[Senate Report 108-1]
[From the U.S. Government Publishing Office]
108th Congress
1st Session SENATE Report
108-1
______________________________________________________________________
SUMMARY OF LEGISLATIVE
AND OVERSIGHT ACTIVITIES
DURING THE 107TH CONGRESS
__________
R E P O R T
of the
COMMITTEE ON
SMALL BUSINESS & ENTREPRENEURSHIP
UNITED STATES SENATE
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
January 9, 2003.--Ordered to be printed
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
One Hundred Seventh Congress
------
JOHN F. KERRY, Massachusetts, Chairman*
CHRISTOPHER S. BOND, Missouri, Ranking Member*
CARL LEVIN, Michigan CONRAD BURNS, Montana
TOM HARKIN, Iowa ROBERT F. BENNETT, Utah
JOSEPH I. LIEBERMAN, Connecticut OLYMPIA J. SNOWE, Maine
PAUL D. WELLSTONE, Minnesota** MICHAEL ENZI, Wyoming
MAX CLELAND, Georgia PETER G. FITZGERALD, Illinois
MARY LANDRIEU, Louisiana MIKE CRAPO, Idaho
JOHN EDWARDS, North Carolina GEORGE ALLEN, Virginia
MARIA CANTWELL, Washington JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri
Patricia R. Forbes, Democratic Staff Director and Chief Counsel
Emilia DiSanto, Republican Staff Director
----------
*As of June 6, 2001, Senator James Jeffords of Vermont moved from the
Republican Party to become an Independent and caucus with the
Democrats. With this change, the Democrats gained control of the Senate
and Senator John F. Kerry became the Chairman of the Committee and
Senator Christopher S. Bond became its Ranking Member.
**Senator Paul D. Wellstone was a member of the United States Senate
from the State of Minnesota from January 3, 1991, through the date of
his death on October 25, 2002. May he rest in peace.
C O N T E N T S
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Page
I. Overview.........................................................1
II. Response to Terrorist Attacks of September 11, 2001..............2
A. Assessment Meetings................................. 2
B. Legislation......................................... 3
III. Homeland Security................................................4
A. Monitoring Agencies for Use of Small Business in
Anti-Terrorism Technologies........................ 4
B. The Small Business Homeland Security Expo........... 4
C. Small Business Procurement Protections in the
Department of Homeland Security.................... 5
IV. Oversight........................................................5
A. Sale of Disaster Loans on the Secondary Market...... 6
B. Implementation of the New Markets Venture Capital
Program............................................ 6
C. Extending the New Markets Venture Capital
Fundraising Deadline for Applicants................ 7
D. The New Markets Venture Capital Tax Credit.......... 7
E. Compliance with Small Business Research &
Development Programs............................... 8
1. Growing Gap Between Resources and
Responsibilities in the SBA Office of
Technology..................................... 8
2. Publication and Finalization of the Policy
Directives for the Small Business Innovation
Research Program's Reauthorization of the 106th
Congress....................................... 8
3. The Department of Defense's Missile Defense
Agency Compliance with the Small Business
Innovation Research Program.................... 9
F. Implementation of Disaster Loans for 9/11 Small
Business Victims................................... 9
G. Extending the Application Deadline for Economic
Injury Disaster Loans.............................. 9
H. Implementation of the National Veterans Business
Development Corporation............................ 10
I. General Accounting Office Study of the National
Veterans Business Development Corporation.......... 10
J. Merchant Banking Regulations and the Small Business
Investment Company Program......................... 10
K. Contract Bundling by Defense Agencies............... 11
L. Contract Reporting Requirements for the Department
of Energy.......................................... 11
M. Application and Certification Process for 8(a),
Historically Underutilized Business Zone and Small
and Disadvantaged Business Programs................ 12
N. Presidential Nominations............................ 12
1. Hector V. Barreto, Jr........................... 12
2. Thomas M. Sullivan.............................. 12
3. Melanie R. Sabelhaus............................ 13
4. Harold Damelin.................................. 13
V. Energy and the Environment......................................13
A. Hearing: ``The Business of Environmental
Technology''....................................... 13
B. Field Hearing: ``Energy Crisis: Taking the Power Out
of Small Business''................................ 14
C. Amendment No. 3099 to the Energy Policy Act of 2002. 15
D. Amendment No. 3152 to the Energy Policy Act of 2002. 15
VI. Procurement.....................................................15
A. The Office of Small and Disadvantaged Business
Utilization........................................ 16
B. The Office of Small and Disadvantaged Business
Utilization and the Government Prime Contracting
Goal............................................... 16
C. Priority Preference and Parity for the 8(a) and
Historically Underutilized Business Zone Programs.. 17
D. Contract Bundling................................... 19
E. Small Business Team Arrangements.................... 19
F. Improving Contract Bundling Reporting Requirements
and Expanding Participation in the Historically
Underutilized Business Zone Program................ 20
VII. Technology, Research, & Development.............................20
A. Reauthorization of the Small Business Technology
Transfer Program................................... 21
B. Small Business Innovation Research Program and Small
Business Technology Transfer Program Foreign Patent
Protection......................................... 21
VIII.Education & Development.........................................22
A. Vocational and Technical Entrepreneurship Training.. 22
B. Native American Small Business Development.......... 23
C. Funding the Tribal Business Information Center
Program............................................ 23
IX. Disaster Loan Program...........................................24
A. Energy Disaster Assistance.......................... 24
B. Drought Disaster Assistance......................... 25
X. Regulatory Assistance...........................................27
A. Regulatory Compliance Assistance.................... 27
B. Regulatory Impacts on Small Businesses.............. 28
XI. Tax Issues......................................................28
A. Joint House-Senate Small Business Committee
Roundtable on Tax Agenda for Small Business........ 28
B. The Affordable Small Business Stimulus Act of 2001.. 29
C. The Single Point Filing Act......................... 30
D. The Business Retained Income During Growth Expansion
Act of 2002........................................ 30
E. The Worker Investment and Retirement Education Act
of 2002............................................ 31
XII. Trade Issues....................................................31
A. Seeking an Enhanced Role for Small Businesses at the
World Trade Organization........................... 31
XIII.Other Committee Initiatives.....................................32
A. Honoring Milton Stewart............................. 32
B. Slotting Allowances................................. 32
C. The Office of Advocacy.............................. 33
D. The White House Quadrennial Small Business Summit... 33
XIV. The SBA Budget and Appropriations...............................34
A. Hearing: ``SBA's Funding Priorities for FY 2002''... 35
B. Letters Sent to Government Officials................ 36
C. Hearing: ``The SBA Fiscal Year 2003 Budget and Other
Matters''.......................................... 36
XV. Federal Loan Programs and Access to Capital.....................37
A. The Microloan Program............................... 37
B. The Small Business Investment Company Program....... 38
C. Letters Regarding the 7(a) Loan Program's Subsidy
Rate Model......................................... 38
D. Roundtable: ``The 7(a) Loan Guaranty Program: A Look
at SBA's Flagship Program's Fees and Subsidy Rate'' 39
XVI. Appendixes......................................................40
A. Hearings of the 107th Congress...................... 40
1. First Session................................... 40
2. Second Session.................................. 41
B. Bills Referred to the Committee..................... 41
1. First Session................................... 41
2. Second Session.................................. 43
C. Public Laws......................................... 43
1. PL 107-50: the ``Small Business Technology
Transfer Reauthorization Act of 2001''......... 43
2. PL 107-100: the ``Small Business Investment
Company Amendments Act of 2001''............... 46
108th Congress Report
SENATE
1st Session 108-1
======================================================================
SUMMARY OF LEGISLATIVE AND OVERSIGHT ACTIVITIES DURING THE 107TH
CONGRESS
_______
January 9, 2003.--Ordered to be printed
_______
Mr. Kerry, from the Committee on Small Business and Entrepreneurship,
submitted the following
R E P O R T
Overview
The 107th Congress was one of great changes, both in
Congress and for the Nation. One major change in the Senate
during the 107th Congress occurred when Senator Jim Jeffords of
Vermont switched his party affiliation on June 5, 2001, from
Republican to Independent and caucused with the Democrats. This
changed the shared majority in the Senate to Democratic control
and on June 29, 2001, Democrats took control of committees.
With that change, Senator John F. Kerry, Ranking Member of the
Committee on Small Business, became Chairman. One of Chairman
Kerry's first acts as Chairman was to change the name of the
Committee to the Committee on Small Business and
Entrepreneurship, a title that more fully represents the
spectrum of small businesses and allows the Committee to focus
some of its efforts on the entrepreneurial spirit that fuels
the start up of fast-growing small businesses.
A great change for small businesses came with the
challenges they faced in the uncertain economy. After years of
economic increase, the robust economy was beginning to slow
down. After eight years of steady unemployment declines, rates
were beginning to increase. Economists expected the gross
domestic product, which had also been on the rise, to be
lackluster in the coming years. For the first time since
November of 1998, the Federal Reserve Board cut interest rates
in an attempt to soften the predicted economic slump. The Fed
would go on to cut rates to 1.25 percent, a 40-year low. And
while consumer confidence remained high and inflation low,
bankruptcies rose 12.8 percent in 2001 and the markets
weakened. The NASDAQ fell 21 percent in 2001, and 32 percent in
2002. To help small businesses, the Committee worked to bolster
Federal small business contracting, to strengthen SBA loan
programs, to increase and improve educational and development
resources, to ease regulatory burdens and to promote
responsible tax initiatives.
The events of September 11, 2001, marked a much greater
change for our Nation, a tragedy that affected all Americans
both personally and economically. In the months following the
attacks, unemployment rose further, economic growth continued
to decline, and many banks tightened their lending to small
business. These changes affected millions of small businesses,
causing many to go out of business and many more to experience
severe financial hardship. The Senate Committee on Small
Business and Entrepreneurship responded quickly to help these
small businesses, and the Congress enacted legislation geared
toward assisting small businesses affected by the terrorist
attacks. This difficult economic situation for small businesses
was exacerbated by Bush Administration attempts to impose
severe cuts in funding for important SBA loan programs, which
the Committee fought.
Another way our nation changed as a result of the events of
September 11, 2001, was to direct more of its focus and
resources to homeland security and the fight against terrorism.
Small businesses contribute greatly to homeland security
efforts, and during the 107th Congress the Committee helped
those businesses by promoting procurement among Federal
agencies, as well as ensuring that Federal agencies were
complying with procurement directives. The Committee held the
Small Business Homeland Security Expo to spotlight some of
those businesses whose purpose is to protect our nation. The
Committee also worked to stop contract bundling among Federal
agencies to ensure that more small businesses would have access
to these contracts, many of which are crucial to homeland
security.
In the 1990s, the number of small businesses involved with
technology increased dramatically. During the 107th Congress,
the Committee focused on a number of technology issues
including reauthorizing and implementing the Small Business
Innovation Research (SBIR) program and the Small Business
Technology Transfer (STTR) program in which small businesses
are involved with research and development for Federal
agencies.
The Committee also directed its attention to energy and
environmental issues that affect small businesses every day. In
the beginning of the 107th Congress these problems were
highlighted because the cost of energy and fuel increased
dramatically, causing small businesses' costs to increase as
well as their access to energy to diminish. Toward the end of
the Congress, many small businesses were experiencing
difficulty due to severe drought in their areas. The Committee
examined these problems, held hearings and Roundtables on the
issues, and proposed legislation to help small businesses
through these difficult times.
Response to Terrorist Attacks of September 11, 2001
Assessment Meetings
Shortly after the terrorist attacks of 9/11, Chairman Kerry
reached out to a wide array of small business trade
associations, the SBA's lending and counseling partners, and
many small businesses to assess the magnitude and scope of
their injuries. The meetings helped the Committee to identify
the needs of small businesses and what Congress could do to
mitigate losses, closures, bankruptcies and layoffs.
Among those most severely affected were the owners of small
businesses located in airports and those associated with the
tourism and hospitality industry. Those sectors were hit
especially hard because of the closure of the airports, the
drop in airline passengers, and the public's general reluctance
to travel post 9/11.
The Committee also met with Federal government officials
charged with assisting small businesses or doing business with
them through Federal procurement. In addition, the Committee
sought the views of government contractors and subcontractors
about future Federal procurement opportunities and their views
regarding the upcoming increase in Federal spending, especially
on defense. These meetings and communications resulted in
several bills, including S. 1499, the American Small Business
Emergency Relief and Recovery Act.
Legislation
The main piece of small business legislation developed in
response to the terrorist attacks was S. 1499, the American
Small Business Emergency Relief and Recovery Act of 2001.
Chairman Kerry introduced this bill on October 4, 2001, with
Ranking Member Bond. The bill, with 62 cosponsors, had broad
bi-partisan support.
The purpose of the small business legislation, S. 1499, was
to strengthen and expand access to the Small Business
Administration's loans and management counseling in order to
help small businesses meet their payments on existing debts,
finance their businesses, maintain and create jobs, and thereby
provide some stability for the economy. In addition, the bill
addressed the shrinking availability of credit and venture
capital to small businesses through traditional lenders and
investors that started before 9/11 but was exacerbated by the
attacks. Finally, this bill included provisions to aid Federal
contractors facing increased costs when trying to access
Federal facilities to work on existing contracts. In spite of
the strong bi-partisan support for the comprehensive relief
legislation, politics obstructed passage of this bill in a
timely and meaningful way.
Ultimately, Chairman Kerry, working with Senators Byrd and
Hollings, was successful in enacting and funding key provisions
of the bill as part of emergency spending and defense
legislation, H.R. 3338, the Department of Defense
Appropriations Act of 2002 and the Emergency Supplemental Act
of 2002, which became PL 107-177. Those key provisions (1)
authorized the SBA to make 7(a) emergency loans for small
business victims of 9/11th, (2)deferred payments of principle
and interest, with no accrual, on disaster loans for two years from the
date of issuance for small businesses located in the officially
declared disaster areas in and surrounding New York, Virginia and
Pennsylvania, (3) reduced for one year 7(a) lending guarantee fees from
.5 to .25 percent to reduce the cost of making the loans and to provide
an incentive for lenders to make loans to effected small businesses,
and (4) appropriated $75 million in funding to pay for the cost of
guaranteeing about $4.5 billion in 7(a) STAR Loans through the economic
injury disaster loans and 7(a) supplemental disaster loans, known as
STAR Loans. Almost 17,000 small businesses secured low-cost working
capital loans, pumping $3.95 billion into the economy.
Homeland Security
The roles of small business and the Small Business
Administration are as important to homeland security and
national defense today as they were 50 years ago when the
Agency was created. Small businesses were critical to winning
World War II, helping the U.S. quickly build up mass production
and diversify the number and location of manufacturers so that
our country's soldiers, and those of our allies, were well
supplied and not dependent on the fate of one plant. In
addition to the continuing need for the SBA to foster the
startup and growth of small businesses so that the United
States has diverse industries to fight the war on terror, small
businesses are critical to researching and developing cutting-
edge technologies for our homeland security. We need
technologies that enable us to identify and catch terrorists
before they board a flight, protect civilians from anthrax or
small pox, and provide our military with the best equipment
possible.
The country has two main Federal small business technology
programs, the Small Business Innovation Research (SBIR) and
Small Business Technology Transfer (STTR) program, through
which the government can easily identify small businesses for
these purposes. The Committee has been active in fostering
these programs, facilitating the collaborations they promote
and raising general public awareness of the contributions and
capabilities SBIR and STTR companies make.
Monitoring Agencies for Use of Small Business in Anti-Terrorism
Technologies
On November 9, 2001, Chairman Kerry, joined by Ranking
Member Bond, sent a letter to SBA Administrator Hector Barreto
regarding the SBIR and STTR programs. They requested a survey
of the participating SBIR and STTR agencies in order to assess
the role of small businesses in meeting the anti-terrorism
mission through these innovation-driven programs.
The purpose was to (1) find out which agencies were already
using the programs as a resource, (2) identify the most
significant projects, and (3) have the SBA actively encourage
participating agencies to solicit topics through the SBIR and
STTR programs for Federal anti-terrorism projects. The
Committee found that the SBIR and STTR program managers had
long been tapping into the small businesses to meet agency
missions and recognized their value, but among higher-level
officials at the agencies, including at the SBA, there was very
little focus on using this valuable resource.
The Small Business Homeland Security Expo
Reinforcing the findings from the above-mentioned survey,
small businesses and small business trade associations
contacted the Committee complaining that the Federal government
was investing billions in homeland security but contracts were
not being awarded to small businesses.
To help address this issue, Chairman Kerry and Ranking
Member Bond co-hosted the Small Business Homeland Security Expo
on July 10, 2002. The event was an exposition for small
businesses to educate members of Congress about their products
to help fight and win the war against terrorism. The Expo had
nearly 50 small businesses participating, with hundreds more
appearing in a procurement booklet containing all of the small
businesses nominated by each member of Congress. The booklet is
a resource for procurement officers in government and the
private sector to identify small business in the homeland
security field. White House Homeland Security Advisor Tom
Ridge, SBA Administrator Hector Barreto and numerous Federal
procurement personnel attended the event. Total attendance was
estimated at more than 1,000 people.
In the wake of 9/11 and the ramping up of the nation's
homeland security, procurement opportunities in the Federal
government and in the private sector were increasing quickly.
The event highlighted the significant role small businesses can
play in supporting the country's war on terror.
On the eve of the Expo, the Senate passed S.Res.264
expressing the sense of the Senate that small business
participation is vital to the defense of our nation, and that
Federal, State, and local governments should aggressively seek
out and purchase innovative technologies and services from
American small businesses to help in homeland defense and the
fight against terrorism.
Small Business Procurement Protections in the Department of Homeland
Security
On July 18, 2002, Chairman Kerry sent a letter, co-signed
by Ranking Member Bond, to Senator Lieberman, Chairman of the
Senate Committee on Governmental Affairs. The letter was a
response to Senator Lieberman's request for feedback from
Senate committee chairmen on the Bush Administration's proposal
to create a Department of Homeland Security. Chairman Kerry's
letter raised serious concerns with the procurement provisions
of the proposal, questioning why the proposed Department needed
a blanket waiver from all procurement regulations, including
those intended to strengthen the small business supply base.
In the letter, Chairman Kerry argued that such a waiver was
unprecedented and would harm small-business participation in
Federal procurement opportunities, and by extension, the fight
against terrorism, as small-business participation is essential
in this battle. Finally, the letter stressed that the Bush
proposal would likely have the opposite effect as intended and
result in delays in acquisitions and increase the potential for
fraud.
Chairman Kerry was able to include language in the Homeland
Security Department bill that eliminated the blanket waiver and
substituted a one-year procurement waiver.
Oversight
Small business is the engine of economic growth in our
Nation. However, many small businesses need assistance to gain
fair treatment by Federal government agencies, access to
capital, and better access to government contracts. Under the
rules of the United States Senate, the Senate Small Business
and Entrepreneurship Committee has jurisdiction over matters
related to the Small Business Administration (SBA). In order to
carry out these responsibilities, the Committee must
investigate all problems related to small business enterprises
and their dealings with the Federal Government.
Sale of Disaster Loans on the Secondary Market
On December 19, 2001, Chairman Kerry joined with Senators
Dorgan, Conrad, Wellstone, Congressman Pomeroy, and Delegate
Donna Christensen in sending a letter to SBA Administrator
Hector Barreto requesting that he make changes to the SBA's
Asset Sales Program with respect to disaster victims. This
became necessary because of complaints from borrowers about the
inflexibility and sometimes ruthlessness of loan collection
companies that had purchased their loans from the SBA, such as
when borrowers requested a substitute or release of collateral
or subordination of a lien position. There were attempts
throughout the Congress--in the Senate and the House of
Representatives--to enact legislation to eliminate or put a
moratorium on the sale of disaster loans in the SBA's asset
sale program, but they were routinely blocked. As an
alternative, the letter urged the SBA to buy back problematic
loans and to substitute these loans with other SBA loans. In
the response of January 29, 2002, the SBA said it was not a
feasible option to buy back problematic loans and the Agency
offered no alternative.
Implementation of the New Markets Venture Capital Program
On March 9, 2001, Senator Kerry sent a letter to Acting SBA
Administrator John Whitmore requesting a detailed schedule of
how the Agency planned to implement the New Markets Venture
Capital (MNVC) program before the funding expired on September
30th, 2001. While the SBA efficiently developed regulations
under the Clinton Administration, their effective date, along
with that of many other published regulations, was postponed
for 60 days by direction of the White House on January 20,
2001.
The firms and organizations specializing in community
development venture capital were very concerned about the
Administration's series of delays in implementing this program,
particularly since the funding was scheduled to lapse in
September, 2001, and the Administration had eliminated all
funding for the program in FY 2002, demonstrating a lack of
support for the program. The delays left applicants an
unreasonably short time frame of two months, instead of the
maximum two years allowed by statute, to raise the required
$6.5 million in matching funds to qualify. Ultimately, the
delays did have an adverse impact on the approval of applicants
and their ability to raise capital, which was a deterrent for
attracting an adequate number of applicants, triggering the
need for Congress to intervene through legislation, letters,
and meetings. On June 6, 2001, Chairman Kerry, Senator Snowe,
and 14 other senators sent a letter to Chairman Hollings and
Ranking Member Gregg of the Appropriations Subcommittee on
Commerce, Justice and State requesting a technical change to
the FY 2001 appropriations for the New Markets Venture Capital
(NMVC) program.
In order to allow the SBA to implement the program
according to Congressional intent, thereby giving applicants a
more reasonable amount of time to raise the matching funds, the
Senators requested that the FY 2001 appropriations for the
grant and debenture funds be changed to conform with the
authorizing statute, PL 106-554, allowing the funds to remain
available for obligation through 2006. The technical change was
budget neutral and the Senators' request was successfully
enacted as part of the 2001 Supplemental Appropriations Act.
Extending the New Markets Venture Capital Fundraising Deadline for
Applicants
On July 27, 2001, Chairman Kerry and Congressman Don
Manzullo, Chairman of the House Committee on Small Business,
sent a letter to Administrator Hector V. Barreto requesting
prompt implementation of the technical change enacted as part
of the 2001 above-mentioned Supplemental Appropriations Act.
This was necessary because, despite the enactment of the
appropriations change, the SBA had not given NMVC applicants
more time to raise the matching funds and would not offer a
second round of funding until the first round of applicants met
their fundraising deadlines. On August 1, 2001, the SBA
extended the time NMVCs had to raise matching funds until
January 9, 2002, giving NMVCs as much as six months.
Although the deadline for NMVC applicants to raise matching
capital was extended, the aggregate six months provided was
inadequate and not close to the maximum two years allowed by
statute and intended by Congress. The fundraising difficulties
were compounded by the economic downturn of the 9/11 terrorist
attacks, and complications with the implementation of the
complementary New Markets Venture Capital Tax credit, an
incentive for investors.
Once again, Chairman Kerry requested through meetings with
the SBA that it use its statutory authority to revise the
deadline so that NMVC applicants had up to the statutory two
years to raise the money, but the Agency refused. Chairman
Kerry then proposed an amendment to S. 1196, the Small Business
Investment Company Amendments Act of 2001, to give NMVC
companies the full two years and offer a second round of
funding in the Spring of 2002. In the end, the Committee
compromised with the Agency by agreeing to take the provisions
out of the legislation in exchange for an announcement from the
Administration to extend the deadline to December 31, 2002, and
offer a second round in the fall of 2002. As of early January
2003, the Committee was still waiting for the Administration to
offer the second round of NMVC funding.
The New Markets Venture Capital Tax Credit
On May 23, 2002, Chairman Kerry and Senator Snowe sent a
letter to Finance Committee Chairman Max Baucus and Ranking
Minority Member Charles Grassley asking for their support in
amending the New Markets Tax Credit (IRC 45D) so that New
Markets Venture Capital companies receive the same favorable
tax treatment as certified Community Development Financial
Institutions (CDFIs) and Specialized Small Business Investment
Companies (SSBICs). Currently the New Markets Venture Capital
programs do not work as effectively as they were intended to,
partly because the tax credit program does not expressly apply
to the New Markets venture capital companies. In order to be
eligible to apply for a tax credit allocation, the applicant
must first be certified as a Community Development Entity
(CDE). CDFIs and SSBICs are automatically certified, but NMVC
companies are not and must go through a lengthy application
process for certification, virtually duplicating a rigorous
review by the SBA. Excluding NMVC companies have created an
uneven playing field that makes it harder for them to attract
investors, makes the process more bureaucratic, and goes
against the intentions of Congress. To rectify this, the
Senators recommended that the statute be changed to
automatically certify NMVC companies as community development
entities. The Finance Committee agreed to include the change as
part of a comprehensive small business tax package when it acts
on one. The Committee on Joint Tax estimated that there would
be no reverse effect.
Compliance with Small Business Research & Development Programs
In the 107th Congress, the Committee on Small Business and
Entrepreneurship worked to preserve and increase the role of
small businesses in Federal research and development, mainly
through the Small Business Innovation Research (SBIR) program
and the Small Business Technology Transfer (STTR) program.
Under the Small Business Act (15 U.S.C. 638(f)(1)(C)), all
Federal agencies with extramural research and development (R&D)
budgets of $100 million or more must participate in the program
and therefore reserve at least 2.5 percent of their extramural
R&D annual budget for projects with small businesses. For
agencies with extramural research and development budgets of $1
billion or more, they must participate in the Small Business
Innovation Research program and therefore reserve at least
reserve at least .15 percent of their extramural R&D annual
budget for projects with small businesses. The Committee was
successful in 2001 and 2002 in (1) keeping all agencies
participating and in (2) keeping the programs operating under
continuing resolutions.
Growing Gap Between Resources and Responsibilities
On June 11, 2001, Chairman Kerry, with Ranking Member Bond,
sent a letter to SBA's Acting Administrator John Whitmore
regarding the Agency's Office of Technology, which administers
the STTR and SBIR programs. The purpose of the letter was to
get historical information to document the dwindling resources
in funds and staffing in the department that runs the SBIR and
STTR programs. The results showed that from fiscal years 1983-
2000, the number of awards had more than doubled from $502
million to $1.2 billion, the budget had been cut just about in
half--from $907,000 to $530,000--and the staff has been reduced
from ten to six. That number has since dropped to five, even
though the research is needed more than ever for our national
defense and homeland security.
Publication and Finalization of the Policy Directives for
the Small Business Innovation Research Program's
Reauthorization of the 106th Congress
The Committee monitored the development of these
regulations and their publication. In spite of great delays
from participating SBIR agencies and the Office of Management
and Budget in drafting the directives, Incoming Chairman Kerry
and Ranking Member Bond sent a letter to SBA's acting
Administrator John Whitmore on June 15, 2001, requesting an
extension of the comment period for at least 30 days on policy
directives for the SBIR program because the small business
community did not feel it had adequate time to respond and that
the issues, such as intellectual/data rights, were so important
more input was imperative. The Agency agreed and extended the
comment period from June 18, 2001, to July 23, 2001.
The Department of Defense's Missile Defense Agency
Compliance with the Small Business Innovation
Research Program
On January 29, 2002, Chairman Kerry and Ranking Member Bond
sent a letter to Secretary of Defense Donald Rumsfeld regarding
an amendment stealthfully included in the FY 2002 Department of
Defense Appropriations Act which attempted to exempt one of the
DoD's agencies, the Missile Defense Agency (formerly the
Ballistic Missile Defense Organization), from setting aside 2.5
percent of its extramural R&D funds for contracts with small
business concerns through the SBIR program. Instead the change
required MDA to set aside only a minimum of $75 million, which
amounted to an estimated $74 million less for small business
R&D firms through the SBIR program. The Committee wrote to
inform DoD that it was still legally required to reserve 2.5
percent of its entire extramural R&D budget for small business
concerns. If it reduced MDA's reserve below the 2.5 percent, it
would therefore have to explain from which other agencies
within the Department it would make up the difference. Though
the response was extremely late, the Committee was pleased that
the DoD agreed to comply with the overall percentage and apply
it to each of its agencies.
Implementation of Disaster Loans for 9/11 Small Business Victims
On January 16, 2002, Chairman Kerry and Ranking Member Bond
sent a letter to SBA Administrator Hector Barreto regarding
7(a) Disaster Loans. The Senators requested a detailed
description of how and when the Agency would implement the
funding and authority for 7(a) 9/11 disaster loans, also known
as STAR Loans, by January 22, 2002. Prompt implementation was
critical because these loans could be delivered through the
SBA's 5,000 private-sector 7(a) lending partners, which were
located throughout every state and would cost five times less
than economic injury disaster loans proposed by the
Administration. Originally this provision was introduced as
part of S. 1499, the Small Business Relief and Recovery Act of
2001, but the Administration opposed the loans and blocked the
legislation from passing the Senate for five months.
Ultimately, the Committee succeeded in getting the provision
authorized and funded as part of H.R. 3338/PL 107-117, the FY
2002 Department of Defense Appropriations Act. The rest of S.
1499, with changes agreed upon with the Administration, passed
the full Senate by unanimous consent on March 22, 2002.
Extending the Application Deadline for Economic Injury Disaster Loans
On May 24, 2002, Chairman Kerry sent a letter to SBA
Administrator Hector Barreto regarding the application deadline
for economic injury disaster loans related to 9/11 victims
outside of New York, Virginia, and Pennsylvania. On May 22nd,
the deadline had expired, limiting to six months the
application period despite the Administration's general
practice of allowing small business disaster victims nine
months to apply. The letter urged Administrator Barreto to
extend the filing deadline until September 30th, giving 9/11
small business victims across the country the same amount of
time to apply as disaster victims in New York, Virginia, and
Pennsylvania and the surrounding counties. Administrator
Barreto replied on May 31, 2002 that the Administration would
not extend the deadline because, among other reasons, there was
no demand for such loans. The SBA's own weekly reports
contradicted that conclusion and showed that applications were
being submitted from small businesses in all but five states.
Chairman Kerry continued to push for an extension through
discussions and meetings with the SBA and the OMB. Finally, the
SBA agreed on June 17 to extend the application period for 9/11
victims throughout the nation until September 30, 2002. Because
of the extension, about 1,600 more small businesses were able
to borrow $217 million to get their businesses operating again.
Implementation of the National Veterans Business Development
Corporation
The National Veterans Business Development Corporation was
authorized on August 17, 1999, as part of PL 106-50, and is
considered by veterans service organizations key to helping
veterans, particularly service-disabled veterans, start their
own businesses, run them more successfully, and compete for
Federal contracts. This translates into greater opportunities
for financial security and self-sufficiency. Senator Kerry
worked hard to pass PL 106-50 in the Senate, which included his
bill to provide disaster loans to reservists who own small
businesses and are called to active duty. Both he and Ranking
Member Bond consider implementation of the Corporation very
important and have played a continual role in oversight of its
development. In this Congress, Chairman Kerry and Senator
Cleland put forth an amendment, No. 3669, to H.R. 4775, the
Post 9/11 Supplemental Appropriations bill, to permit the
Corporation to retain its FY 2002 appropriation of $4 million
until expended. This amendment is critical to the success of
the Corporation as it works toward self-funding. The amendment
was maintained in conference and enacted.
General Accounting Office Study of the National Veterans Business
Development Corporation
As part of PL 106-50, the Corporation's authorizing
legislation, GAO is to conduct a study. Chairman Kerry and
House Small Business Committee Chairman Don Manzullo of
Illinois have been working with the GAO through periodic
meetings to shape the study and monitor the Corporation's
progress.
Merchant Banking Regulations and the Small Business Investment Company
Program
Chairman Kerry successfully led congressional efforts to
stop the enactment of the Federal Reserve's proposed rule
governing capital treatment for merchant banking activities
that would have negatively affected the SBA's venture capital
program, the Small Business Investment Company Program (SBIC).
The proposed Federal Reserve rule would have forced financial
institutions that either own or invest in an SBIC to deduct 50
percent of the total value of their investment from their
regulatory capital. The increased deductions were likely to
adversely impact the success of the SBIC program by
discouraging financial institutions from investing in SBICs.
This in turn would have decreased the availability of equity
capital for small business. During the 106th Congress, Senator
Kerry wrote a letter to Federal Reserve Chairman Greenspan that
was also signed by Senate Small Business Committee Chairman
Bond, House Small Business Committee Chairman Talent, and
Ranking Member Velazquez, asking that the provision that
affects SBICs be dropped. In January 2001, their efforts proved
unsuccessful when the Federal Reserve proposed new rules
governing regulatory capital treatment for equity investments
that exempted SBICs from any new capital deduction
requirements.
Contract Bundling by Defense Agencies
On March 5, 2001, Ranking Member Kerry and Chairman Bond
sent a letter to Acting Secretary of the Air Force Lawrence
Delany inquiring about the Air Force's Flexible Acquisition and
Sustainment Tool (FAST), which is a $7.4 billion bundled
contract. The letter requested detailed information about the
manner in which the Air Force intended to monitor and enforce
compliance with subcontracting plans and with the award of task
orders to small business prime contractors under FAST.
On June 26, 2002--upon learning that the Department of the
Army was establishing the Army Contracting Agency, and having
concerns that the Agency could unnecessarily bundle contracts,
eliminating the ability of small businesses to compete for such
procurement awards--Chairman Kerry offered S. Amdt. 4106 to the
National Defense Authorization Act, S. 2514. The amendment
required the Secretary of the Army to submit, during its first
year of operation, a detailed report on the effects of the Army
Contracting Agency on small business. The Amendment was
retained in the enacted version of the bill, which became PL
107-314.
Contract Reporting Requirements for the Department of Energy
In 1999, Senator Kerry and Senator Bond were successful in
compelling the Department of Energy to accurately report its
small-business prime contracting awards. Previously, the
Department of Energy incorrectly reported subcontracting awards
as prime contracting awards. In May of 2002, the Department of
Energy indicated that it would revert back to its previous,
inaccurate reporting method. On May 22, 2002, Chairman Kerry
and Ranking Member Bond sent a letter to the Energy Secretary
Abraham congratulating the Department on the recent progress it
had made in reaching out to small business, but also informing
the Secretary that a return to previous practices would be a
step backward and unacceptable. Secretary Abraham responded on
July 15, 2002 to the senators, stating that the Department
would continue to comply with the Office of Federal Procurement
Policy'ssubcontract reporting directive and that it was working
with the SBA on such matters. It also committed to increasing small
business's share of the Department's prime contract awards.
Application and Certification Process for 8(a), Historically
Underutilized Business Zone and Small and Disadvantaged
Business Programs
On February 14, 2002, after a series of communications with
small-business owners and representative organizations and
groups, Chairman Kerry wrote to SBA Administrator Hector
Barreto concerning the outdated application and certification
processes for the 8(a) and Small Disadvantaged Business (SDB)
programs at the SBA. In the letter, Chairman Kerry urged the
Administrator to use the HUBZone program's application and
certification process as a model for improving the 8(a) and SDB
application and certification processes. The Chairman was
concerned that the 8(a) and SDB programs were not being treated
equally with regard to the online application and certification
process. Kerry wrote that true equality for the programs
requires equal treatment on all levels. To better understand
the problems expressed by small businesses regarding
application and certification process for each program,
Chairman Kerry posed in the letter a series of questions to the
Administrator regarding the processes. Administrator Barreto
responded on March 14, 2002, noting that the SBA was examining
the problems with the process. The Agency also has a task force
working on streamlining the electronic version of the
application, and expects the project to be complete in the
summer of 2003.
Presidential Nominations
During the 107th Congress, the Committee on Small Business
and Entrepreneurship received four executive nominations from
the President.
Hector V. Barreto, Jr.
On July 19, 2001 the Committee held a hearing to consider
the nomination of small business owner Hector V. Barreto, Jr.
to be the Administrator of the Small Business Administration.
After careful review, the Committee voted unanimously in favor
of Mr. Barreto and on July 25, 2001, he was confirmed by a
unanimous vote of the Senate as the 21st Administrator of the
Small Business Administration. Formerly Vice Chairman of the
United States Hispanic Chamber of Commerce, Mr. Barreto lived
much of his life in California where he served on the Board of
the Latin Business Association and worked to increase the
organization's membership and revenue.
Thomas M. Sullivan
On October 16, 2001, the Committee held a hearing to
consider the nomination of Thomas M. Sullivan for the position
of Chief Counsel for Advocacy at the Small Business
Administration. A unanimous Committee vote in favor of Mr.
Sullivan moved his nomination to the Senate floor, where he was
confirmed by unanimous consent on January 25, 2002.
Mr. Sullivan was formerly with the National Federation of
Independent Businesses (NFIB) where he served as Executive
Director of the Legal Foundation as the Regulatory Policy
Council. Prior to this time at NFIB, Mr. Sullivan worked as an
attorney at the U.S. Environmental Protection Agency and the
Department of Justice.
Melanie R. Sabelhaus
On February 27, 2002, the Committee held a hearing on the
nomination of Melanie Sabelhaus to be Deputy Administrator the
Small Business Administration. Ms. Sabelhaus's nomination was
approved by the Committee and confirmed by the full Senate on
April 8, 2002.
Melanie Sabelhaus became an expert on business through her
experiences as a business owner. Formerly an executive with
IBM, she also served on the Board of Directors for
organizations such as United Way, The Alzheimer's Association
of Maryland, and the Nantucket Historical Society.
Harold Damelin
On September 3, 2002, President Bush nominated Harold
Damelin to serve as Inspector General of the Small Business
Administration. At the time, the position was still occupied by
the nominee for Inspector General of the Department of
Agriculture, Phyllis K. Fong. Because Ms. Fong's nomination had
not been acted on by the Committee on Agriculture, the
Committee on Small Business and Entrepreneurship decided not to
consider Mr. Damelin's appointment until the SBA Inspector
General's position was vacant. When Ms. Fong's nomination for
the Department of Agriculture was confirmed, insufficient time
remained in the 107th Congress for this Committee to hold a
hearing on Mr. Damelin's nomination.
Energy and the Environment
There are an estimated 25 million small businesses in this
country, and they account for more than half of all the
commercial energy used in North America. In the last couple of
years, small businesses have suffered crippling financial
hardships because of price spikes and unreliability. They could
have been saving billions if the Federal government used its
resources to (1) educate small businesses about practices that
save energy and (2) to facilitate purchases of energy-efficient
equipment. Chairman Kerry increased the Committee's focus on
the interplay between small businesses, innovation, job
creation, and the nation's environmental and energy goals.
Through hearings and legislation, he raised awareness of the
important role small businesses play as innovators and risk-
takers creating technologies to reduce consumption, pollution,
and reliance on foreign oil, as well as their role as consumers
who reduce business costs and improve efficiency by using the
innovative energy-efficient technologies. This would be
possible if the Small Business Administration, the
Environmental Protection Agency and the Department of Energy
would actively coordinate their efforts to educate small
businesses.
Hearing: ``The Business of Environmental Technology''
On August 1, 2001, Chairman Kerry held a hearing regarding
the business of environmental technology. The purpose was to
highlight the role of technological innovation in meeting
environmental goals, the role of small businesses in producing
that innovation, and issues facing small businesses in the
environmental field. The witnesses represented experts in the
energy field and the energy needs of small business.
Field Hearing: ``The Energy Crisis: Taking the Power Out of Small
Businesses''
On June 23, 2001, the Committee held a field hearing in
Seattle, Washington, to examine how the energy crisis was
affecting small businesses and the need for injured small
businesses to access working capital through the Small Business
Administration's economic injury disaster loans. On the West
Coast, the unreliability and price spikes of electricity and
natural gas hurt small businesses.
The hearing consisted of one panel with four witnesses: a
manufacturer, a restaurant owner, a utility company
representative, and an expert on energy efficiency.
Mr. Duane Britschgi, President and General Manager of Atlas
Foundry and Machine Co., one of the premier steel foundries in
North America located in Tacoma, Washington, represented the
problems facing manufacturers, such as electricity rate hikes
of 58 percent, and the savings they realized through
conservation efforts. He testified about the impact of
unregulated power rates and the subsequent energy surcharges
ranging from 45 to 75 percent. He called on the Federal
government to bring the crisis under control by capping prices
and revising national energy policy. Mr. Britschgi specifically
noted that the U.S. should not have allowed its electrical
generation capacity to fall below 10 percent, versus that of
Europe at 20 percent, because it created a severe supply and
demand issue at the slightest energy upset.
Ms. Diane Symms, President and Owner of Lombardi's Cucina
Italian Restaurant Group in Seattle, Washington, testified
about how energy intensive the hospitality industry is because
of refrigeration, air conditioning and lighting, making it
reliant upon electricity, natural gas and water. In the Seattle
region ofWashington, her company had suffered electricity cost
increases of as high as 30 percent and natural gas as high as 65
percent. She discussed the benefits of conservation, and called on the
Government to ensure a constant supply of energy and to develop new and
innovative sources of energy.
Mr. Charles Valentin, Assistant Energy Management Analyst
of the Smart Business Program for the utility, Seattle City
Light in Seattle, Washington, works directly with small
businesses to help them use electricity more efficiently. The
program is a model for how the country can increase energy
conservation through direct financial assistance to help offset
the cost of energy-efficiency upgrades and to overcome barriers
preventing businesses from making investments that provide
long-term benefits. The company has served more than 700 small
businesses, investing $1.1 million in financial incentives,
resulting in annual energy savings that are the equivalent of
powering 650 homes and saving more than $260,000 annually.
Seattle City Light has been successful because it developed a
simple rebate format that requires little paperwork and staff
time. Mr. Valentin urged the Congress to target Federal
financial assistance for energy efficient investments so that
more utilities will get involved and also to target Federal
funding for energy auditing services that help businesses
identify cost-effective energy efficient investments, changes
in operations, maintenance, and behavior.
Mr. Dave Sjoding, Acting Director of the Washington State
University (WSU) Energy Program in Olympia, Washington, is an
expert in energy efficiency and provided objective information
on energy and resource efficiency to businesses, government and
individuals. He urged the Congress to encourage the
establishment of product codes and standards that increase
energy efficiency, such as for cars, and to fund more research
and development of energy efficient technologies. All the
witnesses were extremely supportive of Congress passing S. 295,
the Small Business and Farm Energy Emergency Relief Act of
2001. Chairman Kerry advocated the witnesses' recommendations
as part of the Senate's National energy debate.
Amendment No. 3099 to the Energy Policy Act of 2002
On April 10th, 2002, Chairman Kerry, along with Senator
Landrieu, introduced this Amendment 3099 to promote energy
efficiency in small businesses. The amendment directed the
Department of Energy (DoE) and the Environmental Protection
Agency (EPA) to make a special effort to reach out to small
businesses when the agencies promote the Energy Star program.
The amendment also directed the SBA's disaster loan program and
FEMA to promote Energy Star products and directed the SBA to
work with the DoE and the EPA to help finance through the SBA's
loan programs qualified businesses that need equipment upgrades
through the SBA's loan programs. The amendment was agreed to by
a voice vote in the Senate, but the entire bill died in
conference.
Amendment No. 3152 to the Energy Policy Act of 2002
On April 18, 2002, Senator Landrieu introduced, and
Chairman Kerry cosponsored, Amendment No. 3152 to S. 517, the
Energy Policy Act of 2002. The purpose of the amendment was to
assist small businesses in becoming more energy efficient. The
amendment directed the SBA to develop and coordinate a program
that (1) educates small firms about the cost-benefits and
business advantages of being energy efficient, and (2) that
identifies financing options for energy efficiency upgrades.
The amendment also directs other Federal agencies to increase
their work with small businesses to research and develop
innovative energy efficient products. The amendment was adopted
in the Senate by Unanimous Consent, but the entire bill died in
conference.
Procurement
The Small Business Administration was officially
established in 1953--largely as a response to the pressures of
World War II and the Great Depression--to foster a strong and
varied supplier base and to help struggling small businesses
obtain a ``fair portion'' of government contracts, as well as
compete against a growing number of big businesses across the
nation. Today, the SBA and the Senate Committee on Small
Business and Entrepreneurship, in its oversight and legislative
capacities, continue to seek to improve opportunities for small
businesses in the Federal procurement arena. In the wake of the
terrorist attacks of 9/11 and with the continued fight against
terrorism, the importance of small business contracting to the
diversity and stability of our economy cannot be overstated.
While procurement reform in the early and mid'-90s
attempted to adequately protect the interests of small
businesses, contract bundling, increased use of the GSA supply
schedule, cut backs in procurement personnel, and limitations
on certain procurement programs in response to the Adarand
decision have had a devastating effect on small businesses and
their ability to do business with the Federal government.
During the 107th Congress, the Committee on Small Business and
Entrepreneurship spent much of its time addressing these
problems and working to protect and increase the role small
businesses play in the government procurement process.
The Office of Small and Disadvantaged Business Utilization
After learning that the Deputy Secretary of the Department
of Housing and Urban Development (HUD) was moving the
Department's director of the Office of Small and Disadvantaged
Business Utilization (OSDBU) from the direct oversight of the
Secretary, Chairman Kerry sent a letter asking the Deputy
Secretary to provide a legal basis for the move. As required by
the Small Business Act, the Director of the OSDBU at each
agency must be ``responsible only to, and report directly to,
the head of such agency or to the deputy of such head,'' with
an exception for the Department of Defense (15 U.S.C.
644(k)(3)). After receiving the letter, HUD congressional
affairs informed the Committee that the OSDBU office was moving
back to the direct oversight of the Secretary of HUD.
To ensure that other agencies were also complying with the
law, the Committee sent out an inquiry on November 28, 2001, to
21 major Federal agencies asking them to provide the Committee
with a description of the OSDBU's position within the
organization and to whom the OSDBU Director reports on a daily
basis. Information received by the Committee indicated that
some agencies have been subjecting the OSDBU Director to
bifurcated reporting relationships for administrative and
budgetary matters. Upon receiving and reviewing the responses
(and following up with several agencies) the Committee believed
at least half of the agencies were out of compliance with
section 15(k) of the Small Business Act. To further investigate
the matter, Chairman Kerry requested that the GAO conduct a
study that would look further into the agencies' compliance
with section 15(k) and also at the effectiveness of each OSDBU
office. The GAO study is also examining how the law applies to
the Executive Office of the President and its 11 staff offices,
including the Office of Management and Budget, and the OSDBU
director at the Department of Defense. The GAO estimated that
the study will be complete by the middle of 2003. The oversight
involved in this issue led to the introduction of S. 2753, the
Small and Disadvantaged Ombudsman Act.
The Office of Small and Disadvantaged Business Utilization and the
Government Prime Contracting Goal
Chairman Kerry introduced the Small and Disadvantaged
Business Ombudsman Act, S. 2753, on July 18, 2002, following
the above-mentioned series of correspondence with various
agency heads and small-business advocacy groups. The bill
established a Small and Disadvantaged Business Ombudsman for
Procurement (SDB Ombudsman) at the SBA and strengthened the
Office of Small and Disadvantaged Business at each Federal
agency. The legislation also raised the Federal government-wide
procurement goal for small-business prime contracting by 7
percentage points, phased in over three years (26 percent in FY
2004, 28 percent in FY 2005 and 30 percent in FY 2006 and
thereafter), setting the government-wide goal at 30 percent.
This legislation would increase opportunities for all small
businesses and enhance the diversified network of small
business suppliers to meet the Federal government's needs. On
July 24, the Committee unanimously passed S. 2753 including a
Kerry-Bond substitute amendment that renamed the SDB Ombudsman
as the Small Business Procurement Ombudsman and moved the
position to the Office of Advocacy from the SBA. The position
retained, however, all of its original authority under the
introduced version of the legislation, except for the power to
negotiate goal attainment plans. The goal attainment plans
called for under the original legislation would now fall under
the responsibilities of the SBA Administrator.
Under the substitute bill, the Procurement Ombudsman
remained responsible for evaluating and reporting on these goal
attainment plans. The substitute retained the government-wide
small-business prime contracting goalincrease from 23 percent
to 30 percent, as well as the improvements to the Office of Small and
Disadvantaged Business Utilization at each Federal agency and changes
to the OSDBU Council. The report was filed on September 3, 2002, but
the bill was not considered by the full Senate prior to the end of the
107th Congress.
Priority Preference and Parity for the 8(a) and Historically
Underutilized Business Zone Programs
In 1997, as legislation to establish the HUBZone program
was being conducted by the Committee, then-Ranking Member Kerry
included amendments to the legislation that changed the HUBZone
legislation from one of HUBZone priority over the 8(a) program
to one of equality with the 8(a) program. Shortly following the
bill's passage, the SBA published rules on implementing the
legislation that established a balance between the programs, a
well as set out guidelines for a priority preference for dual-
certified small business concerns. On January 28, 2002,
however, the SBA published proposed rules that, among other
things, reversed its position on the priority preference.
Because of the complexity of the rule changes, Senator
Kerry initially wrote to SBA Administrator Barreto on February
8, 2002, to extend the comment period from 30 days to 90 days,
through April 29, 2002, to allow adequate time for careful
examination of the proposal and comment by the public. The SBA
compromised, extending the comment period to 60 days, through
March 29, 2002.
On March 20, 2002, Chairman Kerry wrote to Administrator
Barreto and Associate Administrator Michael McHale describing
his concerns with the rule's proposed changes. Chairman Kerry
was troubled that the rule neither included language to protect
the 8(a) program, nor a grandfather provision to protect 8(a)
contracts and to keep awards intended for 8(a) companies within
the 8(a) program.
The SBA-proposed rule intended also to guide contracting
officers when awarding contracts. It suggested that contracting
officers look at a Federal agency's HUBZone and 8(a)
contracting goals when making award decisions. This, Senator
Kerry wrote, could hurt 8(a) firms, particularly because the
Department of Defense, which is responsible for over 63 percent
of the Federal government's procurement spending, has no 8(a)
program goal.
Further, there is no statutory, government-wide 8(a) goal.
Other concerns expressed in the letter included the removal of
a ``super-priority'' historically given to dual-certified,
8(a)-HUBZone small businesses and the detrimental changes made
to the definition of a HUBZone employee. It was Congress's
intent when drafting the HUBZone legislation that dual-
certified, 8(a)-HUBZone firms would have an advantage over
single-certified companies when bidding on contracts set aside
for the 8(a) and HUBZone programs. The changes proposed in the
SBA's rule to the definition of a HUBZone employee were so
broad that traditional volunteers could be considered
employees, which had deviated from the original definition and
congressional intent that, if implemented, would have
undermined the HUBZone program. In the March 20th letter
Chairman Kerry made specific recommendations to the SBA on how
to protect the 8(a) program and how to strike a proper balance
between the two programs to continue parity. This led to the
introduction of the Combined 8(a) and HUBZone Priority
Preference Act, S. 1994.
Along with Ranking Member Bond, Chairman Kerry introduced
S. 1994 on March 6, 2002. The legislation established a
preference for purposes of bidding on Federal procurement
contracts for firms that have both 8(a) Business Development
(BD) and HUBZone certifications, or ``dual certification.'' The
legislation also allowed these firms to combine their price
evaluation preferences when bidding on Federal contracts.
Finally, the legislation increased the sole-source thresholds
for both goods and services and manufacturing contracts by $1
million for each category, increasing the threshold to $4
million for goods and services contracts and to $6 million for
manufacturing contracts. The increases apply to both the 8(a)
BD and HUBZone sole-source thresholds.
During the mark-up of July 24, 2002, a Bond-Kerry amendment
made changes to the types of benefits available to firms with
both 8(a) and HUBZone certification under restricted
competition, as well as clarified the benefits for these firms
for contracts under full and open competition. The amendment
also included Senator Bond's previously filed amendment to
clarify when a held small business concern may participate in
the HUBZone program. This amendment reflected negotiated
changes raised by Senator Bond during the bill's introduction
and at the Committee's procurement Roundtable, that a 20
percent price-evaluation preference was too high. This
legislation retains the enhanced benefits to a small business
that is certified as an 8(a) Business Development firm and a
HUBZone small business concerns, as well as increases the sole-
source threshold for these firms by $1 million.
On June 19, 2002, the Committee held a Roundtable titled
``Are Government Purchasing Policies Failing Small Business?''
The Roundtable involved representatives from small business
groups participating in Federal procurement programs, such as
8(a), HUBZone, SDB, women-owned and veteran-owned, as well as
representatives from the Administration. The Roundtable
discussed general procurement policies and current legislative
initiatives before the Committee, including S. 1994. Feedback
from the small business participants was positive across the
board.
On July 24, 2002, the Committee unanimously passed S. 1994.
The report was filed on October 1, 2002, but the full Senate
failed to take up the bill before it adjourned for the year.
Contract Bundling
Federal contract bundling is a long-standing problem for
small business contractors that has gotten progressively worse
as Agency staffing has decreased and streamlining has
increased. After the Committee was contacted by numerous small-
business groups about small businesses being excluded by
Federal agencies from contracts due to their ``bundled''
nature, Chairman Kerry introduced S. 2466, the Small Business
Federal Contractor Safeguard Act, on May 7, 2002. The bill
strengthened the definition of a bundled contract in order to
close the loopholes in the existing definition and to prevent
Federal agencies from circumventing statutory safeguards
intended to ensure that separate contracts are consolidated for
economic reasons, and not solely for expediency.
The bill would have also made it harder for Federal
agencies to consolidate small contracts that would otherwise be
available for small-business bidders. The current definition of
a bundled or consolidated contract does not account for all
circumstances in which contracts can be bundled together. The
Small Business Act requires likely bundled contracts to undergo
market research to determine cost savings. An agency may not
use a reduction in personnel costs alone to justify a bundled
contract unless they are substantial. S. 2466 would have
eliminated the term ``bundled contract'' and its definition,
and substituted a new term, ``consolidated contract,'' meaning
a multiple award contract or a contract for goods or services
with a Federal agency that combines discrete procurement
requirements from not less than two existing contracts, adds
new, discrete procurement requirements to an existing contract,
or includes two or more discrete procurement requirements. This
definition eliminates the flaw in the previous definition that
left room for varied interpretations by the Federal agencies,
and it closed the loopholes in the current definition
pertaining to new contract requirements and multiple award
contracts.
The bill also included a threshold level for triggering the
economic research requirements for ``consolidated'' contracts
in the Small Business Act. On July 24, 2002 the Committee
unanimously passed S. 2466. The report was filed on October 8,
2002, but was never taken up by the full Senate prior to
adjournment.
Small Business Team Arrangements
On September 26, 2001, Chairman Kerry and Ranking Member
Bond introduced the Small Business Procurement Competition Act
of 2001, S. 1472. The bill was accepted in its entirety, as
Amendment No. 1694 to the Department of Defense Authorization
bill, S. 1438, on September 26, 2001, but was not included in
the conference report. The bill sought to help small businesses
compete on large and bundled contracts by allowing small
businesses to form small business-only joint ventures to
compete for any contract over $5 million, even if the joint
venture exceeded the size standard. To facilitate and encourage
this, the legislation set up a 3-year pilot Small Business
Procurement Competition Program. The bill also allowed small
businesses to subcontract up to two-thirds of a contract if the
contract were bundled, so long as they would subcontract to
other small businesses and do the largest proportion of the
work themselves. Currently, small businesses can subcontract up
to 49 percent of a contract. Finally, the legislation set up a
program to help promote the formation of joint ventures and
created adatabase to help link small businesses wishing to form
joint ventures together and changed the definition of a bundled
contract. On October 30, 2002, the Office of Management and Budget
issued a nine-point action plan to thwart contract bundling. It
included a provision similar to S. 1472 that encourages Federal
agencies to develop small business team arrangements capable of
competing for larger contracts.
Improving Contract Bundling Reporting Requirements and Expanding
Participation in the Historically Underutilized Business Zone
Program
In September 2001, Chairman Kerry and Ranking Member Bond
included an amendment in the FY 2003 National Defense
Authorization Act, S. 1438, making changes to the data
collection and report provisions for bundled contracts and to
eligibility requirements of the HUBZone program. First, the
Amendment No. 1695 revised the reporting requirements for the
Department of Defense market analyses to make them more
systematic and meaningful. The legislation also required that
the SBA Administrator report to the congressional small
business committees, including an assessment of how to improve
current and future market analyses.
Second, the amendment made it easier for small businesses
to participate in the HUBZone program if its stock is publicly
traded. Under current law, publicly traded companies are unable
to participate in the HUBZone program. Unfortunately, the
Kerry-Bond amendment was not retained in the DOD Authorization
Conference Report.
Technology, Research & Development
The Committee believes strongly in the role of small
business in our nation's effort to maintain its lead as the
innovator of technology. Small businesses are noted for a
higher success rate in commercializing technologies, and they
research and develop technology and processes less expensively
and faster. Innovations by small business contribute to our
country having the best military intelligence and medical
technology.
In the 107th Congress, the Committee continued its support
of small business technological innovation, which benefits the
country by contributing to our having the best military
technology, intelligence technology, technology to improve our
quality of life from health revolutions in breast cancer
detection and surgery to equipment. And it all makes our
economy stronger.
Reauthorization of the Small Business Technology Transfer Program
On May 9, 2001 Senator Kerry, along with Senator Bond,
introduced S. 856, the Small Business Technology Transfer
(STTR) Program Reauthorization Act of 2001. The purpose of the
legislation was to (1) reauthorize the program for eight years;
(2) double the percentage that participating Departments and
Agencies set aside for STTR R&D from .15 percent to .3 percent
starting in FY 2004; (3) increase the Phase II grant award
amount from $500,000 to $750,000 starting in FY 2004, which
coincides with the funding increase and is consistent with
Phase II SBIR awards; (4) require the participating agencies to
implement an STTR outreach program to research institutions in
conjunction with any such similar SBIR outreach; and, (5)
strengthen the data collection requirements regarding awards
and the data rights for companies and research institutions
that conduct STTR projects, consistent with changes made to the
SBIR program in the 106th Congress.
On June 21, 2001, the Committee held a hearing to review
reauthorization of the Small Business Technology Transfer
program and to seek feedback on S. 856, the Small Business
Technology Transfer Program Reauthorization Act of 2001. On
July 19, 2001, the Committee considered the bill and voted
unanimously in favor of its passage. It passed the full Senate
on September 14, 2001. The House companion to the bill, H.R.
1860, which contained S. 856 in its entirety, was passed on
September 26, 2001 and sent to the President for his signature.
The legislation was enacted as PL 107-50.
Small Business Innovation Research Program and Small Business
Technology Transfer Program Foreign Patent Protection
On August 2, 2001, Chairman Kerry introduced S. 1323, the
SBIR and STTR Foreign Patent Protection Pilot Program Act. The
bill sought to establish a five-year pilot program to help
protect the intellectual property of SBIR and STTR companies
that try to export their technology and need financial
assistance to help offset the high costs of patent filing in
foreign markets.
Ultimately, the goal was to establish a revolving fund,
with revenues generated from the sales and/or licensing fees
that companies realize from the patented technology. At the
STTR hearing the Committee held on June 21, 2001, two
businesses and the technology transfer office of Northeastern
University in Massachusetts commented favorably about the need
for this assistance. The bill (1) established a five-year
pilot; (2) limited grants to a maximum $25,000; (3) limited
each company to one grant; (4) required the company to already
have U.S. patent protection in order to be eligible for the
grant; (5) generated revenue for the revolving fund through
royalty fees of 3 to 5 percent, with a cap of three times the
amount of the grant the business received; and (6) authorized
appropriations for five years, starting with $2.5 million in FY
2003, in order to fund 100 grants of $25,000, and ending with
$10 million in FY 2007, in order to fund 400 grants of $25,000.
Education & Development
The Committee's role in overseeing the numerous SBA
programs designed to protect the interests of small businesses
has led to the development of several programs aimed at giving
small businesses the tools they need to compete and succeed. Of
great importance to this endeavor is the capacity by which the
SBA can improve the success rate of small businesses through
education and development.
The Committee believes programs such as the Small Business
Development Centers (SBDCs) and the Tribal Business Information
Centers (TBICs) are vital to this cause. With deep budget cuts
affecting a majority of the SBA's programs, the Committee
looked closely at a variety of education and development
programs to continue their success and improve upon their
shortcomings.
Vocational and Technical Entrepreneurship Training
On July 19, 2001, the Subcommittee on Workforce,
Empowerment and Government Programs of the House Committee on
Small Business held a hearing on pending legislation, including
H.R. 2666, the Vocational and Technical Entrepreneurship
Development Act, which was introduced by Congressman Brady of
Pennsylvania.
The hearing demonstrated a need for expanded
entrepreneurship training services at other Small Business
Development Center (SBDC) locations. On August 1, 2001, the
House Committee on Small Business considered H.R. 2666, passed
it without amendment and ordered it reported. On October 2,
2001, the full House considered H.R. 2666 under suspension of
the rules. It was subsequently agreed to by voice vote.
During consideration of H.R. 2666 in the Senate Committee
on Small Business and Entrepreneurship on July 24, 2002, the
Ranking Republican, Senator Bond, raised concerns that the
Senate Committee had not adequately considered the National
Small Business Regulatory Assistance Act.
In response to these concerns, Committee Chairman Kerry
proposed holding a Roundtable on the legislation to alleviate
these concerns in order to move forward with the Committee
vote. On August 1, 2002, the Committee held a Roundtable titled
``Promoting Small Business Regulatory Compliance and
Entrepreneurial Education--the Role of the SBDC Network.''
During this Roundtable, the Senate Committee received evidence
that H.R. 2666 would provide adequate resources to SBDCs, so
that they could provide technical assistance to secondary
schools and post-secondary vocational and technical schools to
develop and implement curricula to promote vocational and
technical entrepreneurship.
Small business representatives at the Roundtable also
stressed the need to provide such assistance as an important
addition to curricula that is merely skills-based. Small
business groups such as the National SmallBusiness United
supported H.R. 2666, as well as leading educational institutions, such
as the Wharton School of Business at the University of Pennsylvania,
and the Association of Small Business Development Centers.
The purpose of H.R. 2666 was to assist the development and
implementation of curricula that would encourage skilled
persons to start their own businesses and to provide needed
entrepreneurial training to support the success of such
businesses. The Act provided the necessary entrepreneurial
support to expand the career opportunities for persons
receiving vocational training and thus use their newly gained
skills to become the successful owners of their own business.
To accomplish this, the bill would have established a 3-
year pilot program to be headed by the Administrator of the SBA
and would have offered grants to state SBDCs with the minimum
grant being $200,000. The legislation also designated the
Association of Small Business Development Centers as a
clearinghouse for the collection of information and expertise
regarding vocational and technical entrepreneurship programs.
H.R. 2666 was voted out of the Senate Committee by an 18-1
margin, with Senator Enzi dissenting, on July 24, 2002. The
report was filed on October 9, 2002. The bill was not addressed
by the full Senate prior to adjournment.
Native American Small Business Development
In 1995, the SBA was granted $1.2 million in funding from
the Bureau of Indian Affairs to start the Tribal Business
Information Center (TBIC) program. Since then, the program has
struggled to achieve its mission due to inadequate resources.
In 2002, Tribal Lands in only six states were served under the
program, despite repeated requests from Tribal Leaders
elsewhere for additional TBICs. The lack of resources means
that the 16 TBICs have received an average of only $33,000 in
funding, to cover all expenses, including staffing. Although
designed to provide culturally tailored business development
assistance to prospective and current small-business owners on
reservations, the lack of resources has hampered this program
from meeting its promise to the Native American community.
During the 107th Congress, the issue of funding for the
Tribal Business Information Center (TBIC) program became even
more dire. On January 24, 2002, Chairman Kerry, along with five
other senators, sent a letter to SBA Administrator Hector
Barreto and the Office of Management and Budget (OMB) Director
Mitch Daniels to urge them to provide the TBICs with $2.5
million and a specific ``line-item'' in President Bush's fiscal
year 2003 budget request. Then, as the program was set to run
out of money on March 31, 2002, Chairman Kerry sent a
bipartisan letter, cosigned by nine senators, on March 22,
2002, to SBA Administrator Barreto requesting that the Small
Business Administration begin the reprogramming process in
order that the Tribal Business Information Center program could
continue receiving funding for fiscal year 2002. To remain
operational in the second half of the fiscal year, the program
required $200,000. The SBA failed to respond, leaving the TBIC
program without the Federal component of its funding due to
``budgetary contracts'' at the SBA.
Funding the Tribal Business Information Center Program
In the wake of the Tribal Business Information Centers
(TBICs) losing their funding, Senator Tim Johnson of South
Dakota and Chairman Kerry introduced S. 2335, the Native
American Small Business Development Act, on April 25, 2002. The
bill was designed to place SBA services for Native Americans on
par with that of other specialized groups, such as women-owned
small businesses. It made statutory the Office of Native
American Affairs (ONAA) at the SBA, expanded on the TBIC
program at the SBA, and changed the name to Native American
Business Centers. The legislation also established two pilot
grant programs to assist Native American communities, although
three grant programs existed in the original legislation.
On April 30, 2002, the Committee held a joint hearing with
the Committee on Indian Affairs. The late Senator Paul
Wellstone of Minnesota co-chaired the hearing in Chairman
Kerry's absence with Chairman Inouye of the Indian Affairs
Committee. The hearing focused on general economic development
in Native American communities and the Native American Small
Business Development Act. Senator Johnson testified before the
committees on the legislation.
A mark-up of the legislation was held on July 24, 2002,
during which a Kerry-Bond amendment eliminated the proposed
American Indian Tribal Assistance Center Grant pilot program,
incorporated a previously filed Kerry amendment to improve the
Native American Development Grant pilot program, and
transferred $1 million from the Native American Small Business
Development Program created under the legislation to the Native
American Development Grant pilot program. It also made a number
of technical and conforming corrections. The bill passed 18-1,
but was not considered by the full Senate prior to adjournment.
Disaster Loan Program
During the 107th Congress, small businesses across the
country suffered economic injury because of energy price spikes
and severe drought. In order to help these companies continue
to operate and mitigate layoffs, Chairman Kerry introduced and
advocated for legislation to make it possible for qualifying
small businesses to access the SBA's economic injury disaster
loans. Economic injury disaster loans give affected small
businesses necessary working capital until normal operations
resume, or until they can restructure or change the business to
address the market changes.
In addition to needs for disaster assistance for small
businesses, the Committee responded to calls from small
businesses complaining about the sale of disaster loans by the
SBA to private entities, as well as to requests and initiatives
from their Senators and Congressman to eliminate disaster loans
from the SBA's asset sales. At a minimum, members requested a
moratorium on the sale of disaster loans in order to
investigate the treatment of borrowers from secondary market
lenders.
Energy Disaster Assistance
On February 8, 2001, Senator Kerry introduced S. 295, the
Small Business and Farm Energy Emergency Relief Act of 2001.
The bill had bi-partisan support, with 34 Senate cosponsors, as
well as a companion bill in the House, H.R. 1010, which was
introduced by Congressman Tom Udall of New Mexico. The purpose
of the bill was to provide emergency relief, through
affordable, low-interest Small Business Administration Economic
Injury Disaster loans, to small businesses adversely affected
by, or likely to be adversely affected by, significant
increases in the prices of heating oil, propane, kerosene,
natural gas, or electricity.
Many small businesses are dependent upon heating oil,
propane, kerosene, natural gas and electricity either because
they sell or distribute the product, because they use it to
heat and cool their facilities or as part of their business, or
because they depend on it to refrigerate their products and
provide energy to wash dishes and linens. The significant and
unforeseen rise in the price of these fuels, compounded by in
many regions of the U.S. by cold snaps and slowed economic
conditions in the winter of 2000/2001, threatened the economic
viability of many small businesses.
For those businesses that were in danger of or were
suffering from significant economic injury caused by crippling
increases in the costs of heating fuels and electricity, access
to capital was a critical need. However, commercial lenders
typically weren't making loans to these small businesses
because they often did not have the increased cash flow to
demonstrate the ability to repay the loan.
To exacerbate the situation, banks had tightened their
lending to small businesses by 45 percent at that time,
according to the Federal Reserve Board's quarterly survey on
lending practices that was released in February 2001. Senator
Kerry's legislation responded to the energy problems during the
107th Congress by seeking to amend the SBA economic injury loan
program to give small businesses access to low-interest
disaster loans that would help them keep their monthly payments
low and ease cash flow problems until business returned to
normal.
As amended, the emergency bill included (1) a proposal by
Senators Boxer and Feinstein to include electric energy in the
scope of the bill that originally focused on heating fuels; (2)
a proposal by Senator Levin to allow the loan proceeds to be
used for small businesses to convert their energy systems from
using heating fuels to usingrenewable or alternative energy
sources; (3) a proposal by Senators Kohl and Harkin to extend similar
loan assistance to small agricultural producers through the Department
of Agriculture's emergency loan program; (4) a proposal by Senator Bond
to sunset the program after two years, and to conduct a study of the
program's usage to help Congress assess the merits of reauthorization;
(5) a proposal by Senator Enzi to expand Senator Levin's amendment by
including ``co-generation'' in the list of renewable or alternative
energy sources; and, (6) technical and conforming amendments made in
consultation with the Administration, to make the program as consistent
as possible with the existing disaster loan program.
Drought Disaster Assistance
On July 16, 2002, Chairman Kerry and Senator Hollings
introduced S. 2734, the Small Business Drought Relief Act, in
response to concerns raised by Governor Hodges of South
Carolina and supported by 15 other governors whose states were
suffering severe drought. Sixteen governors--Governor Hodges of
South Carolina, Governor Easley of North Carolina, Governor
Barnes of Georgia, Governor Foster of Louisiana, Governor
Musgrove of Mississippi, Governor Perry of Texas, Governor Wise
of West Virginia, Governor Patton of Kentucky, Governor
Glendening of Maryland, Governor Holden of Missouri, Governor
Keating of Oklahoma, Governor Sundquist of Tennessee, Governor
Warner of Virginia, Governor Siegelman of Alabama, Governor
Huckabee of Arkansas, and Governor Guinn of Nevada--asked the
Congress to pass this drought relief, but they got no
cooperation from a small minority of Senators. The bill had bi-
partisan support of 22 senators. The purpose was to help small
non farm-related small businesses hurt by drought, eliminate
contradictory statutory interpretations, and clarify existing
law and Congressional intent.
As amended, the bill sought the following changes to the
Small Business Act. To address the SBA's argument that drought
victims are not eligible for disaster loans because a drought
is not a disaster by definition, the bill adds the word
``drought'' to the definition of disaster in the Small Business
Act. In order to address concerns that adding drought would
expand the SBA's disaster program too broadly, the Kerry-Bond
substitute amendment specifies that assistance for drought
victims is only available to small businesses, not home owners,
and that they are only eligible for SBA economic injury
disaster loans, not physical disaster loans. While the
Committee believes that the SBA already has the authority to
make economic injury disaster loans to ``any small business
concern'' in a declared disaster area and should treat all such
businesses equally, in order to clarify that authority as it
applies to drought victims, the Kerry-Bond substitute amendment
directed the SBA to make economic injury disaster loans
available to both farm-related and non farm-related small
businesses hurt by drought.
The Kerry-Bond substitute amendment also included a
provision to ensure that small business drought victims meet
requirements demonstrating substantial economic injury caused
by drought. Last, the Kerry-Bond substitute preserved a state
governor's role in initiating a drought declaration rather than
limiting such authority to actions by the U.S. Secretary of
Agriculture.
On July 24, 2002, the Committee on Small Business &
Entrepreneurship considered S. 2734, the ``Small Business
Drought Relief Act.'' The Committee adopted by unanimous voice
votes S. 2734, including a substitute amendment offered by the
Chairman of the Committee, Senator Kerry, and the Ranking
Republican, Senator Bond, an amendment offered by Senator Carl
Levin to include in the definition of ``disaster'', ``low water
levels on the Great Lakes,'' as a disaster term, and an
amendment offered by Senators Edwards and Allen to require the
Administrator of the SBA to respond to disaster declaration
requests from governors within 30 days. Despite the bill's bi-
partisan support and its unanimous endorsement by the
Committee, the Administration opposed its passage and persuaded
some Republican Senators to block its enactment.
The Committee negotiated for months with the Administration
to reach agreement in order to pass the emergency drought
relief, and finally the Office of Management and Budget agreed
to limit the cost of the bill $9 million in authorized
appropriations, which would fund approximately $40 million of
such disaster loans annually. In spite of this agreement, one
Republican senator continued to block the bill's passage,
causing the bill to die when Congress recessed for the year.
On December 13, 2002, Chairman Kerry sent a letter to
Administrator Barreto requesting that the Agency provide a copy
of its legal opinion regarding its interpretation of the Small
Business Act with regards to making economic injury disaster
loans to non agriculture-related small businesses. The SBA has
interpreted its authority under the Federal statute, paragraph
7(b)(2) of the Small Business Act, to apply only to farm-
related small businesses when there is a drought disaster
declaration, and the Chairman and Ranking Member remain
concerned that the SBA's interpretation of its authority
narrows the scope of disaster relief assistance that the
Congress intended in passing the law. After numerous requests
from the Committee during the second session of the 107th
Congress, the Administration finally provided the opinion to
the Committee on December X, 2002, well after the end of the
107th Congress.
Regulatory Assistance
The Committee believes that providing resources and
guidance on complying with government regulations is
particularly important to small businesses. Understanding and
following the countless number of Federal regulations can be
tricky for small firms, especially small companies with few
employees. Small businesses often face a daunting task when
seeking advice on how to comply, let alone actually complying
with Federal regulations, particularly when implementation may
vary in different regions of the country, or from state to
state. Many small businesses fail to comply with important and
needed labor and environmental regulations not because they
want to break the law, but because they are unaware of the
actions they need to take to comply.
During the 107th Congress, the Committee continued to
address this issue of how best to educate small businesses
about laws and regulations, the most effective ways to help
them comply with existing laws, and what ways Congress can
strike a delicate balance between easing the compliance burden
and upholding necessary protections.
Regulatory Compliance Assistance
Joining with Senator Cleland of Georgia, Chairman Kerry
introduced S. 2483, the National Small Business Regulatory
Assistance Act. The legislation called for the establishment of
a pilot project in which 20 selected Small Business Development
Centers (SBDCs) would provide regulatory compliance assistance
to small businesses. The pilot project was to be administered
by the Small Business Administration, which would be authorized
to award grants between $150,000 and $300,000 to selected
SBDCs. The bill also required that Congress receive a progress
report annually on the pilot program's accomplishments at each
SBDC. Under the bill, SBDCs would need to form partnerships
with Federal compliance programs, conduct educational and
training activities and offer free-of-charge compliance
counseling to small business owners. Further, the measure was
designed to guarantee privacy to those who receive compliance
assistance. This privacy provision was also extended to all
small businesses that seek any assistance from their local
SBDC. The National Small Business Regulatory Assistance Act
provided small businesses with the support they need to
navigate the often complicated world of Federal regulations.
On July 24, 2002, the Committee passed S. 2483 with one
``nay'' vote from Senator Mike Enzi of Wyoming and without
amendments. On August 1, 2002, the Committee conducted a
Roundtable titled ``Promoting Small Business Regulatory
Compliance and Entrepreneurial Education--the Role of SBDC
Network.'' The Roundtable was held to supplement the
Committee's record on pending legislation, S. 2483 and H.R.
2666. While each piece of legislation was drafted to provide
additional resources to the Small Business Development Center
network, S. 2483 specifically addressed helping small
businesses with regulatory compliance. The report was filed on
October 9, 2002. The full Senate did not take up S. 2483.
Regulatory Impacts on Small Businesses
On April 24, 2001, the Committee held a hearing titled
``Protecting America's Small Business Rights: SBREFA on Its 5th
Anniversary.'' During the hearing, the Committee heard from
small business owners, officials and leaders from the General
Accounting Office, the Small Business Administration, National
Small Business United, the Environmental Protection Agency, and
the Department of Commerce. Issues addressed at the
hearingincluded the cost of regulations as monitored by the Small
Business Regulatory Enforcement Fairness Act and the Regulatory
Flexibility Act, regulations and Federal agencies that overlook various
small business sectors when drafting regulations, and how to best
ameliorate the situation and protect small business interests.
Panelists at the hearing gave testimony on how the SBA Office of
Advocacy could better facilitate regulatory compliance and addressed
the disproportionate impact regulations often have on small businesses.
Tax Issues
Small businesses have been the engine of economic growth
across the nation for the last decade. This country's ability
to foster entrepreneurship also has been an integral part of
our success in creating high-wage jobs for America's future.
During the 107th Congress, the Committee developed measures to
insure that the Federal tax code effectively assisted the
creation and growth of small businesses and family farms.
Income from small businesses is subject to Federal taxation
like other income; however, small businesses and their larger
counterparts are not always treated equally by the tax code.
The Committee supported a number of important changes in tax
law that, if enacted, could have a dramatically positive effect
for small businesses and the economy.
Joint House-Senate Small Business Committee Roundtable on Tax Agenda
for Small Business
On April 4, 2001, the Senate and House Small Business
Committees held a Roundtable on a proposed tax agenda for small
business that focused on small business tax relief, tax
simplification and taxpayer rights and protections. Among the
initiatives discussed during the tax relief section of the
Roundtable were modifying the estate tax, reducing the
depreciation recovery period, lowering individual income tax
rates, reforming the Alternative Minimum Tax and the allowing a
greater deductibility of health insurance expenses.
The tax simplification section of the Roundtable discussion
focused on capital gains tax relief, increasing the expensing
limitation, making the Research and Experimentation tax credit
permanent and simplifying cash versus accrual accounting.
Finally, the taxpayer rights section of the Roundtable focused
on reforming the Independent Contractor regulations, increasing
flexibility for small business pensions and modifying the tax
treatment of investments in debenture small business investment
companies (SBICs) to encourage greater investments.
The Affordable Small Business Stimulus Act of 2001
In response to many of the important tax issues raised at
the Joint Roundtable, Chairman Kerry introduced S. 1676, ``The
Affordable Small Business Stimulus Act of 2001.'' The bill
contained the following provisions that:
Increased the expensing limitation for small
businesses to $35,000, and increased the phase-out level, above
which expensing would not be allowed, to $350,000. Both the
$35,000 and $350,000 limits would be increased annually for
inflation beginning in calendar year 2003.
Modified and expanded a 1993 law regarding new
equity investments in small businesses' stock. Under the Kerry
bill, new investments in companies with capitalization of up to
$100 million at the time of investment would have a 75 percent
capital gains exclusion if the investments were held at least
three years. The exclusion for such investments would be 100
percent if they were made in a business involved in certain
critical technologies, or for investments in specialized small
business investment companies. Both the 75 and 100 percent
exclusion levels would be available for investments made by
both individuals and corporations. In addition, the rollover
period for such investments would be increased from 60 days to
180 days.
Reduced the depreciation recovery period for
computers or peripheral equipment from five years to three, and
for software from three years to two. This change would be
permanent.
Made the health insurance expenses of the self-
employed fully tax deductible in 2001, as opposed to 2003 as
permitted by current law.
Included the Single Point Tax Filing Act, which
would simplify the tax filing process for employers by allowing
the Internal Revenue Service and State agencies to combine, on
one form, both State and Federal employment tax returns.
Extended the existing income averaging provisions
to cover fishing as well as farming.
Modified the tax treatment of investments in
debenture small business investment companies (SBICs), so they
are less likely to create unrelated business taxable income
(UBTI) liability. In so doing, the bill would encourage greater
investment in SBICs, which provide critically needed venture
capital to emerging small businesses. These venture capital
funds are sorely needed in today's stalled economy.
The Senate Finance Committee did not consider this
legislation during the 107th Congress.
The Single Point Filing Act
America's small businesses, which employ more than half of
the workforce, are drowning in tax paperwork. They are
currently responsible for filing Federal and state employment
taxes and wage reports as well as unemployment insurance
reports. These reports obligate employers to understand and
comply with diverse and often conflicting state and Federal
laws. Just to keep up with these requirements, employers must
maintain separate wage records for Federal income tax
withholding, state income tax withholding, social security, and
unemployment insurance. This reporting must be provided to
government agencies at different times using different forms.
If the employer does business in more than one state, the
reporting burdens are often compounded. The financial burden
associated with employer tax, wage, and unemployment insurance
was estimated at $16.2 billion in 1999. The Federal portion of
these costs stood at $9.8 billion.
Small businesses need the government to reverse course,
which is why Chairman Kerry successfully included this
legislation as S. Amdt. 787 during Senate consideration of H.R.
1836, the Economic Growth and Tax Relief Reconciliation Act.
Unfortunately, this provision was not included in the
Conference Report to H.R. 1836. In the 108th Congress, Senator
Kerry will continue to work to give small businesses a more
efficient option, a single filing form, to comply with Federal
and state regulations. This will allow small businesses more
time to concentrate on running their business instead of
filling out endless streams of paperwork.
The Business Retained Income During Growth Expansion Act of 2002
New, entrepreneurial businesses are often the foundation of
our nation's productivity gains and economic growth. Emerging
growth companies are a major source of job creation,
technology, global competitiveness, tax revenues, and export
sales. Chairman Kerry introduced the Business Retained Income
During Growth and Expansion (BRIDGE) Act (S. 1903) to help
ensure that rapidly expanding, entrepreneurial businesses have
access to the capital they need to continue creating jobs and
stimulating the economy.
A Small Business and Entrepreneurship Roundtable on this
legislation was held on May 22, 2002. Congressman Jim DeMint of
South Carolina introduced the House companion bill with 18
cosponsors. The bill allowed small and mid-sized, fast-growing
businesses to temporarily defer a portion of their Federal
income tax liability so they could continue making new
investments in their businesses. The two-year deferral would be
limited to $250,000 of tax, which would be repayable with
interest over a four-year period. The tax-deferred amount would
be deposited in a separate trust account--a BRIDGE account--at
a bank or other approved intermediary, and the firm could
borrow against the deferred amount, as collateral, for business
purposes. Eligible firms would be required to have gross
receipts of at least 10 percent greater than the firm's average
receipts for the prior two years, and totalannual receipts
would be permitted to exceed $10 million. Upon sale or merger of the
business, any remaining tax deferral would be payable at that time.
The entrepreneurial spirit lies at the forefront of our
economy's technological advances and dynamic innovations. The
BRIDGE Act, by freeing entrepreneurial businesses from the
constraints of unmet capital funding needs and empowering them
to expand into new markets, would promote economic
diversification and renewed growth. The Senate Finance
Committee did not consider this legislation during the 107th
Congress. Chairman Kerry will continue to push for
consideration of this important legislation during the 108th
Congress.
The Worker Investment and Retirement Education Act of 2002
In April 2002, Chairman Kerry and Senator Olympia Snowe of
Maine introduced the Worker Investment and Retirement Education
Act of 2002, the first bipartisan pension reform bill to
protect small business workers without prompting a reduction in
benefits. Specifically, the bill would help small businesses
provide their employees with unbiased information on the basics
of investing, as well as personalized information to help them
know if they are adequately preparing for their retirement
years. The bill would apply different diversification rules
based on the type of contribution--such as worker payroll
deduction, employer matching contribution, or employers non-
matching contribution--rather than the type of plan to allow
workers to diversify their contributions once they are vested
in a retirement plan. Finally, the bill would establish an
Office of Pension Participant Advocacy where workers could turn
to voice their concerns about pension policy. Unfortunately,
the Senate Finance Committee did not consider this legislation
during the 107th Congress.
Trade Issues
The number of United States small businesses involved in
exporting has tripled since 1987. The dollar value of small
business exports has grown 300 percent over the period from
1996 through 2001. Small business now accounts for 31 percent
of the value of small business exports. Overall, 97 percent of
all exporters are small businesses, with the most dramatic
growth of exporters among companies employing less than 20
people. The World Trade Organization (WTO) has the potential to
address a wide range of global trade issues of concern to small
businesses in the United States. During the 107th Congress,
Chairman Kerry and Senator Olympia Snowe have worked to
establish a small business advocate at the WTO and at the
Office of the United States Trade Representative.
Seeking an Enhanced Role for Small Business at the World Trade
Organization
In April 2001, Senators Snowe and Kerry introduced S. 714,
which expressed the Sense of the Senate that the United States
Trade Representative should pursue the establishment of a small
business advocate at the World Trade Organization to safeguard
the interests of small firms and represent those interests in
trade negotiations involving the World Trade Organization. On
June 27, 2001, Chairman Kerry and Senator Olympia Snowe sent a
letter to U.S. Trade Ambassador Robert Zoellick asking for
support in their efforts to place an advocate for small
business within the WTO.
Small businesses face enormous challenges in order to
become involved in international trade and it is very difficult
for many to compete on a level playing field. Today, less than
one percent of U.S. small businesses are engaged in
international trade-related activities. In the above-mentioned
letter, the Senators stated that a small business advocate at
the WTO would be a crucial step toward enhancing the
involvement of small business in international trade and could
assist in assuring international protection of international
property rights, in settling trade disputes, and in enhancing
small business access to e-commerce. Because the WTO is the
principal international organization for rules governing
worldwide international trade, it has the potential to address
a range of global trade issues of concern to small businesses
in the United States. Better coordination is needed between
small businesses and advocacy agencies throughout the world. In
August, Ambassador Zoellick responded to the June 27, 2001,
letter saying that the WTO did not envision an advocacy role
for small business.
Other Committee Initiatives
Honoring Milton Stewart
On March 5, 2002, Chairman Kerry introduced S. Res. 216 to
honor Milton Stewart on his 80th birthday. Mr. Stewart was the
first Chief Counsel for the SBA's Office of Advocacy and had a
long and noteworthy career promoting the interests of small
business. The Resolution was passed by unanimous consent the
same day it was introduced.
Slotting Allowances
In the 106th Congress, the Committee addressed the issue of
slotting allowances--fees charged by retailers to individual
product manufacturers, which can adversely affect small
businesses that sell their products through large retailers.
The most common reasons for charging slotting allowances
include insuring a retailer income for an untested product, to
acquire shelf space, to acquire high-profile shelf space, to
acquire exclusive shelf space, and to acquire warehouse space
in a wholesale facility. During the 106th Congress, then-
Ranking Member Kerry brought the slotting issue to the
attention of the Small Business Committee. The Committee held
two hearings on slotting in September 1999 and September 2000.
The General Accounting Office was asked to conduct a study
on the issue, and testified that they were unable to complete
their study because the grocery industry refused to cooperate,
with exceptions from two mid-size grocery store chains. The
FTC, however, released a report on the issue February 20, 2001.
The recommendations of the FTC staff report, that is part of a
longer study, included pursuing further an empirical study to
contribute to enforcement actions or business guidance
beginning with gathering basic data on current practices.
No formal guidelines on slotting allowances were given at
the time of the report's release. Five specific steps for
future FTC actions in this area included (1) carefully
reviewing exclusive contracts to determine if and how they
affect competition, (2) examining slotting allowances and pay-
to-stay fees that can give rise to exclusionary effects, (3)
revisiting price discrimination issues, (4) focusing inquiries
primarily on situations that involve collusion, and (5)
ensuring that supermarket merger policies take into account
market power over suppliers as well as consumers. At the end of
the 107th Congress, the full slotting study being conducted by
the FTC was not yet complete.
The Office of Advocacy
On February 27, 2001, Senators Kerry and Bond introduced
the Independent Office of Advocacy Act, S. 395, to strengthen
the Office of Advocacy at the SBA. It required each
appropriation request submitted by the SBA to include a
separate funding request for the Office of Advocacy and allowed
the Office's Chief Counsel to be removed by the President after
Congressional notification. It also required the Office to
recommend methods for the delivery of financial assistance to
women-owned businesses and to evaluate the efforts of Federal
agencies and the private sector in assisting such businesses.
It also required the Office to make recommendations and submit
specified reports concerning issues and regulations affecting
small business and any necessity for corrective action.
Further, it required the Office to evaluate the efforts of the
Federal government and private industry to assist small
businesses owned by veterans and service-disabled veterans, and
required the SBA to provide appropriate administrative support
to the Office. Lastly, the legislation required the Chief
Counsel to report annually to the President and specified
congressional committees on agency compliance with Federal
regulatory analysis requirements. The bill passed the Senate by
unanimous consent on March 26, 2001, but was not passed by the
House Committee on Small Business during the 107th Congress.
The White House Quadrennial Small Business Summit
On February 27, 2001, Senators Kerry and Bond introduced
the White House Quadrennial Small Business Summit Act, S. 396.
It mandated that the White House hold a quadrennial national
summit to recognize outstanding small businesses, as well as
develop and promote ideas to further advance all American small
businesses. The bill also established the White House
Quadrennial Commission on Small Business to conduct the
Quadrennial and State Summits that would bring together
individuals concerned with issues relating to small business.
The Commission would appoint a Summit Advisory Committee from
participants at the previous Quadrennial Summit. It also
directed the Chief Counsel for Advocacy of the Small Business
Administration to assist in carrying out the Quadrennial Summit
and prerequisite State Summits. In addition, it required each
Summit's Commission to report to the President and the chairmen
and ranking members of the Congressional small-business
committees on its findings, recommendations, and proposals for
legislative changes to implement such recommendations. S. 396
was unanimously voted out of Committee without amendment on
February 28, 2001. The Committee report 107-136 was filed on
February 7, 2002, but the full Senate prior to adjournment did
not take up the legislation.
The SBA Budget and Appropriations
In the past two fiscal years, the Administration has not
requested adequate resources to fund and staff the Small
Business Administration and the services it provides. For FY
2002, the President requested a cut in funding from almost $900
million to $539 million. At a time when the economy was
volatile and the Federal Reserve reported that 45 percent of
banks were cutting back on lending to small businesses, the FY
2002 budget eliminated and froze funding for loans and venture
capital to small businesses that conventional lenders typically
wouldn't make even in good times. The President's FY 2002
budget request eliminated funding for the SBA's largest loan
program, the 7(a) program, and shifted the costs to small
business borrowers and lenders by increasing already excessive
fees. In order to fund a loan program of $10.5 billion, small
businesses would have had to pay at least $112 million extra in
fees. In that budget, the President also eliminated all funding
for the SBIC program, whose investments have more than paid for
themselves with successes like Intel, Callaway Golf, and
Staples. The President's FY 2002 budget requested 19 percent
less for microloans than the previous year's appropriation,
nearly 14 percent less for Small Business Development Centers,
shifting the cost to entrepreneurs seeking small business
counseling and training. The budget drastically cut funding for
the disaster loan program and proposed moving it out of the
Agency. Fortunately, Congress opposed that proposal, which if
implemented, would have compounded the impact of the terrorist
attacks of 9/11 as homeowners and small businesses in need
would have been dealing with a program inadequately funded and
under reorganization.
In FY 2003, the President's request for the SBA was $798
million, closer to the true costs of supporting small business
programs during an economic downturn. However, in some
respects, the budget was even worse, most notably the 50
percent cut in 7(a) loans. In that budget request, increases
were primarily limited to administrative expenses and staffing.
Consequently, for the second consecutive year, the Committee
and small business supporters in the Congress have spent much
of their time working to restore cuts and eliminate fee
increases for the SBA.
On April 6, 2001 Senator Kerry and then-Chairman Bond
offered amendment No. 183 to the Senate Budget Resolution for
FY 2002. The full Senate agreed to it by voice vote. The
amendment had 13 cosponsors, including Senator Snowe. The
purpose of the amendment was to restore funding, and in certain
program areas to increase funding, to the SBA for FY 2002. Had
the President's budget been enacted, the SBA's programs would
have experienced, at minimum, a 26 percent cut. Specifically,
the amendment provided $264 million for the SBA's FY 2002
budget. Senator Kerry, together with Senators Bond and Collins,
offered an amendment to increase funding for the Women's
Business Centers for FY 2002. The purpose was to increase
funding from $12 million to $13.7 million, the fully authorized
amount. The Kerry-Bond amendment passed the Senate, but the
program's overall funding was cut in conference, as was the
funding for many of the SBA's programs.
Hearing: ``SBA's Funding Priorities for FY 2002''
On May 1, 2001, the Committee held a hearing to review the
President's FY 2002 budget for the SBA. There were three
panels, and nine witnesses.
The first panel was reserved for the Administration's
witness, Mr. John D. Whitmore, Acting Administrator of the
Small Business Administration in Washington, D.C. Mr. Whitmore
presented the President's FY 2002 budget proposal for the SBA.
The witnesses on the second panel primarily addressed
proposals affecting the SBA's credit programs. Providing
testimony were: Mr. Alan Corbet, Executive Director of the
Growth Opportunity Connection in Kansas City, Missouri, who
testified about the Microloan Program and the harm to minority
borrowers and risk of taxpayer money that would be caused by
the budget's inadequate funding; Mr. Lee Mercer, President of
the National Association of Small Business Investment Companies
based in Washington, D.C., who testified in favor of the
proposal to eliminate funding for the SBIC program in exchange
for a higher program level and the need for additional SBA
staff to operate the SBIC program and to faster process license
applications; Mr. Ronald L. Phillips, President of Coastal
Enterprises, Inc. in Wiscasset, Maine, who testified against
the proposal to eliminate funding for the New Markets Venture
Capital program and called for administrative and legislative
changes to allow the program to work as Congress intended; Mr.
Anthony R. Wilkinson, President and Chief Executive Officer of
the National Association of Government Guaranteed Lenders, Inc.
in Stillwater, Oklahoma, who testified against the President's
proposal to eliminate funding for the 7(a) loan program,
against the proposed increase in loan fees on borrowers and
lenders, and in favor of the budget amendment by Senators Kerry
and Bond to provide $118 million in funding, allowing for $11
billion in loans to be leveraged.
The witnesses on the third panel primarily addressed
proposals affecting the SBA's non-credit programs. Providing
testimony were: Mr. Harry Alford, President of the National
Black Chamber of Commerce in Washington, D.C., who addressed
government contracting deficiencies for minority-owned small
businesses and testified in opposition to the proposal to
eliminate funding for the BusinessLINC program; Ms. Wendy
Werkmeister, President of the Wisconsin Women's Business
Initiative Corporation in Milwaukee, Wisconsin, who testified
against the proposal to freeze funding for Women's Business
Centers, inadequately fund the Microloan Program and eliminate
funding for the PRIME program; and Ms. Diane Wolverton, State
Director for the Wyoming Small Business Development Center in
Laramie,Wyoming and Chairman of the Association of Small
Business Development Centers Board, who was a former successful
business owner and testified about her first-hand experience
with SBDC assistance and the Association's opposition to the
budget request for SBDCs.
Among Committee members, there was bi-partisan opposition
to the President's budget, which requested a 26-percent
reduction in funding for the SBA's credit and non-credit
programs, including elimination of all funding for the Agency's
largest small-business lending program, the 7(a) program, and
shifting the cost through higher fees to small-business
borrowers and lenders. The budget cuts jumped to 40 percent
with the Administration's proposal for disaster funding, which
would have created a ``National Emergency Reserve,'' leaving
only a base amount of $300 million at the Agency. That amounted
to $526 million less in disaster loans than Congress provided
the previous year.
Letters Sent to Government Officials
On March 1, 2002, Chairman Kerry sent a letter to Budget
Chairman Kent Conrad and Ranking Minority Member Pete Domenici
regarding his views on the President's FY 2003 budget request
for the SBA. In that letter he opposed the budget and listed
his primary concerns as the 50-percent reduction in the 7(a)
loan program; the fee increases to the 504 loan program; the
cut in microloan technical assistance; and the overall problem
with the SBA's subsidy rate models and assumptions. In summary,
Chairman Kerry proposed that $200 million be added to the SBA's
FY 2003 budget to make up for the inadequate funding and budget
cuts. The Chairman was successful in obtaining the funds
requested for the budget, which the Budget Committee adopted.
On April 26, 2001, Senator Kerry sent a letter to Senate
and House Conferees on the Budget Resolution for FY 2002,
asking them to include the funding for the SBA that the Senate
agreed to by voting in favor of Kerry Budget Resolution
Amendment No. 183 on April 6.
On April 30, 2001, Senator Kerry wrote to the Chairman and
Ranking Member of the Appropriations Subcommittee on Commerce,
Justice and State (CJS) Departments to request adequate funding
for the SBA Microloan Program, which the Senate endorsed in the
Budget Resolution Amendment 183 on April 6.
On April 30, 2001, Senator Kerry sent letters to Senate
Appropriations CJS Subcommittee Chairman Gregg and Ranking
Member Hollings to request funding for the SBA as the Senate
agreed to in the Kerry-Bond Budget Resolution Amendment No. 183
on April 6.
On October 2, 2001, in an attempt to keep the SBIC program
from shutting down and to avoid a larger increase in program
fees to compensate for the lack of funding, Senator Kerry and
Senator Bond sent a letter to the Senate Appropriations CJS
Subcommittee requesting level funding, consistent with Budget
Amendment 183 that restored that money. Ultimately, the
Administration succeeded in eliminating all the funding for the
program and raising the fees.
Hearing: ``The SBA Fiscal Year 2003 Budget and Other Matters''
At the Committee's February 27th, 2002 hearing on the SBA's
FY 2003 budget request, Administrator Barreto testified, as did
five members of the small business community, which included
representatives from the National Association of Government
Guaranteed Lenders for 7(a) loans, the National Association of
Development Companies for 504 loans, the Growth Opportunity
Connection for microloans and microloan technical assistance,
Women Entrepreneurs of Baltimore for Women's Business Centers
and PRIME, and the Association of Small Business Development
Centers. Democrats and Republicans were united against the
President's proposal to cut 7(a) loans by 50 percent, and a
number of Senators from both sides of the aisle spoke against
the broken subsidy rates, fee increases on 504 loans, under
funding for microloans, women's business centers and prime and
SBDCs. Senator Bennett of Utah was particularly supportive of
increasing the 7(a) funding and defending the fee reduction,
which he characterized as a ``tax cut.'' Senator Kerry asked
Administrator Barreto to have the Administration send up an
amendment to adequately fund the 7(a) loan program, but he
would not agree to request such an amendment.
Consequently, the Committee and a coalition of more than 30
small business organizations, led by the U.S. Chamber of
Commerce, spent most of the year trying to reverse the
Administration's cuts. All efforts were blocked. The Committee
will continue advocating for funding and a better subsidy rate
model in the 108th Congress.
Federal Loan Programs and Access to Capital
Access to capital remains a top priority for American small
businesses. The Federal government's programs of guaranteed
loans and venture capital have helped millions of small
businesses finance the startup, growth, and expansion of their
firms, and the Committee spent much of the 107th Congress
focusing on this critical small-business need. The Committee
sought to overcome the Administration's insufficient budget
requests and secure adequate funding for the SBA's finance
programs. The Committee also worked with the General Accounting
Office to identify ways that the SBA and the OMB could correct
the government accounting systems in the current fiscal year
that have had an adverse effect on small businesses.
The Microloan Program
On January 24, 2001, Senator Kerry introduced S. 174, the
Microloan Program Improvement Act of 2001. The legislation was
designed to make the SBA Microloan Program more flexible to
meet credit needs, more accessible to micro-entrepreneurs
across the nation, and more streamlined for lenders to make
loans and provide management assistance. It built on changes
that were enacted in the 106th Congress as part of the 2001
Omnibus Consolidated Appropriations Act. S. 174 included the
following changes: (1) allowed micro-intermediaries to offer
revolving lines of credit; (2) broadened the eligibility
criteria for potential SBA micro-intermediaries; (3) expanded
flexibility for intermediaries to subcontract for technical
assistance and permitted more pre-loan technical assistance;
and, (4) established a peer-to-peer mentoring program, which
Senator Snowe introduced on January 25, 2001, as a separate
initiative, S. 182. Senator Kerry was the lead cosponsor of S.
182. The Administration opposed the peer-to-peer mentoring
provision and persuaded the House Committee on Small Business
to strike it when it considered the legislation.
The Senate Committee on Small Business and Entrepreneurship
marked up and passed S. 174 unanimously on February 28, 2001.
The report was filed in June 2001, but it was blocked from
passage by Republican objections until November 16. The
legislation was then sent to the House and referred to the
House Committee on Small Business where on April 17, 2002, it
was marked up, passed and ordered reported out of Committee.
The bill died in the 107th Congress because the full House
failed to bring it up for a vote.
The Small Business Investment Company Program
On July 18, 2001, Ranking Member Bond and Chairman Kerry
introduced S. 1196, the Small Business Investment Company
(SBIC) Amendments Act of 2001. The purpose of this bill, as
amended by a managers' amendment for final passage, was to
adjust the fees charged to Participating Security SBICs from
one percent to 1.37 percent. The change was necessary because
the demand for the SBIC program had been growing beyond what
was possible to support through annual appropriations. The
legislation allowed the fees to be increased enough to cover
all the currently established subsidy costs of a $3.5 billion
program, assuming no appropriations, as was the case for FY
2002 at the President's request. If in a future fiscal year
some appropriations were made available, the legislation made
it possible for the fee to be adjusted so that it would exactly
cover the subsidy costs of the program.
On July 19, 2001, the Committee marked up and passed S.
1196 by unanimous consent. The bill passed the full Senate with
a Kerry-Bond amendment, which lowered the borrowers' and
lenders' costs of participating in the 7(a) and 504 programs as
of fiscal year 2003. This amendment was included at the request
of the small business community to offset the fee increases
requested by the Administration in another small business
finance program and to bring the 7(a) and 504 fees more in line
with the costs of the programs. The 7(a) and 504 borrowers and
lenders had been overcharged approximately $2 billion combined
because the Administration continued to use faulty subsidy rate
calculations. The bill was signed into law on December 21,
2001, becoming PL 107-100.
Letters Regarding the 7(a) Loan Program's Subsidy Rate Model
On April 12, 2002, Chairman Kerry and Ranking Member Bond
joined Senate Budget Committee Chairman Kent Conrad and Ranking
Member Pete Domenici, in sending a letter to Mitchell Daniels,
Director of the Office of Management and Budget, regarding
continued and routine over-estimation by the OMB of the cost of
the SBA's 7(a) and 504 loan programs. That persistent over-
estimation caused small business borrowers and lenders in the
504 program to pay nearly $400 million in excess fees and in
the 7(a) loan program of roughly $1 billion in excess fees. Of
particular concern was the impact of the subsidy rate model on
the FY 2003 budget, which cut the 7(a) loan program by 50
percent, reducing from $11 billion to less that $5 billion the
amount of loan dollars available to small businesses. The
Senators (1) requested that the Administration submit and
support a budget amendment for FY 2003 to make possible $11
billion in program level, (2) offered the Administration an
opportunity to correct any assumptions in the FY 2003 budget
that would more accurately reflect the performance cost of the
program, and (3) asked for any legislative recommendations that
could fix the problem. In its response of May 17, 2002, the OMB
ignored all three of the Senators' requests. As a result, the
Committees pursued a legislative solution. Based on a study
from the GAO the legislation that would mandate the SBA and the
OMB to use only data of actual loan performance from 1992
forward in calculating the subsidy rate.
The above-mentioned study resulted from a May 4, 2002,
request to the GAO from the leaders of the Senate and House
Committees on Small Business, Senators Kerry and Bond, and
Congressmen Manzullo and Velazquez, that sought review of the
OMB's subsidy rate model for the 7(a) loan program, which had
resulted in borrowers and lenders annually paying excessive
fees to participate in this program. For almost every year
since theinception of credit reform in 1992, a comparison of
projected program costs against actual program costs for FY 2002 in the
7(a) program revealed that substantial funds were being returned to the
Treasury routinely because the subsidy rates were too high.
Consequently, lenders and borrowers paid more in fees than necessary
year after year. Congress asked the GAO to identify problems with the
cost projections and to recommend solutions that would more accurately
calculate program costs and therefore bring fees more reasonably in
line with the actual costs of the program. The GAO found, among other
things, that the SBA and the OMB had miscalculated the estimated
default rate of 7(a) loans by 87 percent and, that as of FY 2000,
borrowers and lenders has paid roughly $1 billion more than necessary
in fees since 1992. The GAO made five recommendations to address the
errors, but the Administration rejected all of them.
Roundtable: ``The 7(a) Loan Guaranty Program: A Look at SBA's Flagship
Program's Fees and Subsidy Rate''
On September 5, 2001, Chairman Kerry convened a Roundtable,
``The 7(a) Loan Guaranty Program: A Look at SBA's Flagship
Program's Fees and Subsidy Rate,'' with small business lenders,
small business trade associations, the SBA and the OMB. The
purpose was to discuss the impact of excessive program fees on
the ability of small businesses to access and lenders to
participate in the 7(a) Loan Guaranty Program; to hear the
findings of the General Accounting Office study on the subsidy
rate model for the 7(a) Loan Guaranty Program; to expose the
drastic difference between projected and actual default rates
used to calculate the subsidy rates for the SBA's 7(a) Loan
Guaranty Program; to discuss the various proposals to change
the subsidy rate model for the 7(a) Loan Guaranty Program; and
to discuss the various proposals to change the program fees.
The Committee needed to convene a Roundtable because the
7(a) trade association, the National Association of Government
Guaranteed Lenders (NAGGL), had asserted for years that the
model used to calculate the subsidy rate (the cost for running
the program) for the 7(a) Loan Guaranty Program was flawed and
needed to be exposed to see exactly what the Office of
Management and Budget and the Small Business Administration use
to calculate the subsidy rate. NAGGL pointed to the OMB and the
SBA's usage of inaccurate estimates of defaults, such as 14
percent for estimated defaults versus 8 to 9 percent for actual
defaults. The inaccuracies caused small business borrowers and
participating lenders to pay too much to participate in the
program.
The concern of the small-business community regarding
overcharging for program participation was exacerbated by the
Administration's proposal in the FY 2002 budget request to
eliminate funding for the 7(a) loan program and raise fees that
were already too high. In the Roundtable, NAGGL urged Congress
to require the OMB and the SBA to use more accurate data in the
subsidy rate models in order to derive a more accurate cost of
the program, and therefore more accurate fees charged to
borrowers and lenders. The Association also urged Congress to
lower the program fees because they were unfair and driving
lenders out of the program, thereby reducing access to
affordable credit for small businesses.
Participants included: Mr. James C. Ballentine, Director of
Community Development for the American Bankers Association,
Washington, D.C.; Mr. David Bartram, President, SBA Division,
U.S. Bank, San Diego, CA; Mr. Daniel Blair, Assistant Director,
Financial Management and Assurance, General Accounting Office,
Washington, D.C.; Dr. Lloyd Blanchard, Associate Director,
General Government Programs, Office of Management and Budget,
Washington, D.C.; Mr. John Brocato, President & CEO, Biz
Capital, New Orleans, LA; Ms. Linda Calbom, Director, Financial
Management and Assurance, General Accounting Office,
Washington, D.C.; Mr. Todd McCracken, President, National Small
Business United, Washington, D.C.; Mr. Keith McLaughlin, Senior
Vice President, Union Planters Bank, Columbia, MO; Mr. Paul G.
Merski, Chief Economist & Director of Federal Tax Policy,
Independent Community Bankers of America, Washington, D.C.; Mr.
Bruce D. Phillips, Senior Fellow in Regulatory Studies,
National Federation of Independent Business Education
Foundation, Washington, D.C.; Mr. Stephen Raffaele, Senior VP &
Treasurer, Sterling Bancshares, Inc., Houston, TX; Mr. Deryl K.
Schuster, President, Mid-America Division, Wichita, KS; Mr.
Steven Stultz, Stultz Financial, Newport Beach, CA; Mr.
Wilkinson, President, NAGGL, Stillwater, OK; Mr. Dick Wise,
President & CEO, American National Bank, Parma, OH; and Mr.
John D. Whitmore, Chief of Staff, Small Business
Administration, Washington, D.C.
Appendixes
Hearings of the 107th Congress
First Session
March 1, 2001: Forum titled ``Encouraging and Expanding
Entrepreneurship: Examining the Federal Role'', Senator Bond
chaired.
March 7, 2001: Roundtable titled ``PNTR/WTO: A Good Deal
for U.S. Small Businesses in China?'' Senator Bond chaired.
April 4, 2001: Joint Roundtable with the House Small
Business Committee titled ``A Tax Agenda for Small Business'',
Senator Bond chaired.
April 24, 2001: Hearing titled ``Protecting Small Business
Rights: SBREFA on Its 5th Anniversary'', Senator Bond chaired.
May 1, 2001: Hearing titled ``SBA's Funding Priorities for
FY 2002'', Senator Bond chaired.
June 21, 2001: Hearing titled ``S. 856, Small Business
Technology Transfer Reauthorization'', Senator Kerry chaired.
June 23, 2001: Field Hearing titled ``The Energy Crisis:
Taking the Power Out of Small Business'' held in Seattle,
Washington, Senator Kerry chaired.
July 19, 2001: Confirmation Hearing on the Nomination of
Hector V. Barreto and Markup on Pending Legislation, Senator
Kerry chaired.
August 1, 2001: Hearing titled ``The Business of
Environmental Technology'', Senator Kerry chaired.
August 16, 2001:Field Hearing titled ``Revitalizing Rural
America: What Can the Federal Government Do to Promote Small
Business Growth and Development in Rural Communities?'' held in
St. Cloud, Minnesota, Senator Wellstone chaired.
September 5, 2001: Roundtable titled ``The 7(a) Loan
Guaranty Program: A Look at the SBA's Flagship Program's Fees
and Subsidy Rate'', Senator Kerry chaired.
September 10, 2001: Field Hearing titled ``Entrepreneurial
Companies: Their Needs and Challenges in Today's Economy'' held
in Cambridge, Massachusetts, Senator Kerry chaired.
October 16, 2001: Confirmation Hearing on the Nomination of
Thomas M. Sullivan to Chief Counsel for Advocacy at the Small
Business Administration, Senator Kerry chaired.
Second Session
February 27, 2002: Hearing titled ``The SBA Fiscal Year
2003 Budget and Nomination Hearing of Melanie Sabelhaus to be
Deputy Administrator of the Small Business Administration'',
Senator Kerry chaired.
April 30, 2002: Joint Hearing with the Senate Indian
Affairs Committee titled ``Small Business Development in Native
American Communities: Is the Federal Government Meeting its
Obligations?'' Senator Kerry chaired.
May 22, 2002: Roundtable titled ``Unleashing the Power of
Entrepreneurship: Stimulating Investment in America's Small
Businesses'', Senator Kerry chaired.
June 19, 2002: Roundtable titled ``Are Government
Purchasing Policies Failing Small Business?'' Senator Kerry
chaired.
July 24, 2002: Markup of Procurement, Educational, Drought
Relief and other Small Business Legislation, Senator Kerry
chaired.
August 1, 2002: Roundtable titled ``Promoting Small
Business Regulatory Compliance and Entrepreneurial Education--
the Role of SBDC Network'', Senator Kerry chaired.
Bills Referred to the Committee
First Session
S. 174 (Mr. Kerry) January 24, 2001. A bill to amend the
Small Business Act with respect to the Microloan Program, and
for other purposes.
S. 182 (Ms. Snowe) January 25, 2001. A bill to amend the
Small Business Act with respect to the Microloan Program.
S. 295 (Mr. Kerry) February 8, 2001. A bill to provide
emergency relief to small businesses affected by significant
increases in the prices of heating oil, natural gas, propane,
and kerosene, and for other purposes.
S. 348 (Mr. Hutchinson) February 15, 2001. A bill to amend
the Small Business Act to extend the authorization for the
drug-free workplace program.
S. 395 (Mr. Bond) February 27, 2001. A bill to ensure the
independence and nonpartisan operation of the Office of
Advocacy of the Small Business Administration.
S. 396 (Mr. Bond) February 27, 2001. A bill to provide for
national quadrennial summits on small business and State
summits on small business, to establish the White House
Quadrennial Commission on Small Business, and for other
purposes.
S. 408 (Ms. Boxer) February 27, 2001. A bill to provide
emergency relief to small businesses affected by significant
increases in the price of electricity.
S. 522 (Mr. Kerry) March 13, 2001. A bill to direct the
Administrator of the Small Business Administration to conduct a
pilot program to raise awareness about telecommuting among
small business employers, and to encourage such employers to
offer telecommuting options to employees.
S. 849 (Mr. Bond) May 9, 2001. A bill to amend provisions
of law enacted by the Small Business Regulatory Enforcement
Fairness Act of 1996 (104-121) to ensure full analysis of
potential impacts on small entities of rules proposed by
certain agencies, and for other purposes.
S. 856 (Mr. Kerry) May 9, 2001. A bill to reauthorize the
Small Business Technology Transfer Program, and for other
purposes.
S. 861 (Mr. Bond) May 10, 2001. A bill to enhance small
business access to Federal contracting opportunities and
provide technical advice and support that small businesses need
to perform contracts awarded to them, and for other purposes.
S. 1196 (Mr. Bond) July 18, 2001. A bill to amend the Small
Business Investment Act of 1958, and for other purposes. Signed
by the President and became Public Law 107-100 on December 21,
2001.
S. 1323 (Mr. Kerry) August 2, 2001. A bill entitled SBIR
and STTR Foreign Patent Protection Act of 2001.
S. 1472 (Mr. Kerry) September 26, 2001. A bill to amend the
Small Business Act to promote the involvement of small business
concerns and small business joint ventures in certain types of
procurement contracts, to establish the Small Business
Procurement Competition Program, and for other purposes.
S. 1499 (Mr. Kerry) October 4, 2001. A bill to provide
assistance to small business concerns adversely impacted by the
terrorist attacks perpetrated against the United States on 9/
11, 2001, and for other purposes.
S. 1552 (Mr. Harkin) October 16, 2001. A bill to provide
for grants through the Small business Administration for losses
suffered by general aviation small business concerns as a
result of the terrorist attacks of 9/11, 2001.
S. 1670 (Mr. Kerry) November 9, 2001. A bill to amend the
Small Business Investment Act of 1958 with respect to subsidy
fees.
S. 1676 (Mr. Kerry) November 13, 2001. A bill to amend the
Internal Revenue Code of 1986 to provide tax relief for small
business, and for other purposes.
H.R. 203 (Mr. Sweeney) January 3, 2001. A bill to amend the
Small Business Act to direct the Administrator of the Small
Business Administration to establish a pilot program to provide
regulatory compliance assistance to small business concerns,
and for other purposes.
H.R. 2538 (Mr. Udall of New Mexico) July 17, 2001. A bill
to amend the Small Business Act to expand and improve the
assistance provided by Small Business Development Centers to
Indian tribe members, Alaska Natives, and Native Hawaiians.
H.R. 2666 (Mr. Brady of Pennsylvania) July 27, 2001. A bill
to amend the Small Business Act to direct the Administrator of
the Small Business Administration to establish a vocational and
technical entrepreneurship development program.
Second Session
S. 1903 (Mr. Kerry) January 28, 2002. A bill to amend the
Internal Revenue Code of 1986 to allow certain small businesses
to defer payment of tax.
S. 1994 (Mr. Kerry) March 6, 2002. A bill to establish a
priority preference among certain small business concerns for
purposes of Federal contracts, and for other purposes.
S. 2335 (Mr. Johnson) April 25, 2002. A bill to establish
the Office of Native American Affairs within the Small Business
Administration, to create the Native American Small Business
Development Program, and for other purposes.
S. 2455 (Mr. Ensign) May 2, 2002. A bill to amend the Small
Business Act to direct the Administrator of the Small Business
Administration to establish a pilot program to provide
regulatory compliance assistance to small business concerns,
and for other purposes.
S. 2466 (Mr. Kerry) May 7, 2002. A bill to modify the
contract consolidation requirements in the Small Business Act,
and for other purposes.
S. 2483 (Mr. Cleland) May 8, 2002. A bill to amend the
Small Business Act to direct the Administrator of the Small
Business Administration to establish a pilot program to provide
regulatory compliance assistance to small business concerns,
and for other purposes.
S. 2734 (Mr. Kerry) July 16, 2002. A bill to provide
emergency assistance to non-farm small business concerns that
have suffered economic harm from the devastating effects of
drought.
S. 2753 (Mr. Kerry) July 18, 2002. A bill to provide for a
Small and Disadvantaged Business Ombudsman for Procurement in
the Small Business Administration, and for other purposes.
S. 2891 (Mr. Kerry) August 1, 2002. A bill to create a 4-
year pilot program that makes small, non-profit child care
businesses eligible for SBA 504 loans.
Public Laws
Public Law 107-50, 107th Congress
An Act To reauthorize the Small Business Technology Transfer Program,
and for other purposes
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Technology
Transfer Program Reauthorization Act of 2001''.
SEC. 2. EXTENSION OF PROGRAM AND EXPENDITURE AMOUNTS.
(a) In General.--Section 9(n)(1) of the Small Business Act
(15 U.S.C. 638(n)(1)) is amended to read as follows:
``(1) Required expenditure amounts.--
``(A) In general.--With respect to each
fiscal year through fiscal year 2009, each
Federal agency that has an extramural budget
for research, or research and development, in
excess of $1,000,000,000 for that fiscal year,
shall expend with small business concerns not
less than the percentage of that extramural
budget specified in subparagraph (B),
specifically in connection with STTR programs
that meet the requirements of this section and
any policy directives and regulations issued
under this section.
``(B) Expenditure amounts.--The percentage of
the extramural budget required to be expended
by an agency in accordance with subparagraph
(A) shall be--
``(i) 0.15 percent for each fiscal
year through fiscal year 2003; and
``(ii) 0.3 percent for fiscal year
2004 and each fiscal year
thereafter.''.
(b) Conforming amendment.--Section 9 of the Small Business
Act (15 U.S.C. 638) is amended in subsections (b)(4) and
(e)(6), by striking ``pilot'' each place it appears.
SEC. 3. INCREASE IN AUTHORIZED PHASE II AWARDS.
(a) In General.--Section 9(p)(2)(B)(ix) of the small
Business Act (15 U.S.C. 638(p)(2)(B)(ix)) is amended--
(1) by striking ``$500,000'' and inserting
``$750,000''; and
(2) by inserting before the semicolon at the end the
following: ``, and shorter or longer periods of time to
be approved at the discretion of the awarding agency
where appropriate for a particular project''.
(b) Effective Date.--The amendments made by subsection (a)
shall be effective beginning in fiscal year 2004.
SEC. 4. AGENCY OUTREACH.
Section 9(o) of the Small Business Act (15 U.S.C. 638(o))
is amended--
(1) in paragraph (12), by striking ``and'' at the
end;
(2) in paragraph (13), by striking the period at the
end and inserting a semicolon; and
(3) by adding at the end the following:
``(14) implement an outreach program to research
institutions and small business concerns for the
purpose of enhancing its STTR program, in conjunction
with any such outreach done for purposes of the SBIR
program; and''.
SEC. 5. POLICY DIRECTIVE MODIFICATIONS.
Section 9(p) of the Small Business Act (15 U.S.C. 638(p))
is amended by adding at the end the following:
``(3) Modifications.--Not later than 120 days after
the date of enactment of this paragraph, the
Administrator shall modify the policy directive issued
pursuant to this subsection to clarify that the rights
provided for under paragraph (2)(B)(v) apply to all
Federal funding awards under this section, including
the first phase (as described in subsection (e)(6)(A)),
the second phase (as described in subsection
(e)(6)(B)), and the third phase (as described in
subsection (e)(6)(C)).''.
SEC. 6. STTR PROGRAM DATA COLLECTION.
(a) In General.--Section 9(o) of the Small Business Act (15
U.S.C. 638(o)), as amended by this Act, is amended by adding at
the end the following:
``(15) collect, and maintain in a common format in
accordance with subsection (v), such information from
awardees as is necessary to assess the STTR program,
including information necessary to maintain the
database described in subsection (k).''.
(b) Database.--Section 9(k) of the Small Business Act (15
U.S.C. 638(k) is amended--
(1) in paragraph (1)--
(A) by inserting ``or STTR'' after ``SBIR''
each place it appears;
(B) in subparagraph (C), by striking ``and''
at the end;
(C) in subparagraph (D), by striking the
period at the end and inserting ``, and''; and
(D) by adding at the end the following:
``(E) with respect to assistance under the
STTR program only--
``(i) whether the small business
concern or the research institution
initiated their collaboration on each
assisted STTR project;
``(ii) whether the small business
concern or the research institution
originated any technology relating to
the assisted STTR project;
``(iii) the length of time it took to
negotiate any licensing agreement
between the small business concern and
the research institution under each
assisted STTR project; and
``(iv) how the proceeds from
commercialization, marketing, or sale
of technology resulting from each
assisted STTR project were allocated
(by percentage)between the small
business concern and the research institution.''; and
(2) in paragraph (2)--
(A) by inserting ``or an STTR program
pursuant to subsection (n)(1)'' after
``(f)(1)'';
(B) by striking ``solely for SBIR'' and
inserting ``exclusively for SBIR and STTR'';
(C) in subparagraph (A)(iii), by inserting
``and STTR'' after ``SBIR''; and
(D) in subparagraph (D), by inserting ``or
STTR'' after ``SBIR''.
(c) Simplified Reporting Requirements.--Section 9(v) of the
Small Business Act (15 U.S.C. 638(v)) is amended by inserting
``or STTR'' after ``SBIR'' each place it appears.
(d) Reports to Congress.--Section 9(b)(7) of the Small
Business Act (15 U.S.C. 638(b)(7)) is amended by striking ``and
(o)(9),'' and inserting ``, (o)(9), and (o)(15), the number of
proposals received from, and the number and total amount of
awards to, HUBZone small business concerns under each of the
SBIR and STTR programs,''.
SEC. 7. STTR PROGRAM-WIDE MODEL AGREEMENT FOR INTELLECTUAL PROPERTY
RIGHTS.
(a) Development of Model Agreement.--Section 9 of the Small
Business Act (15 U.S.C. 638) is amended by adding at the end of
the following:
``(w) STTR Model Agreement for Intellectual Property
Rights.--
``(1) In general.--The Administrator shall promulgate
regulations establishing a single model agreement for
use in the STTR program that allocates between small
business concerns and research institutions
intellectual property rights and rights, if any, to
carry out follow-on research, development, or
commercialization.
``(2) Opportunity for comment.--In promulgating
regulations under paragraph (1), the Administrator
shall provide to affected agencies, small business
concerns, research institutions, and other interested
parties the opportunity to submit written comments.''.
(b) Adoption of Model Agreement By Federal Agencies.--
Section 9(o)(11) of the Small Business Act (15 U.S.C.
638(o)(11)) is amended by striking ``develop a model agreement
not later than July 31, 1993, to be approved by the
Administration,'' and inserting ``adopt the agreement developed
by the Administrator under sub-section (w) as the agency's
model agreement''.
SEC. 8 FAST PROGRAM ASSISTANCE TO WOMEN-OWNED AND MINORITY-OWNED SMALL
BUSINESS CONCERNS AND CONCERNS LOCATED IN AREAS NOT
PARTICIPATING IN SBIR AND STTR.
(a) Selection Consideration.--Section 34(c)(2)(B) of the
Small Business Act (15 U.S.C. 657d(c)(2)(B)) is amended--
(1) in clause (iv), by striking ``and'' at the end;
(2) in clause (v), by striking the period at the end
and inserting ``; and''; and
(3) by adding at the end the following new clause:
``(vi) whether the proposal addresses the
needs of small business concerns--
``(I) owned and controlled by women;
``(II) owned and controlled by
minorities; and
``(III) located in areas that have
historically not participated in the
SBIR and STTR programs.''.
(b) Regulations.--Section 34(c)(4) of the Small Business
Act (15 U.S.C. 657d(c)(4)) is amended by adding at the end of
following: ``The Administrator shall promulgate regulations
establishing standards for the consideration of proposals under
paragraph (2), including standards regarding each of the
considerations identified in paragraph (2)(B).''.
Approved October 15, 2001.
----------
Public Law 107-100 107th Congress
AN ACT To amend the Small Business Investment Act of 1958, and for
other purposes
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Investment
Company Amendments Act of 2001''.
SEC. 2. SUBSIDY FEES.
(a) In General.--Section 303 of the Small Business
Investment Act of 1958 (15 U.S.C. 683) is amended--
(1) in subsection (b)--
(A) by striking ``of not more than 1 percent
per year'';
(B) by inserting ``which amount may not
exceed 1.38 percent per year, and'' before
``which shall be paid''; and
(C) by striking ``September 30, 2000'' and
inserting ``September 30, 2001''; and
(2) in subsection (g)(2)--
(A) by striking ``of not more than 1 percent
per year'';
(B) by inserting ``which amount may not
exceed 1.38 percent per year, and'' before
``which shall be paid''; and
(C) by striking ``September 30, 2000'' and
inserting ``September 30, 2001''.
(b) Effective Date.--The amendments made by this section
shall become effective on October 1, 2001.
SEC. 3. CONFLICTS OF INTEREST.
Section 312 of the Small Business Investment Act of 1958
(15 U.S.C. 687d) is amended by striking ``(including disclosure
in the locality most directly affected by the transaction)''.
SEC. 4. PENALTIES FOR FALSE STATEMENTS.
(a) Criminal Penalties.--Section 1014 of title 18, United
States Code, is amended by inserting ``, as defined in section
103 of the Small Business Investment Act of 1958 (15 U.S.C.
662), or the Small Business Administration in connection with
any provision of the Act'' after ``small business investment
company''.
(b) Civil Penalties.--Section 951 of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (12
U.S.C. 1833a) is amended--
(1) by redesignating subsections (d) through (g) as
subsections (e) through (h), respectively; and
(2) in subsection (c)--
(A) in paragraph (1), by striking ``or'' at
the end;
(B) in paragraph (2)--
(i) by striking ``1341;'' and
inserting ``1341''; and
(ii) by striking ``institution.'' and
inserting ``institution; or'';
(C) by inserting immediately after paragraph
(2) the following:
``(3) section 16(a) of the Small Business Act (15
U.S.C. 645(a)).''; and
(D) by striking ``This section shall'' and
inserting the following:
``(d) Effective Date.--This section shall''.
SEC. 5. REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.
Section 313 of the Small Business Investment Act of 1958
(15 U.S.C. 687e) is amended to read as follows:
``SEC. 313. REMOVAL OR SUSPENSION OF MANAGEMENT OFFICIALS.
``(a) Definition of `Management Official'.--In this
section, the term `management official' means an officer,
director, general partner, manager, employee, agent, or other
participant in the management or conduct of the affairs of a
licensee.
``(b) Removal of Management Officials.--
``(1) Notice of removal.--The Administrator may serve
upon any management official a written notice of its
intention to remove that management official whenever,
in the opinion of the Administrator--
``(A) such management official--
``(i) has willfully and knowingly
committed any substantial violation
of--
``(I) this Act;
``(II) any regulation issued
under this Act; or
``(III) a cease-and-desist
order which has become final;
or
``(ii) has willfully and knowingly
committed or engaged in any act,
omission, or practice which constitutes
a substantial breach of a fiduciary
duty of that person as a management
official; and
``(B) the violation or breach of fiduciary duty is one
involving personal dishonesty on the part of such management
official.
``(2) Contents of notice.--A notice of intention to
remove a management official, as provided in paragraph
(1), shall contain a statement of the facts
constituting grounds therefore, and shall fix a time
and place at which a hearing will be held thereon.
``(3) Hearings.--
``(A) Timing.--A hearing described in
paragraph (2) shall be fixed for a date not
earlier than 30 days nor later than 60 days
after the date of service of notice of the
hearing, unless an earlier or a later date is
set by the Administrator at the request of--
``(i) the management official, and
for good cause shown; or
``(ii) the Attorney General of the
United States.
``(B) Consent.--Unless the management
official shall appear at a hearing described in
this paragraph in person or by a duly
authorized representative, that
managementofficial shall be deemed to have consented to the issuance of
an order of removal under paragraph (1).
``(4) Issuance of order of removal.--
``(A) In general.--In the event of consent
under paragraph (3)(B), or if upon the record
made at a hearing described in this subsection,
the Administrator finds that any of the grounds
specified in the notice of removal has been
established, the Administrator may issue such
orders of removal from office as the
Administrator deems appropriate.
``(B) Effectiveness.--An order under
subparagraph (A) shall--
``(i) become effective at the
expiration of 30 days after the date of
service upon the subject licensee and
the management official concerned
(except in the case of an order issued
upon consent as described in paragraph
(3)(B), which shall become effective at
the time specified in such order); and
``(ii) remain effective and
enforceable, except to such extent as
it is stayed, modified, terminated, or
set aside by action of the
Administrator or a reviewing court in
accordance with this section.
``(c) Authority to Suspend or Prohibit Participation.--
``(1) In general.--The Administrator may, if the
Administrator deems it necessary for the protection of
the licensee or the interests of the Administration,
suspend from office or prohibit from further
participation in any manner in the management or
conduct of the affairs of the licensee, or both, any
management official referred to in subsection (b)(1),
by written notice to such effect served upon the
management official.
``(2) Effectiveness.--A suspension or prohibition
under paragraph (1)--
``(A) shall become effective upon service of
notice under paragraph (1); and
``(B) unless stayed by a court in proceedings
authorized by paragraph (3), shall remain in
effect--
``(i) pending the completion of the
administrative proceedings pursuant to
a notice of intention to remove served
under subsection (b); and
``(ii) until such time as the
Administrator shall dismiss the charges
specified in the notice, or, if an
order of removal or prohibition is
issued against the management official,
until the effective date of any such
order.
``(3) Judicial review.--Not later than 10 days after
any management official has been suspended from office
or prohibited from participation in the management or
conduct of the affairs of a licensee, or both, under
paragraph (1), that management official may apply to
the United States district court for the judicial
district in which the home office of the licensee is
located, or the United States District Court for the
District of Columbia, for a stay of the suspension or
prohibition pending the completion of the
administrative proceedings pursuant to a notice of
intent to remove served upon the management official
under subsection (b), and such court shall have
jurisdiction to stay such action.
``(d) Authority To Suspend on Criminal Charges.--
``(1) In general.--Whenever a management official is
charged in any information, indictment, or complaint
authorized by a United States attorney, with the
commission of or participation in a felony involving
dishonesty or breach of trust, the Administrator may,
by written notice served upon that management official,
suspend that management official from office or
prohibit that management official from further
participation in any manner in the management or
conduct of the affairs of the licensee, or both.
``(2) Effectiveness.--A suspension or prohibition
under paragraph (1) shall remain in effect until the
subject information, indictment, or complaint is
finally disposed of, or until terminated by the
Administrator.
``(3) Authority upon conviction.--If a judgment of
conviction with respect to an offense described in
paragraph (1) is entered against a management official,
then at such time as the judgment is not subject to
further appellate review, the Administrator may issue
and serve upon the management official an order
removing that management official, which removal shall
become effective upon service of a copy of the order
upon the licensee.
``(4) Authority upon dismissal or other
disposition.--A finding of not guilty or other
disposition of charges described in paragraph (1) shall
not preclude the Administrator from thereafter
instituting proceedings to suspend or remove the
management official from office, or to prohibit the
management official from participation in the
management or conduct of the affairs of the licensee,
or both, pursuant to subsection (b) or (c).
``(e) Notification to Licensees.--Copies of each notice
required to be served on a management official under this
section shall also be served upon the interested licensee.
``(f) Procedural Provisions; Judicial Review.--
``(1) Hearing venue.--Any hearing provided for in
this section shall be--
``(A) held in the Federal judicial district
or in the territory in which the principal
office of the licensee is located, unless the
party afforded the hearing consents to another
place; and
``(B) conducted in accordance with the
provisions of chapter 5 of title 5, United
States Code.
``(2) Issuance of orders.--After a hearing provided
for in this section, and not later than 90 days after
the Administrator has notified the parties that the
case has been submitted for final decision, the
Administrator shall render a decision in the matter
(which shall include findings of fact upon which its
decision is predicated), and shall issue and cause to
be served upon each party to the proceeding an order or
orders consistent with the provisions of this section.
``(3) Authority to modify orders.--The Administrator
may modify, terminate, or set aside any order issued
under this section--
``(A) at any time, upon such notice, and in
such manner as the Administrator deems proper,
unless a petition for review is timely filed in
a court of appeals of the UnitedStates, as
provided in paragraph (4)(B), and thereafter until the record in the
proceeding has been filed in accordance with paragraph (4)(C); and
``(B) upon such filing of the record, with
permission of the court.
``(4) Judicial review.--
``(A) In general.--Judicial review of an
order issued under this section shall be
exclusively as provided in this subsection.
``(B) Petition for review.--Any party to a
hearing provided for in this section may obtain
a review of any order issued pursuant to
paragraph (2) (other than an order issued with
the consent of the management official
concerned, or an order issued under subsection
(d)), by filing in the court of appeals of the
United States for the circuit in which the
principal office of the licensee is located, or
in the United States Court of Appeals for the
District of Columbia Circuit, not later than 30
days after the date of service of such order, a
written petition praying that the order of the
Administrator be modified, terminated, or set
aside.
``(C) Notification to administration.--A copy
of a petition filed under subparagraph (B)
shall be forthwith transmitted by the clerk of
the court to the Adminsitrator, and thereupon
the Administrator shall file in the court the
record in the proceeding, as provided in
section 2112 of title 28, United States Code.
``(D) Court jurisdiction.--Upon the filing of
a petition under subparagraph (A)--
``(i) the court shall have
jurisdiction, which, upon the filing of
the record under subparagraph (C),
shall be exclusive, to affirm, modify,
terminate, or set aside, in whole or in
part, the order of the Administrator,
except as provided in the last sentence
of paragraph (3)(B);
``(ii) review of such proceedings
shall be had as provided in chapter 7
of title 5, United States Code; and
``(iii) the judgment and decree of
the court shall be final, except that
the judgment and decree shall be
subject to review by the Supreme Court
of the United States upon certiorari,
as provided in section 1254 of title
28, United States Code.
``(E) Judicial review not a stay.--The
commencement of proceedings for judicial review
under this paragraph shall not, unless
specifically ordered by the court, operate as a
stay of any order issued by the Administrator
under this section.''.
SEC. 6. REDUCTION OF FEES.
(a) Two-Year Reduction of Section 7(a) Fees.--
(1) Guarantee fees.--Section 7(a)(18) of the Small
Business Act (15 U.S.C. 636(a)(18)) is amended by
adding at the end the following:
``(C) Two-year reduction in fees.--With
respect to loans approved during the 2-year
period beginning on October 1, 2002, the
guarantee fee under subparagraph (A) shall be
as follows:
``(i) A guarantee fee equal to 1
percent of the deferred participation
share of a total loan amount that is
not more than $150,000.
``(ii) A guarantee fee equal to 2.5
percent of the deferred participation
share of a total loan amount that is
more than $150,000, but not more than
$700,000.
``(iii) A guarantee fee equal to 3.5
percent of the deferred participation
share of a total loan amount that is
more than $700,000.''.
(2) Annual fees.--Section 7(a)(23)(A) of the Small
Business Act (15 U.S.C. 636(a)(23)(A)) is amended by
adding at the end of the following: ``With respect to
loans approved during the 2-year period beginning on
October 1, 2002, the annual fee assessed and collected
under the preceding sentence shall be in an amount
equal to 0.25 percent of the outstanding balance of the
deferred participation share of the loan.''.
(b) Reduction of Section 504 Fees.--Section 503 of the
Small Business Investment Act of 1958 (15 U.S.C. 697) is
amended--
(1) in subsection (b)(7)(A)--
(A) by redesignating clauses (i) and (ii) as
subclauses (I) and (II), respectively, and
moving the margins 2 ems to the right;
(B) by striking ``not exceed the lesser'' and
inserting ``not exceed--
``(i) the lesser''; and
(C) by adding at the end the following:
``(ii) 50 percent of the amount
established under clause (i) in the
case of a loan made during the 2-year
period beginning on October 1, 2002,
for the life of the loan; and''; and
(2) by adding at the end the following:
``(i) Two-Year Waiver of Fees.--The Administration may not
assess or collect any up front guarantee fee with respect to
loans made under this title during the 2-year beginning on
October 1, 2002.''.
(c) Budgetary Treatment of Loans and Financings.--
Assistance made available under any loan made or approved by
the Small Business Administration under section 7(a) of the
Small Business Act (15 U.S.C. 636(a)) or financings made under
title V of the Small Business Investment Act of 1958 (15 U.S.C.
695 et seq.), during the 2-year period beginning on October 1,
2002, shall be treated as separate programs of the Small
Business Administration for purposes of the Federal Credit
Reform Act of 1990 only.
(d) Use of Funds.--The amendments made by this section to
section 503 of the Small Business Investment Act of 1958, shall
be effective only to the extent that funds are made available
under appropriations Acts, which funds shall be utilized by the
Administrator to offset the cost (as such term is defined in
section 502 of the Federal Credit Reform Act of 1990) of such
amendments.
(e) Effective Date.--The amendments made by this section
shall become effective on October 1, 2002.
Approved December 21, 2001.