in the estimation of the contracting officer, the contract 
award can be made at a fair and reasonable price.
    New section 36(b) would furnish contracting officers the 
discretionary authority to make contract awards on the basis of 
competition restricted to small business concerns owned and 
controlled by service-disabled veterans if the contracting 
officer has a reasonable expectation that not less than two 
small business concerns owned and controlled by service-
disabled veterans will submit offers and that the award can be 
made at a fair market price.
    New section 36(c) would require that not later than five 
days after the date on which the Administrator is notified of a 
contracting officer's decision not to award a contract 
opportunity under this section to a small business concern 
owned and controlled by service-disabled veterans, the 
Administrator may notify the contracting officer of the intent 
to appeal the contracting officer's decision, and within 15 
days of such date the Administrator may file a written request 
for reconsideration of the contracting officer's decision with 
the Secretary of the department or agency head.
    New section 36(d) would require that a procurement may not 
be made from a source on the basis of a preference provided 
under subsection (a) or (b) if the procurement would otherwise 
be made from a different source under section 4124 or 4125 of 
title 18, United States Code, or the Javits-Wagner-O'Day Act 
(41 U.S.C. 46 et seq.).
    New section 36(e) would require that with respect to 
matters of enforcement and penalties, rules similar to the 
rules of paragraphs (5) and (6) of section 8(m) shall apply for 
purposes of this new section.
    New section 36(f) would require that for purposes of this 
section, the term ``contracting officer'' has the meaning given 
such term in section 27(f)(5) of the Office of Federal 
Procurement Policy Act (41 U.S.C. 423(f)(5)).

5.6  H.R. 1772--Small Business Advocacy Improvement Act of 2003

                          Legislative History

    4/1/2003: Workforce Empowerment and Government Programs and 
Regulatory Reform and Oversight joint subcommittee hearing on 
``Improving and Strengthening the SBA Office of Advocacy.''
    4/11/2003: Referred to the House Committee on Small 
Business.
    6/4/2003: Committee Consideration and Mark-up Session Held.
    6/4/2003: Ordered to be Reported (Amended) by Voice Vote.
    6/18/2003  5:19pm: Reported (Amended) by the Committee on 
Small Business. H. Rept. 108-162.
    6/18/2003  5:20pm: Placed on the Union Calendar, Calendar 
No. 79.
    6/24/2003  10:18am: Mr. Manzullo moved to suspend the rules 
and pass the bill, as amended.
    6/24/2003  10:19am: Considered under suspension of the 
rules.
    6/24/2003  10:35am: On motion to suspend the rules and pass 
the bill, as amended Agreed to by voice vote.
    6/24/2003  10:35am: Motion to reconsider laid on the table 
Agreed to without objection.
    6/25/2003: Received in the Senate and Read twice and 
referred to the Committee on Small Business and 
Entrepreneurship.

                          Need for Legislation

    The purpose of this legislation is to amend the Small 
Business Act to strengthen and improve the Office of Advocacy 
within the Small Business Administration and to ensure that 
there exists an entity in the executive branch that has the 
statutory independence and adequate financial resources to 
effectively advocate for and on behalf of small businesses. 
There is abundant evidence, which has been the recurring focus 
of hearings of this Committee, that the nation's small 
businesses continue to be burdened by excessive regulations and 
that this burden falls disproportionately upon small 
businesses. In his speech to the Women's Entrepreneurship 
Summit, held in Washington, D.C., March 19, 2002, President 
George W. Bush underscored the complications encountered by 
small businesses in doing business and the excessive costs that 
needless regulations can place on small business concerns. In 
this respect the President stated:
    ``There are a lot of federal regulations that complicate 
the lives of small business people all across the country. The 
SBA [Small Business Administration] has calculated that the 
hidden costs of regulations to businesses with fewer than 20 
workers . . . comes down to $7000 per worker. That's a lot of 
money, particularly if you are trying to figure out ways to 
expand the employment base. And this is a drag on our economy. 
Hidden costs are a drag upon our economy.''
    The President has pledged to reduce the regulatory burden 
on small businesses. In line with this objective, an 
independent office of small business advocacy will help to 
ensure that federal agencies properly assess the impact of 
proposed regulations on the small business community and comply 
with the statutory obligations with respect to small business.
    It is essential to Congress in performing its 
constitutional duties and to the President in carrying out his 
small business objectives that there is an office that acts as 
an independent advocate for small businesses and can provide 
unbiased views of present and proposed regulations, without 
being restricted by the views or policies of the Small Business 
Administration or any other federal executive branch agency.
    To be effective, an office that acts as an advocate for 
small businesses requires sufficient resources to conduct 
creditable economic studies and research essential to an 
accurate evaluation of the impact of regulations on small 
businesses, the role of small business in the nation's economy, 
and the barriers to the growth of small businesses. In the 
past, the Office of Advocacy has not had the necessary 
resources. This legislation helps to ensure that resources are 
available to support the independence of the office and to 
assure that the research, information, and expertise provided 
by an independent office of advocacy is a valid source of 
information and advice for Congress and the federal agencies 
with which the office will advocate for small businesses.

                      Section-by-Section Analysis


Section 1. Short title

    The short title is the ``Small Business Advocacy 
Improvement Act of 2003.''

Section 2. Findings and purpose

    Expresses the findings of Congress with respect to the 
Office of Advocacy and the purposes for the legislation.

Section 3. Appointment of Chief Counsel for Advocacy

    The Chief Counsel for Advocacy is to be appointed by the 
President, with the advice and consent of the Senate, without 
regard to political affiliation and solely on the grounds of 
fitness to perform the duties of the office. An individual may 
not be appointed who was employed by the Small Business 
Administration during the 5-year period preceding the date of 
such individual's appointment. A Chief Counsel may remain in 
office, at the pleasure of the President, until a successor is 
nominated, but in no instance longer than one year from the end 
of the President's term.

Section 4. Primary functions of the Office of Advocacy

    This section adds assistance to small business concerns 
owned and controlled by women and small business concerns owned 
and controlled by veterans as primary functions of the Office 
of Advocacy. Assistance to small business concerns owned and 
controlled by socially and economically disadvantaged 
individuals, or minority enterprises, is already a primary 
function of the Office of Advocacy.
    As a new primary function, the Office of Advocacy is 
required to make recommendations to Congress with respect to 
issues and regulations affecting small businesses and the 
necessity for corrective action by any federal agency or by 
Congress.

Section 5. Additional functions

    This section adds three additional functions to be 
performed by the Office of Advocacy which are: (1) maintain 
economic database and make information available to the 
Administrator of the Small Business Administration and to 
Congress; (2) carry out the responsibilities of the Chief 
Counsel under the Regulatory Flexibility Act; and, (3) maintain 
a memorandum of understanding with the Small Business and 
Agriculture Regulatory Enforcement Ombudsman concerning 
cooperation between the Ombudsman and the Office of Advocacy in 
assisting small businesses resolve issues involving federal 
agencies. All too often, people are confused between the two 
roles of these offices. Generally, the Office of Advocacy 
intervenes on behalf of small business prior to the adoption of 
a final regulation. The SBA Ombudsman intervenes on behalf of 
small businesses after a regulation has been adopted to insure 
the application and enforcement of a regulation is fair and 
reasonable to all parties. This MOU clarifies the two roles and 
establishes procedures by which to refer small business 
complaints that would be better handled by the other office.
    The Chief Counsel is required to transmit to the Office of 
Management and Budget (OMB), the Committee on Small Business of 
the U.S. House of Representatives, the Committee on Small 
Business and Entrepreneurship of the Senate, and the Committees 
on Appropriations of the House and Senate the estimated 
expenditures and proposed appropriations for the Office of 
Advocacy. Further, each budget of the United States Government 
shall include a separate statement of the amount of 
appropriations requested for the Office of Advocacy. Each 
budget will also include a statement of proportionality between 
increases or decreases in the overall Small Business 
Administration budget versus the Office of Advocacy line item.

Section 6. Principal Deputy Chief Counsel and regional advocates

    The Chief Counsel may appoint one person to serve as 
Principal Deputy Chief Counsel. The Chief Counsel may also 
appoint 10 regional advocates, one in each of the Standard 
Federal Regions, as appropriate. The duties of the regional 
advocates shall include: (1) furthering the research efforts 
concerning small businesses; (2) interfacing with federal 
agencies that regulate or do business with small businesses; 
(3) in coordination with the Small Business and Regulatory 
Enforcement Ombudsman, assisting the functioning of regional 
small business fairness boards, including, where requested, 
helping small businesses helping to resolve matters that are 
the subjects of complaints made to such boards with respect to 
adverse federal agency action; (4) assisting and disseminating 
information about programs and services that help small 
business concerns; and, (5) performing such other duties as the 
Chief Counsel may assign.

Section 7. Overhead and administrative support

    The Administrator of the Small Business Administration is 
required to provide the Office of Advocacy with all the 
necessary office space, together with such equipment, office 
supplies, communications facilities, and personnel and 
maintenance services, as may be needed.

Section 8. Reports

    The Chief Counsel is required, not less than annually, to 
advise Congress and the Administrator of the Small Business 
Administration on whether Federal agencies are complying with 
the Regulatory Flexibility Act. The Chief Counsel may prepare 
and publish other reports as deemed necessary.

Section 9. Authorization for appropriations

    The amounts authorized to be appropriated are $10,000,000 
for fiscal year 2003 and 2004, $12,000,000 for fiscal year 
2005, and $14,000,000 for fiscal year 2006.

Section 10. Conforming amendments

    This section makes conforming amendments as required by 
changes in this Act to strengthen and improve the Office of 
Advocacy. First, this section moves the Rural Tourism Training 
Program from the Office of Advocacy to the SBA so the mission 
of the office is not encumbered by this initiative more 
properly housed within the SBA.
    Second, this section codifies the requirement for the 
Office of Advocacy and the SBA's Ombudsman to maintain a 
Memorandum of Understanding between each office.

    5.7  H.R. 2345--Regulatory Flexibility Improvements Act of 2003


                          Legislative History

    6/5/2003: Referred to the Committee on the Judiciary, and 
in addition to the Committee on Small Business, for a period to 
be subsequently determined by the Speaker, in each case for 
consideration of such provisions as fall within the 
jurisdiction of the committee concerned.
    6/5/2003: Referred to House Judiciary.
    6/25/2003: Referred to the Subcommittee on Commercial and 
Administrative Law.
    6/5/2003: Referred to House Small Business.
    5/5/2004: Committee Hearings Held.

                          Need for Legislation

    H.R. 2345 strengthens and enhances the Regulatory 
Flexibility Act (RFA) to further protect the interests of small 
entities (small for-profit businesses; small non-profits; and 
small municipalities) in the federal administrative process. 
Federal agencies continue to interpret the RFA in a way to 
avoid compliance. The President also has made it a goal, as per 
his small business plan announced in 2002, to make sure that 
agencies care that the RFA is on the books. H.R. 2345 also 
gives the independent Chief Counsel at the Office of Advocacy 
of the SBA more authority and tools to challenge ill-conceived 
rules that would have a detrimental effect on small business.

                      Section-by-Section Analysis


Section 1. Short title

    Provides that the short title of the bill shall be the 
``Regulatory Flexibility Improvements Act of 2003.''

Section 2. Findings

    Provides the findings of the Committees that the 
legislation is needed because agencies continue to interpret 
the Regulatory Flexibility Act (RFA) in a way to avoid 
compliance.

Section 3. Clarification and expansion of rules covered by RFA

    Extends coverage of the RFA to both direct and indirect 
economic effects thereby overturning court interpretations 
limiting the applicability of the RFA; requires agencies to 
provide a detailed description of alternatives that will 
minimize adverse economic impacts or maximize beneficial 
economic impacts; adds tribal organizations to the list of 
small governmental jurisdictions covered by the RFA; requires 
Forest Service and Bureau of Land Management to comply with the 
RFA when making modifications to land management plans for 
which the agencies would prepare an environmental impact 
statement; regulations concerning the internal revenue laws of 
the United States must comply with the RFA if they are to be 
codified in the Code of Federal Regulations and there is an 
imposition of a record-keeping or reporting requirement without 
regard to whether that requirement was imposed by statute; 
amends the definition of small organization to comports with 
the definition adopted in the Equal Access to Justice Act, 
i.e., has fewer than 500 employees and a net worth of less than 
$7 million; ensures that small labor organizations (such as 
local unions) will not be considered affiliated with their 
national union for purposes of Department of Labor compliance 
with the RFA.

Section 4. Requirements for providing more detailed analyses

    Mandates that regulatory flexibility analyses contain not 
just a statement but a detailed statement of quantified effects 
(unless quantification is not possible); adds a new requirement 
to assess cumulative economic effects of the proposed and final 
regulation, and requires agency to place analyses on their 
website; requires agencies to specifically respond to comments 
by the Chief Counsel (codifying an existing Presidential 
Executive Order) and to comments on the certification.

Section 5. Repeal of procedure for waiver and delay

    Repeals section 608 because agency can avoid compliance by 
finding good cause to forgo notice and comment rulemaking.

Section 6. Procedures for gathering comments

    Modifies the procedures for obtaining input from small 
businesses prior to publication of proposed rule to give 
greater control to the Office of Advocacy; adds the Internal 
Revenue Service (IRS), Centers for Medicare and Medicaid 
Services (CMS), and Federal Communications Commission (FCC) to 
agencies covered by the prepublication input; and modifies the 
trigger for prepublication input to incorporate the standards 
determining a significant rule under the Congressional Review 
Act.

Section 7. Periodic review of rules

    Completely revises periodic review of rules by requiring 
new plans for conducting such reviews and mandating that the 
agency report on their reviews to Congress and the President.

Section 8. Judicial review of compliance with the RFA

    Makes it easier to obtain judicial review of RFA compliance 
when a statute mandates that the head of the agency revisit the 
regulation in an administrative proceeding before small 
entities can challenge the regulation in court.

Section 9. Establishment and approval of size standards by Chief 
        Counsel

    Transfers authority to Chief Counsel from the Administrator 
of the SBA to approve agency size standard of small entities 
for purposes other than Small Business and Small Business 
Investment Acts.

Section 10. Additional powers of the Chief Counsel

    Chief Counsel must promulgate regulations that govern all 
agencies' compliance with the RFA; authorize the Chief Counsel 
to intervene in agency adjudications when a significant policy 
issue is being decided.

5.8  H.R. 2802--Small Business Reauthorization and Manufacturing 
        Revitalization Act of 2003

                          Legislative History

    7/21/2003: Referred to the House Committee on Small 
Business.
    7/24/2003: Committee Consideration and Mark-up Session 
Held.
    7/24/2003: Ordered to be Reported by Voice Vote.
    10/21/2003  10:09am: Reported (Amended) by the Committee on 
Small Business. H. Rept. 108-325, Part I.
    10/21/2003: Referred sequentially to the House Committee on 
Government Reform for a period ending not later than Oct. 31, 
2003 for consideration of such provisions of the bill and 
amendment as fall within the jurisdiction of that committee 
pursuant to clause 1(h), rule X.
    10/31/2003  3:25pm: House Committee on Government Reform 
Granted an extension for further consideration ending not later 
than Nov. 7, 2003.
    11/7/2003  3:37pm: House Committee on Government Reform 
Granted an extension for further consideration ending not later 
than Nov. 21, 2003.
    11/21/2003  3:01pm: House Committee on Government Reform 
Granted an extension for further consideration ending not later 
than Jan. 31, 2004.
    1/31/2004  11:10am: House Committee on Government Reform 
Granted an extension for further consideration ending not later 
than March 2, 2004.
    3/2/2004  10:01pm: House Committee on Government Reform 
Granted an extension for further consideration ending not later 
than March 8, 2004.
    3/8/2004  5:33pm: Committee on Government Reform 
discharged.
    3/8/2004  5:33 pm: Placed on the Union Calendar, Calendar 
No. 249.
    10/5/2004: A motion was filed to discharge the Rules 
Committee from consideration of H. Res. 800. H. Res. 800 
provides for the consideration of H.R. 2802.

                          Need for Legislation

    The purpose of H.R. 2802, the ``Small Business 
Reauthorization and Manufacturing Revitalization Act of 2003'' 
(hereinafter the ``Act'') is to amend the Small Business 
Investment Act of 1958 (SBIA) and the Small Business Act (SBA) 
in order to provide greater efficiencies in the management of 
various programs by the Small Business Administration 
(``Administration'') and reorient programs authorized by the 
SBIA and SBA to assist small manufacturers.
    The SBA was enacted in 1953 to ensure a viable small 
business sector of the economy. The SBIA was passed in 1958 to 
authorize greater financial assistance to small businesses 
through equity and debt securities backed by federal 
guarantees. Both statutes have been amended many times creating 
a jumbled statutory mass with program requirements that are 
nearly indecipherable. As the SBA and SBIA were amended, their 
underlying original purpose--to support America's small 
business industrial base--became muddied.
    The primary emphasis of H.R. 2802 is the streamlining of 
Administration operations while increasing the support provided 
to small manufacturers. H.R. 2802 accomplishes this goal in a 
number of ways: (a) it provides for increasing financial 
resources available to small manufacturers through amendments 
in the SBIA; (b) streamlines operations of Administration 
programs by transferring employees and requiring greater 
accountability for achieving goals for raising the level of 
financial assistance, counseling, and federal procurement 
dollars for small business concerns; (c) modifies existing 
Administration grant programs to provide greater oversight by 
the Administrator; and (d) mandates improvements in government 
contracting procedures to help small business concerns and 
small manufacturers, in particular.
    As the Committee began its intensive examination of 
programs authorized by the SBA, the Committee came to the 
realization that modification of the SBA alone would not 
achieve the goal of providing greater assistance to small 
manufacturers. The SBA was written 50 years ago and has never 
been completely revised. Accretions have been made to the SBA 
that creates internal inconsistencies. Even the Administration, 
the agency implementing the SBA, does not fully understand it. 
The Committee determined that a complete overhaul was 
necessary.
    For all of the foregoing reasons, the Committee determined 
that simply accreting more requirements to the SBA would 
continue the trend of bad drafting leads to worse government. 
The Committee determined that it was appropriate to overhaul 
the SBA.

                      Section-by-Section Analysis


                                TITLE I


Section 101. State defined

    This section makes the definitions used in the SBA and SBIA 
consistent.

Section 102. Small manufacturer defined

    Adds a definition of small manufacturer to the SBIA.

Section 103. Maximum participating securities rate

    Raises the participating security rate to 1.7 percent as a 
result of changes in the 10-year Treasury bond rate.

Section 104. Maximum leverage for buying operations

    Eliminates the indexing of maximum leverage available to 
Small Business Investment Companies (SBICs) by increasing the 
limits for single SBICs and those that are owned jointly. 
Increases available leverage even further for SBICs that invest 
primarily in manufacturers.

Section 105. Maximum aggregate amount of leverage

    Makes technical changes necessitated by elimination of 
existing indexed limits on leverage.

Section 106. Investments in smaller enterprises

    Requires that SBICs invest 25 percent of their capital in 
smaller enterprises.

Section 107. Actions of Administrator with respect to capital 
        impairment

    Prevents the Administrator from seizing uninvested private 
capital when a SBIC is declared to be capitally impaired.

Section 108. Conditions for distributions

    Modifies the conditions for distributions in the 
participating security program by requiring SBICs to distribute 
income to its investors if there are outstanding priority 
payments and mandates that the Administrator allocate payments 
to reduction in principal before allocating distributions to 
the profit payments.

Section 109. Modification of aggregate limits

    Eliminates loans made pursuant to Sec. 7(a) of the Small 
Business Act from the computation of maximum leverage.

Section 110. Notice and comment rulemaking

    Codifies existing Administration regulations requiring the 
use of the Administrative Procedure Act's Sec. 553 notice and 
comment rulemaking for any regulations issued to implement the 
SBIA.

Section 111. Low-Income geographic area definition

    Amends the definition of low-income area in the New Market 
Venture Capital Company (NMVCC) program (currently at 50 
percent of median family income) to comport with the definition 
of low-income area in the Internal Revenue Code (currently at 
80 percent of median family income).

Section 112. Unmet equity investment needs of certain small 
        manufacturers

    Adds small manufacturers to those small businesses eligible 
for investment by NMVCCs.

Section 113. Participation agreement requirements

    Requires that the Administrator approve a NMVCC that will 
have at least 50 percent of its investments devoted to small 
manufacturers.

Section 114. Final approval requirement

    Lengthens to two years the time authorized by NMVCCs to 
obtain final approval from the Administrator.

Section 115. Conditionally approved companies

    Authorizes the Administrator to make operational assistance 
grants of not more than $50,000 to NMVCCs that are in the 
conditional stage of the program.

Section 116. Applications for new markets venture capital companies

    Mandates that the Administrator reduce the amount of 
paperwork required by a NMVCC applicant.

Section 117. Authorization of appropriations

    Provides for an authorization of appropriations for the 
NMVCC program including an extension of existing authorizations 
through fiscal years 2004 and 2005.

Section 118. Repeal of lease guarantee authority

    Eliminates the provisions authorizing the Administrator to 
make lease guarantees under Title IV of the SBIA for 
installation of pollution control equipment.

Section 119. Amendment of congressional findings relating to state 
        development companies

    Adds the requirement that state and local development 
companies (CDCs) must provide assistance to small 
manufacturers.

Section 120. Qualification of state development companies

    Modifies the definition of a rural area for purposes of 
Title V of the SBIA to make it consistent with the definition 
of a rural area elsewhere in the United States Code. This 
necessitates expanding the definition in the SBIA to 
populations of 50,000 or less. The section also authorizes that 
loans to small manufacturers constitutes a public policy goal 
under Title V.

Section 121. Job requirements

    Raises the job requirement standard for CDC loans from one 
job for every $35,000 in lending to one job for every $50,000 
in lending except that for small manufacturers the job 
requirement is one job for every $100,000 in lending. The 
section also excludes from the portfolio requirement lending to 
small manufacturers. Finally, the section authorizes the 
Administrator to waive these requirements except as it relates 
to small manufacturers.

Section 122. Small business concern loan limitations

    Increases the loan limits for CDC loans to $2 million for 
all projects, $2.5 million for projects that meet specified 
public policy goals, and $4 million for the projects of small 
manufacturers.

Section 123. Approval requirements

    Mandates centralized processing of CDC loans. Prohibits the 
Administrator from requiring that a CDC borrower owned by a 
SBIC obtain the guarantee of the SBIC prior to the issuance of 
a CDC loan.

Section 124. Effective date for termination of certain fees

    Extends the authority of the Administrator to charge fees 
to operate the CDC program for two years.

Section 125. Accredited lenders program

    Revises the accredited lenders program by authorizing them 
to make their own lending decisions if the Administration has 
not done so within five business days. The provision also 
alters the requirements for becoming an accredited lender based 
on loan default rates. Finally, the Bureau of Premier Certified 
Lenders will oversee compliance with the provisions of the 
Accredited Lenders Program.

Section 126. Premier certified lenders program

    Rewrites existing Sec. 508 of the SBIA through the 
incorporation of H.R. 923. H.R. 923 alters the loan loss 
reserve requirements for premier certified lenders and 
establishes a Bureau of Premier Certified Lenders to oversee 
the actions of premier certified lenders. The section alters 
the provisions of H.R. 923 by making the program permanent and 
makes the alternative loan loss provisions self-executing 
rather than having to wait for the Administrator to establish 
the Bureau of Premier Certified Lenders.

Section 127. Foreclosure and liquidation of loan losses

    Authorizes CDCs to conduct their own foreclosures and loan 
loss liquidations. Mandates that CDCs select every year whether 
they are interested in conducting their own loss liquidations 
for that year and requires them to submit plans on loan loss 
liquidation to the Administrator. Prohibits the CDC from 
committing the Administrator to purchase additional 
indebtedness.
    Section 127 also modifies the way the Administrator 
conducts foreclosures of CDC loans by requiring that the 
Administrator award contracts to outside parties. Payment would 
be cost contract with certain bonus incentives.

Section 128. Additions to Title V

    This provision adds three new sections to Title V of the 
SBIA. New Sec. 511 requires the Administrator to develop a 
short-form application for CDC loans. Section 512 creates a 
centralized processing system in two loan processing centers 
for handling CDC loans. Section 513 requires the Administrator 
to report at least twice a year on the loans made under Title 
V.

Section 129. Regulations to carry out amendments to the Loan Program

    Sets forth the notice and comment requirements for 
promulgating rules to implement the changes in Title V of the 
SBIA.

Section 130. Conforming amendments

    This section eliminates the statutorily undefined term 
``certified'' from Title V and inserts in lieu the statutorily 
defined term ``qualified State or local'' wherever the term 
``certified'' appears in Title V.

Section 131. Development company affiliates

    CDCs that are part of a larger holding company would not be 
required to assign an individual to manage the CDC if the 
management of the holding company is integrally involved in the 
operations of the CDC.

                                TITLE II


Section 202. Findings, statements of policy

    Revises the purposes of the SBA to include provision of 
assistance to small manufacturers.

Section 203. Definitions

    Added definitions of the following terms: ``contracting 
officer'' (moved from existing section 31 of the SBA); ``small 
business development center''; ``small manufacturer''; ``small 
business lending company''; ``non-federally registered 
lenders''; ``procurement center representative''; ``commercial 
marketing representative''; and ``team.''
    Requires that small businesses recertify their status once 
every five years and permits a small business to expand beyond 
established size standards in certain circumstances.
    Makes technical changes to the definition of the term 
``qualified Indian tribe.''
    Eliminates all definitions of the term ``state'' found 
elsewhere in the SBA and collects them in Sec. 3 of the Act.
    Added the term ``acts of terrorism'' to the definition of a 
disaster for purposes of loans made pursuant to Sec. 7(b) of 
the SBA.
    Modified the definition of ``contract bundling'' to include 
any procurement performed under two or more separate contracts 
combined into one contract in which the costs of the separate 
contracts are lower than the costs of the proposed combination.
    Significantly modified the definition of HUBZone to ensure 
that economically disadvantaged businesses are eligible for the 
preference. Section 203 also imposes new administrative 
requirements to ensure that HUBZone qualifications are met by 
businesses before they bid on contracts.

Section 204. Small Business Administration

    Modifies and modernizes the power and structure of the 
Small Business Administration. Eliminates out-dated provisions 
such as the Loan Policy Board. Makes consistent references to 
the Administrator rather than Administration.

Section 205. Financial management

    Collects all of the Administrator's financial functions 
into one section. Modernizes the terminology to make it 
consistent with the rest of the SBA, SBIA, and the Federal 
Credit Reform Act of 1990.
    Imposes limits on the resale of disaster loans until three 
years after the disaster loan was issued.
    Authorizes the Administrator to pay its fiscal transfer 
agent using the float from interest payments the agent controls 
until they are turned over to the Treasury.

Section 206. Organization and staff

    Section 206(a) amends existing Sec. 6 of the SBA to 
incorporate provisions concerning the organizational structure 
of the SBA and requirements to be met by various subsidiary 
officials appointed by the Administrator. Subsection (a) 
creates the general appointment and management authority of the 
Administrator; subsection (b) establishes various associate 
administrators; subsection (c) creates certain subsidiary 
offices; subsection (d) grants subsidiary officials the power 
to manage their respective offices subject to limitations in 
the SBA; subsection (e) requires the Administrator to appoint a 
general counsel; subsection (f) establishes various regional 
offices; subsection (g) creates district offices and grants the 
Administrator the power to appoint officials to perform 
functions in the district offices; and subsection (h) grants 
the Administrator significant powers to move personnel among 
offices if they fail to meet specified statutory performance 
benchmarks.

Section 207. Loan programs

    Subsection 207 (a) makes changes to the business loan 
program: (1) modifies the sound and secure requirement to 
deemphasize adequate collateral; (2) increases the maximum loan 
amount for international trade loans; (3) substitutes the term 
``disabled'' for ``handicapped''; (4) adds service-disabled 
veterans to those qualified to obtain loans at three percent; 
(5) authorizes use of international trade loans for refinancing 
debt and makes it easier to demonstrate economic injury; (6) 
mandates that criteria for certified lenders be set forth in 
the Code of Federal Regulations; (7) extends the reduction in 
annual fee for two years; (8) requires the Administrator to 
notify Congress when new pilot programs are created; (9) 
imposes significant limits on the Administrator's discretion to 
conduct pilot programs; (10) makes the low-documentation loan 
program permanent; (11) amends existing statutory requirements 
for designation as a preferred lender, including the creation 
of a new national preferred lender; (12) mandates the 
development of simplified forms for small guarantees; and (13) 
establishes a new rule on affiliation solely for purposes of 
making business loans to franchisees.
    Subsections 207(b)-(c) amend the disaster loan program: (1) 
outdated statutory rules governing disaster loans made during 
the 1970s were deleted; (2) clarifies that losses should be 
covered 100 percent (except to the extent reimbursable by 
insurance); authorizes the Administrator to, when necessary, 
extend the economic injury disaster loan beyond the declared 
disaster area; (3) adopts a size standard of 500 employees for 
disaster loans; (4) eliminates a statutory maximum for disaster 
loans and imbues the Administrator with the discretion to 
establish an appropriate amount; and (5) requires that 
borrowers be notified when their disaster loans are sold.
    Subsection (d) modifies the microloan program: (1) renamed 
the welfare-to-work program as the welfare-to-entrepreneurship 
program; (2) modifies the qualifications for serving as an 
intermediary; (3) authorizes intermediaries to provide 
technical assistance prior to the issuance of a loan; (4) 
increases the size of the loans from $35,000 to $50,000; and 
(5) makes minor changes in the Administrator's conduct of the 
program.
    Subsection (e) repeals portions of Sec. 7 that are no 
longer operational including subsections 7(d), (h), (j) (moved 
to Sec. 8), and (k). Subsection 207(f) extends the pre-disaster 
mitigation program through the end of FY 2004. Subsection 207 
(g) is a savings clause ensuring that the provisions only 
effect loans made after the date of enactment.

Section 208. Government contracting and business development assistance

    Subsection 208(a) amends subsections (a), (b), and (c) of 
Sec. 8 of the SBA by making significant programmatic changes in 
the contracting assistance provided to businesses eligible to 
participate in the program established by Sec. 8. Those changes 
include: (1) prohibits the Administrator from delegating 
contracting responsibility to other federal agencies; (2) 
mandates consultation between the Administrator and 
subcontractors when responding to a federal procuring agency 
solicitation; (3) modifies the definition of ``economically 
disadvantaged'' to increase the survival rate of participants; 
(4) alters the place where annual certifications of eligibility 
must be sent; (5) authorizes change of ownership and control of 
participants without loss of eligibility if the purchaser also 
is eligible for the program; (6) eliminates the prohibitions on 
removal of capital by owners; (7) enables expansion into 
similar North American Industrial Classification System (NAICS) 
codes when appropriate; (8) imposes the Administrative 
Procedure Act standards for the conduct of hearings on removal 
from the program; (9) mandates increased outreach efforts by 
the Administrator and subsidiary officials to expand enrollment 
in the program; (10) imposes additional requirements on the 
Administrator's utilization and dissemination of participant 
capability statements; (11) restricts the ability of 
participants subject to a termination to obtain new 
subcontracts; (12) alters and expands the type of managerial 
assistance available to participants; and (13) establishes a 
new contract-based technical assistance program for businesses 
in the program.
    Subsection 208(b) expands the range of activities performed 
by a commercial marketing representative.
    Subsection 208(c) amends the women's procurement program by 
authorizing contracting officers to determine eligibility for 
participation until the Administrator completes a study on 
industries in which women-owned businesses are historically 
underrepresented. In addition, the Office of Hearings and 
Appeals is required to hear cases on challenges to eligibility 
under the program.

Section 209. Training and assistance

    Section 209 creates a new Sec. 12 in the SBA by collecting 
the authority to provide technical and training assistance to 
small businesses scattered elsewhere through the Act. In 
particular, Sec. 209 improves the ability of the Service Corps 
of Retired Executives and BusinessLINC programs to serve small 
manufacturers.

Section 210. Contracting assistance

    Section 210 amends Sec. 15 of the SBA to implement the 
Committee's efforts to enhance the ability of all small 
businesses, especially small manufacturers, to obtain federal 
government contracts. In particular, section 210: (1) mandates 
the Office of Management and Budget (OMB) decide contract 
bundling disputes that arise between the Administrator and 
federal procuring agencies; (2) creates an advocacy role for 
the Administrator with respect to procurements under the 
Javits-Wagner-O'Day Act; (3) expands the solicitation period 
for bundled contracts; (4) modifies the way small business 
procurement goals are calculated; (5) alters the annual federal 
procurement reports issued by the Administrator; (6) increases 
restricted competition limits from $100,000 to $1,000,000; (7) 
alters the responsibilities and assignments of procurement 
center representatives to make them more effective advocates of 
small businesses; (8) requires that the Administrator and the 
General Services Administration (GSA) create a data element 
that captures the number of contracts awarded under the social 
and disadvantaged small business program; (9) codifies 
Administrator's regulations on the order of contracting 
preferences; and (10) makes the very small business procurement 
program permanent.

Section 211. Authorization of appropriations

    Provides for authorization of appropriations for two years 
and establishes levels for financing programs authorized by the 
SBA and SBIA.

Section 212. Small Business Development Centers

    Section 212 completely revises Sec. 21 of the SBA that 
establishes the Small Business Development Center (SBDC) 
program. The primary objective of the rewrite to was to make 
the statutory language internally consistent and more readable. 
In particular, the section establishes that the Administrator 
will select grantees who will operate a series of small 
business develop centers. The Administrator also is authorized 
to negotiate the terms of service with the grantee and empowers 
the Administrator to remove a grantee (after a hearing under 
the provisions of the Administrative Procedure Act) if the 
grantee has not met its obligations under the grant agreement. 
The revisions also require that the Administrator actually 
select (on advice of staff) and approve grantees. Finally, 
Sec. 212 makes numerous technical and administrative changes in 
the grantee's conduct under the grant agreements.

Section 213. Assignment of employees of the office of international 
        trade

    Requires the Administrator to maintain the number of 
Administration employees in the Office of International Trade 
at January 1, 2003 levels.

Section 214. Supervisory and enforcement authority for Small Business 
        Lending Companies

    Creates a new Sec. 23 in the SBA granting the Administrator 
specific enforcement and supervisory authority (such as the 
establishment of capital standards and the power to remove 
directors) over Small Business Lending Companies and other 
lenders not subject to regulation by a federal banking 
overseer.

Section 215. Reauthorization of the Paul Coverdell Drug-Free Workplace 
        Program

    Extends at reduced levels the authorization of the Drug-
Free Workplace Program.

Section 216. Women's Business Center Program

    Section 216 amends the Women's Business Center Program by: 
(1) extending its authorization; (2) modifying the program so 
that it operates in a fashion similar to that of the SBDC 
program (Administrator selects grantees that will operate 
centers); (3) imposes more stringent performance standards on 
grantees: and (4) eliminates sustainability and substitutes 
applications for continued federal funding (up to five years 
after initial grant ceases).

Section 217. HUBZone Program

    Section 217 made changes the HUBZone price preference 
contracting program: (1) eliminating the mandatory set-aside 
requirement; (2) granting contracting officers the flexibility 
to restrict competition among HUBZone firms; and (3) 
terminating the special price preferences for Department of 
Agriculture purchases of agricultural commodities.

Section 218. Other repeals and reorganizations

    Makes technical and conforming changes necessitated by the 
significant rewrite to the SBA. Revises the severability 
provision to reflect the reenacted SBA. Repeals and reserves 
for later use sections 19, 24, 25, 26, and 28 of the SBA.

Section 219. Rules of construction

    Provides a catchall to ensure that the meaning of 
references within the SBA do not change given the significant 
rewrite.
    Continues the effectiveness of existing Administrator 
regulations until such time as they are changed.
    Prohibits the Administrator from interpreting the rewrite 
to include repeals by implication.

                               TITLE III


Section 301. Report regarding national database of small manufacturers

    Requires SBDC grantees and the Administrator to determine 
the cost of establishing a database that universities can use 
to procure goods from small manufacturers.

Section 302. Workforce Transformation Plan

    Empowers the Administrator (within the confines of the 
changes made in Title II) to reorganize the operations of the 
Administration. Requires any such transformation to demonstrate 
that it will increase federal procurement dollars to small 
businesses while reducing the overall cost of operating the 
agency.

Section 303. Repeal of certain provisions of the Disaster Relief Act of 
        1970

    Repeals Sec. 237 of the Disaster Relief Act because the 
amendments made to Sec. 7(b) of the SBA provide the 
Administrator with the authority set forth in the 1970 Act.

Section 304. Regulations on size standard on franchisees

    Requires the Administrator to develop new affiliation 
standards for franchisees so that franchisees will not be 
considered large businesses due to interpretations of their 
franchise agreements.

Section 305. Temporary Small Business Development Center assistance to 
        Indian Tribes

    Creates pilot program for SBDC grantees from selected 
states with substantial Native American populations to assist 
Native American small business owners.

Section 306. Temporary Small Business Development Center assistance for 
        vocational and technical entrepreneurship development

    Establishes a pilot program for SBDC grantees to teach 
entrepreneurship education to students in secondary education 
and post-secondary vocational and technical schools.

Section 307. Very small business concern contract data collection

    Requires that the Administrator and the General Services 
Administration create a new data element to capture contracts 
awarded to very small businesses.

Section 308. Very Small Business Concern Pilot Program for home-based 
        businesses

    Establishes a pilot program requiring that within the Very 
Small Business program, at least one award per year be made to 
a home-based business.

Section 309. Socially and economically disadvantaged business

    Extends the price preference for socially and economically 
disadvantaged businesses for two years.

Section 310. Study and report on effectiveness of aggregate limitations 
        on amount of assistance to any single enterprise

    Requires the Administrator to study the impact on the 
availability of capital to small manufacturers as a result of 
SBICs being limited to investing 20 percent of their private 
capital in one business.

Section 311. Study and report on coordination of New Market Venture 
        Capital Program with New Markets Tax Credit Program

    Administrator is required to develop suggestions for 
bolstering the utility of the NMVCC program based on the 
changes to the definition of low-income area.

Section 312. Study and report on Premier Certified Lenders Program

    Requires the Administrator to contract out a study on 
whether premier certified CDC lenders are overcapitalized.

Section 313. Data collection

    Requires the establishment of a data element to track 
awards made to socially and economically disadvantaged 
businesses.

Section 314. Resubmission of disaster loan applications for businesses 
        affected by September 11, 2001 terrorist attacks

    Requires the Administrator to reopen the disaster loan 
application process for businesses within the declared disaster 
areas that were unable to operate as result of a government 
order to remain closed.

Section 315. National Small Business Incubator Program

    Creates a pilot program for the establishment of small 
business incubators in abandoned factories and warehouses. 
Incubators eligible for participation would have to provide 
services only to high-technology businesses or small 
manufacturers.

Section 316. Report regarding sale of disaster loans on borrowers

    Mandates that the Office of Advocacy examine the economic 
consequences of the Administrator's sale of disaster loans.

Section 317. Suspension and extension of certain disaster loans related 
        to the terrorist attacks of September 11, 2001

    Requires the Administrator, after a finding of severe 
economic injury, to suspend on a temporary basis, payment of 
principal and interest on disaster loans issued to businesses 
in the declared disaster areas and the adjacent counties of 
Orange and Rockland in New York.
    For more information on H.R. 2802, please refer to House 
Committee Report No. 108-325, Part I.

5.9  H.R. 3915--To Provide for an Additional Temporary Extension of 
        Programs Under the Small Business Act and the Small Business 
        Investment Act of 1958 Through April 2, 2004, Public Law 108-
        205

                          Legislative History

    3/9/2004: Referred to the House Committee on Small 
Business.
    3/10/2004  7:43pm: Mr. Manzullo moved to suspend the rules 
and pass the bill, as amended.
    3/10/2004  7:43pm: Considered under suspension of the 
rules.
    3/10/2004  7:51pm: On motion to suspend the rules and pass 
the bill, as amended Agreed to by voice vote.
    3/10/2004  7:51pm: Motion to reconsider laid on the table 
Agreed to without objection.
    3/10/2004  7:51pm: The title of the measure was amended. 
Agreed to without objection.
    3/11/2004: Received in the Senate, read twice.
    3/12/2004: Passed Senate without amendment by Unanimous 
Consent.
    3/12/2004: Message on Senate action sent to the House.
    3/12/2004: Cleared for White House.
    3/12/2004: Presented to President.
    3/15/2004: Signed by President.
    3/15/2004: Became Public Law No: 108-205.

                          Need for Legislation

    The purpose of the legislation was to extend the 
authorization of the programs of the SBA, which expired on 
March 15, 2004, until April 2, 2004 while Congress still 
attempted to work out a long-term, more comprehensive SBA 
reauthorization bill. This legislation reauthorizes SBA 
programs not covered by regular appropriations such as the 
ability of the SBA to charge fees in the Certified Development 
Company (CDC) or the 504 loan program; the Preferred Surety 
Bond program; the price preference in the Small Disadvantaged 
Business (SDB) program; SBA's co-sponsorship authority, which 
enables the SBA to accept private donations to put on events or 
print publications; the Women's Business Center Sustainability 
pilot program; grants to SBDCs to implement part of the Paul D. 
Coverdell Drug-Free Workplace program; the Very Small Business 
Concerns pilot program; and the Pre-Disaster Mitigation pilot 
program.

                      Section-by-Section Analysis

    Section 1.--The authorization for any program, authority, 
or provision, including any pilot program, which was extended 
through March 15, 2004 by the previous extension (Public Law 
108-172), is further extended through April 2, 2004, under the 
same terms and conditions.
    Section 2.--The ability of the SBA to charges fees in the 
504 loan program was extended until May 21, 2004.

5.10  H.R. 4062--To Provide for an Additional Temporary Extension of 
        Programs Under the Small Business Act and the Small Business 
        Investment Act of 1958 Through June 4, 2004, and for Other 
        Purposes, Public Law 108-217

                          Legislative History

    3/30/2004: Referred to the House Committee on Small 
Business.
    3/31/2004  10:22am: Mr. Manzullo moved to suspend the rules 
and pass the bill.
    3/31/2004  10:23am: Considered under suspension of the 
rules.
    3/31/2004  10:37am: On motion to suspend the rules and pass 
the bill. Agreed to by voice vote
    3/31/2004  10:37am: Motion to reconsider laid on the table. 
Agreed to without objection.
    3/31/2004: Received in the Senate, read twice.
    4/1/2004: Passed Senate without amendment by Unanimous 
Consent.
    4/2/2004: Message on Senate action sent to the House.
    4/2/2004: Cleared for White House.
    4/2/2004: Presented to President.
    4/5/2004: Signed by President.
    4/5/2004: Became Public Law No: 108-217.

                          Need for Legislation

    The purpose of the legislation was three-fold. First, the 
authorization for the programs of the SBA was generally 
extended from April 2, 2004 until June 4, 2004. These are SBA 
programs not covered by regular appropriations such the 
Preferred Surety Bond program; the price preference in the 
Small Disadvantaged Business (SDB) program; SBA's co-
sponsorship authority, which enables the SBA to accept private 
donations to put on events or print publications; the Women's 
Business Center Sustainability pilot program; grants to SBDCs 
to implement part of the Paul D. Coverdell Drug-Free Workplace 
program; the Very Small Business Concerns pilot program; and 
the Pre-Disaster Mitigation pilot program.
    Second, the ability of the SBA to charge fees in the 
Certified Development Company or 504 program was extended until 
September 30, 2004. This provision allows the 504 program to 
operate at a zero subsidy or at no cost to the taxpayer for a 
relatively extended period of time.
    Third, H.R. 4062 contained a short-term fix to the 
temporary crisis in the SBA's 7(a) loan guarantee program by 
increasing fees mainly upon the lenders that enabled the SBA to 
immediately lift the restrictions imposed on the program in 
January 2004, including a $750,000 loan cap and a ban on 
``piggyback'' loans (combining commercial loans with 
government-backed loans into one package). Specifically, these 
fees:
          1. Raised the annual on-going lender fee from 0.25 
        percent to 0.36 percent;
          2. Allowed ``piggyback'' loans but charges an 
        additional fee on lenders of 0.70 percent to use them;
          3. For loans under $150,000, the SBA will retain the 
        0.25 percent on-going lender fee (previously, banks who 
        serviced these smaller loans kept the fee);
          4. Allowed lenders to make loans up to $2 million (an 
        increase from $250,000) under the SBAExpress program, 
        which has a lower 50 percent government guarantee rate 
        but banks can use their own paperwork; and
          5. Raised the 7(a) guarantee limit from $1 million to 
        $1.5 million with an additional risk premium fee 
        charged to borrowers of 0.25 percent (over and above 
        the 3.5 percent that is currently charged for loans 
        above $700,000) on the loan amount over $1 million.
    H.R. 4062 freed up $3 billion in extra 7(a) loan authority 
for the rest of FY 2004 for a total program level of $12.5 
billion, which allowed the SBA to guarantee an additional 
30,000 7(a) loans to small employers that created or retained 
as many as a half a million jobs.

                      Section-by-Section Analysis


Section 1. Additional temporary extension of authorization

    Temporary authorizations are needed to ensure continued 
operation of certain programs authorized by the Small Business 
Act and Small Business Investment Act of 1958. This section 
extends those programs until June 4, 2004 while the House and 
Senate work out their differences on a broader reauthorization 
package.

Section 2. Extension of certain fee authorizations

    The qualified state and local development company 
(otherwise known as ``certified development company'' or 
``CDC'') program authorized by Title V of the Small Business 
Investment Act of 1958 operates on fees charged by the 
Administrator to lenders. Those fees need to be reauthorized to 
prevent the program from ceasing operation. Given the 
complexity of the financing arrangements loans made pursuant to 
Title V, CDCs and small businesses need sufficient time to 
develop the appropriate financing packages and submit 
applications to the Administrator. To accommodate the needs of 
lenders and borrowers under Title V, H.R. 4062 extended the fee 
authorization through the end of the fiscal year (September 30, 
2004). Furthermore, the sponsors of H.R. 4062 believe that if 
the recent problems in the 7(a) loan program were resolved 
through the end of this fiscal year, equity demands that CDCs 
be able to operate unencumbered for the same period.

Section 3. Fiscal year 2004 purchase and guarantee authority under 
        Title III of the Small Business Investment Act of 1958

    The Small Business Investment Company (``SBIC'') program 
operates without the use of appropriated funds. Fees and 
profits are used to cover the cost of the program, including 
coverage of losses in investment portfolios. While the sponsors 
of H.R. 4062 believe that the fees authorized for the purchase 
of securities and debentures would allow the program to 
continue full operation without modification to the 
authorization levels, clarification to ensure that the program 
could continue operations was an appropriate course of action. 
To avoid any possible confusion or action by the Administrator 
to curtail the operation of the program, the sponsors extended 
the authorizations for both the purchase of participating 
securities and guarantees of debentures at FY 2003 levels for 
the rest of the fiscal year.

Section 4. Combination financing

    For a number of years, the SBA authorized the use of so-
called piggyback financing when using the 7(a) loan program. 
The SBA defines ``piggyback financing'' as a situation in which 
``one or more lender(s) provides more than one loan(s) to a 
single borrower at or about the same time, financing the same 
or similar purpose, and where the SBA guarantees the loan 
secured with a junior lien position.'' Small Business 
Administration, Standard Operating Procedure 50-10(4)(E), at 
20. Furthermore, the Administrator notes that the determination 
of ``piggyback financing'' requires an assessment of both the 
lien position and the commonality of purpose. Id.
    Earlier in the year, the Administrator, presumably pursuant 
to the authority set forth in Section 7(a)(24) of the Small 
Business Act, made certain policy changes to the operation of 
the guaranteed loan program. In particular, the Administrator 
prohibited the use of piggyback financing.
    The sponsors of H.R. 4062 believe that ``piggyback 
financing'' plays a valuable role in the provision of capital 
to small businesses. This is particularly the case for small 
businesses requiring larger loans in cyclical sectors of the 
economy. The financing technique is quite similar to that 
statutorily authorized in Title V of the Small Business 
Investment Act of 1958.
    Section 4 creates, for the rest of fiscal year 2004, a 
temporary combination-financing program by adding a new 
paragraph (31) to Section 7 of the Small Business Act. The 
provisions sunset at the end of the fiscal year (at the end of 
the day on September 30, 2004).
    The sponsors of H.R. 4062 adopted the more formal language 
``combination financing'' rather than the term ``piggyback 
financing.'' The sponsors define ``combination financing'' as a 
loan consisting of both a commercial loan and a guaranteed 
loan. A commercial loan is defined as one that has no portion 
guaranteed by the government. The sponsors intend the term 
``combination financing'' to have the same characteristics as 
``piggyback financing'' as that term is used in the SBA's 
Standard Operating Procedure already cited in this statement.
    The authorization of combination financing is limited to 
those situations in which the small business concern (borrower) 
obtains both a guaranteed loan pursuant to Section 7(a) of the 
Small Business Act and a commercial loan. Again the sponsors 
intend that the provision should operate in a manner similar to 
the SBA's determination that the commercial and guaranteed 
loans are obtained for the same or similar purposes and the 
loans are originated and disbursed (in whole or in part) at 
about the same time.
    To ensure that the public fisc is protected even when the 
Administrator's lien is subordinate to the commercial loan, 
H.R. 4062 restricts the size of the combination loan to that of 
the guaranteed loan. In other words, there is a one-to-one 
ratio between the commercial and guaranteed loans. While the 
commercial loan cannot exceed the size of the guaranteed loan, 
the sponsors do not intend to prevent a commercial loan from 
being smaller than the guaranteed loan.
    H.R. 4062 authorizes the commercial loan may be made by the 
lender that is making the guaranteed loan. However, the 
sponsors also permit the commercial loan to be made by a 
different lender as long as the loans meet the simultaneity of 
time and purpose already limned. In addition, the sponsors also 
authorize lenders designated as ``Preferred Lenders'' by the 
Administrator to make the commercial loan in such combination 
financings.
    H.R. 4062 also authorizes lenders designated as ``Preferred 
Lenders'' by the Administrator to make the commercial loan in 
combination financings. In order to expedite the processing of 
combination financings in these circumstances, it is the 
sponsors' intent that the Administrator process applications 
for combination financings submitted by such ``Preferred 
Lenders'' through the Preferred Lenders Program Processing 
Center.
    H.R. 4062 explicitly authorizes the commercial loan to be 
secured by a lien senior to that of the guaranteed loan. 
Nothing in this provision prevents the Administrator from 
continuing or discontinuing this practice after September 30, 
2004 unless directed otherwise by statute.
    In normal commercial transactions, lenders that take a 
subordinated lien position on an asset are compensated for the 
additional risk through additional upfront fees or by a higher 
interest rate. The Administrator did not require any additional 
payments or modification of applicable interest rates for 
taking a junior position in its ``piggyback financing.'' 
Section 4 requires the Administrator to charge an upfront fee 
equal to 0.7 percent of the amount of the commercial loan as 
reimbursement for the risk associated with taking a subordinate 
lien position. The sponsors of H.R. 4062 expect that the lender 
that is benefiting from senior lien position to pay the fee.
    While lenders pay all fees charged pursuant to Section 7(a) 
of the Small Business Act, some fees are recoverable from 
borrowers. Lenders may obtain reimbursement of the upfront fees 
mandated by Section 7(a)(18) of the Small Business Act from 
borrowers but are prohibited from recovering from borrowers the 
annual ongoing fee mandated by Section 7(a)(23) of the Small 
Business Act. Since the ultimate beneficiary of the combination 
financing as authorized by this section is the bank making the 
commercial loan, the sponsors determined that the lender should 
be prohibited from recovering that fee and imposed the 
restriction set forth in Section 7(a)(23)(B) of the Small 
Business Act on the payment of the commercial loan fee. The 
cross-reference to the provision in Section 7(a)(23) ensures 
that the lender will be unable to recoup the 0.7 percent from 
the borrower.
    The Administrator had procedures in place for combination 
financing (styled in the Standard Operating Procedures as 
``piggyback financing'') on October 1, 2003, and the 
Administrator processed combination loan financings in the 
normal course of business on October 1, 2003. To ensure that 
the Administrator accept and process combination financing loan 
applications, H.R. 4062 imposes a requirement that the 
Administrator must process those loan applications as those 
loans were processed under the ``piggyback financing'' 
procedures in effect on October 1, 2003.
    The sponsors of H.R. 4062 did not believe that it would be 
prudent to mandate the issuance of regulations to implement a 
temporary program, which will sunset in about six months. In 
fact, the sponsors were concerned that the promulgation process 
would be sufficiently lengthy and the program would sunset 
before any regulations were in place. The sponsors recognized 
that the Administrator would be approving combination 
financings under the rubric of ``piggyback financings'' in 
accordance with already extant standard operating procedures. 
The sponsors believe that these provisions are adequate for 
immediate issuance of combination financing loans. H.R. 4062 
therefore authorizes the Administrator to use the standards 
already in existence upon enactment without the necessity of 
formal rulemaking. The provision has the additional benefit 
that industry is well aware of the procedures and standards for 
business eligibility in the standard operating procedures.
    H.R. 4062 recognizes that additional standards may be 
necessary to determine business loan eligibility under this 
section. H.R. 4062 authorizes the Administrator to adopt such 
additional standards as may be necessary (in order to reduce 
risk to the government and increase transparency to the private 
sector) so long as those standards do not unreasonably restrict 
the availability of combination financing as was available 
prior to the issuance of any additional standards. Thus, the 
sponsors of H.R. 4062 expect that the Administrator will make 
reasonable decisions that may in some ways restrict the 
availability of combination financing. However, standards that 
prohibit or reduce by a significant number the combination 
financings made after the adoption of additional standards 
would not be within the intention of the sponsors of H.R. 4062. 
The sponsors do not expect any new standards adopted by the 
Administrator to impose significant restrictions on combination 
financings. The 0.7 percent fee sufficiently compensates the 
Administrator for the additional risk. Any additional standards 
should focus on the procedures for processing combination 
financings or resolving situations that are not adequately 
addressed under current procedures for ``piggyback financing.''

Section 5. Loan guarantee fees

    In late December of 2003 and early January of 2004, the 
Administrator, in part pursuant to the Anti-Deficiency Act, 
temporarily ceased lending under the loan program established 
pursuant to Section 7(a) of the Small Business Act. Shortly 
after the Administrator halted lending, funds were reallocated 
enabling the program, but with a mandatory loan cap of 
$750,000.
    This restriction continues to impede the ability of small 
businesses to obtain capital, expand their businesses, and 
create jobs. The sponsors of H.R. 4062 recognized the need to 
reopen the program to its fully authorized levels ($2 million 
loan maximum with a guarantee up to $1 million). Two options 
were available for doing this. The first would require 
additional appropriations. The second would be to raise fees 
associated with the lending program authorized by Section 7(a) 
of the Small Business Act. Since the sponsors of H.R. 4062 were 
not sanguine about the prospect of obtaining additional 
appropriations for fiscal year 2004, they reluctantly turned to 
the second option.
    The approach adopted by H.R. 4062 raise, through the end of 
fiscal year 2004, the annual ongoing fee charged to lenders. 
The reduction was reauthorized in Pubic Law No. 107-100. The 
statutory fee is currently set at a 0.5 percent but was reduced 
temporarily, to encourage the creation of new jobs, in the last 
SBA reauthorization bill to 0.25 percent. Section 5 raises that 
level from 0.25 percent to 0.36 percent. The sponsors also 
eliminate the authority of lenders to retain 0.25 percent of 
the ongoing fee for loans of less than $150,000. According to 
the SBA Administrator and the Office of Management and Budget 
(OMB), these fee changes, along with other temporary 
modifications, raise sufficient funds to operate a guaranteed 
loan program at a $12.55 billion level without any restrictions 
on combination financing or caps on loan size.

Section 6. Express loan provisions

    Section 7(a)(25)(B) authorizes the SBA Administrator to 
create pilot loan programs. In exercising that authority, the 
Administrator created an ``Express Loan Pilot Program.'' The 
program authorizes lenders to use their own forms in submitting 
requests to the Administrator for the issuance of guarantees. 
Two significant restrictions are imposed by the ``Express Loan 
Pilot Program:'' (1) the guarantee cannot exceed 50 percent of 
the loan and (2) the maximum loan amount is $250,000.
    According to the Administrator and OMB, expansion of the 
``Express Loan Pilot Program'' to authorize lenders to make 
loans up to the statutory maximum of $2 million would 
contribute to a significant reduction in the 7(a) subsidy rate. 
H.R. 4062 adopts this concept to ensure that sufficient funds 
were made available to reopen the program at expected loan 
volumes.
    Section 6 defines the term express lender as a lender 
authorized to participate in the ``Express Loan Pilot 
Program.'' The sponsors do not intend that the Administrator 
need change any of the requirements for designation as an 
express lender but is authorized to do so.
    Section 6 defines an ``Express Loan'' as one in which the 
lender utilizes, to the maximum extent practicable, its own 
analyses of credit and forms. The sponsors of H.R. 4062 fully 
expect that the conditions under which express loans are made 
will not vary significantly from those conditions that 
currently exist under the ``Express Loan Pilot Program.'' 
However, the sponsors recognize that the Administrator may want 
to impose some additional conditions on the use of forms or 
analyses for larger express loans. Nothing in H.R. 4062 
prohibits the Administrator from imposing these additional 
requirements.
    Section 6 codifies the existing concept of the 
Administrator's ``Express Loan Pilot Program.'' In other words, 
the pilot program is one in which lenders utilize their own 
forms and get a guarantee of no more than 50 percent.
    Subsection 6(b) restricts the program, including the 
increased loan amount, to those lenders designated as express 
lenders by the Administrator. Designation as an express lender 
does not limit the lender to making express loans if the lender 
has been authorized to make other types of loans pursuant to 
Section 7(a) of the Small Business Act. Although a lender may 
only seek status as an express lender, this subsection was 
included to ensure that the Administrator not limit the ability 
of an express lender to seek other lending authority from the 
Administrator. Nor is the Administrator permitted to change its 
standards for designating an express lender in a manner that 
only authorizes the lender to make express loans. To the extent 
that the lending institution wishes to offer a full range of 
loan products authorized by Section 7(a) and is otherwise 
qualified to do so, the Administrator shall not restrict that 
ability on the lender's status as an express lender.
    Subsection 6(c) prohibits the Administrator from revoking 
the designation of any lender as an express lender that was so 
designated at the time of enactment. This prohibition does not 
apply if the Administrator finds the express lender to have 
violated laws or regulations or the Administrator modifies the 
requirements for designation in a way that the express lender 
cannot meet those standards. The sponsors of H.R. 4062 do not 
expect that the Administrator will impose new requirements for 
express lenders that prohibit them from making loans under 
other loan programs authorized by the Small Business Act for 
which they have approval from the Administrator.
    Subsection 6(d) temporarily expands the Express Loan Pilot 
Program to $2 million. After September 30, 2004, the sponsors 
expect the Administrator to operate the Express Loan Pilot 
Program according to the standards that were in effect prior to 
the enactment. Since the Administrator had the authority to 
modify or alter the pilot program prior to the enactment of 
this Act, nothing in the Act restricts the Administrator from 
taking appropriate regulatory action with respect to the 
program after the authority vested in this Act terminates.
    The President's FY 2005 budget request for the Small 
Business Administration did not include any funding for the 
loan programs authorized by Section 7(a) of the Small Business 
Act. Administrator Barreto testified at a full Committee 
hearing that the loan programs should be self-funding with a 
subsidy rate of zero and, as a result, the Section 7(a) lending 
programs would be on the same footing as the CDC and SBIC 
programs. Administrator Barreto's suggested the mechanism for 
achieving a zero subsidy rate was through a mandatory expansion 
of the Express Loan Pilot Program to incorporate almost all 
smaller loans (initially all loans under $250,000 but in 
subsequent years could increase if needed to maintain a zero 
subsidy rate). The mandatory nature of the proposal did not 
garner much acceptance among members of the House or Senate 
Small Business Committees.
    Given Administrator Barreto's stated preference for 
resolving the funding crisis associated with the Section 7(a) 
lending programs through an expansion of express loans, the 
sponsors are concerned that the Administrator will take 
regulatory actions that unduly favor express lending over other 
types of lending authorized by Section 7(a) of the Small 
Business Act. As such, the sponsors determined that it was 
appropriate to impose certain restrictions on the 
Administrator's operation of the expanded Express Loan Pilot 
Program in order to prevent actions that unnecessarily and 
unduly favor express lending.
    Any significant policy change in the operation of the 
lending programs authorized by Section 7(a) of the Small 
Business Act requires notification to the House and Senate 
Small Business Committees. Subsection 6(e) does not limit the 
restrictions imposed on the Administrator's regulatory 
discretion to those matters that would require notification 
pursuant to Section 7(a)(24) of the Small Business Act.
    The most significant restriction is that the Administrator 
cannot take any action that directly forces a lender to make an 
express loan for any level. Thus, if a lender wishes to make an 
express loan for $1.5 million dollars and is a designated 
express lender, the lender may do so. If the same lender is 
qualified to make other types of loans and wants to make a $1.5 
million dollar loan at a 75 percent guarantee, the 
Administrator may take no action that forces the lender to 
select the 50 percent guarantee over the 75 percent guarantee.
    One mechanism for demonstrating favoritism is to impose 
conditions on loan programs other than express loans that have 
the effect of coercing lenders to make express loans. Paragraph 
(2) of subsection 6(e) ensures that the Administrator imposes 
like terms and conditions on both express and other lending 
programs authorized by Section 7(a) of the Small Business Act. 
The sponsors intend that this requirement apply to all of the 
terms and conditions of loans made pursuant to Section 7(a) of 
the Small Business Act, including collateral and the likelihood 
of repayment standards.
    Even if the terms and conditions on the loans are 
identical, the Administrator has other mechanisms for 
demonstrating favoritism of express lenders over other types of 
Administrator-designated lenders. For example, the 
Administrator could delay processing of 75 percent guarantee 
loans, i.e., loans other than express loans, such that lenders 
would, for all practical terms, be required to do express 
loans. Thus, paragraph (3) of subsection 6(e) prevents the 
Administrator from making any personnel changes or altering the 
application of resources (be it personnel, equipment, or 
funding) that increases the loan processing and disbursement 
times for all loans authorized by Section 7(a) of the Small 
Business Act as those were in effect on October 1, 2003. For 
example, if the time for disbursement of an express loan was 
five days and the time for disbursement of a 75 percent 
guaranteed loan was seven days, the Administrator may take no 
action that increases the relative disparity between the 
express loan and the 75 percent guarantee loan. Nothing in this 
subsection shall be interpreted to prevent the Administrator 
from improving the overall processing, approval, or 
disbursement rates of all loans except that any such 
improvements must affect all lenders and all lending programs 
operating pursuant to Section 7(a) of the Small Business Act in 
an identical manner.
    To ensure that the sponsors' intent is clear that the 
expansion of the express loan is optional and the Administrator 
shall take no action that has the practical effect of making it 
mandatory, H.R. 4062 incorporates a catchall requirement that 
the Administrator not take action to create incentives that 
would favor express loans over other types of loans. The 
sponsors of H.R. 4062 believe that the determination of the 
appropriate nature of a loan should not be made by regulatory 
fiat but by the sound judgment of lenders, borrowers, and the 
Administrator's commercial loan officers.
    The dramatic expansion of the express loan program, even on 
a temporary basis, may shed dramatic light on the purposes for 
which such loans are made. That information will be critical in 
resolving, on a long-term basis, the funding issues associated 
with the Sec. 7(a) lending programs. Therefore, H.R. 4062 
requests, to the extent practicable, monthly reports on the 
types and purposes for express loans made in excess of the 
current pilot program cap of $250,000.
    Subsection 6(g) terminates the effectiveness of various 
subsections after September 30, 2004. Subsection (d) has its 
own internal sunset provision. No sunset is made on subsection 
(a), as it simply codifies existing practice of the 
Administrator with respect to definitions related to express 
loans. Nothing in subsection (g) is intended to constitute a 
permanent change in any program authorized pursuant to Section 
7(a) of the Small Business Act.

Section 7. FY 2004 deferred participation standards

    As already noted, the sponsors of H.R. 4062 are concerned 
that regulatory or other administrative changes in loan 
programs could have the practical implication of forcing 
lenders to make express loans. H.R. 4062 freezes all terms and 
conditions of loans as they existed on October 1, 2003 as a way 
to deter favoritism for express lending. The sponsors of H.R. 
4062 intend this provision to require, upon enactment, the 
lifting of the cap on loans made pursuant to Section 7(a) of 
the Small Business Act that are currently in place. Section (7) 
does permit the Administrator to modify those terms and 
conditions if needed to ensure continued operation of the 
program within the amounts appropriated. Although the sponsors 
of H.R. 4062, based on assertions by the OMB, believe that the 
Administrator will have sufficient funds through the end of the 
fiscal year to operate without any regulatory restraints, the 
sponsors do not want to prevent the Administrator from taking 
actions needed to prevent violations of the Anti-Deficiency 
Act. In other words, the sponsors of H.R. 4062 fully expect the 
terms and conditions of October 1, 2003 to apply unless unusual 
and very unexpected consequences occur. Should such changes be 
necessary, nothing in H.R. 4062 repeals, either implicitly or 
explicitly, the notification requirements set forth in Section 
7(a)(24).

Section 8. Temporary increase in loan limit

    Access to capital is vital to the growth of small 
businesses. Particularly for manufacturers and high technology 
research and development businesses, typical amounts of capital 
available under the loan programs authorized by Section 7(a) of 
the Small Business Act often are inadequate. If these 
manufacturers and high technology companies are investing to 
increase their productivity, the job creation requirements of 
Title V of the Small Business Investment Act may make it 
difficult, if not impossible, to obtain that type of financing. 
Therefore, the sponsors determined that it would be appropriate 
to temporarily increase the amount of the loan guarantee from 
$1 million to $1.5 million. No additional changes were made in 
the overall statutory cap of a gross $2 million loan. The 
sponsors of H.R. 4062 did not believe that was necessary 
because any additional gaps in financing can be addressed using 
combination financing, under the terms of this Act. Given the 
fact that borrowers get an additional increment in loan 
guarantees, H.R. 4062 requires an additional 0.25 percent fee 
for the amount of guarantee in excess of $1 million. Thus, on 
the amount of the guarantee between $1 million and $1.5 
million, the upfront fee authorized pursuant to Section 
7(a)(18) of the Small Business Act increases from 3.5 percent 
to 3.75 percent. This is consistent with typical commercial 
lending practices of charging fees that are commensurate with 
the lenders' exposure to risk.

5.11  H.R. 4478--To Provide for an Additional Temporary Extension of 
        Programs Under the Small Business Act and the Small Business 
        Investment Act of 1958 Through July 23, 2004, and for Other 
        Purposes

                          Legislative History

    6/2/2004: Referred to the House Committee on Small 
Business.
    6/3/2004 2:31pm: Committee on Small Business discharged.
    6/3/2004 2:31pm: Mr. Manzullo asked unanimous consent to 
discharge from committee and consider.
    6/3/2004 2:31pm: Considered by unanimous consent.
    6/3/2004 2:32pm: On passage Passed without objection.
    6/3/2004 2:32pm: Motion to reconsider laid on the table 
Agreed to without objection.
    6/3/2004: Received in the Senate.
    6/25/2004: Read twice and referred to the Committee on 
Small Business and Entrepreneurship.

                          Need for Legislation

    H.R. 4478 extends the general authorization for SBA 
programs from June 4, 2004 until July 23, 2004 while Congress 
continued to work on a more comprehensive SBA reauthorization 
bill. This legislation reauthorizes SBA programs not covered by 
regular appropriations such as the Preferred Surety Bond 
program; the price preference in the Small Disadvantaged 
Business (SDB) program; SBA's co-sponsorship authority, which 
enables the SBA to accept private donations to put on events or 
print publications; the Women's Business Center Sustainability 
pilot program; grants to SBDCs to implement part of the Paul D. 
Coverdell Drug-Free Workplace program; the Very Small Business 
Concerns pilot program; and the Pre-Disaster Mitigation pilot 
program. Without this bill, these programs, which are not 
covered by a direct appropriation, would not be able to 
function.

                      Section-by-Section Analysis

    Section 1.--Additional temporary extension of authorization 
of programs under the Small Business Act and the Small Business 
Investment Act of 1958. The authorization for any program, 
authority, or provision, including any pilot program, which was 
extended through June 4, 2004 as per Public Law 108-217, is 
further extended through July 23, 2004, under the same terms 
and conditions.
    Section 2.--Contains a technical amendment to insure that 
the 504 Certified Development Company (CDC) program operates 
under the same terms and conditions as it was at the beginning 
of the fiscal year.

5.12  H.R. 5008--To Provide an Additional Temporary Extension of 
        Programs Under the Small Business Act and the Small Business 
        Investment Act of 1958 Through September 30, 2004, and for 
        Other Purposes. Public Law 108-306

                          Legislative History

    9/7/2004: Referred to the House Committee on Small 
Business.
    9/13/2004 5:05pm: Mrs. Capito moved to suspend the rules 
and pass the bill.
    9/13/2004 5:05pm: Considered under suspension of the rules.
    9/13/2004 5:27pm: On motion to suspend the rules and pass 
the bill Agreed to by voice vote.
    9/13/2004 5:27pm: Motion to reconsider laid on the table 
Agreed to without objection.
    9/14/2004: Received in the Senate, read twice, considered, 
read the third time, and passed without amendment by Unanimous 
Consent.
    9/15/2004: Message on Senate action sent to the House.
    9/16/2004: Cleared for White House.
    9/16/2004: Presented to President.
    9/24/2004: Signed by President.
    9/24/2004: Became Public Law No: 108-306.

                          Need for Legislation

    H.R. 5008 extends the general authorization for SBA program 
until September 30, 2004 while Congress continued to work on a 
more comprehensive SBA reauthorization bill. This legislation 
reauthorizes SBA programs not covered by regular appropriations 
such as the Preferred Surety Bond program; the price preference 
in the Small Disadvantaged Business (SDB) program; SBA's co-
sponsorship authority, which enables the SBA to accept private 
donations to put on events or print publications; the Women's 
Business Center (WBC) Sustainability pilot program; grants to 
SBDCs to implement part of the Paul D. Coverdell Drug-Free 
Workplace program; the Very Small Business Concerns pilot 
program; and the Pre-Disaster Mitigation pilot program. Because 
the previous extension had not been able to pass the Senate 
(H.R. 4478), these programs were not allowed to operate from 
June 4 (the previous expiration date) until the day the 
President signed this bill into law.
    This temporary gap of authorization was particularly 
burdensome to the WBC sustainability pilot program, which 
allows the SBA to provide grants to established WBCs beyond 
their five-year limit of eligibility. Grants in the WBC program 
are generally awarded on July 1 and there could have been some 
centers that closed because of a lack of funds due to the tough 
economic climate that makes it hard for many of these centers 
to raise sufficient funds from the private sector. The 
appropriations were there for these WBCs but they had only 
until the end of the fiscal year--or September 30, 2004--to be 
able to take advantage of ``sustainability'' grants. Passage of 
H.R. 5008 into law was particularly fortuitous at that point in 
time for the WBC program, particularly since the Senate did not 
take up the previous SBA temporary extension bill (H.R. 4478) 
and there was a hiatus in SBA authorization from June 4, 2004 
until September 24, 2004.
    In addition, H.R. 5008 corrected a legal problem regarding 
how the SBA pays fiscal transfer agents who provide a vital 
role in the secondary market. For nearly 10 years, the SBA's 
fiscal transfer agent has been paid by a float on interest on 
the pools of securitized 7(a) guaranteed loans. In July, there 
has been some confusion within the Administration as to whether 
or not this practice violates the Anti-Deficiency Act. The SBA 
proposed a fix to this problem and that solution is 
incorporated in Section 3 of H.R. 5008, which essentially 
codifies the existing practice. Passage of H.R. 5008 was needed 
in order to prevent the crippling of the SBA's 7(a) loan 
program because without the liquidity of the secondary market, 
banks will not make as many 7(a) loans as in the past.

                      Section-by-Section Analysis

    Section 1--Additional temporary extension of authorization 
of programs under the Small Business Act and the Small Business 
Investment Act of 1958. The authorization for any program, 
authority, or provision, including any pilot program, which was 
extended through June 4, 2004 as per Public Law 108-217, is 
further extended through September 30, 2004, under the same 
terms and conditions.
    Section 2--Contains a technical amendment to insure that 
the 504 Certified Development Company (CDC) program operates 
under the same terms and conditions as it was at the beginning 
of the fiscal year.
    Section 3--Fixes the compensation of fiscal transfer agents 
in the SBA's 7(a) general business loan guarantee program by 
codifying into law existing practice--permitting a float on 
interest while the fee is in the control of the fiscal agent 
prior to when the fiscal agent is required to remit the fee to 
the SBA.

5.13  H.R. 5108--Small Business Reauthorization and Manufacturing 
        Assistance Act of 2004 Key elements of H.R. 5108 were 
        incorporated into Division K of the Consolidated Appropriations 
        Act, 2005 (H.R. 4818--Public Law 108-447)

                          Legislative History

    Related Bills: S.2821
    9/21/2004: Referred to the House Committee on Small 
Business.
    11/20/04: Revised Section 102; revised Section 103; Section 
104; Section 105; Section 106; Section 107; Section 108; 
Section 109; Section 201; Section 202; Section 211; Section 
212; Section 213; Section 214; Section 215; Section 401; 
revised Section 402; Section 431; Section 432; Section 433; 
Section 434; (Section 501 was no longer needed since SBA 
committed to completing the women's procurement study by the 
end of December 2004); Section 601; Section 603; and Section 
604 of H.R. 5108 incorporated into Division K of H.R. 4818.
    11/20/2004  12:18am: Conference report to accompany H.R. 
4818 H. Rept. 108-792 filed.
    11/20/2004: Conferees agreed to file conference report.
    11/20/2004  2:31pm: Mr. Young (FL) brought up conference 
report H. Rept. 108-792 for consideration under the provisions 
of H. Res. 866.
    11/20/2004  3:32pm: The previous question was ordered 
without objection.
    11/20/2004  4:01pm: On agreeing to the conference report 
Agreed to by the Yeas and Nays: 344--51, 1 Present (Roll no. 
542).
    11/20/2004  4:01pm: Motions to reconsider laid on the table 
Agreed to without objection.
    11/20/2004: Conference papers: Senate report and manager's 
statement and message on House action held at the desk in 
Senate.
    11/20/2004: Senate agreed to conference report by Yea-Nay 
Vote. 65--30. Record Vote Number: 215.
    11/20/2004: Held at desk. pending adoption of H.Con.Res. 
528, as amended, by the House.
    11/20/2004: Message on Senate action sent to the House.
    12/6/2004  6:55pm: Pursuant to the provisions of H. Con. 
Res. 528, enrollment corrections on H.R. 4818 have been made.
    12/6/2004: Cleared for White House.
    12/7/2004: Presented to President.
    12/8/2004: Signed by President.
    12/8/2004: Became Public Law No: 108-447.

                          Need for Legislation

    The programs and the authorities for the Small Business 
Administration (SBA) expired on September 30, 2003. The 
Committee passed a comprehensive SBA reauthorization bill on 
July 24, 2003 (H.R. 2802--H.Rept. 108-325 Part I) but was 
unable to bring the bill up for floor consideration by the full 
House of Representatives. The Senate passed their version of 
SBA reauthorization on September 26, 2003 (S. 1375) but it was 
also not able to pass the House. Since October 1, 2003, the SBA 
functioned under a series of different short-term extensions, 
continuing resolutions, and, for a time, without any ability to 
offer programs not covered by appropriations. In the meantime, 
the House and Senate Small Business Committees negotiated a 
joint SBA reauthorization bill, which is reflected in the 
compromise as contained in H.R. 5108/S. 2821. About 80 percent 
of the provisions of H.R. 5108/S. 2821 were subsequently folded 
into the Consolidated Appropriations Act, 2005 with a few other 
provisions that were either Administration requests or further 
additions from the Senate. This action was necessary in order 
to insure continuation of operations of SBA programs and 
authorities without interruption over the next two years and to 
finally update and reform certain SBA programs.

                      Section-by-Section Analysis


                         DIVISON K OF H.R. 4818


  TITLE I--SMALL BUSINESS REAUTHORIZATION AND MANUFACTURING ASSISTANCE


Section 1. Short title; table of contents

               Subtitle A--Small Manufacturers Assistance

    Sections 101 through 103 implements the 7(a) compromise 
with the Administration and the lending community that allows 
the 7(a) loan guarantee program to go to zero subsidy rate 
(requiring no appropriations).

Section 101. Express loans

    Loan limit size is raised in SBAExpress, in which in return 
for allowing banks to use their own paperwork the guarantee 
rate is lowered to 50 percent (not 75 percent for loans over 
$150,000 or 80 percent for loans under $150,000), from $250,000 
to $350,000 and insures that SBAExpress continues to be truly 
an option, not a requirement, for banks.

Section 102. Loan guarantee fees

    Section 102 sets the maximum fee levels for borrowers and 
lenders and gives flexibility to the SBA to administratively 
reduce fees. The fee structure is: 2 percent upfront borrower 
fee for loans under $150,000; 3 percent upfront borrower fee 
for loans between $150,000 and $700,000; 3.5 percent upfront 
borrower fee for loans over $700,000; and for loans above $1 
million to the new maximum guarantee limit of $1.5 million, an 
extra risk premium of 0.25 percent upfront borrower fee is 
added (on top of the 3.5 percent fee they already pay). The 
maximum annual fee level for lenders at 0.55 percent (currently 
it is 0.50 percent and is not expected to increase) but this 
gives a small cushion to the SBA in order to keep the 7(a) 
program operating at no cost to the taxpayer without requiring 
legislation.

Section 103. Increase in guarantee amount and institution of associated 
        fee

    Increases the maximum 7(a) loan guarantee limit from $1 
million to $1.5 million (similar to how the 7(a) program 
operated between April and September 2004).

Section 104. Debenture size

    Increases the maximum loan debenture size to $1.5 million; 
$2 million for projects involved in one or more of the Small 
Business Investment Act public policy goals; and $4 million for 
small manufacturers.

Section 105. Job requirements

    Increases the job requirement test to $50,000 of guarantee 
for every one job created or retains (up from $35,000); 
$100,000 in the case of a project of a small manufacturer; and 
$75,000 for areas generally considered to need greater economic 
development.

Section 106. Report regarding national database of small manufacturers

    The SBA shall conduct a study, in conjunction with the 
association of small business development centers, to examine 
the feasibility of creating a database of small manufacturers 
for use by American higher education institutions in satisfying 
their procurement needs.

Section 107. International trade

    Authorizes the use of International Trade (IT) Loans to 
refinance existing debt to make it consistent with all other 
7(a) loans. Also authorizes that findings by the International 
Trade Commission (ITC) or a Trade Adjustment Assistance Center 
(TAAC) are proof that a small business has been adversely 
affected by foreign imports. Raises IT loan guarantee limit 
from $1,250,000 to $1,750,000, consistent with past practice to 
have the IT guarantee loan limit $250,000 above the regular 
7(a) guarantee loan limit, which, in Section 103, is scheduled 
to be raised again to $1.5 million.

                       Subtitle B--Authorizations


Chapter 1--Program Authorization Levels and Additional Reauthorizations


Section 121. Program authorization levels

     Disaster Mitigation Pilot Program--$15 million for 
FY 05; $15 million for FY 06.
     7(m) program--$75 million in technical assistance 
grants and $105 million in direct loans for FY 05; $80 million 
in technical assistant grants and $110 million in direct loans 
for FY 06.
     7(a) program--$16.5 billion for FY 05; $17 billion 
for FY 06.
     504 program--$6 billion for FY 05; $7.5 billion 
for FY 06.
     Small Business Investment Company (SBIC) program--
$4.25 billion in participating securities and $3.25 billion in 
debentures for FY 05; $4.5 billion in participating securities 
and $3.5 billion in debentures for FY 06.
     SCORE program--$7 million for FY 05; $7 million 
for FY 06.
     Reauthorizes all other SBA programs for two years 
at such sums as necessary unless specific authorization exists 
elsewhere.

Section 122. Additional reauthorizations

     Extends Drug-Free Workplace program assistance 
until October 1, 2006.
     Small Business Development Centers (SBDCs)--$130 
million for FY 05; $135 million for FY 06. At least $1 million 
of this authorization shall be reserved for eligible SBDCs in 
economically challenged communities as a result of business or 
government downsizing or closing.

        Chapter 2--Paul D. Coverdell Drug-Free Workplace Program


Section 123. Paul D. Coverdell Drug-Free Workplace Program 
        authorization provisions

    Provides a $1.5 million authorization level for FY 05 and 
FY 06;

Section 124. Grant provisions

    Reauthorizes grants to SBDCs under this program to provide 
technical assistance to small businesses seeking to establish a 
drug-free workplace.

Section 125. Drug-free communities coalitions as eligible 
        intermediaries

    Permits drug-free communities coalitions to receive grants.

Section 126. Promotion of effective practices of eligible 
        intermediaries

    Requires grantees to standardize their data in order to 
have a better evaluation of the program.

Section 127. Report to Congress

    Requires a study by the SBA to determine the effectiveness 
of the program within 18 months.

                 Subtitle C--Administration Management


Section 131. Lender examination and review fees

    Requires any 7(a) lender to pay the examination and review 
fees of the SBA.

Section 132. Gifts and co-sponsorship authority

    Extends the authorization and clarifies SBA's gift receipt 
policy and co-sponsorship authority, which allows the SBA to 
partner with the private sector to put on conferences or print 
publications, until October 1, 2006.

            Subtitle D--Entrepreneurial Development Programs


            Chapter 1--Office of Entrepreneurial Development


Section 141. Service Corps of Retired Executives (SCORE) technical 
        corrections

    Makes technical corrections to continue SBA payment and 
housing of SCORE officers.

Section 142. Small Business Development Center Program

    Protects the privacy rights of small business clients that 
use Small Business Development Centers (SBDCs).

           Chapter 2--Office of Veterans Business Development


Section 143. Advisory Committee on Veterans Business Affairs

    Provides for authorization of the Advisory Committee on 
Veterans Business Affairs extends until September 30, 2006.

Section 144. Outreach grants for veterans

    Permits members of the Armed Forces Reserves to be eligible 
for outreach grants for veterans.

Section 145. Authorization of appropriations

    Provides authorization levels of $1.5 million for FY 05; $2 
million for FY 06.

Section 146. National Veterans Business Development Corporation

    Clarifies that the National Veterans Business Development 
Corporation is a private entity and is not part of the U.S. 
government.

        Chapter 3--Manufacturing and Entrepreneurial Development


Section 147. Small Business Manufacturing Task Force

    Creates a Small Business Manufacturing Task Force at the 
SBA to examine what SBA can do better to meet the needs of 
small manufacturers.

                      Subtitle E--HUBZone Program


Section 151. Streamlining and revision of HUBZone eligibility 
        requirements

    Allows agricultural cooperatives to participate in the 
HUBZone program.

Section 152. Expansion of qualified areas

    Former military bases that were closed as part of the Base 
Realignment and Closure process are automatically qualified as 
HUBZones. Slightly lowers the unemployment rate necessary for 
an area to be designated a HUBZone and also permits firms to 
remain in the HUBZone program if the unemployment rate improves 
slightly. Requires a study by the Office of Advocacy at the SBA 
on the HUBZone program.

Section 153. Price evaluation preference

    Price evaluation preference for purchases of agricultural 
commodities by the United States Department of Agriculture 
shall be 5 percent on the first portion of the contract to be 
awarded that is not greater than 20 percent of the total volume 
of each commodity being procured in a single bidding 
opportunity.

Section 154. HUBZone authorizations

    HUBZone program is authorized through 2006.

Section 155. Participation in federally funded projects

    Clarifies that any small business that is certified or 
meets the criteria of the 8(a) program shall not be required to 
meet any additional criteria to participate in federal 
government procurement opportunities as a small disadvantaged 
business.

              Subtitle F--Small Business Lending Companies


Section 161. Supervisory and enforcement authority for small business 
        lending companies

    Grants SBA the regulatory authority to regulate 7(a) 
lenders that are not already regulated by state or federal 
banking authorities and are defined in section 162.

Section 162. Definitions relating to small business lending companies

    Defines the terms ``small business lending company'' and 
``non-federally regulated bank.''

                   TITLE II--MISCELLANEOUS AMENDMENTS


Section 201. Amendment to definition of equity capital with respect to 
        issuers of participating securities

    Gives SBA the flexibility to define an ``equity security'' 
in the participating securities portion of the Small Business 
Investment Company (SBIC) program.

Section 202. Investment of excess funds

    Makes an investment of ``idle'' funds (funds temporarily 
not used by an SBIC for investment in small business) more 
reasonable while still mandating that the funds be insured.

Section 203. Surety bond amendments

    Clarifies that the maximum surety bond guarantee to cover 
the total work order (not just the contract limit). Changes the 
audit frequency of surety bond companies from once a year to 
once every three years. Makes the surety bond program 
permanent.

Section 204. Effective date for certain fees

    Grants permanent authority to the SBA to charge fees in the 
504 CDC loan program.

5.14 S. 141--To Improve the Calculation of the Federal Subsidy Rate 
        With Respect to Certain Small Business Loans, Public Law 108-8

                          Legislative History

    1/10/2003: Introduced in the Senate, read twice, 
considered, read the third time, and passed without amendment 
by Unanimous Consent.
    1/27/2003  2:01pm: Received in the House.
    1/27/2003: Message on Senate action sent to the House.
    1/27/2003: Referred to the Committee on the Budget, and in 
addition to the Committee on Small Business, for a period to be 
subsequently determined by the Speaker, in each case for 
consideration of such provisions as fall within the 
jurisdiction of the committee concerned.
    1/27/2003: Referred to House Budget.
    1/27/2003: Referred to House Small Business.
    2/11/2003  4:36pm: Mr. Nussle moved to suspend the rules 
and pass the bill.
    2/11/2003  4:36pm: Considered under suspension of the 
rules.
    2/11/2003  5:10pm: On motion to suspend the rules and pass 
the bill Agreed to by voice vote.
    2/11/2003  5:10pm: Motion to reconsider laid on the table 
Agreed to without objection.
    2/11/2003: Cleared for White House.
    2/14/2003: Presented to President.
    2/25/2003: Signed by President.
    2/25/2003: Became Public Law No: 108-8.

                          Need for Legislation

    S. 141 solved the subsidy rate calculation problem in the 
Small Business Administration's (SBA) 7(a) general business 
loan guarantee program by allowing the Office of Management and 
Budget (OMB) to retroactively apply a more sophisticated 
econometric model that SBA and OMB developed and approved for 
application in the President's FY '04 budget request. OMB 
cannot do this internally. There needed to be a change in the 
law to allow OMB to ``open'' up the assumptions in the 
President's FY '03 request that was already submitted to 
Congress in February 2002. This new econometric model finally 
corrected the subsidy rate calculation error in the 7(a) 
program by dropping it 41 percent using this new formula--from 
1.76 percent to 1.04 percent. This freed up $3.4 billion in new 
lending authority for the SBA. Passage of S. 141, combined with 
re-programming excess Supplemental Terrorist Activity Relief 
(STAR) loan funds to the regular 7(a) program in the FY '03 
Omnibus Appropriations bill, allowed SBA to rescind its October 
1, 2002 policy notice, which prohibited guaranteeing 7(a) loans 
above $500,000, on the day the President signed S. 141 into 
law.

                      Section-by-Section Analysis


Section 1. Subsidy rate for small business loans

    Notwithstanding the applicable provisions of the Federal 
Credit Reform Act of 1990 and the Balanced Budget and Emergency 
Deficit Control Act of 1985, the Director of the Office of 
Management and Budget, in calculating the Federal cost for 
guaranteeing 7(a) loans during fiscal year 2003, may use the 
most recently approved subsidy cost model and methodology in 
conjunction with the program and economic assumptions, and 
historical data which were included in the fiscal year 2003 
budget. After written notification to Congress, the Small 
Business Administration shall implement the validated, OMB-
approved subsidy rate for fiscal year 2003, using this model 
and methodology. Such rate shall be deemed to have been 
effective on October 1, 2002.

5.15  S. 1895--A Bill to Temporarily Extend the Programs Under the 
        Small Business Act and the Small Business Investment Act of 
        1958 Through March 15, 2004, and for Other Purposes, Public Law 
        108-172

                          Legislative History

    11/19/2003: Introduced in the Senate, read twice, 
considered, read the third time, and passed without amendment 
by Unanimous Consent.
    11/20/2003: Message on Senate action sent to the House.
    11/20/2003 10:05am: Received in the House.
    11/20/2003 1:47pm: Held at the desk.
    11/20/2003 6:55pm: Mr. Schrock asked unanimous consent to 
take from the Speaker's table and consider.
    11/20/2003 6:55pm: Considered by unanimous consent.
    11/20/2003 6:56pm: On passage Passed without objection.
    11/20/2003 6:56pm: Motion to reconsider laid on the table 
Agreed to without objection.
    11/20/2003: Cleared for White House.
    11/25/2003: Presented to President.
    12/6/2003: Signed by President.
    12/6/2003: Became Public Law No: 108-172.

                          Need for Legislation

    S. 1895 extends the general authorization for SBA programs 
until March 15, 2004 while Congress continues to work on a more 
comprehensive SBA reauthorization bill. This legislation 
reauthorizes SBA programs not covered by regular appropriations 
such as the Preferred Surety Bond program; the price preference 
in the Small Disadvantaged Business (SDB) program; SBA's co-
sponsorship authority, which enables the SBA to accept private 
donations to put on events or print publications; the Women's 
Business Center (WBC) Sustainability pilot program; grants to 
SBDCs to implement part of the Paul D. Coverdell Drug-Free 
Workplace program; the Very Small Business Concerns pilot 
program; and the Pre-Disaster Mitigation pilot program. Without 
passage of S. 1895, these programs, which are not directly 
covered by appropriations, would not be able to operate.
    In addition, S. 1895 raised the fee range slightly in the 
Small Business Investment Company (SBIC) program for the entire 
Fiscal Year 2004 from 1.38 percent to 1.46 percent in order to 
keep the SBIC program open for business and fully operating 
without the need for any federal appropriation.

                      Section-by-Section Analysis

    Section 1.--The authorization for any program, authority, 
or provision, including any pilot program, under the Small 
Business Act and the Small Business Investment Act of 1958 that 
is set to expire on or after September 30, 2003 is extended 
through March 15, 2004, under the same terms and conditions in 
effect on September 30, 2003. The fees in the SBIC program are 
changed from 1.38 percent to 1.46 percent.


                              CHAPTER SIX

   SUMMARY OF OTHER LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL 
                                BUSINESS

6.1  Committee Meetings
            6.1.1  organizational meetings
    On February 26, 2003 the Committee on Small Business held 
an organization meeting. The purpose of this meeting was 
threefold: (1) to consider and adopt the Committee rules for 
the 108th Congress, (2) to consider and adopt the Committee's 
oversight plan for the 108th Congress, and (3) approve the 
subcommittee assignments for Members of the Committee. The 
Committee rules, oversight plan, and organization of 
subcommittees were adopted by voice vote. The text of the 
Committee's oversight plan follows:

    6.1.2  OVERSIGHT PLAN FOR THE COMMITTEE ON SMALL BUSINESS 108TH 
                                CONGRESS

                     U.S. HOUSE OF REPRESENTATIVES

                      DONALD A. MANZULLO, CHAIRMAN

    Rule X, clause 2(d)(1), of the Rules of the House requires each 
standing Committee to adopt an oversight plan for the two-year period 
of the Congress and to submit the plan to the Committees on Government 
Reform and House Administration not later than February 15 of the first 
session of the Congress.
    The Oversight Plan of the Committee on Small Business includes 
areas in which the Committee expects to conduct oversight activity 
during the 108th Congress. However, this plan does not preclude 
oversight or investigation of additional matters as the need arises.

             OVERSIGHT OF THE SMALL BUSINESS ADMINISTRATION

    The Committee will conduct hearings on all the major programs of 
the Small Business Administration (SBA) to determine their 
effectiveness and possible options for improvements, as a prelude to 
reauthorization of the entire SBA to be completed by September 30, 
2003.

         FINANCIAL AND MANAGEMENT/TECHNICAL ASSISTANCE PROGRAMS

    The Committee will conduct hearings on the effectiveness and 
efficiency of the SBA's major programs. These include: 7(a) General 
Business Loan Program, the Certified Development Company Program, the 
Small Business Investment Company (SBIC) Program, the Microloan 
Program, the Disaster Loan Program, Small Business Development Centers 
(SBDCs), and New Markets Venture Capital Program. In particular, the 
Committee will closely monitor the subsidy rate calculations for the 
loan guarantee programs and take the necessary steps to ensure that the 
programs are able operate during this economic downturn in the most 
fiscally-prudent manner possible. In addition, the Committee will 
oversee the Office of Government Contracting to ensure that other 
Federal agencies meet the minimum threshold of various small business 
goals in Federal government procurement.
    The Committee will also examine on the ability of small businesses 
to gain access to capital, focusing particularly on interest rates and 
bank regulations.

                                ADVOCACY

    The Office of Advocacy was created to provide small business with 
an effective voice inside the Federal government. The Committee will 
conduct hearings on how to strengthen this voice and make sure that the 
Office of Advocacy continues to effectively represent the interests of 
small business. As part of this process, the Committee will also 
monitor the implementation of Executive Order 13272 regarding the 
``Proper Consideration of Small Entities in Agency Rulemaking.'' 
(Spring 2003)

                                VETERANS

    In the 106th Congress, Congress created a new office of Veterans 
Business Development and the National Veterans Business Development 
Corporation to enhance and improve small business services to our 
nation's veterans. The Committee will continue to conduct hearings on 
the implementation of the Veterans Entrepreneurship and Small Business 
Development Act, including a review of the progress on achieving the 
service-disabled veterans goal in procurement. (Summer, 2003)

                   TECHNOLOGY AND RESEARCH ASSISTANCE

               Small Business Innovation Research program

    The Small Business Innovation Research (SBIR) program aids small 
businesses in obtaining federal research and development funding for 
new technologies. In 2000, Congress reauthorized the SBIR program for 
eight years. The Committee will investigate the implementation of the 
changes to the SBIR program and, more particularly, the outreach effort 
of the SBIR program to make sure that all areas of the country benefit 
from the program.

           Small Business Technology Transfer (STTR) program

    Committee oversight will focus on the program's success at helping 
small business access technologies developed at federal laboratories 
and put that knowledge to work. In 2001, Congress reauthorized the STTR 
program for eight years. The Committee will monitor agency 
implementation of PL 107-50 particularly as the funding formula changes 
in FY 2004. (Fall 2003)

                          FEDERAL PROCUREMENT

    The Committee will examine needed changes in federal procurement. 
The Committee will continue to monitor and highlight the practice of 
creating bundled or consolidated mega-contracts that are too large for 
small business participation. Additionally, the implementation of 
Administration's strategy for increasing Federal contracting 
opportunities for small business as released by the Office of Federal 
Procurement Policy at the Office of Management and Budget in October 
2002 will be closely scrutinized.
    Because there is a direct correlation between the ability of an 
agency to achieve its goals and contract bundling, the success of 
Federal agencies in meeting all their small business goals will also be 
assessed.
    With the continued practice of contract bundling, more small 
businesses will become subcontractors. In light of this, the Committee 
will work to ensure fair treatment for subcontractors on Federal 
contracts.
    The Committee will also investigate the women's contracting program 
to make sure the program is serving the needs of women-owned 
businesses. (On-going)

                         GOVERNMENT COMPETITION

    The Committee will examine the extent to which the Federal 
government itself directly or indirectly competes with small business. 
Our focus will include activities in both government practices and in 
certain status given by the Federal government to non-governmental 
entities. (On-going)

                         REGULATORY FLEXIBILITY

    The Committee will continue its oversight of agency compliance with 
the Regulatory Flexibility Act, as amended by the Small Business 
Regulatory Enforcement Fairness Act. (Ongoing)
    The Committee will oversee the implementation of the Truth in 
Regulating Act. (Winter, 2003)

                                 SBREFA

    The Committee will be conducting oversight hearings on agency 
implementation of the Small Business Regulatory Enforcement Fairness 
Act (SBREFA), which was enacted during the 104th Congress. The 
Committee will also examine the need to further amend and strengthen 
SBREFA. (Ongoing)

                          PAPERWORK REDUCTION

    The Committee will hold hearings and work to reauthorize the 
Paperwork Reduction Act. (2003)

                         GOVERNMENT REGULATION

    The Committee will continue to examine the regulatory activities of 
various Federal agencies and assess the impact of regulations on the 
small business community. (Ongoing)

                                TAXATION

    The Committee will continue to conduct oversight hearings into ways 
to reduce the tax burden on small business. These hearings will include 
not only the monetary but also the paperwork burden of the Federal tax 
system and Federal enforcement efforts on small business. (Ongoing)

                                 ENERGY

    The Committee will conduct oversight hearings on the potential 
effects of any legislative changes in energy policy, including 
examining the possible effects of deregulation of electricity on small 
business. (Summer, 2003)

                 GOVERNMENT PERFORMANCE AND RESULTS ACT

    The Committee will continue consultations with the SBA regarding 
the preparation and implementation of strategic plans and performance 
plans as required by the Government Performance and Results Act. 
(Summer, 2003)

                              EMPOWERMENT

    The Committee will conduct oversight hearings on regulations and 
licensing policies that impact small businesses located in high risk 
communities. The Committee will also examine the promotion of business 
growth and opportunities in economically depressed areas, and will 
examine programs targeted towards relief for low-income communities. 
The challenges facing minority-owned businesses will continue to be 
evaluated. (Ongoing)
    The Committee will specifically look at agency implementation of 
the New Markets Initiative Act and the Program for Investment in 
Microentrepreneurs (PRIME) program. (Spring, 2003)

                               WORKFORCE

    The Committee will examine issues related to the problems faced by 
small businesses in attracting and retaining a high quality workforce. 
Specifically, the Committee will investigate vocational education 
programs, worker retraining programs, and wage and benefit issues. 
(Ongoing)

                              HEALTH CARE

    The Committee will examine ways on how to improve access and 
increase affordability of high quality medical care for small business 
owners and their employees. (Ongoing)

                             PENSION REFORM

    The Committee will examine ways on how to enhance retirement 
security for small business owners and their employees. (Ongoing)

                       E-COMMERCE AND TECHNOLOGY

    The Committee will continue to conduct oversight hearings into ways 
to reduce the ``digital divide'' in order to promote business growth 
and opportunities in economically depressed areas. These hearings will 
also examine ways to help the average small businessperson exploit the 
vast potential of Internet commerce. (Ongoing)

                           TELECOMMUNICATIONS

    The Committee will examine the impact of Telecommunications Act of 
1996 on small business. First, the Committee will investigate whether 
or not the broadest range of small businesses have benefited from more 
competition in the telecommunications market through lower prices and 
better service. Second, the Committee will investigate whether or not 
small business telecommunication companies have benefited from the Act. 
The Committee will explore alternatives to enhance the benefits of the 
changes in telecommunications technology for small business. (Ongoing)

                          INTERNATIONAL TRADE

    The Committee will continue to examine ways to expand export 
opportunities for small business. The Committee will conduct oversight 
hearings on Federal trade policy and export promotion programs to 
insure that they serve the needs of small business exporters. (Ongoing)

                             SELF-EMPLOYED

    The Committee will hold oversight hearings on how to reduce the 
regulatory and tax burden on the self-employed, particularly those in 
home-based businesses. (Ongoing)

                             MANUFACTURING

    The Committee is gravely concerned that over 2 million jobs have 
been lost in manufacturing over the past two years, much of which were 
in small manufacturing businesses. The Committee will hold a series of 
hearings to examine the causes of these problems and propose a series 
of recommendations for both legislative and administrative changes. 
(Spring, Summer 2003)

                     AGRICULTURAL/RURAL/FARM ISSUES

    The Committee will examine ways to promote business growth and 
opportunities in rural areas. The Committee will hold oversight 
hearings on agricultural issues that impact small business. (Ongoing)
    The Committee will hold oversight hearings on the impact of Federal 
lands policy on small business. (Ongoing)

                     REVIEW OF SPECIFIC REGULATIONS

    Pursuant to Rule X, cl. 2(d)(1), the Committee on Small Business is 
required to submit to the Committee on Government Reform and the 
Committee on House Administration an oversight plan that ``reviews 
specific problems with Federal rules, regulations, statutes, and court 
decisions that are ambiguous, arbitrary, or nonsensical, or that impose 
severe financial burdens on individuals. . . .'' The following is a 
summary of regulations that the Committee has so far identified for 
review but should not be interpreted as limiting the Committee's review 
of regulations issued by federal agencies that continue to impose 
unnecessary burdens on small business. In part, this review is based on 
the Committee's legislative jurisdiction to provide continuing 
oversight of the Regulatory Flexibility Act pursuant to Rule X, cl. 
1(o)(1).
    1. Pathogen Reduction and Hazard Analysis of Critical Control 
Points, 9 C.F.R. Parts 417 and 500: Federally inspected meat and 
poultry processors are required to initiate a plan to control food 
safety hazards. Rather than adopting procedures to assist small 
businesses in developing these plans, USDA has imposed onerous 
prescriptive regulatory requirements in contravention of the principles 
elucidated by HACCP. This has imposed substantial costs on small 
businesses without any concomitant benefit to consumers of meat and 
poultry products.
    2. Certificates of Medical Necessity, 42 U.S.C. Sec. 1395m(j)(2) 
and Implementing Rules and Guidance: Suppliers of durable medical 
equipment cannot obtain reimbursement unless they have a CMN from a 
physician authorizing the use of the equipment. Carriers processing 
such claims for the federal government often require much greater 
detail imposing substantial record keeping and reporting burdens on 
small equipment suppliers.
    3. National Landscape Conservation System, proposed rule to 
implement Antiquities Act: Department of Interior is developing rules 
for creating land management plans for national monuments designated 
under the Antiquities Act. Small businesses and nearby rural 
communities are concerned that these plans will not properly assess the 
economic impact of management decisions pursuant to the Regulatory 
Flexibility Act.
    4. Birth and Adoption Unemployment Compensation, 20 C.F.R. Part 
604: Authorizes states to utilize unemployment compensation for funding 
parental leave to care for newborns or newly adopted children. Forcing 
small businesses to subsidize leave of employees from larger companies 
when they are exempt under the Family and Medical Leave Act. This 
imposes substantial economic burdens on small businesses without 
providing any of them any benefits whatsoever.
    5. Lead in Construction Standard, 29 C.F.R. Sec. 1926.62: 
Establishes requirements to reduce exposures to lead in the 
construction industry. For home remodelers working on homes constructed 
after 1977, there is no possibility of exposure to lead-based paints 
because they were banned for home use. Therefore, small businesses face 
additional costs even though they face no hazard from exposure to lead.
    6. Sling Standard, 29 C.F.R. Sec. 1910.184: Regulations establish 
requirements for using slings to lift heavy loads. The regulations do 
not conform to current industry practices, which are much safer and 
impose disproportionate burdens on small businesses.
    7. Record keeping for Work-Related Injuries, Illnesses and 
Fatalities, 29 C.F.R. Part 1904: Regulations require employers to 
record and report work-related injuries, illnesses, and fatalities. The 
biggest problem with these regulations is the ambiguous definition of 
work-related injuries and the problems that small entities face in 
determining whether to record a particular injury. This imposes 
substantial costs on small entities with little or no benefit to worker 
protection.
    8. Hours of Service for Commercial Motor Vehicles, 49 C.F.R. Parts 
350, 390, 394-95, 398: The proposed rule would impose stringent 
standards on the hours-of-service of operators of CMVs. Small 
businesses, from soft drink distributors to tour bus companies, will 
face substantial costs even though the recommended changes may not 
improve road safety. In particular, the Committee is concerned that the 
original proposal did not comply with the Regulatory Flexibility Act.
    9. Hazardous Materials Training Requirements, 49 C.F.R. 
Sec. 172.704 and 29 C.F.R. Sec. 1910.120: Both OSHA and the DOT require 
training for employees handling hazardous materials. For small 
businesses that transport hazardous materials, this is the type of 
duplicative regulation that the Regulatory Flexibility Act was designed 
to eliminate. Compliance with the RFA would have reduced regulation on 
small businesses while still ensuring that workers understood how to 
handle hazardous materials.
    10. Monthly Tax Deposits, 26 C.F.R. Sec. 31.6302(g): Business with 
more than $50,000 in aggregate employment taxes must make those 
deposits by the 3d day after payment. Given inflation and the overall 
rise in salaries, many small businesses are faced with making the 
three-day payment whereas very small businesses have 15 days to make 
payments. The universe of ``very small businesses'' to reduce burdens 
on small businesses.
    11. Definition of Solid Waste, 40 C.F.R. Sec. 261.2: Given the 
current definition of waste under RCRA, recycled materials that are 
used as feedstock in industrial processes still are considered waste. 
This prevents manufacturers from using recycled materials as a 
substitute for raw material feedstock thereby raising the cost of 
production. The impact of this regulation falls unduly on small 
businesses that do not have the margins of profits or the market share 
that large firms have to absorb higher feedstock costs.
    12. TRI Alternate Reporting Threshold (Form A), 40 C.F.R. Part 372: 
Releases of toxic chemicals must be made to EPA pursuant to the 
Emergency Planning and Community Right-to-Know Act (EPRCA). Form A is a 
short form for small dischargers and EPA prevents small dischargers of 
persistent bioaccumulative toxic chemicals from using Form A even 
though there is no evidence that many metals are bioaccumulative. This 
imposes unnecessary costs on small businesses.
    13. TRI Lead, 40 C.F.R. Part 372: Rule lowered burdens for releases 
of lead under EPRCA to 100 pounds even though science does not support 
the lowering. This imposes substantial burdens on small businesses, 
especially for thousands of businesses that have never even filed a TRI 
report.
    14. Concentrated Animal Feedlot Operations, Proposed Rule, 66 Fed. 
Reg. 2959 (Jan. 12, 2001): Proposed rule would impose discharge 
standards on thousands of new feeding operations (many of which are 
small businesses) that were not previously considered subject to the 
Clean Water Act's National Pollution Discharge Elimination permit 
system. EPA's assessment of impacts under the RFA were substantially 
inadequate.
    15. Stormwater Construction General Permit, 40 C.F.R. Sec. 122.26: 
Oil and gas exploration facilities are exempt from stormwater pollution 
permitting requirements. Nevertheless, EPA is planning to issue a 
general permit that would require oil and gas exploration facilities to 
file a permit. Many small oil and gas exploration companies will face 
significant costs in compliance.
    16. Effluent Guidelines for Metal Products and Machinery, Proposed 
Rule, 66 Fed. Reg. 424 (Jan. 3, 2001): Proposed rule would combine 
numerous metal products into one classification for purposes of the 
NPDES permit system. The RFA analysis did not adequately assess the 
costs on small businesses and, in fact, assumes benefits based on 
technology that is not achievable--a violation of the Clean Water Act.
    17. Regulations Implementing the Real Estate Settlement Procedures 
Act: HUD has proposed changes to the regulations governing the Real 
Estate Settlement Procedures Act. Many small businesses are concerned 
that the packaging of settlement costs by a single lender could force 
many small businesses involved in the real estate settlement process 
out of the business. Furthermore, many small businesses believe that 
the regulatory flexibility analysis prepared by HUD was inadequate.
    18. Commercial Mail Receiving Agencies, 39 C.F.R. Part 111: Final 
rule requires all Commercial Main Receiving Agencies to use the 
designation PMB or # in their address. Small businesses use CMRAs to 
give a sense that they are actually larger or more sophisticated than 
they appear because many businesses do not want to utilize home office 
businesses. The evidence does not support the USPS rationale for the 
rule--prevention of fraud--.
    19. Policy Guidance on the Prohibition Against National Origin 
Discrimination as it Affects Persons with Limited English Proficiency: 
Guidance document requires physicians to provide translation services 
to patients whose first language is not English. In many cases, the 
reimbursement for Medicare/Medicaid patients may not cover the cost of 
these translation services. And in certain rural areas, translators may 
not be available. This is the type of guidance document that should 
have been assessed under E.O. 12,866 and the RFA.
    20. Excise Taxes and Definition of Highway Vehicles, Proposed Rule, 
67 Fed. Reg. 38,913: IRS proposed rule would eliminate the exemption 
for special mobile machinery from highway trust fund excise taxes. IRS 
failed to comply with the RFA by not examining the impact of this 
regulatory change on small businesses.
    21. Triennial Review under the Telecommunications Act of 1996: FCC 
could implement changes to existing regulatory requirements that would 
affect the ability of competitors to challenge incumbents, particularly 
in the small business market. Given the past history of FCC rulemaking, 
it is conceivable that the FCC will not properly assess the impact of 
the changes on small businesses.

6.2  Budget Views and Estimates

    Pursuant to Section 301(c) of the Congressional Budget Act 
of 1974, the Committee prepared and submitted to the Committee 
on the Budget its views and estimates on the fiscal year 2004 
and 2005 budgets with respect to matters under the Committee's 
jurisdiction.
            6.2.1  fiscal year 2004 budget
    The Committee on Small Business submits these views and 
estimates on the FY 2004 budget submission on matters within 
our jurisdiction in compliance with Rule X, clause (4)(f), of 
the Rules of the House of Representatives. These views and 
estimates are based on the outline supplied by the President's 
Office of Management and Budget (OMB) for FY 2004 as well as 
the Small Business Administration's (SBA) budget submission. 
The President's proposed budget for FY 2004 emphasizes national 
defense, homeland security, and economic vitality. A key part 
of economic revitalization is creating jobs. Small businesses, 
as job creators, have always led this nation out of economic 
downturns and they will do so again.
    The Committee believes that most of the provisions of the 
President's budget request are sound and reasonable, 
particularly as it applies to the SBA.
    These views and estimates will be divided between two 
areas: the impact of the proposed tax relief on small business 
and SBA programs. Within the SBA, the views and estimates will 
be further divided into five areas: (1) Financial Programs, (2) 
Assistance Programs, (3) Disaster Assistance, (4) Salaries and 
Expenses, and (5) Office of Inspector General.

(1) Small Business Tax Relief

    The Committee again applauds the President for endorsing 
further tax relief proposals, which will help revitalize the 
economy. Key elements of the President's plan, as it impacts 
small business, include:
           Accelerating the bipartisan tax reductions 
        passed by Congress in 2001, including the individual 
        rate reductions, which help 85 percent of small 
        businesses that pay taxes on an individual, not 
        corporate, basis;
           Making permanent these same tax cuts, 
        including the all-important estate or ``death'' tax 
        repeal scheduled to take full effect in 2010;
           Dramatically increase small business 
        expensing--what small businesses can deduct immediately 
        off their taxes--from $25,000 to $75,000;
           Abolish the double tax on dividends 
        benefiting many small ``C'' corporations that retain 
        corporate earnings because they will not face capital 
        gains taxes on the increase in the value of the firm 
        from retained earnings that could have been distributed 
        as dividends; and
           Health care tax policies that will 
        facilitate individuals' purchases of health insurance 
        and health care, including long-term care, which would 
        provide further assistance to help the self-employed 
        purchase health insurance.
    While welcoming the President's initiative, the Committee 
believes the President's tax package could have contained more 
small business tax relief including:
          1. Accelerating depreciation schedules;
          2. Increasing the business meal deduction; and
          3. Setting a standard home office deduction.
    These tax relief priorities would also boost long-term 
growth that would help small businesses increase cash flow and 
allow them to add jobs. The Committee will be working on these 
and other common-sense small business tax relief and 
simplification initiatives throughout the coming year.

(2) Small Business Administration Programs

    The Committee supports the overall general spending level 
at the SBA. The President's budget request proposes essentially 
the same funding levels for the SBA as in last year's request--
$797.9 million. However, the Consolidated Appropriations 
Resolution for FY 2003 (H.J. Res. 2) provided a total of 
$736.46 million for the SBA. While many other domestic agencies 
suffered budgetary cutbacks, keeping spending at the SBA at the 
same level as in last year's request is an acknowledgment by 
the Administration of the importance of small business in 
leading the way in the economic recovery. However, there are 
still several problems with the budget request, which are 
discussed in further detail below.
            (A) SBA financial programs
            7(a) LOANS
    SBA guarantee-backed lending is the largest single source 
of long-term loans (those with maturities of three years or 
longer) to small businesses. The 7(a) loan guarantee program 
accounts for approximately 40 to 50 percent of all long-term 
loans to small businesses. The President's budget submission 
for FY 2004 lowers the subsidy rate for the 7(a) program from 
1.76 percent to 1.02 percent thanks to the development of an 
econometric model that more accurately predicts the future 
performance of the loan portfolio, a long-standing goal of both 
of our Committees. The President's budget proposes to spend 
$94.86 million for the 7(a) loan program to support a $9.3 
billion program level all without increasing fees on small 
business borrowers or lenders.
    While the Committee has concerns that the proposed $9.3 
billion program level may not be sufficient to meet expected 
demand as other outlets for capital have dried up for small 
business during this economic downturn, as evidenced by the 
heavy use of the 7(a) and the Supplemental Terrorist Activity 
Relief (STAR) loan program during the last fiscal year, the 
Committee recognizes the proposed funding level matches average 
historical use of the 7(a) program due mainly to a more 
accurate subsidy rate calculation. This achievement could not 
have been achieved without the active support of the Budget 
Committee, which this Committee is extremely grateful.

             504 CERTIFIED DEVELOPMENT COMPANY (CDC) LOANS

    Ever since 1996, the 504 loan program has operated at a 
zero subsidy rate, which means that the program requires no 
appropriations. This was accomplished through heavy fees that 
were placed on borrowers and lenders--fees needed to offset a 
severe increase in the subsidy rate. The Administration 
proposes a $4.5 billion program authorization for the 504 
program and the Committee concurs. The Committee is also 
grateful that the President's FY 2004 budget request proposes 
to decrease the annual fee charged each small business 504 loan 
borrower from 0.425 percent to 0.393 percent.
    While the Committee agrees that no appropriation should be 
required for this program, the Committee is very concerned that 
the subsidy estimates for the 504 program are overly 
conservative and consequently keeps fees to borrowers 
artificially high. Similar to the problem that faced the 7(a) 
loan guarantee program, the subsidy rates for the 504 program 
have not accurately reflected the actual performance of these 
loan portfolios over the past several years. Instead of being a 
prudent sinking fund, principally to purchase defaulted loans, 
the subsidy rate has been continually overstated so as to be a 
tax and not a responsible user fee. The average 504 loan 
borrower overpays $10,000 in fees to keep the program operating 
at no cost to the taxpayer. Budgetary re-estimates calculate 
that the 504 program has returned more than $400 million to the 
Treasury since 1997. High fees in the 504 program is one of the 
main reasons why the 504 program has been underutilized at a 
$2.5 billion program level each year even though it is 
authorized at $4.5 billion.
    In the progress report mandated by Public Law 107-77, the 
SBA Administrator pledged to work on an interim calculation 
method for the 504 program in FY 2004 with a final resolution 
of the problem in FY 2005. However, in the President's FY '04 
budget request, there is no interim model for the 504 program, 
which could have reduced fees even lower than 0.393 percent, 
and the econometric model for 504 is delayed yet another year 
until FY 2006. In response, report language was added to the 
Consolidated Appropriations Resolution for FY 2003 (H.J. Res. 
2) directing the SBA to develop an econometric model for the 
504 program this year to be ready for the next budget cycle, as 
originally promised. Again, the Committee would welcome a 
partnership with the Budget Committee in an effort to obtain a 
more accurate cost-subsidy rate model for the 504 program.

               SMALL BUSINESS INVESTMENT COMPANY PROGRAM

    The Administration proposes the same program level for both 
parts of the SBIC program, which is welcomed by the Committee. 
The Administration requests a $3 billion program level for the 
debenture program and a $4 billion program level for the 
participating securities program. When added to the minimum 
required private capital, this would make $10 billion in new 
capital available for SBIC investments in small businesses. 
Venture capital from SBICs fill a critical gap as other private 
sector sources dries up during this economic downturn. In fact, 
over 60 percent of all venture capital investments in FY 2002 
came from SBICs.
    The Administration requests no appropriations to fund 
either the debenture or the participating securities program in 
accordance with Public Law 107-100, which placed the entire 
SBIC program on a zero subsidy or no cost to the taxpayer 
basis. The Committee concurs with this aspect of the 
President's budget request. The debenture fees are reduced from 
0.887 percent to 0.855 percent while the participating security 
fees increase from 1.311 percent to 1.454 percent. The 
participating security fee increase will require a change in 
the Small Business Investment Act by raising the prioritized 
payment rate a minimum of 0.074 percent to keep the SBIC 
program at a zero subsidy rate (currently, the rate is capped 
at 1.38 percent).

                  NEW MARKET VENTURE CAPITAL COMPANIES

    The Committee supports the New Markets Venture Capital 
Companies (NMVCC) program, which make SBIC-type loans in Low 
and Moderate Income (LMI) areas. The Committee strongly 
supports the goal of increased lending in LMI areas. While 
recognizing that NMVCCs received a one-time appropriation for 
technical assistance, the Committee remains concerned about the 
zeroing out the remaining funding for the program, which 
happened in both H.J. Res. 2 and in the President's FY '04 
budget request, that would have allowed SBA to identify an 
additional seven New Market Venture Capital Companies to target 
small business investments in low-income communities.

                           MICROLOAN PROGRAM

    The President's FY 04 budget requests $1.63 million to 
support a $19 million program level. The subsidy rate decreased 
from 13.05 percent to 9.55 percent, which explains most of the 
decrease from last year's level of $3.6 million. However, the 
overall Microloan program level was cut too, which concerns the 
Committee.
            (B) Assistance Programs

                                Summary

    The FY 2004 SBA budget submission essentially proposes the 
same request on most its non-credit business assistance 
programs as last year with a few exceptions. The Consolidated 
Appropriations Resolution for FY 2003 (H.J. Res. 2) provided 
for $137.58 million for the non-credit programs at the SBA 
while the President's FY 04 request proposes a spending level 
of $141 million. This request is welcome during this tight 
budgetary environment where many other domestic programs in 
other agencies are being cut, the SBA assistance programs are 
kept at a slightly higher rate of funding than last year.

                          DRUG-FREE WORKPLACE

    The Administration requests an appropriation of $3 million 
in funding for this program, keeping it at last year's request 
level. However, H.J. Res. 2 provided only $2 million for this 
program. The Committee strongly supports the President's level 
of funding for this initiative, which recognizes concrete and 
significant efforts to improve the small business climate and 
workplace conditions.

                     MICROLOAN TECHNICAL ASSISTANCE

    The Administration is requesting this time $15 million in 
technical assistance funds for the Microloan program, which is 
the same level as provided for in H.J. Res. 2. However, this 
represents a $2.5 million reduction from the President's FY '03 
request. The Committee has concerns about this funding level, 
noting that the number of firms helped and jobs created or 
retained through the Microloan program is projected to decrease 
to pre-2000 levels.

                           OFFICE OF ADVOCACY

    Even though the Office of Advocacy does not receive a 
direct line-item appropriation, the Committee strongly supports 
a vigorous Office of Advocacy. The Office of Advocacy serves as 
an independent voice for the interests of small business 
through the federal regulatory process and through research 
projects focused on the role small businesses play in the 
economy. The President's budget request specifically contains 
$1.1 million for the Office of Advocacy to support research and 
economic analysis. All totaled, the cost of the Office of 
Advocacy is approximately $7.7 million. Over the last few 
years, the Office of Advocacy has lost staff through attrition. 
Despite this handicap, the Office of Advocacy saved small 
businesses $4.4 billion in regulatory costs in FY 2001 and $3.1 
billion in regulatory costs in FY 2002 (not counting $18 
billion in savings due to revising one Environmental Protection 
Agency rule), which represents a handsome return on the very 
modest investment. The Committee doubts that any other 
government program can match this level of success. The budget 
request proposes to fund the Office of Advocacy to support a 50 
staff, which is the level prior to attrition loss. The 
Committee strongly supports going beyond this proposal by 
encouraging a higher spending level and a separate line item 
for this function.

                       WOMEN'S BUSINESS PROGRAMS

    The Administration proposes funding the Women's Business 
Council at $750,000, which is the same level as last year's 
request and in H.J. Res. 2. The Administration also proposes 
level funding the Women's Business Centers at $12 million, 
which is the same as last year's request but $500,000 less than 
provided for in H.J. Res. 2. The Committee, at a minimum, 
supports level funding for these programs.

      BUSINESS INFORMATION CENTERS/U.S. EXPORT ASSISTANCE CENTERS

    The Administration proposes level funding for BICs at 
$475,000, which was the amount provided for in H.J. Res. 2. 
However, no funding was provided for USEACs in H.J. Res. 2, 
which is of great concern to the Committee. The Committee 
supports the President's FY '04 budget request of $3.1 million 
to pay for the SBA share of the USEAC program to help small 
business exporters, a key concern of this Committee.

               SMALL BUSINESS DEVELOPMENT CENTERS (SBDCS)

    The Administration proposes the same request as last year 
for the SBDC program at $88 million. However, H.J. Res. 2 
provided an additional $1 million over the President's request 
for a regulatory compliance simplification program to increase 
coordination of environmental, Occupational Health and Safety 
Administration (OSHA), and Internal Revenue Service (IRS) 
compliance requirements and to avoid duplication among programs 
for compliance assistance to small businesses. This initiative 
is a down payment on a very similar idea to what the Committee 
has been trying to do for many years in setting up pilot 
programs around the country where selected SBDCs could provide 
regulatory compliance counseling to small businesses. 
Currently, this idea has been reintroduced as the National 
Small Business Regulatory Assistance Act of 2003 (HR 205), 
which the Committee strongly supports. Thus, at a minimum, the 
Committee supports the same $89 million level of funding for 
SBDCs as contained in H.J. Res. 2.
    The Committee is once again pleased that this budget 
request does not contain the proposal to require SBDCs to 
charge counseling fees. The Committee has held numerous 
hearings and has voted against this proposal in the past. The 
Committee believes this budget request is the minimum level of 
support that is needed for the SBDC program.

                             BUSINESS-LINC

    This is a relatively new authorized program designed to 
encourage large business to small business mentoring. The 
Administration once again proposes to eliminate this program. 
H.J. Res. 2 provides $2 million for this program in FY `03. 
There are several Members of the Committee who take a personal 
interest in this program because they believe the mentoring 
received in this program is qualitatively different from other 
SBA mentoring programs that are more focused around government 
procurement opportunities. However, there are many companies 
that already engage in this type of mentoring on their own. 
Perhaps if the SBA made more of an effort to link up existing 
private sector efforts with interested small businesses, 
particularly from low- and moderate-income areas of our nation, 
the Administration's proposal would be more acceptable to the 
Committee.

                                 PRIME

    The Administration's budget proposes elimination of this 
program. H.J. Res. 2 provides $5 million for PRIME Technical 
Assistance. In previous views, the Committee expressed strong 
reservations regarding this program and its potential for 
duplication of existing SBA efforts. The legislation 
authorizing this program was not the language approved by this 
Committee to prevent such duplication; consequently the 
Committee supports its elimination.

                  SERVICE CORPS OF RETIRED EXECUTIVES

    The Committee welcomes the Administration proposal to fund 
the SCORE program at $5 million, which was the same level as 
requested in the President's FY 03 budget and as provided for 
in H.J. Res. 2.

                VETERANS BUSINESS DEVELOPMENT ASSISTANCE

    The Committee supports this request for $750,000 to fund 
implementation of the provisions of Public Law 106-50 that 
still fall within the SBA, which is the same level as requested 
in the President's FY `03 budget request and as provided for in 
H.J. Res. 2. Even though the National Veterans Business 
Development Corporation is formally out of the SBA's annual 
budget request and is funded under a separate line item as an 
independent agency, the Committee is still very much interested 
in its work, particularly on monitoring its path towards 
financial self-sufficiency. In keeping with the path outlined 
in Public Law 106-50, the Administration has requested $2 
million for the Corporation in 2004, which the Committee 
supports, keeping the NVBDC on a glide-path towards not needing 
any more federal appropriations.

                        NATIVE AMERICAN OUTREACH

    The Committee remains concerned that a proposed $1 million 
outreach to Native Americans, which was contained in the 
President's FY 03 budget request, has now been rescinded, 
particularly after Congress built on this proposal by including 
$2 million for this initiative in H.J. Res. 2. This initiative 
is expected to assist small business and economic development 
only in the most disadvantaged tribal areas, particularly in 
remote areas. In 2001, the House passed H.R. 2538, the Native 
American Small Business Development Act, authored by a 
Committee Member and will hopefully will soon be reintroduced, 
which would funnel grants to existing state Small Business 
Development Centers (SBDCs) to establish training programs and 
services unique to Native Americans. The Committee believes 
this is a better and more comprehensive approach to help Native 
American small business development, working through an 
established network of experts in the field to help advance the 
goal of assisting only the most disadvantaged tribes as 
envisioned by H.J. Res. 2.

                         GOVERNMENT CONTRACTING

    For FY 2004, the President's budget request proposes the 
same level as in the previous FY 2003 request. However, H.J. 
Res. 2 made several changes to the President's FY `03 funding 
proposal--7(j) Technical Assistance was cut by more than half 
to $1.5 million; and funding for some other programs such as 
Small Business Innovation Research (SBIR) Technical Assistance 
and HUBZones were eliminated altogether. The Committee supports 
the President's FY `04 requests for these programs, 
particularly the $2 million for the HUBZone program.

                   WHITE HOUSE AND STATE CONFERENCES

    Last year, the Administration's budget request contained a 
new proposal to spend $1.5 million to fund a series of state 
and federal conferences to celebrate the success of small 
business over the past 50 years and to highlight the emerging 
issues that face small business owners in anticipation of 
passage of legislation to authorize these conferences. Congress 
did not pass this legislation last year and no funds were 
appropriated for such a purpose in H.J. Res. 2, thus, there is 
no request for funding this year. The Committee supports this 
change.
            (C) Disaster Assistance
    With the various supplemental appropriations added to the 
regular appropriation for the SBA disaster loan in response to 
the terrorist attacks of September 11, 2001, the President's FY 
2004 budget request for disaster loans is reasonable. The 
budget proposes $89 million (with $10 million in carry-over 
from prior years) to support funding $760.3 million in disaster 
loans, based on a five-year average at a 11.72 percent subsidy 
rate, which is a decrease from 13.98 percent. Unlike previous 
requests, there is no proposal to raise interest rates on 
disaster loans for anyone. It continues to remain the view of 
the Committee that during a time of natural disaster, our 
government should not compound an already difficult recovery 
period by imposing higher interest rates on small business 
borrowers. Also, the Administration plans to develop a more 
accurate subsidy-rate cost model for the disaster loan program, 
which could produce an even lower subsidy rate. The Committee 
supports this endeavor.
            (D) Salaries and Expenses
    For FY 2004, the Administration requests essentially the 
same level as last year--$362 million for SBA's operating 
budget. Also, the President's budget request anticipates no 
change in the total employment levels at the SBA from this 
fiscal year to the next. However, the Consolidated 
Appropriations Resolution for FY 2003 (H.J. Res. 2) included 
$314.46 million for the salaries and expenses account of the 
SBA. In addition, there is some confusion between the Full Time 
Equivalent (FTE) numbers provided in the SBA budget submission 
(3,927) versus the FTE numbers provided in the budget documents 
provided by the Office of Management and Budget (3,802).
    Included in SBA's operation budget proposal is $21 million 
for initiatives designed to improve the operational efficiency 
and service to its customers; $11 million to support 
Electronic-SBA initiatives (E-SBA); $4 million to modernize and 
streamline SBA internal processes; and $500,000 for 
``outsourcing'' analyses. While many of these objectives of 
these initiatives are commendable, they are similar to requests 
proposed last year that were rejected in H.J. Res. 2. The 
Committee remains skeptical as the need for all these 
initiatives yet the employment levels will still remain the 
same at SBA.
    The Committee also encourages the SBA to begin to focus on 
the problem of reversing ``institutional memory loss'' at the 
agency, as it will soon lose a significant portion of its 
senior career FTEs over the next decade because of retirements.
            (E) Office of Inspector General
    The President FY 2004 budget request proposes $14.5 million 
for the Office of Inspector General and $500,000 transferred 
from the administrative expenses of the disaster loan program 
for a total of $15 million. The Consolidated Appropriations 
Resolution for FY 2003 (H.J. Res. 2) provided $12.4 million for 
the Inspector General of the SBA to be supplemented by an 
additional $500,000 from the disaster loan account. The 
Committee supports the President's budget request for the 
Inspector General to protect the interests of the taxpayer and 
the integrity of the programs of the SBA.

                               Conclusion

    Overall, the President's budget request for small business 
can be supported, with modest exceptions, both in terms of his 
tax relief proposals and the SBA budget. In particular, the 
SBA's FY 2004 budget does not repeat most of the mistakes from 
previous budget requests. The Committee acknowledges the 
Administration for changing these prior contentious proposals 
on behalf of all small businesses. There is only one major item 
of contention, and the Committee on Small Business looks 
forward to working with you again, Chairman Nussle, to help 
resolve the subsidy rate calculation problem in the 504 loan 
program at its relationship to the Federal Credit Reform Act of 
1990.
            6.2.2  fiscal year 2005 budget
    The Committee on Small Business submits these views and 
estimates on the Fiscal Year 2005 budget submission on matters 
within our jurisdiction in compliance with Rule X, clause 
(4)(f), of the Rules of the House of Representatives. These 
views and estimates are based on the outline supplied by the 
President's Office of Management and Budget (OMB) for FY 2005 
as well the Small Business Administration's (SBA) budget 
submission. The President's proposed budget for FY 2005 
emphasizes winning the war on terrorism, securing our homeland, 
and strengthening our economy. A key part of strengthening our 
economy is to continue the strong pro-growth policies that 
create jobs and opportunities for the American people. Small 
businesses, as job creators, have always led this nation out of 
economic downturns and they will do so again. Over the past 10 
years or so, small businesses have provided between two-thirds 
to three-quarters of the net new jobs in this country; account 
for just over half of our Gross Domestic Product (GDP); and 
contribute roughly 42 percent of tax receipts to the U.S. 
Treasury. Helping small businesses start, grow, and thrive is 
critical to strengthening the economy and bringing down the 
budget deficit.
    The Committee believes generally that the President's 
proposed FY 2005 budget request is helpful to small business 
owners. Given the budgetary constraints, with a few exceptions, 
small businesses should be pleased. The Committee is troubled 
by the deficit and wishes that the rest of the federal 
government emulated the example of the SBA, which has 
experienced more than a 20 percent reduction in its real 
funding level since FY 01. However, at the same time, the SBA 
serves more small businesses than ever before. If the Budget 
Committee accepts the President's FY 2005 budget request for 
the SBA without change when determining the overall 370 
budgetary account level, it would represent another five 
percent real reduction in funding from FY 04 levels (not 
counting carry-overs from previous fiscal years). It should be 
clear to the Budget Committee that the SBA is not contributing 
to the problem of the growing deficit; in fact, it has 
demonstrated how to do more with less. From the Committee's 
perspective, it would have been better if the President's FY 
2005 budget request for the SBA mirrored the general average 
spending growth of 0.5 percent for the rest of non-defense, 
non-homeland security federal spending. Nevertheless, if small 
businesses through the SBA are asked to do their part to 
contribute to deficit reduction, then other constituencies 
through their agencies should bear a similar load.
    These views and estimates will be divided between two 
areas: the impact of the overall budget proposal on small 
business and, then, separately, on SBA programs. Within the 
SBA, the views and estimates will be further divided into five 
areas: (A) Financial Programs, (B) Assistance Programs, (C) 
Disaster Assistance, (D) Salaries and Expenses, and (E) Office 
of Inspector General.

(1) Effect of Overall Budget Proposal on Small Business

    The Committee again applauds the President for endorsing 
small business tax relief proposals; regulatory relief for 
small business; increased access to affordable and quality 
health care for small businesses and their employees; and 
continued access to the federal government procurement 
marketplace for small businesses. All these actions will help 
strengthen the small business sector of our economy, which, in 
turn, helps provides the receipts to the government.
    Already, the bipartisan tax reductions passed by Congress 
in 2001 and accelerated in 2003 provided the roughly 23 million 
small business owners with tax relief averaging more than 
$2,850 through individual rate reductions (85 percent of small 
businesses pay taxes on an individual, not corporate, basis); 
quadrupling the expensing provision to $100,000; raising the 
expensing phase-out threshold to $400,000; and augmenting the 
first year ``bonus'' depreciation deduction from 30 to 50 
percent. In fact, small business owners receive 79 percent--
about $9.7 billion--of the benefit of the tax relief from 
accelerating the individual rate reduction, from 2006 to 2003, 
in the top income bracket to 35 percent. The passage of Health 
Savings Accounts (HSAs) last year will also enable more small 
businesses to cover workers for major medical problems.
    Key elements of the President's FY 05 budget plan (outside 
of the SBA) of interest to the committee, as it affects small 
business, include:
           Making permanent these same tax cuts, 
        including the confiscatory and punitive estate or 
        ``death'' tax repeal scheduled to take full effect in 
        2010;
           Establishing an on-line single-point-of-
        access to help small businesses comply with federal 
        regulations and access information 
        (www.businesslaw.gov);
           Health care policies that will further 
        increase access to affordable and quality health care 
        for small businesses and their employees, including the 
        creation of Association Health Plans that allow 
        multiple small businesses to pool together to purchase 
        health insurance at lower rates charged to large 
        companies and labor unions and popularizing HSAs 
        through a tax deduction of the premiums.
    While welcoming the President's initiatives, the Committee 
believes the President's budget package could have contained 
more small business tax relief including:
          4. Accelerating depreciation schedules;
          5. Allowing the deduction of health insurance costs 
        of self-employed individuals be used in determining the 
        self-employment tax;
          6. Increasing the business meal deduction; and
          7. Setting a standard home office deduction.
    These tax relief priorities also would boost long-term 
growth that will help small businesses increase cash flow and 
allow them to add jobs. The Committee will be working on these 
and other common-sense small business tax relief and 
simplification initiatives throughout the coming year.

(2) Small Business Administration Programs

    The Committee supports the overall general spending level 
at the SBA. The President's FY 05 budget request proposes to 
spend $678.4 million on the SBA, a decrease of $39.9 million 
from the $718.3 million level appropriated for in the 
Consolidated Appropriations Act, 2004 (not counting carry-over 
spending from previous fiscal years). The President's FY 05 
request is a departure from the two previous requests, which 
generally kept the overall funding level for the SBA frozen at 
the previous year's level. The difference in this request is 
that most of the decrease can be attributed to the 
Administration's proposal to have a zero subsidy rate for the 
SBA's flagship 7(a) program, which the Committee supports in 
concept (but not in the specifics by which to achieve that 
goal). While the Committee supports the overall spending level, 
there are still several problem areas within the budget request 
for the SBA, which are discussed in further detail below. Many 
of these problem areas could have been averted if the 
President's FY 05 funding request for the SBA was 0.5 percent 
over the FY 04 level.
            (B) SBA Financial Programs

                               7(A) LOANS

    SBA guarantee-backed lending is the largest single source 
of long-term loans (those with maturities of three years or 
longer) to small businesses. The 7(a) loan guarantee program 
accounts for approximately 40 to 50 percent of all long-term 
loans to small businesses. However, as the Committee and 
industry predicted, the 7(a) program experienced a ``cash 
flow'' crunch in January 2004 and is currently hobbling along 
with restrictions that do not live up to the full expectations 
of the use of the program as contained in the law.
    While the Committee is grateful that the Administration 
recognizes the value of the 7(a) program by proposing a 30 
percent increase in its program level, the Committee has two 
concerns: first, the $12.5 billion program level may still not 
be enough, particularly after the reforms contained in the SBA 
reauthorization bill (HR 2802) aimed at helping small 
manufacturers become law, and second, the practical effect of 
the 7(a) proposal will increase fees on small businesses 
seeking to borrow less than $700,000.
    The Committee supports in concept the goal of a zero 
subsidy rate for the 7(a) program, which means that no 
appropriations will be required, saving the taxpayer about $100 
million from FY 04 levels. The new econometric model that this 
Committee and your Committee fought so hard to get into place 
has proved to be a much more accurate predictor of the future 
performance of the 7(a) program. As evidence, the budget re-
estimates for SBA business loans made in 2002 and 2003 are near 
to zero as statistically possible, as compared with past high 
re-estimates. Having a zero subsidy will produce much more 
predictability and stability into the 7(a) program in order to 
avoid pitfalls like what happened in January 2004.
    However, the Committee believes there is a better way to 
achieve a zero subsidy rate without having to raise fees by as 
much as 50 percent on the smallest loan borrower, which 
translates into an average of $1,500 for a $100,000 loan. 
Congress passed this temporary fee reduction in 2001 precisely 
because the nation was in the midst of a recession and small 
businesses were being denied access to capital. The SBA 
reauthorization bill extends the 7(a) fee reductions targeted 
at smaller borrowers for another two years because jobs are 
still not being created at an acceptable rate. Raising 7(a) 
fees as high as proposed, particularly as the President's FY 05 
budget request also proposes to eliminate the Microloan 
program, is counterproductive. Thus, the Committee opposes the 
fee-raising proposal as contained in the President's FY 05 
budget request. The Committee will continue to explore ways in 
which to achieve a zero subsidy rate without undue restrictions 
in the program to meet expected program demand in both FY 04 
and FY 05.

             504 CERTIFIED DEVELOPMENT COMPANY (CDC) LOANS

    Ever since 1996, the 504 loan program has operated at a 
zero subsidy rate, which means that the program requires no 
appropriations. This was accomplished through heavy fees that 
were placed on borrowers and lenders--fees needed to offset a 
severe increase in the subsidy rate. The Administration 
proposes a $4.5 billion program authorization for the 504 
program and the Committee concurs. The Committee is also 
grateful that the President's FY 2005 budget request again 
decreases the annual fee charged each small business 504 loan 
borrower from 0.39 percent to 0.29 percent, reflecting the new 
econometric model developed by the SBA.
    High fees in the 504 program is one of the main reasons why 
the 504 program has been underutilized at $2.5 billion even 
though it is authorized at $4.5 billion. A more accurate cost-
subsidy rate model hopefully will lead to greater use of the 
program as fees are reduced as is evidenced in 7(a) lending.

               SMALL BUSINESS INVESTMENT COMPANY PROGRAM 

    The Administration proposes the same program level for both 
parts of the SBIC program, which is welcomed by the Committee. 
The Administration requests a $3 billion program level for the 
debenture program and a $4 billion program level for the 
participating securities program. When added to the minimum 
required private capital, this would make $10 billion in new 
capital available for SBIC investments in small businesses. 
Venture capital from SBICs fill a critical gap as other private 
sector sources have dried up. In fact, over 59 percent of all 
venture capital investments in 2003 came from SBICs.
    The Administration requests no appropriations to fund 
either the debenture or the participating securities program in 
accordance with Public Law 107-100, which placed the entire 
SBIC program on a zero subsidy or no cost to the taxpayer 
basis. The Committee concurs with this aspect of the 
President's budget request. The debenture fees are increased by 
just 16 basis points but the practical effect of this increase 
is negligible--it will raise the likely interest paid for FY 
2005 leverage from approximately 5.73 percent per year to 
approximately 5.746 per year.
    However, the President's FY 05 budget request proposes a 
variety of structural changes to the participating security 
part of the SBIC program that could severely damage the long-
term operation of the SBIC program in the future. The Committee 
understands the current financial problems with the 
participating securities component of the SBIC program and 
recognizes that changes need to be made. But a compromise has 
to be reached between industry and the Administration in order 
to protect the interests of the taxpayer and also to keep a 
viable participating securities program. This issue will be 
addressed as the Committee proceeds with the SBA 
reauthorization process.

                 NEW MARKET VENTURE CAPITAL COMPANIES 

    The President's FY 05 budget request again does not include 
funding for the New Markets Venture Capital Companies (NMVCC) 
program, which makes SBIC-type loans in Low and Moderate Income 
(LMI) areas. The Committee strongly supports the goal of 
increased lending in LMI areas. In 2003, about 43 percent of 
small businesses assisted by the regular SBIC program were 
located in LMI areas and 23 percent of the dollar amount in the 
regular SBIC program went to LMI areas. While recognizing that 
NMVCCs received a one-time appropriation for technical 
assistance in 2000, the Committee still has concerns about how 
the funding for the NMVCC program was abruptly rescinded mid-
stream in early 2003 even before an evaluation of the program 
could be started. Through the end of FY 03, only six NMVCC 
funds have been created that have disbursed a total of $2.1 
million in investments and $1.3 million in technical assistance 
to smaller businesses in LMI areas all east of the Mississippi. 
If the program lived up to its full potential, at least seven 
additional New Market Venture Capital Companies in more 
communities throughout the entire United States would have been 
created to target further small business investments in low-
income communities and create additional jobs.

                           MICROLOAN PROGRAM 

    The President's FY 05 budget requests proposed to end 
funding for the Microloan program, which would save $20.98 
million in direct subsidies and $14.84 million in technical 
assistance costs. The Microloan program provides loans of up to 
$35,000. SBA claims that every dollar lent in the Microloan 
program cost the taxpayers 97 cents. SBA's cost-benefit 
analysis shows that these loans could be made through the 7(a) 
program with the help of the various technical assistance 
programs that already exist (such as Small Business Development 
Centers (SBDCs), Women Business Centers (WBCs), or SCORE). 
While this may be accurate in the abstract, the analysis does 
not recognize that the Microloan program has a special niche 
and serves a unique marketplace, which is very different from 
the typical 7(a) marketplace. Most Microloan borrowers would 
probably not qualify for a 7(a) loan. On top of this, as 
mentioned earlier, the President's FY 05 budget request 
proposes to double fees on 7(a) borrowers seeking $150,000 or 
less in capital and, as will be mentioned later, the other 
technical assistance programs at the SBA are basically kept 
frozen at FY 04 levels. So, it is difficult for the Committee 
to understand how the typical Microloan borrower will be better 
served by this proposal if (1) the Microloan program is 
abolished; (2) fees in the 7(a) program are doubled; and (3) 
technical assistance spending in the SBDC, WBC, and SCORE is 
not even increased by $1 to accommodate these new clients. 
Unless the Administration can better explain its rationale and 
develop a transition plan, the Committee opposes terminating 
the Microloan program at this present juncture. Perhaps if 
further thought was given to addressing the concerns raised 
here, the Committee could better understand the rationale for 
this request.
            (B) Assistance Programs 

                               Overview 

    The FY 2005 SBA budget submission essentially proposes to 
cut $30.4 million from the non-credit business assistance 
programs from FY 04 levels. The cuts come from primarily 
eliminating or reducing funding in 12 specific program areas--
7(j) Technical Assistance; Business Information Centers (BICs); 
HUBZones; Microloan Technical Assistance; Native American 
Outreach; New Market Venture Capital; PRIME Technical 
Assistance; SBDCs grants; the Small Business Innovative 
Research (SBIR) Federal and State Technology (FAST) partnership 
program; SBIR Technical Assistance; the SBA contribution to its 
share of participating in the U.S. Export Assistance Center 
(USEAC) network; and WBCs grants. Also, the President's FY 05 
budget proposal contained no request for programs that were 
funded in FY 03 but were not funded in FY 04, such as 
BusinessLinc. Very few of the other non-credit programs at SBA 
received any additional funding and most of those increases 
were extremely modest.
    SBA believes it can provide a full range of technical 
assistance more effectively by using its core national delivery 
programs to meet the needs of all small businesses. However, 
even some of these core programs received cuts under the 
President's FY 05 budget proposal, such as the SBDC and the WBC 
network. The Committee understands the frustration of the SBA 
when Congress has been inconsistent in funding many of these 
programs over the years and that many of these individual 
programs require a specific infrastructure and delivery 
mechanism. Many on this Committee have valiantly fought to have 
these programs fully funded and work collaboratively with other 
SBA programs. However, the Committee might be more sympathetic 
to the rationale of the Administration if it shifted resources 
from these line-items to the core programs rather than keep 
them at last year's level or, in some cases, slightly reduced 
funding, before asking these core programs to pick up the slack 
that will be left behind if many of these non-credit programs 
have their funding eliminated.
    Specifically, the Committee has several concerns in the 
non-credit area. First, the Native American Outreach program 
was unveiled with great fanfare by the SBA in their FY 03 
request, mainly in response to the Committee's effort to target 
additional grants to existing state SBDCs to establish training 
programs and services unique to Native Americans through House 
passage of the Native American Small Business Development Act 
(HR 1166 in the 108th Congress). The Committee still believes 
this is a better and more comprehensive approach to help Native 
American small business development, working through an 
established network of experts in the field, rather than 
creating a separate infrastructure and delivery mechanism. It 
also fits in line with current rationale of the SBA in 
justifying many of their proposed cuts in the non-credit 
programs. Nevertheless, Congress supported this Native American 
Outreach initiative with nearly $2 million in funding in both 
FY 03 and FY 04. However, now the President's FY 05 budget 
request proposes to eliminate funding for this program. It 
would be better if the SBA supported HR 1166 and also 
transferred the $2 million to the SBDC program in order to 
carry out the objectives of this initiative.
    The Committee also is concerned about the fate of SBA's 
$3.1 million annual contribution to the U.S. Export Assistance 
Center (USEAC) network. In the early 1990's Congress uncovered 
many unmet needs in export promotion programs plus waste and 
duplication of existing services. Congress then created the 
Trade Promotion Coordinating Committee (TPCC) to expand and 
streamline the delivery of export promotion of services. Key to 
this concept was co-locating several export promotion agencies 
together across the nation in order to provide a local one-stop 
shop for taxpayers. Pulling SBA out of the USEAC network 
essentially will make the vast majority of these centers 
adjuncts of the Department of Commerce and could lead to the 
repetition of the mistakes that led to the creation of the TPCC 
in the first place. SBA offers some unique programs, 
particularly to those small businesses new to exporting, which 
might not be replicated in a Commerce-run USEAC system. In 
addition, many of the core non-credit programs within the SBA 
do not have the level of expertise to deal with the unique 
needs of small business exporters. This is a function that is 
not easily transferred and, again, none of the other core SBA 
programs have received any increase to deal with these new 
specialized clients. Plus, each $1 appropriated to SBA's export 
finance specialists in the USEACs since 1999 has supported 
loans generating over $200 in export sales--a sound return on 
any investment. The Committee encourages the Budget Committee 
to allocate more resources to enable the SBA to continue to 
participate in the USEAC network.
    Finally, the Committee is concerned about the level of 
spending on the HUBZone program. The Committee understands and 
supports the rationale for absorbing the $2 million line-item 
for HUBZones within the overall Government Contracting and 
Business Development budget. However, it appears from the FY 
2005 budget request, overall HUBZone funding will be reduced 
from $7.1 million in FY 04 to $6.6 million in FY 05 even though 
every other SBA program designed to help small businesses 
access federal procurement opportunities (except the 7(j) 
program) receives an increase. There was no accompanying 
explanation for this discrepancy even though the SBA claims to 
treat every small business procurement goal equally.
    If the President's FY 05 budget request for the SBA equaled 
the average given to other non-defense, non-homeland security 
federal agencies (receiving a 0.5 percent increase over FY 04 
levels), many of these non-credit programs probably could have 
been funded, thus ameliorating the Committee's concerns.

                          OFFICE OF ADVOCACY 

    For the first time, a line-item of $7 million was included 
in the President's budget request for the Office of Advocacy, 
which the Committee supports. The Office of Advocacy serves as 
an independent voice for the interests of small business 
through the federal regulatory process and through research 
projects focused on the role small businesses play in the 
economy. The President's FY 05 budget request also contains 
$1.1 million for the Office of Advocacy to support research and 
economic analysis. In FY 2003, the Office of Advocacy saved 
small businesses $6.3 billion in regulatory costs, which 
represents a handsome return on the very modest investment. The 
Committee doubts that any other government program can match 
this level of success. The Committee strongly supports going 
beyond this proposal by encouraging a higher spending level and 
a separate line item in the annual appropriations bill for this 
function.

                VETERANS BUSINESS DEVELOPMENT ASSISTANCE

    The Committee supports this request for $750,000 to fund 
implementation of the provisions of Public Law 106-50 that 
still fall within the SBA, which is the same level as requested 
in the President's FY 04 budget request and as provided for in 
FY 04. Even though the National Veterans Business Development 
Corporation is formally out of the SBA's annual budget request 
and is funded under a separate line item as an independent 
agency, the Committee is still very much interested in its 
work, particularly on monitoring its path towards financial 
self-sufficiency. The President's FY 05 budget request also 
includes $2 million for the Corporation, which the Committee 
supports, keeping the NVBDC on a glide-path towards not needing 
any more federal appropriations.

                         GOVERNMENT CONTRACTING

    While the Committee observes that the budget for 
contracting assistance by the SBA has a slight overall increase 
of nearly $2.5 million, the Committee has concerns that there 
is not sufficient funding to implement the President's 
contracting plan. In particular, the Committee has concerns 
about how these increases are allocated, particularly with the 
Prime Contract Program. The SBA reauthorization bill (HR 2802) 
places a strong emphasis on increasing Procurement Center 
Representatives (PCRs) in order for them to advocate on behalf 
of small businesses throughout major federal buying centers in 
the United States. However, the FY 05 budget request actually 
decreases funding for PCRs by $517,000 from the previous year's 
level. The Committee opposes this decrease and encourages the 
Administration to achieve a better allocation of resources to 
meet the anticipated demand for the Prime Contract Program.
            (C) Disaster Assistance
    The President's FY 05 budget request for disaster loans is 
reasonable. The budget proposes $78.9 million (with $13 million 
in carry-over from prior years) to support funding $792.3 
million in disaster loans, based on a five-year average at a 
12.86 percent subsidy rate, which is an increase from 11.72 
percent. The Committee is again grateful that the 
Administration has not proposed to raise interest rates on 
disaster loans for anyone. It continues to remain the view of 
the Committee that during a time of natural disaster, our 
government should not compound an already difficult recovery 
period by imposing higher interest rates on small business 
borrowers. Also, the Administration is working on a more 
accurate subsidy-rate cost model for the disaster loan program, 
which could produce an even lower subsidy rate and greater 
savings for the taxpayer. The Committee supports this endeavor.
            (D) Salaries and Expenses
    For FY 2005, the President's budget request proposes 
$326.26 million for salaries and expenses at the SBA. The S & E 
levels for the SBA contained in the Consolidated Appropriations 
Act, 2004 (H.R. 2673) is $325.75 million. The President's FY 05 
budget request anticipates no change in the total employment 
levels at the SBA from this fiscal year to the next. The number 
of full-time equivalents (FTEs) at the SBA total 3,786 in both 
FY 04 and FY 05.
    Included in SBA's operation budget proposal is $3 million 
to continue implementation of the SBA's ongoing efforts to 
modernize the delivery of its products and services. The SBA 
also requests a total of $1.1 million for e-government 
initiatives and $2 million for program evaluations. The 
Committee applauds many of these initiatives, particularly on 
e-government, to streamline delivery of services to small 
businesses yet remains concerned that employment levels will 
still remain the same at SBA, particularly after SBA increased 
employment by 124 FTEs between FY 03 and FY 04.
            (E) Office of Inspector General
    The President's FY 05 budget request proposes $14.5 million 
for the Office of Inspector General and $500,000 transferred 
from the administrative expenses of the disaster loan program 
for a total of $15 million, an increase of $1.5 million from FY 
04 levels. The Committee supports the President's budget 
request for the Inspector General to protect the interests of 
the taxpayer and the integrity of the programs of the SBA.

                               Conclusion

    While the Committee does not have strenuous objections to 
the President's FY 05 budget request, it would have been better 
if the President's FY 05 budget request for the SBA mirrored 
the general average spending growth of 0.5 percent for the rest 
of non-defense, non-homeland security federal spending. Then, 
many of the concerns about SBA programs that were cut or 
terminated could have been more properly funded, thus 
ameliorating the Committee's concerns in trying to stretch the 
limited federal dollars to help the maximum number of small 
businesses.
                             CHAPTER SEVEN

   SUMMARY OF OVERSIGHT, INVESTIGATIONS AND OTHER ACTIVITIES OF THE 
           COMMITTEE ON SMALL BUSINESS AND ITS SUBCOMMITTEES

7.1  Summary of Committee Oversight Plan and Implementation
    Pursuant to Rule X, clause 2(d)(1), of the Rules of the 
House of Representatives, the Committee on Small Business 
adopted, on February 26, 2003, an oversight agenda for the 
108th Congress. (For a discussion of the Committee's 
consideration of the oversight agenda refer to section 6.1.1 of 
this report.) The House rule also requires that each Committee 
summarize its activities undertaken in furtherance of the 
oversight agenda as well as any additional oversight actions 
taken by the Committee.
    In the following portions of Chapter Seven, the provisions 
of the oversight agenda are addressed in the hearing summaries 
of the Committee and its subcommittees. A summary of each 
hearing conducted by the full Committee appears in section 7.2 
of this report and summaries of each subcommittee hearing 
appear in sections 7.3 through 7.7 of this report. An overview 
of the Committee's legislative activities appears in Chapter 
Five of this report.
7.2  Summaries of the Hearings Held by the Full Committee on Small 
        Business
            7.2.1  the sba fy 2004 budget

                               Background

    On Wednesday, February 26, 2003, the Committee on Small 
Business held a hearing that focused on the Administration's 
proposed FY 2004 budget for the U.S. Small Business 
Administration (SBA). As brief background, the SBA provides a 
variety of services for small businesses--financial assistance, 
technical assistance, federal government contracting 
assistance, and disaster relief. The budget request was 
designed to help the SBA achieve the goals of improving the 
delivery of its services to small business owners and 
prospective entrepreneurs.

                                Summary

    The panelists were the Hon. Hector Barreto, Administrator, 
United States Small Business Administration, Washington, DC; 
Anthony R. Wilkinson, President, National Association of 
Government Guaranteed Lenders, Stillwater, OK; Mr. Donald 
Wilson, President and Chief Executive Officer, Association of 
Small Business Development Companies, Burke, VA; Mr. Zach Gast, 
Policy and Research Manager, Association for Enterprise 
Opportunity, Arlington, VA; Mr. Lee Mercer, President, National 
Association of Small Business Development Companies, 
Washington, DC; and Christopher Crawford, Executive Director, 
National Association of Development Companies, McLean, VA.
    Administrator Barreto requested the Committee's support for 
the President's FY 2004 budget. The President's plan proposed a 
total fiscal year appropriation of $797.9 million or level 
funding with FY 2003 budget. According to the Administrator, it 
would provide adequate levels of credit, capital, procurement, 
and entrepreneurial development assistance to small businesses. 
In addition, the budget request also incorporated $16.5 million 
for transformation of the agency in order to satisfy the 
President's management agenda for all federal agencies.
    Mr. Wilkinson first thanked the Committee for efforts to 
resolve certain administrative issues with the 7(a) loan 
guarantee program. Mr. Wilkinson then attacked the inadequacy 
of the FY 2004 budget that only would provide approximately 
$9.3 billion in guaranteed loans. According to bankers involved 
in the program, that level is about 25 percent below the 
previous fiscal year's levels and below the pace of lending 
expected throughout the 2004 fiscal year.
    Mr. Wilson noted that small businesses are the key cogs in 
economic growth. Despite this significance, the budgets needed 
to provide technical assistance to these entrepreneurs 
continues to deteriorate. Adequate funds are needed to support 
small business development centers because they provide 
assistance to 1.5 million small business owners and prospective 
entrepreneurs. Mr. Wilson noted that level funding of the small 
business development center program would actually constitute a 
cut in their ability to provide service. Mr. Wilson concluded 
that being pennywise could be pound foolish in the case of the 
small business development center program.
    Mr. Gast echoed the concerns of Mr. Wilson. Microenterprise 
development provides assistance to the smallest entrepreneurs--
ones who often are unable to obtain even conventional SBA-
guaranteed loans. The average loan size is $15,000 or enough to 
create one new job according to SBA estimates. Mr. Gast noted 
that the funding levels for microloans are integrally tied to 
the ability of intermediaries to provide technical assistance. 
The proposed FY 2004 budget cuts technical assistance and thus 
limits the number of loans that the intermediaries can make to 
the smallest entrepreneurs.
    Mr. Mercer supported the President's budget request. The 
budget would make $4 billion available in participating 
security leverage and $3 billion in debenture leverage 
available to small business investment companies (SBICs). Mr. 
Mercer then noted that the provision of leverage requires no 
funding from the government but is paid for by fees collected 
by the federal government and profits earned by the individual 
SBIC.
    Mr. Crawford expressed frustration with the SBA's failure 
to expend money to revise the subsidy model used to calculate 
fees paid by certified development companies (CDCs). Such delay 
will force CDCs to pay an additional $100 million in fees over 
the life of loans made during FY 2004. Mr. Crawford then noted 
that the budget only provides for $4.5 billion in lending 
authority even though demand was running higher. He suggested 
that, at a minimum, CDC lending authority should be set at $5 
billion. Mr. Crawford also testified that the economic 
assumptions underlying the subsidy model were not correct and, 
despite ongoing discussions with the SBA, changes have not been 
made in the program that would provide greater assistance to 
CDCs.
    In sum, the committee concluded that the President's FY 04 
budget request for the SBA was adequate but could be improved 
upon the margins. For further information, please refer to 
Committee publication #108-1
            7.2.2  small business access and alternatives to health 
                    care

                               Background

    On Wednesday, March 5, 2003, the Committee held a hearing 
to address the concerns of small business owners as they 
struggle to provide health insurance to their families and 
employees. As Congress has discussed the issue of how to 
provide coverage to the uninsured, small business concerns have 
been notably absent from the debate. Yet roughly 60 percent of 
the uninsured are small business owners, their employees and 
their families. This hearing served as a forum to discuss and 
promote innovative solutions to help small businesses meet 
their health care needs.
    This hearing also focused on HR 660, the Small Business 
Health Fairness Act of 2003, introduced by the Hon. Ernie 
Fletcher (R-KY) and the Hon. Cal Dooley (D-CA). This 
legislation is designed to make association health plans a 
viable alternative for small businesses. In addition, Medical 
Savings Accounts and other tax credits were discussed.

                                Summary

    The hearing consisted of two panels of witnesses. The first 
panel consisted of: the Hon. Ernie Fletcher (R-KY) and the Hon. 
Sen. Jim Talent (R-MO), former Chairman of the House Small 
Business Committee. The second panel consisted of: the Hon. 
Elaine Chao, Secretary, United States Department of Labor, 
Washington, DC; the Hon. Hector Barreto, Jr., Administrator, 
United States Small Business Administration, Washington, DC. 
The third panel included: Skip Trotter, Trotter Machine Inc., 
Rockford, IL; Robert Hughes, President of the National 
Association of the Self-Employed, Washington, DC; Steven Appel, 
Vice President, American Farm Bureau Federation, Washington, 
DC; John Hartnedy, Chief Deputy Commissioner, Arkansas 
Department of Insurance, Little Rock, AR; Karen Kerrigan, 
Chairwoman, Small Business Survival Committee, Washington, DC; 
and Harry C. Alford, President of the National Black Chamber of 
Commerce, Washington, DC.
    Representative Fletcher spoke about HR 660, the Small 
Business Health Fairness Act of 2003, that he has introduced 
along with Representative Dooley that will allow small 
businesses to band together and pool their resources in order 
to access health insurance through their membership with trade 
or professional associations.
    Senator Talent spoke of his long support for AHP 
legislation when he chaired the House Committee on Small 
Business and now in the Senate where he will be a sponsor of 
this legislation introduced by Senator Olympia Snowe (ME), 
Chair of the Senate Small Business Committee. During questions, 
he stated that he believed the opposition of Blue Cross and 
Blue Shield stemmed from not wanting to compete for business 
since they dominate the current insurance industry within many 
states.
    Labor Secretary Chao testified of the Bush Administration's 
support for AHPs, tax credits to purchase healthcare, and 
Medical Savings Accounts. She also stated that the Department 
of Labor stood ready to administer, certify and provide 
oversight necessary for implementation of this legislation. 
Already, the Department of Labor administers the Employee 
Retirement Income Security Act (ERISA), protecting 
approximately 2.5 million private, job-based health plans and 
131 million workers, retirees and their families. Administrator 
Barretto testified to a study commissioned by SBA that found 
that small businesses face significantly higher administrative 
costs on their health care costs. Across the board all 
businesses have experienced rises in health care premiums, but 
small businesses have faced disproportionate spikes in their 
costs. Lack of affordable healthcare has forced many small 
businesses to stop offering healthcare altogether to their 
employees.
    All of the witnesses in the third panel unanimously voiced 
their support for Association Health Plans as well as tax cuts 
because they believed that it would allow many more small 
businesses to provide healthcare for their employees. While 
supporting AHPs, John Hartnedy, Chief Deputy Commissioner for 
Arkansas did state that he felt the solvency provisions of the 
legislation should be more stringent.
    Karen Kerrigan also spoke to the need for MSAs, which are 
simply savings account controlled by the insured individual to 
be used to pay for routine health care expenses and a high-
deductible (catastrophic) insurance policy to cover more 
substantial health care needs. Robert Hughes also raised the 
issue of the need for our nation's 16 million self-employed 
business owners to deduct their health insurance expenses when 
calculating their payroll taxes, which consists of payments to 
Social Security and Medicare.
    AHPs passed the House of Representatives on June 19, 2003 
and the new version of MSAs--called Health Savings Accounts 
(HSAs)--passed Congress as part of the Medicare Prescription 
Drug bill and became law on December 8, 2003.
    For more information on this hearing please refer to 
Committee publication 108-2.
            7.2.3  respa reform and the economic effects on small 
                    business

                               Background

    On Wednesday, March 11, 2003, the Committee on Small 
Business held a hearing to examine the Department of Housing 
and Urban Development's (HUD) compliance with the Regulatory 
Flexibility Act (RFA) in the development of proposed rules 
modifying the implementation of the Real Estate Settlement 
Procedures Act (RESPA). RESPA was enacted in 1974 with the 
intention of providing purchasers of residential estate greater 
clarity in the settlement process. Six years later, Congress 
enacted the RFA that requires federal agencies to examine the 
impact of their proposed rules on small businesses.
    After many years of controversy and significant litigation, 
HUD determined that it was appropriate to modify the 
regulations implementing RESPA. The primary points of the 
proposal were the requirement to provide a good faith estimate 
of the closing costs that the purchaser will face and the 
option to offer a guaranteed mortgage package (including a 
fixed interest rate) that would be protected under the ``safe 
harbor'' provisions of section 8 of RESPA.

                                Summary

    The first panel consisted of the Honorable Mel Martinez, 
Secretary, Department of Housing and Urban Development, 
Washington, DC. He was accompanied by a number of HUD staff, 
including the Honorable John Weicher, Assistant Secretary for 
Housing, Department of Housing and Urban Development and John 
Kennedy, Esq., Associate General Counsel.
    The members of the second panel were: Mr. Gregory Kosin, 
Secretary, H.S. Wilkinson Land Title Company, Galena, Illinois; 
Mr. Eugene Hummel, SRA, Chief Executive Officer, Iowa 
Residential Appraisal Co., West Des Moines, Iowa; Mr. Peter 
Birnbaum, President, Attorney's Title Guaranty Fund, Inc., 
Chicago, Illinois; Mr. Gary Acosta, President, SDF Realty, San 
Diego, California; Mr. Neill Fendly, Government Affairs Chair 
and Past President, National Association of Mortgage Brokers, 
McLean, Virginia; Ms. Catherine Whatley, Buck & Buck Realty, 
Jacksonville, Florida; and Terry Clemans, Executive Director, 
National Credit Reporting Association, Bloomingdale, Illinois.
    Secretary Martinez commenced his testimony by summarizing 
the need for changes in the rules governing RESPA. He then 
outlined the steps that HUD took to obtain input including the 
meetings with affected entities and the preparation of 30 
specific questions in the proposed rule. Secretary Martinez 
then gave the Committee his commitment to ensure full 
compliance with the RFA. The Secretary went on to note that he 
fully recognizes the importance that small businesses play in 
the real estate settlement process. However, that significance 
should not override, in his view, the primary goal of RESPA--
reduction in settlement costs to consumers.
    Mr. Kosin, on behalf of the American Land Title 
Association, noted that the proposal would affect title 
insurers and abstractors--the vast majority of which are very 
small businesses. Mr. Kosin went on to testify that the 
guaranteed mortgage packaging proposal would limit consumer 
access to and choice of settlement service providers. He then 
explained that a guaranteed mortgage package incorporating a 
guaranteed interest rate only could be packaged by lending 
institutions that have the financial wherewithal to undertake 
protective hedge transactions in the commodity markets. He 
concluded that the losses estimated by HUD would drive 
suppliers out of business thereby creating an oligopolistic 
national market of big businesses for a service that typically 
was performed by a local small business.
    Mr. Hummel testified that the HUD proposal works against 
its own intentions. According to Mr. Hummel, allowing the 
lenders to select the appraiser could result in the retention 
of appraisers that provide the result sought by the lender 
rather than an objective result of an unbiased third party. Mr. 
Hummel concluded his testimony by suggesting that the appraisal 
not be made part of any guaranteed mortgage package.
    Mr. Birnbaum testified on behalf of the National 
Association of Bar-Related Title Insurers. The organization 
consists of 20,000 law firms, almost all of which are small 
businesses. Mr. Birnbaum asserted that HUD failed to examine 
the impact that the regulation would have on these firms. He 
emphasized that his reading of the proposal would enable banks 
to receive kickbacks (something RESPA was enacted to prevent) 
but no other players in the settlement process. By allowing 
kickbacks, Mr. Birnbaum testified that the proposal would not 
lower costs to consumers. He concluded by noting that thousands 
of small businesses would close if the rule was adopted as 
proposed.
    Mr. Acosta testified on behalf of the National Association 
of Hispanic Real Estate Professionals. Mr. Acosta thanked 
Secretary Martinez for his efforts to increase home ownership 
among the Hispanic community. His organization's primary view 
is that consumers should have access to the lowest rate 
possible and be given the maximum choice of mortgage products 
and services. The proposal rule undercuts that principle 
because it requires an individual mortgage broker to disclose 
costs while hiding those costs in a package created by a bank. 
He concluded his testimony by noting that more revisions were 
needed to ensure continued participation by Hispanics in the 
real estate business.
    Mr. Fendly first explained the operation of the proposal 
and the adverse consequences it would have on mortgage brokers. 
He then claimed that HUD did not comply with the RFA because 
it: (1) underestimated the impact on small business; (2) failed 
to consider alternatives would reduce adverse impact on 
mortgage brokers; and (3) miscalculated the recordkeeping and 
reporting costs associated with the proposed rule. Mr. Fendly 
concluded his testimony by requesting that HUD delay further 
implementation until it has prepared an accurate initial 
regulatory flexibility analysis as required by the RFA.
    Ms. Whatley, testifying on behalf of the National 
Association of Realtors, noted that they support reformation of 
the RESPA rules to simplify the process for home purchasers. 
She then laid out the position of the Realtors that the 
proposed guaranteed mortgage package would hurt small 
businesses. As others already had noted, packages only would be 
available from lenders because of the fixed interest rate 
requirement. Lenders also would not be required to disclose the 
contents of the package--just the final price. And without 
knowing what is in the package, consumers would be unable to 
shop services to other small businesses thereby potentially 
putting them out of business if packaging became the mainstay 
of the settlement industry. She concluded her testimony by 
requesting that HUD delay issuance of the final rule until it 
examined the unintended consequences of the proposed rule.
    Mr. Clemans testified that there are about 300 firms in the 
United States that specialize in mortgage credit reporting. 
These businesses provide millions of credit reports to lenders 
and almost all of them would be considered small under any 
measure. Mr. Clemans concurred with other witnesses that 
Secretary Martinez was correct in tackling the problems 
associated with RESPA. However, that is where Mr. Clemans 
parted company with HUD. Specifically, Mr. Clemans complained 
about the failure to assess the impact of the proposal on small 
mortgage credit reporting agencies. Secondly, Mr. Clemans 
believes that it is inappropriate to include the credit report 
in the guaranteed mortgage package because without a credit 
report showing the adequacy of the consumer's ability to repay, 
no settlement occurs. By finding the cheapest solution, the 
lenders may not get the most accurate credit report or the most 
unbiased. Mr. Clemans concluded his statement by noting that a 
delayed credit report could result in banks putting in higher 
interest rates as part of the guaranteed mortgage package.
    In sum, the Committee concluded that HUD's proposed rule to 
change RESPA would have a devastating negative effect upon 
thousands of small businesses involved in the real estate 
settlement process. For further information, please refer to 
Committee publication #108-3.
            7.2.4  changes to sba financing programs needed for 
                    revitalization of small manufacturers

                               Background

    On Wednesday, March 20, 2003, the Committee on Small 
Business held a hearing that focused on the Small Business 
Administration (SBA) financing programs and any changes needed 
to help small manufacturers obtain necessary capital to stay 
competitive in a global marketplace. The SBA provides over $22 
billion in financial assistance to small businesses. SBA's 
large financial program is the 7(a) general business loan 
guarantee program. The program offers guarantees of up to 80 
percent of commercial loans made through local banks and other 
lending institutions. The 504 lending program provides 
construction, renovation, and capital investment financing to 
small businesses through qualified state and local development 
companies, better known as certified development companies 
(CDCs). The Microloan program provides small loans of up to 
$35,000 to borrowers in low-income areas. Intermediaries that 
make loans also must provide managerial and business expertise 
to borrowers. Small business investment companies (SBICs) 
provide long term and venture capital financing to small 
businesses. SBICs are venture capital firms that leverage 
private investment dollars with SBA guaranteed debentures or 
participating securities. The program, like the 504 program, 
operates at a zero subsidy requiring no appropriation to 
provide funds.

                                Summary

    The panelists were Mr. Ronald Bew, Associate Deputy 
Administrator for Capital Access, Small Business 
Administration, Washington, DC; Mr. John Phelps, Executive 
Director, Rockford Local Development Company, Rockford, IL; Mr. 
David Bartram, President, SBA Division, U.S. Bank, San Diego, 
CA; Mr. L. Ray Moncrief, Chief Operating Officer, Kentucky 
Highlands Investment Corp., London, KY; and Mr. Robert Finkel, 
President, Prism Capital, Chicago, IL.
    Mr. Bew testified that the primary objective of the SBA was 
to maximize the economic impact of its financial assistance 
programs. He noted that achieving this goal led to the 
utilization of smaller loans because they were economically 
more productive in creating jobs. Nevertheless, SBA provided 
over $2.7 billion in financial assistance (primarily through 
the 504 and SBIC programs) to small manufacturers. Mr. Bew 
expressed a willingness to work with the Chairman and other 
members of the committee to develop creative solutions for 
small manufacturers.
    Mr. Phelps first noted that the subsidy rate model for the 
CDC program was outdated and needed revision. He then cited a 
National Association of Manufacturers (NAM) study, which found 
that 43 percent of small manufacturers faced increased capital 
cost despite record low interest rates. His specific 
recommendations to assist small manufacturers included: update 
the definition of rural area; permit CDCs to lend money for 
refinancing; enable CDCs to combine 504 loans with those issued 
under the 7(a) loan program; provide a special debenture for 
small manufacturers; and permit small manufacturing debentures 
to be issued on the basis of one job for every $100,000 dollars 
in financing.
    Mr. Bartram testified that loan demand was running 
significantly ahead of the proposed $9.3 billion set forth in 
the SBA's FY 2004 budget. He then noted that small 
manufacturers could obtain loans for plant and equipment, 
working capital, and to fund exports. If loan caps were to be 
imposed because the SBA ran out of money to fund the program, 
it would act to the detriment of small manufacturers.
    Mr. Moncrief urged reauthorization of the new market 
venture capital company program (NMVCC). The NMVCC program was 
created, according to Mr. Moncrief, because venture capital was 
not distributed to low-income communities throughout rural 
America. Mr. Moncrief's company, Kentucky Highlands, invested 
over $100 million in businesses in the Appalachian region of 
Kentucky creating 8,000 jobs. As the only program targeting 
low-income rural communities, the NMVCC program should be fully 
and adequately funded.
    Mr. Gast testified that microloans could not be replaced 
with conventional bank financing because borrowers often are 
not bankable clients. For example, some borrowers do not even 
have bank accounts. Mr. Gast then requested that legislation be 
enacted enabling intermediaries to make long-term loans which 
would empower borrowers to more easily start home-based 
manufacturing enterprises. In fact, a small manufacturer that 
started with a microloan by working out of his home and now had 
enough work for five employees accompanied Mr. Gast to the 
hearing.
    Mr. Finkel provided data showing that SBICs invested $737 
million in 434 small manufacturing companies in 41 states. This 
constituted about 28 percent of available SBIC funds and 
supported 60,000 jobs. Mr. Finkel suggested that the SBIC 
program be modified to permit individual companies to exceed 
the existing leverage cap if they invest in manufacturing. 
Large SBICs would be able to redirect more of their funds to 
small manufacturers if they were not required to invest a 
portion of their funds in smaller enterprises. Finally, Mr. 
Finkel requested clarification of the rules on capital 
impairment in order to prevent the SBA from accessing 
uninvested private capital as collateral.
    In sum, the committee concluded that many of the programs 
of the SBA can be redirected to help struggling small 
manufacturers. For further information, please refer to 
Committee publication #108-4.
            7.2.5  will we have an economic recovery without a strong 
                    u.s. manufacturing base?

                               Background

    On April 9, 2003, the Committee on Small Business held a 
hearing on whether the U.S. will have an economic recovery 
without a strong domestic manufacturing base. The purpose of 
the hearing is to explore the problems facing U.S. 
manufacturers (95 percent of all manufacturers are small- and 
medium-sized enterprises) and demonstrate that the economy will 
not recover unless its manufacturing base is firmly 
reestablished. The hearing addressed the following: (1) what 
effect the loss of over 2 million manufacturing jobs in the 
last two years has had on the economy and the potential for 
recovery; (2) how such job loss will affect the ability of 
Americans to purchase because of the loss of well paying jobs; 
and (3) what caused such devastating losses.

                                Summary

    The witnesses were: the Hon. Tim Ryan (D-OH); the Hon. 
Grant Aldonas, Undersecretary of Commerce for International 
Trade, United States Department of Commerce, Washington, DC; 
Mr. Jerry Jasinowski, President, National Association of 
Manufacturers, Washington, DC; Mr. Richard Trumka, Secretary-
Treasurer, AFL-CIO, Washington, DC; Mr. Michael Czinkota, 
Ph.D., Professor, McDonough School of Business, Georgetown 
University, Washington, DC; Mr. Ronald Harbour, President, 
Harbour and Associates, Troy, MI; Mr. Paul Freedenberg, Vice 
President, The Association for Manufacturing Technology, 
McLean, VA; Mr. David Sandy, Vice President, MS Willett, Inc., 
Cockeysville, MD; and Mr. Eric Anderberg, General Manager, Dial 
Machine, Inc., Rockford, IL.
    The participants all testified to the fact that domestic 
manufacturing is in a downward spiral. The Chairman's opening 
statement outlined a number of facts regarding the impact the 
loss of manufacturing jobs and orders is having on the economy. 
All panel members identified similar issues that are hurting a 
manufacturing recovery. Those issues included overvaluation of 
the dollar in China, unhelpful regulations regarding export/
import of goods, the rising cost of health care, and an 
inability to compete on labor rates with foreign imports.
    Each panelist was asked for recommendations they believe 
the government could implement that would assist in aiding this 
sector. The recommendations are as follows:
           Export trade policies--takes too long for 
        foreign customers to get visas to come to U.S. to 
        inspect potential purchases;
           Access to capital--too many banks are 
        withdrawing working-capital loans. Asset-backed loans 
        are getting harder to obtain due to the devalued market 
        for used equipment;
           China has undervalued its currency by 40% 
        compared to the U.S. dollar;
           Pass a manufacturing tax credit to replace 
        FSC;
           Strengthen Buy American provisions for Dept. 
        of Defense;
           Focus on nontariff barriers in trade with 
        China, Japan, and EU; and
           Export promotion activities.
    For further information on this hearing, refer to Committee 
publication 108-8.
            7.2.6  irs compliance with the regulatory flexibility act

                               Background

    On Wednesday, May 1, 2003, the Committee on Small Business 
held a hearing to examine the Internal Revenue Service's (IRS) 
compliance with the Regulatory Flexibility Act (RFA) as amended 
by the Small Business Regulatory Enforcement Fairness Act 
(SBREFA). The RFA requires federal agencies to examine the 
economic impact of their proposed and final rules on small 
entities. If the impact is significant on a substantial number 
of such businesses, the agency is required to assess less 
burdensome alternatives. From its enactment in 1980 until the 
passage of SBREFA in 1996, the IRS asserted that its 
regulations were interpretative and thus not subject to the 
strictures of the RFA. SBREFA eliminated that rationale when it 
made the RFA applicable to interpretative rules implementing 
the internal revenue laws of the United States. One would not 
be surprised to then learn that the IRS developed a new 
interpretation that it only was required to examine proposed 
and final rules if they resulted in a new collection of 
information requirement not attributable to some requirement in 
the Internal Revenue Code. Significant regulations of the IRS, 
ones that cost small businesses hundreds of millions of dollars 
a year, are not examined under the RFA.

                                Summary

    The panelists were the Hon. Pamela Olson, Assistant 
Secretary for Tax Policy, Department of Treasury, Washington, 
DC; the Hon. John Graham, Ph.D., Administrator, Office of 
Information and Regulatory Affairs, Office of Management and 
Budget, Washington, DC; the Hon. Thomas Sullivan, Chief Counsel 
for Advocacy, United States Small Business Administration, 
Washington, DC; the Hon. Andy Ireland (Ret.), Zeliff, Ireland & 
Associates, Washington, DC; Frank Swain, Esq., Partner, Baker & 
Daniels, Washington, DC; and Daniel Mastromarco, Esq., 
President, The Argus Group, Arlington, VA.
    Assistant Secretary Olson testified that the Service was 
restructured to serve specific constituencies. One such group 
was established to serve small businesses and the self-
employed. The division, according to the Assistant Secretary, 
plays a critical role in reviewing the impact of regulations on 
small businesses. The Assistant Secretary then testified that 
the Service does not make law but rather uses tax regulations 
to make compliance with the laws Congress passes more 
understandable to small businesses. She concluded her testimony 
by noting that the IRS fully complies with the RFA by closely 
examining the impact of information collections that it (as 
opposed to the ones Congress) imposes on small businesses.
    Administrator Graham testified on the role that his office 
plays in ensuring compliance with the RFA and the Paperwork 
Reduction Act (PRA). In particular, Dr. Graham provided 
substantial detail on the definition of a ``collection of 
information'' requirement under the PRA. As Dr. Graham 
testified, compliance with the ``collection of information'' 
requirement in the PRA is the linchpin on which rests IRS 
compliance with the RFA. Dr. Graham expatiated on the 
procedures that his office utilizes in ensuring agency 
compliance with the PRA.
    Chief Counsel Sullivan first explained that his office is 
tasked with monitoring agency compliance with the RFA. He then 
praised the accessibility of Assistant Secretary Olson and Dr. 
Graham. The Chief Counsel went on to question the IRS 
interpretation of the RFA because it limits the scope of the 
analysis rather than acting as a trigger for performing the 
analysis. In support of this thesis, the Chief Counsel cited 
the statements of the Judiciary Committee Chairman when SBREFA 
was passed. The Chief Counsel then cited examples of regulatory 
matters in which the IRS was not constrained by the Internal 
Revenue Code to structure a regulation in a certain manner.
    As one of the original authors of the RFA, former 
Congressman Ireland noted that the RFA has been in effect for 
nearly a quarter of a century. Despite this, the one major 
issue that remains is IRS compliance with the RFA. The 
Congressman then testified about regulations on reporting of 
interest income by banks was cited as another example of a 
change in IRS regulations that was not mandated by any change 
in the Internal Revenue Code for which no analysis was done 
under the RFA.
    The former Chief Counsel for Advocacy, Frank Swain, 
testified on yet another regulatory change that would have a 
significant impact on small business that was not necessitated 
by any change in the law. The IRS was modifying the definition 
of highway vehicle without conducting an analysis under the 
RFA. Most galling to Mr. Swain was the fact that the IRS 
requested a study of the economic impact of the change from the 
Department of Transportation but did not either cite the 
availability of such study in the proposed rule or recognize 
that it should have complied with the RFA.
    Mr. Mastromarco testified on his more than 15 years 
experience with the IRS failure to comply with the RFA. He 
noted that the Department of Treasury continues to issue 
parsimonious interpretations of the RFA in an effort to avoid 
examining the impact of its regulations on small businesses. 
Mr. Mastromarco used the proposed modification to the interest 
income reporting requirements to explain the IRS decision-
making process and how those procedures are used to avoid 
compliance with the RFA. Mr. Mastromarco concluded his 
testimony by asking the Committee to close the existing 
loopholes that permits the IRS to avoid compliance with the 
RFA. Such compliance, according to Mr. Mastromarco, will result 
in less controversy for the IRS and better compliance by 
taxpayers.
    In sum, the committee concluded that the IRS could do much 
more to comply with the letter and the spirit of the RFA. For 
further information, please refer to Committee publication 
#108-10
            7.2.7  are big businesses receiving contracts that were 
                    intended for small businesses

                               Background

    On Wednesday, May 7, 2003, the Committee on Small Business 
held a hearing concerning the serious allegation that big 
businesses are receiving contracts that were intended for small 
businesses.
    On January 15, 2003, an article appeared in the Los Angeles 
Times that stated: ``Large companies are improperly getting 
billions of dollars in government contracts meant for small 
businesses.'' The article attributed part of the problem to 
federal agencies in making contract awards relying upon faulty 
databases maintained by the Small Business Administration (SBA) 
and the General Services Administration (GSA). Apparently, 
these databases had not been routinely updated to reflect a 
change in a business' size and have improperly listed entities 
as small businesses that were in fact large businesses. The 
article cited went on to state: ``Small businesses have long 
complained that loopholes in federal law, sloppy government 
record-keeping, and, in some cases, outright fraud can result 
in large corporations getting federal contracts that Congress 
meant to go to small businesses.'' There may be other causes. 
The Committee was concerned that, if the allegations were true, 
federal small business contracting programs were at risk and 
achievement of federal socioeconomic goals would be undermined.

                                Summary

    The hearing was comprised of the following witnesses: the 
Hon. Angela Styles, Administrator, Office of Federal 
Procurement Policy, Office of Management and Budget, 
Washington, DC; Lloyd Chapman, Microcomputer Industry Suppliers 
Association, Novato, CA; Fred C. Armendariz, Associate Deputy 
Administrator for Government Contracting, United States Small 
Business Administration, Washington, DC; Felipe, Mendoza, 
Associate Administrator, Office of Small Business Utilization, 
General Services Administration, Washington, DC; Kenneth W. 
Robinson, President and CEO, Kenrob and Associates, Inc., 
Leesburg, VA; Steven L. Schooner, Professor of Law, George 
Washington University, Washington, DC; and, David E. Cooper, 
Director, Acquisition Sourcing Management, General Accounting 
Office, Washington, DC.
    An Executive Branch official expressed the view that the 
federal government should take the steps necessary to ensure 
that contracts intended for small businesses were not obtained 
by large businesses and that business opportunities for small 
businesses are increased. Instances were found where agencies 
were acting on inaccurate or misleading data in making contract 
awards. One corrective step taken by OFPP was to notify the 
four executive agencies offering government-wide acquisition 
contracts (GWACs) for information technology of OFPP's 
intention to require annual certification of size status by 
businesses listed as small on each GWAC. Without such annual 
certification a business could be identified as small well 
after it became a large business. The gravity of bundling 
contract requirements as an issue was emphasized as well as the 
importance to small businesses of agencies being required to 
unbundle contracting opportunities.
    Mr. Armendariz reported that SBA had removed from PRO-Net 
over 600 companies that had initially been listed as small 
businesses, but that were in fact large businesses. The 
accuracy of reports concerning the size of prime contractors as 
well as subcontractors as small or large businesses was 
questioned. Also, Mr. Armendariz reported that in FY2002 there 
were 383 size determination protests filed with SBA, that 110 
were dismissed on procedural grounds, and that 85 resulted in 
finding that the business was other than small.
    Mr. Armendariz expressed the view that the major source of 
complaints that large businesses are getting contracts intended 
for small businesses stemmed from the GSA Multiple Award 
Schedule program, including Federal Supply Schedule or other 
multiple award and GWACs contracts. A rule was proposed by SBA 
for comment to require annual certification of small business 
status for multiple award and GWACs contracts. The rule would 
change the present practice of permitting an initial 
certification to last the life of the contract. This could be 
as long as 20 years even though the size of a business had 
changed from small to large. Mr. Mendoza reported that GSA was 
requiring for multiple-award schedule contracts and other 
multiple-award contracts that re-certification occur prior to 
exercising an option period.
    Lax enforcement of laws and regulation intended to help 
small businesses has deterred small businesses from competing 
in the federal marketplace. Professor Schooner reported that 
the 23 percent goal of contract dollars going to small business 
was not met in the past two fiscal years, however, the share 
going to small businesses was above the 20 percent level during 
this period. GAO found that the major cause of misreporting 
small business participation in federal procurement was 
regulations permitting a company to be considered small over 
the life of a contract even though during that period its size 
had changed. Another important cause of misreporting was the 
use of bad or confusing data. Efforts were underway by SBA, 
OFPP and GSA to resolve some of the issues presented.
    For further information on this hearing, refer to committee 
publication 108-12.
            7.2.8  the wto's challenge to the fsc/eti rules and the 
                    effect on america's small businesses

                               Background

    On May 14, 2003, the Committee on Small Business held a 
hearing to examine the World Trade Organization's challenge to 
the Foreign Sales Corporation (``FSC'') and Extraterritorial 
Income Exclusion (``ETI'') rules of the Internal Revenue Code 
and the effect this challenge will have on America's small 
business owners.
    Like many other countries, the United States has long 
provided export-related benefits under its tax laws. For most 
of the last two decades in the United States, these benefits 
were provided under the FSC tax rules. In 2000, the European 
Union (``EU'') succeeded in having the FSC regime declared a 
prohibited export subsidy by the WTO. In response to this 
ruling, the United States repealed the FSC rules and enacted 
the ETI tax rules. The EU immediately challenged the ETI regime 
in the WTO and, on January 14, 2002, a WTO appellate body held 
that the ETI regime constituted a prohibited export subsidy 
under the relevant trade agreements. During August of 2002, a 
WTO arbitration panel determined that the EU was entitled to 
over $4 billion of annual countermeasures against the United 
States for failure to repeal its ETI rules. At the time of the 
hearing, the EU had not yet imposed sanctions against U.S. 
exports but strongly suggested it would if the ETI regime was 
not repealed before the end of 2003.
    In order to bring the U.S. into compliance with the WTO 
ruling, Chairman Manzullo, together with Rep. Crane (R-IL) and 
Rep. Rangel (D-NY), introduced on April 11, 2003, H.R. 1769, 
the Job Protection Act of 2003. In summary, the Crane-Rangel-
Manzullo bill would replace the current-law ETI benefit with an 
exclusion from tax of up to 10 percent of the income 
attributable to domestic production.

                                Summary

    The first panel consisted of the Hon. Philip M. Crane (R-
IL) and the Hon. Charles B. Rangel (D-NY). Representatives 
Crane and Rangel outlined the provisions included in H.R. 1769, 
the Job Protection Act of 2003, including the repeal of ETI 
benefits, transition rules for current ETI recipients and the 
phase-in of a new permanent tax deduction for U.S. companies 
based on their domestic manufacturing and production 
activities.
    The second panel consisted of Dr. Clyde C. Hufbauer, the 
Reginald Jones Senior Fellow at the Institute for International 
Economics, Washington, DC; Ms. Thea Lee, Assistant Director for 
International Economics, AFL-CIO, Washington, DC; Mr. Doug 
Parsons, President and CEO of Excel Foundry and Machine, Pekin, 
IL; and Mr. Wayne Fortun, President and CEO of Hutchinson 
Technology, Inc, Hutchinson, MN.
    Dr. Hufbauer reviewed the tortured history of the WTO 
challenge to the FSC/ETI rules. He also reviewed some of the 
competing solution advanced to address this challenge. He 
concluded that among the exiting ETI reform proposals, H.R. 
1769 ``best serves the American economy.'' Ms. Lee testified 
that U.S. manufacturing is in crisis and pointed out that for 
the past 33 months, manufacturing jobs in the U.S. had 
declined, the longest such stretch since the Great Depression. 
She also praised the approach embodied in H.R. 1769 and stated 
that the AFL-CIO has publicly endorsed the bill.
    Mr. Parsons and Mr. Lee emphasized the impact the repeal of 
the ETI rules would have on domestic manufacturing, absent an 
adequate replacement. Mr. Lee pointed out that H.R. 1769 would 
provide an effective corporate rate reduction of 3.5 percent, 
thereby allowing his company to recoup a portion of the loss 
resulting from a repeal of ETI benefits.
    For further information on this hearing, refer to committee 
publication 108-14.
            7.2.9  the visa approval backlog and its impact on american 
                    small business

                               Background

    On June 4, 2003, the Committee on Small Business held a 
hearing at to investigate the impact that significant delay in 
the issuance of business visas is having on the ability of 
American exporters to reach their customers. Many small 
business and manufacturers in particular have lost sales 
opportunities because their potential customers have found it 
difficult to obtain a visa to visit the United States.

                                Summary

    The hearing was comprised of one panel made up of: Janice 
L. Jacobs, the Deputy Assistant Secretary for Visa Services, 
United States Department of State, Washington, DC; Robert J. 
Garrity, Deputy Assistant Director, Federal Bureau of 
Investigation, Washington, DC; Mr. Gary Shapiro, President & 
CEO, Consumer Electronics Association, Arlington, VA; Mr. Chip 
Storie, Vice President, Aerospace Sales, Cincinnati Machine 
Inc., Cincinnati, Ohio; Mr. William J. McHale, Vice President, 
Sales for Kanawha Scales & Systems, Inc., Poca, WV; Ms. Palma 
R. Yanni, the President-elect, America Immigration Lawyers 
Association, Washington, DC; and Mr. William A. Reinsch, 
President of the National Foreign Trade Council, Inc, 
Washington, DC.
    The hearing testimony and questions focused particularly on 
the State Department's efforts to adapt to the new security 
requirements and the impact of ongoing procedural delays on the 
business climate. Ms. Jacobs testified that while in certain 
respects and for some applicants, obtaining a US visa has 
become a lengthier process, it is also true that in virtually 
all of these cases delays have been the result of our efforts 
and those of other federal agencies to increase the security of 
our borders and of our homeland. So too, Jacobs stated that the 
Department is making changes to increase automation with the 
creation of an interagency network known as OSIS, i.e. Open 
Source Information System. The DOS pledged to spend close to $1 
million over the next year to eliminate telegrams from overseas 
posts as the vehicle for disseminating cases to other federal 
agencies in the security advisory opinion process. The hope is 
that the State Department will use real-time data-share and 
eliminate virtually all manual manipulation of routine data.
    Mr. Garrity testified that the FBI is working diligently 
with the Department of State toward the common goal of 
improving the expediency and efficiency of the visa clearance 
process. Since September 11, 2001 the number of name checks 
submitted to the FBI has grown by more than 300 percent. This 
has proved to be a big challenge for the bureau.
    Mr. Reinsch argued that the federal agencies appear to have 
lowered the bar of what qualifies as a security threat, with 
the result that applications for individuals who were never 
previously considered threats have become subject to lengthy 
delays, compromising the ability of the interagency process to 
provide a speedy and thorough response.
    Ms. Yanni focused her testimony on the existing backlog and 
stated that many applications that not along ago were 
considered easily approvable are now denied, invoking an appeal 
process that in itself can take one year or more. Further, she 
maintained that many of the applications now being denied are 
similar, on the exact same facts and law, as requests that had 
approved a couple of years ago. These denials seem to happen 
most often to small businesses. Mr. McHale testified about the 
problems with his foreign employees, existing clients, and 
prospective future customers face when trying to obtain travel 
visas to the U.S for the purpose of business discussions, 
design liaison meetings, employee training, plant and equipment 
inspections. He was especially concerned about delays for 
customers in China.
    Mr. Storie claimed that the visa delays certainly do not 
help promote trade and may in fact be driving potential 
customers to our European and Japanese competitors.
    Mr. Shapiro, testifying for the CEA and the International 
Association for Exhibition Management, expressed serious 
concerns that the delay in the issuance of business visas and 
the resulting injury to America's reputation as the leading 
location for industry trade fairs. He argued that this climate 
is forcing many events to consider moving their exhibitions 
overseas.
    In summary, the committee concluded that improvements need 
to be made to streamline the process of processing applications 
and that special efforts may be needed immediately to allow 
bona fide business travelers to receive expedited processing of 
their applications. This might include providing special times 
for face-to-face interviews or other accommodations. For 
further information on this hearing, refer to Committee 
publication #108-17.
            7.2.10  revitalizing america's manufacturers: sba business 
                    and enterprise development programs

                               Background

    On Wednesday, June 11, 2003, the Committee on Small 
Business held a hearing to evaluate what changes might be made 
in the Small Business Administration's (SBA) non-financial 
programs to assist small manufacturers. The SBA provides 
government procurement, technical, and managerial assistance to 
small businesses and would-be entrepreneurs.
    Procurement assistance is provided through a number of 
avenues. Foremost, the SBA acts as an advocate of small 
business capabilities during major government procurements. 
Second, the SBA oversees the operation of a number of programs 
designed to ensure maximum contract opportunities to small 
businesses, small businesses located in low-income areas, and 
small businesses owned and controlled by women or minorities.
    Technical and managerial assistance is provided through 
four primary programs. Small business development centers 
(SBDCs) are located primarily at colleges and universities and 
provide marketing, financing, start-up, and other assistance at 
more than 1,000 sites. The Service Corps of Retired Executives 
or SCORE provides small business assistance through the 
volunteer efforts of its members, the vast majority of whom are 
retired businessmen and women who offer their expertise and 
experience to small business owners. The 7(j) technical 
assistance program provides financing for technical assistance 
to the minority contracting community primarily through courses 
taught at universities and direct assistance from management 
consultants contracted by the SBA. The Women's Business Center 
(WBC) program provides business training for women by teaching 
women the principles of finance, management, and marketing. 
There are about 93 centers scattered throughout the United 
States.

                                Summary

    The hearing consisted of two panels. The first panel 
examined the SBA's procurement assistance programs and the 
second examined the technical assistance programs.
    The members of the first panel were: Mr. Daryl Hairston, 
Deputy Associate Deputy Administrator, Office of Government 
Contracting and Business Development, Small Business 
Administration, Washington, DC; Mr. Anthony Robinson, 
President, Minority Business Enterprise Legal Defense and 
Education Fund, Lanham, MD; Mr. Lonnie Sanders, President, C&S 
Trading, LLC, Washington, DC; and Ms. Alba Aleman, President, 
Cairo Corp., Manassas,VA.
    The members of the second panel were: Ms. Kaaren J. Street, 
Associate Deputy Administrator, Office of Entrepreneurial 
Development, Small Business Administration, Washington, DC; Ms. 
Kersten Hostetter, Executive Director, Microbusiness 
Development Corp., Denver, CO; Ms. Susan R. Whitfield, 
Director, McHenry County College Small Business Development 
Center, Crystal Lake, IL; Ms. Hedy Ratner, Co-President, 
Women's Business Development Center, Chicago, IL; and Mr. Lee 
Smith, Director, Southern Arizona BusinessLINC, Tucson, AZ.
    Mr. Hairston testified about the operations of the 
individual government contracting assistance programs. He cited 
a number of changes in those programs including: the launch of 
a series of nationwide procurement matching conferences; 
implementation of the President's anti-bundling strategy; 
automation of applications to participate in the 8(a) 
government contracting assistance program; simplification of 
SBA size standards; and development of a procurement academy 
under the 7(j) technical assistance program. Finally, Mr. 
Hairston testified about the integration of the SBA's 
government contracting database with that run by the Department 
of Defense.
    Mr. Robinson testified that there were major disconnects 
between the manufacturing sector and the minority procurement 
programs operated by the federal government. The first 
disconnect is that if a business owner exceeds a net worth of 
$250,000, they must exit the 8(a) program. For small 
manufacturers with a significant investment in plant and 
equipment, participation simply is not possible. Second, the 
support programs for small manufacturers, in particular the 
Manufacturing Extension Partnership (MEP) program, have done 
little outreach to small manufacturers in the minority 
community. Finally, Mr. Robinson testified about the delegation 
of the SBA's responsibilities under the 8(a) program to other 
federal agencies.
    Mr. Sanders testified about his experiences as a HUBZone 
contractor with the Department of Agriculture. He criticized 
the Department for not recognizing that he was ineligible to 
participate until after he made a significant commitment of 
time and resources. Second, he requested that the Committee 
modify the requirements in the HUBZone program to permit the 
Department of Agriculture to purchase commodities from 
wholesalers.
    Ms. Aleman first noted that the procedures for obtaining 
certification under the 8(a) program are extremely burdensome, 
invasive, and time-consuming. She then testified that it took 
over two years to obtain her first 8(a) contract. Since her 
company is relatively new and without a strong track record, 
she cannot rely on large prime contractors providing her with 
subcontracts. Thus, in order to grow her business, Ms. Aleman 
opined that she needed prime contracts and the 8(a) program is 
a vitally significant route in obtaining those contracts. She 
testified about the disparities between the 8(a) and HUBZone 
and requested that the Committee examine ways to remove the 
disparities to enable 8(a) contractors to operate on a level 
playing field with HUBZone firms.
    Ms. Street testified about the SBA's commitment to serving 
America's entrepreneurs. She noted that the SBA was reforming 
its entrepreneurial development programs to ensure better 
coordination among them. In particular, the SBA wanted to 
transform those programs into a more client-based system 
without regard to the center from which the business seeks 
assistance. She then went on detail changes that are being made 
in each of the programs to enhance their attractiveness to 
small business owners.
    Ms. Hostetter noted that the vital role that 
microenterprise development can play in economic growth. For 
example, in Colorado, there are 412,000 microenterprises 
generating nearly 20 percent of the state's employment. But 
that role is hindered by a lack of capital and technical 
assistance. She testified that the PRIME program provides 
important technical advice to microenterprises and should 
receive an increase in funding by at least $5 million.
    Mrs. Whitfield testified about the typical day faced by a 
SBDC. Such a day might include a breakfast meeting with the 
local chamber of commerce and a discussion with prospective 
business owners about their plans for construction of a 
building. Then it was to answering hundreds of e-mails. Small 
businesses would then show up for free counseling. In addition, 
the staff at a SBDC must maintain active surveillance on dozens 
of federal programs and changes in regulations. For 
manufacturers, the SBDC staff would visit facilities to better 
understand the manufacturing processes and help them with any 
questions they might have. She ended her testimony by noting 
that SBDCs generate $2.09 for every dollar invested by the 
taxpayer.
    Ms. Ratner noted that her WBC provides bilingual advice to 
both men and women in metropolitan Chicago. She then noted the 
importance of women entrepreneurs in today's economy. Women 
business owners, according to Ms. Ratner, continue to need 
information, guidance, and training that often are only 
available from WBCs. Her center alone counseled over 35,000 
women during its existence. She concluded her testimony with a 
plea for continued and expanded funding of WBCs.
    Mr. Smith testified about the operation of the BusinessLINC 
program in expanding opportunities for America's manufacturers. 
He noted that the Southern Arizona BusinessLINC program created 
a database of large manufacturing facilities in Sonora, Mexico 
that could be supplied by small American manufacturers. 
Furthermore, the Southern Arizona BusinessLINC program found 
small American suppliers for a Bombardier plant in Ireland. He 
concluded his testimony by noting that the governor of Arizona 
is making supply chain development a top initiative.
    In sum, the committee took away many positive suggestions 
on how to reform the non-finance programs at the SBA to further 
help struggling small manufacturers. For further information, 
please refer to Committee publication #108-18.
            7.2.11  globalization of white-collar jobs

                               Background

    A recent Business Week article highlighted what it called, 
``The New Global Job Shift.'' The cover read, ``IS YOUR JOB 
NEXT? A new round of GLOBALIZATION is sending upscale jobs 
offshore. They include chip design, engineering, basic 
research--even financial analysis. Can America lose these jobs 
and still prosper?'' That is the question.
    With more and more manufacturing being done overseas, we 
continue to see the erosion of a domestic manufacturing base. 
Prevailing economic theory suggests that it is good for America 
and good for the world for blue-collar jobs to be done 
elsewhere while we concentrate on keeping and developing 
highly-skilled, white-collar jobs here. In theory it sounds 
fine, but we are now seeing these very same highly-skilled jobs 
(i.e. architecture, engineering, software development) being 
done offshore.
    Since July 2000 the manufacturing sector has lost 2.6 
million jobs. What most people do not understand is how closely 
the service sector is tied to the manufacturing sector. Every 
$1 million in manufacturing sales equates to fourteen jobs, six 
of which are in the service sector. According to Forrester 
Research, 3.3 million white-collar jobs and nearly $140 billion 
in white-collar wages will shift from the U.S. to other 
countries in the next 12 years.
    On June 18, 2003, the Committee on Small Business held a 
hearing to discuss the impact of outsourcing of white-collar 
jobs to the American economy and what role, if any, should the 
federal government play in helping to improve the global 
competitiveness for white-collar jobs.

                                Summary

    The witnesses for the hearing were: the Hon. Nancy Johnson 
(R-CT); the Hon. Bruce Mehlman, Assistant Secretary for 
Technology Policy, United States Department of Commerce, 
Washington, DC; Mr. Pete Engardio, Business Week Magazine, New 
York, NY; Mr. Ron Hira, Ph.D., P.E., Chair, Research and 
Development Policy Committee, Institute of Electrical and 
Electronics Engineers, Washington, DC; Mr. John Challenger, 
CEO, Challenger, Gray & Christmas, Inc., Chicago, IL; Mr. John 
Palatiello, Administrator, Council on Federal Procurement of 
Architectural & Engineer Services, Reston, VA; Mr. Christopher 
Kenton, Cymbic, Inc., San Francisco, CA; and Mr. Paul Almeida, 
President, Department of Professional Employees, AFL-CIO, 
Washington, DC.
    Rep. Johnson said Congress needs to reevaluate guest worker 
visa programs. H1B visas were increased in 1999 for Y2K 
preparation. Currently, however, the shortage has vanished, and 
it is no longer necessary or prudent to allow companies to 
funnel foreign workers into the United States with no annual 
limits. Further, L1 Visa rules should also be examined. Non-
dependency companies are given much more leeway than dependant 
companies.
    Assistant Secretary Bruce P. Mehlman testified that 
America's future lies in education and ``sustained 
innovation.'' Ever advancing technologies continue to 
accelerate the process of ``creative job destruction,'' making 
former tasks and procedures obsolete. In an effort to employ 
more Americans, we must focus on improving math and science 
education. Also, tax and trade regulations, in addition to 
infrastructure protection should remain central to government 
efforts to remedy developing outsourcing problems. He warned, 
however, that the United States continues to export 
approximately 7.9 billion dollars of IT services each year, and 
it would be unwise to stop buying from elsewhere and begin a 
process that might harm our economy further.
    Pete Engardio, a senior editor from Business Week, believes 
the outsourcing problem is in part caused by a mismatch between 
the skills being taught at various schools and the skills 
required on the job. On the other hand, the problem is complex, 
and may, in part, be due to a painful transition caused not 
merely by skill shortages. Nevertheless, government should 
continue to focus on education.
    Ron Hira, representing IEEE-USA, stated that further 
research and timely information regarding current outsourcing 
is necessary (i.e. information about which jobs are being 
lost). Because of stricter immigration regulations following 
the September 11th tragedy, companies are finding it easier to 
outsource jobs than move employees to the United States. He 
recommended that the World Trade Organization's agencies on 
trade and services should be followed closely.
    John Challenger, CEO of Challenger, Gray, and Christmas, 
Inc., said the education system in the United States must be 
improved to meet current workforce needs and the changing job 
paradigm. Lifelong education continues to remain essential in 
the United States where individuals may very well find 
themselves working for six or more companies in the course of a 
lifetime. The government should pursue tuition reimbursement 
and skills training programs to help individuals focus on 
effective job transitions. Tax credits for re-education is a 
possible suggestion, along with awarding contracts to small 
companies with local workforces.
    John Palatiello, Administrator for the Council on Federal 
Procurement of Architectural and Engineering Services, 
identified several issues of national interest. First, for 
security purposes, the United States' Government cannot 
continue to allow outsourcing of sensitive intelligence related 
projects (for example, blueprints for state of the art nuclear 
power plant facilities and the like should not be drawn by 
architects in foreign countries). Second, the Prevailing Wage 
Act and the Service Contract act should also be investigated 
because they only apply to work performed within the United 
States. Third, Federal Prisons ability to compete for lucrative 
contracts is problematic. Finally, taxes, litigation, and 
healthcare costs make it ever difficult to hire in the United 
States.
    Christopher Kenton, CEO of Cymbic, Inc., testified that the 
Federal government should continue promoting innovation and 
investigating regulatory policies to level the playing field 
among nations.
    Paul Almeida, President of the Department for Professional 
Employees, AFL-CIO, indicated that tax policy should be 
consistent at national, state, and local levels, and companies 
should not be given relief if they do not provide local jobs. 
He recommended that more research should be done regarding the 
role our trade policies play in global outsourcing.
    The hearing concluded with the Chairman's call for action 
on several of these issues. For further information on this 
hearing, refer to Committee publication 108-20.
            7.2.12  foreign currency manipulation and its effect on 
                    small manufacturers and exporters

                               Background

    On June 25, 2003, the Small Business Committee held a 
hearing to discuss the impact of foreign currency manipulation 
and its effect on small manufacturers and exporters across the 
country. The U.S. has lost over two million manufacturing jobs 
during the recession. Our biggest Asian trading partners have 
implemented a strategy of currency under-valuation in order to 
gain a competitive advantage for their exports by making them 
cheaper. It is estimated that the actions by China, Taiwan, 
South Korea, and Japan have essentially given their exporters a 
15 to 40 percent reduction, which in turn acts as a tax by the 
same percentage on U.S. manufacturers and exporters. Japan has 
systematically intervened in the currency markets to reduce the 
value of the yen. Manipulation of exchange rates for the 
purpose of achieving an unfair competitive advantage is illegal 
under international protocols.
    Since 1994, the Chinese government has kept its currency 
pegged at 8.2 yuan to the dollar. China has experienced 
economic growth, gains in productivity, a large export sector, 
and increased foreign investment, all factors that would cause 
its currency to appreciate if it were allowed to freely move. 
It is estimated by many economists that the yuan is undervalued 
by as much as 40 percent.

                                Summary

    There was one panel consisting of Dr. C. Fred Bergsten, 
Director, Institute for International Economics, Washington, 
DC; Robert A. Blecker, Professor of Economics, American 
University and Research Associate, Economic Policy Institute, 
Washington, DC; Steve Yagle, President Reliable Machine, 
Rockford, IL; Jay Bender, President, Falcon Plastics Inc., 
Brookings, SD; George Jones, President, Seaman Paper Company of 
Massachusetts, Inc., Otter River, MA; Edward M. Tashjian, Vice 
President, Marketing, Century Furniture, Hickory, NC; Paul 
Freedenberg, Director of Government Relations, Association for 
Manufacturing Technology, McLean, VA; and Cass Johnson, Senior 
Vice President, American Textile Manufacturers Institute, 
Washington, DC.
    Dr. Bergsten testified that to date, the dollar has fallen 
by about 30 percent against the euro but only about 15 percent 
against the yen and not at all against the Chinese renminbi. He 
explained that it is imperative for China to let its currency 
start to rise in the exchange markets in order to contribute 
directly to the needed U.S. adjustment and to permit other East 
Asian currencies (including the yen) to rise more extensively 
as well.
    Dr. Blecker testified that East Asian countries have 
amassed reserves of well over $1 trillion U.S. dollars as a 
result of their efforts to keep their own currencies 
undervalued and maintain their artificial competitive 
advantages in the U.S. market. The tangible effects of this 
are: (1) a loss of three-quarters of a million U.S. 
manufacturing jobs; (2) a decline in profits on U.S. 
manufacturing operations of about $100 billion per year; and 
(3) a reduction in capital expenditures at U.S. manufacturing 
plants of over $40 billion annually.
    Steve Yagle testified that the Chinese government 
manipulates the value of its currency, which artificially 
lowers the prices of Chinese goods in the U.S. while making his 
products more expensive in China. An Illinois Manufacturing 
Extension Center Survey reported that over 60 percent of the 
manufacturers surveyed reported that they are experiencing 
severe competition from China and have lost market share. 
Moreover, 46 percent of all respondents said they expected 
competition from China to reduce their sales by an average of 
about 16 percent in 2003 with more losses expected in the next 
few years.
    Jay Bender testified that for the past several years, 
American manufacturing lost almost 2.5 million jobs and 
industrial production has stagnated. During this same period, 
Falcon Plastics, owned by Mr. Bender, has gone from employing 
over 300 people to just 200. American manufacturers compete 
against Chinese companies that have access to a vast low-wage 
labor pool. These Chinese companies have minimal health, 
environmental and safety standards that are far below that of 
the United States, in addition to an undervalued Chinese 
currency that makes its products even cheaper to buy.
    George Jones testified that U.S. manufactured paper and 
wood products are being disadvantaged in the U.S. and global 
marketplaces due to Chinese currency manipulation and 
government subsidization of new manufacturing capacity. The 
Chinese government has intentionally kept the value of its 
currency abnormally low to create a competitive advantage for 
their products at the expense of U.S. produced goods.
    Edward Tashjian testified to the negative effect of the 
undervalued Chinese currency on his industry by saying that a 
Chinese furniture manufacturer can sell identical furniture for 
significantly less because of cheap labor costs, few 
regulations on labor and the environment, and the currency 
issue. He went on to say that because furniture is a ``big 
ticket'' item, when a U.S. furniture manufacturer loses a sale 
to his Chinese competition, it is many years before that 
company gets another shot at the customer.
    Paul Freedenberg testified that for the machine tooling 
industry that orders are off more than 60 percent since their 
peak in 1997. Import penetration has increased more than 40 
percent in the past four years, due, in large part, to an 
overvalued U.S. dollar, which has only recently receded from 
its heights in relation to European currency. But these same 
countries continue to allow anti-competitive subsidies, which 
further add to our competitive problems. More than 30 machine 
tool companies have closed their doors in the past 18 months, 
representing nearly 10 percent of the companies in the entire 
industry.
    Cass Johnson testified to the state of the textile 
industry, reminding the Committee that when China cut the value 
of its currency by about 40 percent in 1994, it was followed 
three years later by a similar collapse in the currency values 
of China's more direct Asian competitors. So, it should not be 
a surprise that the U.S. manufacturing sector suffers from its 
worst recession since the Great Depression. As Chinese and 
other Asian currencies have been devalued, prices for textile 
and apparel products from these countries have fallen by as 
much as 38 percent, further compounding the problem.
    In sum, the Committee concluded that Congress and the Bush 
Administration needed to act quickly and decisively to stop 
foreign governments, particularly those in East Asia, from 
undermining the value of their currency at the expense of the 
U.S. dollar if we are to have a small manufacturing base in 
this country. For further information on this hearing, refer to 
Committee publication #108-21.
            7.2.13  saving the defense industrial base

                               Background

    On Wednesday, July 9, 2003, the Committee on Small Business 
held a hearing that focused on preserving America's defense 
industrial base.
    On May 22, 2003, the Office of Management and Budget 
released its Statement of Administration Policy (SAP) raising 
concerns about various sections of the House version of the 
National Defense Authorization Act for FY 2004 (HR 1588). 
Specifically, the Administration objected ``strongly'' to the 
enhanced ``Buy American'' provisions of HR 1588 (Title VIII 
Subtitle B) because they were ``burdensome, counterproductive, 
and have the potential to degrade U.S. military capabilities.'' 
In addition, the SAP readily admitted that the U.S. is no 
longer on the leading edge of some critical technologies 
crucial to our defense needs by claiming that the ``Buy 
American'' provisions of HR 1588 ``will unnecessarily restrict 
the Department of Defense's ability to access non-U.S. state-
of-the-art technologies and industrial capabilities.'' The 
purpose of the hearing was to have the Administration explain 
in more detail the rationale for their position on the ``Buy 
American'' provisions in HR 1588 and to discuss what can be 
done to recover America's lost edge in certain high technology 
products, many of which are produced by small businesses.

                                Summary

    The panelists were: the Honorable Suzanne D. Patrick, 
Deputy Undersecretary, for Industrial Policy, Department of 
Defense; the Honorable Mathew S. Borman, Deputy Assistant 
Secretary for Export Administration, Department of Commerce; 
Timothy G. Rupert, President and Chief Executive Officer, RTI 
International Metals, Inc., representing the Specialty Metals 
Coalition; Matthew B. Coffey, President, National Tooling and 
Machining Association (NTMA); Chip Storie, Vice President for 
Aerospace Sales, Cincinnati Machine, representing the 
Association for Manufacturing Technology (AMT); Olav Bradley, 
Tooling Division, PM Mold Company, representing the American 
Mold Builders Association (AMBA).
    It was the view of Ms. Patrick of the Pentagon that the 
downturn in the U.S. economy had no significant impact on the 
defense industrial base since the defense aerospace industries 
return on invested capital was higher than the average for the 
S&P 500. In her opinion, there is no need to revitalize the 
defense industrial base nor is vulnerability caused by 
dependence upon foreign products or technology.
    Mr. Borman stated that the Department of Commerce believed 
that there was a crisis in manufacturing: however, the 
Department of Defense was of the view that the defense 
industrial base is secure. The Pentagon was also of the view 
that the ``Buy American'' provisions of HR 1588 severely 
restricted the ability of the military to develop new weapon 
systems because of the need for foreign participation and 
technologies.
    However, the small manufacturing representatives on the 
panel had a different perspective. Over 2.7 million of jobs 
have been lost in the U.S. manufacturing sector since July 
2000. In the 1950s, 48 percent of the U.S. Gross Domestic 
Product (GDP) was attributable to manufacturing. This figure 
has now dropped to 14 percent. The multinational corporations 
that dominate the defense industry seek the lowest costs for 
items with little concern for the defense industrial base and 
the survival of sectors essential to manufacturing, e.g., the 
machine tool industry which is presently in crisis. Though the 
machine tool industry has been an important part of the defense 
industrial base for over a century, a number of innovative 
machine tool companies, including tool & die and industrial 
mold makers, have gone out of business in recent years. This 
situation weakens the industrial base and creates dependency 
upon foreign sources.
    The private sector panelists believed that steps must be 
taken to create a level playing field to keep basic 
manufacturing skills in this country. Correcting the currency 
imbalance issue with China is one such step as are the 
elimination of offsets in defense trade (as an informal 
condition of purchasing a U.S. weapon system, the foreign 
country requires that a large U.S. defense contractor buy or 
market a certain amount of goods made in the particular foreign 
country in the U.S., usually at a higher value than the cost of 
the weapon system) and the establishment of fair trading rules. 
The small manufacturers concluded that when we give away our 
ability to make things by losing the machine tool industry, 
this nation is also losing the innovation and creativity that 
goes with manufacturing.
    For further information about this hearing, please refer to 
hearing report #108-23.
            7.2.14  doctors as small businesses, field hearing, 
                    frederick, maryland

                               Background

    On Monday, July 14, 2003, the Small Business Committee held 
a field hearing to examine America's approaching a national 
doctor crisis--a shortage of qualified private practice doctors 
who will spend the quality time to care for our nation's sick. 
Burdensome regulations and delays in payment both from the 
private and public sectors make it very difficult for doctors 
and other medical professionals to operate as a business. 
Doctors are caught in the middle of fee for service schedules 
set by government and private health insurance carriers and 
rapidly increasing malpractice insurance premiums.

                                Summary

    There were two panels that testified during this hearing. 
The first panel consisted of: Dr. and Mrs. Camilo Toro, 
Frederick Neurology, LLC, Frederick, MD; Elizabeth Chong, 
Practice Administrator, Frederick, MD; Dr. Michelle Thomas, 
Mitchellville, MD; and Dr. James Pendleton of Bryan Athyn, PA. 
The second panel included Greg Scandlen, Galen Institute, 
Alexandria, VA; Dr. Chris Unger of Bethesda, MD; Linwood 
Rayford, Assistant Chief Counsel, Office of Advocacy, United 
States Small Business Administration, Washington, DC; and 
William A. Sarraille, Esq., Sidley Austin Brown & Wood LLP, 
Washington, DC.
    Dr. and Mrs. Camilo Toro testified that they increasingly 
spend less time caring for patients because of the overwhelming 
nature of insurance reimbursement and Medicare reimbursement 
paperwork. Dr. Toro's wife, who is the office manager of her 
husband's practice, stated that insurance and Medicare only 
reimburse 20 percent to 50 percent of the claims that are 
submitted.
    Elizabeth Chong testified that her husband's practice has 
absorbed $28,570 in losses due to worker compensation claims 
that weren't reimbursable (not including insurance or 
Medicare). Increasingly, greater blocks of time are spent on 
diminishing returns.
    Dr. Michelle Thomas testified that curbing frivolous 
lawsuits is necessary to preserve the economic viability of 
physician practice. She further stated that in 1995 there were 
14 companies underwriting medical malpractice insurance. Today, 
in Maryland, there are now just three companies providing 
insurance. She stated that the time spent on administrative 
paperwork is approaching 40 percent to 50 percent of the 
workday for small practices.
    Dr. James Pendleton spoke of the many burdens small 
practices face saying that it is very difficult for small 
practices to survive. He stated that some hospitals have closed 
trauma and emergency centers because of spikes in medical 
liability insurance. Dr. Pendleton expressed his strong support 
for medical liability reform to curb these costs. He also spoke 
of his strong support for Medical Savings Accounts, but feels 
that currently they are too hamstrung by government regulation.
    Greg Scandlen spoke of the four main obstacles small 
physicians face with their practice: (1) inadequate 
reimbursement; (2) excessive regulations; (3) burdensome 
administrative requirements; and (4) an out of control tort 
system. He strongly advocated a consumer driven health care 
system.
    Christopher Unger spoke of the growing shortages in the 
medical field from nurses and primary care givers; from 
surgeons and hospitals due to the increasingly regulated nature 
of healthcare, which constrains healthcare providers from their 
primary duty, patients. Additionally, more regulations will 
drive up the cost of healthcare even further.
    Linford Rayford spoke of the increased regulations that 
medical professionals must operate under, particularly from the 
Department of Health and Human Services (DHS) and the Centers 
for Medicare and Medicaid Services (CMS), as well as from 
legislation including the Health Insurance Portability and 
Privacy Act (HIPPA) and Privacy Rule. SBA's Office of Advocacy 
has challenged several mandates by DHS and CMS, hoping that 
changes will reduce the burdens small doctor practices face.
    William Sarreille testified that compliance with payment 
structures and government regulation produce a great hardship 
on individual or small doctor practices. Financial threats, 
regulatory burdens, and other challenges overwhelm physicians 
to the point that many practicing doctors are looking at early 
retirement and fewer students are encouraged into medicine. A 
decline of doctors is happening and it will lead to a shortage 
of physicians in the future.
    In sum, the Committee concluded that the federal government 
needs to remember that most medical professionals are small 
businesses and that too much regulation, no matter how well 
intentioned, could cause a shortage of health care in the very 
near future as physician practices close because of basic 
economics. For more information, please refer to Committee 
publication, #108-24.
            7.2.15  assisting small businesses through the tax code: 
                    recent gains and what remains to be done

                               Background

    On July 23, 2003, the Committee on Small Business held a 
hearing to highlight recent changes to the U.S. tax code 
benefiting small business owners and to solicit from small 
business advocacy groups additional tax reform proposals for 
further assisting small businesses.
    On May 28, 2003, President Bush signed into law H.R. 2, the 
Jobs and Growth Reconciliation Act of 2003 (Pub. Law 108-27). 
This bill provides $320 billion in net tax relief to American 
taxpayers over 10 years. Relief granted in the bill that 
particularly benefits small businesses included the lowering of 
individual income tax rates and an increase in small business 
expensing to $100,000 annually.

                                Summary

    The hearing consisted of one panel: the Hon. Thomas M. 
Sullivan, Chief Counsel for Advocacy, United States Small 
Business Administration, Washington, DC; the Hon. Nina E. 
Olson, Taxpayer Advocate, Internal Revenue Service, Washington, 
DC; Daniel R. Mastromarco, Esq., Principal, Argus Group, 
Arlington, VA; Ms. Dena Battle, Manager, Legislative Affairs, 
National Federation of Independent Business, Washington, DC; 
Mr. Thomas C. Pitrone, CFP, Principal, Integrity Group, 
Cleveland, OH; Mr. Roy Quick, Jr., Principal, Quick Tax & 
Accounting Service, St. Louis, MO; and Ms. Janet K. Poppen, 
CPA, Poppen & Associates, P.C., St. Louis, MO.
    The Honorable Thomas M. Sullivan reviewed the tax benefits 
for small businesses contained in H.R. 2, the Jobs and Growth 
Tax Relief Reconciliation Act of 2003. He highlights three 
provisions: (1) the increase in small business expensing from 
$25,000 to $100,000 (effective through 2005), (2) bonus 
depreciation permitting taxpayers to expense 50 percent of 
qualified investments (generally effective through 2004), and 
(3) acceleration of the scheduled reduction in individual 
income tax rates (effective the beginning of 2003). Mr. 
Sullivan also emphasizes the need for tax simplification and 
the danger of too much change in the tax code. Lastly, he urged 
Congress to make permanent (1) small business expensing and (2) 
death tax repeal and recommended the repeal of the alternative 
minimum tax for individuals.
    The Honorable Nina E. Olson testified in behalf of a number 
of recommendations gleaned from past National Taxpayer Advocate 
Reports including permitting self-employed taxpayers to deduct 
the cost of health insurance in calculating payroll taxes (H.R. 
1873), liberalizing the election of S-corporation status, and 
providing a de minimus exception to the passive loss rules, 
among others.
    Mr. Mastromarco summarizes the findings of a report he 
prepared for the National Small Business Association entitled, 
``The Internal Revenue Code--Unequal Treatment Between Large 
and Small Firms.'' The report concluded that the tax code is 
replete with provisions that either expressly discriminates, or 
have the economic effect of discriminating, against small 
businesses in both intended and unintended ways.
    During April 2003, the National Federation of Independent 
Business released its annual report entitled, ``Top 10 Ways 
Congress Can Help Overtaxed Small Businesses.'' Ms. Dena Battle 
included a copy of this release in her testimony for the record 
and highlighted three recommendations in particular: (1) 
permitting the deductibility of health insurance premiums in 
calculating payroll taxes by passing H.R. 1873, the Self-
Employed Health Care Affordability Act; (2) providing an annual 
standard home office deduction of $2,500 (indexed for 
inflation); and (3) liberalizing the rules governing the 
depreciation of automobiles by allowing automobiles to be 
expenses.
    On behalf of the U.S. Chamber of Commerce, Mr. Roy M. Quick 
testified in favor of a number of tax reform proposals to 
assist small businesses including permitting self-employed 
taxpayers to deduct health insurance premiums in calculating 
payroll taxes, permitting the full deductibility of business 
meals, and making small business expensing permanent.
    On behalf of Women Impacting Public Policy, Ms. Janet 
Poppen highlighted the need to permit self-employed taxpayers 
to deduct health insurance premiums in calculating payroll 
taxes. Her testimony also advocated additional relief by 
permitting a 100 percent deduction for medical expenses of 
individuals (not just limited to health insurance premiums). 
She also advocated other changes such as increasing the 
contribution limit to SIMPLE 401(k) plans, providing graduated 
corporate tax rates for Professional Corporations, and 
permitting the full deductibility of business meals.
    For further information about this hearing, please refer to 
hearing report #108-29.
            7.2.16  small business access to health care

                               Background

    On August 25, 2003, the Committee on Small Business held a 
hearing to examine small business access to health care in the 
state of West Virginia. The field hearing was held in 
Buckhannon, West Virginia along with Representative Shelley 
Moore Capito who also serves on the Small Business Committee. 
The hearing addressed the rising cost of health care to small 
businesses. Of the 43 million Americans without health 
insurance, 62 percent are either small business owners and 
their families or small business employees and their families. 
The problem of the uninsured is very clearly an issue of small 
business access to health care at reasonable prices. Well 
intentioned reformers in the states and in Congress, over the 
last decade, have managed to dramatically increase the cost of 
health care and have practically destroyed the small group 
market. This has led many companies to drop out of the small 
group market in states including West Virginia. In states where 
there is no competition for the small business dollar, prices 
will continue to rise. The National Association for the Self-
Employed reported in a survey that seven out of ten small 
businesses do not provide health coverage to their employees 
mainly because of high costs.

                                Summary

    The hearing consisted of the following witnesses: Cynthia 
B. Jones, Esq., West Virginia State Chamber of Commerce, 
Charleston, WV; Mr. Brian Elliot, Vice President, McGraw-Elliot 
Media Group, Elkins, WV; Ms. Jean Hawks, Owner, Fort Hill Child 
Development Center, Charleston, WV; Mr. Robert L. Williams, 
Executive Secretary, West Virginia Farm Bureau, Buckhannon, WV; 
and Mr. James N. Butch, President, Eagle Research Corp., Scott 
Depot, WV.
    Ms. Jones related the state's history of premium increases 
for small businesses and projected that a small business 
providing health insurance to an employee with a family in 2007 
would have to pay $16,272 on average, compared to half that 
cost in 2001. She urged Congress to enact legislation to make 
health care more affordable to small business. Mr. Williams 
described the plight of the family farm and the difficulty of 
getting insurance for a small family. Attempts by the state 
farm bureau to purchase group policies for their members were 
all ended by the insurance carriers because of profitability. 
Ms. Hawks, Mr. Elliot, and Mr. Butch all shared their 
experiences in securing health insurance for their small 
business' employees and the fact that their premiums had 
doubled over the past few years. All called for federal 
intervention to improve the small business health market in 
West Virginia. During questions the witnesses agreed that 
Health Savings Accounts, Association Health Plans, and tax 
credits for the uninsured would improve their options and the 
cost of health insurance in West Virginia.
    For further information on this hearing, refer to the 
Committee publication #108-30.
            7.2.17  attracting economic growth in rural america

                               Background

    On September 4, 2003, the Committee on Small Business held 
a hearing to hear testimony on attracting economic growth for 
the rural economy and whether the federal government is 
adequately supporting a policy of growth in rural portions of 
the country.
    Census reports confirm that the slowest population growth 
in the country is occurring in rural states and in some areas 
population is even declining. A large part of this loss is the 
lack of opportunities available. As a key jobs producer, small 
business needs a good business climate in order to thrive and 
provide job opportunities to those living in rural areas. 
Without a healthy employment market workers and their families 
will continue to leave rural areas and settle in metropolitan 
areas. The transportation infrastructure of roads and airports 
built to serve the rural areas will be largely wasted, and the 
transportation modes in metropolitan areas will be strained 
beyond capacity.
    The areas they leave behind deteriorate in many ways. 
Schools close down and consolidate; resulting in larger 
districts and longer commutes for children. Housing prices 
fall, affecting the wealth of homeowners. The property tax base 
is reduced that produces a cycle of cutbacks in social 
services, which results in the exodus of working age adults and 
their children from rural areas. This in turn stimulates still 
more of those able to move to do so, and the cycle is 
reinforced.

                                Summary

    The panel of witnesses were: the Hon. Thomas Dorr, 
Undersecretary for Rural Development, United States Department 
of Agriculture, Washington, DC; the Hon. David Sampson, 
Assistant Secretary for Economic Development, United States 
Department of Commerce, Washington, DC; Mr. Gernard Ungar, 
Director of Government Business Operations Issues, General 
Accounting Office, Washington, DC; Mark Drabenstott, Vice 
President, Federal Reserve Bank of Kansas City, Kansas City, 
MO; and Mr. David Freshwater, Ph.D., Professor of Agricultural 
Economics, University of Kentucky, Lexington, KY.
    Mr. Dorr testified that he is in charge of administering 
over 40 programs designed to increase economic opportunity and 
improve the quality of life for people living in rural areas. 
The RDA has a portfolio of $86 billion in outstanding loans. He 
estimated that in 2003 the RDA's programs created or saved 
350,000 rural jobs. In his view, the rural economy is beginning 
to head in the right direction. President Bush's initiatives on 
tax cuts, business growth and energy are all vital parts of 
this equation.
    Mr. Sampson spoke on the background of his agency, the EDA, 
since its founding in 1965. Since that time the EDA has 
invested over $12 billion to help distressed rural areas create 
environments conducive to job growth and economic opportunity. 
There are no inherently low-tech industries, only low-tech 
companies that have not yet fully and effectively applied 
technologies. Deployment of modern technology, even in old-line 
industries, can open new doors of economic opportunity in rural 
America.
    Mr. Ungar testified about the update to a study he prepared 
in 2001 regarding agency compliance with the Rural Development 
Act (RDA). Since its inception in 1972 the RDA has not resulted 
in many federal facilities being built in rural areas. His 
agency has found very little evidence that personnel involved 
in decision-making even considered rural areas in citing their 
facilities. However, all GAO recommendations contained in their 
2001 report have been incorporated by the agencies with one 
minor exception. In 1989, 12 percent of federal employees were 
located in rural areas. In 2000, this figure was still 12 
percent--meaning the RDA had no bottom line impact in 
percentage of federal jobs relocating to rural areas.
    Mr. Drabenstott testified that the 30 years since the 
passage of the RDA have redrawn the rural landscape. The role 
of agriculture has diminished. Services have become a much 
bigger part of the rural economy, although rural areas have 
struggled to capture high-skill, high-wage service jobs. In the 
past, rural America relied heavily on manufacturing. Factories 
are the single biggest source of income to rural families, and 
often offer the highest wages in the area. Many of these 
factories moved to rural areas in the past in search of 
inexpensive land, labor and taxes. However these advantages are 
now being challenged by foreign locations that are still less 
expensive. Nearly 200 factories closed down in rural areas in 
2002. Many of these opened up again in foreign countries.
    Professor Freshwater spoke on rural manufacturing. He 
stated that manufacturing is crucial to most non-metropolitan 
counties east of the Mississippi, but these counties are facing 
limited success with their old development model. The Internet 
has had both positive and negative influences on rural America 
by allowing work to flow out as well as in. Internet 
booksellers for example have eliminated many small bookstores 
in rural areas but provided a way for users of high technology 
to relocate to more pastoral settings. Rural America is at the 
same time the least developed part of the industrialized world 
and the most developed part of the developing portion of the 
global economy. Federal policy cuts both ways. For example, 
electricity deregulation promises to equalize electricity rates 
across the nation, but low electricity rates were a critical 
factor in economic development in rural areas. Without that 
advantage attracting business will be more difficult.
    For further information on this hearing, refer to Committee 
publication 108-35.
            7.2.18  the wto's challenge to the fsc/eti rules and the 
                    effect on america's small businesses

                               Background

    On September 10, 2003, the Committee on Small Business held 
a hearing to examine the World Trade Organization's (WTO) 
challenge to the Foreign Sales Corporation (``FSC'') and 
Extraterritorial Income Exclusion (``ETI'') rules of the 
Internal Revenue Code and the effect of this challenge on 
America's small business owners. This hearing followed an 
earlier hearing by the Committee on the same subject on May 14, 
2003.
    Like many other countries, the United States has long 
provided export-related benefits under its tax laws. For most 
of the last two decades in the United States, these benefits 
were provided under the FSC tax rules. In 2000, the European 
Union (``EU'') succeeded in having the FSC regime declared a 
prohibited export subsidy by the WTO. In response to this 
ruling, the United States repealed the FSC rules and enacted 
the ETI tax rules. The EU immediately challenged the ETI regime 
in the WTO and, on January 14, 2002, a WTO appellate body held 
that the ETI regime constituted a prohibited export subsidy 
under the relevant trade agreements. During August of 2002, a 
WTO arbitration panel determined that the EU was entitled to 
over $4 billion of annual countermeasures against the United 
States for failure to repeal its ETI rules. At the time of the 
hearing, the EU had not imposed sanctions against U.S. exports 
but strongly suggested it would if the ETI regime was not 
repealed before the end of 2003.
    In order to bring the U.S. into compliance with the WTO 
ruling, Chairman Manzullo, together with Representatives Crane 
(R-IL) and Rep. Rangel (D-NY), introduced on April 11, 2003, 
H.R. 1769, the Job Protection Act of 2003. In brief summary, 
the Crane-Rangel-Manzullo bill would replace the current-law 
ETI benefit with an exclusion from tax of up to 10 percent of 
the income attributable to domestic production.

                                Summary

    The first panel consisted of: the Hon. Philip M. Crane (R-
IL) and the Hon. Sander M. Levin (D-MI). Representatives Crane 
and Levin contrasted H.R. 1769, the Job Protection Act of 2003, 
with H.R. 2896, the American Jobs Creation Act (introduced by 
the Hon. William M. Thomas (R-CA) on July 25, 2003). The 
witnesses praised H.R. 1769 as the appropriate response to the 
WTO challenge.
    The second and final panel consisted of Ms. Kathryn Kobe, 
Chief Economist, Joel Popkin and Co., Washington, DC; E. Leon 
Trammell, Chairman, Tramco, Inc., Wichita, KS; Mr. Brian 
Doolittle, Vice President, Morton Metalcraft Co., Morton, IL; 
Mr. Owen Herrnstadt, Director of Trade and Globalization, 
International Association of Machinists and Aerospace Workers, 
Washington, DC; and Mr. Lloyd Falconer, Secretary, Seward Screw 
Products, Seward, IL.
    Ms. Kobe summarized the state of U.S. manufacturing as a 
sector struggling for survival. The number of manufacturing 
jobs declined by 2.4 million between March 2001 and August 2003 
(over 70 percent of the 3.3. million jobs lost in the private 
sector during that time period).
    Mr. Trammel characterized U.S. manufacturing as ``on life 
support.'' He quantified the loss of FSC/ETI benefits to his 
company and urged the Congress to enact legislation similar to 
H.R. 1769. Mr. Doolittle stated that his company, Morton 
Metalcraft, is not a significant recipient of FSC/ETI benefits. 
Nevertheless, as a supplier to larger companies that utilize 
FSC/ETI such as Caterpillar Inc., he emphasized that what is 
good for the health of his customers is good for his company. 
He decried the loss of U.S. manufacturing jobs and praised H.R. 
1769.
    As with other witnesses on the panel, Mr. Herrnstadt spoke 
of the crisis in U.S. manufacturing. He described H.R. 1769 as 
``making a great deal of sense'' and criticized a rival bill, 
H.R. 2896, as containing ``a myriad of corporate tax cuts that 
will encourage U.S. jobs to move overseas.'' Mr. Falconer 
opined that public policy should promote the export of 
products--not jobs. H.R. 1769 is a step in the right direction 
because it attempts to maintain the U.S. manufacturing base.
    For further information on this hearing, refer to Committee 
publication #108-36.
            7.2.19  national small business week: small business 
                    success stories

                               Background

    On September 17, 2003, the Committee on Small Business held 
a hearing to examine small business success stories. Each year 
for the past 40 years, the President of the United States has 
issued a proclamation calling for the celebration of Small 
Business Week. The celebration honors the estimated 25 million 
small businesses in America that employ more than half the 
country's private work force, create three of every four new 
jobs, and generate a majority of American innovations. In 
recognition of National Small Business Week and the 50th 
Anniversary of the U.S. Small Business Administration, the 
Committee conducted a hearing focusing on several small 
businesses that embody the spirit of entrepreneurship.

                                Summary

    The hearing was comprised of one panel of witnesses 
including: Maria Thompson President & CEO, T/J Technologies 
Inc., Ann Arbor, MI; Lurita Doan, President & CEO, New 
Technology Management, Reston, VA; Jordan Glazier, General 
Manager, Ebay Business, San Jose, CA; John Collins, CEO, 
Fortel, Inc., Washington, DC; Erica Kalick, President, Erica's 
Rugelach & Baking Co., Brooklyn, NY; Dave Nenna, Administrator, 
Tule River Tribe, Porterville, CA; Randall D. Evans, President, 
AccounTeks Business Services, Silver Spring, MD; and Brendan 
Walsh, Co-Founder and Vice President, FedBid.com, Fairfax, VA.
    Witnesses, in addition to sharing information about their 
businesses, discussed the importance of the Small Business 
Innovation Research (SBIR) and the Small Business Technology 
Transfer (STTR) programs to fostering innovation, the 
importance of Small Business Administration (SBA) 7(a) lending 
and the Microloan program to providing the capital necessary 
for small business formation and growth, small business 
contributions to homeland security through new technologies and 
creativity, and the power of federal procurement when small 
businesses are allowed to compete fairly.
    For further information on this hearing, refer to the 
Committee publication #108-37.
            7.2.20  is america losing its lead in high-tech: 
                    implications for the u.s. defense industrial base

                               Background

    The Advisory Group on Electron Devices (AGED) was 
constituted in 1945 to advise the Director of the Defense 
Research and Engineering (DDR&E) of the Department of Defense 
on investment strategy and analysis of selected issues. AGED is 
comprised of Army, Navy, Air Force, Defense Advanced Research 
Projects Agency (DARPA), National Aeronautics and Space 
Administration (NASA) and other agency representatives as well 
as Office of Secretary of Defense appointed industry and 
academic consultants.
    On September 24, 2002, AGED held a forum with top 
Department of Defense (DOD) officials to inspect the loss of 
U.S. leadership in manufacturing and technology. 
Microelectronics was used as a case study to impute the more 
serious general findings on the state of manufacturing and 
technology in the United States. The forum revealed two key 
findings that nucleated wide spread consensus: (1) U.S. 
technology leadership is in decline, and (2) over the last 
decade, profound changes in the R&D base are adversely 
affecting cutting edge electronics for warfighter superiority 
and may potentially slow the engine for economic growth.

                                Summary

    The hearing, held on October 16, 2003, had one panel 
comprised of three witnesses: Mr. Thomas Hartwick, Ph.D., 
Chairman, Advisory Group on Electron Devices, Snohomish, WA; 
Thomas R. Howell, Esq., DeweyBallatine, LLP, Washington, DC; 
and Mr. Ronald Sega, Director, Defense Research and 
Engineering, United States Department of Defense, Washington, 
DC.
    Dr. Sega told the Committee that ``[a]dvanced electronics 
are critical to the Department. In fact, it is one of the 12 
major elements of the Defense technology area plan and one of 
the ten major research areas of the basic research plan.''
    Dr. Hartwick testified that offshore movement of 
intellectual capital and industrial capability, particularly in 
microelectronics, has impacted the ability of the U.S. to 
research and produce the best technologies and products for the 
nation and the warfighter. Further, the movement of 
manufacturing plants offshore breaks up enterprise clusters and 
destroys the infrastructure for new business and new products.
    Mr. Howell elaborated on extensive research he conducted on 
what governments outside the United States are doing to promote 
their high technology industries, with a particular focus on 
the semiconductor industry, and the challenges these government 
measures pose for us. One example is the shift of global 
shipped consumption. By 2005, the U.S. share of semiconductor 
devices being put into high-tech systems is going to shrink to 
18 percent (from 33 percent in 1997) and Asia Pacific's share 
will grow to 40 percent and is accelerating.
    The hearing concluded with the Chairman's request of the 
parties to help the Committee develop a leadership strategy on 
several of these issues. For further information on this 
hearing, refer to Committee publication 108-41.
            7.2.21  the offshoring of high-skilled jobs: part ii

                               Background

    The purpose of this hearing, held on October 20, 2003, was 
to highlight the fact that although the U.S. economy has 
recovered from the most recent recession, it has largely been a 
jobless recovery. Even when jobs are created, they tend to be 
low-paying service sector jobs. Concurrently, we have a sharp 
rise in productivity, but behind the veil we find that much of 
it can be attributed to a sharp rise in offshoring of both 
manufacturing and high-tech service jobs. The discussion 
focused on the types of jobs being offshored, as well as the 
degree to which companies will go to replace high-skilled U.S. 
workers with foreign workers. Further, according to a recent 
report by the Federal Reserve Bank of New York, what we are 
experiencing are permanent structural shifts in the 
distribution of workers throughout the economy, which has 
contributed significantly to the sluggishness in the job 
market.

                                Summary

    There were four witnesses on the panel: Mr. Harris Miller, 
President, Information Technology Association of America, 
Arlington, VA; Mr. Ron Hira, Ph.D., P.E., Chair, Research and 
Development Policy Committee, Institute of Electrical and 
Electronics Engineers, Washington, DC; Ms. Natasha Humphries, 
Santa Clara, CA; and Mr. Robert Dupree, Vice President, 
American Textile Manufacturers Institute, Washington, DC.
    All members of the panel agreed that the U.S. faces 
unprecedented challenge regarding the types of jobs open to 
global competition. The advent of high-speed Internet has 
changed the nature of competition for talent. One panelist, 
Natasha Humphries, went further. She testified that as a senior 
technology professional for a major high tech firm she was 
forced to train less qualified technicians in India to do her 
job. Shortly after the training was complete, the company fired 
her. Additional discussion focused on the fact that U.S. 
workers in manufacturing and high tech are finding that no 
matter how well they hone their skills, additional education 
and training are no competition for the significantly lower-
costs of cheap foreign labor. Panelists agreed that more 
support for displaced workers was needed, along with more 
government support for collaboration between industry, 
academia, workers, and governments to identify policies to meet 
these global challenges.
    For further information about this hearing, please refer to 
committee publication #108-42.
            7.2.22  lowering the cost of doing business in the united 
                    states: how to keep our companies here

                               Background

    The purpose of this hearing, held on November 20, 2003, was 
to consider the strains placed on U.S. businesses that rely on 
domestic visa policies to aid their ability to export goods and 
services. Generally, the visa restrictions implemented since 9/
11 could be changed administratively in a very short period of 
time, without legislation, so as to ease the way for foreign 
nationals to do business with and spend money in the United 
States without threatening our national security. Currently, 
the United States is needlessly losing tens of millions of 
dollars in lost business due to burdensome visa requirements 
and significant backlogs in applicant processing.

                                Summary

    There were four witnesses for the panel: Mr. Robert Kapp, 
President, U.S.-China Business Council, Washington, DC; William 
Norman, President and CEO, Travel Industry Association of 
America, Washington, DC; Randel Johnson, Vice President, United 
States Chamber of Commerce, Washington, DC; and Palma Yanni, 
President, American Immigration Lawyers Association, 
Washington, DC.
    All members of the panel expressed frustration with the 
slowness and difficulties of working with the various executive 
agencies responsible for reviewing and approving visa 
applications. Each member stated that there are approximately 
21 different agencies involved in the process and not one knows 
what the other is doing. They also complained that this cloud 
of confusion makes it impossible to identify any one person or 
agency that can resolve these issues. With numerous meetings 
between the organizations represented by the panelists and the 
various agencies since 9/11, the testimony was unanimous that 
very little improvement has been made in the speed of 
processing visas or the transparency of the process within 
executive agencies. They urged Congress to appropriate more 
money for additional resources to the State Department to 
handle the increased responsibilities. They also requested that 
Congress relieve the State Department of several deadlines that 
will be extremely difficult to meet and only cause even greater 
delays.
    Finally, the Chairman proposed the creation of a multi-
entry business class visa for Chinese visitors. This would 
alleviate the hassle of forcing previously approved business 
visitors from China to reapply and re-interview every time they 
want or need to come here to buy or inspect American-made 
goods.
    For further information about this hearing, please refer to 
committee publication #108-46.
            7.2.23  increasing the competitiveness of u.s. 
                    manufacturers in pennsylvania

                               Background

    On December 1, 2003, the Committee on Small Business held a 
hearing to examine ways to increase the competitiveness of 
domestic manufacturers in Pennsylvania. The field hearing was 
held in Altoona, Pennsylvania, along with Rep. Bill Shuster, a 
member of the Committee. Issues that impact the competitiveness 
of manufacturers include producing a skilled workforce; 
identifying and mitigating harmful regulations; reforming the 
tax code to encourage retention, fostering innovation; and 
enforcing trade agreements. By December 2003, 2.8 million 
manufacturing jobs had been lost in the previous 38 months. 
Efforts to try to encourage domestic manufacturing included 
additional government procurement of American made goods 
through ``Buy America'' provisions in legislation; enactment of 
tax relief to domestic manufacturers; stopping foreign 
governments from manipulating their currencies, and reducing 
the cost of health care and regulatory compliance to employers.

                                Summary

    The hearing was comprised of one panel of witnesses: Mr. 
William Yankovich, Plant Manager, General Cable Corp., Altoona, 
PA; Mr. Edward Silvetti, Executive Director, Southern 
Alleghenies Planning and Development Commission, Altoona, PA; 
Mr. Michael McLanahan, President, McLanahan Corp., 
Hollidaysburg, PA; Mr. Ben Stapelfeld, Chairman of the Board, 
New Pig Corp., Tipton, PA; Mr. John Showalter, Mill Manager, 
Appleton Papers Corp., Roaring Spring, PA; and Mr. Timothy, 
President, Reliance Savings Bank, Altoona, PA.
    Mr. Showalter discussed the difficulties in the paper 
industry and the effects of foreign competition. Competitors in 
Asia for the same business do not have the billions in added 
cost to the industry of environmental, health, and safety 
regulations. Foreign governments also aid their domestic 
industries with land seizures, forgiveness of defaulted loans, 
and low wages. To assist the U.S. paper industry and 
manufacturing in general he outlined several recommendations: 
enacting a lower tax rate for manufacturers; allowing for full 
and immediate depreciation for capital investments; providing 
tax credits for incremental hiring; providing tax credits for 
training and retraining workers; instituting higher health, 
environment, and safety tariffs for developing countries; and 
strengthening ``Buy America'' provisions in federal 
procurement.
    Mr. Sissler described the changing environment in Blair 
County. Manufacturing in the county has gone from representing 
half of the local economy to just fewer than 18 percent of all 
economic activity. He discussed the stigma attached to 
traditional ``blue collar'' work and the transformation in 
manufacturing to high-skilled now dubbed ``gold collar'' jobs. 
Addressing the rising costs of health care, and ensuring a 
level playing field in the international arena top his list of 
recommendations.
    Mr. Yankovich explained the challenges to manufacturers of 
wire and cable. Issues critical to his business include the 
passage of an energy bill to ensure stable energy prices; 
making permanent the tax cuts to provide certainty in planning; 
and removing the steel tariffs that dramatically increase the 
cost of raw material inputs for his products. Mr. Stapelfeld 
and Mr. Silvetti both described challenges unique to their 
areas of expertise and called on Congress to reduce the cost of 
doing business in the United States.
    For further information on this hearing, refer to the 
Committee publication #108-47.
            7.2.24  real estate settlement procedure act regulations: 
                    working behind closed doors to hurt small 
                    businesses and consumers

                               Background

    On Tuesday, January 6, 2004, the Committee on Small 
Business held a hearing to examine the Department of Housing 
and Urban Development's (HUD) compliance with the Regulatory 
Flexibility Act (RFA) in the development of proposed rules 
modifying the implementation of the Real Estate Settlement 
Procedures Act (RESPA). RESPA was enacted in 1974 with the 
intention of providing purchasers of residential estate greater 
clarity in the settlement process. Six years later, Congress 
enacted the RFA, which requires federal agencies to examine the 
impact of their proposed rules on small businesses.
    After many years of controversy and significant litigation, 
HUD determined that it was appropriate to modify the 
regulations implementing RESPA. The primary points of the 
proposal were the requirement to provide a good faith estimate 
of the closing costs that the purchaser will face and the 
option to offer a guaranteed mortgage package (including a 
fixed interest rate) that would be protected under the ``safe 
harbor'' provisions of RESPA.
    Since the Committee's last hearing on this topic, HUD 
transmitted for review by the Office of Management and Budget 
(OMB) a draft final regulation on December 18, 2003 adopting 
modifications to its RESPA rules despite promises to Congress 
that HUD would not finalize the RESPA rule while Congress was 
out of session. Thus, a second hearing was called to bring 
attention to this matter once again.

                                Summary

    The hearing consisted of one panel. The Hon. Alphonso 
Jackson, Acting Secretary, Department of Housing and Urban 
Development, Washington, DC was invited to testify. He declined 
but a place at the table was left open for him if he decided to 
appear. The other members of the panel were: the Hon. John 
Graham, Ph.D., Administrator, Office of Information and 
Regulatory Affairs, Office of Management and Budget, 
Washington, DC; Mr. Marc Savitt, Eastern Regional Vice 
President, National Association of Mortgage Brokers, McLean, 
VA; Mr. Stanley Friedlander, President, Continental Title 
Agency, Cleveland, OH; Mr. Walter McDonald, Owner, Walter 
McDonald Real Estate, Riverside, CA; Mr. R. Michael Menzies, 
Sr., President and CEO, Easton Bancorp, Easton, MD; and Ms. 
Regina Lowrie, President and CEO, Gateway Funding Diversified 
Mortgage Services, Fort Washington, PA.
    Dr. Graham testified about the procedures that the Office 
of Information and Regulatory Affairs (OIRA) used to implement 
Executive Order 12,866. He explained that OIRA has up to 90 
days to review the regulation but does not necessarily utilize 
the entire time period. Dr. Graham also noted that he was 
willing to meet with interested parties concerning OIRA's 
review of the regulation as authorized by the Executive Order. 
Dr. Graham also testified that, in reviewing the final package, 
his office would pay close attention to compliance with a 
letter his office sent to HUD after release of the proposed 
rule concerning modifications to the initial regulatory 
flexibility analysis and the underlying economic analysis.
    Mr. Savitt first qualified his testimony (as did all the 
other witnesses) by noting that no one had seen the final draft 
submitted to OIRA. Thus, his testimony (as was all other 
witnesses) based on his assessment of the proposed rule. Mr. 
Savitt explained the operation of the proposal and the adverse 
consequences it would have on mortgage brokers. He then claimed 
that HUD did not comply with the RFA because it: (1) 
underestimated the impact on small business; (2) failed to 
consider alternatives would reduce adverse impact on mortgage 
brokers; and (3) miscalculated the record-keeping and reporting 
costs associated with the proposed rule. Mr. Savitt concluded 
his testimony by hoping that the OIRA review process will 
protect small businesses such as mortgage brokers
    Mr. Friedlander, on behalf of the American Land Title 
Association (ALTA), noted that the proposal would affect title 
insurers and abstractors--the vast majority of which are very 
small businesses. Mr. Friedlander went on testify that the 
guaranteed mortgage packaging proposal would limit consumer 
access to and choice of settlement service providers. He then 
explained that a guaranteed mortgage package incorporating a 
guaranteed interest rate only could be packaged by lending 
institutions that have the financial wherewithal to undertake 
protective hedge transactions in the commodity markets. He 
concluded that the board of ALTA authorized litigation if the 
final rule was sufficiently similar to the proposed rule that 
none of the deficiencies were cured.
    Mr. McDonald, testifying on behalf of the National 
Association of Realtors, noted that they support reformation of 
the RESPA rules to simplify the process for home purchasers. He 
then laid out the position of the Realtors that the proposed 
guaranteed mortgage package would hurt small businesses. 
Packages only would be available from lenders because of the 
fixed interest rate requirement. Lenders also would not be 
required to disclose the contents of the package just the final 
price. And without knowing what is in the package, consumers 
would be unable to shop services to other small businesses 
thereby potentially putting them out of business if packaging 
became the mainstay of the settlement industry. Mr. McDonald 
also noted that marketplace changes occurred resulting in the 
offering of settlement packages with fixed interest rates. 
Given the significance of the proposal and the changes in the 
marketplace, Mr. McDonald concluded that HUD should table the 
draft final rule and issue a new proposed rule.
    Mr. Menzies, testifying on behalf of the Independent 
Community Bankers Association, suggested that a significant 
change between the proposed and final rule should result in the 
reissuance of the draft final rule as a new proposed rule so 
that HUD has the benefit of industry input. Mr. Menzies does 
not believe a small bank has the resources to provide a 
guaranteed mortgage package with a fixed interest rate. He 
noted that HUD did not accurately assess the impact of the 
proposal on small banks such as Easton Bancorp. Mr. Menzies 
suggested that Congress take appropriate action, if necessary, 
as permitted under the Congressional Review Act to overturn a 
final rule that is similar to the proposed rule.
    Ms. Lowrie, testifying on behalf of the Mortgage Bankers 
Association, noted that the draft final rule represented the 
most fundamental change ever to occur in the mortgage finance 
industry. While the association supports reform, the proposal 
issued by HUD is flawed and a new proposal should be published 
rather than rushing to judgment on a bad final regulation. In 
particular, Ms. Lowrie raised concerns that the final rule may 
contain exemptions and ``safe harbors'' under section 8 of 
RESPA that would create serious loopholes; the most problematic 
of these are kickback payments and referral fees. Ms. Lowrie 
concluded her testimony by reiterating her request for a new 
proposed rule rather than ill-thought actions may damage 
consumers, small businesses, and undermine the vitality of the 
residential real estate market.
    In sum, the Committee concluded that the proposed RESPA 
rule should not have been transmitted for review by OMB as the 
next to last step in the regulatory finalization process but 
instead should either be reworked and reissued as a new 
proposed rule or be abandoned altogether because of the rules' 
negative effect upon small real estate settlement providers. On 
March 22, 2004, HUD voluntarily withdrew their RESPA proposal 
from further consideration by OMB. For further information, 
please refer to Committee publication #108-48.
            7.2.25  can u.s. companies compete globally using american 
                    workers?

                               Background

    Although the U.S. has seen growth in the economy with signs 
of an improving manufacturing sector, there is still something 
missing: high-value jobs. In search of ever cheaper yet equally 
qualified foreign labor, corporations leave behind the very 
American workers that built them. The argument cited most often 
is that these companies must compete globally; but cannot do so 
with expensive American labor.
    As a result of increasing pressure from Wall Street to meet 
or beat quarterly earnings estimates, corporations continually 
find themselves focused on short-term costs versus long-term 
value. The end result has been a slew of corporate accounting 
scandals, all to artificially boost stock value. More pressing, 
however, is how this myopic style of management has negatively 
impacted small business, particularly manufacturers. Small 
manufacturers are being cut out of the supply chain of large 
companies, which are going overseas in droves. With the loss of 
2.8 million jobs, almost all in manufacturing, the purpose of 
the hearing was to demonstrate that companies must think 
differently about using American workers to win business 
globally.

                                Summary

    This hearing, held on January 21, 2004, brought together 
top minds on the subjects of shareholder value, corporate 
governance, and long-term strategic thinking to bring into 
focus the negative impact of short-term decision-making. The 
topics discussed included what it means to the American economy 
and what role, if any, should the federal government play in 
helping to improve global competitiveness.
    The hearing consisted of two panels. Panel one was 
comprised of Mr. Allan Kennedy, Management Consultant, Boston, 
MA; Ms. Constance Bagley, Esq., Associate Professor of 
Business, Harvard Business School, Cambridge, MA; and Ms. 
Laurie Bassi, Ph.D., CEO and Managing Partner, McBassi and Co., 
Washington, DC. The second panel had one witness, Mr. Anthony 
Wilkinson, President and CEO, National Association of 
Government Guaranteed Lenders, Inc. of Stillwater, OK.
    Mr. Kennedy briefly chronicled the history of business, 
evolving from small family-owned shops run by family leadership 
into larger ones, while professional managers more beholden to 
increasing the value of the company than the long-term survival 
of the family business. They are financially oriented, because 
it is easy to measure finances short-term, because most 
managers have a fairly short-term perspective, unlike family 
members or family run firms. This short-term pressure leads 
managers to adopt techniques such as downsizing, re-
engineering, outsourcing techniques to increase the short-term 
earnings of the business, often at the expense of the long-term 
viability of the business.
    Ms. Bagley began her testimony by stating that we have been 
assailed with the mantra that corporate directors must maximize 
value for the shareholders, even if that means laying off long 
time employees and shutting down company towns. Ms. Bagley also 
touched on the actions of the Delaware Supreme Court regarding 
shareholder value. In short, the Court decided that businesses 
directors may choose to do anything in the name of the 
shareholders even if it imposes costs on others without their 
consent, but they are not legally required to do so.
    Dr. Bassi concluded the first panel by discussing the 
difference between the pursuit of the highest quarterly 
earnings and investing in the education and training of their 
employees. Despite the assumption that investing on training 
can sometimes reduce quarterly earnings, Dr. Bassi showed 
evidence that investing heavily in employee training showed 
better stock results than not doing so. Dr. Bassi also 
suggested that Congress should follow the lead of other 
industrialized nations and require the appropriate federal 
agencies to begin to systematically study what it will take to 
transform our industrial-era accounting system, which 
recognizes people only as costs, into a knowledge-era 
accounting system that recognizes people as investments.
    Mr. Wilkinson was the lone witness on the second panel. Mr. 
Wilkinson focused his testimony on the vibrancy of the Small 
Business Administration's (SBA) 7(a) program, which was off the 
topic of the hearing. He focused particularly on the caps 
imposed by the SBA on loan amounts to keep the 7(a) program 
functional until the beginning of the new fiscal year.
    In sum, the Committee learned that businesses can and will 
thrive by adopting long-term plans versus a myopic fixation on 
meeting of beating quarterly estimates. For further information 
about this hearing, please refer to Committee publication #108-
50.
            7.2.26  the president's proposed budget for the small 
                    business administration fy 2005

                               Background

    On February 11, 2004, the Committee on Small Business held 
a hearing on the President's proposed FY 2005 budget as it 
affected small business. The Congressional Budget Act of 1974 
requires the Committee to recommend budget levels and report 
legislative plans within the Committee's jurisdiction to the 
Committee on Budget.
    The hearing focused on whether the proposed budget 
adequately addressed the needs of the small businesses of this 
nation. The Committee was interested in determining if the 
Administration's proposed budget adequately addressed the needs 
of the small business community, while taking into account real 
budgetary constraints. In addition, the Committee was 
particularly interested in a solution proposed by the 
Administrator of the Small Business Administration (SBA), 
Hector Barreto, to restore the 7(a) business loan guarantee 
program to its full statutory level such that it does not 
involve raising borrower fees, requiring more appropriations, 
or reprogramming accounts within the SBA. Overall the Committee 
was seeking views concerning SBA's past performance and how the 
delivery of services by SBA, to this nation's small businesses, 
could be improved in the future.

                                Summary

    The hearing was comprised of two panels. The first panel 
had one witness, the Hon. Hector Barreto, Administrator, United 
States Small Business Administration, Washington, DC. On the 
second panel was Mr. Lee Mercer, President, National 
Association of Small Business Investment Companies, Washington, 
DC; Mr. Donald Wilson, President and CEO, Association of Small 
Business Development Centers, Burke, VA; Mr. Chris Crawford, 
Executive Director, National Association of Development 
Companies, McLean, VA; Anthony Wilkinson, President, National 
Association of Government Guaranteed Lenders, Stillwater, OK; 
Phil Pegg, Jr., CEO, 4D Solutions, Inc., Boyertown, PA; David 
Pilcher, CFO, Ted R. Sanders Moving and Storage, Nashville, TN; 
John Sprague, Managing Partner, Everglades Adventures, Pahokee 
City, FL; and Elliot Moses, CEO, Daco Enterprises, Inc, Sandy, 
UT.
    SBA announced that their plan to restructure the 7(a) 
lending program to a zero subsidy rate could effectively return 
the program to its statutory levels and adds additional lending 
capacity. Administrator Barreto asserted that if the SBA fix 
were to be implemented, it would constitute a tremendous 
savings to the American taxpayers by avoiding the need for 
increased budgetary authority in order to ensure the solvency 
of this crucial loan program. Moreover, SBA plans to strengthen 
core service delivery systems to better serve the growing needs 
of the small business community. The proposal includes 
investing $88 million for small business development centers, 
$5 million for the Service Corps of Retired Executives, $12 
million for women's business centers, $750,000 for National 
Women's Business Council, $750,000 for Veteran's outreach, and 
$1.5 million for 7(j) technical assistance.
    Donald Wilson testified that the SBA budget, proposed by 
the Administration, is too small compared to the growing needs 
of the small business community. Similarly, Anthony Wilkinson, 
David Pilcher, and Phil Pegg Jr., all expressed strong support 
for the 7(a) loan program, and added that there exists a 
desperate need for the program to receive adequate funding. 
Moreover, caps on loan sizes could prove detrimental to many 
small businesses that utilize the program productively. Lee 
Mercer stated in his testimony that the Small Business 
Investment Company (SBIC) initiative badly needs restructuring, 
and that the SBA ought to consult with small businesses before 
making changes to ensure negative consequences are mitigated. 
Mr. Mercer also pointed out that the proposed SBA fix would not 
solve the problems currently plaguing the program. Chris 
Crawford stressed the need for the SBA Reauthorization Bill (HR 
2802) to pass in order for the 504 program to maintain solvency 
since the fee structure, which funds the program, must be 
reauthorized in the bill for it to continue.
    For further information on this hearing refer to Committee 
Publication 108-52.
            7.2.27  availability of capital and federal procurement 
                    opportunities to minority-owned small businesses, 
                    field hearing, chicago, il

                               Background

    On Tuesday, February 17, 2004, the Committee on Small 
Business held a field hearing in Chicago, Illinois to learn 
from small business owners, especially minority-owned firms, 
about problems that they were facing in obtaining access to 
capital and in finding contracting opportunities in the federal 
government.
    This oversight hearing provided an opportunity for small 
businesses to express their views as to the success or failure 
of the private and public sectors to meet the capital needs of 
small businesses in the Chicago area, especially the needs of 
African-American and other minority-owned small businesses. The 
hearing also provided oversight of SBA's and other federal 
agencies' efforts to assist small businesses in finding real 
federal procurement opportunities.

                                Summary

    The hearing was comprised of two panels. The first panel 
was: Mr. Obie Wordlaw, Chairman & CEO, JERO Medical Equipment & 
Supplies, Chicago, IL; Ms. Neli Vazquez-Rowland, M.Y.S. 
Interiors, Mt. Prospect, IL; Ms. Charlotte Harrison, President 
and CEO, Millennium Data Systems, Chicago, IL; Mr. Frankie 
Redditt, President and CEO, Ashley's Quality Care, Inc., 
Chicago, IL; Mr. Bruce Montgomery, President, Montgomery & 
Company, Chicago, IL; and Mr. Emmett Vaughn, Chief, National 
Diversity Sourcing Relations, Albertsons, Inc., Boise, ID. The 
second panel was comprised of: Ms. Judith Roussel, District 
Director, United States Small Business Administration, Chicago, 
IL; Ms. Linda Oliver, Deputy Director, Small and Disadvantaged 
Business Utilization, Department of Defense, Washington, DC; 
Mr. Sean Moss, Director, Small and Disadvantaged Business 
Utilization, United States Department of Transportation, 
Washington, DC; Ms. Patricia Bamford, Chief of the Acquisition 
and Assistance Branch, Resource Management Division, United 
States Environmental Protection Agency, Washington, DC; Mr. 
Scott Denniston, Director, Small and Disadvantaged Business 
Utilization, United States Department of Veterans Affairs, 
Washington, DC; Ms. Tracye Smith, Executive Director, Chicago 
Minority Business Development Council, Chicago, IL; Mr. Eric 
Dobyne, Regional Director, Minority Business Development 
Agency, United States Department of Commerce, Chicago, IL; Mr. 
James Handley, Regional Administrator, General Services 
Administration, Chicago, IL; and Mr. William Leggett, 
President, Collectors Training Institute, Chicago, IL.
    Mr. Wordlaw expressed the view that private and public 
agencies had failed to provide procurement opportunities and 
meet the capital needs of African-American small businesses. It 
was suggested, as one remedy, that the Small Business 
Administration (SBA) initiate a new program of direct loans 
rather than relying on the present 7(a) loan program where the 
local banks loan the money and the SBA guarantees repayment of 
a portion of the amount borrowed. Ms. Rowland, representing the 
Greater Illinois 8(a) Procurement Association, disagreed with 
the policy to delegate out to other agencies the 8(a) program 
functions that used to be preformed by the SBA. She recommended 
that the SBA be a party to the agreement with the contracting 
agency and should assist 8(a) businesses with preparing 
proposals, as well as negotiating and administrating contracts.
    Ms. Harrison felt that the employees of the SBA did care 
about creating a fair and level playing field in the federal 
procurement arena, but that SBA lacked the enforcement 
authority to see that small businesses are in fact fairly 
treated. Ms. Redditt expressed the view that slow payment by 
government agencies inhibits the growth of small businesses and 
their ability to access capital, even with the assistance and 
backing of SBA. Mr. Montgomery cited the fact that African-
Americans have started businesses at a faster pace in the past 
ten years, despite the fact that they were unable to gain ready 
access to equity capital or capital markets. It was suggested 
that more thought be given to opening the capital markets and 
sources of venture capital to African-Americans aspiring to 
start or grow small businesses. Mr. Vaughn attributed a 
significant portion of the investment in the African-American 
small business community to the SBA.
    Ms. Roussel underscored the recent announcement that ``SBA 
guaranteed a record number of loans last year, with double 
digit increases in the percentage of loans to women, Hispanics, 
African Americans and Asian Americans.'' Ms. Oliver pointed to 
the fact that DOD had not met the procurement goal for service-
disabled veterans but that a new law had provided the needed 
tool for turning the number around by permitting agencies to 
set-aside contracts for service-disabled veterans. Sean Moss 
stated that over the past three years DOT had awarded $3.476 
billion to small businesses, including women-owned and 
disadvantaged small businesses, which represented 42 percent of 
DOT's total prime contract dollars. In addition, last year, 
almost 20 percent of the DOT small business dollars went to 
women and minority owned small businesses. Ms. Bamford reported 
that in FY2003 EPA awarded over 31 percent of its net 
obligations to small businesses and in the same fiscal year, 
EPA Region 5, which includes Chicago, awarded over 34 percent 
of its net obligations to small businesses.
    Mr. Denniston reported that the VA consistently exceeds the 
statutory small business and small disadvantaged business 
goals, and that it is one of the few agencies that meets the 3 
percent goal set for HUBZone small businesses. Further, he 
stated that last year the VA spent $2.6 billion with small 
business and that accounted for about 30 percent of VA's 
purchases. Ms. Smith observed that the ``SBA 7[a] and 504 loan 
programs are working fine.'' It was suggested that what was 
needed was working capital for small businesses already 
established. Mr. Dobyne stated that the MBDA, an agency within 
the Department of Commerce, had shifted its emphasis with 
respect to its strategic growth initiative to minority business 
enterprises that were growing rapidly or were in high growth 
industries. MBDA had set a goal of securing $36 million in 
financial and procurement opportunities for minority businesses 
within the region that includes the city of Chicago. Mr. 
Handley reported that a top priority of the Bush Administration 
was to maintain the prosperity of the small business community 
and that in FY2003 GSA spent $6 billion for goods and services 
purchased from small businesses out of the $15 billion it had 
to spend. Mr. Leggett was concerned that small businesses were 
not obtaining the access to capital necessary for sustained 
growth.
    In sum, the Committee concluded that while much progress 
has been made in increasing access to capital and federal 
procurement markets for minority entrepreneurs, much work 
remains to be done. For further information about this hearing, 
please refer to Committee publication #108-53.
            7.2.28  spike in metal prices: what does it mean for small 
                    manufacturers? 

                              Background 

    The lifting of the steel tariffs in December of 2003 should 
have triggered a drop in steel prices for U.S. manufacturers 
that had experienced up to 50 percent cost increases during the 
18-month tariff period. Instead, steel prices surged following 
the end of the tariffs. According to one industry source, scrap 
steel was selling for $100 to $120 a ton at the end of 2003. In 
January, it spiked to $210 a ton and increased another $50 to 
$60 by the end of February.
    Many in the industry attribute the spikes to intense demand 
from the People's Republic of China (PRC). Some estimate that 
exports of scrap are up more than 60 percent from two years 
ago. The massive industrialization of China has also increased 
demand, and thus the prices, for other metals.
    The goal of the hearing, held on March 10, 2004, was to 
discover what caused various metals prices to rise so high and 
so fast, and also what affect it has had on U.S. small 
manufacturers. In the case of steel, domestic prices were 
expected to decrease or at least remain the same, as the U.S. 
marketplace was open again to full competition from abroad 
after the tariffs were lifted. In fact, the opposite happened.

                                Summary 

    The hearing consisted of one panel: Mr. Wilbur Ross, 
Chairman of International Steel Group, Inc., New York, NY; Mr. 
Emanuel Bodner, President, Bodner Metal and Iron Corporation, 
Houston, TX; Mr. Wayne Atwell, Managing Director, Morgan 
Stanley, New York, NY; Ms. Barbara Hemme, Corporate Secretary 
and Comptroller, Youngberg Industries, Belvidere, IL; Mr. 
William Hickey, Jr., President, Lapham-Hickey Steel 
Corporation, Chicago, IL; Mr. Kyle Martinson, Director of 
Purchasing, Revcor, Inc., Carpentersville, IL; Mr. Robert 
Stevens, CEO, Impact Forge, Inc, Columbus, IN; Mr. Les Trilla, 
President, Trilla Steel Drum Corp., Chicago, IL.; and Mr. 
William J. Klinefelter, Legislative and Political Director, 
United Steelworkers of America, Washington, DC.
    Mr. Ross began the testimony by explaining that steel 
prices have gone up due, in large part, to the bankruptcy 
shutdown of the LTV and Acme facilities, roughly 10 percent of 
the American industry. Mr. Ross also cited the President's 
imposition of temporary tariffs as a secondary (albeit less 
crucial) cause of the spike. Despite the increased price for 
their product, Mr. Ross explained that steel companies are not 
reaping the benefits, as shown through the large number of 
bankruptcies and the fact that most steel companies had been 
unprofitable in nearly each quarter since 2000.
    Scrap, the primary raw material used in mini-mills to 
produce steel, has also seen a significant run up in price. Mr. 
Bodner, owner of a scrap metal yard in Houston, Texas, 
testified that scrap is an internationally traded commodity. 
Because of this status, wide variations in the price of scrap 
are commonplace. He also pointed out that many experts, 
including some steel producers, blame the additional costs of 
energy, coking coal, and transportation as major contributors 
to the recent rise in price.
    Mr. Atwell also provided other factors causing the price 
spike. Primary among them is the sharp economic growth in China 
and corresponding weak U.S. dollar. The weak U.S. dollar has 
driven up the cost of imports, which has provided a pricing 
umbrella over the domestic steel industry, surmised Mr. Atwell. 
Additionally, Mr. Atwell testified that China's steel 
consumption has grown much faster than anticipated and has put 
a strain on the global raw-material industry.
    Mr. Stevens pointed out the strong correlation between 
rising steel prices and rising scrap prices. He suggests that 
steel scrap exports from the U.S. increased due to surging 
foreign demand and, at the same time, other countries limit or 
prohibit their own scrap exports. To correct this fundamental 
market imbalance, Mr. Stevens advocates the temporary 
imposition of export restrictions by the U.S. Secretary of 
Commerce on domestic scrap steel. To date, Mr. Stevens' group, 
the Emergency Steel Scrap Coalition, has yet to file the 
necessary paperwork with the Department of Commerce to initiate 
such actions.
    Messers. Hickey, Trilla, and Martinson, as well as Ms. 
Hemme all testified as to how these spikes are affecting each 
of their businesses. Each offering varying degrees of prices, 
all of which were significantly higher than the same period a 
year earlier, as well as shortages in material. Each stated 
that lay-offs or worse could occur at each of their businesses 
if prices do not fall back to normal in short order.
    Mr. Klinefelter testified that these price increases would 
be, in all likelihood, temporary, due to a number of factors 
including rising input costs, reduced inventories, reduced 
steel-making capacity, and the decline of the U.S. dollar. He 
also testified that after the events of the last six years, the 
recovery in steel prices is necessary if the industry is to 
provide a return for shareholders and workers, attract capital 
investment, and continue to grow so that it may remain a 
reliable low-cost supplier for the manufacturing sector.
    In sum, the Committee concluded that the federal government 
must pay closer attention to this growing problem or risk 
losing the small metal-bending manufacturing base in this 
country. For further information about this hearing, please 
refer to Committee publication #108-57.
            7.2.29  spike in metal prices--part ii 

                              Background 

    On March 10, 2004, the Committee held a hearing examining 
the sudden and unexpected rise in the price of steel. 
Unfortunately, this phenomenon is not limited to steel alone, 
as other metals such as copper, nickel, and aluminum are also 
seeing severe price increases. For example, the price of copper 
soared to an eight-year high of nearly $3,000 a metric ton 
during the third week in February and the price of nickel has 
more than doubled in the last year.
    The goal of the hearing, held on March 25, 2004, was to 
discover what caused non-ferrous metal prices to rise so high 
and so fast, and also what affect it has had on U.S. small 
manufacturers. The hearing also discussed possible remedies to 
help alleviate the crisis in the rapid increase in the price of 
all metals for small manufacturers.

                                Summary 

    The hearing consisted of one panel: Ms. Constance Holmes, 
Senior Economist and Director of International Policy, National 
Mining Association, Washington, DC; Mr. Ed Cowan, Vice 
President for Manufacturing, Beck Aluminum Corp., Cleveland, 
OH; Mr. Joseph Rupp, President and CEO, Olin Corp., Norwalk, 
CT; Mr. John Lindstedt, President, Artistic Plating, Inc., 
Milwaukee, WI; Ms. Charlotte Vincer, Owner and Sales Manager, 
Riverside Spring Co., Rockford, IL; and Mr. Patrick Loftus, 
President, High Steel Structures, Inc., Lancaster, PA.
    Ms. Holmes began the discussion explaining the need for a 
national policy on mining and the need to streamline the 
process in which mining companies apply for and obtain the 
necessary permits to explore, develop, and operate mining 
related facilities. Ms. Holmes testified that world production 
of metals and raw materials has not increased appreciably over 
the last five years as price levels, reacting to a surplus, 
have been low enough to discourage investment in exploration 
and development activities that must precede an increase in 
metals and minerals production.
    Mr. Cowan focused his testimony on the aluminum market, 
where prices had risen approximately 22 cents per pound over 
the previous two years. Mr. Cowan suggested that the most 
glaring reason for the price increase was the Chinese duty on 
imported primary metal, which makes the cost of primary 
aluminum in China artificially high and allows Chinese 
customers to substitute scrap in some applications at higher 
prices than can be afforded by other world consumers.
    Mr. Rupp centered his testimony on the copper industry. 
China, Mr. Rupp surmised, has an insatiable demand for copper 
scrap, copper-alloy scrap, and copper cathode that it cannot 
satisfy from its indigenous reserves. This intensity is seen in 
the high prices and immediate cash payment offered by Chinese 
agents to U.S. scrap dealers. Mr. Rupp testified that the 
Chinese government's manipulation of their currency, the Value 
Added Tax (VAT) rebate Chinese importers receive from their 
government and various other subsidies make it next to 
impossible for American firms to compete.
    Mr. Rupp testified on behalf of the Copper and Brass 
Fabricators Council, which following this hearing, filed a 
short supply petition with the Department of Commerce which 
requested that the government exercise its legal authority by 
temporarily monitoring and restricting U.S. exports of copper 
scrap and copper-alloy scrap. The petition was denied because 
the Commerce Department found no adverse affect on the American 
economy as the rapid price increases reached a plateau during 
the spring.
    Mr. Lindstedt's testimony focused on the nickel industry, 
which Mr. Lindstedt has seen a 300 percent increase from 2002 
through March 2004. Mr. Lindstedt suggested a regulatory change 
that would be beneficial to his industry. Under the current 
regulatory framework for managing the nation's industrial 
waste, Mr. Lindstedt estimates that the average metal finishing 
facility throws away and estimated $40,000 to $50,000 annually 
in metals. The U.S. Environmental Protection Agency (EPA) is 
working on a rule to address this issue for several years and 
Mr. Lindstedt requested Congressional help in moving this rule 
along.
    Ms. Vincer and Mr. Loftus were invited to the hearing to 
provide additional information on the price of steel. 
Unfortunately, no relief had occurred prior in the few weeks 
between the Committee's two hearings, and Ms. Vincer and Mr. 
Loftus re-hashed several on the problems facing her company 
that were brought to light during the Committee's March 10, 
2004 hearing.
    In sum, the Committee concluded that the Bush 
Administration should explore the viability of the following 
possible solutions:
          (1) Continue to fight unfair trade practices, 
        including illegal government currency manipulation;
          (2) Pass H.R. 3716, authored by Representative Phil 
        English of Pennsylvania, to allow U.S. petitioners to 
        file countervailing duty trade cases against non-market 
        economies like China to combat illegal government 
        subsidies of private industry;
          (3) Consider export controls on scrap steel or, if 
        the Administration decides against this initiative, 
        draft a plan on how to negotiate lifting the current 
        export restrictions on scrap steel and coking coal 
        exports from Russia, the Ukraine, China, and Venezuela;
          (4) Review all existing anti-dumping and 
        countervailing duty orders placed on foreign imports of 
        steel into the U.S. to see if they are warranted 
        considering the tightened markets in America;
          (5) Lower energy costs for U.S. steel and metal 
        producers by urging the Senate to pass the 
        comprehensive energy bill (H.R. 6);
          (6) Have the Department of Defense and the Bureau of 
        Industry and Security at the Department of Commerce 
        examine whether the steel and metal shortages in 
        America will have an adverse affect on our Defense 
        Industrial Base and our national security; and
          (7) Have the Department of Commerce or the U.S. 
        International Trade Commission (ITC) through a Section 
        332 investigation examine the shortages of scrap steel 
        and coking coal to determine the effects they have had 
        on production problems and the overall competitiveness 
        of U.S. industry.
    For further information about this hearing, please refer to 
Committee publication #108-59.
            7.2.30  improving the regulatory flexibility act--h.r. 2345

                              Background 

    On Wednesday, May 5, 2004, the Committee on Small Business 
held a hearing to examine H.R. 2345, the Regulatory Flexibility 
Improvements Act. The Regulatory Flexibility Act (RFA) requires 
federal agencies to examine the economic impact of their 
proposed and final rules on small entities. If they impact is 
significant on a substantial number of such businesses, the 
agency is required to assess less burdensome alternatives. When 
it was first enacted in 1980, the RFA had a number of pitfalls 
that detracted from full agency compliance. The RFA was amended 
in 1996 to address some of those pitfalls. While some problems 
were eliminated, such as boilerplate certification statements, 
agencies found new interpretations of the RFA to reduce its 
effectiveness. H.R. 2345 was introduced to eliminate, to the 
extent possible in legislation, all of the interpretive 
legerdemain practiced by federal agencies in order to avoid 
their obligations under the RFA.

                                Summary 

    The first panel consisted of two cosponsors of H.R. 2345--
the Hon. Lee Terry (R-NE) and the Hon. Mike Pence (R-IN). The 
second panel members were: the Hon. Thomas Sullivan, Chief 
Counsel for Advocacy, United States Small Business 
Administration, Washington, DC; Frank Swain, Esq., Partner, 
Baker & Daniels, Washington, DC; Jere Glover, Esq., Of Counsel, 
Brand & Frulla, Washington, DC; and Mr. Jim Morrison, Ph.D., 
President, Small Business Exporters Association, Washington, 
DC.
    Representatives Terry and Pence both expressed strong 
support for H.R. 2345. Representative Terry, as a member of the 
Committee on Energy and Commerce, has seen significant 
regulatory actions taken by federal agencies that have 
deleterious effects on small businesses and could be easily 
remedied if the agencies first thought through their regulatory 
actions. Representative Pence noted that he chaired the 
Regulatory Reform Subcommittee of the Small Business Committee 
in the 107th Congress and saw first hand how federal agencies 
failed to comply with the RFA. Both concurred that H.R. 2345 
would go a long way toward bringing rationality back into the 
agency rulemaking process and thus remained strong proponents 
of passage.
    All of the witnesses on the second panel also strongly 
endorsed H.R. 2345. Three of the panelists are or were Chief 
Counsels for Advocacy so they had first hand experience 
monitoring agency compliance with the RFA. From that vantage 
point, Mssrs. Sullivan, Swain, and Glover knew of the loopholes 
in the RFA and agreed that H.R. 2345 closed many of the 
loopholes that agencies used to avoid compliance. Chief Counsel 
Sullivan strongly endorsed the position that his office should 
write government-wide regulations on the RFA. He recommended 
that the panel procedures be extended to all agencies and the 
Office of Advocacy be given concurring authority in the setting 
of other agency regulatory size standards rather than primary 
responsibility. Mr. Glover, in addition to supporting H.R. 
2345, strongly urged Congress to give the Office of Advocacy 
independent budget authority. Mr. Swain focused his remarks on 
the importance of analyzing indirect effects. Finally, Dr. 
Morrison, although not a Chief Counsel for Advocacy, was a 
staffer on Capitol Hill during the development of the RFA in 
1979 and 1980. He strongly supported H.R. 2345's emphasis on 
paralleling the National Environmental Policy Act (NEPA) 
because the original author of the legislation, Senator Culver 
(D-IA), intended the RFA to be the equivalent of an economic 
equivalent of the environmental impact statements mandated by 
NEPA.
    In sum, the Committee concluded that H.R. 2345 should be 
passed into law to help small businesses deal with the growing 
federal regulatory burden.
    For further information about this hearing, please refer to 
Committee publication #108-62.
            7.2.31  red tape reduction: improving the competitiveness 
                    of america's small manufacturers

                               Background

    On Wednesday, May 19, 2004, the Committee on Small Business 
held a hearing to examine the Office of Information and 
Regulatory Affairs (OIRA) review of regulations affecting 
manufacturers. Regulatory compliance costs impose a burden on 
manufacturers that has the potential to lower the viability and 
competitiveness of American manufacturers. According to at 
least one study, manufacturing bears the highest total 
regulatory burden of any sector in the American economy. The 
same study pointed out that environmental regulations created 
the most significant monetary impact on manufacturers. OIRA 
instituted a process to obtain suggestions on regulations 
affecting manufacturers that should be reviewed because the 
benefits of the rules do not exceed the costs of compliance. 
Once it obtained the recommendations from the public, OIRA 
planned to assess those recommendations for possible rescission 
based on an analysis of those rules under the framework of 
Executive Order 12,866 (the mandate under which OIRA reviews 
all proposed and final rules before publication in the Federal 
Register).

                                Summary

    The panelists were: the Hon. John Graham, Ph.D., 
Administrator, Office of Information and Regulatory Affairs, 
Office of Management and Budget, Washington, DC; Mr. B.J. 
Mason, President, Mid-Atlantic Finishing, Capitol Heights, MD; 
Mr. Andrew Bopp, Director of Public Affairs, Society of Glass 
and Ceramic Decorators, Alexandria, VA; and Mr. John Arnett, 
Government Affairs Counsel, Copper & Brass Fabricators Council, 
Inc., Washington, DC.
    Administrator Graham briefly reviewed the genesis of OIRA's 
manufacturing reform initiative. Dr. Graham, in particular, 
noted that the cumulative effect of regulation on small 
manufacturers was significant. He then explained the process 
that would be used in obtaining recommendations on 
manufacturing regulations that need to be reviewed. The 
Administrator concluded his testimony with a peroration on the 
procedures that would be used in determining which regulations 
should be reviewed in greater detail.
    Mr. Mason, as did all the other industry witnesses, 
commenced his testimony with an explanation of his business. As 
did the other members of industry, Mr. Mason made 
recommendations on specific rules that should be examined by 
OIRA. In particular, he suggested that OIRA examine: the metals 
product and machinery rule; the wastewater pretreatment rule; 
granting exemptions from federal permitting requirements if 
state requirements are more stringent; and find ways to 
encourage recycling of treatment sludge. Mr. Mason concluded 
with concerns about the Occupational Safety and Health 
Administration's (OSHA) proposed rule requiring reductions in 
exposures to chromium.
    Mr. Bopp strongly urged Administrator Graham to reexamine 
the reporting requirements imposed on ceramic and glass 
decorators by amendments to the toxic release inventory forms. 
Mr. Bopp argued that the costs associated with compliance 
outweighed the negligible amounts of lead that ceramic and 
glass decorators emit into the atmosphere.
    Mr. Arnett recommended that OIRA consider: elimination of 
unnecessary testing for pollutants in water discharges when the 
probability of a release is zero; remove from a list of 
volatile organic compounds those chemicals that are not 
volatile; focus enforcement of oil spill prevention and control 
on facilities that represent significant risk of spills both 
from an amount and a probability of a spill; incorporate cost 
effective practices for controlling storm-water runoff; permit 
the concentration of hazardous wastes through evaporative 
dryers; and permit the use of ship or spiral stairs instead of 
rung ladders in certain manufacturing situations. Mr. Arnett 
also recommended increased transparency in the review process 
to ensure that parties involved in making suggestions to OIRA 
knew the outcome of the review.
    In sum, the Committee concluded that there were many 
federal regulations on the books that could be amended or 
eliminated that would further help to revitalize the U.S. small 
manufacturing while still protecting workplace safety and the 
environment. For further information about this hearing, please 
refer to Committee publication #108-64.
            7.2.32  careers for the 21st century: the importance of 
                    education and worker training for small business

                               Background

    On Wednesday, June 2, 2004 the full Committee held a 
hearing on the importance of worker training and retraining to 
maintain this nation's leadership in science and technology. 
Also, the hearing explored the role of education in keeping 
industry in this country, especially small manufacturers, 
competitive in a global economy. There are many training and 
educational programs in existence that must be tailored to meet 
the present and future industrial needs of this nation.
    To maintain this country's competitiveness in world markets 
requires a workforce trained and available in those skills 
needed in an increasingly technology-centered and computer-
based industrial environment. Equally important to playing a 
leadership role in the world economy is the education and 
foresight of those who manage and direct U.S. businesses, 
especially small manufacturers. The education and training that 
was good enough for yesterday will surely not be sufficient to 
sustain job growth in an increasingly competitive and global 
economy. Job training, retraining, and education at all levels 
must be a national priority, if this Nation is to sustain 
worldwide competitiveness and domestic job growth. In the past 
few years, technological innovation has changed the way 
business is done throughout the world, a continuing challenge 
that this nation's industry must successfully respond to in the 
21st Century. A dynamic world economy requires businesses here 
in the United States to stay on the cutting edge of technology 
and to create abundant and challenging job opportunities.

                                Summary

    The hearing was comprised of two panels. On the first panel 
were: the Hon. Emily Stover DeRocco, Assistant Secretary of 
Labor for Employment and Training, United States Department of 
Labor, Washington, DC and the Hon. Edward G. Lewis, Chairman of 
the Board of Directors, National Veterans Business Development 
Corp., Washington, DC. The second panel was comprised of: Ms. 
Beth B. Buehlmann, Ph.D., Vice President and Executive Director 
of the Center for Workforce Preparation, United States Chamber 
of Commerce, Washington, DC; Mr. Brian A. McCarthy, Chief 
Operating Officer, Computer Technology Industry Association, 
Oakbrook Terrace, IL; Mr. Roger Joyce, Vice President of 
Engineering, National Association of Manufacturers, Washington, 
DC; Mr. Ernest Volgenau, Ph.D., Chairman and CEO, SRA 
International, Fairfax, VA; Mr. Matthew Coffey, President and 
Chief Operating Officer, National Machining and Tooling 
Association, Fort Washington, MD; Mr. Randolph Peers, Vice 
President for Economic Development, Brooklyn Chamber of 
Commerce, Brooklyn, NY; and Mr. Michael Caslin, Executive 
Director and CEO, National Foundation for Teaching 
Entrepreneurship, New York, NY.
    Assistant Secretary DeRocco pointed out that the Department 
of Labor provided a broad range of employment and training 
programs through a network of approximately 2,000 one-stop 
centers and 1600 affiliated entities. The object is to bring 
together high quality, well-trained workers and industries in 
need of these workers. The Assistant Secretary of Labor 
identified education and skills development as important 
factors in maintaining this Nation's ability to compete in 
international markets. The Department of Labor was tasked by 
the President to identify those industries producing the most 
jobs and to concentrate on providing persons with skill levels 
necessary to fill those jobs. Assistant Secretary DeRocco 
identified American manufacturing as an economic sector in need 
of skilled workers to operate high-tech manufacturing plants.
    Chairman Lewis advocated life-long education and training. 
As Chairman of the Veterans Corporation, he was of the view 
that veterans should be provided with the resources necessary 
to build and grow small businesses. The Veterans Corporation is 
presently working on providing entrepreneurial education 
courses that a veteran can pay for with Montgomery G I Bill 
benefits. Chairman Lewis was of the opinion that to be 
successful the Veterans Corporation must provide effective 
services and programs. As a comment with respect to education 
in the United States generally, Chairman Lewis was of the 
opinion that emphasis should be placed on basic subjects, i.e., 
reading, writing and arithmetic.
    Ms. Buehlmann reported that a survey of small and medium 
sized businesses conducted over a three-year period found that 
there was a shortage of needed workers with requisite skills. 
Also, a number of businesses were concerned that the skills of 
their workforce kept pace with innovation. In 1950, the 
overwhelming majority of the jobs (80 percent) were classified 
as unskilled and presently most of the jobs are in the skilled 
category. Mr. McCarthy was of the view that fundamental changes 
were taking place with respect to the workforce due to the 
advances in the field of information technology. He cited data 
from the Department of Labor that 92 percent of those who were 
classified as companies that did not specialize in information 
technology employed information technology professionals and of 
that number 80 percent were employed by small businesses. 
Computing Technology Industry Association, the organization Mr. 
McCarthy represented, had developed specialized initiatives and 
public/private partnerships to assist small businesses in 
training and certifying employees as information technology 
professionals.
    Mr. Joyce, an executive of a family-owned small business 
and representing the National Association of Manufacturers, 
reported that skill shortages still existed in the 
manufacturing sector, despite the fact that approximately 2 
million manufacturing jobs had been lost in recent years. New 
technologies were raising skill requirements for manufacturers, 
but there was a perception, which needed to be changed, among 
younger people that employment in manufacturing was not an 
attractive career. Mr. Volgenau, Chairman and CEO of SRA 
International, appearing on behalf of the Information 
Technology Association of America, was of the view that the 
workforce needs have changed as the nation has goon from 
domestic to a global information economy. Small businesses 
played a vital role in the new global economy, providing 
innovation, entrepreneurial dynamics, and employment 
opportunities.
    Mr. Coffey was of the view that there were an abundant 
number of federal training programs, but there was no 
significant improvement in the quality of job applicants for 
employment in the tool, die, precision machining, and special 
machine-building industries. He was of the opinion that federal 
training programs were in need of overall coordination and 
should be geared to specific industries. Mr. Peers reported 
that 42 percent of Brooklyn businesses indicated a willingness 
to hire additional workers this year, but that there was 
difficulty in finding skilled and professional workers. 
Businesses were not inclined to look to public funded training 
and recruitment assistance, and small businesses were least 
likely to do so. Mr. Caslin expressed the opinion that youth 
are not being effectively told about the opportunities to 
participate in the economy as entrepreneurs. He reported that 
the organization he represents, the National Foundation for 
Teaching Entrepreneurship, had as its mission bringing the code 
of business and wealth creation to the youth of this nation, 
especially those from low income families.
    For further information concerning this hearing, refer to 
Committee publication 108-68.
            7.2.33  the rebate of value-added taxes at the border and 
                    the competitive disadvantage for u.s. small 
                    businesses

                               Background

    On July 7, 2004, the Committee on Small Business held a 
hearing to examine the effect on U.S. small businesses of 
international trade rules administered by the World Trade 
Organization (WTO) that permit the rebate of value-added taxes 
at the border while denying comparable treatment for other 
types of taxes such as income taxes.
    European countries impose value-added taxes (VAT) as high 
as 25 percent depending on the specific country. These taxes 
are imposed whether the goods are manufactured in Europe or 
imported from abroad. However, the VAT is rebated at the border 
when goods are exported from Europe. In contrast, current trade 
rules administered by the WTO do not properly recognize the 
ability to rebate other types of taxes, such as income taxes, 
at the border. Because the United States does not impose value-
added taxes, goods exported from the United States to Europe 
bear the full brunt of U.S. income taxes and the VAT in Europe 
while goods exported from Europe to the United States enjoy a 
full rebate of VAT at the border.

                                Summary

    The hearing consisted of one panel with the following four 
witnesses: Mr. Gary Hufbauer, the Reginald Jones Senior Fellow 
at the Institute for International Economics, Washington, DC; 
Mr. Claude Barfield, Resident Scholar and Director of Science 
and Technology Policy Studies, American Enterprise Institute, 
Washington, DC; Mr. Bill Jones, Chairman, Cummins-Allison 
Corp., Mt. Prospect, IL; and Ms. Maya MacGuineas, Director of 
the Fiscal Policy Program, New America Foundation, Washington, 
DC.
    Mr. Hufbauer rejected the classical economic theory that 
exchange rates will adjust to eliminate any advantage from VAT 
rebates. He proposed a joint Congressional resolution calling 
upon the WTO to abolish the preferential border tax adjustment 
rules for VAT rebates. If this fails, he advocates scraping the 
corporate income tax and replacing it with a border adjustable 
business tax (such as a VAT).
    Mr. Barfield reviewed the WTO decisions that held FSC/ETI 
to be an illegal export subsidy and the tortured trade law 
history leading up to those decisions. He concluded that WTO 
trade law is flawed in four respects: (1) WTO rules reach 
inappropriately into national sovereignty and domestic policy, 
(2) the WTO functions as an incompetent world tax court, (3) 
WTO trade penalty measurements need to be reformed, and (4) WTO 
settlement system needs to be reformed.
    Mr. Jones explained to the Committee what the border 
adjustability of VAT taxes means for his business. He views the 
rebate of value-added taxes by foreign countries to his 
overseas competitors as an unfair advantage. The playing field 
needs to be leveled by revising the trade laws.
    The final panelist, Ms. MacGuineas, agreed with the other 
witnesses that VAT border adjustability provides inappropriate 
benefits to overseas firms. She pointed out that the current 
FSC/ETI legislation before the House and Senate (H.R. 4510 and 
S. 1637) does little to assist small businesses, is full of 
special interest provisions, and is detrimental to the 
country's fiscal picture. She further advocated using the money 
from FSC/ETI repeal for financing tax reform along the lines of 
the 1986 Tax Reform Act (which lowered individual and corporate 
tax rates and eliminated tax loopholes and subsidies). 
Alternatively, she advocated adopting a progressive consumption 
tax.
    For further information concerning this hearing, refer to 
Committee publication 108-70.
            7.2.34  how we can make our trade laws work for america's 
                    small business

                               Background

    On July 14, 2004, the Committee on Small Business held a 
hearing to examine possible improvements to trade laws to help 
businesses faced with foreign competition that may be due to 
unfair foreign government practices.
    Witnesses in two panels discussed problems faced by small 
businesses from import competition and what can be done to 
``level the playing field.'' They offered ideas on how to 
ensure the full benefits of our trade agreements and to lower 
barriers by improving and enforcing US trade laws.

                                Summary

    The hearing consisted of two panels. On the first panel 
were: the Hon. Phil English (R-PA) and the Hon. Artur Davis (D-
AL). The second panel's witnesses were: Mr. Frank Vargo, Vice 
President for International Economic Affairs, National 
Association of Manufacturers, Washington, DC; Mr. John Bassett, 
III, President and CEO, Vaughn-Bassett Furniture, Galax, VA; 
Mr. F. Tom Hopson, President and CEO, Five Rivers Electric 
Innovations, Greenville, TN; Mr. Wallace Smith, President, E&E 
Manufacturing Co., Inc., Plymouth, MI; Mr. Douglas Bartlett, 
Owner, Bartlett Manufacturing Co., Inc., Cary, IL; and Mr. 
William J. Klinefelter, Legislative and Policy Director, United 
Steel Workers of America, Washington, DC.
    Representatives English and Davis testified on their 
legislation (H.R. 3716) to allow sanctions on China for keeping 
a fixed exchange rate policy (as doing so offers a competitive 
advantage for its exports) under current trade remedy law to 
offset foreign government subsidies. HR 3716 would allow 
countervailing duty (CVD) law to also apply to non-market 
economies such as China--just as present antidumping trade 
remedy law already allows.
    In the second panel, six private-sector witnesses, who all 
supported HR 3716, mostly discussed shortcomings in U.S. trade 
law remedies and gave a wide range of recommendations.
    Mr. Frank Vargo was most optimistic. He concluded that 
trade laws are ``pretty complete, with one exception addressed 
by English's bill'' and that ``the Executive Branch has 
constructed a significant set of mechanisms designed to help 
smaller companies understand and utilize their trade rights. 
These have recently been improved with added funding that the 
Congress has provided.''
    The other witnesses however cited their difficulties with 
utilizing U.S. trade law remedies, such as in getting 
information and other government assistance, and especially 
bemoaned the expense and the long times it takes for action.
    Mr. Bassett discussed his industry's recent successful 
anti-dumping case on Chinese wooden furniture and recommended 
that Commerce needs to better inform petitioners, beef up its 
investigative staff, let petitioners have a say in who is 
investigated, shorten the time to address the issue, and 
require cash deposits, rather than bonds, to be posted during a 
review.
    Mr. Hopson's company is the only U.S.-owned television 
(mainly projection TVs) manufacturing company left in America, 
discussed how his industry was decimated by foreign (primarily 
Chinese) competition and the recent successful anti-dumping 
case on Chinese television imports.
    Mr. Smith, owner of a metal-die stamping and fastener 
family business, testified that as a steel consumer, he is 
still suffering from the unintended consequences of higher 
steel prices due to the steel tariffs imposed in 2002 and then 
lifted in late 2003. He recommends some consideration of the 
total, especially ``downstream,'' effects of trade decisions, 
that consumers should have equal standing with petitioners, 
that non-U.S. items or items in short supply should be exempt 
from trade remedies and complains that trade remedies review 
takes too long.
    Mr. Bartlett, head of a printed circuit manufacturer, 
testified that the United States electronics manufacturing 
industry is rapidly being destroyed, and that there are vital 
national defense consequences at stake. Contrary to most 
analysts, he blames not the bust of the telecom bubble, but 
predatory trade practices (mostly government subsidies) in 
China along with ``Washington's indifference and sometimes 
encouragement'' for why he cannot be competitive with Chinese 
products priced at half of his. He stated he is not aware of 
any U.S. trade laws (with minor exceptions) that has or could 
actually benefit his industry, and that he, like other small 
companies, cannot afford to litigate trade cases, and does not 
know his options. His main recommendations are that safeguard 
law be made simpler and expedited, that all taxpayer funded 
circuit board purchases be made here, that trade action on this 
situation be taken soon regardless of World Trade Organization 
(WTO) considerations, and that bilateral United States-China 
trade should be balanced.
    Mr. Klinefelter stated that current trade laws need 
dramatic reform because massive trade deficits (especially with 
China) and outsourcing show that there are barriers to exports. 
He proposed that the Untied States Trade Representative not 
discuss changing trade remedy laws at the WTO, that trade help 
be expanded as trade laws are very expensive to use, that there 
be assurances that trade actions won't be reversed as in steel, 
and that the export subsidy provided by the European Value-
Added Tax be eliminated.
    In sum, the Committee concluded that there should be 
additional changes to our trade remedy laws in order to level 
the playing field for our nation's small manufacturers against 
global competitors to insure true free trade, particularly in 
the passage of H.R. 3716. For further information about this 
hearing, please refer to Committee publication #108-72.

7.3  Summaries of the Hearings Held by the Subcommittee on Workforce, 
        Empowerment and Government Programs

            7.3.1  improving and strengthening the sba office of 
                    advocacy

                               Background

    On April 1, 2003, the Subcommittee on Workforce, 
Empowerment and Government Programs held a joint hearing with 
the Subcommittee on Regulatory Reform and Oversight on the 
topic of strengthening the Office of Advocacy at the Small 
Business Administration (SBA) mainly through the creation of a 
separate line item in the federal budget for the office (H.R. 
1772). This idea originally proposed in ``Small Business 
Advocacy Improvement Act of 2002'' later passed the House 
unanimously on May 21, 2002 during the 107th Congress but 
unfortunately did not pass the Senate.

                                Summary

    The hearing consisted of two panels. The first panel 
consisted solely of the Hon. Thomas Sullivan, Chief Counsel for 
Advocacy, United States Small Business Administration, 
Washington, DC. The second panel consisted of Mr. Giovanni 
Coratolo, Director, Small Business Programs, United States 
Chamber of Commerce, Washington, DC; Mr. Allen Neece, Small 
Business Legislative Counsel, Washington, DC; and Mr. Andrew 
Langer, Manager, Regulatory Policy, National Federation of 
Independent Business, Washington, DC.
    The Chief Counsel explained that the two bedrock principles 
that underlie the Office of Advocacy's ability to represent 
small businesses effectively are independence and flexibility. 
The office is able to present the views of small entities to 
lawmakers and policymakers irrespective of the views of the 
U.S. Small Business Administration (SBA) and the rest of the 
Executive Branch. The office has broad statutory authority that 
gives it the flexibility to be both reactive and proactive on 
matters of concern to small entities. The legislation brought 
to light in the hearing would make the Office of Advocacy more 
autonomous thus allowing it to more effectively agitate for 
small business independent of agency or administration 
influence and hold government accountable without fear of 
reprisal.
    The non-governmental witnesses which followed, in the 
second panel, conveyed the common theme that a budget line-item 
for the entire office would give the Office of Advocacy most of 
the tools it needs to carry out its mission of keeping the 
federal government's regulatory tendencies in check. It was 
felt, though, that ultimately, the office would need more 
funds, as well, for the staff to keep up with it's increased 
abilities once more autonomous. Also, the ``sneak-peak'' 
provision of H.R. 1772, in which the relevant committees of 
Congress would receive a copy of the Chief Counsel's budget 
submission to the Office of Management and Budget (OMB) prior 
the finalization of the President's formal budget request 
submitted to Congress every February, would protect the Office 
of Advocacy from budget meddling by OMB.
    Following this hearing, H.R. 1772 (Small Business Advocacy 
Improvement Act of 2003) unanimously passed committee on June 
4, 2003 and unanimously passed the House on June 24, 2003.
    For further information on this hearing, refer to Committee 
publication 108-5.
            7.3.2  status of small business manufacturing in the 
                    midwest, field hearing, st. peters, mo

                               Background

    On April 28, 2003, the Subcommittee on Workforce, 
Empowerment and Government Programs held a field hearing in St. 
Peters, Missouri, presided over by Subcommittee Chairman, the 
Hon. W. Todd Akin (R-MO) and the Hon. Kenny Hulshof (R-MO) to 
address the status of the small business industrial base 
throughout the Midwest.

                                Summary

    The hearing consisted of one panel made up of four 
witnesses. The Subcommittee heard from Mr. Daniel P. Mehan, 
President & CEO, Missouri Chamber of Commerce and Industry, 
Jefferson City, MO; Ms. Sheelah R. Yawitz, President, Missouri 
Merchants & Manufacturers Association, Chesterfield, MO; Mr. 
Mike Mittler, President, Mittler Brothers Machinery, Foristell, 
MO; and Mr. Dan Wainwright, President and CEO, Wainwright 
Industries, St. Peters, MO.
    The panel sent a consistent message that Missouri needs 
assistance, arguably more so than any other state in the union. 
The state lost more than 77,700 jobs in 2002 and Missouri led 
the nation in job loss according to the U.S. Department of 
Labor. Missouri lost 15,000 more jobs as compared to the next 
state that experienced the greatest job loss, Ohio. However, 
Ohio's population, 11.3 million, is twice that of Missouri's 
population, which is 5.5 million.
    The Subcommittee also heard more first-hand examples of the 
need for increased Congressional attention by the two local 
small businesses in attendance. They explained the integral 
role of the tooling and machining industry. These witnesses 
demonstrated the tool and die industry is the basic building 
blocks of manufacturing. All mass manufactured objects begin at 
the hands of a tool and die maker.
    Mr. Mittler voiced the position of the witnesses when he 
stated, ``Nearly every manufacturing company in the country, in 
the world, does business with our industry. The U.S. tooling 
and machining industry employs close to 450,000 people 
nationwide and accounted for shipments in excess of $43 
billion. The metalworking industry includes precision 
machinists, die makers, and mold makers, as well as tool and 
die designers. Without them, the mass production of 
manufactured goods would not be possible.''
    As a result of this and other hearings, the tool and die 
industry has remained one of the foremost priorities for Small 
Business Committee. After the hearing, Chairman Donald 
Manzullo, in partnership with the Hon. Tim Ryan (D-OH), founded 
the Manufacturing Caucus, which has unified members in an 
effort to promote the tool and die industry as well as related 
industries in the manufacturing sector.
    For further information on this hearing, refer to Committee 
publication 108-9.
            7.3.3  hearing on the current and future states of the 
                    sbir, fast and mep programs

                               Background

    On Tuesday, May 6, 2003, the Subcommittee on Workforce, 
Empowerment and Government Programs of the Committee on Small 
Business held a hearing to examine the current state and future 
of the Small Business Innovation Research program (SBIR), 
Federal and State Technology (FAST) partnership program, and 
the Manufacturing Extension Partnership (MEP) program.
    Under the SBIR program, a percentage of federal research 
dollars from certain qualifying agencies (not all agencies with 
research budgets are included in the SBIR program) are reserved 
for award to small businesses (those with less than 500 
employees). The program is specifically aimed at the start-up, 
developmental, and early commercialization phase of innovative 
research conducted by small businesses.
    The FAST program works in conjunction with the SBIR 
program. States are awarded competitive grants to supply 
various support services to SBIR recipients. Grantees are 
selected based on a variety of criteria but primarily on the 
ability of the grantee to meet the unmet needs of small 
business innovators in the state.
    The Small Business Administration oversees the operation of 
the SBIR and FAST programs. The MEP operates out of the 
Department of Commerce's National Institute of Standards and 
Technology. Approximately 350 centers located throughout the 
United States provide expertise and services to meet the needs 
of America's manufacturers.

                                Summary

    The hearing consisted of two panels. The first panel's sole 
witness was Mr. Darryl Hairston, Deputy Associate Administrator 
for Government Contracting and Business Development, United 
States Small Business Administration, Washington, DC. The 
witnesses for the second panel were: Michael Nichols, Ph.D., 
Director, Missouri Federal and State Partnership Program, 
Columbia, MO; Mr. Rolf Albers, Chairman and CEO, Albers 
Manufacturing Co., O'Fallon, MO; and Ms. Barbara Stoller, 
Director, SBIR Outreach, Technology Ventures Corp., 
Albuquerque, NM.
    Deputy Associate Administrator Hairston first noted that 
the SBIR, FAST, and MEP programs have the resources that would 
be useful for strengthening America's small manufacturers. Mr. 
Hairston noted that the SBIR and FAST programs are particularly 
beneficial to small businesses during the critical 
commercialization phase. Mr. Hairston concluded his testimony 
by noting that Administrator was committed to improving 
coordination with federal agencies to ensure the future success 
of the SBIR and FAST programs.
    Dr. Nichols first introduced an invention of a Missouri 
physician that kills ticks and mosquitoes. But, according to 
Dr. Nichols, that physician had no business plan and no way to 
commercialize the invention. The inventor contacted the 
University of Missouri which operates the Missouri FAST 
program. The program assisted the inventor in filing an 
application for a SBIR grant and provided other technical 
assistance. Dr. Nichols concluded that the FAST program is 
needed because, in its absence, new technology from America's 
entrepreneurs would stay locked behind closed doors.
    Mr. Albers first noted that his business employs 35 people 
in the manufacture of electrical equipment. He then noted that 
his business relied on the MEP program to obtain an enterprise 
resource planning software package designed for small 
businesses. MEP consultants also assisted in the implementation 
of ISO 9000 for his company. Modifications to factory layouts 
also were accomplished through MEP assistance. Mr. Albers 
concluded his testimony by expressing support for full funding 
of the MEP program.
    Ms. Stoller testified that many in the scientific and 
technical community do not know about the SBIR program and many 
that do are leery of interacting with the federal government. 
Ms. Stoller noted that the FAST program is designed to remedy 
those problems. She then highlighted four businesses that 
received SBIR assistance as a result of intervention by the New 
Mexico FAST program. She then testified that the FAST program 
was rapidly expanding knowledge about the SBIR program 
throughout the state of New Mexico. She ended her testimony 
with the rhetorical question of how many businesses would not 
receive assistance if FAST program monies were excised from the 
budget.
    For further information on this hearing, refer to Committee 
publication 108-5.
            7.3.4  federal procurement policy: is the federal 
                    government failing certain industrial sectors?

                               Background

    On July 22, 2003, the Subcommittee on Workforce, 
Empowerment and Government Programs held a hearing to discuss 
the plight of American small technology businesses that are 
collapsing because the federal government has gone overseas to 
meet its procurement needs. The hearing sought ways to 
strengthen these American businesses, explore ways to provide 
more incentives for the Federal Government to contract with 
American businesses and highlight the security risk that is 
entailed by not having these American businesses involved in 
crucial sectors of the technology industry.

                                Summary

    The hearing consisted of two panels, with a total of six 
witnesses. The first panel consisted of two representatives of 
the Executive Branch. Ms. Deirdre Lee, Director, Defense 
Procurement and Acquisition Policy, Department of Defense, 
Washington, DC and Ms. Jody Falvey, Director, Office of Small 
Business Development, United States Department of Treasury, 
Washington, DC. The second panel consisted of Mr. Sivalingam 
Sivananthan, Ph.D., President EPIR Technologies Ltd., 
Bolingbrook, IL; Mr. William Jones, Chairman, Cummins-Allison 
Corp., Mt. Prospect, IL; Mr. Alan Tonelson, Research Fellow, 
United States Business and Industry Council, Washington, DC; 
and Mr. John Pallatiello, Executive Director, Management 
Association for Private Photogrammetric Surveyors, Reston, VA.
    The governmental representatives of the first panel did not 
recognize the need to address the gross imbalance of federal 
dollars being spent overseas as opposed to domestically on 
sensitive material. It was not felt that there was a threat 
being formed economically or strategically.
    The four members of the second panel testified with the 
overwhelming consensus that, as Dr. Sivananthan stated, ``the 
practice of outsourcing [sensitive technology] manufacturing 
has resulted in there being no US suppliers. Moreover, there is 
no domestic source of [sensitive technology]. Everyone must buy 
substrates from Japan and put them in reactors made in France. 
In addition, we find ourselves in a situation that we must look 
offshore for trained scientists to operate these reactors.''
    The second panel pushed for stricter enforcement of 
enhanced Buy America laws, a tightening of technology sharing 
and much better monitoring & enforcement of international trade 
agreements covering government procurement practices.
    For further information on this hearing, refer to Committee 
publication 108-28.
            7.3.5  the rising cost of health care for small business 
                    owners, field hearing, charleston, sc

                               Background

    On August 25, 2003, the Subcommittee held this hearing to 
focus on obstacles to healthcare coverage for small businesses 
and their employees. Of the 43 million Americans without health 
insurance, 62% are either small business owners and their 
families or small business employees and their families. The 
problem of the uninsured is very clearly a problem of small 
business access to health care at reasonable prices. The 
hearing explored the following points: problems of access to 
small group coverage as well as solutions, consumer-driven 
health care solutions and high costs of medical liability 
insurance.

                                Summary

    The hearing consisted of six witnesses: Mr. Ernest Csiszar, 
Director of Insurance, State of South Carolina, Columbia, SC; 
Mr. Larry C. Marchant, Jr., Executive Director, South Carolina 
Managed Care Alliance, Columbia, SC; Ms. Evelyn Perry, 
President, Carolina Sound Communications, Inc., Charleston, SC; 
Mr. John Kulze, MD, Charleston, SC; and Mr. Vincent Degenhart, 
M.D., Columbia, SC; and Mr. Doug Moreland, Founder, 
BenefitFocus.com Inc, Mt. Pleasant, SC.
    The witnesses explained that the typical American wage 
earner brings home a salary of roughly $25,000/year, less than 
that in South Carolina, closer to $20,000/year. The average 
monthly charge for health insurance is about $220/month (prior 
to rate increases this year). This is more than 10% of the take 
home salary. Yet premiums continue to go up 15-20% per year. 
Pretty soon the average worker can no longer afford health 
insurance for himself or his family. There are 41 million 
uninsured, roughly one in seven Americans. Across the nation 
doctors are facing a similar crisis with runaway costs for 
their malpractice insurance. Only the numbers are much higher 
and the increases are staggering. Obstetricians/Gynecologists 
in Florida average $143,000 to 203,000/year for malpractice 
premiums.
    They went on to explain that approximately half of the 
people without insurance work for small businesses with up to 
99 employees (restaurants, retail stores, auto repair shops, 
beauty salons). Small businesses often operate on tighter 
budgets and are therefore more vulnerable to premium changes 
resulting in coverage being dropped altogether or increase in 
the share of insurance premium workers must pay.
    For further information on this hearing, refer to Committee 
publication 108-31.
            7.3.6  opportunities for economic growth and job creation, 
                    field hearing, newnan, ga

                               Background

    On September 2, 2003, the House Small Business Committee's 
Subcommittee on Workforce, Empowerment and Government Programs 
held a field hearing entitled ``Opportunities for Economic 
Growth and Job Creation'' in Newnan, Georgia. The hearing was 
chaired by Subcommittee Chairman, the Hon. Todd Akin (R-MO) and 
the Hon. Phil Gingrey (R-GA) was in attendance.
    The purpose of this hearing was to discuss the prospect of 
economic growth and job creation in the southern part of 
Georgia's 11th district. With the recent plant closings in the 
area, the subcommittee investigated the needs of the area's 
small business owners.

                                Summary

    Chairman Akin opened by expressing the subcommittee's 
concern for the local economy and pointed out Congressman 
Gingrey's commitment to the economic stability and success of 
Georgia as illustrated in his constant efforts to: support tax 
reduction, reform medical malpractice and do away with the 
``death tax.'' Chairman Akin also pointed out how Mr. Gingrey 
had also worked hard for the passage of Association Health 
Plans and fought the government when it wanted to raise 
overtime pay for its bureaucrats.
    This hearing consisted of one seven-witness panel: the Hon. 
Keith Brady, Mayor, Newnan, GA; Mr. Kip Purvis, President, 
Meriwether County Development Authority, Meriwether County, GA; 
the Hon. Nancy Jones, Chairperson, Meriwether County Board of 
Commissioners, Meriwether County, GA; the Hon. Rubye Byrd, 
Mayor, Greenville, GA; Mr. Mike Gaymon, President, Chamber of 
Commerce, Columbus, GA; Ms. Betsy Hueber, President, Chamber of 
Commerce, Thomaston-Upton County, Thomaston, GA; and Mr. Ed 
Bell, Councilman, Thomaston, GA.
    The witnesses spoke on the economic hardships of the area 
and told of the continued need for federal government reform 
and involvement. Mr. Purvis pointed out that his county has 
been suffering from a consistent decline in the number of small 
businesses that can remain open in the area, pointing out that 
Mead Westvaco, which operated a sawmill employing approximately 
150, had recently closed its doors. Chairperson Jones also 
mentioned the impact of Mead Westvaco's departure and pointed 
out restaurateurs, tradesmen, gas stations, and corner 
grocery's feel a negative impact when such a significant 
employer folds. Chairperson Jones pointed out that an added 
factor for Meriwether County's ``stagnant and declining 
economy'' was the fact that a mere seven percent of its 
residents have a bachelors degree.
    Mr. Gaymon of the Columbus Chamber of Commerce pointed out 
that even his corner of the globe feels the harsh effects of 
imbalanced trade. His area had most recently lost a sawmill due 
to a lack of tariffs or taxes on competing foreign goods. He 
went on to express that area has enough challenges to work 
through without the added hurdle of preferred competition from 
abroad.
    Mr. Purvis and Mayor Byrd refused to dwell on the 
negatives. Mayor Byrd pointed out that her city had annexed 
``approximately 150 acres of land for developers to build new 
housing ranging from $85,000 to $150,000. We assisted an 
outside entity in securing a $500,000 grant to build a gated 
multi-family community, which will include a swimming pool, 
computer lab, and a clubhouse.'' She also pointed out that due 
to Greenville's location, approximately 75 miles from downtown 
Atlanta and 65 miles from the Atlanta Airport, the city is 
poised for growth. Greenville has the added benefit of a 
constant increase in population because of migration from 
Coweta, Troup, and Muscogee counties. President Purvis 
explained that Meriwether County had, ``recently raised over 
$225,000 to assist in the construction of a work force 
development center. The workforce development center will be 
located in Greenville and will help our citizens develop better 
job skills and hopefully make our community more competitive 
for quality economic growth.''
    After the member's questions were sufficiently answered, 
Chairman Akin adjourned the hearing. In sum, the Subcommittee 
concluded that while this region of Georgia has its share of 
struggles, it is poised for growth and small businesses will 
play a leading role in that effort.
    For any further information on this hearing, please refer 
to Committee publication #108-34.
            7.3.7  federal prison industries effects on the u.s. 
                    economy and the small business environment, joint 
                    subcommittee hearing with the subcommittee on 
                    workforce, empowerment and government programs and 
                    the subcommittee on tax, finance and exports

                               Background

    On October 1, 2003, the Subcommittees held this hearing to 
draw attention to the negative impact Federal Prison Industries 
(FPI) has had on the U.S. economy and in particular, the 
nation's small businesses. At the time of the hearing, FPI 
retained its mandatory source status for the vast majority of 
federal agencies. The Subcommittees strongly believed that, at 
the very least, FPI should not have this mandatory source 
status and should have to compete for its federal contracts, 
just like every other business in the country.

                                Summary

    The hearing consisted of two panels. Panel one was 
comprised of the Hon. Peter Hoekstra (R-MI). Mr. Harley G. 
Lappin, Director, Federal Board of Prisons, Washington, DC; Mr. 
John Palatiello, Executive Director, Management Association for 
Private Photogrammetric Surveyors, Reston, VA; Mr. Christopher 
Fay, Director, Milton Eisenhower Foundation, Washington, DC; 
Ms. Rebecca Boenigk, CEO, Neutral Posture, Inc., Bryan TX; and 
Ms. Angie McClure, Vice President, Habersham Metal Products, 
Cornelia, GA comprised the second panel.
    Representative Hoekstra provided an update as to the 
progress of his legislation, H.R. 1829, the ``Federal Prison 
Industries Competition in Contracting Act of 2003,'' stating 
that the House Committee on the Judiciary had recently filed 
its report on the bill by a bipartisan roll call vote of 19 to 
8. Mr. Hoekstra continued to outline the major provisions of 
the bill, such as requiring FPI to compete for federal contract 
opportunities rather than simply being able to take them as 
they can now.
    Mr. Lappin stood fast to the philosophy that FPI is an 
essential component of the Bureau of Prisons' efforts to 
prepare inmates to successfully reenter society. He also stated 
that FPI is ready, willing an able to work with Congress to 
find an equitable solution to the problems raised.
    Mr. Palatiello echoed Mr. Hoekstra's statements, suggesting 
that FPI's mandatory source status must be revoked in order to 
ensure a true free-market arena. This is necessary not only 
because it will provide better value for taxpayers, but also 
provide hundreds, if not thousands of small businesses across 
the country opportunities to provide the federal government 
with needed goods and services.
    In his capacity as Director of the Milton Eisenhower 
Foundation, Mr. Fay works intensively with former inmates to 
reduce their likelihood of returning to prison following their 
release. Mr. Fay noted that while FPI does have its merits, 
when it comes to training the inmate in marketable skills that 
can be transferred to the outside world, it falls sadly short.
    Both Ms. McClure and Ms. Boenigk are intimately involved in 
the government contracting aspects of their respective small 
businesses. Both cited examples of their businesses being 
squeezed out of the contracting process by FPI. Ms. Boenigk 
also stated that she has been told by various Federal agencies 
that they would like to purchase products from her, but can not 
because of FPI's mandatory source status.
    On November 6, 2003, the House of Representatives passed 
H.R. 1829 by an overwhelming bipartisan margin of 350 to 65.
    For further information about this hearing, please refer to 
Committee publication 108-39.
            7.3.8  union salting of small business worksites

                               Background

    The term ``salting'' is used for the act of deliberately 
inserting a union member into a non-union company (of which the 
vast majority are small businesses) with the goal of eventually 
unionizing that non-union company. This paid union organizer 
aims to establish a wellspring of support for the union effort 
within the company. Fellow employees often do not know that 
their new co-worker is also a paid union organizer. In an 
effort to curb this practice, the Hon. Jim DeMint (R-SC) 
introduced H.R. 1793, the ``Truth in Employment Act of 2003.'' 
This legislation, as well as the detrimental effects salting 
can have on small businesses, was discussed thoroughly at 
hearing held by the Subcommittee on February 26, 2004.

                                Summary

    Panel one was comprised of the Hon. Jim DeMint (R-SC). The 
second panel was made up of Clyde Jacob, Esq., Jones Walker, 
LLP, New Orleans, LA; Mr. Jason Krause, Manager, Human 
Resources, Brubacher Excavating, Inc., Bowmansville, PA; 
Jonathan Newman, Esq., Partner, Sherman, Dunn, Cohen, Lafer, 
and Yellig, Washington, DC; Mr. and Mrs. Leonard Cloninger, 
Owners, Construction Electric, Helena, MT; and Mr. Mark Mix, 
President, National Right to Work Committee, Springfield, VA.
    Representative DeMint spoke on behalf of his legislation, 
H.R .1793, the ``Truth in Employment Act.'' Mr. DeMint 
recounted the downfall of the Yuasa Excide battery plant after 
being targeted by the Industrial Division of the Communications 
Workers of America. Union ``salts'' infiltrated the plant, and 
when employees there did not unionize, the union retaliated by 
sabotaging product, causing work slowdowns, making verbal 
threats, threatening phone calls, and even putting nails in 
people's tires. Union leaders threatened to shut down the plant 
and 650 people were laid off because Yuasa Excide plant could 
not afford the increased cost of business resulting from the 
salting.
    H.R. 1793 aims to prevent more salting abuse. The bill 
amends the National labor Relations Act (NLBA) to make clear 
that an employer is not required to hire any person who seeks a 
job in order to promote interests unrelated to those of their 
employer. Under the bill, employees will continue to enjoy 
their right to organize. The bill merely seeks to alleviate the 
legal pressures imposed upon employers to hire individuals 
whose overriding purpose for seeking the job is to disrupt the 
employers' workplace.
    Mr. Jacob began the second panel by further explaining 
salting's destructive consequences, particularly in the legal 
arena and through the National Labor Relations Board (NLRB). 
Mr. Jacob testified that the labor unions that employ the 
salting tactic contend that a company faced with unlawful of 
possibly unlawful activity can discipline the worker, file a 
complaint with the NLRB, or notify law enforcement authorities. 
Experience has shown that an employer who responds by failing 
to hire, by discipline or by dismissal, will be faced with 
unfair labor practice charges filed with the NLRB and the 
expense of defending these charges, regardless of the 
legitimacy of its actions.
    Mr. Krause and Mr. and Mrs. Cloninger both detailed the 
difficulties they have faced when confronted with salting 
campaigns. While Mr. Krause's employer, Brubacher Excavating, 
has been fortunate enough to survive these campaigns, 
Construction Electric has since been put out of business. 
Although it could no longer aid them, the Cloningers expressed 
the utmost support in favor of H.R. 1793. Mr. Mix also 
expressed strong support for H.R. 1793 while detailing two 
cases similar to Mr. Krause and the Cloningers.
    The dissenting view came from Mr. Newman who believes that 
H.R. 1793 would deprive union organizers of the protection of 
the NLRA and permit employers to engage in what has been deemed 
unlawful discrimination. Mr. Newman maintained that salting is 
a legitimate organizing tool and that salts understand that 
when they apply for work that they will be expected to fulfill 
the employer's legitimate employment expectations. This view 
was in stark contrast to Representative DeMint's recount of the 
Yuasa Excide case, and the numerous examples put forth by all 
other witnesses.
    In sum, the Subcommittee concluded that passage of H.R. 
1793 was necessary to protect the rights of small business 
owners. For further information about this hearing, please 
refer to Committee publication #108-55.
            7.3.9  the benefits of health savings accounts

                               Background

    The House Small Business Committee's Subcommittee on 
Workforce, Empowerment and Government Programs held a hearing 
entitled ``The Benefits of Health Savings Accounts'' on March 
18, 2004. The purpose of this hearing was to discuss Health 
Savings Accounts (HSAs). An HSA is a tax-free account that can 
be used to pay for medical expenses.
    Under the recently passed Medicare prescription drug bill 
(P.L 108-173), consumers can make pre-tax contributions into an 
HSA account up to their deductible. The HSA earns interest tax-
free, and unused funds can be rolled over year to year. As long 
as the account is used for qualified medical expenses, it can 
be withdrawn tax-free. The individual, employer or family 
member can make pre-tax contributions. Individuals between the 
ages of 55 and 65 can make pre-tax ``catch-up'' contributions, 
which they can use for non-covered Medicare expenses, such as 
their Medicare premiums. Because the individual owns the 
account, he may take it with him to another job. Upon death, 
the HSA can be transferred to a family member.

                                Summary

    The hearing consisted of two panels. The first panel 
consisted of the Hon. Philip Crane (R-IL). The second panel's 
witnesses were: Ms. Kate Sullivan, Director, Health Care 
Policy, United States Chamber of Commerce, Washington, DC; Mr. 
David Alders, Owner, Carizo Creek Corp., Nacogdoches, TX; Mr. 
Daniel Perrin, Executive Director, HSA Coalition, Washington, 
DC; Ms. Victoria Braden, President, Braden Benefits Strategies, 
Norcross, GA; and Ms. Linda Blumberg, Ph.D., Senior Research 
Associate, The Urban Institute, Washington, DC.
    Representative Crane spoke in support of HSAs. He opened up 
by declaring that he and several other members introduced H.R. 
3901, the HSAs for the Uninsured Act of 2004, which will 
promote the use of health savings accounts throughout the 
country, by offering a tax deduction for premiums paid for 
HSAs.
    Four witnesses on the second panel spoke in support of 
HSAs, explaining how small businesses previously shutout of 
consistently being able to supply health insurance to their 
employees, would now be able to as a result of competition 
created by HSAs. One witness opposed HSAs.
    Ms. Sullivan explained that HSAs hold the promise of 
reviving the largely moribund but costly small business 
insurance market. The current insurance market is stagnant, 
stemming from state mandates on health plans, which have taken 
away health plans' ability to differentiate themselves in the 
marketplace and compete for customers by offering benefits 
tailored to meet their needs. This lack of competition has 
forced many insurers out of the marketplace, sending small 
business scrambling for new providers in a panic.
    Mr. Alders added that, ``micro-business owners are unable 
to offer the extensive employment packages that large companies 
give to new employees.'' He went on to add that, ``. . . with 
the creation of HSAs, employers can contribute annually to 
their employees' health costs. Micro-business owners who have 
been unable in the past to offer a health benefit to their 
employees, now have a valuable benefit to offer current 
employees or potential employees.''
    Mr. Perrin explained his group is a coalition of non-profit 
groups that advocate for HSAs. He went on to point out that the 
most consumer friendly form of health insurance is affordable 
health insurance, and HSAs are affordable.
    The eighth member of the second panel was Linda Blumberg of 
the Urban Institute. Ms. Blumberg opposed HSAs. She stated that 
HSAs included in the Medicare prescription drug legislation 
increase the problems faced by small businesses and their 
employees and ``increase administrative costs, further segment 
individuals according to health care risk, and subsidize the 
highest income purchasers the most.'' Ms. Blumberg also pointed 
out how the scope of the health insurance problems facing small 
employers and their workers would be compounded by the 
implementation of HSAs.
    In sum, the Subcommittee concluded that HSAs were a 
positive but not the complete solution to the health care 
access crisis facing small business owners and their employees. 
Further work could be done to expand the popularity and use of 
HSAs by small businesses, including providing a tax deduction 
for HSAs (H.R. 3901).
    For any further information on this hearing, please refer 
to Committee publication #108-58.
            7.3.10  would an increase in the federal minimum wage help 
                    or hinder small business?

                               Background

    The Fair Labor Standards Act of 1938 fixed in law a federal 
minimum wage of $0.25 an hour for most workers. From 1939 to 
1997 the minimum wage was raised 19 times. Currently, the basic 
minimum wage is $5.15 an hour, with a lower wage for tipped 
employees, certain new hires under the age of 20, and full-time 
students who work part-time. There are currently several pieces 
of legislation before the 108th Congress that would raise the 
minimum wage to various levels. The purpose of the hearing, 
held on April 29, 2004, was not to debate the merits of any 
particular minimum wage increase bill but to discuss the 
general effect of raising the minimum wage on the small 
business community.

                                Summary

    The hearing consisted of one panel: Mr. Paul Kersey, 
Bradley Visiting Fellow, Heritage Foundation, Washington, DC; 
Mr. Graig Garthwaite, Director of Research, Employment Policies 
Institute, Washington, DC; Mr. Todd McCracken, President, 
National Small Business Association, Washington, DC; Mr. Mike 
Fredrich, President and Owner, Manitowoc Custom Molding, LLC, 
Manitowoc, WI; and Mr. Jared Bernstein, Ph.D., Senior 
Economist, Economic Policy Institute, Washington, DC.
    Mr. Kersey began his testimony by presenting evidence 
conducted by the Heritage Foundation that showed of the 7.8 
million Americans currently earning less than $6.55 an hour, 
only 15 percent are living in poverty and over half belong to 
families earning double the poverty level. Mr. Kersey testified 
that increasing the minimum wage would have a negative net 
effect on the unskilled entry-level jobs that typically pay the 
minimum wage.
    Mr. Garthwaite echoed Mr. Kersey's testimony, pointing to a 
1998 survey by economists at Stanford University, Princeton 
University, and the Massachusetts Institute of Technology 
stating that the average economist believes a 10 percent 
increase in the minimum wage will lead to a 2.1 percent 
decrease in effective employment. That by itself, Mr. 
Garthwaite testified, is a strong argument against raising the 
minimum wage. However, to further exacerbate this potential 
problem, the job loss would be concentrated on the least 
skilled employees, the very individuals supporters of a minimum 
wage increase attempt to help.
    Both Messers. McCracken and Fredrich illustrated practical 
examples of the effect of a minimum wage increase on employers. 
Mr. McCracken, speaking on behalf of his members, suggested 
that increasing the minimum wage would have an inflationary 
effect on all wages, so that small employers with approximately 
15-20 employees could potentially face an additional cost of 
$40,000 or $50,000 a year. Mr. McCracken testified that that 
these additional labor costs could often mean the difference 
between a small company staying open or closing doors forever.
    Mr. Fredrich's testimony was similar to Mr. McCracken's, 
explaining that raising the minimum wage would be devastating 
to his business. Currently, Mr. Fredrich assumes 80 percent of 
his employees' health care costs. By forcing him to pay 
additional labor costs, his only alternative to stay viable 
would be to lower that ratio, forcing his employees to bear 
more of their health care costs. Mr. Fredrich also testified 
that should he be forced to pay additional labor costs, he 
might consider outsourcing some of his production overseas.
    Dr. Bernstein offered dissenting views to all previous 
panelists. Because it is not indexed to inflation, Dr. 
Bernstein suggests, the buying power of the minimum wage 
declines unless our nation's leaders enact an increase. When 
adjusted for inflation, the current minimum wage is 30 percent 
below its peak level in 1968 and 14 percent below its level in 
1997 when it was last increased.
    In sum, the Subcommittee concluded that raising the minimum 
wage would have a negative impact on small business.
    For further information about this hearing, please refer to 
Committee publication #108-61.
            7.3.11  the department of labor's overtime regulations 
                    effect on small business

                               Background

    On April 23, 2004, the Department of Labor issued final 
regulations under the Fair Labor Standards Act implementing the 
exemption from overtime pay for executive, administrative, 
professional, outside sales and computer employees. These 
exemptions are often referred to as the ``white collar'' 
exemptions. To be considered exempt, employees must meet 
certain minimum tests related to their primary job duties and, 
in most cases, must be paid on a salary basis at not less than 
minimum amounts as specified in pertinent sections of these 
regulations.
    This is the first comprehensive update of overtime 
regulations in half a century. Many businesses found the old 
overtime rules vague, outdated and confusing. The lack of 
clarity in the regulations made it difficult to know if 
business owners were making correct decisions about who gets 
overtime and who does not. That confusion often led to costly 
litigation, draining resources away from our businesses--
slowing our economic growth and costing jobs. On May 20, 2004, 
the Subcommittee held a hearing to examine the impact of the 
new overtime rules on small businesses.

                                Summary

    Panel one was comprised of Mr. Alfred Robinson, Deputy 
Administrator, Wage and Hour Division, United States Department 
of Labor, Washington, DC. Panel two was comprised of Mr. Neill 
Fendly, President and CEO, Mortgage Defense, Inc., Scottsdale, 
AZ; Mr. John Fitch, Senior Vice President, National Funeral 
Directors Association, Washington, DC; Mr. Ronald Bird, Ph.D., 
Chief Economist, Employment Policy Foundation, Washington, DC; 
and Mr. Ross Eisenbrey, Vice President and Policy Director, 
Economic Policy Institute, Washington, DC.
    Mr. Robinson led off the hearing with an overview of the 
regulations and a status update. Mr. Robinson testified that 
under the new regulations, workers earning less than $23,660 
per year (or $455 per week) are guaranteed overtime protection. 
This new minimum salary level for exemption triples the current 
minimum salary of only $8,060 per year, and strengthens 
overtime rights for 6.7 million Americans. Additionally, the 
regulations strengthen overtime protection for licensed 
practical nurses, police officers, fire fighters, paramedics, 
and similar public safety employees, and blue-collar workers, 
such as construction workers, manual laborers, and employees on 
factory lines. Such employees will not be affected by the new 
regulation.
    Mr. Robinson continued in his testimony, as well as in the 
question and answer portion of the hearing, that by and large, 
these regulations will require more overtime being paid to 
employees. Despite the additional cost to employers, the 
regulations have the overwhelming support of the business 
community. Mr. Robinson stated that currently, businesses are 
losing resources to the legal system attempting to sort out 
which employees are entitled to overtime. Mr. Robinson 
surmised, that in the long run, the legal and administrative 
cost savings garnered by the new regulations far outweighs the 
additional pay.
    On the second panel, Messrs. Fendly and Fitch, along with 
Dr. Bird all testified in support of the regulations, citing 
red-tape reduction, easier use, and fairness as reasons why 
they and their parent organizations support the regulations. 
However, each stated that the primary reason for support is the 
expected reduction in litigation.
    Mr. Eisenbrey testified against implementation of the 
regulations. Finding perceived flaws in the language, Mr. 
Eisenbrey focused on what the regulations do not cover, such as 
employees deemed as ``team leaders.'' Because this particular 
employee is not delineated within the regulations, employers 
will face the same problems they currently have under the old 
system. Additionally, Mr. Eisenbrey pointed out that because of 
this and other flaws, employers will find ways to circumvent 
the system by giving new titles and tasks to individual 
employees to avoid paying them overtime.
    In sum, the Subcommittee concluded that the Department of 
Labor's new overtime regulations are beneficial to small 
business.
    For further information about this hearing, please refer to 
Committee publication #108-67.
            7.3.12  excellence in action: government support of 
                    disabled veteran-owned businesses, joint 
                    subcommittee hearing with the subcommittee on 
                    workforce, empowerment and government programs and 
                    the house veterans' affairs committee's 
                    subcommittee on benefits

                               Background

    The purpose of this hearing, held on July 15, 2004, was to 
discuss federal department and agency initiatives that would 
increase the use of discretionary set asides and restricted 
authorities (established in Public Law 108-183) in contracting 
with service-disabled veteran-owned businesses (SDVOSBs).
    Section 502 of Public Law 106-50, the Veterans 
Entrepreneurship and Small Business Act of 1999, established 
that, annually, three percent of all federal contracts and 
subcontracts should be awarded to SDVOSBs. For the first two 
fiscal years after enactment of Public Law 106-50, less than 
one-half of one percent of such contracts had been awarded to 
service disabled veteran-owned businesses. In order to provide 
the federal agencies with the necessary tools to meet the three 
percent goal, Congress and President Bush enacted Public Law 
108-183 into law on December 16, 2003. Section 308 of this new 
law provides additional statutory authority for contracting 
officers to make it easier to meet the three percent goal.

                                Summary

    The hearing consisted of two panels: Panel one was 
comprised of Ms. Allegra McCoullough, Associate Deputy 
Administrator for Government Contracting and Business 
Development, United States Small Business Administration, 
Washington, DC; Mr. Frank Ramos, Director, Office of Small and 
Disadvantaged Business, Department of Defense, Washington, DC; 
Mr. Bradley Scott, Regional Administrator, General Services 
Administration, Kansas City, MO; Mr. Scott Denniston, Director, 
Office of Small Business and Center for Veterans Enterprise, 
Department of Veterans Affairs, Washington, DC; and Ms. Nina 
Rose Hatfield, Deputy Assistant Secretary for Business 
Management and Wildland Fire, Department of the Interior, 
Washington, DC. The second panel consisted of Mr. John Lopez 
and Mr. Rick Weideman, Co-Chairmen of the Task Force for 
Veterans Entrepreneurship, Silver Spring, MD; Mr. Steven 
Schooner, Associate Professor of Law and Co-Director of the 
Government Procurement Law Center, George Washington 
University, Washington, DC; Mr. Joseph Forney, President, 
Vetsource, Inc., Hesperia, CA; and Mr. James Hudson, Marketing 
Director, Austad Enterprises, Inc., Centennial, CO.
    Ms. McCoullough detailed the interim final rule published 
by the SBA and the Federal Acquisition Regulatory Council on 
May 5, 2004. Additionally, Ms. McCoullough detailed efforts 
such as outreach training and other policy program initiatives 
specifically for SDVOSBs.
    Mr. Ramos described three areas of focus to improve the 
Department of Defense's (DOD) performance in meeting the three 
percent goal. First, the DOD is developing a strategy to 
increase service-disabled veteran supplier pool in order to 
augment contract amounts to these businesses. The second area 
is training DOD personnel in small business-related courses to 
help them better recognize and support small business concerns. 
The third area is raising the profile of service-disabled 
veterans within the DOD.
    Mr. Scott detailed ``Operation Fast Break,'' the General 
Services Administration's (GSA) two pronged approach aimed at 
creating and improving GSA's external and internal offerings to 
their federal customers, and to SDVOSBs. The broad goals of 
Operation Fast Break are first to identify, recruit, train, and 
assist SDVOSBs to get on GSA's multiple-award schedule program. 
And second, it is to inform client agencies of the new law and 
the opportunity contained therein to streamline the ability to 
access SDVOSBs.
    Mr. Denniston detailed the efforts of the Center for 
Veterans' Enterprise. Created in 2001, the Center's principal 
mission is to promote business ownership and expansion for 
veterans and service-connected disabled veterans. Mr. Denniston 
testified that on February 24, 2004, the Department of Veterans 
Affairs issued an information letter instructing all staff to 
immediately begin implementing the new set-aside provisions 
contained in Public Law 108-183 prior to the issuance of 
regulations.
    Ms. Hatfield articulated her support for the changes made 
by Public Law 108-183 and expressed the Department of the 
Interior's enthusiastic outreach efforts in this regard. Ms. 
Hatfield detailed the Department's outreach efforts via open 
houses, forums, and direct contact to ensure SDVOSBs realize 
the changes and have the capabilities to participate fully.
    Mr. Lopez, who expressed concerns regarding federal agency 
implementation of Public Law 108-183, led off the second panel. 
Mr. Lopez was grateful of the efforts of Congress, but 
suggested yet still many agencies fail to meet the three 
percent goal. Additionally, Mr. Lopez lamented that the 
commitment of the private sector prime contractors lags behind 
the substandard federal effort.
    Mr. Schooner testified that, while expressing his reverence 
for service-disabled veterans, establishing an arbitrary goal 
of federal contract dollars is not the most efficient mechanism 
to increase participation by any segment of the small business 
community. He based his concerns on uncertainty in the 
procurement system, the potential to create infighting between 
SDVOSBs, the difficult nature of oversight and accountability, 
and finally, the burden it would place on the federal 
acquisition workforce.
    Mr. Hudson expressed concerns similar to Mr. Lopez. Mr. 
Hudson is an SDVOSB and in addition maintains a database of 
SDVOSBs. He testified that he has corresponded with and spoken 
to approximately 400 SDVOSBs in the past few years and knows 
only a handful who have successfully entered the federal 
marketplace. Mr. Hudson requested that the federal government 
establish a case-managed approach to service-disabled veterans, 
as they need more follow-along and more intensive service.
    Mr. Forney concluded the hearing with more concerns 
regarding federal agency efforts to meet the goal. Mr. Forney, 
a SDVOSB, testified that repeated efforts by him have yielded 
no results. Citing as examples, a letter he received from the 
Department of Agriculture stating that the three percent goal 
is discretionary, not mandatory, and no return calls from the 
Department of Veterans Affairs following several attempts by 
him.
    In sum, the Subcommittees concluded that much more 
oversight is needed to insure that federal agencies 
aggressively use the new statutory tools provided them in 
Public Law 108-183 so that more contracts can flow to well-
deserving SDVOSBs.
    For further information about this hearing, please refer to 
Committee publication #108-73.
            7.4  Summaries of the Hearings Held by the Subcommittee on 
                    Regulatory Reform and Oversight
            7.4.1  improving and strengthening the sba office of 
                    advocacy
    Please refer to the hearing summary set forth in part 
7.3.1, supra.
    For further information on this hearing, refer to Committee 
publication 108-5.
            7.4.2  federal agency treatment of small business

                               Background

    On May 15, 2003, the Subcommittee on Regulatory Reform and 
Oversight held a hearing to examine federal agency treatment of 
small business. The participants examined current efforts to 
take small businesses into account when federal agency rules 
are drafted as well as future regulatory reform initiatives. 
Each group also identified individual agencies and regulations 
that had been particularly sensitive to small business 
interests and those that had not been following their 
obligations under the Regulatory Flexibility Act as amended by 
the Small Business Regulatory Enforcement Fairness Act.

                                Summary

    The hearing was comprised of two panels of witnesses 
including: Mr. Michael Barrera, Regulatory Enforcement 
Ombudsman, United States Small Business Administration, 
Washington, DC; the Hon. Nina Olson, Taxpayer Advocate, 
Internal Revenue Service, Washington, DC; Ms. Kristie Darien, 
Director of Government Affairs, National Association for the 
Self Employed, Washington, DC; and M. Dorothy Wood, President 
and CEO, J.D. & W, Inc., Virginia Beach, VA.
    Mr. Barrera discussed his office's work to resolve small 
business regulatory enforcement complaints and has found high 
degrees of cooperation from most agencies. His regulatory 
fairness board hearings are now regularly attended by the 
National Taxpayer Advocate of the IRS and often lead to on site 
resolution of small business problems. Ms. Olsen shared the 
work of her outreach efforts to small businesses. The office is 
attempting to market its services better to small business 
owners especially in the area of payroll tax compliance because 
of the potential for stiff fines. In her 2002 Report to 
Congress, Ms. Olsen identified some of the most serious 
problems for small business including navigating the IRS, long 
delays to handle settlements of cases, handling IRS 
collections, employment tax deposits, and obtaining Employer 
Identification Numbers.
    On the second panel, Dorothy Wood discussed the challenge 
of compliance with the Health Insurance Portability and 
Accountability Act and the Occupational Safety and Health 
Administration (OSHA) workplace regulations as a small 
businesswoman. She also described the harsh treatment she 
received by OSHA inspectors at her worksite. Kristie Darien of 
the National Association for the Self-Employed described 
improvements by the IRS in its treatment of micro-businesses, 
but ask for the agency and Congress to urgently address the 
definition of independent contractor. Ms. Darien also called 
for increasing tax simplification and paperwork reduction.
    In sum, the subcommittee discovered that while there was 
progress being made in how federal agencies treated small 
businesses, there was still much more work needed to be done.
    For further information on this hearing, refer to the 
Committee publication #108-15.
            7.4.3  crs regulations and small business in the travel 
                    industry

                               Background

    On June 26, 2003, the Subcommittee on Regulatory Reform and 
Oversight held a hearing to examine U.S. Department of 
Transportation's (DOT) Computer Reservation System (CRS) 
regulations and their impact on small businesses in the travel 
industry. The rulemaking included an inadequate Regulatory 
Flexibility Analysis (RFA) that failed to account for its full 
impact on small businesses in the airline travel industry and, 
most specifically, small travel agents. The hearing explored 
the Department's compliance with the RFA and its potential 
effects on the subsequent rulemaking.

                                Summary

    The hearing was comprised of one panel of witnesses 
including: the Hon. Thomas Sullivan, Chief Counsel Office of 
Advocacy, United States Small Business Administration, 
Washington, DC; Mr. Richard A. Cooper, President, National 
Travel Systems, Lubbock, TX; Paul M. Ruden, Esq., Senior Vice 
President, Legal and Industry Affairs, American Society of 
Travel Agents, Alexandria, VA; Norma R. Pratt, President, 
Rodgers Travel, Inc., Philadelphia, PA; David Schwarte, Esq., 
Executive Vice President & General Counsel, Sabre Holdings 
Corp., Southlake, TX; and Mr. David L. Rojahn, President, DTR 
Travel, Inc., Englewood, CO.
    Chief Counsel Sullivan reviewed the role of SBA's Office of 
Advocacy in ensuring RFA compliance by the Department of 
Transportation (DOT) and other agencies. Advocacy reviewed the 
Notice of Proposed Rulemaking (NPRM) and became concerned about 
its incomplete analysis of impacts on small travel agencies. 
Advocacy requested that DOT publish a supplemental Initial 
Regulatory Flexibility Analysis (IRFA) before it moved to final 
rule stage.
    Mr. Ruden walked the subcommittee through the entire 
rulemaking process and a description of the economics of the 
travel agent industry. Many small travel agents rely on the 
income stream of productivity pricing and incentives provided 
by Computer Reservation Systems (CRS) to make their already 
difficult business more profitable. Many small travel agents 
closed in the post 9/11 environment because of the reduction in 
travel and the ending of fees paid from the airlines to agents. 
Mr. Schwarte of Sabre discussed the importance of allowing CRSs 
to make and define the terms of contracts between themselves 
and travel agents. Mr. Cooper, Mr. Rojahn, and Ms. Pratt echoed 
the concerns of Mr. Ruden and Mr. Schwarte and described the 
difficult economic consequences that their small travel 
businesses would face if DOT's current proposed rules were 
allowed to go into effect.
    In sum, the subcommittee concluded that the Department of 
Transportation did not perform an adequate IRFA analysis and 
urged that agency to do a better job prior to final adoption of 
the CRS rule.
    For further information on this hearing, refer to the 
Committee publication #108-22.
            7.4.4  contract bundling and small business procurement

                               Background

    On July 15, 2003, the Subcommittee on Regulatory Reform and 
Oversight held a hearing to examine federal contract 
opportunities for small business and the use of bundling by 
agencies that combines smaller contracts into one larger 
contract that reduces the total number of procurement 
opportunities. Many of these larger bundled contracts are so 
large that small businesses are ineligible to compete as prime 
contractors. According to the Office of Management & Budget 
(OMB), the number and size of bundled contracts have reached 
record levels. The Subcommittee wished to examine this trend 
and the diminishing number of contract opportunities for small 
businesses. In March of 2002, the President laid out his small 
business agenda, which included increasing small business 
opportunities in federal procurement. Several departments were 
reviewed for their compliance with the President's bundling 
policy including the Departments of Defense, Housing & Urban 
Development (HUD), Energy, Transportation, and the National 
Aeronautics and Space Administration (NASA).

                                Summary

    The hearing was comprised of two panels of witnesses 
including: Ms. Jo Baylor, Director, Office of Small 
Disadvantaged Business Utilization, United States Department of 
Housing and Urban Development, Washington, DC; Mr. Sean M. 
Moss, Director, Office of Small Disadvantaged Business 
Utilization, United States Department of Transportation, 
Washington, DC; Ms. Linda Oliver, Deputy Director, Office of 
Small Disadvantaged Business Utilization, Department of 
Defense, Washington, DC; Mr. Ralph C. Thomas III, Assistant 
Administrator, Office of Small Disadvantaged Business 
Utilization, National Aeronautics and Space Administration, 
Washington, DC; Ms. Theresa A. Speake, Director, Office of 
Small Disadvantaged Business Utilization, Department of Energy, 
Washington, DC; Mr. Dave Sterling, Vice President, VIRTEXCO 
Corp., Norfolk, VA; and Mr. Jorge Lozano, President/CEO, 
Condortech Services, Inc., Annandale, VA.
    Ms. Baylor described the success HUD has had in unbundling 
contracts and creating opportunities for small business and 
announced that 50 percent of its prime contracts went to small 
businesses. Mr. Moss detailed DOT's successes in contracting 
over $3.6 billion in prime contracts to small business 
representing over 44 percent of the agency's total contracting 
dollars. Ms. Oliver at the Department of Defense and the 
largest government procurer pointed to the department's success 
in increasing the total number of small business prime 
contractors to 33,936 from 24,130 the previous year and the 
number of bundled contracts at DOD to date being six. Mr. 
Thomas reflected on NASA's work to increase small business 
contracting from $2.5 to $3.6 billion annually with the same 
total contracting budget and its ability to triple the number 
of dollars going to minority and woman owned businesses. Ms. 
Speake described the difficulties her agency has in contracting 
out substantial amounts of work to small businesses because the 
vast majority of its procurement is in large scale maintenance 
and operation contracts for the national laboratories. Efforts 
continue to break out portions of existing and future contracts 
for small business contracting.
    Mr. Sterling and Mr. Lozano described their experiences as 
small business owners with contract bundling. Both argued that 
despite some positive news from government agencies, the 
procurement officials in charge of contracting continue to 
attempt to bar the smallest companies from doing business by 
bundling smaller contracts or unfairly raising the 
qualifications to bid.
    In sum, the subcommittee concluded that while some efforts 
were underway to help small businesses obtain more federal 
contacts, contract bundling or consolidation still presented a 
significant hurdle to small businesses.
    For further information on this hearing, refer to the 
Committee publication #108-25.
            7.4.5  what is omb's record in small business paperwork 
                    relief?

                               Background

    On July 18, 2003, the Subcommittee held the first of three 
joint hearings with the Subcommittee on Energy Policy, Natural 
Resources and Regulatory Affairs of the Committee on Government 
Reform to examine the Administration's record in paperwork 
reduction and burden relief for small businesses. The Small 
Business Paperwork Relief Act of 2002 required the Office of 
Management and Budget (OMB) to take certain actions by June 28, 
2003, including to: (a) publish the first annual list of all 
compliance assistance resources available to small businesses; 
(b) have each agency establish one point of contact to act as a 
liaison between small businesses and the agency regarding 
paperwork requirements; and, (c) report to Congress on the 
findings of an interagency task force, chaired by OMB. The 
hearing concluded that OMB's two June 27th published documents 
were incomplete and unsatisfactory, its task force report was 
unresponsive, and its track record in small business paperwork 
reduction was dismal.

                                Summary

    The hearing was comprised of three panels of witnesses. The 
first panel consisted of the Hon. Senator George V. Voinovich 
(R-OH) and the Hon. Donald A. Manzullo (R-IL). Panel two's lone 
witness was the Hon. John D. Graham, Ph.D., Administrator, 
Office of Information and Regulatory Affairs, Office of 
Management and Budget, Washington, DC. Panel three consisted 
of: Ms. Karen Kerrigan, Chairman, Small Business Survival 
Committee, Washington, DC; and Mr. Andrew Langer, Manager, 
Regulatory Policy, National Federation of Independent Business, 
Washington, DC.
    Senator Voinovich and Representative Manzullo shared their 
concerns on how the Small Business Paperwork Relief Act (SBPRA) 
was being implemented. The list of compliance assistance 
resources was haphazard and incomplete; the meetings of the 
task force did not seem to accomplish much; and the draft 
report of the task force included the presumption that agencies 
collect the minimum amount of paperwork necessary to comply 
with statutory or regulatory obligations. Mr. Manzullo decried 
this mindset and had hoped that the task force would review 
opportunities for elimination of unnecessary or duplicative 
paperwork. The over reliance on e-government solutions to 
reduce the paperwork burden was also noted by Mr. Manzullo.
    Dr. Graham defended the Bush Administration's and OIRA's 
record on implementation of SBPRA and in reducing government 
paperwork. He described how the President's e-government 
initiatives would assist in consolidating information 
collection requirements, publishing an organized searchable 
list of data collections, and implementing electronic 
submissions. He highlighted the opportunities in the Business 
Compliance One Stop Initiative that would incorporate elements 
of the task force report and could be the platform for 
consolidating and harmonizing federal paperwork requirements.
    Ms. Kerrigan and Mr. Langer described the difficulties of 
their small business members in complying with federal 
regulatory and paperwork requirements. Ms. Kerrigan praised the 
Administration's e-government initiatives but stated that it 
should not supercede the central objective of the Paperwork 
Reduction Act and SBPRA, which was to actually eliminate 
unnecessary paperwork.
    In sum, the subcommittee concluded that much more work was 
needed in order for the Executive Branch to comply with the 
mandates Congress set out in SBPRA.
    For further information on this hearing, refer to the 
Committee publication #108-27.
            7.4.6  spam and its effects on small business

                               Background

    On October 30, 2003, the Subcommittee on Regulatory Reform 
and Oversight held a hearing to examine the impact of 
unsolicited commercial e-mail or spam on small businesses. It 
is estimated that unsolicited commercial e-mail accounts for 45 
percent of all e-mails; roughly 15 billion messages a day. 
Worldwide, spam costs businesses a total of $20 billion a year 
in lost productivity and technology expenses. However, many e-
mail marketers execute their campaigns legally, and many 
businesses rely on commercial e-mail to communicate with 
existing customers. Members of the House of Representatives and 
the Senate introduced seven competing bills attempting to 
eliminate e-mail spam. Several proposals would have adverse 
impacts on small businesses including some individual state 
legislation that would ultimately be pre-empted by a federal 
spam law.

                                Summary

    The hearing was comprised of two panels of witnesses 
including: Mr. J. Howard Beales, III, Director, Bureau of 
Consumer Protection, Federal Trade Commission, Washington, DC; 
Mr. Jerry Ceresale, Senior Vice President for Government 
Affairs, Direct Marketing Association, Washington, DC; Mr. 
Bruce Goldberg, President, Weatherman Records, Farmer's Branch, 
TX; Mr. John Rizzi, CEO, e-Dialog, Inc., Lexington, MA; Mr. 
Shane Ham, Senior Policy Analyst, Progressive Policy Institute, 
Washington, DC; Ms. Catherine Giordano, President/CEO, 
Knowledge Information Systems, Virginia Beach, VA; and Mr. 
Wayne Crews, Director of Technology Studies, CATO Institute, 
Washington, DC.
    Mr. Beales addressed the economic impact of spam on small 
businesses. Although an individual spam e-mail has a de minimis 
cost, the cumulative economic damage can be enormous. Estimates 
put the cost of spam to consumers and businesses at between $10 
billion and $87 billon a year. The flood of fraudulent and 
offensive spam messages also removes the benefit of e-mail as a 
marketing tool to legitimate small businesses. The FTC put 
together consumer education material to help prevent 
unsuspecting small businesses from having their e-mails 
harvested or their servers overloaded with spam. The FTC has 
also aggressively pursued enforcement actions against spammers 
that already break the law. Mr. Beales discussed the various 
legislative proposals to combat spam and outlined the FTC's 
principles for a bill that would help small businesses.
    Mr. Ceresale and Mr. Rizzi cautioned that Congress not make 
legitimate e-mail marketing and customer retention e-mails 
illegal under a spam enforcement regime. Business developed 
through legitimate use of e-mail tops $7 billion annually. Mr. 
Rizzi specifically described how some state legislation might 
put his small business in serious legal jeopardy. Mr. Goldberg 
and Ms. Giordano described their experiences in dealing with 
spam as recipients of spam and as small business owners. Mr. 
Goldberg lost countless amounts of business by being unable to 
identify legitimate customer e-mails to his website from spam. 
Mr. Crews cautioned that no legislative solution can truly end 
spam but that almost any legislation might cause legitimate 
companies serious trouble and economic harm. He suggested that 
the marketplace and technology could ultimately be used to 
solve the problem by forcing the costs of spam back on the 
senders of unsolicited e-mail. Mr. Ham argued that legislation 
was long overdue and that any downsides of legislation were far 
outweighed by the cost and inconvenience associated with spam 
e-mail.
    In sum, the subcommittee concluded that the problem of e-
mail spam is complex from a small business perspective and that 
Congress should avoid ``solutions'' with unintended 
consequences for small business.
    For further information on this hearing, refer to Committee 
publication #108-44.
            7.4.7  increasing the competitiveness of u.s. 
                    manufacturers, field hearing, spartanburg, sc

                               Background

    On November 17, 2003, the Subcommittee on Regulatory Reform 
and Oversight held a roundtable to discuss ways to increase the 
competitiveness of U.S. manufacturers. This field hearing was 
held in Spartanburg, South Carolina along with Representative 
Jim DeMint, a valuable Member of the Small Business Committee. 
Issues that impact the competitiveness of manufacturers include 
producing a skilled workforce; identifying and mitigating 
harmful regulations; reforming the tax code to encourage job 
retention; fostering innovation; the high cost of health 
insurance; and enforcing trade agreements. By November 2003, 
2.8 million U.S. manufacturing jobs had been lost in the 
previous 38 months.

                                Summary

    The hearing was comprised of two panels of witnesses 
including: the Hon. Grant Aldonas, Undersecretary for 
International Trade, United States Department of Commerce, 
Washington, DC; Mr. Daniel Young, CecD, Managing Director, 
Business Development Division, South Carolina Department of 
Commerce, Columbia, SC; Ms. Deborah Moore, Spartanburg, SC; Ms. 
Phyllis Eisen, Vice President, Manufacturing Institute, 
National Association of Manufacturers, Washington, DC; and Ms. 
Barbara League, Corporate Secretary, GF League Manufacturing, 
Greenville, SC.
    Mr. Aldonas noted that our manufacturing firms are facing 
an increasingly competitive global marketplace and we must 
create an environment in which domestic firms can succeed. The 
President's manufacturing initiative was discussed with a focus 
on ``keeping our side of the street clean'' or removing 
barriers to competitiveness and reducing the cost of doing 
business in the United States. Items on the list of barriers 
include higher energy costs, higher medical and pension costs, 
as well as higher insurance and tort costs. On the trade side, 
elimination of tariff and non-tariff barriers, fair and market-
based currency valuations, and the vigorous enforcement of 
current trade laws are also components of the Administration's 
manufacturing initiative.
    Mr. Young testified to the current state of manufacturing 
in South Carolina. Over 90,000 manufacturing jobs had been lost 
in the last five years, and the textile industry alone lost 
nine percent of its employment over the last year. The South 
Carolina Department of Commerce aggressively recruits new 
industries and businesses to make up for the changing landscape 
of jobs in the state. Tax credits for job creation and worker 
retention are used with other incentives to encourage companies 
to view the state as friendly to new business.
    On the second panel, Deborah Moore, described her story 
from being gainfully employed as a textile worker for 25 years 
to now being out of work with no transferable skills. Through 
government job retraining programs, she attended a local 
technical college, and has found a new career in college 
financial aid. Ms. League described the experience of her 
company and the difficulty in competing with companies in 
countries like China. Ms. Eisen discussed the need to ``re-
brand'' manufacturing employment and make it more palatable to 
our nation's students. The perception of manufacturing 
employment is leading to fewer young people viewing it as a 
good career choice or as working on a dirty factory floor and 
so high skilled, high paying manufacturing jobs often go 
unfilled.
    In sum, the subcommittee concluded that the manufacturing 
climate is rough in the United States, particularly in formerly 
textile-dependent South Carolina, but if the federal and state 
governments redouble efforts to further strengthen our nation's 
overall competitiveness, the slide can be stopped.
    For further information on this roundtable, refer to 
Committee publication #108-45.
            7.4.8  what is the administration's record in relieving 
                    burden on small business?--part i

                               Background

    On January 28, 2004 the Subcommittee on Regulatory Reform 
and Oversight held its second of three joint hearings with the 
Government Reform Subcommittee on Energy, Natural Resources, 
and Regulatory Affairs to examine the Administration's record 
in paperwork reduction and burden relief for small businesses. 
The Small Business Paperwork Relief Act of 2002 (SBPRA) 
required the Office of Management and Budget (OMB) to take 
certain actions by June 28, 2003 and others by December 31, 
2003.
    The hearing reviewed: (a) OMB's still incomplete listing of 
each agency's single point of contact to act as a liaison 
between small business and the agency; (b) OMB's still 
incomplete listing of agency compliance assistance resources 
available to small businesses; (c) the incomplete initial 
agency enforcement reports (due December 31st); and (d) 
additional significant (over 100,000 hours each) paperwork 
reduction accomplishments and plans to benefit small business. 
In addition, the three key regulatory agencies--the Departments 
of Labor (DOL) and Transportation (DOT) and the Environmental 
Protection Agency (EPA)--discussed their track record in 
relieving enforcement burdens on small business. The 
Subcommittee sent extensive post-hearing questions to OMB and 
DOL.

                                Summary

    The hearing was comprised of three panels of witnesses. 
Panel one's only witness was the Hon. John D. Graham, Ph.D., 
Administrator, Office of Information and Regulatory Affairs, 
Office of Management and Budget, Washington, DC. Panel two 
consisted of: the Hon. Patrick Pizzella, Assistant Secretary 
for Administration and Management, United States Department of 
Labor, Washington, DC; the Hon. Jeffrey Rosen, General Counsel, 
United States Department of Transportation, Washington, DC; and 
the Hon. Kimberly T. Nelson, Assistant Administrator for 
Environmental Information, Environmental Protection Agency, 
Washington, DC. The third panel's members were: Mr. Harold 
Igdaloff, President, Sungro Chemicals, Inc., Los Angeles, CA 
and Mr. Andrew Langer, Manager, Regulatory Policy, National 
Federation of Independent Business, Washington, DC.
    Dr. Graham again defended the administration's and OIRA's 
record on implementation of SBPRA and in reducing government 
paperwork. He continued to highlight the e-government 
initiative, the Business Gateway, and the upcoming SBPRA second 
task force report. Mr. Pizzella, Mr. Rosen, and Ms. Nelson all 
testified to specific paperwork reductions and enforcement 
actions against small businesses. Each defended their records 
on small business fairness and elimination of some paperwork 
burdens.
    Mr. Igdaloff and Mr. Langer described the difficulties of 
their small business members in complying with federal 
regulatory and paperwork requirements and especially of the 
heavy hand of federal enforcement actions. Mr. Igdaloff 
described his experiences with EPA as a small producer of 
agricultural pesticides. Problems with EPA's Toxic Release 
Inventory program were also discussed.
    In sum, the subcommittees concluded that much more work 
needed to be done by the administration in order to comply with 
the legislative mandates set-forth in the SBPRA.
    For further information on this hearing, refer to the 
Committee publication #108-51.
            7.4.9  challenges to small business growth, field hearing, 
                    augusta, ga

                               Background

    On March 1, 2004, the Subcommittee on Regulatory Reform and 
Oversight held a hearing to discuss ways to increase the 
competitiveness of U.S. manufacturers. This field hearing was 
held in Augusta, Georgia along with Representative Max Burns, 
who represents Augusta as part of the 12th District of Georgia. 
Witnesses identified solutions to increase the competitiveness 
of small businesses in Georgia. Topics included: actively 
working to produce a skilled workforce; identifying and 
mitigating harmful regulations; reforming the tax code; 
fostering innovation; and removing other barriers to 
entrepreneurship, all in service of helping businesses in the 
state to produce the kind of economic growth that Georgia and 
the nation needs.

                                Summary

    The hearing was comprised of one panel of witnesses 
including: Ms. Nuby Fowler, Regional Administrator, United 
States Small Business Administration, Atlanta, GA; Mr. Randy 
Griffin, President, CSRA Business Lending, Augusta, GA; Mr. 
Terry Elam, President, Augusta Technical College, Augusta, GA; 
Mr. Patrick Wilbanks, Entrepreneur Services Coordinator, 
Economic Development Institute of Georgia Tech and the Georgia 
Rural Economic Development Center, Swainsboro, GA; Mr. Ed 
Presnell, President, Augusta Metro Chamber of Commerce, 
Augusta, GA; and Mr. Henry H. Logan, State Director, Small 
Business Development Center, University of Georgia, Athens, GA.
    Ms. Fowler testified to the changing nature of the SBA 
workforce and its increased ability to offer more direct 
relationships with customers and resource partners. She further 
discussed the growth of the SBA loan programs from 59,563 to 
over 76,000 loans in Fiscal Year 2003. Also discussed were the 
Microloan program and the new Rural Business Investment Company 
(RBIC) program, which was passed into law as part of the 2002 
Farm bill.
    Mr. Griffin described the paperwork burden associated with 
the SBA's 504 guaranteed lending program and urged the agency 
to come up with a low document option in the program. He also 
urged the Chairman to not support a zero subsidy rate for the 
7(a) loan program and suggested that small rural lenders and 
users will be hardest hit. Mr. Elam helps to run a small 
business incubator that provides low rent, and college staff to 
provide assistance and support in strategic business planning, 
management, market research, loan packaging, technical 
consulting, and legal advice through local attorneys. 
Additional services that assist a newly developing small 
business are high speed internet access, telephone lines, photo 
copying, conference rooms, and kitchen facilities. The 
incubator at Augusta Technical College has 10 start-up 
companies.
    Henry Logan of the SBDC at the University of Georgia 
described his centers offering of assistance to small 
businesses through consulting tools and training programs. Pat 
Wilbanks of the Economic Development Institute at the Georgia 
Institute of Technology argued for more support for innovation, 
higher loan volumes in the SBA 7(a) program, continued tax 
relief, youth entrepreneurship, and minority enterprise 
development programs.
    In sum, the subcommittee concluded that there are still 
many issues that still needed to be worked on in Washington to 
help entrepreneurs in small communities like Augusta, Georgia 
prosper and thrive.
    For further information about this hearing, refer to the 
Committee publication #108-56.
            7.4.10  small businesses creating jobs and protecting the 
                    environment

                               Background

    On April 22, 2004, the Subcommittee on Regulatory Reform 
and Oversight held a hearing to examine innovative small 
businesses that are creating jobs and protecting the 
environment. Among the innovative and fast growing small 
business sector, many businesses are dramatically increasing 
the efficiency and productivity of our natural resources. 
Whether creating technologies to reduce pollution, increasing 
recycling and recovery, or leaving a smaller footprint on the 
environment, these job creators are also creating environmental 
benefits. This hearing explored the market driven contributions 
to the environment of small businesses nicknamed ``green 
gazelles.''

                                Summary

    The hearing was comprised of one panel: Mr. William 
Farland, Ph.D., Acting Deputy Assistant Administrator for 
Science, Office of Research and Development, United States 
Environmental Protection Agency, Washington, DC; Mr. Mark H. 
Clevey, Vice President, Entrepreneurial Development, Small 
Business Association of Michigan, Lansing, MI; Mr. Craig H. 
Lindell, President, Aquapoint, New Bedford, MA; Mr. Scott 
Seydel, President, EvCo Research, Atlanta, GA; and Phil Catron, 
President, NaturaLawn of America, Frederick, MD.
    Dr. Farland testified that innovative technologies lead to 
more cost-effective environmental protection and growth and 
jobs in the economy. He said that there are particularly 
promising technologies in reducing pollution at its source, 
increasing recycling and recovery, and finding less costly ways 
to treat or remediate pollutants. EPA's Small Business 
Innovation Research (SBIR) grants focused on waste minimization 
and pollution prevention. EPA also has a number of other 
programs that support innovative small businesses such as their 
Science to Achieve Results (STAR) research grants.
    Mr. Clevey discussed the attempts of the Small Business 
Association of Michigan to assist and encourage the development 
of more ``green gazelles.'' They assist in connecting 
entrepreneurs with SBIR grants and other technical assistance. 
Mr. Lindell, Mr. Seydel, and Mr. Catron each described the 
efforts of their small business to find ways to conserve 
resources, increase recycling, and lower their environmental 
impact. Each discussed the need for partnership with government 
to make these innovations, jobs, and environmental improvements 
possible.
    In sum, the subcommittee concluded that the free market--
primarily led by innovative small businesses--could provide 
environmental solutions to difficult problems while, at the 
same time, create economic opportunity and jobs.
    For further information about this hearing, refer to the 
Committee publication #108-60.
            7.4.11  reforming regulation to keep america's small 
                    businesses competitive

                               Background

    On May 20, 2004, the Subcommittee on Regulatory Reform and 
Oversight held a hearing to discuss ways to reform the 
regulatory system to keep America's small businesses 
competitive. In 2002, the Code of Federal Regulations required 
over 75,000 pages to record every executive agency rule and if 
laid down next to each other the volumes would extend 19 feet. 
From 1991 to 2000, the Code of Federal Regulations increased by 
28 percent and showed no signs of stopping in 2002 when 4,167 
rules were codified. A report authored by Drs. Crain and 
Hopkins for the Small Business Administration's (SBA's) Office 
of Advocacy calculated the cost of regulations to our economy 
at $843 billion per year or $8,164 for every household. Small 
businesses face a regulatory burden that is 60 percent higher 
per employee than large businesses. The authors estimated that 
the average small business is burdened with almost $7,000 per 
employee in regulatory compliance costs. The hearing reviewed 
several approaches to reform of the regulatory process.

                                Summary

    The hearing was comprised of two panels of witnesses. The 
Honorable J.D. Hayworth (R-AZ) was the sole witness for the 
first panel. Ms. Susan Dudley, Director, Regulatory Studies 
Program, Mercatus Center, Arlington, VA; Mr. James Gattuso, Roe 
Institute for Economic Policy Studies, The Heritage Foundation, 
Washington, DC; and Mr. Raymond Arth, President, Phoenix 
Products of Avon Lake, Ohio.
    Representative Hayworth discussed his proposed legislation 
for regulatory reform. His proposal, H.R. 110, would require 
that all new regulations promulgated by agencies have an up or 
down vote of the Congress. Mr. Hayworth testified that Congress 
has ceded far too much of its lawmaking authority to 
unaccountable, unelected employees in the Executive Branch. He 
believes this is the only way to get regulation under control 
and restore common sense to the regulatory process.
    Ms. Dudley reviewed the state of our regulatory system by 
the over 75,000 pages in the Federal Register, the $28 billion 
in costs to fund regulatory agencies, the over $93 billion cost 
to the regulated community of water regulation, and the fact 
that in 2000 U.S. manufacturers paid an average of $2.2 million 
per firm to comply with federal workplace regulation. On her 
reform agenda was examining the possibility of a regulatory 
budget, post analysis of regulation after implementation, and a 
congressional office of regulatory review and analysis. Mr. 
Gattuso's suggestions for reform included developing mini-
Office of Information and Regulatory Affairs (OIRA's) within 
each regulatory agency to review legacy regulation, designating 
regulatory reform czars at each agency, and requiring 
independent agencies to submit their regulation to the Office 
of Management and Budget (OMB) for analysis. Mr. Arth discussed 
his own small business experience with regulatory agencies and 
suggested passing several pieces of legislation to make SBA's 
Office of Advocacy more independent, to examine regulatory 
budgeting, and to make some reforms of adjudication process of 
the Occupational Safety and Health Administration (OSHA) at the 
Department of Labor.
    In sum, the subcommittee heard many positive suggestions on 
how to improve the regulatory process for small business and 
concluded that many of these items deserved implementation.
    For further information on this hearing, refer to the 
Committee publication #108-66.
            7.4.12  department of labor's enforcement actions against 
                    small business

                               Background

    On June 17, 2004, the Subcommittee on Regulatory Reform and 
Oversight held a hearing to discuss the Department of Labor's 
enforcement program and enforcement actions against small 
businesses. In the previous fiscal year, the Department of 
Labor conducted enforcement actions against 143,000 businesses. 
Small businesses accounted for almost 66,000 of those actions. 
In 2001, the National Federation of Independent Business (NFIB) 
released a survey of their members which described some 82 
percent of the respondents as discovering regulations in the 
normal course of business or when an enforcement action has 
begun. Under the Small Business Regulatory Enforcement Fairness 
Act (SBREFA), each agency must establish a policy to provide 
for the reduction or waiver of civil penalties for violations 
of statutory or regulatory requirements by a small business. 
The enforcement policies and compliance assistance programs of 
the Department of Labor were reviewed.

                                Summary

    The first panel consisted of Mr. Robert C. Varnell, Deputy 
Solicitor, United States Department of Labor, Washington, DC. 
The second panel members were: Ms. Anita Drummond, Director of 
Legal and Regulatory Affairs, Associated Builders and 
Contractors, Arlington, VA; Mr. Perry A. Bennett, Jr., Health 
Safety and Environmental Director, Molded Fiber Glass 
Companies, Ashtabula, OH; and Ms. Patricia H. Lee, President & 
CEO, National Institute for Urban Entrepreneurship, Washington, 
DC.
    Mr. Varnell described the Department of Labor's emphasis on 
compliance assistance. He quoted Labor Secretary Elaine Chao 
from a compliance assistance conference who said, `` The reason 
we care about compliance assistance is that it is a powerful 
additional tool to help us protect workers.'' He reviewed the 
policies and programs of the Occupational Safety & Health 
Administration (OSHA) and the Wage & Hour Division of the 
Department and their compliance with the Small Business 
Regulatory Enforcement Fairness Act.
    Ms. Drummond praised the Department of Labor's partnership 
program but said that OSHA still has some distance to travel 
before developing the trust of small businesses in the 
construction industry. She also pointed to the misallocation of 
resources on worker safety away from more serious problems such 
as preventing falls, struck by, caught in/between, and 
electrical shocks and to less serious problems like silica and 
ergonomics. Mr. Bennett described his company's experiences 
dealing with OSHA and the fact that some standards enforced by 
the agency include 1969 standards that have been subsequently 
updated by the National Fire Prevention Association. Thus, 
companies that are in compliance with more recent up-to-date 
standards will be out of compliance with OSHA. Ms. Lee 
described the perils of new entrepreneurs in trying to navigate 
the regulatory process governing workplace regulation. She 
urged recognition of the opportunity cost of regulations and 
the cost in jobs. In addition, she recommended improving the 
Equal Access to Justice Act (EAJA) and giving a hard look at 
overly zealous enforcement programs.
    In sum, the subcommittee concluded that while progress has 
been made on compliance assistance at the Department of Labor, 
more work needs to be done to help small business.
    For further information on this hearing, refer to the 
Committee publication #108-69.
            7.4.13  what is the administration's record in relieving 
                    burden on small business?--part ii

                               Background

    On July 20, 2004 the Subcommittee on Regulatory Reform and 
Oversight held its last of three joint hearings with the 
Government Reform Subcommittee on Energy, Natural Resources, 
and Regulatory Affairs to examine the Administration's record 
in paperwork reduction and burden relief for small businesses. 
The Small Business Paperwork Relief Act of 2002 required the 
Office of Management and Budget (OMB) to take certain actions 
by June 28, 2003, others by December 31, and others by June 28, 
2004.
    The hearing reviewed: (a) OMB's still incomplete listing of 
each agency's single point of contact to act as a liaison 
between small business and the agency; (b) OMB's still 
incomplete listing of agency compliance assistance resources 
available to small businesses; (c) the still incomplete agency 
enforcement reports; (d) the second report of an OMB-chaired 
interagency task force (due June 28, 2004); and (e) additional 
significant (over 100,000 hours each) paperwork reduction 
accomplishments and plans to benefit small business. The 
hearing concluded that OMB's June 2003 and June 2004 task force 
reports were unresponsive to Congressional specifications and 
intent, and its track record in small business paperwork 
reduction remained dismal. The Subcommittees sent extensive 
post-hearing questions to OMB, Treasury, and the General 
Services Administration (GSA).

                                Summary

    The first panel consisted of: the Hon. John D. Graham, 
Ph.D., Administrator, Office of Information and Regulatory 
Affairs, Office of Management and Budget, Washington, DC; the 
Hon. Jesus Delgado-Jenkins, Acting Assistant Secretary for 
Management and Budget & Chief Financial Officer, United States 
Department of Treasury, Washington, DC; and Mr. Felipe Mendoza, 
Associate Administrator, Office of Small Business Utilization, 
General Services Administration, Washington, DC. The third 
panel's members were: Mr. Joseph Acker, President, Synthetic 
Organic Chemical Manufacturers Association, Washington, DC; Ms. 
Anita Drummond, Director of Legal and Regulatory Affairs, 
Associated Builders and Contractors, Inc., Arlington, VA; and, 
Mr. John DiFazio, Assistant General Counsel--Legal/Regulatory 
Affairs, Consumer Specialty Products Association, Washington, 
DC.
    Dr. Graham catalogued paperwork reduction efforts including 
RCRA changes at EPA that could save 929,000 hours and $120 
million annually, OSHA changes, and HHS CLIA regulations that 
could save over 400,000 hours. He said they would continue to 
monitor agency compliance and pay special attention to further 
reducing the paperwork burden on small businesses with fewer 
than 25 employees. Mr. Delgado-Jenkins and Mr. Mendoza 
discussed efforts by the Department of Treasury and the GSA to 
comply with SBPRA and provide reductions in real paperwork 
burden for small businesses.
    Mr. Acker and Mr. DiFazio shared the experiences of small 
specialty chemical manufacturers with federal regulation and 
paperwork requirements. Mr. Acker described a typical small 
manufacturer that does not have dedicated employees for health, 
environment, and safety like large corporations but must 
``double hat'' employees to perform multiple roles like 
regulatory compliance. Each added layer of regulation or 
paperwork burden comes directly out of time that employees 
could spend producing value for the company. Ms. Drummond 
provided the experience of the construction industry in 
regulatory compliance. The greatest difficulty, she said, is 
just trying to figure out what rules apply to an individual 
business. Compliance assistance efforts at the Department of 
Labor were praised.
    For further information on this hearing, refer to the 
Committee publication 108-74.
            7.4.14  small business liability reform

                               Background

    On July 22, 2004, the Subcommittee on Regulatory Reform and 
Oversight held a hearing to discuss small business liability 
reform. The cost of tort liability for small businesses in 
America is $88 billion a year. Small businesses bear a 
disproportionate share of the total tort liability burden. 
Although taking in only 25 percent of business revenue, they 
face 68 percent of the tort costs. The average liability cost 
for small businesses is $15 per $1,000 of revenue, while large 
corporations average $5.39 per $1,000 of revenue. The hearing 
examined several approaches to making small businesses more 
competitive through reforms of the tort liability system.

                                Summary

    The hearing was comprised of two panels of witnesses 
including: The Hon. Steve Chabot (R-OH) was the sole witness on 
the first panel. The second panel consisted of: Ms. Jo Wagner, 
President, CTO, Inc., Harlingen, TX; Ms. Lisa A. Rickard, 
President, United States Chamber of Commerce Institute for 
Legal Reform, Washington, DC; Mr. Victor Schwartz, General 
Counsel, American Tort Reform Association, Washington, DC; Mr. 
Chris Cavey, Owner, Cavey Insurance, Hampstead, MD; and Ms. 
Joanne Doroshow, Executive Director, Center for Justice & 
Democracy, New York, NY.
    Representative Chabot described the high cost of tort 
liability to small businesses. He described his legislation, 
H.R. 2813, the Small Business Liability Reform Act, which would 
limit punitive damages and would eliminate joint and several 
liability for non-economic losses for businesses employing 
fewer than 25 people. It would also protect product sellers and 
distributors of goods they did not manufacture from liability 
when the seller was not negligent, or did not breach an express 
warranty.
    Ms. Rickard shares the state of liability costs to large 
and small businesses. She discussed the high cost to small 
businesses, 44 percent of who pay all their tort costs out of 
pocket and not from insurance. She discussed and commended 
legislation in Congress to address class action lawsuits, 
asbestos lawsuits, medical malpractice, food consumption, 
``loser pays'' for frivolous claims, and small business 
liability reform. Ms. Wagner described her harrowing experience 
as a small business contractor who was caught up in a legal 
action against all contractors on a school project. Even though 
she had no negligence on her part, the trial attorneys sought 
damages from everyone on the project. Mr. Cavey described his 
experience as an insurance agent and the small businesses that 
he has helped get liability coverage. He also has seen 
frivolous lawsuits on the part of ``injured'' plaintiffs almost 
destroy family owned small businesses even though they were not 
negligent.
    Ms. Doroshow suggested that tort liability costs to small 
businesses were inflated and that tort reform was a boon to big 
business. Mr. Schwartz reviewed the state of the legal 
profession in torts and suggested that the most important 
change to the system would be to improve Rule 11, which helps 
to compensate a defendant if a plaintiff brings a frivolous 
lawsuit. He argues that if lawyers and plaintiffs were more 
fearful of losing a judgment and having to pay the costs of the 
other party, there would be more self-regulation.
    In sum, the subcommittee concluded that our tort system is 
out of control and something needs to be done to help small 
businesses deal with frivolous lawsuits.
    For further information on this hearing, refer to the 
Committee publication #108-76.

7.5  Summaries of Hearings Held by the Subcommittee on Tax, Finance and 
        Exports

            7.5.1  small business asset expensing

                               Background

    The Subcommittee on Tax, Finance, and Exports conducted 
this hearing to draw attention to potential changes in Section 
179 of the Internal Revenue code. Section 179 deals with the 
expensing of depreciable business assets. At the time of the 
hearing, small businesses could only expense the first $25,000 
spent on new equipment in a given year. The remainder (if any) 
was depreciated under current cost recovery rules. The 
threshold for this tax subsidy was capped at $200,000. In 
effect, this rule gives firms an incentive to invest no more 
than $225,000 by substantially increasing their cost of capital 
above the threshold range.
    Increasing the expensing limit to various levels have been 
included in each of President Bush's major economic recovery/
tax relief plans (Public Laws 107-16, 107-147), and the current 
Fiscal Year 2004 budget request.

                                Summary

    The hearing, held on April 3, 2003, consisted of two 
panels. Panel One was comprised of Mr. Gregg Jenner, Deputy 
Assistant Secretary and Senior Advisor for Tax Policy, 
Department of Treasury, Washington, DC. Panel Two was comprised 
of: Mr. Martin Regalia, Ph.D., Chief Economist and Vice 
President of Tax Policy, United States Chamber of Commerce, 
Washington, DC; Ms. Dena Battle, Legislative Affairs Manager, 
National Federation of Independent Businesses, Washington, DC; 
Mr. Leslie Shapiro, President, Padgett Business Services, 
Washington, DC; and Mr. Brian Harvey, President of H&C, Inc. 
Heating & Cooling, Laurel, MD.
    Mr. Jenner focused on President Bush's proposal to increase 
the Section 179 expensing limit contained in the Bush 
Administration's FY04 Budget Request. The proposal would, among 
other things, triple the maximum dollar amount that may be 
expensed to $75,000 (from $25,000) for qualifying property 
placed in service in 2003 and thereafter; index annually for 
inflation the amount that can be expensed each year (beginning 
in 2004); increase to $325,000 from $200,000 the point at which 
the benefits of section 179 begin to phase out, effective for 
qualifying property placed in service in 2003 and thereafter 
(and index such amount annually for inflation); include off-
the-shelf computer software as qualifying property; and permit 
taxpayers to make or revoke expensing elections on amended 
returns without the consent of the Commissioner. Mr. Jenner 
also commented briefly on other aspects of the President's 
economic growth plan, including ending the double taxation of 
dividends.
    Dr. Regalia and Ms. Battle echoed Mr. Jenner's support for 
the President's proposal, indicating that any increase in the 
limit would spur growth, create jobs, and boost the economy, 
citing numerous statistics for each positive aspect. Mr. 
Shapiro also testified in favor of increasing the expensing 
limit, however, he did not place as much emphasis on increasing 
the limit as previous witnesses. He commented on an alternative 
proposal where, in lieu of an automatic increase, small 
businesses would be able to ``carry-over'' unused expensing 
allowances from year to year, allowing them to build a surplus 
for those years they make significant purchases.
    Mr. Harvey concluded the testimony by attesting that any 
significant increase in the expensing limit would allow him to 
immediately grow his business by purchasing new trucks, and 
probably at least one new employee.
    On May 28, 2003, President Bush signed H.R. 2, the ``Jobs 
and Growth Tax Act of 2003,'' into law (Public Law 108-27). 
Public Law 108-27 increases the Section 179 expensing limit 
from $25,000 to $100,000 and increases the upper threshold 
limit from $200,000 to $400,000 for Fiscal Years 2003-2005.
    For further information about this hearing, please refer to 
Committee publication 108-6.
            7.5.2  overcoming obstacles facing the uninsured

                               Background

    The Subcommittee on Tax, Finance, and Exports conducted 
this hearing to examine the role tax-advantaged mechanisms can 
have in decreasing the distressingly high number of uninsured 
Americans, which currently stands at approximately 43 million. 
About 60 percent of those Americans without health insurance 
are either small business owners, or employees of small 
business owners. The Subcommittee believes that removing 
current restrictions on and expanding the use of Medical 
Savings Accounts (MSAs), Flexible Spending Accounts (FSAs), and 
increased tax relief focused specifically toward the purchase 
of health insurance can help alleviate many of these problems.
    FSAs are employer-established benefit plans, which first 
began in the 1970s, that reimburse employees for specified 
expenses. MSAs are tax-advantaged individual savings accounts 
that can also be used for unreimbursed expenses that became 
available under a demonstration that began in 1997. President 
Bush's FY 2004 budget proposed changes to FSAs and a permanent 
extension and substantial expansion of MSAs that are identical 
to President Bush's FY 2003 budget proposal.

                                Summary

    The hearing, held on May 8, 2003, was composed of two 
panels. Panel one consisted of the Hon. Donald Manzullo (R-IL), 
Chairman of the House Committee on Small Business. The second 
panel was composed of Mr. Tom Miller, Director of Health Policy 
Studies, CATO Institute, Washington, DC; Mr. Edwin Hall, Senior 
Health Policy Analyst, Center on Budget and Policy Priorities, 
Washington, DC; Mr. Kim Snyder, Chairman, Lehigh Valley Chamber 
of Commerce, Bethlehem, PA; and Mr. Keith Hall, CPA, Houston, 
TX.
    Chairman Manzullo's testimony focused on legislation he 
recently introduced with Congresswoman Nydia Velazquez, the 
Ranking Member of the House Small Business Committee. This 
legislation, H.R. 1873, the ``Self-Employed Health Care 
Affordability Act of 2003,'' seeks to provide small business 
with the same opportunity for success as big business in 
affording quality health coverage. Specifically, H.R. 1873 
would allow self-employed business owners to deduct their 
health care expenses from their payroll taxes (Social Security 
and Medicare) as well as their individual income taxes. Self-
employed workers pay a 15.3 percent payroll tax on top of their 
individual income tax. Allowing them to deduct their health 
care expenses from their payroll taxes would effectively reduce 
their health care costs by 15 percent. Mr. Hall also focused on 
this legislation.
    Mr. Miller and Mr. Park expressed differing views on 
expanded use of MSAs and FSAs. Mr. Miller testified in support 
of removing or redesigning restrictions on the availability of 
each one of them would help reduce the number of uninsured 
individuals and families. Mr. Miller also stated that 
significant progress could be achieved by providing broader 
parity in the tax treatment of health insurance financing for 
all purchasers; reducing artificial tax and regulatory barriers 
to market-based, value-maximizing choices; and empowering all 
health care consumers to match their own needs and preferences 
to a wider variety of affordable options. Mr. Snyder of the 
Lehigh Valley Chamber of Commerce echoed these views.
    Mr. Park expressed concerns regarding the expanded use of 
MSAs and FSAs. Chief among them, Mr. Park noted that such 
expansions could undermine the current traditional employer-
based health insurance system through which the vast majority 
of Americans obtain their health insurance and place workers' 
access to affordable and comprehensive health insurance at 
risk.
    For further information about this hearing, please refer to 
Committee publication 108-13.
            7.5.3  the chilean free trade agreement: opening doors to 
                    south american markets

                               Background

    On June 12, 2003, the Subcommittee on Tax, Finance, and 
Exports conducted this hearing to emphasize the importance of 
free trade agreements for the American economy, and 
particularly America's small businesses. The Chilean Free Trade 
Agreement (CFTA) represents a significant step forward in 
America's return to the free trade agreement arena. Not only 
was it one of the first pacts Congress will have a chance to 
vote on under the newly re-established Trade Promotion 
Authority (Public Law 107-210), it was also the first agreement 
with a South American nation.
    Talks on a free trade agreement with Chile began in 
December 2000. Following 14 rounds of negotiations, the 
Agreement was declared final on June 6, 2003, which cleared the 
way for a vote on implementing legislation in the 108th 
Congress.

                                Summary

    The hearing was composed of two panels. The first panel 
consisted of two witnesses: Mr. Christopher Padilla, Assistant 
United States Trade Representative for Intergovernmental 
Affairs and Public Liaison, Office of the United States Trade 
Representative, Washington, DC and Mr. Manuel Rosales, 
Assistant Administrator, Office of International Trade, United 
States Small Business Administration, Washington, DC. The 
second panel consisted of Mr. Willard Workman, Senior Vice 
President for International Affairs, United States Chamber of 
Commerce, Washington, DC; Mr. James Morrison, President, Small 
Business Exporters Association, Washington, DC; Mr. Arland 
Schantz, Owner/Operator, Evergreen Farms, Zionsville, PA; and 
Mr. Larry Wesson, President and CEO of Aurora Instruments, 
Ambler, PA.
    Both administration witnesses were in complete support of 
the agreement, citing numerous statistics detailing the 
negative impact of not having a free trade agreement with Chile 
has had on our economy. In addition, it was mentioned that 
America has been forced away from the Chilean market by 
recently completed free trade agreements reached between Chile 
and several other countries including Canada, Mexico, and the 
European Union. Both Administration witnesses cited several 
examples of American small businesses that would benefit from 
expanded trade with Chile.
    Mr. Padilla focused on numerous technical aspects of the 
agreement, contrasting it with the other 150 or so agreements 
currently on record across the globe. Specifically, Mr. Padilla 
stressed the agreement's comprehensive nature, promotion of 
transparency, modern composition, and its innovative approach 
that supports and promotes respect for environmental protection 
and worker rights.
    Mr. Rosales focused on his efforts as Assistant 
Administrator at the Small Business Administration's Office of 
International Trade in preparation of the historic agreement. 
Mr. Rosales stated that in 2002, the SBA had entered into a 
cooperative agreement with its Chilean counterparts, the 
Technical Cooperation Service of Chile (SERCOTEC) and the 
Chilean Economic Development Agency (CORFO) to initiate 
institutional cooperation to promote and support the 
development, growth, stability, and global competitiveness of 
small and medium enterprises (SMEs), and promote trade 
opportunities for SMEs in each country. Additionally, Mr. 
Rosales detailed the technical assistance and loan programs 
available to small businesses wishing to become involved, or 
further involved in exporting.
    Similar to the first panel, all four of the witnesses on 
the second panel were in complete support of the CFTA. Mr. 
Workman and Mr. Morrison commented on the economic benefits and 
employment increases on tap for the United States should 
Congress finalize the agreement.
    Mr. Schantz focused on the CFTA's impact on the American 
agricultural sector, citing specific benefits for America's 
wheat, oilseeds, edible vegetable oils and sugar producers. Mr. 
Schantz testified that within 12 years, the agreement would 
eliminate the price band system used by Chile to protect its 
producers from lower-priced imports. Additionally, Mr. Schantz 
commented on the significant progress that was made during the 
negotiations with Chile to break down the walls of the sanitary 
and phytosanitary barriers on U.S. agricultural imports without 
a scientific basis, which rendered exportation impossible. 
According to Mr. Schantz, these changes will undoubtedly result 
in increased exports of U.S. fruits, beef, lamb and pork, as 
well as dairy products to Chile.
    Mr. Wesson stated that the CFTA would immediately and 
dramatically improve his company's bottom line. Aurora 
Instruments is the sole producer of portable fully automatic 
fusion splicers in the Western Hemisphere. In 1997, Aurora 
Instruments maintained a 74 percent market share in Chile. By 
2002, Aurora's market share had dropped to zero. Mr. Wesson 
stated that the absence of a U.S.-Chile free trade agreement 
was a major cause for this decline because many of his 
distributors elected to go with the less expensive European 
manufactured fusion splicers. Mr. Wesson believes that final 
approval of the CFTA will dramatically help his business by 
allowing him to re-establish ties with his distributors in 
Chile.
    The U.S.-Chile Free Trade Agreement passed the House by a 
strong bipartisan margin of 270 to 156 on July 24, 2003 and was 
signed into law by the President on September 3, 2003 (Public 
Law 108-77).
    For further information about this hearing, please refer to 
Committee publication, #108-19.
            7.5.4  removing roadblocks to success: how can the federal 
                    government help small businesses revitalize the 
                    economy?, field hearing, denver, co

                               Background

    America's small businesses are the backbone of our nation's 
economy. They represent 99 percent of all employers; more than 
half of all U.S. employees work for small firms; and they 
generate between 60 and 80 percent of all new jobs in America. 
Small businesses can and will be the leaders in our economic 
recovery and our elected officials must do all they can to 
foster, not hinder, their growth.
    Unfortunately, some of our elected officials have been fond 
of passing new laws and imposing mandates and regulations on 
business. Congress has been working in recent years to diminish 
that burden with legislation such as the Paperwork Reduction 
Act, the Small Business Paperwork Relief Act, and most recently 
the Jobs and Growth Tax Relief Reconciliation Act of 2003. 
However, even with the passage of these bills, federal 
regulatory, tax, and compliance burdens continue to be cited by 
many owners as the most significant problems facing their 
businesses.

                                Summary

    The hearing, held on August 27, 2003, consisted of one 
panel: Mr. Jim Henderson, Regional Advocate, Office of 
Advocacy, United States Small Business Administration, Denver, 
CO; Mr. Rick O'Donnell, Executive Director, Department of 
Regulatory Agencies, State of Colorado, Denver, CO; Ms. Rebecca 
Hea, Psy. D., Senior Administrator, Denver Children's Home, 
Denver, CO; Mr. Patrick Hilleary, Director of Operations, 
Brookfield Properties, Denver, CO; Mr. Robert Piper, Owner, 
Piper Electric, Inc., Arvada, CO; Ms. Susan Cirocki Trujillo, 
President/Owner, Arrow Sheet Metal Products, Denver, CO; Mr. 
Cedric Tyler, President, Business Genetics, Englewood, CO; Mr. 
Bert Weston, President and CEO of the Inner-City Community 
Development Corporation, Denver, CO; and Mr. John Zeigler, 
Chairman of Jackson's Sports Gril, Englewood, CO.
    As small business owners and operators, Messrs. Zeigler, 
Tyler, Piper, and Hillary, along with Ms. Trujillo, each 
recounted numerous instances where the federal government 
imposed specific tax and regulatory burdens or has failed to 
examine and fix looming problems such as health care 
affordability or tort reform.
    Mr. Henderson stressed the positive changes that have taken 
place over the past few years. He stated that efforts such as 
the Regulatory Flexibility Act, the Small Business Regulatory 
Enforcement Fairness Act, and the Jobs and Growth Tax Relief 
Reconciliation Act are welcome and necessary changes for 
America's small business community. Mr. Henderson did, however, 
fully recognize that greater efforts are necessary to ensure an 
optimum small business environment, citing continued tax reform 
and regulatory relief.
    Mr. O'Donnell focused on regulatory burdens and stated that 
the State of Colorado has recently passed a law similar to the 
Federal Regulatory Flexibility Act in addition to creating a 
new website allowing small businesses in Colorado to sign up 
for e-mail alerts regarding specific regulations pertinent to 
their small business. Mr. O'Donnell noted that response to both 
of these measures has been positive.
    Noting that federal burdens also impact the non-profit 
arena, Dr. Hea and Ms. Weston noted that they too face numerous 
challenges complying with federal regulations. Dr. Hea 
mentioned that Medicaid regulations are becoming increasingly 
burdensome. She stated that the Denver Children's Home needs 
three extra clinicians and one additional clerical assistant 
simply to keep up with the paperwork.
    For further information about this hearing, please refer to 
Committee publication 108-32.
            7.5.5  small business exporting and the southern california 
                    economy, field hearing, long beach, ca

                               Background

    Small and medium manufacturers make up 93 percent of all 
exporters in the nation, provide 9.5 million jobs, and account 
for 30 percent of total U.S. growth since 1989. Our federal, 
state, and local governments must continue to work toward 
fostering an environment where small and medium exporters can 
grow and prosper. In 2002 Congress passed and President Bush 
signed the Trade Promotion Authority Act, which is essentially 
an agreement between the President and Congress on how market-
opening trade negotiations will be conducted and agreements 
approved. The large number of countries that have lined up 
seeking to enter free trade negotiations with our country 
demonstrates the success and need for trade promotion 
authority.
    Just prior to the hearing, Congress passed and President 
Bush signed both the Chilean and Singapore Free Trade 
Agreements into law. This is welcome news to our nation's 
export community. However, it is often difficult for small and 
medium ``would-be'' exporters to become involved. Government 
assistance programs from, among others, the Small Business 
Administration (SBA), the Overseas Private Investment 
Corporation (OPIC), the Export-Import Bank of the United States 
(Ex-Im), and the Department of Commerce are essential to our 
nation's small businesses looking to become involved, or more 
involved, in trade.

                                Summary

    The hearing, held on August 28, 2003, consisted of two 
panels: Panel one was comprised of Mr. Howard Shatz, Ph.D. and 
Mr. Jon Haveman, Research Fellows, Public Policy Institute of 
California, San Francisco, CA. The second panel was made up of: 
Mr. Adalberto Quijada, Deputy District Director, United States 
Small Business Administration, Los Angeles, CA; Ms. Julie Anne 
Hennesy, Director, West Los Angeles Export Assistance Center, 
United States Department of Commerce, Los Angeles, CA; Mr. 
Lawrence Spinelli, Ph.D., Director of Communications, Overseas 
Private Investment Corporation, Washington, DC; Mr. Greg Davis, 
Director of Economic Development, Office of the Governor of 
California, Sacramento, CA; Mr. David Josephson, Western 
Regional Director, Export Import Bank, Long Beach, CA; and Ms. 
Patricia Unangst, Executive Director, Workforce Investment 
Network Board, Carson, CA.
    Both Drs. Shatz and Haveman detailed numerous statistics on 
the current slate of free trade agreements, including the 
completed Chilean and Singapore Free Trade Agreements, as well 
as those currently being negotiated, such as the Free Trade 
Area of the Americas and the Central American Free Trade 
Agreement. By and large, both gentlemen noted that free trade 
agreements were good for our national economy, but less so for 
California and Southern California in particular.
    All of the witnesses on the second panel, with the 
exception of Ms. Unangst, documented the specific programs 
available through their agencies designed to help small 
businesses become involved in exporting. All government 
witnesses stayed following the hearing to answer any questions 
from the audience regarding any programs mentioned to help 
maintain an open dialogue with the community. In her testimony, 
Ms. Unangst offered three suggestions to help ensure fair and 
equitable trade: (1) the federal government must work better 
with state and local agencies to coordinate services; (2) when 
considering trade policy, Congress must consider the impact on 
local employment; and (3) funding needs to be available to 
agencies to deal with various issues affecting the workforce.
    For further information about this hearing, please refer to 
Committee publication #108-33.
            7.5.6  federal prison industries effects on the u.s. 
                    economy and the small business environment, joint 
                    subcommittee hearing with the subcommittee on 
                    workforce, empowerment and government programs and 
                    the subcommittee on tax, finance and exports
    Please refer to the summary set forth in 7.3.7, supra.
    For further information about this hearing, please refer to 
Committee publication 108-39.
            7.5.7  the august 14, 2003 blackout: effects on small 
                    business and potential solutions

                               Background

    By far, the worst blackout in our nation's history, hitting 
numerous areas of the Northeast and Midwest of the United 
States and Canada, this blackout served as a stark reminder of 
the importance of electricity in our society. This 
unprecedented event posed severe threats to the public health, 
safety, and economy of several states and two nations. The 
consequences go far beyond the personal inconvenience of 
lights, refrigerators, and air conditioning. Emergency services 
were disrupted, sensitive security systems were knocked off-
line, and the general disarray that followed was a severe cause 
of concern for the general public's safety. The Subcommittee 
held this hearing to examine the effects of this blackout on 
small businesses and examine what changes might be made to 
avoid future blackouts.
    According to a preliminary federal report, the blackout 
cost Americans anywhere between $4 and $6 billion in total. 
Among those hardest hit were America's small businesses. The 
problems caused were not simply lost perishable merchandise and 
loss of sales. Although for a small business, these troubles 
alone are not simply a blip on the revenue sheet, but numerous 
other problems continued to plague small business. For example, 
the interruption of business activity resulted in the loss of 
millions of dollars of economic activity that will not be fully 
recouped through private insurance and state and federal 
programs, if at all.

                                Summary

    This hearing, held on October 8, 2003, consisted of one 
panel: Ms. Patricia Orzano, Owner, 7-11 Massapequa, NY; Mr. Tom 
Leonard, Vice President for Research, Progress and Freedom 
Foundation, Washington, DC; and Mr. Douglas Voda, Senior Vice 
President and General Manager, Automation Technologies Division 
of ABB, Inc., Allentown, PA.
    As a small business owner, Ms. Orzano detailed the 
difficulties she faced both during the ``complete bedlam'' in 
the store immediately following the blackout, to the problems 
she was facing this day, nearly two months following. Ms. 
Orzano stated that 3% of her entire inventory was destroyed. 
Initially, the 7-11 corporation indicated that the company 
would cover the costs through their own blanket liability 
insurance. However, several days following the blackout, the 7-
11 Corporation informed her that the insurance would not cover 
the food spoilage. At best, she claimed, the 7-11 Corporation 
would file a claim on her behalf in a future class action 
lawsuit against her energy companies.
    Mr. Leonard focused his testimony on policy that would 
ensure greater reliability in our electricity grids. By moving 
toward a more competitive, more flexible electricity market, 
costs will drop and reliability will increase.
    Mr. Voda stated in his testimony that ABB, Inc., along with 
several other power technology companies, have produced 
technology that could have limited the impact of the blackout 
to a more local area. That technology, known as Wide Area 
Measurement Systems (WAMS), utilizes Global Positioning System 
satellite signals to very accurately create measurement 
information and perform analysis on system conditions and 
indicate if system instability conditions are beginning to 
occur. The technology also allows operators to monitor 
neighboring grids, giving them additional minutes to react to 
prevent the disturbance from spreading.
    Although the technology is relatively inexpensive, Mr. Voda 
stated that power companies are reluctant to install WAMS 
because there is no real incentive for them to do so as they 
face no real repercussions for blackouts. Additionally, Mr. 
Voda suggested that the threat of legal action could also be 
hampering distribution of WAMS because voluntarily shutting 
down a power grid due to a perceived problem nearby, when no 
such shutdown was warranted, could leave the power companies 
open to lawsuits.
    For further information about this hearing, please refer to 
Committee publication #108-40.
            7.5.8  h.r. 1818, the workforce health improvement program 
                    act: healthy employees, healthy bottom line

                               Background

    Sixty percent of all Americans are physically inactive, and 
that contributes significantly to the growth in our Nation's 
obesity rate to where it is today, near epidemic proportions. 
The Centers for Disease Control and Prevention, the Rand 
Corporation, the Surgeon General and countless other experts 
consistently document that obesity, often exacerbated by this 
lack of physical activity, is in fact, the number one health 
problem in the United States today.
    The Workforce Health Improvement Program Act, (the WHIP 
Act), introduced on April 11, 2003 by Congressman Patrick 
Toomey, aims to take a significant step towards encouraging the 
use of fitness centers, which in turn would lead to a healthier 
population, which would in-turn decrease health care costs, 
reduce government spending, and help prevent debilitating 
illnesses.
    The approach the WHIP Act takes is prevention. Under 
current federal tax law, the value of on-premises athletic 
facilities that are provided by employers to their employees 
are not counted as employee income. However, if an employer 
does not have the resources to build facilities on premises, 
but instead provides health club services to employees at an 
off-site facility, the value of that benefit is included as 
taxable income to the employee. The WHIP Act would stipulate 
that this wellness benefit would be excluded and not considered 
taxable income for the employee.

                                Summary

    The hearing, held on July 8, 2004, consisted of one panel 
comprised of: Mr. John McCarthy, Executive Director, 
International Health, Racquet, and Sportsclub Association, 
Boston, MA; Edwin Foulke, Esq. Jackson Lewis, LLP, Greenville, 
SC.; Mr. John Brinson, Owner, Lehigh Valley Racquet and Fitness 
Centers, Allentown, PA; Mr. David Fehrmann, Director, Brand 
Standards and Operating Systems, USA Management, Inc., 
Washington, DC; and Ms. Karen Silberman, Executive Director, 
National Coalition for Promoting Physical Activity, Washington, 
DC.
    Mr. McCarthy was up first and provided an overview of the 
WHIP Act and stated that healthcare costs are spiraling out of 
control, driven in large part by the unhealthy lifestyles of 
many Americans. Mr. McCarthy argued that the tax code creates 
an unleveled playing field for employees working for small 
businesses who cannot provide an on site fitness facility.
    Mr. Foulke focused on the benefits of this legislation on 
employers, as they are not unaffected by a ``heavy'' workforce. 
Extra pounds are having serious ramifications relating to 
health care costs, productivity, absenteeism, workplace 
injuries, morale, and potential employee discrimination. Mr. 
Foulke estimated that employers lose approximately $12.7 
billion per year because of poor lifestyle choices by 
employees. Direct costs of obesity include higher medical 
insurance rates, hospitalization, physician visits, outpatient 
testing/treatment, lab work and medication.
    Mr. Brinson centered his testimony on the legislation's 
effect on the relationships fostered between small and medium 
sized companies and fitness centers. Specifically, the added 
hassle and paperwork associated with providing the additional 
wellness benefit, citing the 1099 form that must be provided to 
employees to fill out their tax return. On several occasions, 
Mr. Brinson noted, that he had started working relationships 
with small and medium businesses to have their employees work 
out at his centers, however, once Mr. Brinson informed the 
employer he must provide the additional forms, the employer 
decided against forming a partnership with Mr. Brinson's 
business, simply because of the hassle it could cause.
    Mr. Fehrmann is in the hospitality business and his 
company, USA Management, Inc., has several offices and 
restaurants all of the Washington, DC metro area. Even if they 
could provide an on-site facility for their employees, the 
location would be difficult for some employees to get to. USA 
Management currently provides a wellness benefit for its 
employees as they feel that because of the frenetic pace of the 
hospitality industry, a healthy and fit employee serves the 
company better than an unfit employee.
    Ms. Silberman focused health benefit of the WHIP Act, 
citing the alarming rate of obesity, chronic disease and 
inactivity in the United States. Ms. Silberman surmised that 
one of the best delivery systems to incorporate physical 
activity into a lifestyle is through the workplace. Although 
not a cure-all, the WHIP Act provides flexibility and incentive 
to both employers and employees to make physical activity a 
part of their daily routine.
    For further information about this hearing, please refer to 
Committee publication 108-71.

7.6  Summaries of the Hearings Held by the Subcommittee on Rural 
        Enterprises, Agriculture and Technology

            7.6.1  litigating the americans with disabilities act

                               Background

    On April 8, 2003, the Rural Enterprise, Agriculture and 
Technology Subcommittee held a hearing to discuss the concerns 
of small business owners as they struggle fully understand and 
comply with the confusing provisions of the Americans with 
Disabilities Act (ADA).
    In 1990, Congress overwhelmingly passed this landmark 
legislation. Because of the vagueness in the way this 
legislation was written, it has opened up a wave of lawsuits. 
According to the CATO Institute, employers prevailed in over 90 
percent of Title I cases. The hearing also focused on H.R. 728, 
the ADA Notification Act, introduced by Representative Mark 
Foley. HR 728 allows a 90-day grace period for businesses to 
correct and become ADA compliant before a civil suit can be 
filed. Many businesses have thought they were fully ADA 
compliant only to find themselves the victims of a lawsuit for 
a small infraction that could easily be corrected.

                                Summary

    The hearing consisted of two panels. The first panel 
consisted of the Hon. Mark Foley (R-FL). The second panel 
included: Mr. Ron Richard, Owner, Carl Richard Bowling Centers, 
Joplin, MO; Mr. Robert L. Fleckenstein, President, Summit 
Contractors, Inc., Jacksonville, FL; Mr. Kevin Maher, Vice 
President for Government Affairs, American Hotel and Lodging 
Association, Washington, DC; Mr. Brendan Flanagan, Legislative 
Representative, National Restaurant Association, Washington, 
DC; Mr. Steven Rattner, DDS, College Park, MD; and Mr. John E. 
Garber, President & CEO of Garber & Associates, LLC, 
Harleysville, PA.
    Representative Foley spoke of a rash of lawsuits that have 
hit Florida, California and Hawaii by a handful of lawyers or 
``drive-by lawsuits'' targeting small businesses that believe 
they have complied with ADA structural rules and then are hit 
by lawsuits. While ADA does not allow plaintiffs to win 
damages, it does award legal fees to attorneys and unscrupulous 
attorneys have used this vehicle to ``shake down'' businesses. 
Representative Foley cited several cases including the case of 
a wheelchair store whose owners were both handicapped. Rather 
than just have a few handicapped parking spaces, the owners 
decided to make all the parking places handicapped and were 
sued for not having the correct color paint to designate 
handicapped parking spaces.
    All the witnesses supported the goal of the Americans with 
Disability Act and agreed that businesses that intentionally 
did not comply with this legislation should be punished. The 
first four witnesses on the second panel all testified to the 
confusion surrounding structural compliance with ADA, saying 
that most small businesses make every effort to be in 
compliance, but that state and local codes are not themselves 
compliant with federal ADA regulations. Ron Richards testified 
that he knew of bowling alleys that were sued because the ramps 
were a degree or two off regulation. Robert L. Fleckenstein 
stated that his company was being sued because they were 
building multi-family residential units that were built to the 
specifications of the engineer, but yet under the statute his 
company is held partially responsible. Both Kevin Maher and 
Brendan Flanagan explained that members of their associations 
have been hard hit by lawsuits while trying to comply with ADA 
because of the vagueness of the statute.
    Dr. Rattner disagreed with any weakening of the Americans 
with Disabilities Act as it was originally passed in Congress, 
saying that it had been 13 years since it had become law and 
businesses had had enough time to comply with the statute.
    Mr. Garber testified that ADA protects individuals with 
disabilities from discrimination in the workplace. Under the 
ADA, a recovering or rehabilitated drug or alcohol abuser is 
covered as an individual with a record of impairment, and thus 
protected; however, the current use of alcohol or illegal drugs 
is not. Organizations, therefore, can have policies that 
prohibit the possession of drugs and alcohol in workplace. 
There is much confusion for employers trying to comply with 
state and federal employment laws; much of which concerns the 
intersection of various laws and the myriad legal remedies 
available to disgruntled employees.
    For further information on this hearing, refer to Committee 
publication #108-7.
            7.6.2  traversing the twists and impacts of the highway 
                    beautification act upon small businesses

                               Background

    The Rural Enterprise, Agriculture and Technology 
Subcommittee held a hearing on Thursday, May 15, 2003, to 
discus the impact of the Highway Beautification Act on small 
businesses across America. The Highway Beautification Act of 
1965 (HBA) was passed by Congress and signed into law by 
President Lyndon Johnson in order ``to insure effective control 
of billboards along our highways.'' This law controls outdoor 
advertising along Interstate and federal-aid primary highways. 
HBA does allow for billboards in commercial and industrial 
areas as zoned, but mandates a state compliance program 
including the development of state standards and promotes the 
removal of illegal signs. States and localities are free to 
enact stricter standards than the federal regulations. However, 
this law failed to take into account its affect on small 
business, particularly in rural areas that rely heavily on 
billboard advertising. Additionally, in rural areas, billboard 
advertising is the most economically efficient advertising 
available to small businesses.

                                Summary

    There was one panel of witnesses who testified: Ms. Sarah 
Kothe, Owner, House of Os Bed & Breakfast, Salisbury, MO; Mr. 
Charles R. Taylor, Ph.D., Professor of Marketing, Villanova 
University, Villanova, PA; Mr. Chris Byrns, Counsel, Defenders 
of Property Rights, Washington, DC; Mr. David Gorin, President, 
David Gorin and Associates, McLean, VA; Mr. John P. Eck, Owner, 
Servicetown Travel Plaza, Fredericksburg, VA; Mr. Joe Martin, 
Owner/Operator, Best Western Mark Motor Hotel, Hampton Inn & 
Suites, Stillwater, OK; and Ms. Meg Maguire, President, Scenic 
America, Washington, DC.
    Sarah Kothe testified that she had placed a small outdoor 
sign to advertise her bed and breakfast in rural Missouri. She 
was later ordered to remove the sign and told that because her 
business was in a rural area with no commercial zoning and the 
sign was not on contingent land, she could not advertise with 
an outdoor sign. Because she has no means of advertising her 
business has been dramatically reduced.
    Professor Charles Taylor testified regarding his expertise 
in the area of advertising and explained that billboards 
produce great results for rural small businesses. In his 
studies of billboard advertising, 80 percent of businesses that 
utilize billboards to advertise say they would experience a 
significant loss of business if they were forced to remove 
these signs.
    Chris Byrns testified to his organizations concern over the 
loss of property rights to the government through the HBA ban 
on outdoor billboard advertisements. He cited the vital link 
between the freedom to advertise and a free-market economy.
    David Gorin testified that billboard advertisement is the 
most effective source of advertising that the members of the 
National Association of RV Parks and Campgrounds have 
experienced. He further stated that in the travel industry, 80 
percent of travel is on U.S. highways and travelers select 
stopping places for stays and meals 30 to 60 minutes prior to 
stopping.
    John Eck testified to the significance of billboard 
advertisement for the travel plaza industry, citing statistics 
from owners who use billboards, that the removal of billboard 
advertisement causes a 15 percent to 25 percent decrease in 
business. Travel plazas rely heavily on billboard advertisement 
as their main advertising vehicle.
    Joe Martin representing the American Hotel and Lodging 
Association also spoke of how heavily individual hotel and 
motels relied on billboard adverting to draw in travelers.
    Meg Maguire testified as the witness for the minority that 
while the HBA was passed and restricted billboard 
advertisement, billboards have actually proliferated through 
the years since passage of this legislation. She further stated 
that this legislation should be properly enforced and 
strengthened to preserve the intent of it and to ensure 
American highways are littered with ``junk signs.''
    In sum, the Subcommittee learned that rural small 
businesses--particularly those in the travel and tourism 
industry--rely heavily upon billboard advertisements. 
Regulators should examine the impact upon small business and 
propose alternative solutions that will mitigate the affect 
upon small business prior to removing a billboard to comply 
with the HBA.
    For further information on this hearing, refer to Committee 
publication #108-16.
            7.6.3  endangered farmers and ranchers: the unintended 
                    consequences of the endangered species act

                               Background

    On July 17, 2003, the Rural Enterprise, Agriculture and 
Technology Subcommittee held a hearing on to discuss the plight 
of small farmers and ranchers as they struggle comply with 
provisions of the Endangered Species Act (ESA), particularly 
the designation of ``critical habitat.'' The Endangered Species 
Act took effect in 1972 to protect animals like the bald eagle. 
Today there are over 1,200 species that have the protection of 
federal law. However, only 25 species have ever been de-listed. 
Many farmers and ranchers have become victims of this law 
because they cannot fully utilize their land due to 
restrictions imposed on them by ESA.

                                Summary

    There were three panels that testified before the 
Subcommittee. The first panel consisted of the Hon. Richard 
Pombo (R-CA). The second panel consisted of the Hon. Harold 
Manson, Assistant Secretary for Fish, Wildlife and Parks, 
Department of Interior, Washington, DC; and the Hon. Thomas 
Sullivan, Chief Counsel for Advocacy, United States Small 
Business Administration, Washington, DC. The third panel 
included: Mr. Tom Waters, Orrick, MO; Mr. John V. Hays, Owner, 
Rouse Bros. Ranch, Unity, OR; Mr. Robert Gordon, Director, 
National Wilderness Institute, Washington, DC; and Mr. Michael 
J. Bean, Attorney, Environmental Defense, Washington, DC.
    Representative Pombo testified that he supported revisions 
to the Endangered Species Act. He further told of his own 
experience trying to build a ranch on acres of property he 
already owned in California that was classified as critical 
habitat.
    Harold Manson testified that in 30 years of implementing 
the ESA, the Fish and Wildlife Service (FWS) has found that the 
designation of statutory critical habitat provides little 
additional protection to most listed species, while consuming 
significant amounts of conservation resources. The Service's 
present system for designating critical habitat is driven by 
litigation rather than biology, limits its ability to fully 
evaluate the science involved, consumes enormous agency 
resources, and imposes huge social and economic costs.
    Thomas Sullivan testified of his concern that the FWS is 
the proposed designation of critical habitat for the pygmy owl 
published by the Service on November 27, 2002. He explained 
that the FWS had introduced critical habitat restrictions 
without affording small entities notice and an opportunity to 
comment as required by law.
    His office conducted outreach after the proposal and 
learned that the Service had not incorporated the concerns of 
small ranchers, miners, homebuilders, and others into its 
threshold analysis as to whether the rule would affect small 
businesses.
    Tom Waters testified that privately owned lands provide 
habitat for approximately 76 percent of all species listed 
under the Endangered Species Act. He further stated that if the 
FWS believes a farmer's basic agricultural practices have 
disturbed an endangered or threatened species, he could face 
fines or imprisonment. With its prohibitions against ``taking'' 
a species or disturbing habitat, the ESA often results in 
restrictions on what farmers and ranchers can do on their 
private lands.
    John Hays told of meeting with the U.S. Forest Service 
(USFS) to discuss the future of his grazing allotment and that 
he was concerned his animal unit months (AUMs) would be 
severely reduced due to an endangered species, the Canadian 
lynx. However, the lynx had never been found on his allotment 
and did not even reside within his geographic area of the 
state. He explained that the USFS Resource Staff Advisor stated 
that parts of his allotment had been determined to be lynx 
habitat, even though the USFS ``did not think there were any 
lynx in the area, but that they are required to manage for lynx 
anyway.''
    Robert Gordon spoke of the disincentives that the 
Endangered Species Act has fostered and stated that it is a 
bureaucratic machine and its fruits are paperwork, court cases 
and fines, not conserved and recovered endangered species. In 
the 30 years the Endangered Species Act has been in on the 
books, it has almost never brought about the recovery and de-
listing of an endangered species. He further stated a prejudice 
that species are far more likely to be listed as endangered if 
they reside in the western part of the country than in the 
eastern United States.
    Michael Bean spoke of his support for safe harbor 
agreements that allow landowners to enhance, restore, or create 
habitat for endangered species without incurring new or 
additional regulatory restrictions, citing successful cases in 
North Carolina and Texas. Further, he stated that the FWS 
should make it far easier for landowners to enter into these 
agreements.
    For further information on this hearing, refer to Committee 
publication 108-26.
            7.6.4  the future of rural telecommunications: is the 
                    universal service fund sustainable?

                               Background

    On September 25, 2003 the Subcommittee held a hearing to 
discuss the future of rural telecommunications. The concept of 
universal phone service for rural America was one of the 
bedrocks of the telecommunications industry and first 
introduced in the Communications Act of 1934. When Congress 
passed the 1996 Telecommunications Act, it re-affirmed its 
support for universal service for rural America, providing for 
quality and affordable telecommunications services that are 
comparable with urban areas. The underpinnings of the 1996 Act 
are competition and universal service. The Rural Incumbent 
Local Exchange Carriers (ILECs) have delivered universal 
service to rural consumers and provide the infrastructure and 
high-quality telecommunications service to remote, sparsely 
populated areas that for these very reasons cost considerably 
more than urban areas. The FCC established the Universal 
Service Fund (USF) for the purpose of cost recovery for high-
cost carriers.
    In the 1996 Act, the Universal Service Fund (USF) was 
codified into law and allowed for more than one local carrier 
through the designation of an Eligible Telecommunications 
Carrier (ETC) and also would be eligible for universal service 
support. While the 1996 Act expected ``competitive 
neutrality,'' critics claim that there are no established rules 
or regulations defining the level of service an ETC must 
provide, or when it is the public interest to have competition, 
or whether every area can support more than one carrier. Since 
1999, there have been numerous ETC designations that allow for 
these companies to access the USF. This hearing examined 
whether sufficient mechanisms were in place to allow for the 
long-term sustainability of the USF.

                                Summary

    There were two panels of witnesses that testified. The 
first panel consisted of the Hon. Kathleen Abernathy, 
Commissioner, Federal Communications Commission, Washington, 
DC. The second panel included: Mr. Robert Williams, Owner, 
Oregon Farmers Mutual Telephone Company, Oregon, MO; Mr. Tom 
Attar, Vice President for Corporate Development, Highland 
Cellular, Inc., Beckley, WV; Mr. Brian Staihr, Ph.D., Senior 
Regulatory Economist, Sprint Corp., Kansas City, MO; Mr. 
Michael Balhoff, Managing Director Telecommunications Research, 
Legg Mason, Baltimore, MD; and Glenn Brown, President, McLean 
and Brown, Sedona, AZ.
    Commissioner Abernathy spoke of the goals of the 
Telecommunications Act of 1996 that were high-quality 
telecommunications services to all Americans at affordable 
rates. The 1996 Act directed the FCC to promote two key goals 
that at times appear to be in tension with one another: opening 
local markets to competition and preserving universal service. 
To help rural areas, Universal Service Fund was created. 
Because federal universal service contributions under existing 
rules are assessed only on interstate revenues from end-user 
telecommunications services, this shrinking of the applicable 
revenue base has contributed to a steady rise in the 
contribution factor over time--it has increased by more than 
six percentage points over the last six years.
    Bob Williams testified that the high-cost universal service 
program has been put at great risk largely due to ill-advised 
decisions made by federal and state regulators governing 
eligibility for high-cost support. He further stated that 
Congress needs to exercise vigilant oversight of the process 
for designating Eligible Telecommunications Carriers (ETCs) in 
areas served by rural telephone companies in order to ensure 
the long-term sustainability of the Universal Service Fund.
    Tom Attar stated that the landline industry has reaped the 
benefits of the Universal Service Fund (USF) for decades. At 
the same time the wireless industry has been contributing to 
the fund for over six years and has only started receiving 
money out of the fund in the past couple years. He further 
stated that his company believes that these smaller communities 
have a critical need for coverage within small towns, a need 
which will not be met by national providers focused on 
metropolitan areas.
    Dr. Staihr stated that sustainability of the fund is most 
directly affected by who pays into the fund, and what those 
payments are based on; and by a determination of who can draw 
out of the fund, and what those payments support. The current 
mechanism for paying into the fund is broken and must be fixed. 
The federal universal service fund was designed to co-exist 
with competition. One cannot be sacrificed in favor of the 
other. Competitive neutrality is a necessary component of any 
proposed ``fix'' to the contribution mechanism of the federal 
universal service fund.
    Michael Balhoff testified that the current contribution 
system appears to be precariously overextended. He stated that 
the introduction of USF payments that began in 2001, to 
carriers other than the incumbent local telephone company, are 
creating many problems. He stated there exists an uneven 
playing field between the incumbent carrier and the wireless 
carriers due to the reduced set of obligations for the wireless 
compared with those imposed on the incumbent.
    Glenn Brown testified Eligible Telecommunications Act (ETC) 
designation is being too easily designated to wireless carriers 
which allows them to access the Universal Service Fund and yet 
they do not have to meet the same criteria as incumbent local 
carriers. Further he stated that wireless carriers have built 
networks in rural areas, but generally along main highways 
where it is less expensive and not throughout all rural areas. 
As more wireless companies access these funds, it is placing a 
stress on a limited resource and could well bankrupt the system 
if it isn't remedied.
    For further information, please refer to committee 
publication #108-38.
            7.6.5  challenges that small businesses face accessing 
                    homeland security contracts

                               Background

    On October 21, 2003, the Subcommittee on Rural Enterprises, 
Agriculture and Technology held a hearing to discuss the 
challenges that small businesses encounter trying to secure 
contracts with the Department of Homeland Security. Annually, 
the federal government spends over $200 billion on goods and 
services purchased from the private sector. The Department of 
Defense is by far the largest federal marketplace accounting 
for over $120 billion in prime contract awards or more than 60 
percent of federal procurement dollars. Historically, small 
businesses have faced many barriers accessing federal 
procurement contracts. Congress has set statutory goals for all 
agencies that 23 percent of all prime contracts must be given 
to small businesses, yet that benchmark has not always been 
achieved.
    On January 24, 2003 the Department of Homeland Security 
(DHS) became a reality. However, there have been concerns that 
many of these contracts are awarded to large corporations and 
that many small businesses have been shut out of the process. 
Historically, small business has been more productive and 
technologically innovative than their large business 
counterparts. Additionally, small business has frequently been 
able to provide better goods and services at lower prices then 
their larger competitors.
    More procurement opportunities for small business has also 
been a goal of the President. He said in a speech to women 
entrepreneurs in 2002, ``. . . whenever possible, we are going 
to break down large federal contracts so that small business 
owners have got a fair shot at federal contracting.''

                                Summary

    There were two panels that testified before the 
Subcommittee. The first panel consisted of Mr. Michael Barrera, 
Acting Associate Deputy Administrator for Government 
Contracting and Business Development, United States Small 
Business Administration, Washington, DC and Kevin Boshears, 
Director, Office of Small and Disadvantaged Business 
Utilization, Department of Homeland Security, Washington, DC. 
The second panel included: Mr. Daniel Lane, CEO, EMCOM Project, 
Independence, MO; Mr. Benjamin M. Brink, CEO, Data Search 
Systems, Inc. St. Louis, MO; Mr. Tim May, CEO, Advanced 
Interactive Systems, Seattle, WA; Ms. Patricia Driscoll, 
Frontline Defense Systems, Washington, DC; and Ms. Marian 
Sabety, President and CEO, Flywheel Group, Washington, DC.
    Michael Barrera explained to the Subcommittee that the SBA 
works with all federal agencies to assist them in meeting the 
23 percent prime contracting goals for small business, 
including the Department of Homeland Security. He stated that 
DHS has proposed an aggressive subcontracting goal of 40 
percent for small business.
    Kevin Boshears testified that DHS was committed to the 
President's small business agenda including efforts to avoid 
unnecessary contract bundling or contract consolidation. He 
further stated that in his position as Director of the Office 
of Small and Disadvantaged Business Utilization, he was 
committed to maximizing opportunities for small business. He 
also stated that DHS was establishing several non-traditional 
small business goals.
    Daniel Lane testified that his company Emcom has produced a 
communications device that interfaces with every other 
communication device from cell phone to pagers and others that 
could be used to alert people about emergencies, particularly 
first responders. Emcom has numerous contracts with state and 
local governments, but despite their repeated attempts, he has 
not been able to set up meetings with officials in DHS with 
regard to his product.
    Ben Brink testified that while his company had not pursued 
contracts with DHS, his past experience with government 
contracting was not good. He explained the difficulty a small 
business has dealing with government contracting, particularly 
being paid on time.
    Tim May illustrated the difficulties that small business 
subcontractors face. Even though they successfully fulfilled 
their commitment to DHS through a large prime vendor, they had 
very little contact with DHS so that it did not help them in 
their marketing for future contracts.
    Patricia Driscoll testified that while her business has had 
numerous contracts with high levels of government with very 
sensitive security clearances, they have had enormous 
difficulty securing a contract from DHS, despite their track 
record.
    Marian Sabety testified to the problems she has encountered 
with the Transportation Security Administration (TSA). Despite 
having several contracts with DHS, her company submitted a 
proposal to TSA following their request for new technologies. 
Her company repeatedly made follow up attempts, but have heard 
nothing back. Additionally, she noted that TSA is exempted from 
following the 23 percent small business contracting goals, 
making it even more difficult for a small business to secure a 
contract with them.
    In sum, the Subcommittee concluded that small businesses 
still have difficulty in selling to the Department of Homeland 
Security and encouraged representatives from DHS and SBA to 
follow-up on the complaints heard at the hearing. For more 
information, refer to Committee publication #108-43.
            7.6.6  a small business component to the federal flight 
                    deck officer program--it's a win-win scenario, 
                    field hearing, paulden, az

                               Background

    The Rural Enterprise, Agriculture and Technology 
Subcommittee held a field hearing on Thursday, January 15, 2004 
at the Gunsite Academy, Inc. in Paulden, Arizona. The purpose 
of this hearing was to hold a forum to discuss full 
implementation of the Federal Flight Deck Office (FFDO) program 
to include a small business component. The Transportation 
Safety Administration (TSA) announced its plan for 
implementation of the FFDO program with no private sector 
contributions. However, there are private training facilities 
that can provide crucial knowledge and expertise to TSA that 
should be utilized. Small businesses can play a critical role 
in the goal of increasing the number of commercial and cargo 
pilots trained as FFDOs.
    TSA currently faces a backlog of training an estimated 
35,000 pilots. Private training facilities could play an 
invaluable role in assisting TSA and should be incorporated 
into their program and particularly their re-certification 
program. By increasing the number of facilities eligible to 
train Federal Flight Deck Officers, we will ensure that pilots 
who choose to protect themselves and their aircraft from 
potential terrorists threats have the ability to do so. The 
FFDO program could serve as an example of how the government 
can work with small business to protect our nation in the War 
on Terrorism. It's a win-win scenario.

                                Summary

    There was one panel that consisted of Mr. Owen Mills, 
President & CEO, Gunsite Academy, Paulden, AZ; Captain Stephen 
Luckey, Chairman, National Security Committee, Air Line Pilots 
Association, International, Washington, DC; Mr. Terry Sapio, 
Pilot, Southwest Airlines; and Mr. Dean Roberts, Security 
Committee Chairman, Southwest Pilots Association.
    Owen Mills testified that his facility, Gunsite Academy, 
had the ability to train airline pilots taking part in the 
Federal Flight Deck Officer (FFDO) program. He stated that he 
believed a great deal of the training in the FFDO program could 
be done by the private sector and could be done more 
economically and efficiently. He further stated that Gunsite 
Academy already trains many law enforcement officers and 
military personnel each year, including Special Forces and Navy 
Seals.
    Captain Luckey testified that the Air Line Pilots 
Association was the first organization to call for the creation 
of the Federal Flight Deck Officer (FFDO) Program. He applauded 
the TSA for their creation of the FFDO program. He also called 
on the TSA to continue to refine the FFDO program in order to 
best utilize pilots to keep our skies and our country safe from 
terrorists.
    Captain Terry Sapio stated that he believed that the 
current FFDO program did not have enough participating pilots 
to operate as a deterrence that was envisioned by Congress. He 
stated that the FFDO program was severely hindered by the way 
that TSA had implemented the program and that many pilots who 
would otherwise take part in the program are not.
    Dean Roberts spoke of his experience going through the 
first FFDO class and being dropped from the program one hour 
prior to graduation by TSA without being given a reason. He 
felt that TSA never wanted to implement this program and was 
taking steps to minimize pilot participation.
    In sum, the Subcommittee concluded that by having private 
sector participation in the training of pilots to carry 
firearms, it would produce benefits for both homeland security 
and small business. For more information, please refer to 
Committee publication #108-49.
            7.6.7  the endangered species act's impact on small 
                    businesses and farmers, field hearing, st. joseph, 
                    mo

                               Background

    On February 23, 2004, the Subcommittee on Rural 
Enterprises, Agriculture, and Technology held a field hearing 
in St. Joseph, Missouri, to examine the devastating economic 
impact the Endangered Species Act (ESA) has had on small 
businesses and farmers. When the Endangered Species Act was 
passed in 1973, 109 species were listed as endangered. 
Currently there are over 1,200 species listed as endangered and 
250 more considered ``candidates'' for ESA listing. On December 
16, 2003, the U.S. Fish and Wildlife Service (USF&WS) issued 
their Biological Opinion on the Missouri River, which would end 
its commercial usefulness due to the mandated spring rise and 
split navigation season because of the concern over the fate of 
the piping plover, pallid sturgeon, and interior least tern. 
This decision will have a large impact on the people and 
businesses that rely on the river for day-to-day operations. 
The Army Corps of Engineers estimates economic losses of at 
least $7 million dollars to commercial navigation and grain 
terminals as a result of flows declining to below minimum 
navigation service levels.

                                Summary

    The hearing was made up of two panels. The first panel 
consisted of: Mr. Larry Cieslik, Deputy Director, Civil Works 
and Management and Chief, Missouri River Basin Water 
Management, Army Corps of Engineers, Omaha, NE; Mr. Dale Hall, 
Director, Southwest Region, United States Fish & Wildlife 
Service, Albuquerque, NM; Mr. Mike Wells, Chief of Water 
Resources, Missouri Department of Natural Resources, Jefferson 
City, MO; and Mr. Kevin Keith, Chief Engineer, Missouri 
Department of Transportation, Jefferson City, MO. The second 
panel included Mr. Blake Hurst, Vice President, Missouri Farm 
Bureau, Jefferson City, MO; Mr. Dick DeShon, Chairman, St. 
Joseph Regional Port Authority, St. Joseph, MO; Mr. Chad Smith, 
Director, Nebraska Field Office, American Rivers, Lincoln, NE; 
Mr. Bruce Hanson, MFA, Inc., Columbia, MO; and Mr. Paul Davis, 
Operator, Interstate Marine Terminals, Inc, Boonville, MO.
    Larry Cieslik testified that the Corps built and maintain 
six dam and reservoir projects on the Missouri River. He also 
said that in accordance with the ESA the Corps must (in 
consultation with the USF&WS) insure that any action taken by 
them on the Missouri River must not jeopardize the existence of 
any endangered or threatened species. The Corps entered into 
formal consultation with the USF&WS, which culminated in the 
Missouri River Biological Opinion. This opinion concluded that 
the Corps' proposed action jeopardized the pallid sturgeon, 
piping plover, and the interior least tern, which are listed as 
endangered or threatened species. Because of this finding, the 
2003 Amended Biological Opinion (BiOp) calls for a spring rise 
and for a low summer release.
    Dale Hall testified that USF&WS is the primary federal 
agency responsible for implementing the ESA. In 2000, the 
USF&WS provided the Corps with a Biological Opinion on the 
Corps' operation of dams on the Missouri River, saying their 
proposed operation would jeopardize the existence of three 
species. In 2003 the Corps requested to remove the requirements 
for the spring rise and low flows based on new data for the 
terns and plovers, as well as designation of critical habit for 
the plovers. While the piping plover and least tern had 
improved, the pallid sturgeon has not recovered.
    Mike Wells of the Missouri Department of Natural Resources 
testified that physical habitat restoration projects could be 
accomplished that would alleviate the need for drastic flow 
changes in the river. He further stated that the low summer 
flows had halted Missouri barge traffic, impacted water 
facilities that provide drinking water, and caused power plants 
that used the river for cooling to decrease their capabilities. 
Over half of the population of Missouri get their drinking 
water from the Missouri River. Additionally, the mandated 
spring rise could potentially flood low-lying communities and 
river bottom farmers.
    Kevin Keith of the Missouri Department of Transportation 
testified that both the Missouri River and the Mississippi 
River are vital to the state's economy. Further, what happens 
on the Missouri River impacts the Mississippi River. The river 
has historically been used as a navigational system and 
communities have built infrastructure and made business 
decisions based on these assumptions. The mandated spring rise 
and low summer flows have decimated barge traffic on the 
Missouri River, which was used to primarily transport 
agricultural products. These products must now be shipped on 
highways or by railroads, increasing the cost, as well as 
placing stress on these other transportation systems and 
causing more air pollution.
    Blake Hurst stated that he believed the ESA is broken and 
needs to be fixed. In his estimation, when an animal is 
considered threatened or endangered, the government acts 
without any regard or in consultation with those who own the 
land or depend on the land. The current plan for spring pulse 
(or prescribed flood) and low summer flows because of three 
species is at a great cost to all of Missouri. Instead of such 
draconian measure, the USF&WS should try and bring the 
stakeholders together to find a solution that all can live 
with.
    Dick DeShon testified that in 2002, the St. Joseph Regional 
Port Authority opened a new barge facility on the Missouri 
River. They expected to quadruple the barge traffic in 2003, 
but due to the initial river mandates, barge traffic decreased 
significantly. The ESA mandates have completely closed barge 
traffic on the river for 2004.
    Chad Smith supported the measures recommended by the USF&WS 
saying that the health of the Missouri River was in dire 
straits. The spring rise and low summer flows are meant to 
mimic the natural flow of the river before it was extensively 
dammed. He suggested that this was an opportunity to develop 
tourism centered on the river.
    Bruce Hanson testified that barge traffic closure on the 
Missouri River would cost Missouri over $22 million. Over two-
thirds of inbound fertilizer is moved by barge. In the spring, 
fertilizer moves upstream and in the summer and fall, crops are 
shipped downstream for distribution.
    Paul Davis talked of how barge traffic along the river has 
ground to a halt because a federal judge ordered the Corps to 
reduce river flows from July to September, 2003, after 
environmentalists brought suit. He stated that ESA in its 
current form has resulted in few resources being spent by 
USF&WS to save animals because the resources go to litigation. 
He further stated that the way ESA does not give incentives to 
landowners to save species, but to remove or diminish their 
habitat in order to be out from under intrusive and capricious 
regulation.
    In sum, the Subcommittee concluded that the ESA needs 
reform to promote more input from the local community to avoid 
situations that bans barge traffic on the Missouri River, which 
has devastating negative effects upon many local small 
businesses. For more information, please refer to Committee 
publication #108-54.
            7.6.8  the benefits of tax incentives for producers of 
                    renewable fuels and its impact on small businesses 
                    and farmers

                               Background

    On May 6, 2004, the Subcommittee on Rural Enterprises, 
Agriculture, and Technology held a hearing to explore the value 
of renewable fuels and the role they play in a comprehensive 
energy policy, in our economy, and in our national security. 
The purpose of this hearing was to hold a forum to discuss the 
positive impact that renewable fuels have on our economy and 
our nation's energy security and what can be further done to 
increase domestic production of renewable energy sources. 
Beginning with Organization of Petroleum Exporting Countries 
(OPEC's) oil embargo of the 1970s, American reliance on 
imported energy has caused a re-examination of energy policies. 
Energy security, a major driver of federal renewable energy 
programs, came back into play as oil and gas prices rose late 
in 2000. The terrorist attack of September 11, 2001, and the 
Iraq war of 2003 have led to heightened concern about energy 
security, energy infrastructure vulnerability, and the need for 
alternative fuels. Further, the 2001 electricity shortages in 
California, the high natural gas prices in 2003, the Northeast-
Midwest blackout of 2003 and current gas prices have brought a 
new emphasis to the role that renewable energy may play in 
producing electricity, displacing fossil fuel use, and curbing 
demand for power transmission equipment.
    Currently, the market for ethanol, which utilizes 10 
percent of the nation's corn crop, is heavily dependent on 
federal incentives and regulations. A major impetus to the use 
of ethanol has been the exemption that it receives from the 
motor fuels excise tax. Regarding bio-diesel, there are 
proposals that would provide a tax credit of up to $1.00 per 
gallon for the production of bio-diesel. Additionally, the 
Energy bill (H.R. 6) includes a renewable fuel standard (RFS) 
that would require the blending of 2.7 billion gallons of 
renewable fuel with gasoline in 2005. Most of this would be met 
with ethanol, but other renewable fuels, including bio-diesel, 
would qualify.

                                Summary

    The hearing panel consisted of Mr. Brooks Hurst, Missouri 
Soybean Association, Tarkio, MO; Mr. Charlie Hurst, Golden 
Triangle Energy, Craig, MO; Mr. Duane Adams, Cosmos, MN; Mr. 
Bob Dinneen, President, Renewable Fuels Association, 
Washington, DC; Mr. Joe Jobe, Executive Director, The National 
Biodiesel Board, Jefferson City, MO; Mr. Phillip Lampert, 
Executive Director, National Ethanol Vehicle Coalition, 
Jefferson City, MO; and Ms. Carol Werner, Executive Director, 
Environmental and Energy Study Institute, Washington, DC.
    Mr. Brooks Hurst testified that the excise tax exemption 
for biodiesel is probably the single most important legislative 
initiative in the history of the soybean industry. He expressed 
his desire for biodiesel to become a major commercial fuel, 
which would translate into approximately $148 million in 
additional farm income just in Missouri. He contends it helps 
clean the air we breathe and is better for the environment than 
petroleum-based fuel. Lastly, he testified biodiesel lessens 
the nation's dependence on foreign oil because U.S. farmers can 
grow 100 percent of the renewable fuel on their farms in 
environmentally beneficial ways.
    Mr. Charlie Hurst testified in support of the federal 
exemption of 5.2 cents per gallon of ethanol, stating it 
expands the ethanol industry and reduces the need to import 
expensive oil from the Middle East. He added that the subsidy 
is needed in order for ethanol to be a viable renewable energy 
source and would not be a drain on federal resources as 
offsetting savings in the federal farm program.
    Mr. Duane Adams supported the current ethanol and renewable 
energy programs, but saw problems in both. He stated that there 
is no energy bill yet, and any attempts to push such have been 
met with a run-around on the Hill. He testified that 
legislators need to do their job and pass an effective energy 
bill so he may go about his job of raising his crops.
    Mr. Bob Dinneen's argument was in support of Congress 
extending the ethanol tax incentive, passing H.R. 3119, the 
Volumetric Ethanol Excise Tax Credit (VEETC), and by making 
modifications to the small ethanol producer tax credit. He also 
emphasized the importance of enacting the Renewable Fuels 
Standard (RFS), which would be helpful to growing the domestic 
renewable fuels industry. He believed these steps would provide 
an economic stimulus to small business across rural America, as 
well as a step toward a more sustainable energy future for 
Americans.
    Mr. Joe Jobe also believes the passage of the VEETC and RFS 
will have a positive impact on the ethanol industry, as well as 
the biodiesel industry, both to improve our nation's energy 
security and economy. He believed, as many of the other panel 
participants, in the importance of biodiesel as an alternative 
fuel to our nation's economy at this time of all-time highs in 
oil prices.
    Mr. Phillip Lampert addressed the U.S. government's 
dominant usage of petroleum in the world market, and the 
attempts to modify this behavior to advance alternative fuel 
use. He outlined Executive Order 13149 issued by the Clinton 
administration calling federal agencies to reduce petroleum 
consumption by 20 percent by 2005 from their 1999 baseline, and 
the lack of effort to follow this directive. He called on the 
government to set an example to reduce petroleum use and find 
alternatives.
    Ms. Carol Werner testified about the three critical drivers 
fundamental to national concerns: rural economic development, 
national energy security through reduction of oil use and oil 
imports, and environmental protection through reduction of 
greenhouse gas emissions that contribute to global climate 
change. She addressed the importance of a bio-based economy 
made up of bioenergy, biobased products, and biofuels like 
ethanol and biodiesel, to lessen our dependence on foreign oil 
and reduce or eliminate the use of toxic substances harmful to 
human health and the environment.
    In sum, the Subcommittee concluded that this nation needs 
alternative sources of energy and small rural agricultural 
producers can be one large part of the overall solution. For 
more information, please refer to Committee publication #108-
63.
            7.6.9  tax incentives for homeland security related 
                    expenses

                               Background

    On Wednesday, July 21, 2004, the Rural Enterprise, 
Agriculture and Technology Subcommittee held a hearing to 
discuss various tax incentives for homeland security related 
expenses. The purpose of this hearing was to discuss the 
concerns of small business owners as they struggle to ensure 
that their businesses are adequately safeguarded. In the post-
9/11 world, numerous companies have had to make substantial 
investments in security devices to safeguard their businesses, 
employees and products from those who would use it to harm 
others. The hearing focused on H.R. 3562, ``The Prevent Act,'' 
which was introduced by Representative Bill Shuster of 
Pennsylvania. This legislation would allow businesses a tax 
credit for installation of security devices or security 
assessments for ``building security.''

                                Summary

    There was one panel of witnesses that consisted of: Mr. 
James Hyslop, President, Standing Stone Consulting, Huntingdon, 
PA; Mr. Richard Chace, Executive Director, Security Industry 
Association, Alexandria, VA; Mr. Ken Ducey, Markland 
Technologies, Ridgefield, CT; and Mr. Peter R. Orszag, 
Brookings Institution, Washington, DC.
    The first three panelists strongly endorsed Representative 
Shuster's bill that would allow tax credits for the 
installation of security devices or for security assessments, 
saying that this would help promote private sector security 
enhancement. It was noted that many small businesses did not 
fully understand the steps that were necessary to secure their 
business and ensure the safety of their employees after 9/11. 
Peter Orszag advocated a mix between tax credits and government 
mandates as an appropriate response to increase private sector 
security enhancements.
    In sum, the Subcommittee concluded that something more 
needed to be done to encourage small business to be better 
prepared for emergencies. For more information, please refer to 
Committee publication #108-75.
            7.6.10  the impact of high natural gas prices on small 
                    farmers and manufacturers

                               Background

    On Wednesday, September 22, 2004, the Rural Enterprise, 
Agriculture and Technology Subcommittee held a hearing to 
discuss the impact of high natural gas prices on small farmers 
and manufacturers. There are 60 million homes, farms, 
businesses and industries that are dependent on natural gas. 
While supplies are abundant, the supply chain has been 
significantly disrupted causing prices to be two to three times 
above historic averages. Shortages began in mid-2000 and by 
some estimates prices have increased over 80 percent. Consumers 
have been hit hard by these costs because half of all homes 
rely on natural gas. Businesses and agricultural interests have 
also been severely impacted. When energy prices go up, so do 
the costs of manufacturing, farming, transportation and all 
goods and services.
    Natural gas accounts for more than 40 percent of commercial 
energy consumption. Our government encouraged many industries 
to turn to natural gas as an inexpensive way to comply with 
clean air regulations but now they are being squeezed by high 
costs. The manufacturing sector has been hardest hit by the 
recession and while it is slowly turning around, soaring energy 
prices threaten its recovery. High natural gas prices have 
increased the cost of producing important fertilizers that 
farmers rely on for their crops. Fertilizer producers have had 
to turn to foreign imports causing prices to skyrocket. Farmers 
have been forced to decrease production by 25 percent causing 
adverse financial damage to the industry and to the economy.

                                Summary

    The Subcommittee heard from two panels. The first panel 
consisted of the Hon. Steve King (R-IA) and the Hon. John 
Peterson (R-PA). The second panel consisted of: Mr. Hal Swaney, 
Platte City, MO; Mr. Brent Rockhold, Arbela, MO; Mr. J. 
Fletcher Smoak, Chairman & CEO, Old Virginia Brick, Inc., 
Madison Heights, VA; Mr. Billy Willard, President, Willard 
Agri-Service, Frederick, MD; Mr. Peter Huntsman, Huntsman LLC, 
Houston, TX; and Mr. Bill Prindle, Deputy Director, American 
Council for an Energy Efficient Economy, Washington, DC.
    Representative King spoke of high natural gas prices 
permeating all areas of rural and agricultural economies, from 
the cost of fertilizer, which is comprised primarily of natural 
gas, to fuel costs for heating livestock and processing crops. 
Representative Peterson stated that he personally believes the 
high cost of natural gas is one of the biggest factors 
contributing to the decline in the manufacturing sector.
    Hal Swaney of the Missouri Farm Bureau and Brent Rockhold 
of the National Association of Corn Growers both spoke of the 
difficulties that farmers experience because fertilizer prices 
have spiked due to the fact that natural gas is the primary 
ingredient in nitrogen fertilizer. They also spoke of the 
number of fertilizer makers have closed their doors and no 
longer produce fertilizer.
    Fletcher Smoak cited the difficulties that his business, 
Old Virginia Brick, Inc., has encountered due to high natural 
gas prices. He encouraged the Subcommittee to look into the 
allegation that speculators have influenced the cost of natural 
gas on the New York Mercantile Exchange (NYMEX) market.
    Peter Huntsman, CEO of Huntsman Chemicals, strongly 
advocated that there should be ``stops'' in the trading of 
natural gas on the NYMEX to decrease the volatility in natural 
gas trading. He further stated that he believes there was not 
enough transparency in the market, citing that several large 
firms had been fined for illegal trading. All of the 
participants on the panel encouraged further exploration and 
drilling of natural gas; building a natural gas pipeline; and 
support of clean coal technologies.
    Bill Prindle who testified for the American Council for an 
Energy Efficient Economy encouraged energy efficiency as the 
best strategy for moderating natural gas prices and providing 
stability in the market.
    In sum, the Subcommittee concluded that there is a problem 
in rising natural gas prices, which hurts small agricultural 
producers and manufacturers, and that the federal government 
has a role to play in mitigating this crisis. For more 
information, please refer to Committee publication #108-77.

                                  
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