[House Report 109-205]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    109-205

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



 
          SECOND-STAGE SMALL BUSINESS DEVELOPMENT ACT OF 2005

                                _______
                                

 July 28, 2005.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 3207]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Small Business, to whom was referred the 
bill (H.R. 3207) to direct the Administrator of the Small 
Business Administration to establish a pilot program to make 
grants to eligible entities for the development of peer 
learning opportunities for second-stage small business 
concerns, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Second-Stage Small Business 
Development Act of 2005''.

SEC. 2. PURPOSE.

  The purpose of this Act is to establish a four-year pilot program 
to--
          (1) identify second-stage small business concerns that have 
        the capacity for significant business growth and job creation;
          (2) facilitate business growth and job creation by second-
        stage small business concerns through the development of peer 
        learning opportunities;
          (3) utilize the network of small business development centers 
        to expand access to peer learning opportunities for second-
        stage small business concerns; and
          (4) assist businesses owned by minority individuals, service-
        disabled veterans, and women.

SEC. 3. PILOT PROGRAM.

  (a) Establishment.--The Administrator shall establish and carry out a 
pilot program (referred to in this Act as the ``pilot program'') to 
make grants to eligible entities for the development of peer learning 
opportunities for second-stage small business concerns in accordance 
with this Act.
  (b) Selection of Grant Recipients.--
          (1) In general.--From the eligible entities located in the 
        States in each of the 10 regions under paragraph (3), the 
        Administrator shall select 2 eligible entities to receive 
        grants.
          (2) Eligible entities.--In this Act, the term ``eligible 
        entity'' means an entity that--
                  (A) is eligible to receive funding under section 21 
                of the Small Business Act (15 U.S.C. 648); and
                  (B) submits to the Secretary an application that 
                includes--
                          (i) a plan to--
                                  (I) offer peer learning opportunities 
                                to second-stage small business 
                                concerns; and
                                  (II) transition to providing such 
                                opportunities using non-governmental 
                                funding; and
                          (ii) any other information and assurances 
                        that the Secretary may require.
          (3) Criteria for selection.-- The Administrator shall 
        evaluate the plans submitted by the eligible entities under 
        paragraph (2) and select eligible entities to receive grants on 
        the basis of the merit of such plans.
          (4) Regions described.--The regions referred to in paragraph 
        (1) are as follows:
                  (A) Region 1.--Maine, Massachusetts, New Hampshire, 
                Connecticut, Vermont, and Rhode Island.
                  (B) Region 2.--New York, New Jersey, Puerto Rico, and 
                the Virgin Islands.
                  (C) Region 3.--Pennsylvania, Maryland, West Virginia, 
                Virginia, the District of Columbia, and Delaware.
                  (D) Region 4.--Georgia, Alabama, North Carolina, 
                South Carolina, Mississippi, Florida, Kentucky, and 
                Tennessee.
                  (E) Region 5.--Illinois, Ohio, Michigan, Indiana, 
                Wisconsin, and Minnesota.
                  (F) Region 6.--Texas, New Mexico, Arkansas, Oklahoma, 
                and Louisiana.
                  (G) Region 7.--Missouri, Iowa, Nebraska, and Kansas.
                  (H) Region 8.--Colorado, Wyoming, North Dakota, South 
                Dakota, Montana, and Utah.
                  (I) Region 9.--California, Guam, Hawaii, Nevada, 
                Arizona, and American Samoa.
                  (J) Region 10.--Washington, Alaska, Idaho, and 
                Oregon.
          (5) Consultation.--If small business development centers have 
        formed an association to pursue matters of common concern as 
        authorized under section 21(a)(3)(A) of the Small Business Act 
        (15 U.S.C. 648(a)(3)(A)), the Administrator shall consult with 
        such association and give substantial weight to the 
        recommendations of such association in selecting the grant 
        recipients.
          (6) Deadline for initial selections.--The Administrator shall 
        make selections under paragraph (1) not later than 60 days 
        after the promulgation of regulations under section 4.
  (c) Use of Funds.--An eligible entity that receives a grant under the 
pilot program shall use the grant to--
          (1) identify second-stage small business concerns in the 
        service delivery areas of the eligible entity; and
          (2) establish and conduct peer learning opportunities for 
        such second-stage small business concerns.
  (d) Amount of Grant.--
          (1) In general.--Except as provided in paragraph (2), a grant 
        under the pilot program shall be in an amount that does not 
        exceed the product obtained by multiplying--
                  (A) the amount made available for grants under the 
                pilot program for the fiscal year for which the grant 
                is made; and
                  (B) the ratio that the population of the State in 
                which the eligible entity is located bears to the 
                aggregate population the States in which eligible 
                entities receiving grants for that fiscal year are 
                located.
          (2) Minimum amount of grant.--A grant under the pilot program 
        shall be in an amount not less than $50,000.
  (e) Matching Requirement.--As a condition of a grant under the pilot 
program, the Administrator shall require that a matching amount be 
provided from sources other than the Federal Government that--
          (1) is equal to the amount of the grant, or in the case of an 
        eligible entity that is a community college, historically Black 
        college, Hispanic-serving institution, or other minority 
        institution, is equal to 50 percent of the amount of the grant;
          (2) is not less than 50 percent cash;
          (3) is not more than 50 percent comprised of indirect costs 
        and in-kind contributions; and
          (4) does not include any indirect cost or in-kind 
        contribution derived from any Federal program
  (f) Quarterly Report to Administrator.--
          (1) In general.--Each eligible entity that receives a grant 
        under the pilot program shall submit to the Administrator a 
        quarterly report that includes--
                  (A) a summary of the peer learning opportunities 
                established by the eligible entity using grant funds;
                  (B) the number of second-stage small business 
                concerns assisted using grant funds; and
                  (C) in the case of an eligible entity that receives a 
                grant for a second fiscal year or any subsequent fiscal 
                year--
                          (i) any measurable economic impact data 
                        resulting from the peer learning opportunities 
                        established using grant funds; and
                          (ii) the number of peer learning 
                        opportunities established by the eligible 
                        entity that have transitioned from operating 
                        using Government funds to operating without 
                        using Government funds.
          (2) Form of report.--The report required under paragraph (1) 
        shall be transmitted in electronic form.
  (g) Data Repository and Clearinghouse.--In carrying out the pilot 
program, the Administrator shall act as the repository of and 
clearinghouse for data and information submitted by the eligible 
entities.
  (h) Annual Report on Pilot Program.--Not later than November 1 of 
each year, the Administrator shall submit to the President and to 
Congress, a report evaluating the success of the pilot program during 
the preceding fiscal year, which shall include the following:
          (1) A description of the types of peer learning opportunities 
        provided with grant funds.
          (2) The number of second-stage small business concerns 
        assisted with grant funds.
          (3) For fiscal year 2007 and each subsequent fiscal year of 
        the pilot program--
                  (A) data regarding the economic impact of the peer 
                learning opportunities provided with grant funds; and
                  (B) the number of peer learning opportunities 
                established by grant recipients that have transitioned 
                from operating using Government funds to operating 
                without using Government funds.
  (i) Privacy Requirement.--
          (1) In general.--A small business development center, 
        consortium of small business development centers, or contractor 
        or agent of a small business development center shall not 
        disclose the name, address, or telephone number of any 
        individual or small business concern receiving assistance under 
        this section without the consent of such individual or small 
        business concern, unless--
                  (A) the Administrator is ordered to make such a 
                disclosure by a court in any civil or criminal 
                enforcement action initiated by a Federal or State 
                agency; or
                  (B) the Administrator considers such a disclosure to 
                be necessary for the purpose of conducting a financial 
                audit of a small business development center, but a 
                disclosure under this subparagraph shall be limited to 
                the information necessary for such audit.
          (2) Administrator use of information.--The privacy 
        requirement under this subsection shall not--
                  (A) restrict Administrator access to program activity 
                data; or
                  (B) prevent the Administrator from using client 
                information to conduct client surveys.
  (j) Evaluation and Report.--Not later than 3 years after the 
establishment of the pilot program, the Comptroller General of the 
United States shall--
          (1) conduct an evaluation of the pilot program; and
          (2) transmit to Congress and the Administrator a report 
        containing the results of such evaluation along with any 
        recommendations as to whether the pilot program, with or 
        without modification, should be extended to include the 
        participation of all small business development centers.
  (k) Termination.--The pilot program shall terminate on September 30, 
2009.

SEC. 4. REGULATIONS.

  After providing notice and an opportunity for comment and after 
consulting with the association described in section 3(b)(5) (if any 
such association has been formed), the Administrator shall promulgate 
final regulations to carry out this Act, including regulations that 
establish--
          (1) standards relating to the establishment and conduct of 
        peer learning opportunities to be provided by grant recipients, 
        including the number of individuals that may participate in a 
        peer group that is part of a peer learning opportunity;
          (2) standards relating to the educational, technical, and 
        professional competency of any facilitator who delivers peer 
        learning opportunities under the pilot program; and
          (3) requirements for transitioning peer learning 
        opportunities funded under the pilot program to non-
        governmental funding.

SEC. 5. DEFINITIONS.

  In this Act:
          (1) The term ``Administrator'' means the Administrator of the 
        Small Business Administration.
          (2) The term ``peer learning opportunities'' means formally 
        organized peer groups of owners, presidents and chief executive 
        officers in non-competing second-stage business concerns, 
        meeting regularly with a professionally trained facilitator.
          (3) The term ``second-stage small business concern'' means a 
        small business concern that--
                  (A) has experienced high growth demonstrated by--
                          (i) an average annual revenue or employee 
                        growth rate of at least 15 percent during the 
                        preceding 3 years; or
                          (ii) any 3 of the following:
                                  (I) Owning proprietary intellectual 
                                property.
                                  (II) Addressing an underserved or 
                                growing market.
                                  (III) Having a sustainable 
                                competitive advantage.
                                  (IV) Exporting goods or services 
                                outside of its community.
                                  (V) Having a product or service that 
                                is scalable to a large market.
                                  (VI) Ownership by minority 
                                individuals, service-disabled veterans, 
                                or women; and
                  (B) does not exceed the size standard for the North 
                American Industrial Classification System code of such 
                concern, as established pursuant to section 3(a) of the 
                Small Business Act (15 U.S.C. 632(a)).
          (4) The term ``small business concern'' has the meaning given 
        that term under section 3 of the Small Business Act (15 U.S.C. 
        632).
          (5) The term ``State'' means each of the several States, the 
        District of Columbia, the Commonwealth of Puerto Rico, the 
        Virgin Islands, Guam, and American Samoa.
          (6) The term ``community college'' has the meaning given that 
        term in section 3301(3) of the Higher Education Act of 1965 (20 
        U.S.C. 7011(3)).
          (7) The term ``historically Black college'' means a part B 
        institution, as defined in section 322(2) of the Higher 
        Education Act of 1965 (20 U.S.C. 1061(2)).
          (8) The term ``Hispanic-serving institution'' has the meaning 
        given that term in section 502(a)(5) of the Higher Education 
        Act of 1965 (20 U.S.C. 1101a(a)(5)).
          (9) The term ``minority institution'' has the meaning given 
        that term in section 365(3) of the Higher Education Act of 1965 
        (20 U.S.C. 1067k(3)).

SEC. 6. AUTHORIZATION OF APPROPRIATIONS.

  (a) In General.--There is authorized to be appropriated to carry out 
this Act $1,500,000 for each of fiscal years 2006 through 2009.
  (b) Limitation on Use of Other Funds.--The Administrator shall carry 
out this Act using only amounts appropriated in advance specifically 
for the purpose of carrying out this Act.

                                PURPOSE

    The purpose of H.R. 3207, the Second-Stage Small Business 
Development Act of 2005, is to utilize the existing Small 
Business Administration infrastructure to improve second-stage 
small business concern operations through counseling from other 
similar business concerns. Specifically, H.R. 3207 aims to 
utilize the existing network of small business development 
centers to organize peer learning opportunities for second-
stage small business concerns. The Committee's expectation is 
that these programs will provide targeted assistance to those 
small business concerns that are growing rapidly but face 
operational obstacles that other similarly-situated business 
concerns faced and overcame. The Committee expects that other 
small business development centers will utilize the best 
practices and advice obtained from the pilot program.

                          NEED FOR LEGISLATION

    Scholars classify various stages of small business 
development. For purposes of H.R. 3207, the four stages of 
small business are: new venture, expansion, 
professionalization, and consolidation. Y. Randle & E. 
Flamholtz, Growing Pains 32-43 (1990). The expansion phase is 
frequently referred to as ``second-stage entrepreneurship.'' 
See http://www.lowe.org/index.peeer?page=ENTstages. Second-
stage business concerns are growing rapidly and changing their 
focus from that of the founders to an identifiable culture 
apart from the founders. Id. These second-stage concerns may be 
ready for even more rapid expansion, including the hiring of 
additional personnel. Given their readiness to grow, other 
scholars refer to them as entrepreneurial growth companies\1\ 
or gazelles.\2\ Gazelles are critical to the American economy. 
According to Dr. David Birch, gazelles represent about three to 
four percent of all American businesses but are responsible for 
the vast majority of new employment in the United States. John 
Case, The Age of the Gazelle, Inc. Magazine (May 1996) (citing 
Dr. Birch data noting that gazelles created net employment of 4 
million new jobs from 1990-94).\3\ Furthermore, gazelles 
typically are not found in high-tech industries but rather are 
spread throughout the American economy, including a surprising 
number in manufacturing. National Commission on 
Entrepreneurship, High-Growth Companies: Mapping America's 
Entrepreneurial Landscape 1 (2001).
---------------------------------------------------------------------------
    \1\National Commission on Entrepreneurship, Five Myths About 
Entrepreneurs 3 (2001). The report is available at http://
www.publicforuminstitute.org/nde/reports/2001-five-myths.pdf.
    \2\David Birch, an economist, is credited with first using the term 
``gazelle'' in reference to fast-growing small businesses. See http://
www.sba.gov/advo/25ann.html#report.
    \3\A 2001 report by the National Commission on Entrepreneurship, 
High-Growth Companies: Mapping America's Entrepreneurial Landscape, 
reconfirmed the findings of Dr. Birch for the period 1992-97.
---------------------------------------------------------------------------
    Despite the fact that such businesses have overcome 
significant problems associated with the start-up phase of 
business,\4\ they still face operational obstacles to maximize 
their potential. Absent taking the right steps with respect to 
the role of the founders, upgrades to accounting systems, and 
sales efforts, the gazelles could stumble. Stephen Solomon & 
Julie Sloane, Thinkers, The Top Ten Minds in Small Business, 
Fortune Small Business (September 2001) (citing Verne Harnish, 
consultant and founder of Gazelles, Inc.). Other problems that 
gazelles may face are capital markets not designed to assist 
gazelles, the need for appropriate intellectual property 
protection, proper workforce education and investment in human 
capital, and development of market opportunities.
---------------------------------------------------------------------------
    \4\Brian Headd, Redefining Business Success: Distinguishing Between 
Closure and Failure, 21 Small Business Economics 51, 52 (2003) (noting 
that the majority of small businesses close within four years).
---------------------------------------------------------------------------
    The Small Business Administration runs a number of programs 
in which small businesses can learn from other businesses. In 
the government procurement arena, a mentor-protege program 
exists to help small businesses by linking them with large 
prime contractors. An extension of the program, BusinessLINC (a 
program whose authorization ceased on September 30, 2004), was 
designed to facilitate meetings among various mentor-protege 
participants. While somewhat effective, the mentor-protege 
programs have a narrow remit. The Committee believes that 
learning from peers who have had or are having the same or 
similar experiences, provides useful assistance to small 
business concerns.
    The Committee believes that small business development 
centers can provide an effective mechanism for arranging and 
helping facilitate peer-to-peer learning among gazelles. The 
Committee believes that a pilot program to demonstrate the 
effectiveness of small business development center involvement 
is appropriate. The Committee fully expects that the best 
practices will be adopted by other small business development 
centers and the program may be made permanent.

                            COMMITTEE ACTION

    The Committee on Small Business held a hearing on July 13, 
2005 on H.R. 3207. Ms. Erica Kauten, the Director of the 
Wisconsin Small Business Development Center, cited a number of 
examples in which peer-to-peer learning had been beneficial to 
second-stage entrepreneurs and explained how the small business 
development centers can play a key role in such peer-to-peer 
learning.

                       CONSIDERATION OF H.R. 3207

    At 9:36 a.m. on July 14, 2005, the Committee on Small 
Business met to consider and report H.R. 3207. Following a 
brief opening statement by the Chairman, he declared the bill 
open for amendment.
    An amendment was offered by the Amendments were offered by 
Ranking Democratic Member, Ms. Velazquez (D-NY) and Ms. Bean 
(D-IL) offered an en bloc amendment which was approved by 
unanimous voice vote, a quorum being present. Chairman Manzullo 
then moved the bill be reported, and at 9:56 a.m. by unanimous 
voice vote, a quorum being present, the Committee passed H.R. 
3207, as amended and ordered it reported.

                      SECTION-BY-SECTION ANALYSIS

Section 1. Short title

    The section establishes the short title as the ``Second-
Stage Small Business Development Act of 2005.''

Section 2. Purpose

    This section states the Congressional rationale for 
enactment of the program.

Section 3. Pilot program

    Subsection (a) mandates that the Administrator establish 
the program of peer learning opportunities through SBDCs.
    Subsection (b) requires that the Administrator to select 
eligible entities (SBDCs) that apply pursuant to the pilot 
program. Eligible entities are defined as those institutions or 
governmental organizations that currently receive funding 
pursuant to Sec. 21 of the Small Business Act. The term 
``eligible entities'' does not refer to the situs at which 
locations of services are delivered by entities that receive 
funds pursuant to Sec. 21 of the Small Business Act. Subsection 
(b) limits the pilot program to twenty grantees, two selected 
from each of the ten federal regions as delineated in paragraph 
(4). The Committee recognizes that some states may have more 
than one SBDC eligible to receive funding pursuant to the 
funding formula in Sec. 21 of the Small Business Act. For those 
states, the Committee intends that the Administrator select 
only one SBDC program from those states with more than one 
grantee under Sec. 21. Eligible grantees may submit an 
application to the Administrator with a plan for offering peer 
learning opportunities and a plan to ensure that these peer 
learning opportunities will become self-sustaining by the end 
of the pilot program. The Administrator is required to select 
the applicants with the best plans for providing the 
opportunities and ensuring that the peer learning opportunities 
shall be self-sustaining. Nothing in the bill restricts the 
Administrator from weighting the factors in favor of the self-
sustaining aspects or the quality of the peer learning 
opportunities. Paragraph (5) of subsection (b) requires the 
Administrator to consult with the Association recognized 
pursuant to Sec. 21(a)(3)(A) of the Small Business Act and give 
the Association's recommendations substantial weight. The 
Committee intends that the term ``substantial weight'' not give 
the Association controlling weight; rather the term 
``substantial'' is used in its administrative law context of 
more than a scintilla but less than a preponderance. See Grand 
Canyon Air Tour Coalition v. FAA, 154 F.3d 455, 474-75 (D.C. 
Cir. 1998), cert. denied, 526 U.S. 1158 (1999). It is not the 
Committee's intention that this consultation process not fall 
within the requirements of the Federal Advisory Committee Act. 
Paragraph (6) of subsection (b) requires completion of the 
selection process within 60 days after the regulations to 
implement the pilot program have been promulgated.
    Subsection (c) requires that a grantee selected in the 
pilot program to use the funds solely for purposes of 
conducting peer learning opportunities. Funds may not be used 
by the selected grantees for any other purpose, including 
provision of any other service mandated by Sec. 21 of the Small 
Business Act or the grantees contract or cooperative agreement 
with the Small Business Administration.
    Subsection (d) establishes the procedures for distributing 
grants among the selected state programs. The formula is based 
on the principle that a state, which has a smaller population, 
also will have, in absolute terms, fewer small businesses than 
a larger state. The formula, therefore, allocates funds 
according to the relative size of each state. The Committee 
believes that the minimum funds needed to initiate a state 
program will be $50,000 and grants the Administrator the 
authority to modify the grant size calculated by the formula in 
this subsection to ensure that each SBDC selected under the 
pilot program will receive a minimum of $50,000.
    Subsection (e) requires the applicants to satisfy the 
matching funds requirements of subparagraphs (A) and (B) of 
Sec. 21(a)(4) of the Small Business Act. The Committee decided 
that since these peer learning opportunities would be of 
sufficient value to the small business community, the selected 
programs should be able to obtain matching funds, including the 
payment of attendance fees by the participants. Furthermore, 
the matching requirement will expand the total resources 
devoted to the program. Subsection (e) provides an exception 
for lead centers located at community colleges, historically 
Black college, Hispanic-serving institutions, and minority 
institutions in meeting these matching requirements. Where the 
lead center in a state is housed in any of these centers, such 
center must only obtain only 50% of the matching fund 
requirements of subparagraphs (A) and (B) of Sec. 21(a)(4) of 
the Small Business Act. The matching funds requirement shall be 
calculated based on the amount of the grant made under this 
pilot program.
    Subsection (f) requires each SBDC selected to operate peer 
learning opportunities must provide a quarterly report to the 
Administrator with the information set forth in paragraphs (A)-
(C). Nothing in this requirement alters any other reporting 
requirement mandated by the Administrator. The Administrator, 
for the sake of reductions in paperwork burdens, may combine 
the report required by this subsection with other quarterly 
reports. Since the reports mandated by this subsection must be 
filed electronically, we urge the Administrator to establish an 
overall electronic reporting system for SBDCs to the extent 
such a system has not been developed.
    The Association recognized by Sec. 21 of the Small Business 
Act provides a number of services to SBDCs. It frequently acts 
as a conduit to provide information to the Administrator and 
from the Administrator to the SBDCs. Given this role, the 
Committee determined that the Association should act as a 
clearinghouse and conduit of information to SBDCs under the 
terms set forth in subsection (g).
    The Committee believes that peer learning will be 
sufficiently valuable addition to the services provided by 
SBDCs that they would be able to recoup, after an initial 
period, the entire cost of providing this service. Thus, the 
Committee mandates in subsection (h) that the reports required 
by H.R. 3207 provide the Administrator with progress on making 
the peer learning opportunities self-sustaining. Such reports 
shall be filed on annual basis. To ensure that the 
Administrator has sufficient information to conduct audits and 
reviews of the program, subsection (h) also requires the 
grantees to submit, on an annual basis, descriptions of the 
peer learning opportunities and the number of ``second-stage'' 
small business concerns assisted by the pilot program. Finally, 
the Committee included a requirement that the grantees assess 
the economic impact of the program but delayed that requirement 
until one year after the program was established.
    Subsection (i) provides the same privacy protections to 
grantees in the pilot program that currently exist for SBDC 
clients pursuant to Sec. 21 as added by Division K of H.R. 
4818, the Consolidated Appropriations Act of 2005, Pub. L. No. 
108-447. This subsection prohibits the disclosure of client 
information (including the name, address, telephone and 
facsimile numbers, and e-mail address) of any concern or 
individual receiving assistance from a SBDC grantee or its 
subcontractors (who operate service centers that business 
owners can utilize to obtain advice) unless the Administrator 
is ordered to make such disclosure pursuant to a court order or 
civil or criminal enforcement action commenced by a federal or 
state agency. The Committee expects that SBDC grantees will 
only respond to formal agency requests, such as civil 
investigative demands, and subpoenas. The Committee also 
recognizes that the Administrator has significant management 
responsibilities to ensure that federal taxpayer dollars are 
wisely used by grantees and are in compliance with the law, 
regulations, and the cooperative agreements signed by SBDC 
grantees. Thus, the Committee authorizes the SBDC grantees to 
provide client names for the purposes of financial audits 
conducted by the Administrator or Inspector General and for 
client surveys to ensure that the SBDC grantees are satisfying 
certain aspects of their grant agreements. The Committee 
recognizes that client surveys may be misused and impose 
restrictions on their use. The Committee expects that the 
regulations promulgated pursuant to the amendments made to 
Sec. 21 pursuant to Pub. L. No. 108-447 shall apply to this 
pilot program, including the regulations about the use of 
client surveys.
    Subsection (j) requires the Comptroller General of the 
United States to provide a report evaluating the effectiveness 
of the program three years after establishment. The report also 
should contain any suggested modifications to the program. 
Finally, the Comptroller General should provide its opinion 
concerning whether the program should be continued and expanded 
to include more SBDCs on self-funding basis. The report shall 
be transmitted to the Committees on Small Business of the 
Senate and House of Representatives. The Committee expects that 
the program will be sufficiently successful to expand the 
program to other SBDCs without the need for additional federal 
funds.
    Subsection (k) provides for termination of the pilot 
program on September 30, 2009. The Committee decided not to 
provide for any authorization contingency if the program does 
not receive appropriations for the entire authorized length of 
the pilot program.

Section 4. Promulgation of regulations

    Section 4 authorizes the Administrator to promulgate 
regulations to implement this program no later than 180 days 
after the enactment of the Act. Such regulations only shall be 
promulgated after the public has been given an opportunity for 
notice and comment. The Committee believes that the 
Administrator can and should accomplish the issuance of 
regulations within the deadline set by statute. The Committee 
considers this Act to be some other law for purposes of section 
603 of Title 5 of the United States Code.
    The regulations shall include the standards relating to 
conduct of peer learning opportunities, the number of 
individuals that may participate in a group, determining 
whether a participant constitutes a competitor, various 
requirements for the facilitators of these peer learning 
opportunities, and requirements for transitioning these peer 
learning opportunities to full self-sustaining basis. The 
Committee expects that the regulations will lay out milestones 
and other requirements to ensure that this program will become 
self-funding once the pilot program's authority lapses.

Section 5. Definitions

    Paragraph (1) defines the term ``Administrator'' to be the 
Administrator of the Small Business Administration.
    Paragraph (2) defines the term ``peer learning 
opportunities'' as formally organized groups, overseen by 
professional facilitators, of presidents, owners, and chief 
executive officers of second-stage small business concerns. 
These groups meet regularly to discuss strategies and tactics 
and share ideas about operating their businesses. Meetings 
among business executives may lead to the perception of 
collusion in violation of the antitrust laws. While the 
Committee does not believe that second-stage entrepreneurs have 
sufficient market power to collude, the Committee took the 
safer approach by prohibiting peer learning among competitors. 
Thus, peer learning opportunities will be limited to non-
competitors. The Committee believes that valuable information, 
such as capital markets or handling certain workforce issues, 
will be shared among non-competitors. Furthermore, by 
eliminating competitors, members of the peer learning groups 
may be more willing to speak freely without concern about 
revealing important information to a competitor.
    Paragraph (3) establishes the criteria for determining 
whether a business concern qualifies as a second-stage 
entrepreneur and, thus, eligible for inclusion in the peer 
learning opportunities. Any small business that has survived 
the start-up, or new venture, phase may be considered a second-
stage business. However, the Committee's impetus for passing 
H.R. 3207 is to assist not all second-stage entrepreneurs but 
those that have shown the potential for accelerated growth, 
i.e., a gazelle. Additionally, the Committee wished to ensure 
maximum participation of women, service-disabled, and minority 
entrepreneurs who were in the ``gazelle'' category; as such, 
the legislation provides such ownership as meeting one of the 
three necessary requirements for qualification under clause 
(ii). Therefore, the Committee determined that parameters were 
necessary for circumscribing those second-stage entrepreneurs 
that are or have the potential for being gazelles. This 
paragraph establishes those standards and small business 
concerns must be both a small business as defined by the 
Administrator's regulations set forth in 13 C.F.R. Sec. 121.201 
and meet the criteria set forth in clauses (i) or (ii).
    Paragraph (4) defines a small business concern by cross-
reference to Sec. 3 of the Small Business Act. The Committee 
intends that the Administrator shall construe the terms in H.R. 
3207 and the Small Business Act in pari materia.
    Paragraph (5) defines the term ``state'' to include all the 
states, the District of Columbia and the territories of the 
United States Virgin Islands, Guam, the Commonwealth of Puerto 
Rico, and American Samoa. Puerto Rico, the Virgin Islands, and 
Guam all have SBDCs that receive funding pursuant to subsection 
(a)(4) of Sec. 21. Guam provides the services mandated by 
Sec. 21 to American Samoa.
    Paragraphs (6)-(9) set forth the definitions of those 
institutions of higher learning that are eligible for the 
reduced matching requirement pursuant to Sec. 3(e).

Section 6. Authorization of appropriations

    Section (6) limits the operation of the program only to the 
funds appropriated in advance for the program. The Committee 
provides an authorization of $1.5 million for each four fiscal 
years starting with the first fiscal year after enactment. 
Section (6) also prohibits the Administrator from using other 
funds, including other funds made available for the operation 
of SBDCs, to conduct this pilot program. The Committee 
authorized the additional appropriations because it determined 
that funding of the peer learning opportunities program should 
not detract from the available funding for the delivery of 
other services by SBDCs.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 20, 2005.
Hon. Donald Manzullo,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3207, the Second-
Stage Small Business Development Act of 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Melissa E. 
Zimmerman.
            Sincerely,
                                     Douglas Holtz-Eakin, Director.
    Enclosure.

H.R. 3207--Second-Stage Small Business Development Act of 2005

    Summary: H.R. 3207 would authorize the appropriation of $6 
million over the 2006-2009 period ($1.5 million a year) for a 
pilot program to support certain small businesses. Under the 
bill, the Small Business Administration would make grants to 
eligible Small Business Development Centers to create learning 
opportunities for small businesses in the ``second stage'' of 
business development. Under the bill, such second-stage 
businesses would be those that meet specific size, revenue, 
growth, and market criteria. Assuming appropriation of the 
specified amounts, CBO estimates that implementing H.R. 3207 
would not have a significant cost in 2006 and would cost about 
$4 million over the 2006-2010 period, with about $2 million in 
outlays after 2010. The bill would not affect direct spending 
or revenues.
    H.R. 3207 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA). 
The bill would benefit state, local, and tribal governments 
receiving grants under the bill, and any costs incurred by 
grant recipients would result from complying with grant 
conditions.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3207 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit). CBO assumes that the bill will 
be enacted by the end of 2005, that the specified amounts will 
be appropriated for each fiscal year, and that outlays will 
follow historical trends. CBO estimates that implementing the 
bill would increase spending subject to appropriation by less 
than $500,000 in 2006 and by about $4 million over the 2006-
2010 period for grants for promoting job creation and growth 
for ``second-stage'' small businesses. The remaining amount--
about $2 million--would be spent after 2010.

------------------------------------------------------------------------
                                      By fiscal year, in millions of
                                                 dollars--
                                 ---------------------------------------
                                   2006    2007    2008    2009    2010
------------------------------------------------------------------------
              CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Authorization Level\1\..........       2       2       2       2       0
Estimated Outlays...............       *       1       1       1      1
------------------------------------------------------------------------
\1\The bill specifies an authorization level of $1.5 million a year.
  (The table shows a rounded amount of $2 million a year.)

Note.--* = Less than $500,000.

    Intergovernmental and private-sector impact: H.R. 3207 
contains no intergovernmental or private-sector mandates as 
defined in UMRA. The bill would benefit State, local, and 
tribal governments receiving grants under the bill, and any 
costs incurred by grant recipients would result from complying 
with grant conditions.
    Estimate prepared by: Federal costs: Melissa E. Zimmerman. 
Impact on State, local, and tribal governments: Sarah Puro. 
Impact on the private sector: Craig Cammarata.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      COMMITTEE ESTIMATE OF COSTS

    Pursuant to the Congressional Budget Act of 1974, the 
Committee estimates that the amendments to the Small Business 
Act contained in H.R. 3207 will increase appropriations by no 
more than $1.5 million annually over the next four fiscal 
years. Furthermore, pursuant to clause 3(d)(2)(A) of rule XIII 
of the Rules of the House of Representatives, the Committee 
estimates that implementation of H.R. 3207 will not 
significantly increase the administrative costs. This concurs 
with the estimate of the Congressional Budget Office.

                           OVERSIGHT FINDINGS

    In accordance with clause 4(c)(2) of rule X of the Rules of 
the House of Representatives, the Committee states that no 
oversight findings or recommendations have been made by the 
Committee on Government Reform with respect to the subject 
matter contained in H.R. 3207.
    In accordance with clause 2(b)(1) of rule X of the Rules of 
the House of Representatives, the oversight findings and 
recommendations of the Committee on Small Business with respect 
to the subject matter contained in H.R. 3207 are contained in 
the descriptive portions of this report.

                 STATEMENT OF CONSTITUTIONAL AUTHORITY

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, Section 8, Clause 18 of the 
Constitution of the United States.

                            ADDITIONAL VIEWS

    Democrats agree strongly with the intent of this 
legislation in assisting these so-called ``gazelles,'' as these 
small firms have been a major source of job creation in this 
economy. H.R. 3207 is designed to utilize the infrastructure of 
the small business development center network to provide 
assistance to this unique set of small businesses. The SBDC 
program has traditionally spent most of its resources on 
assisting start-up businesses, and this program would engage 
the vast majority of SBDCs into a new arena.
    Targeting companies that are established and are prepared 
to expand is a sound investment that Democrats believe can 
improve job creation. Unfortunately, the need for this program 
and job creation has never been more important. In June 2005, 
the economy created only 78,000 jobs, well below expectations, 
and the number of workers who have given up trying to find work 
has continued to rise in the last five years.
    The small business development center program has a proven 
track record of spurring job creation. At the hearing on this 
legislation on July 13, 2005, Dr. James Cristman noted that the 
SBDCs generate up to three dollars in federal revenue for every 
dollar spent. The expansion of these SBDC services to assist 
gazelles is a laudable goal and one that Democrats strongly 
support.

                        Funding for the Program

    H.R. 3207 provides for funding of $1.5 million per year for 
a four-year pilot program. Democrats recognize that this modest 
appropriation is in line with other proposed SBDC pilot 
programs and a period of four years is adequate time to 
determine whether the program is successful. However, while 
Democrats concur with this funding level and time period, they 
are concerned that the success of this pilot program could be 
hindered by the failure to adequately fund the overall existing 
SBDC network.
    The SBDC program has been flatfunded at $89 million in each 
of the last five years; this is despite increased demand for 
small business development centers' services. As was noted at 
the congressional hearing on this legislation, many states have 
seen their SBDC funding reduced and it has resulted in staff 
reductions in various centers. Without a strong SBDC 
infrastructure, the grant amounts of $50,000 or more for the 
peer-training program may prove to be inadequate to get this 
program off the ground. It is for this reason that Democrats 
support additional funding for the SBDC program on top of the 
$1.5 million per year for the pilot in H.R. 3207.
    The legislation correctly requires that this program, even 
if authorized, will not be enacted unless there are 
appropriations provided. In other words, it will not create an 
unfunded mandate on SBDCs if there are no additional resources. 
This is necessary because these small business development 
centers are already being spread thin in terms of resources.

                           En Bloc Amendment

    At the markup on July 14, 2005, Ms. Velazquez of New York, 
Ranking Democratic Member, and Ms. Bean of Illinois offered an 
en bloc amendment that was adopted by the committee by 
unanimous consent. The en bloc amendment made a number of 
improvements to the legislation.
    The en bloc amendment offered by these Democratic Members 
was designed to ensure that the pilot program would meet the 
needs of all second-stage entrepreneurs who are eligible to 
participate. Being that this was the first time this 
legislation has been introduced and provides for a significant 
departure from the current role of most small business 
development centers, Democrats wanted to provide a framework so 
that centers could successfully participate and implement the 
peer-learning program.
    First, the amendment altered the funding requirements for 
two types of institutions: community colleges and minority 
colleges, which shall include Historically Black Colleges and 
Universities, Hispanic-Serving Institutions, and minority-
serving institutions. These categories of institutions that 
house many small business development centers across the 
country face unique concerns and difficulties when it comes to 
obtaining matching funding. As Ms. Bean noted at the markup, 
many community colleges cater to those entrepreneurs that have 
the desire but many not have the resources or technical skills 
to take the next step. The amendment required that these 
institutions would only need to raise $1 for every $2 dollars 
of federal funding provided under the pilot, as opposed to $1 
to $1. By reducing the matching requirements for these centers, 
it will increase the outreach of this program. Without such a 
change, many centers that are located in community colleges and 
minority institutions may not be able to raise adequate funds 
to participate in this program.
    Second, the en bloc amendment also altered the size 
standard of eligible businesses for participation. By making 
this change, Democrats sought to ensure that the program will 
serve small businesses and simplify the process of making such 
a determination as to eligibility. Democrats were concerned 
that the broad standards in the original legislation would make 
it difficult to make a determination, as well as leave open the 
possibility that very large firms could participate. The 
amendment would eliminate confusion and avoid an unnecessary 
burden on small business development centers in identifying 
eligible second-stage entrepreneurs. The adopted provision 
provides that the size standards established by the Small 
Business Administration would be used in determining 
eligibility.
    Finally, the en bloc amendment provided for changes in the 
eligibility requirements in meeting the criteria for 
``experiencing high growth demand.'' Democrats recognized that 
the program should serve all second-stage entrepreneurs, but 
that there should be particular efforts to assist certain 
groups of entrepreneurs. Specifically, the amendment added that 
``ownership by minority individuals, service-disabled veterans, 
or women,'' as one of the criteria used in determining 
eligibility.
    Under this change, any minority, service-disabled veteran 
or women-owned business will need to meet two other criteria 
set out in Section 5(3)(a)(ii), as opposed to three other 
criteria for small businesses that do not fall in these 
categories. The purpose is to expand the reach of the program 
to these entrepreneurs. The rising number of women and minority 
entrepreneurs in the last few years has been staggering. 
According to the latest census data, the number of African 
American-owned firms grew by more than 26 percent and Hispanic 
firms grew by 30 percent; meanwhile, total U.S. business grew 
by only 6 percent. Additionally, the growing number of service-
disabled veterans who are looking to expand can use this 
program as a tool for growth. With this change, these men and 
women who have served their country with honor and dignity will 
be better able to utilize the peer-networking services of this 
program.

                            Need for Program

    The Committee's expectation is that this program will 
provide targeted assistance to those small businesses that are 
growing rapidly but face operational obstacles. Democrats wish 
to ensure the program serves small businesses that are growing, 
but wants to ensure that it does not become a program that 
serve firms that are large corporations. There are other 
federal programs that can provide assistance to these firms 
and/or they can afford to set up mentoring systems on their 
own.
    Democrats support both the legislation and the underlying 
SBDC program and the intent of improving job creation. The 
development of targeted programs has been a successful model 
developed by the Small Business Administration and its 
programs. Whether it's helping high-tech ventures through Small 
Business Innovation Research (SBIR), or women entrepreneurs 
through women's business centers or assisting Native American 
business owners through the former Tribal Business Information 
Centers, Democrats believe programs like these can fill a niche 
in spurring economic development. It is the desire of 
Democratic Members that this program do the same. As the 
hearing on the legislation pointed out, private market forces 
are inadequate to make this program self-sufficient, but with 
modest funding, the program can become operational and more 
than pay for itself.

                                                Nydia M. Velazquez.

                                  
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