[Senate Report 109-361]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 577
109th Congress                                                   Report
                                 SENATE
 2d Session                                                     109-361

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



 
      SMALL BUSINESS REAUTHORIZATION AND IMPROVEMENTS ACT OF 2006

                                _______
                                

               November 16, 2006.--Ordered to be printed

                                _______
                                

 Ms. Snowe, from the Committee on Small Business and Entrepreneurship, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 3778]

    On July 27, 2006, the Senate Committee on Small Business 
and Entrepreneurship unanimously reported the ``Small Business 
Reauthorization and Improvements Act of 2006'' (S. 3778), an 
original bill to provide for the reauthorization of programs 
administered by the Small Business Administration (SBA), and 
for other purposes. Having considered S. 3778, the Committee 
reports favorably thereon and recommends that the bill do pass.

                            I. INTRODUCTION

    The Small Business Reauthorization and Improvements Act of 
2006 (S. 3778) is a bill to reauthorize most programs at the 
Small Business Administration (SBA) for Fiscal Years 2007, 
2008, and 2009. In addition to making significant improvements 
to the SBA's lending, procurement, and business development 
programs, the bill also authorizes several new pilot program 
initiatives.
    This bipartisan bill was reported out of the Committee 
unanimously, by a vote of 18-0, and was introduced as an 
original bill by Chair Olympia J. Snowe on August 2, 2006. In 
accordance with Senate procedure, original bills reported from 
a Committee may only be introduced by one Senator. Members of 
the Committee wishing to cosponsor the bill include: Senators 
Kerry, Vitter, Landrieu, Cantwell, and Lieberman.
    During markup of the bill, the Committee adopted by voice 
vote an amendment by Senator Bond and an amendment by Senator 
Coleman. The bill was subsequently adopted as amended by an 
unanimous vote of 18-0.
    The Small Business Reauthorization and Improvements Act of 
2006 provides the opportunity to revitalize and renew the SBA 
in order to better reach out to the small business community, 
and meet the changing needs of the 21st century entrepreneur. 
Since the last reauthorization, the Committee has held a series 
of hearings, meetings and roundtables to analyze the SBA's 
programs and services in preparation to introduce new 
legislation that would reauthorize the SBA and build on the 
agency's success of helping small businesses to create jobs and 
drive America's economy.
    Beginning in 2005, following Hurricanes Katrina and Rita, 
the Committee convened two hearings on SBA's disaster response. 
The first hearing, ``The Impact of Hurricane Katrina on Small 
Businesses,'' held on September 22, 2005, focused on the 
impacts of the hurricanes on small businesses, and provided the 
Committee with the opportunity to: (1) receive a briefing on 
how the SBA had responded to the Hurricane; (2) analyze SBA's 
immediate and long-term response plans; (3) receive feed-back 
on Hurricane Katrina-related small business legislation, and 
(4) investigate how Congress and the SBA could better assist 
victims of the Gulf Coast hurricanes and displaced small 
businesses.
    The Committee held a second disaster hearing, 
``Strengthening Hurricane Recovery Efforts for Small 
Businesses,'' on November 8, 2005. The Committee received an 
update on the SBA's response to the 2005 hurricanes, analyzed 
SBA's disaster response in the two months following the initial 
disaster hearing, investigated the SBA's long-term disaster 
response plans, and examined the Administration's policy 
regarding prime and subcontracting opportunities for small 
businesses. Witnesses at this hearing included representatives 
from the SBA, the U.S. Army Corps of Engineers, the U.S. 
Department of Homeland Security, the Government Accountability 
Office, and the Office of the Governor of Louisiana. These 
hearings provided insight into the immediate needs of affected 
small businesses. In addition, it also laid a foundation for 
the Committee's reauthorization efforts that pertain to the 
SBA's disaster response and preparedness.
    On March 9, 2006, the Committee held a hearing to examine 
the SBA's budget and begin to analyze the SBA's proposed 
legislative package for reauthorization. SBA Administrator 
Hector Barreto provided testimony on the SBA's achievements and 
its budgetary and programmatic proposals for Fiscal Year 2007. 
The administration proposed a funding level of $624 million for 
the SBA, of which only $425 million will go to the SBA's core 
programs. This proposal continues an alarming trend of a 
decreasing SBA budget. Since 2001, the SBA's overall budget has 
been reduced by 37 percent. During the hearing, the Committee 
inspected the SBA's diminishing budget and funding proposals 
for essential programs, such as the Microloan, Small Business 
Development Center (SBDC), and Women's Business Center 
programs, as well as the Administration's proposal to impose 
administrative fees on the small business participants of 
programs authorized in Section 7(a) and Section 504 of the 
Small Business Act and Title III, regarding Small Business 
Investment Companies (SBIC), of the Small Business Investment 
Act.
    On April 26, 2006, the Committee held a hearing on the 
``Reauthorization of SBA Financing and Economic Development 
Programs.'' The Committee addressed issues regarding the SBA's 
finance programs, which guaranteed over $24 billion in loans 
and venture capital for small businesses in 2005, the highest 
level of capital ever provided by the SBA. The Committee heard 
from lenders, small business stakeholders, and SBA 
representatives on the benefits of SBA's credit programs and 
evaluated reauthorization proposals to improve the broad range 
of finance programs that play a vital role in assisting 
America's entrepreneurs in obtaining operating and equity 
capital.
    Additionally, the Committee solicited post hearing 
questions regarding the SBA's economic development programs, 
and non-credit programs including the SBDC, Women's Business 
Ownership and Veterans Business Development programs, the 
National Women's Business Council, and other entrepreneurial 
development programs administered by the SBA.
    At another hearing, ``Strengthening Participation of Small 
Businesses in Federal Contracting and Innovation Research 
Programs,'' on July 12, 2006, the Committee focused on 
procurement and government contracting issues, and the often 
insurmountable obstacles small businesses face when seeking to 
compete in the Federal marketplace for a share of the more than 
$200 billion in Federal contracts. The hearing examined the 
enforcement of the SBA's small business size and status 
standards, the President's Initiative Against Contract 
Bundling, the Small Business Innovation Research (SBIR) and 
Small Business Technology Transfer (STTR) programs, as well as 
the SBIR Rural Outreach Program and Federal & State Technology 
Partnership program (FAST). The Committee heard from a broad 
cross-section of small business stakeholders, as well as from 
SBA representatives who oversee these programs.
    The Committee also reviewed the SBA's government 
contracting and business development programs, which include 
the SBA's Prime Contracting and Subcontracting Programs, the 
HUBZone Program, and the Small Disadvantaged Business Program. 
Stakeholders of these programs provided important insight and 
recommendations to the Committee.
    The Committee also held a staff-led Regulatory Reform 
Roundtable on July 21, 2005, which served as a forum for small 
businesses, key stakeholders, and agency staff to address 
regulatory reform issues. Committee staff led a discussion of a 
number of targeted regulatory reform bills that have been 
introduced in the 109th Congress, including the Small Business 
Compliance Assistance Enhancement Act (S. 769), which would 
clarify the existing requirement under the Small Business 
Regulatory Enforcement Fairness Act (SBREFA) that Federal 
agencies produce small business compliance guides when they 
promulgate rules that would have a significant impact on a 
substantial number of small businesses. The Roundtable also 
addressed the National Small Business Regulatory Assistance Act 
(S. 1411), which would direct the SBA to establish a 
competitive, pilot program to provide regulatory compliance 
assistance to small businesses, through SBDCs. Taking into 
account many of the concerns raised at the staff-led Regulatory 
Reform Roundtable, the Committee included versions of these 
measures in the Small Business Reauthorization and Improvements 
Act of 2006.
    On April 20, 2005, the Committee held a hearing, ``Solving 
the Small Business Health Care Crisis: Alternatives for 
Lowering Costs and Covering the Uninsured.'' The Committee 
heard from several panels of distinguished witnesses, including 
Elaine L. Chao, Secretary, U.S. Department of Labor; and Hector 
V. Barreto, then the Administrator of the SBA. The hearing 
focused on finding solutions to the small business health 
insurance crisis, and providing small businesses with relief 
from escalating health care costs and few coverage options. The 
number one issue facing small business today is the 
affordability and accessibility of health insurance. There are 
now 46.6 million uninsured Americans, approximately 60 percent 
of whom work for a small business or are dependent on someone 
who does. In addition, fewer and fewer of our nation's smallest 
businesses are now offering health insurance as a workplace 
benefit. In 2005, the Kaiser Family Foundation reported that 
only 47 percent of our nation's smallest businesses, with less 
than 10 employees were able to offer health insurance as a 
workplace benefit. In stark contrast, health insurance is 
nearly universally provided by larger businesses with over 200 
employees.
    Based on the testimony presented at the hearing, the 
Committee has included a Health Insurance Title to the Small 
Business Reauthorization and Improvements Act of 2006, with 
provisions that would increase small business education and 
awareness to all health insurance coverage options in their 
geographic areas--with the intention of encouraging more of our 
nation's smallestbusinesses to offer health insurance to their 
employees.
    Throughout the hearings and roundtables, the Committee's 
objectives have been to single out the SBA programs that are 
working well, identify the reasons for their superior 
performance, and then apply those principles to programs that 
are in need of improvement. The voluminous amount of 
information that the Committee has collected through the 
hearings and roundtable discussions held this year and in 
previous Congresses, as well as information received directly 
from small business stakeholders, has contributed greatly to 
achieving that goal and the results are reflected in the bill. 
The bill also reflects information obtained from numerous 
reviews undertaken at the Committee's request by the GAO and 
the SBA Inspector General.
    The Committee believes that by providing reasonable 
authorization levels of appropriations, improving specific SBA 
programs, and introducing several new initiatives, the ``Small 
Business Reauthorization and Improvements Act of 2006'' 
provides a sound foundation for the agency to provide improved 
service to the nation's small businesses and entrepreneurs.

                        II. DESCRIPTION OF BILL


                  Title I--Reauthorization of Programs

    The bill reauthorizes the Small Business Administration 
(SBA) programs for Fiscal Years 2007, 2008, and 2009, and 
establishes maximum financing levels for those programs 
involving loans or investments.
    The 7(a) loan program, the SBA's largest financing program, 
is reauthorized at levels of $18 billion for FY 2007, $19.5 
billion for FY 2008, and $21 billion for FY 2009. This will 
allow the program to grow at a measured pace, and will be 
particularly necessary when the larger $3 million individual 
loans authorized by this bill are initiated.
    The Microloan program is reauthorized at the level of $50 
million in intermediary loans for each of FY 2007, FY 2008, and 
FY 2009. Microloan technical assistance grants are authorized 
at the level of $80 million for each of FY 2007, FY 2008, and 
FY 2009. Microloan direct loans are authorized at the level of 
$110 million for each of FY 2007, FY 2008, and FY 2009.
    The Small Business Investment Companies (SBIC) 
participating security program is reauthorized at program 
levels of $500 million for FY 2007, $600 million for FY 2008, 
and $700 million for FY 2009. The SBIC debenture program is 
reauthorized at program levels of $4 billion for FY 2007, $4 
billion for FY 2008, and $4 billion for FY 2009. The Local 
Development Business Loan program, formerly known as the 504 
Loan Program and re-named in this bill, is reauthorized at 
levels of $8.5 billion for FY 2007, $9.5 billion for FY 2008, 
and $10.5 billion for FY 2009.
    The New Markets Venture Capital (NMVC) program is 
reauthorized for Fiscal Years 2007, 2008, and 2009.
    In addition, the bill includes an extension of the 
authorization for the assistance offered through Small Business 
Development Centers, which has been essential in the delivery 
of management and technical counseling and educational programs 
to prospective and existing small business owners. The bill 
also extends the current $5 million authorization for the Paul 
D. Coverdell Drug-Free Workplace Program through Fiscal Year 
2009. The program has significantly assisted small businesses 
in removing drugs from the workplace.

Microloan program

    The SBA's Microloan program offers loans of up to $35,000 
and technical assistance to small businesses. Under the 
program, the SBA makes loans and grants to intermediaries, who 
then re-loan their loan funds to small businesses. The lending 
intermediaries also receive grants from the SBA to provide both 
pre-loan and post-loan technical assistance to the small 
businesses and entrepreneurs they serve.
    The bill includes a reauthorization of the loan and 
technical assistance components of the SBA's Microloan program 
over the next three Fiscal Years to meet the demand for small 
loans and to continue serving populations with the least access 
to capital. The Committee expects that the Microloan program 
will demonstrate a continued contribution to business owners 
and employees who seek to establish or grow a small business, 
particularly in areas that have suffered from severe economic 
distress.
    The bill includes several provisions that seek to expand 
access or reduce costs in the program. The bill amends the 
Small Business Act to provide Microloan intermediaries that 
have a microloan portfolio with an average loan size of not 
more than $10,000 the ability to receive a lower interest rate, 
compared to the normal rate extended by the SBA to 
intermediaries. Previously, the statute provided that an 
intermediary had to have an average loan size of not more than 
$7,500 to receive a reduced interest rate.
    The bill also requires the SBA to develop a subsidy model 
for the Microloan program, to be used in the Fiscal Year 2008 
budget, that accurately accounts for subsidy costs. 
Participants in the Microloan program have reported to the 
Committee that the current model is subject to unnecessary and 
unpredictable fluctuations and results in inaccurate subsidy 
rates for the program. For example, from FY 2002 to FY 2003 the 
rate jumped from 6.78 percent to 13.05 percent, and from FY 
2005 to FY 2006 the rate dropped from 10.25 percent to 7.17 
percent.
    Loss rates, recoveries and fees are three of the most 
significant factors considered in the calculation of subsidy 
rates for most of the SBA's credit programs. Lower loss rates 
and higher recoveries should result in a low subsidy rate 
because the government is not covering losses from defaults. 
The SBA's microloan program has one of the best track records 
of all the agency's credit programs, with only two losses since 
the program made its first loan in 1992. It also has a loan-
loss reserve component built into the program requiring each 
intermediary to set aside a certain percentage of its 
outstanding portfolio to cover losses should there be any. Yet, 
even with the low default rate and the loan loss reserve, the 
Microloan program has one of the highest subsidy rates when 
compared against other SBA credit programs.
    However, unlike most SBA credit programs, Microloan 
intermediaries pay no fees to offset credit subsidy costs and 
they benefit from borrowing at a reduced interest rate. This 
interest subsidy is the single largest subsidy component of the 
Microloan program and is built into SBA's direct loans to the 
microloan intermediaries. Intermediaries pay an interest rate 
that is below SBA's cost of funds. For example, in 2006, a 
Microloan intermediary would borrow from SBA at 3.3 percent. 
However, SBA's cost of funds is 4.7 percent. Moreover, this gap 
exists for the life of the loan. In addition, intermediaries 
often request disbursement over several years which can add to 
subsidy costs in times of rising interest rates. SBA is 
mandated to lend to intermediaries at a reduced rate, but when 
interest rates are rising and borrowers delay disbursement the 
interest rate spread increases, thereby increasing subsidy 
costs.
    The Committee expects that SBA will develop a model that 
reflects both the costs inherent in the program and the strong 
performance record of the Microloan program participants.
    The bill also adds persons with disabilities as part of the 
target population being served by federal microenterprise 
programs. The Committee has received concerns from participants 
that although people with disabilities are not being excluded 
from microenterprise programs, neither are they being 
specifically targeted or explicitly mentioned as being eligible 
for receiving assistance. To date, there is no Microloan 
intermediary, PRIME grantee, or Women's Business Center which 
specifically includes individuals with disabilities. This 
situation is the result of an unintentional oversight, and not 
one of purposeful exclusion. This section would raise awareness 
among microenterprise programs and increase accessibility to 
such entrepreneurs, while not creating any new programs.
    The provisions in this Title originated in the SBA 
Microenterprise Improvements Act (S. 138), introduced by 
Senator Kerry on January 24, 2005, and co-sponsored by Senators 
Bingaman and Lieberman. These provisions were also introduced 
by Senator Kerry in the 107th Congress as part of the Microloan 
Program Improvement Act of 2001, cosponsored by Chair Snowe and 
Senators Bond, Wellstone, Cleland, Landrieu, Harkin, Levin, 
Lieberman, Bingaman, Enzi, Kohl, and Johnson. The provisions of 
this Act were later passed unanimously out of the Committee and 
the full Senate as part of the Small Business Administration 
50th Anniversary Reauthorization Act of 2003, S. 1375, in the 
108th Congress, but they were not adopted in a final SBA 
reauthorization bill.

              Title II--National Preferred Lenders Program

    The bill allows qualifying lenders to participate in the 
PLP Program on a nationwide basis after just one licensing 
process. Under current law, the most prolific lenders in the 
SBA's 7(a) loan program can participate in the ``Preferred 
Lender Program'' (PLP Program), which allows them to use their 
own processing facilities, therefore both increasing lenders' 
efficiency and reducing costs for the SBA. However, PLP lenders 
are required to apply for PLP status in each of the 71 SBA 
districts nationwide to obtain PLP status in that district. 
Moreover, they must re-apply each year in each district. This 
is extremely inefficient and wasteful, and creates enormous 
unnecessary administrative costs.
    This provision would drastically reduce administrative 
costs and standardize the operation of the PLP program, 
eliminating the inefficiencies and cost of applying for PLP 
status in each district,and improving small businesses' access 
to capital. In addition, lender oversight can be accomplished more 
efficiently and effectively on a national basis. This provision was in 
S. 1375, the ``Small Business Administration 50th Anniversary 
Reauthorization Act of 2003'', introduced in the 108th Congress by 
Chair Snowe and Senator Kerry and was approved unanimously by the 
Senate in 2003.
    The bill increases the maximum size of a 7(a) loan to $3 
million from the current $2 million, and increases the maximum 
size of the accompanying guarantee to $2.25 million from the 
current $1.5 million. This would maintain the maximum current 
guarantee rate of 75 percent. With the escalating costs of real 
estate and new equipment, the Committee believes it is 
appropriate to respond to small businesses' financing needs by 
offering larger loans.
    In the SBA's 504 Loan Program, loans may now be as large as 
$10 million (with $4 million guaranteed) for manufacturing 
projects, $5 million (with $2 million guaranteed) for loans 
that serve an enumerated public policy goal (such as rural 
development), and $3.75 million (with $1.5 million guaranteed) 
for all other ``regular'' 504 Program loans. Thus, the 
Committee believes that this increase in 7(a) Program loans to 
$3 million would make 7(a) loans closer in size to 504 Program 
loans, while still leaving 7(a) loans smaller than 504 Program 
loans.
    The bill requires the SBA to implement an ``alternative 
size standard,'' for the 7(a) program, in addition to the 
program's current standard. The alternative size standard for 
the 7(a) program would be similar to the standard for the 504 
program, which considers a business's net worth and income.
    The 7(a) program currently determines a small business's 
eligibility to receive a loan by reference to a complex multi-
page chart that includes different size standards for every 
industry and focuses on the number of employees. The Committee 
believes this is cumbersome, especially for small lenders that 
do not make many 7(a) loans. In the 504 Program, however, 
lenders can use either the industry-specific standards or an 
``alternative size standard'' that the SBA created, which 
simply says a small business is eligible for a loan if it has 
gross income of less than $7 million or net worth of less than 
$2 million.
    The Committee believes that allowing 7(a) lenders to use 
this alternative standard, as an option to the industry-
specific size standard, would both simplify the 7(a) lending 
process and provide small businesses with a streamlined 
procedure for determining loan eligibility. Therefore, this 
would conform the standards used by the 7(a) and 504 programs 
and would make the program far more accessible to small 
businesses and small lenders. This provision was included in S. 
1375 during the 108th Congress, which was approved by the 
Senate in 2003.
    The bill also creates an Office of Minority Small Business 
Development to increase the proportion of small business loans 
to minorities. The Committee is concerned that African 
Americans, Hispanics, Asians and women have received far fewer 
small business loans relative to their share of the population, 
and that there has been no statistically significant 
improvement since FY 2001. The Office of Minority Small 
Business Development at the SBA will be similar to offices 
devoted to business development of veterans and women and rural 
areas. In charge of the office will be the Associate 
Administrator for Minority Small Business and Capital Ownership 
Development, under a new title with expanded authority and an 
annual budget to carry out its mission. Currently, this 
position is limited to carrying out the policies and programs 
of the SBA's contracting programs under 7(j) and 8(a).
    To ensure that minorities receive a greater share of loan 
dollars, venture capital investments, counseling, and 
contracting, this bill expands the Office's authority and 
duties to work with and monitor the outcomes for programs under 
Capital Access, Entrepreneurial Development, and Government 
Contracting. It also requires the head of the Office to work 
with SBA's partners, trade associations and business groups to 
identify more effective ways to market to minority business 
owners, and to work with the head of SBA's Field Operations to 
ensure that the SBA's district offices have the requisite staff 
and resources to market to minorities.
    Section 205 includes an authorizing amendment to reduce 
participation fees for the 7(a) Loan Guarantee program when 
borrowers and lenders pay excessive fees or Congress 
appropriates funding. The Committee continues to hear concerns 
about the Administration shifting the cost to lenders, by 
imposing higher fees on them. The bill addresses these fee 
payments by requiring the SBA to lower fees if borrowers and 
lenders pay more than is necessary to cover the program costs 
or if the Congress appropriates money for the program and 
combined with fees there is excess funding to cover the cost of 
the program.
    Under current law, as adopted through the small business 
reauthorization bill included in the FY 2005 Omnibus 
Appropriations Act, the Administrator was provided 
discretionary authority to adjust the ongoing fees paid by 
lenders and offset the cost of the program to zero, i.e., not 
need an appropriation. The Administrator was also given the 
authority to lower fees charged to borrowers if the subsidy 
cost becomes negative, i.e., the fees will actually take in 
more money to the government than it costs to operate the SBA's 
7(a) loan program. Congress adopted an approach that the 
Administration, should the program undertake a fee reduction, 
should first consider reducing the fees paid by small business 
borrowers set forth in clauses (i)-(iii) of subsection 
7(a)(18)(A). This bill rewrites the language to reduce the fees 
for both borrowers and lenders. In addition, if Congress were 
to appropriate funds to the 7(a) loan program, this provision 
would allow those funds to be applied towards reducing the 
fees. Currently, if the SBA received appropriations for the 
program, the money could not be used to reduce fees.
    The provisions in this Title originated in the Small 
Business Lending Improvement Act (S. 1603), introduced by Chair 
Snowe in July 2005 and cosponsored by Senator Stevens and in 
the 7(a) Loan Program Reauthorization Act of 2006 (S. 2594), 
introduced by Senator Kerry in April 2006, and cosponsored by 
Senators Landrieu and Pryor.

            Title III--Small Business Investment Act of 1958


                 SUBTITLE A--DEBENTURES AND SECURITIES

    The bill reforms and enhances the Small Business Investment 
Companies (SBIC) program. This section creates a new SBIC 
program that would be a ``zero-subsidy'' program--with no 
Federal appropriations necessary--that would provide financing 
to small businesses. Additionally, the new program would 
prevent financial losses to the government by increasing its 
share of SBICs' profits.
    The bill provides procedures for the continuation of 
existing SBICs affected by the current suspension in issuances 
of new financing by the SBA, including financing that had 
previously been promised to SBICs by the SBA.
    The Committee believes there is a need for a program to 
facilitate equity capital to small businesses, particularly in 
rural areas and in industries passed over by traditional 
venture capital investments.
    By creating a new type of equity security for the SBIC 
program, this provision is designed to guarantee the repayment 
of the redemption price (principal) and interest for a new type 
of ``participating security'' issued by a SBIC. This type of 
guarantee (of principal and interest for a security issued by 
an SBIC) currently exists in the two SBIC programs, and for 
those other two programs it was explicitly authorized in the 
Small Business Investment Act of 1958 (SBIA).
    This bill authorizes the SBA to guarantee the repayment to 
an ``interim funding provider'' (an ``IFP'') of any funds lost 
by the IFP because of the default of an SBIC during the period 
after the IFP has advanced monies to the SBIC, and before the 
IFP has been repaid for those funds. This type of guarantee 
existed in the two other SBIC programs, but was not authorized 
by the SBIA. This provision rectifies that problem and brings 
the program into compliance with the Federal Credit Reform Act 
of 1990 (FCRA).
    It authorizes the SBA to guarantee the payment of the 
redemption price and interest for a trust certificate issued by 
a trustee of a pool of PDs. This type of guarantee existed in 
the two prior SBIC programs, but was not authorized by the 
SBIA. Similar to the current Participating Securities and 
Debenture SBIC programs, the Participating Debenture program 
will raise funds by pooling the securities issued by SBICs (the 
PDs) into a pool and selling trust certificates that represent 
interests in that pool. Thus, this provision rectifies that 
problem and brings the new program more into compliance with 
the FCRA.
    In order to reduce the net cost to zero, the bill permits 
the SBA to charge a fee for each of the guarantees authorized. 
This fee will be sufficient to reduce the net cost to the SBA 
of each guarantee to zero, as that term is defined under the 
Federal Credit Reform Act of 1990. For the two current SBIC 
programs, the SBIA only explicitly authorizes such a fee for 
the redemption price and interest guarantee (and did not 
authorize such a fee for the other two types of guarantees). 
This provision rectifies that problem and brings the program 
into compliance with the FCRA.
    The obligations that each SBIC holds to repay the SBA will 
be identical, or ``matched'', in both size and timing to the 
obligations that the SBA holds to repay to the trust 
certificate holders that have purchased trust certificates in 
the pool that holds that particular SBICs' PDs.
    For advancing funds to an SBIC in accordance with the 
SBIC's license agreement with the SBA, an IFP shall have the 
right to receive interest from the SBIC. The manner of 
calculating andcollecting this interest is specified.
    The aggregate unpaid principal balance of the PDs issued by 
a SBIC must not exceed 200 percent of that company's private 
capital. In other words, the maximum ratio of the SBA's 
outstanding investment in the SBIC, when compared to the 
private investors' investment, is two to one. This is identical 
to the other two SBIC programs.
    The SBA may authorize a trust or pool acting on behalf of 
the SBA to purchase PDs from an SBIC. This practice occurs in 
the other two SBIC programs, but is not explicitly authorized 
by the SBIA. Thus, this provision brings this program more into 
compliance with the FCRA.
    The principal balance of each PD will be payable in full 
not later than the tenth anniversary of the date of issuance of 
that PD. If a SBIC fails to make this payment they default 
immediately and are liquidated. This was not the case in the 
other two SBIC programs; thus, this provision brings this new 
program more into compliance with the FCRA.
    Beginning on the date of issuance, interest on the 
principal balance outstanding of a PD shall accrue on a daily 
basis, and unpaid accrued interest shall compound every six 
months. There are no interest payments during the first five 
years of a PD. All unpaid interest on a PD accruing during the 
first five years will be due and payable in full out of gross 
receipts on the fifth anniversary. Interest accruing on a PD 
after the fifth anniversary will be due and payable semi-
annually. Interest payments used to be contingent on a SBIC's 
profitability. This bill provides that the payments are due 
regardless of a SBIC's financial situation and if a payment is 
missed the SBA has the right to liquidate the SBIC. Thus, this 
bill brings this new program more into compliance with the 
FCRA.
    In addition, the SBA is authorized to charge an additional 
fee, as necessary to reduce the cost of the program to zero, as 
that term is defined in the FCRA, but the fee is capped at 1.5 
percent. This type of fee existed in the other two SBIC 
programs.
    If a SBIC fails to pay any principal or interest on a PD 
when due, the SBA, in addition to any other remedies that it 
may have, can demand immediate repayment of the principal 
balance and all accrued interest on all outstanding PDs of that 
SBIC. This was not the case in the other two programs; thus, 
this provision brings the new program more into compliance with 
the FCRA. If a default occurs, the SBA has the right to charge 
a default rate of interest. Again, this is an improvement on 
the existing program. Finally, if a default occurs, the SBA may 
apply the SBIC's private collateral (its private investments) 
to pay any interest or principal that the SBIC owes the SBA. 
The Committee believes that this is a crucial improvement to 
the existing program.
    In the event of a SBIC's liquidation, a PD will be senior 
in priority for all purposes to any equity interests (in other 
words, the SBA will have first priority to reimbursement). 
Also, the SBIC's private collateral may, at the option of the 
SBA, be applied to pay accrued interest and principal of 
outstanding PDs.
    In the event of a default by a SBIC, a PD will be senior in 
priority for all purposes to any equity interests (in other 
words, the SBA will have first priority to reimbursement). 
Also, the SBIC's private collateral may, at the option of the 
SBA, be applied to pay accrued interest and principal of 
outstanding PDs. A SBIC commits to invest private equity in 
small businesses, to match the capital raised by its PDs. A 
SBIC in this program shall have no other debt other than 
financing obtained pursuant to this program.
    Unless otherwise allowed by the SBA, a SBIC may use the 
proceeds of a PD issued by the company to pay the principal and 
interest due on outstanding PDs issued by that company, if the 
SBIC has outstanding private equity capital invested in an 
amount equal to that being refinanced.
    Unless as otherwise provided, a SBIC's gross receipts shall 
be used first for the payment of accrued interest on PDs, and 
then for repayment of PD principal and private investments into 
the SBIC, and then for profit distributions. Gross Receipts 
means all cash received by a SBIC, including proceeds of the 
sale of securities, management or other fees, and cash 
representing return of invested capital, other than capital 
contributed by partners, the proceeds of the issuance of PDs, 
and money borrowed from other sources, if any. Marketable 
Securities that the company distributes in kind will be 
distributed as if they were Gross Receipts.
    When a SBIC misses a payment, the SBA may choose not to 
liquidate the SBIC and the SBIC may continue to operate. In 
such a case, a SBIC must use Gross Receipts within 10 days 
after receipt to repay any outstanding past due interest and 
past due principal.
    If a SBIC has no outstanding past due interest or 
principal, it must use Gross Receipts to prepay accrued 
interest. Such prepayment will be due not later than the end of 
the calendar quarter during which such Gross Receipts were 
received. Failure to prepay accrued interest will be deemed a 
Payment Default.
    At such time as there is no unpaid, accrued interest, or 
past due principal outstanding on a SBIC's PDs, the SBIC may 
use Gross Receipts to prepay PD principal that is not past due. 
If any Gross Receipts remain, they may be paid to private 
investors to repay their investments. As long as there are any 
outstanding PDs, a SBIC may distribute Gross Receipts to its 
limited partners, but only if they distribute at least a pro-
rata share simultaneously to the administration.
    If Gross Receipts remain after the payment of all required 
payments, remaining funds can be used for profit distributions. 
When all PD principal and all private capital has been repaid 
in full, post-amortization payments may be made to the 
administration as follows: (i) 25 percent of their pro-rata 
share until private investors have received 100 percent of 
their principal; and (ii) thereafter, 50 percent of their pro-
rata share.
    The order of payments are: interest payments, principal 
payments, pre-payments, pre-amortization payments, and post-
amortization payments. This provision provides for tax 
distributions that are required by law, as necessary.
    No distribution may violate liquidity requirements or other 
restrictions imposed by the SBA's regulations or any State's 
law.
    At any time a SBIC is in restricted operation or 
liquidation by reason of capital impairment or regulatory 
violation, the maturity date of the SBIC's PDs, including 
principal and accrued interest, is subject to acceleration at 
the option of the administration, and whether or not there has 
been such an acceleration, up to 100 percent of all Gross 
Receipts and unfunded private investor commitments may, at the 
option of the administration, be required to be distributed to 
the administration until all accrued interest and principal on 
the SBIC's PDs have been paid in full. No distributions will be 
made to limited partners when a SBIC is in restricted 
operations or liquidation due to capital impairment or 
regulatory violation.
    The bill details the procedures and requirements that would 
apply if an SBIC provided a partial repayment to the SBA in the 
form of securities, rather than cash. It also details the 
schedule under which payments will be made to the SBA by a 
SBIC. Subject to SBA regulations and the permission of private 
investors, a SBIC may reinvest Gross Receipts back into small 
businesses. This section does not create any ownership interest 
for the SBA in any SBICs. Rather, the relationship is one of 
lender-borrower.
    The bill provides that the SBIA will apply to participating 
securities obligated in Fiscal Years 2002, 2003, and 2004 by 
commitments issued by the Administrator but not as yet 
disbursed within 60 days prior to the expiration date of said 
commitments. Within the 60-day period immediately preceding the 
expiration date of any such commitment, the Administrator shall 
allow any small business investment company holding such a 
commitment to draw up to 100 percent of the remaining balance 
of the commitment.
    The SBIC must be in compliance with existing regulation as 
of the date the funds are drawn, and must pay 0.5 percent of 
any such funds not reasonably required for investment purposes 
within 90 days of the draw to the Administrator in addition to 
all other fees that may be due and payable with respect to such 
draw.
    The SBIC shall place all funds so drawn that are not 
reasonably required for use by the SBIC within 90 days of the 
date of the draw in an interest bearing account approved by the 
Administrator. The prior approval of the Administrator shall be 
required for any withdrawal from such account, which approval 
shall be granted or withheld in accordance with the same 
criteria as would normally apply to draws against commitments.
    The Administrator's rights with respect to a SBIC that 
establishes an account hereunder and is subsequently found by 
the Administrator to no longer be in compliance with the 
regulations shall be governed by regulations existing at the 
time of such finding.
    The provisions in this subtitle originated in the Small 
Business Investment and Growth Act (S. 1923), introduced by 
Chair Snowe in October 2005, and cosponsored by Senators 
Talent, Bond, Cochran, Coleman, Isakson, Thune, and Vitter.

                   SUBTITLE B--DEVELOPMENT COMPANIES

    To more accurately reflect the purposes of the SBA's 504 
Loan Program, the bill changes the program name to Local 
Development Business Loan Program (LDB Program). Materials 
alreadyprepared using the name ``504 Program'' can continue to 
be used, so as to save money for the SBA and program participants.
    The bill authorizes an $8 billion authority level for 
Fiscal Year 2007, and an $8.5 billion authority level for 
Fiscal Year 2008.
    The bill provides that a CDC can elect to not foreclose or 
liquidate its own defaulted loans, and can instead contract 
with a third party for that third party to carry out the 
foreclosures and liquidations. CDCs can receive reimbursement 
from the SBA for foreclosure expenses that the SBA authorizes.
    By allowing certain borrowers to contribute more equity 
(down-payments) if they choose, start-ups or those businesses 
using the proceeds for single purpose buildings could provide 
more than the required minimum amount of equity and could use 
their excess investment to reduce the amount of the private 
bank loan.
    Businesses in communities that would qualify for a New 
Markets Tax Credit can qualify as ``public policy goal'' loans 
in LDB Program, and therefore can be made for larger sizes than 
``regular'' LDB loans.
    For the purposes of qualifying as public policy goal loan, 
this bill allows businesses to qualify as ``minority owned'' if 
a majority of the business's ownership interests belong to one 
or more individuals who are minorities. Currently, the SBA 
interprets this rule such that two or more minorities cannot 
aggregate their interests (for example, two out of three 
owners) to qualify the business as minority owned.
    The maximum 504 and 7(a) loan eligibility provision permits 
a small business to obtain financing in the maximum amount 
permitted under the 504 program and also to obtain a 7(a) loan 
in the maximum amount permitted under that program.
    The bill permits a borrower to refinance a limited amount, 
based upon a formula, of the business's pre-existing debt, if 
that debt is already secured by a mortgage on the property 
being expanded by the new loan.
    Currently, banks participate in the 504 program by 
providing the first-lien mortgage to each borrower. These banks 
pay a one-time fee equal to 0.50 percent of the first lien 
mortgage. Banks currently pass all of this fee on to the 
Certified Development Companies (CDCs) and the borrowers. This 
bill specifies that the fee is paid directly to the SBA by the 
CDCs and the borrowers. The bill should not change the total 
amount paid in fees by the CDCs, borrowers, and banks, 
respectively. The purpose of the bill is to provide more 
clarity as to which entities pay which fees, rather than 
allowing banks to claim that they are responsible for a higher 
percentage of the fees than is actually the case (because 
currently banks pass this fee on to CDCs and borrowers).
    The bill corrects a technical drafting error made in 
legislation enacted in 2004. That drafting error had 
inadvertently changed the meaning of the pre-existing Small 
Business Investment Act of 1958, which governs the 504 loan 
program. Additionally, the bill provides definitions of a 
``development company'' and a ``certified development 
company.''
    The repeal of the sunset on reserve requirements for 
Premier Certified Lenders would make permanent a temporary 
statute that would otherwise expire in the summer of 2006. This 
statute, enacted by Congress on a trial basis in 2004, allows 
CDCs qualified by the SBA as ``Premier Certified Lenders'' to 
amortize their reserve requirements and withdraw from the 
reserves the amount attributable to debentures as the 
debentures are re-paid. CDCs that choose to employ this new 
ability are thus able to make a greater number of loans in the 
program, rather than having needlessly large reserve accounts.
    The current SBIA, which provides the legislative authority 
for the program, does not define a CDC; it is defined only in 
the SBA's regulations. This bill provides a number of criteria 
to identify the types of entities that can qualify as Certified 
Development Companies (CDCs) and thus participate in the LDB 
Program. The standards in this Act are consistent with current 
regulations. In addition, the bill also imposes ethical 
requirements on CDCs, their employees, and banks participating 
in the program. It provides minimum requirements for CDCs 
regarding members, boards of directors, staffing and management 
expertise, and use of proceeds. The bill details requirements 
CDC loan review committees must meet in order to ensure that 
CDCs pursue local development goals, and allows CDCs operating 
in multiple states to elect to maintain their accounting on an 
aggregate basis.
    There has been a growing demand for 504 loans and many CDC 
operations have been expanding in response to this growth. 
Responding to concerns that the changes which have allowed CDCs 
to expand operations into multiple states have had a 
significant impact on the 504 program, the Committee included 
provisions to preserve the local economic development intent 
and mission of the program and to provide increased 
accountability.
    The Committee deliberated approaches that would allow CDCs 
to meet the growing demand for 504 loans and also maintain the 
program's mission of local development. The discussion focused 
on keeping local representation on CDC boards and ensuring 
reinvestment in local projects to create jobs, a statutory 
mandate tied to each loan. This provision would give CDCs the 
ability to expand to nearby, underserved areas and contiguous 
states, thus addressing the increased need for 504 loans.
    In order to further CDC expansion, program growth, and 
increased access to capital for small business, while requiring 
that local communities continue to be the main focus of the 
program, the bill requires that the 25 members of the CDC board 
be residents of the area of operations. It also allows an 
individual to serve on the Board of Directors of two or more 
CDCs (but not serve as an officer of multiple CDCs), and 
removes regulatory barriers that some CDCs have argued 
constrained their multi-state expansion.
    The bill allows borrowers the option to include loan and 
debenture closing costs in their loans.
    For the purposes of making the eligibility for a larger 
loan supporting a ``public policy'' goal, the SBA's definition 
of a ``rural area'' in the 504 program is amended to match the 
definition used by the Department of Agriculture. An area other 
than a city or town with a population greater than 50,000 
inhabitants, or the urbanized area contiguous and adjacent to 
such a city or town, would qualify.
    As part of implementing the changes contained in this 
subtitle, the SBA is authorized and directed to publish 
proposed regulations within 120 days of the date of enactment 
and to publish final regulations within an additional 120 days.
    The provisions in this subtitle originated in the Local 
Development Loan Program Act (S. 2162), introduced by Chair 
Snowe in December 2005 and in the 504 Loan Program 
Modernization Act of 2006 (S. 2595), introduced by Senator 
Kerry in April 2006, and cosponsored by Senator Pryor.

New Markets Venture Capital

    The bill reauthorizes the New Markets Venture Capital 
(NMVC) program for three years, through FY 2009 and makes 
several important technical changes designed to increase the 
effectiveness and efficiency. To this end, the definition of 
``low-income geographic area'' used in the NMVC program (Small 
Business Investment Act Section 351 (2)) is amended to conform 
with the definition of a ``low-income community'' as defined by 
the New Markets Tax Credit program (NMTC), (Section 45D of the 
Internal Revenue Code of 1986). Many investors participate in 
both the NMVC and NMTC programs, and a uniform definition 
between the two programs will improve coordination between the 
two programs, where applicable. This change will allow NMVC 
companies to invest in businesses that benefit a low-income 
``targeted population,'' as provided by the NMTC statute, as 
well as businesses located in low-income census tracts. This 
flexibility to serve low income ``targeted populations'' is 
particularly important for NMVC companies operating in rural 
areas with dispersed populations and census tract data that 
does not reflect the pockets of poverty that exist.
    The bill ensures that all existing NMVC companies can take 
advantage of the amended targeting for investments made with 
the capital they have already raised. The Committee encourages 
the SBA to work with the Community Development Financial 
Institutions Fund at the US Treasury Department to develop 
regulations in a timely manner to put these statutory changes 
in place and to ensure that the NMVC and the NMTC can work 
together to the greatest extent possible.
    The bill also provides clarity regarding the amount of time 
that NMVC companies have to raise capital. The current statute 
provides NMVC companies up to two years to raise the matching 
private capital to participate in the program. In the past, the 
SBA has interpreted this to mean that it has the discretion to 
allow NMVC companies up to two years and has set the time limit 
for raising private capital at shorter lengths which some of 
the companies have found unreasonable. The bill clarifies the 
statutory language and sets a standard time of two years for 
conditionally approved NMVC companies to satisfy their 
requirements for final approval. Establishing the time standard 
at a full two years will provide NMVC companies more certainty 
in meeting their private-capital obligations as well as 
granting potential investors in aspiring NMVC companies a 
longer time-frame in which to evaluate the NMVC companies and 
assess the merits of an investment.
    Finally, the bill calls upon the SBA to conduct a study and 
subsequent report on the availability of equity capital in low-
income geographic areas. The Committee expects that such a 
study will look to both urban and rural communities and examine 
a range of business sectors in these communities that may lack 
access to equity and venture capital resources.
    As of March 31, 2006, the six NMVC Companies currently 
licensed by the SBA had invested more than $26 million in 75 
financings to over 39 small businesses to low income areas 
across the nation; leveraged $136 million in additional 
investments from other sources; provided more than $6 million 
in operational assistance to 163 companies; and created or 
maintained 1,626 jobs in low income communities.
    By extending the NMVC program, SBA has the authority to 
establish additional NMVC Companies to expand the benefits of 
community development venture capital to low-income communities 
that need investments
    The provisions in this Title originated in the 108th 
Congress when Senator Kerry proposed them for inclusion in S. 
1375, the last SBA reauthorization bill adopted by the Senate. 
They were deliberated and adopted but not included in the final 
version that became law. In this Congress, Senator Kerry re-
introduced the measures in July 2006 as the Securing Equity for 
the Economic Development of Low Income Areas Act of 2006 (S. 
3680), cosponsored by Senators Bayh, Landrieu and Lieberman.

                      Title IV--Disaster Response

    The SBA faced enormous challenges in responding to 
Hurricanes Katrina and Rita in 2005. In some instances, 
disaster victims waited three months or more for loans to be 
processed. In an effort to aid the SBA, the Committee held two 
hearings, introduced legislation and made many non-legislative 
recommendations. Unfortunately, the SBA languished two months 
before taking action. In response, this bill arms the SBA with 
the essential tools to respond efficiently and effectively to 
disasters of all sizes, and remedy the problems that prevented 
or delayed the agency's front-line employees from working in 
the disaster zones during the 2005 Hurricane season.
    In 2005 and 2006, Chair Snowe and Senator Kerry worked with 
Senators Vitter, Landrieu and Cornyn to draft legislation which 
provided the SBA with additional tools to respond to these 
unprecedented disasters. Additionally, the Committee worked 
with Leadership, and consulted closely with Senators Lott and 
Cochran, to develop a comprehensive package that would assist 
small businesses in rebuilding the entire Gulf region.
    Immediately after Hurricane Katrina hit, Senators Kerry and 
Landrieu offered an amendment to the FY 2006 Commerce, Justice 
and Science appropriations bill to address the needs of Gulf 
Region small business and home owners. This amendment was 
adapted and a subsequent bipartisan amendment was offered by 
Chair Snowe which passed the Senate with a vote of 96-0. 
Although the entire Senate supported the amendment, it was 
stripped out of the bill in Conference. Consequently, on 
September 19, 2005, Chair Snowe introduced a stand alone bill, 
the Small Business, Homeowners, and Renters Disaster Relief Act 
of 2005 (S. 1724), which was identical to the amendment.
    On September 30, 2005, Chair Snowe, and Senators Kerry, 
Landrieu and Vitter introduced the Small Business Hurricane 
Relief and Reconstruction Act of 2006 (S. 1807). Although this 
bill presented a bipartisan, comprehensive approach to 
hurricane relief, it stalled due to the Administration's 
opposition. Many of the tools offered in S. 1807 are reflected 
in the Committee reported bill. In addition, several provisions 
included in this subtitle to address problems faced by small 
businesses, originated from Chair Snowe and Senator Vitter's 
bill, the Small Business Partners in Reconstruction Act of 
2006, (S. 2608), Senator Kerry's bill, the Small Business 
Disaster Loan Reauthorization and Improvements Act of 2006 (S. 
3487), and Senator Landrieu's bill, the Small Business Disaster 
Recovery Assistance Improvements Act of 2006 (S. 3664).

                   SUBTITLE A--PRIVATE DISASTER LOANS

    The bill creates a private disaster loan (PDL) program in 
which loans are made by private lenders who have applied for 
eligibility. Under the program, eligible businesses must be 
located in an area that was declared a disaster anytime in the 
last 24 months. The business will not have to show a nexus 
between its need for a loan, and the disaster that occurred.
    The maximum loan size is set at $3 million. For businesses 
applying for PDLs of more than $250,000, collateral is 
required. Loans of less than $250,000 can be made without 
collateral, so long as the borrower otherwise qualifies and is 
approved by the bank. The maximum term of the loan is set at 25 
years if collateral is involved and 15 years for 
uncollateralized loans.
    The maximum guaranty of a PDL will be 85 percent, no matter 
the size of the loan. In addition, the SBA guaranty fee, which 
is 2 to 3.5 percent for regular 7(a) loans, will be zero. There 
will be a loan origination fee of 15 basis points per loan paid 
to lenders by the SBA using appropriated funds. The bill also 
provides that the size standard used to determine a PDL 
borrower's eligibility will be that which is currently used in 
the 7(a) program or that which is used in the 504 loan program.
    The acceptable uses of the loan proceeds are the same as 
those applicable to current 7(a) and 7(b) loans. In addition, 
borrowers can also use the loan proceeds to acquire or develop 
real estate for the purpose of selling or renting it to someone 
else.
    The bill authorizes the program to receive Federal 
appropriations, and such appropriations will be used to reduce 
the interest rate in the program by up to 3 percent. If 
sufficient appropriations are provided, the interest rates 
charged by banks will be subsidized so that they are reduced by 
3 percent. If less appropriations are provided, the rates may 
only be reduced by 2 percent, 1.5 percent, zero, etc.
    For documenting each loan, lenders would be allowed to use 
their own documents, subject to SBA approval, and applicants 
would be permitted to use an internet or electronic application 
process.

             SUBTITLE B--DISASTER RELIEF AND RECONSTRUCTION

    Under regulations normally in place, only homeowners, 
renters, and for-profit businesses can apply for Disaster 
Loans. The bill extends the eligibility to issue Disaster Loans 
to non-profit institutions which was provided after the 
terrorist attacks of September 11, 2001.
    The bill increases the maximum size of an SBA disaster loan 
from $1.5 million per loan to $5 million per loan. This 
provision was also included by the Administration in its 
proposal to rebuild the Gulf Coast region.
    Currently, when providing a disaster loan for uninsured 
damage suffered by a disaster victim, the SBA can increase the 
loan amount by up to 20 percent of the uninsured portion of the 
borrower's losses, so the borrower can invest in disaster 
mitigation technologies such as sea walls and storm shutters. 
The bill increases the amount that a borrower can borrow to 
spend on disaster mitigation. It would allow the SBA to 
increase the loan amount by 20 percent of the borrower's total 
losses, rather than just 20 percent of the uninsured portion. 
This provision was suggested by the Administration in its 
proposal to rebuild the Gulf Coast region.
    After a disaster, the SBA usually provides additional staff 
and funding to assist only the SBA's Disaster Loans program. 
However, the SBDCs, a resource partner of the SBA, have played 
a critical role in providing additional assistance and 
counseling to the victims of a disaster area. To assist the 
SBDCs disaster recovery efforts, the bill authorizes the 
Administrator to waive the $100,000 maximum size for SBDC 
portability grants used for disaster response. In addition, 
SBDCs will be authorized to provide services to small 
businesses located outside the SBDC's own home state if the 
small business concerns are located in a disaster area. The 
Committee also believes that SBDCs should be allowed to operate 
at disaster recovery sites if permissible.
    This bill also directs the SBA to create a contracting 
outreach program for small businesses located in--or having a 
significant presence in--designated disaster areas. Federal 
contracts and subcontracts can provide critical assistance to 
small businesses located in areas devastated by natural 
disasters in the form of solid business opportunities and 
prompt, steady pay. In addition, government procurement would 
open doors for many local small businesses to participate in 
the long-term reconstruction work necessary in these areas. 
While many small businesses would benefit from other forms of 
disaster assistance, many of them want to get back to work and 
into business as soon as possible. Technical assistance and 
outreach through the SBA, the Procurement Technical Assistance 
Centers, the Federal Offices of Small and Disadvantaged 
Business Utilizations, and other organizations could prove 
invaluable to these firms.
    In its proposal to rebuild the Gulf Coast region, the 
Administration proposed to increase the maximum size of SBA 
surety bonds to $5 million, and provide the SBA with authority 
to increase the maximum size to $10 million. Small businesses 
vying for government contracts need an increase in bonds to 
handle larger projects for disaster relief.
    Outreach alone will not ensure fair participation of small 
businesses in post-disaster reconstruction contracts. To 
promote jobs creation and development in a disaster region, the 
Federal government must set and follow definitive goals for 
small business participation. Small businesses, particularly 
those located in the disaster area and those that employ 
individuals in the affected areas, should receive their fair 
share of Federal contracting and subcontracting dollars.The 
bill establishes a 30 percent prime contracting goal and a 40 percent 
subcontracting goal on each agency's disaster-related reconstruction 
contracts. These goals are compatible with the Department of Homeland 
Security's and the Army Corps of Engineers' history of small business 
achievements.
    Moreover, the bill protects the Small Business Reservation 
(SBR) for disaster-related contracts below the Simplified 
Acquisition Threshold (SAT). The SAT and the SBR are normally 
set at $100,000. The Federal Acquisition Streamlining Act 
allowed Federal agencies to use simplified procedures for all 
contracts below the SAT, but only if they attempt to place, or 
``reserve,'' these contracts to qualified small businesses. 
Many small businesses qualify for contracts under expedited 
procedures under the Small Business Act, which would help to 
move the reconstruction process forward. The SBR does not delay 
relief contracting. If no qualified small business is available 
to do the job, agencies can place the contract with any 
qualified supplier. This provision restores the parity between 
the SBR and the SAT any time the SAT is increased for disaster-
related contracts. In addition, the legislation preserves 
requirements for small business subcontracting plans on large 
disaster contracts, while providing a grace period to conclude 
them.
    In recent disaster reconstruction efforts, small 
contractors have been denied access to reconstruction dollars 
by paperwork and bureaucracy. Many of these contractors have 
been certified to do business under the federally-funded, 
Congressionally-established Disadvantaged Business Enterprise 
Program (DBE). In the Federal procurement system, a parallel 
Small Disadvantaged Business (SDB) Program exists. The bill 
ensures that capable small contractors enjoy full reciprocity 
between Federal and federally-funded contracting programs for 
small business concerns owned and controlled by socially and 
economically disadvantaged individuals.
    The bill also directs the Administrators of the OFPP and 
the SBA to work with other Federal agencies to ensure creation 
of multiple-award contracts for disaster recovery which are set 
aside for small business concerns. In response to the Gulf 
Coast hurricanes, the GAO testified before the Committee last 
year that Federal agencies lacked adequate acquisition planning 
for disaster relief. In response, the bill ensures that the 
Federal Government establishes and maintains advance multiple 
award contracts with small business concerns of all categories 
on a nationwide and regional basis for the purpose of 
conducting and supporting Federal disaster recovery efforts. 
Additionally, the Administrator of the SBA would be required to 
submit to the respective Committees on Small Business and 
Entrepreneurship of the Senate and the House of Representatives 
a report describing the terms, conditions, and status of the 
contracts awarded during the preceding fiscal year.
    The Committee believes it is necessary to strengthen the 
Small Business Act's existing priority for local small 
businesses which perform a substantial proportion of the 
production on those contracts and subcontracts within areas of 
concentrated unemployment or underemployment or within labor 
surplus areas. The bill designates disaster areas as areas 
eligible for this priority and authorizes Federal agencies to 
use contractual set-asides, incentives, and penalties to 
enhance participation of local small business concerns in 
disaster recovery contracts and subcontracts. Additionally, the 
bill authorizes set-asides to be performed in a targeted labor 
surplus area or substantial unemployment area.
    The bill also terminates the application of the Small 
Business Competitiveness Demonstration (Comp Demo) program. The 
Comp Demo Program denies the protections of the Small Business 
Act like set-asides to small businesses involved in 
construction and specialty trade contracting, refuse systems 
and related services, landscaping, pest control, non-nuclear 
ship repair, and architectural and engineering services, 
including surveying and mapping. Historically, small businesses 
have been the backbone of these industries, and these 
industries are in heavy demand for disaster recovery efforts. 
The Comp Demo Program, ostensibly a test program, denies 
Federal agencies like the Department of Defense and nine other 
agencies the ability to do small business set-asides. 
Essentially, the Comp Demo Program reserves whole industries 
for big business.
    Last year, at the request of the Department of Defense, 
Chair Snowe supported an amendment to the National Defense 
Authorization Act to terminate the Comp Demo Program. The 
Senate agreed that small businesses in all industries should 
receive the full protections of the Small Business Act, and 
unanimously voted to repeal this Program, but the House 
rejected it in conference. Chair Snowe again sponsored the same 
amendment earlier this year, and Senator Kerry co-sponsored it. 
Again, the Senate approved it unanimously as part of the 
National Defense Authorization Act, but the House rejected it 
in conference. In addition, earlier this year the Senate 
unanimously approved an amendment to the Emergency Supplemental 
Appropriations Act for the Global War on Terror and Hurricane 
Relief, sponsored by Senator Vitter and co-sponsored by Chair 
Snowe, Senator Kerry, Senator Landrieu, and Senator Lott to 
suspend the program for Hurricane Katrina and Rita 
reconstruction projects. Again, the House rejected this 
amendment in conference. Terminating this Program would go a 
long way towards restoring fair treatment for small businesses 
affected by disasters.

                     SUBTITLE C--DISASTER RESPONSE

    The Federal response to the 2005 Gulf Coast hurricanes 
demonstrated on a national stage the need for a reformed system 
of disaster response. Victims were unable to access the capital 
necessary to keep their businesses open in the aftermath, and 
homeowners found the SBA's disaster loan application process 
burdensome and slow. Six months after Katrina touched down in 
New Orleans, 48 percent of all disaster loans remained 
unprocessed. A GAO Report 06-860, ``Actions Needed to Provide 
More Timely Disaster Assistance,'' reported that as of May 27, 
2006, the average length of time for the SBA to process a 
disaster loan had reached 74 days, well above the Agency's 
stated goal of 21 days. By all accounts, the SBA failed in its 
mission to respond quickly and effectively to victims' needs in 
the weeks and months following the hurricanes.
    Title IV, Subtitle C, includes several provisions that 
originate in the Small Business Disaster Loan Reauthorization 
and Improvements Act of 2006, S. 3487 introduced by Senator 
Kerry, as well as S. 3664, the Small Business Disaster Recovery 
Assistance Improvements Act of 2006, introduced by Senator 
Landrieu.
    The Committee recognizes the need to provide impacted 
businesses with immediate access to capital and technical 
assistance within the first 30 days following a disaster to 
ensure their full recovery.
    The Committee is also concerned that SBA's Gulf Opportunity 
(GO) Loan program, which was initiated in November 2005 to 
expedite small business financing to impacted small businesses, 
only provided 222 GO Loans totaling $19 million in May 2006.
    For major disasters, State-administered bridge loan 
programs can serve as an effective means of providing immediate 
capital to allow impacted businesses to make repairs, make 
payroll, and continue operations. The Committee is aware of the 
success of these state-administered programs, the problems the 
SBA faced in providing timely assistance to businesses impacted 
by the 2005 Hurricanes, as well as the necessity for SBA to 
have the ability to provide short-term assistance. As a result, 
the bill includes a provision from S. 3664 which requires that 
the SBA Administrator issue, within 90 days of passage of the 
bill, guidelines on an SBA-approved State bridge loan program 
for future disasters. Once the guidelines are issued, states 
may then submit their bridge loan programs for approval to 
receive the SBA guarantee assistance on bridge loans in the 
event of a disaster. This program encourages state 
preparedness, provides SBA with needed flexibility for major 
disasters, and would fast track immediate capital to businesses 
impacted by a major disaster.
    The Committee also acknowledges that certain disasters 
impact businesses beyond the geographic reach of a declared 
disaster area. Businesses across the nation can be affected by 
a large-scale disaster that disrupts a region's economy. This 
was evident in the aftermath of the terrorist attacks of 
September 11, 2001, and was again an issue following the 2005 
Gulf Coast hurricanes. As a result, Senator Kerry included a 
provision in S. 3487 to create a new presidential declaration 
of disaster--a Catastrophic National Disaster--which would be 
available to provide nationwide economic injury disaster loans 
to businesses outside of a disaster's geographic boundaries. 
This initiative was included in the Committee's reported bill.
    Following the Gulf Coast Hurricanes, the SBA staff and 
volunteers found limited resources in terms of lodging in or 
around the disaster areas. The difficulty in sharing records 
between the IRS and SBA resulted in extended delays in the loan 
application process. Disaster assistance application periods 
differed from agency to agency, making the process of accessing 
assistance confusing and burdensome for victims.
    This bill incorporates several proposals from S. 3487 that 
enable FEMA, SBA, and other responding agencies to coordinate 
efforts in the aftermath of a disaster. This bill establishes 
that FEMA and SBA application periods should be consistent 
whenever possible. SBA and FEMA should notify Congress ten days 
prior to the date of a deadline for assistance as to whether or 
not the deadline will be extended. The bill directs the 
Administrator to utilize radio, television, print and web-based 
outlets to communicate information regarding available 
assistance under declared disasters. FEMA and SBA are directed 
to enter into an agreement that ensures adequate lodging and 
transportation for SBA employees, contractors and volunteers 
during disaster response. The bill also directs SBA to develop 
a proactive marketing plan to make the public aware of 
potential disaster scenarios and what assistance is available 
through FEMA and SBA.
    Effective disaster response requires a clear set of 
procedures to be followed. Inconsistencies in procedures can 
lead to ineffective governance and breakdowns in response. In 
the interest of ensuring that the SBA's regulations and 
procedures are consistent, the Committee directs 
theAdministrator to conduct a study to determine whether the SBA's 
standard operating procedures are consistent with the agency's Federal 
regulations for administering the disaster loan program.
    The Committee also recognizes that in the event of a large 
scale disaster, the SBA needs resources in order to effectively 
manage the volume of loan applications. The bill provides for 
the SBA to contract with private contractors to process 
disaster loans in the event of a large scale disaster. The SBA 
is also authorized to contract with loss verification 
professionals to conduct loss verification services. The 
Administrator is directed to work to the maximum extent 
practicable with the Commissioner of the Internal Revenue 
Service to ensure that all relevant tax records for disaster 
loan applicants are shared in an expedited manner. In addition, 
the SBA is directed to conduct a study of how the loan 
application process can be improved, including the viability of 
using alternative methods for assessing ability to repay a loan 
beyond a victim's credit rating. Too often, victims who 
otherwise would be eligible for an SBA loan are denied as a 
result of poor credit, however the process does not take into 
account the extraordinary circumstances under which the credit 
rating has gone down. The SBA's methods for assessing ability 
to repay should take these circumstances into account.
    The Committee is concerned that the SBA did not have a 
proactive, comprehensive disaster response plan in place in 
August 2005. The Committee is aware that GAO will be issuing a 
report in the coming months that will assess the extent to 
which SBA has developed a comprehensive disaster response plan 
and how this could impact the SBA's ability to provide timely 
assistance to Gulf Coast hurricane victims. The Committee was 
pleased to learn that since May 2006, SBA has been developing a 
comprehensive disaster response plan and that the SBA provided 
a status report to the Committee on this plan on July 15, 2006. 
The Committee expects the SBA to build upon the lessons learned 
from responding to numerous hurricanes during the 2005 season 
to ensure that the agency is better prepared for future 
disasters.
    The bill directs the SBA, no later than January 31, 2007, 
to submit to the Committee, along with the House Small Business 
Committee, the comprehensive disaster response plan of the 
Administration, along with a report detailing any updates or 
modifications made to the disaster response plan submitted July 
14, 2006. This plan shall include a description of how the 
Administrator intends to utilize district office personnel, a 
description of the disaster scalability model, a description of 
how the agency-wide Disaster Oversight Council is structured, a 
description of how the Administrator plans to coordinate 
disaster response with state and local officials, 
recommendations on how the Administrator can better coordinate 
response efforts with the Departments of Commerce and 
Agriculture, any surge plans with respect to loan processing 
and loss verification, the Administrator's findings and 
recommendations based on a review of the SBA response to the 
2005 Gulf Coast hurricanes, and a plan for how the 
Administration will provide accommodations and necessary 
resources for disaster assistance personnel.
    In this report, the Committee also expects the SBA to 
provide information on how it plans to integrate and coordinate 
the response to a disaster with the technical assistance 
programs of the Administration, including the small business 
development centers. Furthermore, in light of the GAO's report 
titled Actions Needed to Provide More Timely Disaster 
Assistance (GAO-06-860), which details why the SBA struggled to 
provide timely assistance to homeowners affected by the Gulf 
Coast hurricanes, the Committee directs the SBA to detail how 
it plans to coordinate its efforts with the staff and resources 
of the Federal Housing Administration in the U.S. Department of 
Housing & Urban Development.
    Also included in this bill are provisions that direct the 
SBA to provide monthly reports to the House and Senate 
Committees on Small Business detailing disaster loan activity 
for the previous month, as well as weekly accounting reports 
during times of Presidentially declared disasters. Twice during 
the Gulf Coast response efforts, the SBA nearly ran out of 
funding for loans, and twice Congress had to step in and ensure 
that disaster loans could continue to be processed and approved 
with sufficient funding. The SBA has a responsibility to inform 
its oversight committees in a timely manner of any 
circumstances that may prevent the agency from providing 
assistance to victims.

                     SUBTITLE D--ENERGY EMERGENCIES

    This bill includes provisions which provide the SBA 
Administrator to make economic injury disaster loans of up to 
$1.5 million to small businesses that experience or are likely 
to experience economic injury as a result of a significant 
increase in the price of heating oil, natural gas, gasoline, 
propane, or kerosene. The bill defines a significant increase 
as an increase of more than 40 percent of the average price 
from the previous two years, taken over a period of ten days. 
The bill also authorizes the Secretary of Agriculture to make 
similar loans to small farms that are suffering similar 
economic injury. Both the Administrator and the Secretary are 
required to report to Congress on the effectiveness of the 
program.
    The Energy Emergency Relief Act is a four-year pilot 
program that will allow small businesses and small farms to 
access the critical capital necessary to sustain abnormally 
high energy prices. In addition, loans may be used by borrowers 
to convert from the use of heating fuel to a reusable or 
renewable energy source. The Committee believes that energy 
economic injury disaster loans are necessary for the 
sustainability of small, energy dependent businesses and farms 
during periods of increased cost, and that this program will 
not only allow small businesses to remain open, but will 
encourage them to seek alternative energy sources and to reduce 
their dependence on conventional ones.
    These provisions are from the Small Business and Farm 
Energy Emergency Relief Act S. 269, introduced by Senator Kerry 
in February of 2005. The bill has passed the Senate on two 
separate occasions, As S. 295 in the 107th Congress and as an 
amendment to the Energy Policy Act of 2005, although it was 
later dropped in conference. The proposal has received 
bipartisan support on both occasions.

         Title V--Veterans and Members of the Guard and Reserve


                          SUBTITLE A--VETERANS

    Currently, the SBA's Office of Veteran's Business 
Development (OVBD), only receives approximately $750,000 per 
year. To address the unprecedented call ups, the bill increases 
funding to the SBA's OVBD in the amounts of $2 million for FY 
2007, $2.1 million for FY 2008 and $2.2 million for FY 2009. 
These funds can be directed toward offering assistance to 
individual veteran entrepreneurs in need. Meeting veterans' 
need will benefit the economy in general, and the military's 
ability to retain quality military personnel. Additionally, 
veterans and service-disabled veterans will be able to extend 
any time limitation for any qualification, certification, or 
period of participation for the time in which the veteran was 
on active duty.
    The bill extends the authority of the SBA's Advisory 
Committee for Veterans Business Affairs until FY 2009.

                     SUBTITLE B--GUARD AND RESERVE

    Over the last five years, 550,000 military reserve troops 
have been called to serve on active duty by the Department of 
Defense. As a result of larger and more frequent call-ups, many 
small businesses have been forced to go without their owners 
and key personnel for months, and sometimes years. The impact 
has been devastating to these small firms, as the majority of 
non-government employed Guard and Reserve members are either 
self-employed or work for a small business. As a result, 
Senators Snowe and Craig introduced legislation to improve the 
Military Reservist Economic Injury Disaster Loan (MREIDL) 
program.
    The bill raises the maximum military reservist loan amount 
to $2 million and allows the Administrator to offer loans up to 
$25,000 without requiring collateral from the Guard or Reserve 
Member. The bill requires the SBA and the DoD to develop a 
joint website and printed materials providing information 
regarding this program and also requires banks and other 
lending institutions to refer the loan applicant to appropriate 
technical assistance programs offered by the SBA.
    To address the needs of Guard and Reservists whose 
businesses are affected by call up, death, or significant 
injury, the SBA and Department of Defense are directed to 
conduct a study of the feasibility of creating a business 
mobilization and interruption insurance program.
    In light of the unprecedented military reserve call-ups, 
Senator Kerry introduced a provision in the Strengthening 
America's Armed Forces and Military Families Bill of Rights (S. 
460), that would award grants to military reservist small 
businesses that had suffered economically as a result of a 
reservist having been called to active duty. This provision, 
included in S. 3487 and now in this bipartisan bill, provides 
grants of up to $25,000 to businesses affected by the call-up 
to duty of employees who are reservists, provided the small 
business concern provides a business plan demonstrating 
viability for not less than three future years. The bill 
authorizes $3 million for the program for each of FY 2007-2009.

                    SUBTITLE C--VETERANS CORPORATION

    In 1999, Congress passed P.L. 106-50, which created the 
National Veterans Business Development Corporation (``The 
Veterans Corporation'' or ``TVC'') to provide assistance to 
veteran-owned small businesses to enable them to start-up and 
grow their businesses. The bill placed a specific emphasis on 
small businesses owned and controlled by service-disabled 
veterans. The TVC was chartered as a non-profit organization to 
provide small business training and entrepreneurial services to 
the nation's veterans, including service-disabled veterans 
througha national network of newly created community-based 
Veterans Business Resource Centers (VBRCs). Currently, only one of the 
TVC's four VBRCs is operating as envisioned by the legislation.
    Since its creation, the TVC failed to accomplish the 
purposes for which it was created. While the TVC's purpose and 
mission are well-intentioned in practice, the Committee 
believes that the structure and purpose of the TVC needed a 
complete overhaul. As a result, Senators Kerry, Snowe, Talent, 
and Akaka crafted legislation to significantly alter TVC, and 
move it towards privatization.
    The first step to improving the function of the TVC is to 
reaffirm and focus its purpose and mission on establishing a 
national network of information and assistance centers for use 
by veterans and the public and modifies the TVC Board to make 
Board members more accountable.
    The appropriations for the TVC are authorized at $2 million 
for each fiscal year, 2007-2009. However, this section requires 
the TVC to collect matching funds equal to the amount of any 
grant issued by the SBA.
    The ultimate goal is the privatization of the TVC. This 
bill moves the TVC toward this goal by reinforcing current law 
requiring TVC to develop a plan to become self-sustaining 
within six months from the date of enactment. To monitor its 
progress toward privatization, this bill requires a GAO report 
to ensure review and compliance.

           Title VI--Energy Loans for Small Business Concerns

    To address adverse effects of the rising costs of energy 
have on small business, the bill makes SBA Express Loans 
available to small businesses who wish to use this expedited 
loan program. With qualified SBA lenders using their own forms 
and 36 hour decision time, this program will allow small 
businesses to access the much needed capital necessary for 
making energy efficiency improvements or purchasing a renewable 
energy system for their existing enterprise.

                      Title VII--Health Insurance

    The most pressing issue facing small business today is the 
rising cost of health insurance. Small businesses face a crisis 
when it comes to securing quality, affordable health insurance 
for their employees. Health insurance costs are skyrocketing, 
and small businesses are trapped in stagnant, dysfunctional 
state insurance markets that have little, if any, competition. 
In October 2005, the Government Accountability Office (GAO) 
released a report requested by Senators Snowe, Talent and Bond. 
This report highlighted a frightening consolidation in the 
state small group markets. Across the country, the five largest 
carriers in the small group market, when combined, represented 
three-quarters or more of the market in 26 of the 34 states 
surveyed, and they represented 90 percent or more in 12 of 
these states. In addition, the median market share of the 
largest small group carrier is now 43 percent as compared to 33 
percent reported in 2002.
    Further compounding matters, many small businesses do not 
possess the resources or personnel to navigate the complex 
health care landscape. The Committee supports efforts to 
increase small business awareness of health insurance options 
in their geographic areas. The bill establishes a four-year, 
pilot grant program to provide information, counseling, and 
educational materials to small businesses, through the well-
established national framework of the SBDCs. The Committee 
believes that SBDCs provide an appropriate mechanism to 
disseminate information about health insurance options to small 
businesses. Recent research conducted by the non-partisan 
Healthcare Leadership Council found that with a short 
educational and counseling session, small businesses were up to 
33 percent more likely to offer health insurance to their 
employees.
    Specifically, the bill requires the SBA Administrator to 
establish the pilot, competitive grant program within 30 days 
of enactment. The program will make grants to SBDCs to provide 
information and educational materials regarding small business 
health insurance options. The grant amounts authorized under 
the program shall be not less than $150,000 per fiscal year, 
and not more than $300,000 per fiscal year.
    The bill also requires each participating SBDC to submit a 
quarterly report to the Administrator and Chief Counsel for the 
SBA Office of Advocacy. Finally, the bill authorizes $5 million 
in appropriations for the first fiscal year beginning after the 
date of enactment, and $5 million in appropriations for each of 
the three subsequent fiscal years.

         Title VIII--Women's Small Business Ownership Programs

    During the Committee's reauthorization in 2003, the 
Committee identified that the SBA's programs had not evolved to 
meet the changing needs of women owned small businesses. 
Specifically, women business leaders expressed their 
frustration with the agency, the lack of results from agency 
programs and services for existing women business owners, the 
inactivity of the National Women's Business Council and 
Interagency Committee on Women's Business Enterprise, the 
limited opportunities for Federal government contracts for 
women, and the lack of connection with the ``real world 
problems'' facing women entrepreneurs on a day-to-day basis.
    In response, Chair Snowe introduced the Women's Small 
Business Programs Improvement Act (S. 1154) and the Women's 
Business Centers Preservation Act of 2003 (S. 1247), 
cosponsored by Senator Kerry. Provisions from these bills were 
then incorporated into S. 1375, the Small Business 
Administration 50th Anniversary Reauthorization Act of 2003.
    However, in Fiscal Year 2005, a revised version of SBA's 
reauthorization was inserted into Division K of H.R. 4818, the 
Consolidated Appropriations Act for 2005. While this version 
included the reauthorization of the regular women's business 
center program, it excluded the authorization for the women's 
business center sustainability pilot program. The pilot program 
was created in bipartisan legislation, the Women's Business 
Center Sustainability Act of 1999, sponsored by Senator Kerry 
and cosponsored by Chair Snowe. Since 2005, the pilot program 
has only been reauthorized on an annual basis through the 
Appropriations process, leaving the most experienced centers, 
in years five through ten, operating with the uncertainty of 
whether they would have an opportunity to continue to 
participate in the program.
    To address these concerns and to meet the increasing demand 
for the program's services, in 2006, Chair Snowe along with 
Senator Kerry introduced the Women's Small Business Ownership 
Programs Act of 2006 (S. 3659). The provisions included in S. 
3659 were incorporated and updated during the reauthorization 
process.

Small Business Administration Office of Women's Business Ownership

    The bill provides authority for the SBA's Office of Women's 
Business Ownership to develop and make available new programs 
and services for established women owned businesses addressing 
issues in the areas of women in manufacturing, technology, 
professional services, retail and product sales, travel and 
tourism, international trade and Federal government 
procurement. The Committee expects that these new programs and 
services will be developed in consultation with the National 
Women's Business Council, the Interagency Committee on Women's 
Business Enterprise, and representatives of the women's 
business centers associations.
    The bill also directs the SBA to conduct training for 
District Office Women Business Ownership Representatives 
(existing personnel who are responsible for marketing and 
outreach activities) and District Office Technical 
Representatives (existing personnel who are responsible for 
grant programmatic and financial oversight duties) as well as 
providing resources for the District Offices to carry out their 
responsibilities.

Women's Business Center Program

    The Women's Business Center Program, established in 1988, 
provides long-term training and counseling to encourage small 
business ownership through more than 100 non-profit 
organizations. The Women's Business Center Program has been 
well received by recipient users and has become a unique 
resource for women entrepreneurs--proving to be of great 
benefit to the SBA in its quest to serve greater numbers of 
entrepreneurs. Therefore, the Committee has questioned the 
agency actions in support of opening new centers in new 
locations before stabilizing established centers through 
continued funding opportunities. The SBA has stated that after 
initial funding, the centers should be able to provide services 
independent of the grant program. However, since a requirement 
of the Women's Business Center program is to conduct outreach 
and long-term assistance to the under-served markets on a ``no-
fee'' basis, it would be difficult for a center to become self-
sufficient. The Committee supports the agency's positioning 
itself to first meet the obligations of renewal grant funding 
for productive centers before creating new centers.
    Under the bill, beginning in Fiscal Year 2007, the Women's 
Business Centers program will operate on a permanent basis, 
replacing the Pilot Sustainability Grants Program. Existing 
Women's Business Centers will be eligible to submit proposals 
every three years as they graduate from existing grant awards. 
To avoid a repetition of unexpected and unannounced actions by 
the SBA in the future that may create a detrimental impact on 
the delivery of programs and services, the bill clearly sets 
forth the process and criteria that the agency must follow in 
administering the women's business center grant program. This 
process should include a review of SBA's evaluation criteria 
that centers must produce an annual 10 percent increase in 
client growth and SBA guaranty loans.
    To improve this process, the bill directs the agency to 
streamline and reduce the reporting requirements and costs of 
the centers, recognizing the limited grant award and limited 
human resources within the centers. All of the eligible 
associations that represent Women's Business Centers (WBCs) 
will also have an opportunity to consult with the SBA Office of 
Women's Business Ownership for the purpose of developing 
training programs for centers and recommendations to improve 
the policies and procedures governing the operations and 
administration of the program.

National Women's Business Council

    The National Women's Business Council was created by the 
Women's Business Ownership Act of 1988 to serve as an advisory 
body to the President, the Congress and the SBA. Its members 
came from the public and private sectors, and it was 
constituted to respond to criticism of the Interagency 
Committee's inactivity. By separating from the Interagency 
Committee, the Council was better able to focus on its advisory 
mission. The 1997 Small Business Reauthorization Act provided 
for improved reporting duties and Council appointments. The 
2000 Small Business Reauthorization Act increased the annual 
authorized appropriation from $600,000 to $1 million to allow 
the Council to broaden its scope in research and reports, 
establish advisory councils, conduct conferences, and establish 
an interstate communication network.
    To build upon the foundation previously established for the 
Council, the Committee incorporated the Council's requests to 
change its research formula and establishes a 30 percent 
allocation of appropriated funds for specific research. In 
addition, the bill provides the Council with the authority to 
create a clearinghouse on women's business ownership. At the 
Council's request, the bill enables the Council to establish 
working groups. The bill also provides the Council with the 
same cosponsorship authority as the SBA in order for it to 
expand research and program activities for women-owned small 
businesses.
    To ensure the Council's continuity and independence, the 
bill clarifies membership representation. The Council has 15 
members representing small businesses and small business 
organizations, with the Chairperson appointed by the President, 
six members representing women's business organizations, and 
the remaining eight members appointed by the SBA Administrator 
based upon recommendations of the Chair and Ranking Members of 
the Senate Committee on Small Business and Entrepreneurship and 
the House Committee on Small Business. Of these eight ``party-
affiliated'' members, four are to come from the same political 
party as the President and four are not to be of the 
President's party.
    In 2003, Senator Landrieu proposed an amendment, which was 
adopted by the Committee, to establish fairness in the 
appointment of Council members as a result of an imbalance in 
membership representation between the two political parties. 
This amendment calls for equal representation of the two 
political parties in the process of appointing members to fill 
vacant seats on the Council and requires the Administrator to 
report to Congress on vacancies that remain unfilled for more 
than 30 days. In 2006, as part of this bill, the Committee 
clarified the amendment to recognize a party balance for the 
eight ``party-affiliated'' members. The report must cite in 
detail the status of all vacancies, identifying the type of 
vacancies, the process the Council will follow, and the notice 
of any anticipated delays in filling the vacancies.

Interagency Committee on Women's Business Enterprise

    In 1977, an interagency task force was formed and was 
subsequently renamed the Interagency Council in May 1979 by 
Executive Order 11213. In 1988, the Women's Business Ownership 
Act (Public Law 100-533) replaced the Interagency Council with 
a joint public-private sector National Women's Business 
Council. The SBA Reauthorization and Amendment Act of 1994 
(Public Law 103-403) revised the Interagency Council's 
structure, returning all public-sector participants to comprise 
an expanded Interagency Committee on Women's Business 
Enterprise.
    In 1994, by separating the private-sector Council from the 
public-sector Interagency Committee, it was intended that the 
Council would be the pro-active force to inspire action by the 
Interagency Committee. The 1997 Reauthorization Act 
incorporated a requirement that representatives on the 
Interagency Committee report directly to the head of their 
agency on the Interagency Committee's activities. There is no 
funding authorization provided under current law to support the 
activities on the Interagency Committee. Nor are there clear 
directives on the operations and interaction of the Federal 
agency and department representatives.
    Currently, the Interagency Committee includes 
representatives from the U.S. Departments of Commerce, Defense, 
Education, Energy, Health & Human Services, Labor, 
Transportation, and Treasury, the SBA, General Services 
Administration, Office of Federal Procurement Policy, National 
Aeronautics and Science Administration, Environmental 
Protection Agency, the Federal Reserve, and the Executive 
Office of the President.
    The Federal agencies and departments represented on the 
Interagency Committee allocate existing personnel and resources 
to support participation on the Interagency Committee. The 
Interagency Committee is required to submit an annual report to 
the President and Congress, through the SBA, but there is no 
record of the annual reports being prepared or forwarded to the 
President and Congress for the past three years. In addition, 
the President has not appointed a Chairperson to carry out the 
mission of the Interagency Committee, and therefore, the 
Interagency Committee is inactive.
    To reactivate the Interagency Committee so that it can 
accomplish its intended mission, the bill directs the SBA 
Deputy Administrator to assume temporarily the responsibilities 
of the Interagency Committee Chair, if vacant, until the 
President makes an appointment. This action provides for the 
continuity of activities and avoid periods of inactivity. The 
bill also provides operational direction for the Interagency 
Committee by requiring that the Interagency Committee conduct 
three official meetings each year to plan upcoming Fiscal Year 
activities; track year-to-date agency contracting goals; and 
evaluate Fiscal Year progress and begin the report process.
    The bill also establishes, as a subcommittee to the 
Interagency Committee, a policy advisory group consisting of 
representatives from the SBA, the Department of Commerce, the 
Department of Labor, the Department of Defense, the Department 
of the Treasury, two individuals and two organizations that are 
members of the National Women's Business Council. The Committee 
believes that the policy advisory group will return the 
Interagency Committee to a mix of public/private members to 
provide the support and direction so badly needed to revive the 
intent of the Interagency Committee.

                     Title IX--International Trade

    Exporters support over 12 million jobs and pay wages 18 
percent higher than average. Ninety-seven percent of exporters 
are small businesses and account for almost $300 billion of 
yearly export sales--nearly one-third of total U.S. exports. 
Over the last decade the number of small businesses that export 
has increased by more than 250 percent. Exporting offers the 
opportunity for small businesses to retain and create jobs, 
position themselves for growth, enter new markets, expand their 
customer base, and add product and service lines.
    The SBA plays an important role in this growth through 
United States Export Assistance Centers (USEACs), which provide 
small or medium sized businesses with local export assistance. 
In particular, USEACs provide lending and technical assistance 
and help small businesses in obtaining adequate export 
financing. The Committee is aware that, at a cost of less than 
$2 million per year, the current group of SBA International 
Finance Specialists has obtained bank financing for more than 
$10 billion in U.S. exports since 1999. The $10 billion in 
export sales financed by these specialists has helped to create 
over 140,000 new, high-paying U.S. jobs.
    However, despite these figures, the Committee is concerned 
that this program is experiencing a record staffing low of 15 
specialists nationwide as of July 10, 2006--down from a peak of 
22 specialists in January 2000. These vacancies force the 
current group of finance specialists to cover more extensive 
territories, often with limited travel budgets, which 
negatively impacts U.S. export potential in high export 
markets. In order to expand and assist small businesses 
exporters, the bill expands the trade distribution network by 
ensuring SBA maintains a sufficient level of USEAC employees. 
The bill ensures that in filling USEAC positions, the SBA must 
first address existing positions that have been vacant since 
January 2003 before filling new positions.
    The Committee believes it is essential that small exporters 
nationwide have access to export financing. The bill would 
improve the current statute that inadvertently has the maximum 
loan guaranty amount and maximum loan amount working at cross 
purposes. The FY04 Omnibus legislation raised the maximum SBA 
guarantee for International Trade Loans (ITLs) to $1.75 
million; but kept the maximum gross loan amount limited to $2 
million. As a result of these changes, and given that these 
loans receive a 75 percent SBA guarantee, lenders are currently 
limited to a single loan of $2 million which uses $1.5 million 
in guarantee. Also, to make full use of the maximum guarantee, 
the SBA must currently make a second loan to the borrower.
    In order to update current legislation, the bill expands 
financing to small business exporters by increasing the maximum 
loan guarantee amount to $2.75 million and specifies that the 
loan cap is $3.67 million. The Committee expects that working 
capital to also be allowed as an eligible use for loan 
proceeds. The bill also makes International Trade Loan 
consistent with regular SBA 7(a) loans by allowing the same 
collateral and refinancing terms as with regular 7(a) loans.
    This provision originated from S. 3663, the ``Small 
Business International Trade Enhancements Act of 2006,'' 
introduced by Senator Landrieu on July 14, 2006 and co-
sponsored by Senators Bayh, Kerry, and Pryor.
    Finally, to improve the overall administration of the SBA's 
international trade loan programs, the bill designates one 
individual within the SBA as a trade financial specialist to 
oversee the ITL programs.

                       Title X--Contract Bundling

    Contract bundling is the consolidation of contracts in a 
manner that unduly restricts competition, and was originally 
prohibited under the Competition in Contracting Act (CICA) of 
1984. The Small Business Reauthorization Act of 1997 
supplemented CICA by defining the bundling of contract 
requirements as the consolidation of two or more procurement 
requirements for goods or services previously provided or 
performed (or suitable for performance) under separate, smaller 
contracts into a solicitation of offers for a single contract 
that is likely to be unsuitable for award to a small business 
concern. The requirement that at least a portion of the 
contract be ``previously performed'' by small firms allows 
Federal agencies to avoid bundling review by declaring large 
consolidations to be ``new work.'' The statute allows the 
agency to bundle its requirements if the agency has performed 
sufficient market research and has justified the bundled 
action.
    Generally, a bundled procurement will be found necessary 
and justified if the agency will derive measurably substantial 
benefits as a result of consolidating the requirements into one 
large contract. If the requirement involves ``substantial 
bundling,'' where contract value exceeds specified thresholds 
($2 million for most agencies, $5 million for the GSA, NASA, 
and DOE, and $7 million for the DoD), a contracting agency must 
conduct an internal analysis of the contract, submit a contract 
to the SBA Procurement Center Representatives for review, and 
take actions to maximize small business participation as 
subcontractors at various tiers under the contract.
    Bundling or consolidation of Federal contracts tends to 
deprive small firms of business opportunities with the Federal 
government. The size of a contract, geographic spread of 
performance, or multiplicity of requirements can prevent small 
firms from capitalizing on their competitive advantages, 
including greater attention to customer service, superior rate 
of innovation, and lower general and administrative costs. In 
2002, the White House Office of Federal Procurement Policy 
cited an estimate that small businesses lose over $30 for every 
$100 of bundled contracts. In addition, contract bundling 
drastically reduces the Federal government's supplier base, 
and, especially, the defense industrial base. According to the 
SBA Office of Advocacy, during the time period that contract 
bundling began to increase, the number of small business 
contractors receiving new contract awards dropped by over 50 
percent, from 26,506 in FY 1991 to 11,651 in FY 2000.
    In Report No. 105-62 on the 1997 SBA Reauthorization Act, 
this Committee stated, ``often bundling results in contracts of 
a size or geographic dispersion that small businesses cannot 
compete for or obtain. As a result, the government can 
experience a dramatic reduction in the number of offerors. This 
practice, intended to reduce short term administrative costs, 
can result in a monopolistic environment with a few large 
businesses controlling the market supply.'' The fiscal case for 
reduction in consolidated contracts is strong. For instance, 
the SBA program to break up large contracts for competition 
(the Breakout Procurement Center Representatives Program), 
currently staffed by less than 10 people, saved the Federal 
government over $2.5 billion since 1985.
    On March 19, 2002, the President directed Federal agencies 
to break up bundled contracts, which he defined simply as 
``huge contracts with massive requirements'' that ``tend to go 
to the same group of large, corporate bidders.'' The President 
further stated that the Contract Bundling Initiative serves the 
following goals: to ``encourage competition as opposed to 
exclude competition; to make sure that the process is open; to 
make sure the process helps achieve a noble objective, which is 
more ownership in our country. And wherever possible, we're 
going to insist that we break down large federal contracts so 
that small business owners have got a fair shot at federal 
contracting.''
    In October 2002, the OMB Office of Federal Procurement 
Policy announced a 9-point initiative to implement the 
President's directive and reduce contract bundling by: (1) 
ensuring accountability of senior agency management for 
improving contracting opportunities for small business; (2) 
ensuring timely and accurate reporting of contract bundling 
information through the President's Management Council; (3) 
requiring contract bundling reviews for task and delivery 
orders under multiple award contract vehicles; (4) requiring 
agency review of proposed acquisitions above specified 
``substantial bundling'' thresholds for unnecessary and 
unjustified contract bundling; (5) requiring identification of 
alternative acquisition strategies for the proposed bundling of 
contracts above specified thresholds and written justification 
when alternatives involving less bundling are not used; (6) 
mitigating the effects of contract bundling by strengthening 
compliance with subcontracting plans; (7) mitigating the 
effects of contract bundling by facilitating the development of 
small business teams and joint ventures; (8) identifying best 
practices for maximizing small business opportunities; and (9) 
dedicating agency OSDBUs to the President's Small Business 
Agenda.
    Four years after the President's Anti-Bundling Initiative 
was announced, the SBA continues to fail to provide leadership, 
consistent execution, or accountability to the Initiative. For 
instance, to date, the SBA has not published a ``best 
practices'' guide on bundling as directed by the OMB in 2002. 
Reviews by the GAO and the SBA Inspector General found that 
many Federal agencies are confused about the statutory 
definition of bundling. According to a GAO report GAO-04-454, 
Impact of Strategy to Mitigate Effects of Contract Bundling on 
Small Business is Uncertain, agencies claim to be confused by 
the legal definition of bundling, and officials at two of four 
agencies contacted did not know they were mandated to report 
all potential bundlings. The SBA Inspector General's Audit of 
the Contract Bundling Program, No. 5-20, found that agencies 
and the SBA disagree on the definition of bundling, but that 
the SBA failed to review over 80 percent of contracts 
designated as bundled. This resulted in almost $400 million of 
potential lost opportunities for small businesses. Testimony 
during a recent hearing before the Committee indicated that 
Federal agencies do not practice unbundling of government 
contracts.
    The Committee believes there is an urgent need for Federal 
agencies to follow SBA's guidance on bundling and to close the 
loopholes in the Federal agencies' interpretation of contract 
bundling. The Committee believes that the definition of 
bundling must be simplified in line with the President's 
definition and in line with the original meaning of the term as 
consolidation that is restrictive of competition. The 
requirement that the work must have been previously performed 
by small firms to be considered bundled is being removed.
    The bill provides that agencies shall presumptively treat 
as bundled any contract which is at least three times the 
amount of the relevant substantial bundling threshold. Among 
other things, this presumption will trigger all related 
obligations to mitigate damage to small business concerns 
through other prime contracting or subcontracting 
opportunities.
    The Committee believes that the recommendations of the GAO 
and the SBA Inspector General on contract bundling must be 
fully implemented. Specifically, the SBA must publish its best 
practices guide on reducing contract bundling, and better data 
on incidents and impact of bundling must be collected. The 
Committee also directs the SBA to conduct government-wide 
review of contract bundling policies and interpretations. The 
Committee expects that the review will be conducted in such a 
manner as to preserve the independence of the SBA Offices of 
Advocacy and Inspector General. To ensure such independence, 
the Administrator shall consult with the Offices of Advocacy 
and Inspector General The Committee also expects that a policy 
will be issued by the SBA tying performance evaluations and 
compensation of Federal managers to the Federal agencies' 
compliance with small business contracting and subcontracting 
obligations.
    The SBA Procurement Center Representatives (PCRs) monitor 
Federal agency procurement activity to ensure that (1) 
appropriate steps are taken to provide contract awards to small 
businesses, (2) agencies meet their small business contracting 
goals, and (3) proposed contracts that could involve 
consolidated procurement requirements are identified and 
resolved. PCR responsibilities include: reviewing proposed 
acquisitions and recommending alternative procurement 
strategies; identifying qualified small business sources; 
conducting reviews of small business programs at Federal 
contracting activities to ensure compliance with small business 
policies; counseling small businesses; and sponsoring and 
participating in small business conferences and training.
    The number of PCRs, however, has shrunk dramatically in the 
last 10 years. The Committee believes that the failure to 
maintain sufficient levels of PCRs diminishes the SBA's ability 
to carry out its statutory mandate. Reports prepared by the GAO 
disclose that the SBA is struggling to accomplish its mission 
and lacks the assurances that PCRs were reviewing proposed 
acquisition strategies to identify barriers to small business 
participation. The GAO also concluded the number of PCR-
recommended small business set-asides has declined by more than 
half in the last ten years.
    More importantly, the Committee recognizes that acquisition 
is a technical discipline that requires knowledge and 
experience to manage effectively; therefore, tasking these 
responsibilities to other SBA employees as a part-time function 
will not address insufficient staffing levels. The Committee 
believes that locating a PCR in the small business community 
and at buying activities across the country improves the 
ability of these individuals to advocate and effectively assist 
in the procurement of contracts for small business. The bill 
requires that the SBA allocate sufficient resources to provide 
for at least one PCR in each state, in addition to at least one 
PCR at each major procurement center. In determining the extent 
of program expansion, the Committee reviewed the current PCR 
staffing levels by state.
    The bill further clarifies that these individuals shall be 
independent of, and have responsibilities distinct from, 
Breakout Procurement Center Representatives and Commercial 
Market Representatives. Many small businesses that still are 
not able to sell to the Federal government rely on these 
individuals to help them navigate through the complicated 
procurement processes.
    The Committee believes that accurate data collection is 
essential in getting a handle on contract bundling by Federal 
agencies. However, the SBA in the past objected to implementing 
the bundling database required by law. Specifically, the SBA 
argued that the database could not be created because the law 
required it to contain existing information, and Federal 
agencies do not collect information on bundling. The bill 
provides an enhanced authority for the SBA to overcome any 
impediments it may have and proceed with the construction of 
the database.

                   Title XI--Subcontracting Integrity

    Small businesses receive over $45 billion in Federal 
subcontracts each year. Unfortunately, Committee oversight 
revealed that subcontracting practices have been plagued with 
overstatements. According to GAO Report 05-459, numerous large 
contractors have overstated their small business subcontracting 
achievements (some up to $30 million per contract per year) at 
one Federal agency alone. The Committee strongly believes that 
greater compliance and oversight must be implemented 
government-wide to the fullest extent possible.
    In order to prevent misrepresentations in subcontracting, 
the bill provides that compliance of Federal prime contractors 
with small business subcontracting plans shall be evaluated as 
a percentage of obligated prime contract dollars, as well as a 
percentage of subcontracts awarded, as recommended by the GAO.
    In addition to implementing GAO recommendations, the 
Committee largely readopted small business subcontracting 
provisions which were passed unanimously by the Senate in the 
108th Congress. Small businesses previously testified before 
the Committee that prime contractors baited them by using them 
to create competitive subcontracting plans, helping the prime 
contractor win a contract, only to have the prime contractor 
switch and not follow through with its subcontracting plan 
commitments once the contract was awarded. If prime contractors 
are able to continue to submit data on their subcontracting 
efforts but are not held accountable for the accuracy of that 
data, they will be tempted to submit incomplete or misleading 
information.
    As a result, the Committee believes more aggressive action 
is needed to increase the small business subcontracting share 
of Federal prime contracts. Therefore, the bill makes several 
changes to the Small Business Act that hold prime contractors 
responsible for the validity of subcontracting data and impose 
penalties for false certifications of past compliance with 
small business subcontracting.
    The bill imposes penalties on prime contractors that 
falsify data in reports they file with Federal agencies. These 
penalties mirror current penalties for entities that 
misrepresent their status as a small business concern, a 
qualified HUBZone small business concern, a small business 
concern owned and controlled by socially and economically 
disadvantaged individuals, or a small business concern owned 
and controlled by women in order to obtain Federal contracts 
and subcontracts included in Section 8(d) of the Small Business 
Act, which are fines of not more than $500,000, imprisonment 
for not more than ten years, or both. The bill also authorizes 
contracting officers to withhold payment from a prime 
contractor until the prime contractor provides the agency with 
complete and accurate subcontracting reports.
    To prevent prime contractors from taking advantage of small 
business subcontractors through bait-and-switch fraud, the bill 
requires large prime contractors to certify that they will use 
small business subcontractors in the amount and quality used in 
preparing their winning bid or proposal unless such firms no 
longer are in business or can no longer meet the quality, 
quantity or delivery date. The Committee expects that Federal 
agencies will use all appropriate legal and contractual 
remedies to deter, punish, and recover the proceeds of such 
fraud.
    The bill also requires the SBA to share subcontracting 
compliance review data with Federal contracting officers and to 
update a national centralized government-wide database with 
prime contractor past performance specifically related to 
subcontracting plan compliance. The Committee intends for 
Federal contracting officers to use this data to provide prime 
contractors with an incentive to increase small business 
subcontracting opportunities. The bill includes amendments to 
Section 8(d), which provide for the consideration of proposed 
small business participation as subcontractors and suppliers as 
part of the process of selecting among competing offerors for 
any contract award that includes significant opportunity for 
subcontracting. In addition, the bill calls for recognition of 
a prime contractor's past performance in supporting small 
business subcontracting participation in other Federal 
contracts.
    The bill also includes a provision that directs the SBA to 
develop and implement a pilot initiative to test the 
feasibility of allowing direct payments to subcontractors.
    Finally, in an effort to incentivize greater compliance 
with small business subcontracting obligations, the bill 
authorizes a compliance pilot program to permit contractual 
incentives for companies that exceed their goals and also 
provide for assessments of funds from large contractors that 
fail to meet their subcontracting obligations. These 
assessments will be used to fund mentor-protege assistance to 
small business subcontractors, and may be counted for purposes 
of subcontracting credit.

       Title XII--Small Business Procurement Programs Improvement

    Since its inception, the HUBZone program has facilitated 
over half a billion dollars in private-sector investment by 
small businesses into economically distressed areas and HUBZone 
firms employ over 124,000 HUBZone residents. The bill 
reauthorizes up to $10 million a year for the next six years 
for the SBA HUBZone Office to conduct HUBZone certifications.
    The Committee is concerned that the HUBZone program still 
fails to reach all the needy areas. In general, areas can 
qualify for the HUBZone program either as rural or urban 
HUBZones. To qualify as an urban HUBZone, an area must be a 
low-income census tract in a metropolitan statistical area--
basically, a large town where over 20 percent of the county 
resides. Also, an entire rural county can qualify if certain 
income or unemployment requirements (income less than 80 
percent of statewide income or unemployment higher than 140 
percent of state or national unemployment rate, whichever is 
less) are met. Under existing rules, some rural areas in a 
county may be excluded from qualification even though their 
unemployment was high or income was low. To correct this 
inequity, the bill expands the classification of HUBZone 
eligibility to include any village, city, town, and economic 
development area governed by a public authority, district, or 
other unit of local government that is located in a suburban 
county and that meets income or unemployment qualifications.
    The Federal government continues to fall short on its goals 
for contracting with service-disabled veterans. Testimony 
before the Committee established that contracting officers 
continue to refuse to exercise the sole-source authority for 
service-disabled veterans. The bill strengthens this authority 
by making sole-source awards to service-disabled veteran-owned 
small firms mandatory instead of permissive. This puts disabled 
veterans on par with other small business programs that have 
sole-source authority. In addition, the Committee provided for 
a temporary waiver of the ban on sole-source awards to service-
disabled veterans if two or more small firms owned by disabled 
veterans may be available to compete. This so-called ``rule of 
two'' does not apply to the 8(a) program, and this 
inapplicability proved to be a useful tool in promoting 
contracts with small disadvantaged businesses.
    The 8(a) contracting program exists to aid socially and 
economically disadvantaged businesses achieve competitiveness. 
One of the methods of evaluating whether a business is 
economically disadvantaged is through a net worth threshold, 
which places a ceiling on the net worth of a participating 
business owner. Currently, if a business owner's personal net 
worth exceeds $250,000, the business is denied 8(a) 
certification. Further, if a business owner's net worth exceeds 
$750,000 while certified as an 8(a) business, the business is 
graduated from the program. The Committee believes that a net 
worth threshold is a valuable factor in the process of 
evaluating a disadvantaged business. However, the threshold 
should not unduly prejudice successful business owners. The 
current levels of $250,000 and $750,000 were established more 
than seventeen years ago and are restricting access to 
legitimately disadvantaged businesses as a result of not being 
adjusted for inflation. This bill instructs the SBA to make 
annual inflationary adjustments to the net worth threshold so 
that legitimately disadvantaged businesses are not wrongfully 
denied access to the 8(a) program.
    Both the Congress and the Administration have expressed 
concern about the continued disparity between the number of 
women-owned small businesses in the economy and the extent of 
the Federal government's contracting with women-owned firms. 
The Federal Acquisition Streamlining Act of 1994 established a 
government-wide goal for participation by women-owned small 
businesses in procurement contracts of not less than five 
percent of the total value of all prime and subcontract awards 
for each year. Federal agency progress towards increasing 
contracting for women-owned small businesses has been slow, and 
the goal has never been reached.
    In 2000, Congress passed legislation to allow for certain 
small business procurement set-asides for women-owned 
businesses. The legislation required the promulgation of 
regulations to help implement these new set-asides. The 
legislation, however, conditioned the regulations on a study to 
be conducted by the SBA to identify the disparate treatment of 
women in various procurement industries. This study would then 
serve as the basis for the regulations governing set-asides 
forwomen-owned small businesses. The Committee understands that a 
Federal court recently found that the SBA delayed the implementation of 
this program. In order to achieve the original goal of improving 
contracting opportunities for women-owned small businesses, the bill 
directs the SBA to implement the program within 90 days.
    The bill also reauthorizes the BusinessLINC program, which 
awards grants to businesses that enter into agreements to 
expand business-to-business relationships between small 
businesses and government agencies or large businesses. Grants 
are also available for entities that provide a database of 
companies interested in mentor-protege programs or community-
based, statewide or local business development programs.

                    Title XIII--Acquisition Process

    The bill improves collection of acquisition-related data on 
contract bundling, and provides for government-wide training on 
small business matters. The bill also implements the 
recommendation of the White House Acquisition Advisory Panel to 
authorize small business set-asides in multiple award, multi-
agency contracting vehicles in order to correct the very mixed 
record of small business participation in such contracts. These 
contract types were intended to reduce administrative costs of 
contracting by reducing both the number of businesses and the 
types of terms and conditions which had to be competed for each 
task or delivery order. Under such a contract, the government 
negotiates an up-front agreement on future price discounts and 
delivery terms, but no actual work is performed or paid for 
until task and delivery orders are issued. Small business have 
been having trouble securing business through the multiple-
award contracts. For example, within the General Services 
Administration (``GSA'') Federal Supply Schedules (``FSS'' or 
``Schedules''), small businesses represented about 80 percent 
of Schedule holders, but only 36.8 percent of Schedule sales 
dollars in FY 2004.
    The Small Business Act and the Federal Acquisition 
Regulation require Federal agencies to set contracts aside for 
small businesses if there is a reasonable expectation that two 
or more small businesses would submit bids at reasonable 
prices, but these general set-aside requirements have been 
interpreted not to apply to multiple-award contracts. 
Authorizing small business set-asides in multiple-award 
contracts provides unambiguous direction to contracting 
officers.
    For many years, the Federal government has failed its 
procurement goals with regards to women, service-disabled 
veterans, and HUBZone firms. The bill implements a 
recommendation of the White House Acquisition Advisory Panel to 
give priority in small business set-asides to those groups for 
which the relevant agency failed its small business contracting 
goals.
    In addition, the bill requires advance plans on small 
business spending in the agencies' budgets and directs the SBA 
Administrator to report to Congress annually on small business 
participation in overseas government contracts.

          Title XIV--Small Business Size and Status Integrity

    In June 2006, the SBA announced that the Federal government 
met or exceeded its statutory 23 percent small business prime 
contracting goal for the third year in a row. Specifically, the 
SBA claimed that small firms received $79.6 billion in Federal 
contracts. However, reports from the GAO and the SBA Office of 
Advocacy, and testimony by the SBA Inspector General before the 
Committee, indicate that these numbers are misleading because 
many large corporations have been classified as small 
businesses for contracting purposes. Since FY 2003, billions of 
dollars of contracts have been improperly coded as awarded to 
small companies. Hearings before the Committee established that 
fraud, regulatory loopholes and delays, and poor training in 
small business laws and regulations contribute to the problem.
    Recently, the SBA IG and the Department of Justice achieved 
a $1 million settlement with a large corporation that 
advertised itself as a small business for 10 years. However, 
the SBA Inspector General testified that prosecutions of 
companies that misrepresent their small business size and 
status have been rare. Under current law, the government has 
difficulty proving loss when the fraud was in the inducement to 
receive a contract and not in performance of the contract. The 
Inspector General testified that such cases still involve both 
the societal loss and the programmatic loss to the Federal 
government. To solve this problem, the bill creates an 
irrebuttable statutory presumption that small business size or 
status fraud constitutes a loss to the government of 
contracting dollars diverted to large firms on a dollar-for-
dollar basis. The Committee intends that this presumption shall 
be applied in all manner of criminal, civil, administrative, 
contractual, common law, or other actions which the United 
States government may take to redress such fraud and 
misrepresentation.
    In CMS Information Services, Inc. (2002), the GAO confirmed 
that Federal agencies may properly require certification of 
small business size at the time of submission of quotations on 
procurements reserved for small business concerns. With regard 
to task orders on interagency or government-wide multiple award 
contracts like Federal Supplies Schedules at issue in that 
case, this legislation codifies the CMS decision by requiring 
certification on task orders. The SBA reached a similar 
conclusion in Size Appeal of SETA Corporation and Federal 
Emergency Management Agency, SBA No. SIZ-4477 (2002). The 
Committee realizes that unforeseen situations may arise, and 
intends for the SBA to fully exercise its discretion. With 
regard to task orders on interagency multiple-award contracts, 
the Committee intends that the SBA, in consultation with 
relevant Federal agencies, would develop policies on 
appropriate certification requirements which would take into 
account and balance the varying features of such contracts, the 
impact of potential ``ramp-offs'' on small business contracting 
opportunities at the affected agencies, and the need for 
integrity and adequate disclosure of the actual small business 
participation. With regard to multiple-award contracts used for 
intra-agency purposes only, the Committee similarly expects the 
SBA to exercise its discretion. The Committee expects that the 
SBA's discretion will be consistent with the existing legal 
principle that company size is determined at the time of award 
based on the company's initial offer, while ensuring that 
reporting on small business participation shall accurately 
reflect all cases where a contract previously awarded to a 
small business concern or a small business concern itself have 
been novated to an other than small business concern through 
merger, acquisition, divestiture, or otherwise.
    Further building on the CMS decision, the bill provides 
that submissions of bids on small business set-asides, 
registration as a small business on a procurement database, or 
inducements to Federal agencies to take small business credit 
for award of a contract, grant, or another funding instrument 
shall be deemed certifications of small business size and 
status. In addition, the bill requires paper-based 
certifications by signature of responsible officials. The SBA 
is given authority to promulgate ``safe harbor'' regulations to 
provide protections from liability in cases where the relevant 
business concern did not intentionally misrepresent its size or 
status.
    The SBA Inspector General testified before the Committee 
that annual certification of small business size or status is 
the most effective measure of ensuring integrity of small 
business contracts. The Committee agrees with this view. The 
Committee notes that the SBA has made its own proposal for an 
annual small business certification, but has failed to 
implement the regulation. The bill provides for annual 
certifications of small business size and status and that small 
business size or status shall be determined, as part of a 
company's responsibility, at the time of the award of a 
contract.
    The SBA Inspector General testified before the Committee 
that the SBA should be given the authority to suspend or debar 
large contracts which claim to be small businesses. The bill 
enacts the Inspector General's recommendation.
    To root out waste, fraud, and non-compliance with 
procurement laws, the Federal procurement system relies on 
private bidders to bring bid protests against the improper 
awards of government contracts. Protests brought at the GAO or 
the U.S. Court of Federal Claims usually result in stays of 
contracts awarded or to be awarded. Committee oversight 
indicates that large businesses often receive small business 
contracts because Federal agencies simply do not respect SBA 
decisions on whether a company is large or small. For instance, 
in Planned Systems International, Inc. (2004), the GAO found 
that Federal agencies do not have to wait longer than 10 days 
for the SBA to rule on protests that contracts reserved for 
small business concerns are given to large businesses. As a 
result, a Federal agency awarded a small business contract to a 
large business notwithstanding the SBA's determination that the 
business was not a qualified small business. Under current law, 
protests to the GAO on any grounds may be stayed for 100 days, 
but protests challenging small business size misrepresentations 
may not be delayed beyond 10 days. The bill would remedy this 
problem. The Committee believes that the SBA must be able to 
decide small business size or status challenges to contracts in 
the same manner and on the same terms that protests are decided 
by the GAO under the Competition in Contracting Act.
    The SBA Inspector General testified before the Committee 
that Federal officials often lack training in small business 
laws and regulations. The bill directs development of such 
training courses, and also mandates a policy on prosecutions of 
small business size and status fraud.
    Reports and testimony from the SBA Inspector General and 
the GAO indicate that small business sole-source contracting 
authorities are vulnerable to ``fronting'' or the exploitation 
of small businesses by large subcontractors, which can rob 
small business prime contractors of the work to which small 
businesses are entitled and required to perform as prime 
contractors under the Small Business Act and applicable 
regulations. The bill authorizes challenges of small business 
size and status in sole-source contracting awards.
    To ensure that Federal contracting officials are aware of 
the small business size and status of companies which hold 
multiple-awards contracts, the bill requires holders of such 
contracts tosubmit an annual certification statement to the 
government. The Committee is troubled to learn that a multi-billion 
dollar corporation and its large business predecessor were able to pass 
themselves off as small businesses on a GSA schedule for approximately 
10 years.
    Under current procurement rules, a contracting officer 
designates a primary industry category for each contract, and 
the bidding firm must qualify as small under the size standard 
for that industry category to be given the contract as a small 
business. Examples of SBA general size standards include the 
following:
          (1) Manufacturing: maximum number of employees may 
        range from 500 to 1500, depending on the type of 
        product manufactured;
          (2) Wholesaling: maximum number of employees may 
        range from 100 to 500 depending on the particular 
        product being provided;
          (3) Services: annual receipts may not exceed $2.5 to 
        $21.5 million, depending on the particular service 
        being provided;
          (4) Retailing: annual receipts may not exceed $5.0 to 
        $21.0 million, depending on the particular product 
        being provided;
          (5) General and heavy construction: general 
        construction annual receipts may not exceed $13.5 to 
        $17 million, depending on the type of construction;
          (6) Special trade construction: annual receipts may 
        not exceed $7 million;
          (7) Agriculture: annual receipts may not exceed $0.5 
        to $9.0 million, depending on the agricultural product; 
        and
          (8) Small innovative companies participating in the 
        Small Business Innovation Research and the Small 
        Business Technology Transfer Programs: maximum number 
        of employees may not exceed 500.
    Over the last several years, the SBA has considered 
reforming and simplifying its size standards, including the 
creation of tier-based standards. Under the tier-based 
approach, the SBA would establish an overall cap of employees 
or revenues per industry category, as appropriate, and then 
establish caps at lower tiers. Contracting officers would set-
aside smaller contracts for lower-tier small firms, so that the 
very small firms can grow and become ``bigger small 
businesses'' that can better compete against its peers and 
large corporations. Precedent for this approach exists with the 
Very Small Business Program, operated by the SBA on a limited, 
pilot basis. Lower-tier small firms could bid on contracts 
suitable for upper-tier small firms, but not vice versa. The 
bill authorizes development of tiered size standards. The 
Committee recognizes that a great deal of time and effort has 
been spent exploring the feasability of this proposal as well 
as alternative proposals for addressing size standards. For 
this reason, the Committee is authorizing the development of 
tier-based size standards and leaving to the SBA's discretion 
the decision on whether to develop or implement them.
    Currently, the SBA does not calculate the employee size of 
a small firm based on full-time equivalents (FTEs). As a 
result, companies are penalized for hiring part-time help 
because they may be in danger of exceeding their small business 
size. The bill directs the SBA to use full-time employee 
equivalents in computing size standards.

Title XV--Small Business Innovation Research (SBIR) and Small Business 
                  Technology Transfer (STTR) Programs

    Under the SBIR program, federal agencies having annual 
external research and development budgets of more than $100 
million must reserve 2.5 percent of the agency's research and 
development funds for award to small businesses. The SBA has 
encouraged innovation by overseeing government-wide policy for 
the SBIR program since the program was enacted by Congress in 
1982. In the 24-year history of the program, small hi-tech 
firms have submitted more than 250,000 proposals, which have 
resulted in over 60,000 awards worth more than $21 billion. 
Approximately one-third of initial Phase I SBIR projects (which 
explore the technical merits of an innovation) convert to Phase 
II (which develop commercialization and manufacturing of the 
innovation).
    Annual SBIR Phase I and II spending amounts to about $1.8 
billion a year. The SBIR program cycle is divided into three 
phases. Under Phase I, small firms receive competitive grants 
or contracts to develop new technologies. Competitive Phase II 
grants or contracts are awarded to develop the commercial 
potential of the new technology or product. These awards help 
small firms to establish a successful reputation for their 
technologies and to survive the so-called ``Valley of Death'' 
in their business cycle when the private investors alone are 
unwilling to assume all the risk. In Phase III, SBIR firms are 
expected to commercialize the resulting product or process, but 
with no further SBIR funding.
    Under the companion STTR program, agencies with an annual 
external research and development budget of more than $1 
billion must reserve 0.3 percent of their funds for award to 
collaborative efforts between small businesses and non-profit 
research institutions, generally universities or state 
technology programs. The STTR Program awards about $92 million 
annually to small business-research institution partnerships. 
The goal of the STTR program is to take research and move it 
from the lab or a university to the market through the help of 
small businesses. The program is structured similarly to the 
SBIR program.

SBA Office of Technology; National Advisory Board; Annual National 
        Small Business Innovation and Technology Transfer Plan.

    Efforts to strengthen American competitiveness through 
small businesses begin with the SBA's Office of Technology, 
which administers and monitors the implementation of both the 
SBIR and the STTR programs government-wide. As these programs 
have grown, the responsibilities of the Office have increased, 
such as to monitor government-wide compliance with the SBA's 
SBIR and STTR Policy Directives, to carry out the Federal and 
State Assistance program and the Rural Outreach program, and to 
carry out the President's Executive Order 13329, Encouraging 
Innovation in Manufacturing. At the same time, the budget and 
staff for this Office have decreased. More specifically, since 
FY 1991, the programs have more than doubled, growing from $500 
million to about $2 billion a year, yet, the budget for the 
Office of Technology has been cut by more than half. According 
to the SBA's ``Historical Summary, Office of Technology,'' in 
1991, the Office of Technology had a budget of $907,000 and 10 
positions. In 2003, the Office of Technology had a budget of 
$280,520 and 5 positions. This is the most recent information 
available from the SBA.
    The Committee has raised this issue with the agency on 
numerous occasions over the years, in budget and confirmation 
hearings and in letters, yet there has been no improvement in 
the resources or stature for this office. Consequently, there 
has been inadequate oversight of participating agencies to meet 
their 2.5 percent requirement and other compliance violations 
that have put at risk significant SBIR dollars. For example, at 
the Missile Defense Agency, at risk was $75 million in FY 2002 
and $93 million in FY 2003, and at the Air Force in FY 2005, at 
risk was $175 million. Congress intervened and made sure the 
agencies awarded all the funds for SBIR awards instead of 
diverting the funds to other programs. The Committee urges the 
agency to request that OMB and the Administration support 
requests which are reasonable for the Office of Technology to 
successfully operate. As another example, the SBA's FY 2003 
annual reports on both programs reported two different 
Department of Defense extramural budgets for research and 
development (one budget in one report exceeding the same budget 
in another report by about $3 billion), and despite that 
significant discrepancy the SBA found that the Department of 
Defense and other agencies complied with the programs' 
requirements. To address this, the bill directs the GAO to 
conduct periodic fiscal and management audits of the program.
    The bill requires the Assistant Administrator for 
Technology to be a Presidential appointee. Without a mandate 
from the President, the Assistant Administrator's ability to 
provide oversight and enforcement of the SBIR and STTR Policy 
Directives across the Federal acquisition community would be 
impaired. Since the passage of the Services Acquisition Reform 
Act of 2003, the Chief Acquisition Officers in Federal agencies 
are required to be senior Presidential appointees. This bill 
restores the parity between the stature of the Chief 
Acquisition Officers and the Assistant Administrator for 
Technology who is responsible for oversight of their compliance 
with the SBIR and the STTR program requirements.
    The Committee believes that Congressional small business 
committees must be consulted concerning appointments to head 
that Office, in the same manner that relevant Congressional 
committees have been consulted regarding appointments to the 
White House Acquisition Advisory Panel, and that the SBA must 
provide Congress with a budget for that office. To provide 
continuous improvements in the administration of these 
programs, the Committee believes that a National Small Business 
Innovation and Technology Transfer Advisory Board must be 
appointed from individuals with relevant experience to advise 
the Office.
    The Committee also directs the SBA to prepare and submit to 
the Congress a national plan on small business innovation 
research and technology transfer. The SBA is already required 
to publish annual government-wide reports on SBIR and STTR, but 
only at the end of each fiscal year. The SBA's report is based 
on the annual statutory reports of participating agencies. 
However, advance planning and technology road-mapping is needed 
by Federal agencies to ensure better planning and utilization 
of small hi-tech firms in Federal innovation development. Many 
SBIR/STTR technologies can have applications across multiple 
agencies, especially at commercialization. According to the SBA 
data, in FY 2004, two out of 11 SBIR agencies (NASA and the 
Department of Homeland Security) underfunded SBIR technologies. 
In FY 2004, the Federal government shortchanged small business-
university partnerships in the STTR Program by $20 million. The 
Committee expects the plan to be composed of annual SBIR/STTR 
plans and forecasts of SBIR and STTR topics and acquisition 
opportunities by each participating Federal agency and an 
overall plan by the SBA. The plan will address participation of 
small hi-tech firms and small business-university partnerships 
in Federal R&D, as well as commercialization of SBIR and STTR 
innovations.
    Data from the National Science Foundation's annual Science 
& Engineering Indicators reveal that small businesses 
consistently receive less than five percent of Federal R&D 
dollars. This exclusion of small businesses has wasted valuable 
Federal R&D dollars. To unleash American innovation, Congress 
must support the innovative potential of small firms as 
evidenced by the following facts:
           small firms represent 40 percent of highly 
        innovative firms (with 15 or more patents);
           small firms produce 13 to 14 times more 
        patents per employee than large firms;
           small firms' share of U.S. patents equals 
        small firms' share of U.S. manufacturing employment, 41 
        percent;
           small firms' patents are on average twice as 
        technically important as large firm patents (2 to 1 
        ratio of the top one percent of the most cited 
        patents);
           small firm innovation is twice as closely 
        linked to scientific research as large firm innovation 
        on average, and so substantially more high-tech or 
        leading edge;
           small firm innovation is more extensively 
        linked to outside technology while large firms build 
        more of their own technology;
           small firm innovators are more dependent on 
        local technology.
    Source: SBA Office of Advocacy
    To stimulate America's most innovative sector of the 
economy and to remedy the problem of exclusion of small 
businesses from Federal R&D, the bill permanently reauthorizes 
these worthy programs. The Committee also believes that it is 
time to double both the SBIR and the STTR programs, as 
reflected in the bill and originated in S. 2111, the Small 
Business Growth Initiative Act of 2005, introduced on December 
15, 2005, by Senator Evan Bayh. Before this Committee on June 
21, 2006, Senator David Vitter also called for an increase of 
the SBIR program to five percent (doubling the program). Such 
an increase will also benefit the universities, the 
laboratories, and the research institutions which partner with 
small businesses. To ensure smooth administration, the SBIR and 
STTR increases are spread over five years.
    Small business innovators must not only receive a greater 
share of Federal funds, but also SBIR and STTR awards they 
receive must reflect economic and programmatic realities. 
Current law directs the SBA to adjust the size of SBIR and STTR 
awards for inflation every five years, but the SBA has not done 
so. For instance, the SBIR Phase II awards size has not been 
increased since 1992. Phase II awards size for the STTR 
program, which was created after the SBIR program, has not been 
increased since 2001. The Committee is attempting to correct 
this deficiency by raising the award sizes for inflation from 
$100,000 to $150,000 in Phase I and $750,000 to $1,250,000 for 
Phase II in both programs. The bill also addresses the problem 
of ``jumbo'' awards which routinely exceed legislative 
guidelines. For example, the GAO conducted a review of the 
program, (GAO-06-565, ``Small Business Innovation Research: 
Information on Awards Made by NIH and DoD in Fiscal Years 2001 
through 2004''), and found that NIH had made a Phase I award of 
$1.7 million and a Phase II award of $6.5 million. Small 
businesses, particularly those in rural states, have complained 
to the Committee for years that jumbo awardshurt them because 
they reduce the number of grants and awards that can be given out. In 
the case of a Phase I for $1.7 million, that eliminates the possibility 
of 16 awards of $100,000. In the case of Phase II for $6.5 million, 
that eliminates the possibility of almost seven awards of $750,000. To 
address this issue, the bill prohibits Federal agencies from making an 
award more than 50 percent higher than the guidelines established in 
this Act, which is a cap of $225,000 for Phase I awards and $1,875,000 
for Phase II awards.
    The bill also provides for portability of awards between 
different Federal agencies and between the two SBIR and STTR 
programs by permitting eligible small business concerns to 
qualify for post-Phase I awards at another agency or through 
the other program. These measures ensure that small innovative 
businesses receive the full opportunities for participation in 
Federal R&D and the nation receives the full benefits of small 
business innovations. Today, R&D efforts to meet national 
priorities are conducted across Federal agencies: for instance, 
the Departments of Energy and Agriculture work together on 
renewable energy research, and biodefense research is pursued 
by the Departments of Defense, Homeland Security, and Health 
and Human Services. At the same time, research project needs 
may require changes in relationships between the small business 
and its research institution partner. This legislation 
introduces much-needed flexibility into the SBIR and the STTR 
programs.
    The Federal government spends over $50 billion a year of 
R&D contracts, and billions more on contracts for goods and 
services which utilize innovative technologies. As a result, 
Federal procurement spending can act as a strong force in 
stimulating small business innovation. Public authorities and 
officials in the European Union, the United Kingdom, Sweden, 
and other countries have proposed a three percent pro-
innovation set-aside for their small and medium enterprises 
(SMEs). To retain global competitive leadership, the Committee 
believes that the United States must adopt its own three 
percent pro-innovation technology insertion goal for Phase III 
SBIR and STTR awards in all Federal contracts for research, 
development, testing, and evaluation. This goal, as created in 
the bill, could amount to approximately $1.5 billion a year in 
Phase III awards, to be met either through prime contracts or 
subcontracts. Because this is a technology insertion goal, a 
contract or subcontract with any eligible Phase III awardee 
would qualify towards this goal.
    The bill addresses relevant SBIR and STTR intellectual 
property protections. To attract small businesses for 
participation in Federal R&D, the SBIR and the STTR programs 
guarantee data rights protections to small business innovators. 
Unfortunately, the scope of these protections has been 
misconstrued by the U.S. Court of Federal Claims in the case of 
Night Vision v. United States. The Court mistakenly relied on 
the Federal Acquisition Regulation to exclude prototypes from 
statutory data rights protections, even though the Small 
Business Act clearly and unambiguously provides that prototypes 
are within the scope of research and development activities 
which are part of SBIR and STTR. The bill overrules the Night 
Vision case and reasserts protections for prototypes as 
consistent with current law under the Small Business Act, 
providing that SBIR and STTR research and development 
activities include improvement, development and design of 
prototypes. In addition, this section also ensures that SBIR 
and STTR data rights are protected from disclosure and reverse 
engineering as trade secrets under applicable laws such as the 
Federal Trade Secrets Act, that data rights protections extend 
to the technical data developed at private expense but used in 
the development, testing, or evaluation of SBIR or STTR 
technologies, and that data rights protections apply to all 
Federal contracts, subcontracts, and mentor-protege agreements.
    The Committee further believes that the Court of Federal 
Claims disregarded the special acquisition preference intended 
by the Congress for Phase III awards by effectively placing 
upon the small businesses the burden of proof that a Phase III 
award would be practicable. The Committee believes that any 
questions of capacity of small business concerns to perform as 
Phase III awardees should be established by the relevant agency 
on the record through the SBA's Certificate of Competency 
determination process. The bill codifies and clarifies the 
existing special acquisition preference. In addition, this 
provision contains requirements for advance review of contract 
solicitations on topics which duplicate SBIR or STTR awards so 
that taxpayer money invested in SBIR and STTR projects is not 
wasted and time, particularly on sensitive projects of health, 
defense and energy, is not lost duplicating the work. To avoid 
and reduce duplication, relevant Federal officials shall 
consult the SBA's Tech-Net database prior to issuing the 
solicitation.
    Mentor-protege programs have been considered by the 
industry to be an effective mechanism of promoting 
participation in Federal contracts by SBIR and STTR firms. 
However, the Committee is concerned that poor oversight of 
mentor-protege agreements may compromise data rights 
protections. The bill clarifies the applicability of SBIR and 
STTR data rights protections to mentor-protege agreements with 
SBIR and STTR firms.
    In 2002, the SBA proposed and subsequently implemented a 
requirement that SBIR firms seeking to subcontract with Federal 
laboratories and research and development centers obtain a 
waiver from the SBA to enter into such subcontracts. Such 
subcontracts are typically concluded through cooperative 
research and development agreements (CRADAs). As a result, 
small firms which plan to utilize world-class technical 
facilities or research capabilities of Federal labs may be 
denied a waiver even after receiving their SBIR awards. The 
Committee believes that greater cooperation between small 
businesses and Federal labs is a worthy goal, though agencies 
and departments cannot demand that a small business work with a 
Federal lab in order to win the project. For that reason, the 
bill permits small businesses to subcontract portions of the 
work on SBIR and STTR awards to Federal labs and R&D centers 
without having to seek a waiver from the SBA, as the SBA 
currently requires. Small businesses receiving SBIR and STTR 
awards where a portion of the work is subcontracted to Federal 
labs and R&D centers shall not perform a smaller percentage of 
work than is required by the SBIR and the STTR Policy 
Directives. At the same time, the Committee acknowledges that 
the SBA waiver process was instituted in response to attempts 
by Federal agencies to recapture SBIR funds through the CRADA 
subcontracting process regardless of scientific merit. 
Consequently, Federal agencies shall not require small 
businesses to subcontract with Federal labs and R&D centers as 
a condition of receiving SBIR or STTR awards, and the SBA shall 
ensure that no such requirements whatsoever are imposed. SBIR 
and STTR awards shall be based strictly on merit, and 
participation of Federal labs and R&D centers in SBIR and STTR 
research shall be considered only to the extent that it 
strengthens the merits of the proposals.
    During the 108th Congress, Chair Snowe sponsored and 
Senator Kerry cosponsored Senate Amendment 2531, creating the 
SBIR Commercialization Pilot Program (CPP) at the Department of 
Defense, which incorporated relevant amendments offered by both 
Senators to S. 1042, the FY 2006 Defense Authorization bill. 
Chair Snowe offered Senate Amendments 1536 and 1537, and 
Senator Kerry offered Senate Amendments 1594 and 1504. The CPP 
authorized incentives for prime contractors and provided 
assistance to SBIR firms in order to facilitate Phase III 
awards at the prime contract and the subcontract level. 
Examples of appropriate incentives are provided in the May 17, 
2006 guidance letter from Chair Snowe, Senator Kerry, and House 
Small Business Chairman Donald Manzullo to the Undersecretary 
of Defense Kenneth Krieg and in the White Paper of the Small 
Business Technology Council, Incentives and Technology 
Transition: Improving Commercialization of SBIR Technologies in 
Major Defense Acquisition Program (Robert-Allen Baker, May 
2006). This bill extends this program to other top contracting 
agencies.
    To promote effective enforcement of the SBIR and STTR 
Policy Directives, Section 1537 requires the SBA to notify 
Congress of its appeals or other actions to enforce the Policy 
Directives. Likewise, the Committee expects that the SBA 
Administrator will be promptly informed concerning any case or 
controversy surrounding the SBIR or the STTR program. The 
Committee believes that SBA must always be presented an 
opportunity to defend its programs in legal proceedings. 
Unfortunately, in the Night Vision case, the position of an Air 
Force contracting officer on the application of the SBIR Policy 
Directive was advanced as position of the United States.
    In the 2000 SBIR Reauthorization Act, Congress created the 
FAST program to strengthen the technological competitiveness of 
small business concerns in all 50 states. At that time, 
Congress also extended the SBIR Rural Outreach Grant Program 
(``ROP''), which provides certain states, with relatively low 
participation in the SBIR and STTR programs, an opportunity to 
receive grants to support statewide efforts to increase their 
participation levels in the programs. The Administration did 
not request funding for the SBIR FAST and Rural Outreach 
programs in the President's budget requests for fiscal years 
2005, 2006, and 2007. In FY 2004, the Administration requested 
funding of $3 million for the FAST program and $500,000 for the 
Rural Outreach Grant Program; the FY 2004 appropriations 
provided $2 million for FAST and $250,000 for the Rural 
Outreach Grant program. Although the Administration made the 
same funding request the previous year (FY 2003), the programs 
were unfunded in FY 2003 appropriations. Instead, the SBA was 
given authority to fund the program but, according to the SBA 
Inspector General's Office, chose not to do so. During FY 2002 
and FY 2001, the FAST program was funded at $2.7 million and $3 
million, respectively.
    The FAST and the ROP programs serve an important purpose, 
specifically, to bring into the SBIR and the STTR programs 
small businesses and state technology research organizations 
from states with historically low participation in federal 
small business R&D and technology contracting. In fact, the SBA 
testified before the House Small Business Committee in May 2003 
that ``[p]articipating agencies in the SBIR and STTR Programs 
have reported a significant increase in the number of proposals 
received for their current solicitations, which we believe is 
attributable to outreach and training provided by FAST and 
Rural Outreach grant recipients.'' While the SBA's stated 
desire to consolidate FAST and ROP development services into 
its District Offices to increase effectiveness and efficiency 
is legitimate, the SBA simply has not made the case that its 
District Offices are better suited to provide FAST and ROP 
developmentservices with the focus on the needs of individual 
states to the exclusion of other states in their districts. Section 
1541 reauthorizes these two important programs and increases authorized 
funding for the FAST program from $2 million to $5 million.
    Since 2000, the SBIR program has been subject to a 
Congressionally-mandated evaluation by the National Academies 
of Sciences (NAS). To date, the Academies have published 
several books on the subject of SBIR and submitted extensive 
testimony to the Committee on July 12, 2006. The testimony and 
publications from the Academies confirm the value of the SBIR 
program and the need to continue it. This section extends the 
authorization for the Academies' study for one year and 
provides additional subjects which the Academies should 
research and address. There were concerns raised that extending 
the NAS's authority for one year would delay the release of the 
current study, which is expected in early 2007 and which is 
important to reauthorization deliberations of the program, as 
well as concerns that the extension and expansion would be 
construed as a mandate from Congress on the participating 
agencies to pay more money for the study. This provision is not 
intended to create a mandate on Federal agencies which fund 
SBIR and STTR studies to provide more funding to the NAS beyond 
the $5 million they have already disbursed. The provision 
requires good faith negotiation between the Academies and the 
agencies and gives the NAS authority to explore complementary 
issues. Consequently, additional research shall be subject to 
availability of funds.
    In response to questions during a Committee hearing on July 
12, 2006, Dr. Charles Wessner of the National Academies 
testified that efforts to promote greater funding of Phase II 
technologies would be valuable. Section 1543 of the bill 
authorizes a pilot program to address this issue.
    Additionally, the Committee believes that the innovative 
potential of small businesses must be harnessed to address the 
energy challenges faced by our country. The bill includes 
provisions modeled after the President's Executive Order 13329, 
Encouraging Innovation in Manufacturing, to give priority in 
SBIR and STTR awards to energy efficiency and renewable energy 
topics.
    This bill addresses participation in the SBIR program of 
companies majority owned by venture capital firms. Firms with 
venture capital investment have always been allowed to 
participate in the program, as long as they met the regulatory 
size standard and affiliation rules for a small business. 
However, a case brought before the SBA's Office of Hearings and 
Appeals (OHA) in 2001 highlighted that there is, or has been, 
some ambiguity about these standards, mostly over what it means 
to be owned by an ``individual,'' and whether small businesses 
owned and controlled by venture capital firms can participate. 
Before that time, the SBA had never formally ruled on the 
meaning of the term ``individual,'' but when the question was 
brought before it, the SBA OHA ruled in 2001, 2002, and 2003, 
that ``individual'' means humans and not corporations or 
entities.
    Since the SBIR program's creation in 1982, small business 
regulatory size and affiliation rules for the SBIR program have 
required firms to be for-profit and at least 51 percent owned 
and controlled by ``individuals'' who are U.S. citizens or 
resident aliens, and the company must have fewer than 500 
employees, including affiliates as a protection against parent 
companies using smaller subsidiaries to participate in the 
program. In January 2005, the SBA expanded eligibility by 
changing the rule regarding subsidiaries so that a subsidiary 
could be owned up to 100 percent by a parent company, including 
a venture capital firm, as long as the parent company itself 
was owned and controlled by individuals. While that change 
helped some small firms that were majority owned by venture 
capital firms to meet eligibility and participate in the 
program, the Committee received complaints that the definition 
still excluded many small biotechnology firms that had 
attracted venture capital investments. Consequently, there was 
an effort to change the definition so that a company with 
multiple venture capital investors with more than 51 percent 
ownership and control of a company could participate in the 
SBIR program.
    Proponents of changing the regulations and rules as 
interpreted by the SBA argued that these standards were 
particularly harmful to biotechnology firms that needed 
hundreds of millions of dollars and as many as 15 years to 
commercialize a therapy or treatment, requiring them to seek 
venture funding and relinquish ownership and control of the 
firm. Even with significant venture capital investments, if 
these firms had other promising research they wanted to conduct 
that was too early stage to attract new venture funding, the 
venture funding they had could not be used for a new project. 
Thus, they needed SBIR grants to conduct new research. The 
proponents also argued that firms majority owned by venture 
firms had always participated in the program, that the SBA 
suddenly changed the definition and rules which have been in 
effect for 20 years, that funding to venture firms had 
diminished since the SBA made its ruling, and that excluding 
them was hurting the biotechnology industry and the development 
of important therapies.
    Opponents argued that the SBIR grants and awards of 
$100,000 and $750,000, or even ``jumbo awards,'' were created 
to serve as seed funding for firms that had not yet attracted 
venture capital, not firms that had tens or even hundreds of 
millions in venture capital. They argued that such firms should 
not be eligible to compete for the 2.5 percent of Federal funds 
designated for small businesses and instead should compete for 
the other 97 percent of Federal research and development funds. 
Nevertheless, the opponents were in support of creating a 
separate funding source at the NIH for these mid-sized biotech 
firms. They argued that the SBIR regulatory size standards and 
affiliation rules as interpreted by the SBA had always existed, 
but that firms self-certified and the SBA and departments and 
agencies with SBIR programs were not aware that ineligible 
firms were participating until a company was challenged in 
2001. They argued that SBA's ruling had not led to a decrease 
in SBIR grants to companies with venture capital funding, and 
they disagreed that the ruling that excluded some biotech firms 
was hurting the development of important therapies since the 
research had not stopped, (it was simply going to other biotech 
firms) ones deemed to be a small business, and the quality of 
research was the same or better after the SBA's OHA rulings. 
Opponents point to a GAO SBIR Report: ``Small Business 
Innovation Research: Innovation on Awards Made by NIH and DoD 
in Fiscal Years 2001 through 2004,'' GAO-06-565 discussed 
below, to support their views.
    Because no data existed on the impact of SBA's ruling, or 
the extent to which firms with venture capital participated and 
commercialized SBIR projects, Senators Kerry and Kennedy along 
with Senators Snowe and Enzi requested that the GAO undertake a 
review of awards at the NIH and DoD, the agencies that account 
for the largest share of SBIR awards out of the 11 that 
participate, and try to identify the extent to which venture 
capital plays in the program and the impact of the ruling on 
firms with venture capital and the SBIR program. Since the GAO 
could not determine which firms were majority owned by venture 
capital firms, the report results were inconclusive on the 
questions of participation by such firms in the SBIR program. 
However, the GAO could determine which ones had venture 
investment, and the results showed, that the SBIR grants to 
firms with venture investment actually increased, from 14 
percent to 21 percent, rather than decreased, after the ruling.
    The bill includes an amendment proposed by Senator Bond to 
allow concerning the participation of small firms which are 
majority-owned by venture capital in the SBIR program. It 
authorizes any participating agency, upon submitting a written 
determination to the Congressional small business committees, 
to permit Venture Capital SBIR Investment Companies (small 
businesses which are majority-owned by venture capital firms 
and qualify under the terms of this program) to compete for 
SBIR awards at such agency. The determination must demonstrate 
that using the authority will lead to additional venture 
funding of small business innovations, substantially contribute 
to the mission of the funding agency, or otherwise fulfill the 
capital needs of small business concerns for additional 
funding. The provision limits majority venture-owned firms to a 
maximum 25 percent of SBIR funds at the relevant agency. This 
figure represents a cap on the amount that can be awarded and 
is not an authorization for a set-aside for Venture Capital 
SBIR Investment Companies. Although the legislation says that 
the head of each participating agency may ``direct'' not more 
than that amount toward this purpose, the use of the word 
``direct'' should not be interpreted as a set-aside. This 
distinction is important because, as Senator Kerry noted at the 
markup, the legislation says that the head of each 
participating agency may ``direct'' not more than that amount 
toward this purpose, and there was concern that the use of the 
word ``direct'' would be wrongly interpreted as a set-aside, 
reducing to 75 percent the Federal research and development 
funds for the other small technology firms, including firms 
with venture capital funding that are not majority owned.
    The Bond amendment derives its 25 percentage cap on SBIR 
awards to qualified majority venture-owned small U.S. firms 
from the 21 percent participation rate by venture-backed firms 
in the NIH SBIR Program during 2003 and 2004, as found by the 
GAO. As noted above, the GAO was unable to determine the extent 
of SBIR participation by majority venture-owned firms. However, 
opponents contend that the percentages do not correspond 
because the 25 percent cap is for companies majority owned by 
venture firms and the 21 percent should have excluded majority 
owned firms, because it was derived from data captured after 
the SBA's rulings and it is assumed the agencies were following 
SBA's OHA rulings.
    Another void identified during this process was data. The 
participating agencies are not required to, and therefore do 
not have, information about the extent to which firms are owned 
and controlled by venture capital firms. To try and address 
this, the bill requires that SBIR venture capital portfolio 
companies register with the SBA. This requirement is similar to 
the Small Business Investment Company (SBIC) registration 
requirement.
    Finally, the amendment requires that both the venture 
companies which own the small firms and the small firms which 
are venture portfolio companies be United States companies. The 
bill also requires that the SBA small business affiliation 
rules are satisfied, which means that the SBIR applicant 
together with its venture capital company parent and all 
affiliated companies must have less than 500 employees.
    It is the Committee's intent that the increase in the 
program level and the Venture Capital SBIR Investment Company 
program be adopted and enacted together as contained in the 
bill. The doubling of the SBIR and the STTR programs phased in 
over five years, would provide more than $1.5 billion in new 
funding opportunities to non-venture-backed small businesses, 
which proponents contend will hold harmless the firms that are 
not majority owned by venture capital firms.
    Further, the bill includes an amendment proposed by Senator 
Coleman during mark-up which creates new program that provides 
for up to $10,000 a year in grants to SBIR firms in order to 
encourage them to hire science, technology, engineering, and 
mathematics students.

         Title XVI--Natuve American Small Business Development

    Created by Executive Order, the SBA's Office of Native 
American Affairs began operations in FY 2003 to implement the 
agency outreach program for Native American communities on or 
near Tribal lands. The bill codifies the Office of Native 
American Affairs, and outlines the qualifications and 
responsibilities of the Office and its head. Additionally, the 
section establishes a program that provides financial 
assistance (grants, without a matching requirement, contracts, 
or cooperative agreements) to tribal governments, tribal 
colleges, Native Hawaiian organizations, and Alaska Native 
corporations to create Native American business centers. These 
centers shall conduct five year projects that offer culturally 
tailored business development assistance. A Native American 
business center may enter into a contract or cooperative 
agreement with a Federal department or agency to provide 
specific assistance to Native American and other under-served 
small business concerns located on or near tribal lands, to the 
extent that such contract or cooperative agreement is 
consistent with the terms of any federal assistance received by 
the Native American business center. This program would be 
authorized at $5 million per year for Fiscal Years 2006 through 
2010.
    The bill establishes two Native American small business 
development pilot programs. First, the Native American 
Development Grant Pilot Program awards Native American 
development grants to provide culturally tailored business 
development training and related services to Native Americans 
and Native American small business concerns. The grants may be 
awarded to (i) any small business development center, or (ii) 
any private, nonprofit organization that has members of an 
Indian tribe comprising a majority of its board of directors, 
is a Native Hawaiian organization; or an Alaska Native 
corporation. The program would be authorized at $1 million per 
year for Fiscal Years 2006 through 2009.
    Second, the American Indian Tribal Assistance Center Grant 
Pilot Program awards not less than three American Indian Tribal 
Assistance Center grants to establish joint projects to provide 
culturally tailored business development assistance to 
prospective and current owners of small business concerns 
located on or near tribal lands. The program would be 
authorized at $1,000,000 per year for Fiscal Years 2006 through 
2009.
    The Native American small business development programs 
contained in S. 3778, incorporate language from the Native 
American Small Business Development Act (S. 1907), introduced 
by Senator Johnson and cosponsored by Senators Kerry, Pryor, 
Cantwell, Akaka, Stabenow, Boxer, Dorgan, Inouye, Murray, Smith 
and Enzi, and an amendment sponsored by Senators Thune and 
Enzi.

            Title XVII--Small Business Regulatory Assistance

    The Committee continues to strongly advocate for a targeted 
regulatory reform agenda that would reduce the burdens that 
Federal regulations bear on small businesses. Small businesses 
are absolutely essential to the health of the U.S. economy and 
any future growth, especially in a globally competitive world, 
will be dependent on the success of the small business and 
entrepreneurial sector of the economy. We need to assist the 
nation's 25 million small businesses by stimulating innovation 
and creativity, lowering the costs of starting and operating a 
business, and providing the tools and resources that small 
businesses need to grow and expand, create new jobs, and drive 
America's economy. Small business entrepreneurs are risk takers 
who persevere through good times and tough times and are 
currently producing over 50 percent of our Gross Domestic 
Product and creating approximately three-quarters of all new 
jobs.
    Unfortunately, over the past twenty years, the number and 
complexity of Federal regulations have multiplied at an 
alarming rate. These regulations present a much greater burden 
on small businesses than larger businesses. A recent report 
prepared for the SBA's Office of Advocacy found that in 2004, 
the per-employee cost of federal regulations for firms with 
fewer than 20 employees was $7,647. That number is 44.8 percent 
higher than the $5,282 per-employee cost faced by businesses 
with 500 or more workers.
    At the same time, small business owners have found it 
increasingly difficult to meet their regulatory obligations 
while trying to successfully operate their businesses. In many 
cases, small business owners do not learn about their failure 
to comply with a regulation until it is too late and an 
inspector or auditor walks through the door. The Committee 
believes that small business owners need additional compliance 
assistance tools and resources to both understand and comply 
with complex regulatory actions. To that end, Senator Kerry 
also introduced the National Small Business Regulatory 
Assistance Act, S. 1411, cosponsored by Chair Snowe.
    The bill establishes a pilot project for SBDCs to expand 
their small business regulatory compliance assistance programs. 
The title capitalizes on the current SBDC structure, which 
provides management and technical assistance counseling and 
educational programs to small business owners across the 
country. Currently, there are over 1,100 SBDC service locations 
in every state and territory.
    The bill also establishes a four-year pilot program to 
provide resources to SBDCs so they may provide free regulatory 
compliance assistance and counseling to small business owners. 
Section 1703 would require the SBA to provide matching grants 
to SBDC programs in two states in each of the SBA's 10 regions. 
The grants would be more than $150,000, but less than $300,000 
and shall be consistent with the matching requirement under 
current law. The bill also authorizes $5 million in 
appropriations for the first fiscal year beginning after the 
date of enactment, and $5 million in appropriations for each of 
the three subsequent fiscal years.
    The bill also requires the SBDCs to use the grants to 
provide: access to information and resources, including current 
Federal and State non-punitive compliance and technical 
assistance programs; conduct training and educational 
activities; and offer confidential, free-of-charge, one-on-one, 
in-depth counseling to small business owners regarding 
compliance with Federal regulations.
    SBDCs participating in the pilot program would be required 
to submit a quarterly report, and the SBA would have 
responsibility for evaluating the pilot program and making 
recommendations on the extension of the program to other SBDCs. 
Finally, the SBA would promulgate final regulations to carry 
out the pilot program within 180 days of passage.
    Small businesses and entrepreneurs are some of the world's 
greatest innovators and visionaries. They transform our lives 
at lightning speed and are a critical component of our nation's 
economic health and stability. It is critical to think forward 
and equip America's small businesses with the knowledge and 
tools to confront the challenges of tomorrow so that they can 
create jobs and continue to strengthen our economy. The Small 
Business Regulatory Assistance Title of the Small Business 
Reauthorization and Improvements Act of 2006 will significantly 
help to reduce the regulatory burdens on small businesses.

     Title XVIII--Small Business Intermediary Lending Pilot Program

    This bill authorizes a new three-year pilot program in 
which the SBA may make loans to local non-profit lending 
intermediaries, and the intermediaries can then re-loan the 
funds to small businesses. The program seeks to address the 
capital needs of start-up and expanding small businesses that 
require flexible capital but may not be eligible for private or 
public venture capital. The pilot program is aimed at 
businesses that desire larger loans than can be provided under 
the SBA's Microloan program and that, for a variety of reasons, 
including lack of sufficient collateral, are unable to secure 
the credit with practicable terms through conventional lenders, 
even with the assistance of the 7(a) or 504 loan programs.
    Through this pilot program, the SBA is authorized to make 
one percent, 20-year loans, on a competitive basis, to up to 20 
non-profit lending intermediaries around the country, with a 
maximum amount of $1 million per loan. Intermediaries will not 
pay any fees or provide any collateral for their loans. Each 
20-year loan will capitalize a revolving loan fund through 
which the intermediary will make loans of between $35,000 and 
$200,000 to small businesses. These subordinated-debt loans 
will be more flexible in collateral and general underwriting 
requirements than the SBA's other lending programs. In 
addition, intermediaries will assist their borrowers in 
leveraging the SBA funds to obtain additional capital from 
other sources. The pilot will test the impact of this program 
on job creation in rural and urban areas, especially among 
under-employed individuals.
    Unlike the SBA Microloan Program, the intermediaries will 
receive no technical assistance grants. All administrative 
costs or technical support provided to small business borrowers 
will be covered by the interest-rate spread between the lending 
intermediary's one percent loan from the SBA and the interest 
rate on loans made to the small business borrowers, the rate 
for which will be set by the intermediary.
    This program design has been utilized successfully in a 
similar program at the U.S. Department of Agriculture (USDA) 
that has provided loans to non-profit lending intermediaries 
since 1985. Under that program, no intermediaries have 
defaulted on their loans from the USDA, which are made at one 
percent and have terms of 30 years, and only two percent of 
intermediaries are currently delinquent on their loans. Unlike 
the USDA's program, which is limited to rural areas, the pilot 
will serve both urban and rural regions.
    This pilot is designed to reach small businesses that 7(a) 
lenders will not reach due to the perceived higher risk of 
these businesses. Many states are fortunate to have a healthy 
network of community based, non-profit intermediary lenders 
that are experienced and successful in meeting the needs of 
small businesses. This pilot program will give them additional 
tools to stimulate the economy by creating jobs, including jobs 
for low income individuals--and by facilitating new lending and 
investing in businesses.
    This section incorporates Senator Levin's bill, The Small 
Business Intermediary Lending Pilot Program Act of 2005, S. 
416. This pilot was also included as part of the Small Business 
Administration 50th Anniversary Reauthorization Act of 2003, S. 
1375, but was not included in the final reauthorization bill 
signed into law.

                      Title XIX--Other Provisions


Compliance assistance

    Over the past twenty years, the Federal Register, which 
chronicles administrative actions--including proposed and final 
agency rulemakings--has almost doubled in size. According to 
the SBA's Office of Advocacy, individuals and businesses spend 
more than $840 billion a year to comply with Federal 
regulations. The impact of Federal regulations is far more 
onerous and expensive on small businesses than larger 
businesses. If the Federal government promulgates a rulemaking, 
it must take precautions to ensure that the impact to small 
businesses by the rulemaking is properly assessed. Federal 
agencies should fully comply with the letter and intent of the 
Small Business Regulatory Enforcement Fairness Act (SBREFA), 
which the Senate unanimously passed in 1996. We must never 
forget the consequences of all potential governmental actions 
on the small businesses and entrepreneurs who are America's job 
creators and innovators.
    To ensure that Federal agencies fully comply with existing 
SBREFA requirements and to provide small businesses with 
additional regulatory compliance tools, in April 2005, Chair 
Snowe introduced the Small Business Compliance Assistance 
Enhancement Act (S. 769). This bipartisan bill, which has been 
cosponsored by Senator Kerry would clarify existing 
requirements under Federal law so that agencies publish useful 
regulatory compliance guides for small businesses. Enacted in 
1996, SBREFA purported to make the Regulatory Flexibility Act 
(RFA) more effective in curtailing the impact of regulations on 
small businesses. One of the most important provisions of 
SBREFA compels agencies to produce compliance assistance 
materials to help small businesses satisfy the requirements of 
agency regulations.
    Unfortunately, Federal agencies have failed to achieve this 
requirement. In December 2001, the GAO issued a report (GAO-02-
172) on federal agency compliance with Section 212 of SBREFA. 
Section 212 directs agencies to publish small entity compliance 
guides for those rules that require a Final Regulatory 
Flexibility Analysis (FRFA) under the Regulatory Flexibility 
Act (RFA). The intent is for small businesses to have easy 
access to detailed instructions that assist them in complying 
with complicated regulations. The GAO report concluded that 
agencies do a poor job of complying with the requirements of 
Section 212 of SBREFA, or ignore it entirely. The GAO found, 
among other things, that Section 212 does not appear to have 
had much of an impact in the agencies and years that we 
examined, and its implementation has varied across the 
agencies. The GAO also found that SBREFA's language is unclear 
in some places about what is actually required under Section 
212.
    Consequently, small businesses have been forced to figure 
out on their own how to comply with these regulations. This 
makes compliance that much more difficult to achieve, and 
therefore reduces the effectiveness of the regulations. That is 
why the Committee included in this bill, to close those 
loopholes, and to make it clear that Congress was serious when 
it instructed Federal agencies to produce quality compliance 
assistance materials to help small businesses understand how to 
deal with regulations.
    Clarifying the requirements of Section 212 of SBREFA will 
provide targeted, significant, and immediate relief to small 
businesses across the country. The Committee has included a 
version of the Small Business Compliance Assistance Enhancement 
Act as Title XIX of the Small Business Reauthorization and 
Improvements Act of 2006.
    The bill is drawn directly from existing GAO 
recommendations and is intended only to clarify an already 
existing requirement under SBREFA. It is not intended to impose 
any new rules and regulations on small businesses. Similarly, 
the compliance guides produced by the agencies will produce 
will be suggestions about how to satisfy a regulation's 
requirements, and will not impose further requirements or 
additional enforcement measures. Nor does this bill, in any 
way, interfere or undercut agencies' ability to enforce their 
regulations to the full extent they currently enjoy. Bad actors 
must be brought to justice, but if the only trigger for 
compliance is the mere threat of enforcement, then agencies 
will never achieve the goals at which their regulations are 
directed.
    The bill clarifies existing requirements under SBREFA that 
agencies publish small business compliance guides to help small 
businesses understand how to comply with complicated Federal 
regulations. This section would ensure that Federal agencies 
produce these small business compliance guides when the 
agencies promulgate rules that would have a significant impact 
on a substantial number of small businesses.
    Closely tracking the GAO's recommendations, the Committee 
has included in reforms to SBREFA that would achieve the 
following:
    First, clarification of how a small business compliance 
guide shall be designated. Section 212 currently requires that 
agencies must ``designate'' the publications prepared under the 
section as small entity compliance guides. However, the form in 
which those designations should occur is not clear. Consistent 
use of the phrase ``Small Entity Compliance Guide'' in the 
title could make it easier for small entities to locate the 
guides that the agencies develop, particularly when using on-
line searching methods--a technology that was not in wide use 
when SBREFA was passed in 1996. Thus, agencies would be 
directed to publish guides entitled ``Small Entity Compliance 
Guide.''
    Second, clarification of how a guide shall be published. 
Section 212 currently states that agencies ``shall publish'' 
the guides, but does not indicate where or how they should be 
published. At least one agency has published the guides as part 
of the preamble to the subject rule, thereby requiring affected 
small entities to read the complex Federal Register to obtain 
the guides. The bill directs agencies at a minimum, to make 
their compliance guides available through their websites in an 
easily accessible way. In addition, agencies would be directed 
to forward their compliance guides to known industry contacts 
such as small businesses or associations with small business 
members that will be affected by the regulation. Section 212 
already allows agencies to work with industry representatives 
such as associations in developing these guides, which should 
give agencies solid contacts for distribution of the guides.
    Third, clarification of when a guide shall be published. 
Section 212 also does not indicate by when the compliance 
guides are to be published. Therefore, even if an agency is 
required to produce a compliance guide, it can claim that it 
has not violated the publishing requirement because there is no 
clear deadline. The bill would instruct them to publish the 
compliance guides simultaneously with, or as soon as possible 
after, the final rule is published, provided that the guides 
must be published no later than the effective date of the 
rule's compliance requirements.
    Finally, clarification of the term ``compliance 
requirements.'' The term ``compliance requirements'' also needs 
to be clarified. At a minimum, compliance requirements must 
identify what small businesses must do to satisfy the 
requirements and how they will know that they have met those 
requirements. This could include a description of the 
procedures a small business might use to meet the requirements. 
For example, if, as is the case with many OSHA and EPA 
regulations, testing is required, the agency should explain how 
that testing might be conducted. The section clarifies that 
this procedural description would be merely suggestive--an 
agency would not be able to enforce this procedure if a small 
business was able to satisfy the requirements through a 
different approach. Also, these procedures should not be 
additional requirements related to the rule.
    The Committee believes that the bill addresses a 
longstanding problem small businesses have faced in their 
attempts to comply with agency regulations. It would be a 
``good government'' type of measure that would ultimately yield 
more compliance from small businesses who are oftentimes too 
small to be subject to enforcement. If an agency cannot explain 
to a small business how to comply with their regulation, the 
agency should reconsider how that regulation is written. The 
bill should have virtually no Federal budget impact other than 
agency staff time to produce these guides.

Appointment of officials

    This provision requires the SBA to appoint the following 
officials of the Administration with the advice and consent of 
the Senate: the General Counsel; the Associate Deputy 
Administrator forCapital Access; the Associate Deputy 
Administrator for Management and Administration; the Associate Deputy 
Administrator for Entrepreneurial Development; the Associate Deputy 
Administrator for Government Contracting and Business Development; and, 
the Associate Administrator for Disaster Assistance.

Second-stage pilot program

    At the request of Senator Allen on behalf of Senator 
Santorum, this amendment establishes a three-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 through the 
development of peer learning opportunities; (3) utilize the 
network of SBDCs to expand access to peer learning 
opportunities; and (4) assist businesses owned by minority 
individuals, service-disabled veterans, and women.
    The bill requires that no later than 60 days after 
regulations are established, the Administrator will select two 
eligible entities from 10 regions around the country. A grant 
given to an eligible entity will not be less than $50,000 and 
the money is to be used for identifying second-stage small 
business concerns in the service delivery areas of the entity 
and for establishing peer learning opportunities. The grant 
will also be matched from sources other than the Federal 
Government that is equal to the grant, or (1) in the case of a 
community college, historically Black college, Hispanic serving 
institution, or other minority institution, 50 percent of the 
grant; (2) not less than 50 percent cash; (3) not more than 50 
percent comprised of indirect costs and in-kind contributions; 
and (4) does not include indirect costs or contributions from 
any Federal program.
    The bill requires that each entity receiving a grant shall 
submit to the Administrator, in electronic form, a quarterly 
report on the program. The Administrator will submit to the 
President and Congress, no later than November 1st of each 
year, a report evaluating the pilot program for the previous 
year. No later than three years after the establishment of the 
pilot program, the Comptroller General of the U.S. shall 
evaluate the program and transmit to Congress and the 
Administrator a report containing the results. The bill 
authorizes $1.5 million per Fiscal Year 2007 through 2009.

PRIME reauthorization

    The Program for Investment in Microentrepreneurs (PRIME) 
was created in 1999 when the PRIME Act was incorporated and 
amended in the Gramm-Leach-Bliley Act as part of the U.S. 
Department of the Treasury's Community Development Financial 
Institutions Program. At that time, the conferees chose to have 
the program administered by the SBA. However, the statutory 
provisions were never moved to the Small Business Act.
    The bill reauthorizes PRIME and transfers the statutory 
language for PRIME to the Small Business Act. PRIME is a 
program to provide grants to intermediaries that use the funds 
to: (1) train other intermediaries to develop microenterprise 
training and services programs; (2) research microenterprise 
practices; or (3) provide training and technical assistance to 
disadvantaged entrepreneurs. This section adds a data 
collection provision and reauthorizes the program at $15 
million for Fiscal Years 2007, 2008 and 2009.
    The provisions in this bill originated in the SBA 
Microenterprise Improvements Act (S. 138), introduced by 
Senator Kerry in January 2005 and cosponsored by Senators 
Bingaman and Lieberman. They were included in S. 1375 as passed 
by the Senate but were not included in the final small business 
reauthorization bill signed into law.

Child care lending

    Recognizing the critical need for child care in the United 
States, the bill includes a pilot program to allow small non-
profit child-care providers to participate in the 504 program.
    This three-year pilot program is the product of work on 
this issue in both the 107th and 108th Congress. During a 
Committee roundtable on May 1, 2003, the Committee heard from 
participants in the child-care industry regarding the shortage 
of affordable child care in the United States. This shortage 
continues to be an issue with an estimated six million children 
left at home on a regular basis, according to the Census 
Bureau. This three-year pilot program responds to that shortage 
by enabling lenders to make 504 loans to qualifying non-profit 
child-care providers. Currently, 504 loans can be made to for-
profit child-care providers. The pilot program will be 
available through Fiscal Year 2009.
    While neither the SBA nor its specific loan programs are 
designed to serve non-profit entities, the Committee believes 
that non-profit child-care providers warrant special 
consideration because the industry is unique and the shortage 
is so severe in many states. In addition, in order to qualify 
for certain types of Federal assistance for low income 
families, such as meal assistance, a child-care provider may be 
required to organize as a non-profit, rather than a for-profit, 
entity, which can have a negative impact on the entity's 
ability to obtain necessary capital. Whereas most service 
industries are made up of for-profit businesses, in many states 
a significant portion of child care is delivered through non-
profits, and in the neediest communities non-profits are often 
the only child-care providers. The Committee recognizes that 
entrepreneurs and employees, particularly women, cite a lack of 
child care for their children as a substantial obstacle to 
their ability to be more actively involved in the small 
business sector of the economy.
    The Committee notes that permitting non-profit child-care 
providers to participate in the 504 program is not completely 
unprecedented. The SBA's microloan program has permitted loans 
to be made to non-profit child-care providers since 1997, and 
the SBA's disaster loan program makes loans to non-profits, 
such as religious entities.
    The Committee stresses, however, that it does not intend to 
expand the SBA's loan programs to other types of non-profit 
entities in the future. The fundamental purpose of the SBA is 
to foster profitable small businesses and the entrepreneurs who 
start them. In order to ensure that this pilot program does not 
impede the ability of for-profit businesses to access capital 
through the 504 loan program, the bill limits the pilot program 
to seven percent of the number of 504 loans guaranteed in any 
year. Currently, less than 2 percent of 504 loans are made to 
for-profit child-care providers.
    Moreover, the Committee recognizes that in some 
circumstances, 504 loans to certain non-profit child-care 
providers could be based on collateral that may be difficult 
for the lender to access. In light of that potential, the bill 
requires that the collateral provided for a loan be owned 
directly by the child-care provider. The loan also must be 
personally guaranteed, and the borrower must have sufficient 
cash flow from its normal operations to both make its loan 
payments and pay for customary operating expenses. Furthermore, 
the bill directs the GAO to provide to Congress a comprehensive 
report analyzing the pilot program, as the program nears the 
end of its three-year pilot period.
    The section incorporates the provisions of the Child Care 
Lending Pilot Act of 2006 (S. 2646), which Senator Kerry 
introduced on April 25, 2006 and was included in the Small 
Business Administration 50th Anniversary Reauthorization Act of 
2003, S. 1375 but was not included in the final small business 
reauthorization bill signed into law.

Study on the impact of Low-Doc program

    Requested by Senator Coleman, this section provides that 
not later than three months after the date of enactment of this 
Act, the Administrator shall undertake a study on the 
elimination of the Low Doc Program. The study shall examine: 
(1) the effectiveness of the Low Doc program on rural 
communities; (2) the effect of the program's elimination on 
rural lending; and (3) the overall accessible and effectiveness 
of rural lending for rural communities.
    The Administrator must submit to the Senate Committee on 
Small Business and Entrepreneurship and the House Committee on 
Small Business a report containing the results of the study and 
recommendations for program improvement.

Enforcement Ombudsman

    At the request of Senator Burns, this section assists small 
businesses with bringing cases or complaints, formal or 
informal, before federal regulatory boards and agencies, 
including, but not limited to, the Surface Transportation 
Board, the Environmental Protection Agency, the Occupational 
Health and Safety Administration, and the Federal 
Communications Commission.

Minority Entrepreneurship and Innovation Pilot Program of 2006

    This section was based on legislation introduced by Senator 
Kerry, the Minority Entrepreneurship and Innovation Pilot 
Program of 2006, (S. 2586), in April 2006, and cosponsored by 
Senator Lieberman. Modeled after a program launched by the 
Kauffman Foundation, the goal of this section is to target 
minority students who are pursuing careers in highly skilled 
fields such as engineering, manufacturing, science and 
technology, and guide them towards entrepreneurship as a career 
option. Minority-owned businesses already participate in a wide 
variety of industries, but are disproportionately represented 
in traditionally low-growth and low-opportunity service 
sectors. Promoting entrepreneurial education to undergraduate 
students at colleges and universities expands the pool of 
potential business owners to technology, financial services, 
legal services, and other ``non-traditional'' areas in which 
the overall development of minority firms has been slow. 
Growing the size and capacity of existingminority firms and 
promoting entrepreneurship among minority students already committed to 
higher education will have a direct relationship on the employment 
rate, income levels and wealth creation of minorities throughout the 
nation.
    Beyond offering business courses, this program is intended 
to transform the way colleges and universities prepare students 
for success by making entrepreneurship education available 
across campuses that serve large minority populations. The goal 
is to enable any student, regardless of field of study, to 
access entrepreneurial training and to involve faculty and 
students from a variety of academic disciplines.
    Specifically, the bill directs the Administrator of the SBA 
to make grants to Historically Black Colleges and Universities, 
Tribal Colleges, and Hispanic serving institutions, or to any 
entity formed by a combination of such institutions: (1) to 
assist in establishing a campus-wide entrepreneurship 
curriculum for undergraduate or graduate studies; and (2) for 
the placement of SBDCs on the physical campus of the 
institution. The bill requires an institution of higher 
education receiving a grant to: (1) develop a curriculum that 
includes training in various skill sets needed by successful 
entrepreneurs, including business management and marketing, 
financial management and accounting, market analysis and 
competitive analysis and innovation and strategic planning; and 
(2) open a SBDC to provide business counseling, training and 
referrals to small businesses in the local community 
surrounding the campus. The SBDC is intended to foster a 
culture of entrepreneurship on the campus by bringing together 
the local small business community and the academic community, 
the faculty and students. Recognizing the economic challenges 
faced by many of these campuses serving minority communities, 
the institutions are not required to provide matching funds for 
the establishment of the SBDC.
    The bill authorizes the pilot program for two fiscal years, 
to provide grants of $500,000 per fiscal year for institutions 
of higher education, and it authorizes appropriations of $10 
million for each of FY 2007 and 2008.
    The bill also includes protections to ensure that the funds 
are not diverted to other campus expenses or budgets not 
directly related to implementation of the Minority 
Entrepreneurship and Innovation program.

Office of Native American Affairs pilot program

    To identify and implement Native American economic 
development opportunities available from the Federal Government 
and private enterprise, the SBA's Office of Native American 
Affairs is directed to develop and publish a self-assessment 
tool for Indian tribes that will allow such tribes to evaluate 
and implement best practices for economic development, and 
provide assistance to Indian tribes, through the Inter-Agency 
Working Group.

Institutions of higher education

    The bill requires SBDC grantees that are institutions of 
higher education to be accredited and grandfathers any SBDC 
grantee institution of higher education that is not yet 
accredited but is seeking accreditation.

                          III. COMMITTEE VOTE

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following votes were recorded on July 27, 2006.
    A motion by Senator Snowe to adopt the following two 
amendments which each passed by voice vote:
          (1) Senator Coleman's amendment to establish a five-
        year SBIR-STEM workforce development grant pilot 
        program to encourage small businesses to provide short-
        term opportunities for those college students who major 
        in the fields of science, technology, engineering and 
        math. Specifically, the proposal would provide SBIR 
        grantees with a 10 percent bonus grant (i.e. 10 percent 
        of either Phase I or Phase II grant) with a total award 
        maximum of up to $10,000 per year that provide 
        opportunities such as internships for STEM students.
          (2) Senator Bond's amendment caps awards to majority 
        venture-owned companies at 25 percent of SBIR funds at 
        participating agencies. The amendment also preserves 
        the 500 employee cap and preserves U.S. ownership of 
        SBIR applicant firms.
    A motion by the Chair to adopt the Small Business 
Reauthorization and Improvements Act of 2006 as amended, to 
reauthorize the programs of the Small Business Administration 
and for other purposes, was approved by a unanimous 18-0 
recorded vote with the following Senators voting in the 
affirmative: Snowe, Kerry, Bond, Burns, Allen, Coleman, Thune, 
Isakson, Vitter, Enzi, Cornyn, Levin, Harkin, Lieberman, 
Landrieu, Cantwell, Bayh, Pryor.

                           IV. COST ESTIMATE

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed in the 
following letter from the Congressional Budget Office.
                                                 November 15, 2006.
Hon. Olympia J. Snowe,
Chair, Committee on Small Business and Entrepreneurship
U.S. Senate, Washington, DC.
    Dear Madam Chair: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 3778, the Small 
Business Reauthorization and Improvements Act of 2006.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                          Donald B. Marron,
                                                   Acting Director.
    Enclosure.
    Summary: S. 3778 would authorize funding over the 2007-2009 
period for operations of the Small Business Administration 
(SBA) and would make a number of amendments to SBA loan 
programs, programs that support entrepreneurship, and programs 
that support preferences for small business in government 
contracting.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing S. 3778 would cost about $5.1 
billion over the 2007-2011 period. About $2.8 billion of this 
amount is the estimated subsidy and administrative cost of 
continuing SBA credit programs, and about $2.1 billion would be 
for SBA's noncredit programs and activities. The remaining 
amount, about $0.2 billion, is the estimated cost of 
governmentwide efforts to provide small business contracts with 
the federal government and amendments to an emergency loan 
program administered by the Department of Agriculture (USDA). 
By making certain expiring funds available to be spent, CBO 
estimates that enacting this bill would increase direct 
spending by $915 million over the 2007-2016 period. Enacting 
the bill would have no significant effect on revenues.
    S. 3778 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Major Provisions: Major provisions of S. 3778 include:
    2. Title I would set the maximum amounts of small business 
loans that could be guaranteed by SBA for fiscal years 2007 
through 2009, authorize appropriation of funds for the Service 
Corps of Retired Executives (SCORE) program, the Paul Coverdell 
drug-free workplace program, the Office of Veterans Business 
Development, the small business development center program, and 
grants under the New Markets Venture Capital program and the 
microloan program. This title also would authorize the 
appropriation of such sums as may be necessary for fiscal years 
2007 through 2009 for salaries and expenses of the SBA, the 
disaster loan program, and expenses related to the Small 
Business Investment Act.
    4. Title III would establish a new Small Business 
Investment Company (SBIC) program, the participating debentures 
program, to replace the participating securities program. Title 
III also would amend the terms of participation for loans made 
in prior years under the participatingsecurities program, and 
would amend the loss-reserve requirement under the Premier Certified 
Lenders Program.
    6. Title IV would authorize five new loan and loan 
guarantee programs that would benefit small businesses, 
agricultural producers, and states adversely affected by 
disasters. In addition, the bill would broaden the existing 
disaster loan program by extending economic injury loans to 
nonprofits, increasing some loan limits, and changing the 
formula for calculating mitigation loans. The bill also would 
authorize grants of up to $25,000 to businesses adversely 
affected by the call-up of employees who are reservists.
    8. Titles V, VII, VIII, XVI, and XVII would authorize the 
appropriation of funds for various programs to support 
entrepreneurship including the Office of Veterans Business 
Development, the Women's Small Business Development Program and 
the Women's National Small Business Council, and the 
BusinessLINC program. This title also would authorize the 
appropriation of funds for pilot programs to distribute health 
insurance information to small businesses, support Native 
American small business development, and help small businesses 
comply with federal regulations.
    10. Titles X, XI, XII, XIII, and XIV would make changes to 
programs that give preference to small businesses in government 
contracting.
    12. Titles XVII and XIX would create a pilot program to 
make mid-sized loans through intermediaries and another pilot 
program that would allow certified development companies to 
make loans to nonprofit child care centers.
    The remaining titles of the bill would have no significant 
effect on the budget.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 3778 is shown in Table 1. The costs of 
this legislation fall primarily within budget function 350 
(agriculture), 450 (community and regional development) and 370 
(commerce and housing credit).

                   TABLE 1.--CHANGES IN SPENDING SUBJECT TO APPROPRIATION AND DIRECT SPENDING
----------------------------------------------------------------------------------------------------------------
                                                                    By fiscal year, in millions of dollars--
                                                               -------------------------------------------------
                                                                  2007      2008      2009      2010      2011
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Changes to SBA Spending:
    Estimated Authorization Level.............................     1,304     1,354     1,391       643       666
    Estimated Outlays.........................................       648     1,048     1,273     1,101       871
Changes to Federal Procurement Spending:
    Estimated Authorization Level.............................        32        32        32        30        30
    Estimated Outlays.........................................        22        29        31        31        31
Changes to USDA Emergency Loans:
    Estimated Authorization Level.............................         3         3         3         3         0
    Estimated Outlays.........................................         2         3         3         3         1
Total Changes to Spending Under S. 3778:
    Estimated Authorization Level.............................     1,339     1,389     1,426       676       696
    Estimated Outlays.........................................       672     1,080     1,307     1,135       903

                                           CHANGES IN DIRECT SPENDING

Estimated Budget Authority....................................        90       825         0         0         0
Estimated Outlays.............................................        80       750        85         0        0
----------------------------------------------------------------------------------------------------------------
NOTE: SBA = Small Business Administration; USDA = Department of Agriculture.

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted early in 2007 and that the necessary 
amounts will be appropriated near the start of each year. 
Outlay estimates are based on historical spending patterns for 
existing or similar programs. CBO estimates that implementing 
S. 3778 would result in discretionary outlays of $5.1 billion 
over the 2007-2011 period, assuming appropriation of the 
necessary amounts. CBO estimates that enacting the bill also 
would increase direct spending by $915 million over the 2007-
2016 period. Enacting the bill would have no significant effect 
on revenues.

Spending subject to appropriation

    S. 3778 would authorize SBA to continue its direct loan and 
loan guarantee programs as well as grants to small businesses 
for fiscal years 2007 through 2009. Based on information from 
SBAand historical spending patterns for the agency's programs, 
CBO estimates that implementing those provisions would cost $4.9 
billion (including about $2.8 billion for loan program subsidies and 
administrative costs) over the 2007-2011 period, assuming appropriation 
of the necessary amounts (see table 2). The bill also would authorize 
changes in programs outside of SBA; CBO estimates that those provisions 
would cost about $0.2 billion over the 2007-2011 period.
    Almost three-quarters of the discretionary spending 
authorized by this bill for credit programs would be for 
disaster-related loan programs. In 2006, the Congress 
appropriated about $1.7 billion to SBA to make disaster loans 
following the 2005 Gulf Coast hurricanes. CBO expects that the 
future demand for disaster loans will be lower than that 
experienced following the Gulf Coast hurricanes, and instead 
will likely be similar to the historical demand for those loans 
over the 2001-2005 period. Thus, the estimated annual cost of 
implementing S. 3778 is less than what SBA spent in 2006.
    For nondisaster programs, the bill would authorize SBA to 
guarantee loans and to make direct loans to businesses with a 
total loan value up to $32 billion in 2007, $34 billion in 
2008, and $37 billion in 2009. By comparison, the authorized 
loan level for 2006 is about $28 billion and the agency funded 
direct and guaranteed loans worth about $20 billion in that 
year. S. 3778 also would authorize the agency to offer new 
types of direct loans and loan guarantees to small businesses, 
agricultural producers, and states that have been adversely 
affected by disasters. Table 3 shows the loan levels that would 
be authorized by the bill, the estimated subsidy and 
administrative costs for those loans, as well as the cost of 
amendments to SBA grant programs and other activities 
authorized by the bill.

                    TABLE 2.--CHANGES IN SBA SPENDING SUBJECT TO APPROPRIATION UNDER S. 3778
----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                     -----------------------------------------------------------
                                                        2006      2007      2008      2009      2010      2011
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION

SBA Spending Under Current Law:
    Budget Authority \1\............................     1,628         0         0         0         0         0
    Estimated Outlays...............................       929     1,114       543       119         7         0
Proposed Changes:
    SBA Loan Programs:
        Estimated Authorization Level...............         0       721       751       785       353       376
        Estimated Outlays...........................         0       440       678       757       562       403
    Noncredit Programs:
        Estimated Authorization Level...............         0       583       603       606       290       290
        Estimated Outlays...........................         0       208       370       516       539       468
        Total, Changes to SBA Spending:
            Estimated Authorization Level...........         0     1,304     1,354     1,391       643       666
            Estimated Outlays.......................         0       648     1,048     1,273     1,101       871
SBA Spending Under S. 3778:
    Estimated Authorization Level...................     1,628     1,304     1,354     1,391       643       666
    Estimated Outlays...............................       929     1,762     1,591     1,392     1,108      871
----------------------------------------------------------------------------------------------------------------
\1\ The 2006 level is the amount appropriated for that year; a full year appropriation for SBA has not yet been
  provided.

    The Federal Credit Reform Act (FCRA) of 1990 requires an 
appropriation of subsidy costs and administrative costs 
associated with loan guarantees and direct loan program 
operations. The subsidy cost is the estimated long-term cost to 
the government of a direct loan or a loan guarantee, calculated 
on a net-present-value basis, excluding administrative costs. 
Administrative costs, recorded on a cash basis, include 
activities related to making, servicing, and liquidating loans, 
as well as overseeing the performance of lenders.
    The bill does not specify an explicit authorization for 
either the subsidy or the administrative costs for SBA's 
guaranteed, direct, or disaster loans; CBO estimated these 
amounts using historical information about the operation of 
those programs. We assume that administrative activities 
related to existing loans would continue to be authorized 
beyond the 2007-2009 period for which new loans would be 
authorized.

        TABLE 3.--ESTIMATED LOAN LEVELS, SUBSIDY, ADMINISTRATIVE, AND OTHER NONCREDIT COSTS UNDER S. 3778
----------------------------------------------------------------------------------------------------------------
                                                                    By fiscal year, in millions of dollars--
                                                               -------------------------------------------------
                                                                  2007      2008      2009      2010      2011
----------------------------------------------------------------------------------------------------------------
                                             Authorized Loan Levels
Disaster Loans \1\............................................     1,578     1,648     1,708        28         0
Guaranteed and Direct Business Loans..........................    31,817    34,417    37,017         0         0
                                               Loan Subsidy Costs

Disaster Loans: \1\
    Estimated Authorization Level.............................       366       386       410         3         0
    Estimated Outlays.........................................       185       340       396       204        40
Guaranteed and Direct Business Loans:
    Estimated Authorization Level.............................        44        44        44         0         0
    Estimated Outlays.........................................        23        42        42        20         1

                                            Loan Administration Costs

Disaster Loans:
    Estimated Authorization Level.............................       186       194       202       218       239
    Estimated Outlays.........................................       143       179       194       210       229
Guaranteed and Direct Business Loans:
    Estimated Authorization Level.............................       128       130       132       135       137
    Estimated Outlays.........................................        91       120       128       131       134

                                             SBA Noncredit Programs

Estimated Authorization Level.................................       583       603       606       290       290
Estimated Outlays.............................................       208       370       516       539       468

                                     Procurement and Contracting Preferences

Estimated Authorization Level.................................        32        32        32        30        30
Estimated Outlays.............................................        22        29        31        31       31
----------------------------------------------------------------------------------------------------------------
\1\ Includes USDA emergency producer loans.

    Disaster Loan and Grant Programs. S. 3778 would authorize 
five new direct loan or loan guarantee programs that would 
benefit small businesses, agricultural producers, and states 
adversely affected by disasters. It also would reauthorize and 
modify the current disaster loan program for businesses and 
homeowners. Assuming appropriation of the necessary funds, CBO 
estimates that implementing these provisions would cost about 
$2.1 billion over the 2007-2011 period.
    Reauthorization of and Amendments to the Disaster Loan 
Program. S. 3778 would reauthorize the disaster loan program 
through 2009. In addition, the bill would broaden the disaster 
loan program by making economic injury loans available to 
nonprofit organizations, increasing some loan limits, and 
changing the formula for calculating loan amounts for loans to 
mitigate damages from natural disasters.
    For this estimate, CBO expects that demand for SBA's 
disaster loans would be similar to the average historical rate 
of demand over the 2001-2005 period--excluding the large volume 
of loans (in 2006) following the unusually severe 2005 Gulf 
Coast hurricanes. We estimate that demand for disaster loans 
would increase from the historical average by about 10 percent 
because of the provisions in the bill that broaden the scope of 
the existing disaster loan program. CBO estimates that SBA 
would make disaster loans worth $875 million a year over the 
2007-2009 period. Over the 2001-2005 period, annual loan volume 
for the disaster loan program has ranged from about $650 
million to over $1 billion.
    The Administration estimates that the subsidy rate for 
disaster loans is about 15 percent, based on the historical 
performance of those loans. CBO has adopted that rate for 
estimating subsidy costs under the regular disaster loan 
program. Assuming appropriation of the necessary amounts, CBO 
estimates that reauthorizing this program would cost about $395 
million over the 2007-2011 period for loan subsidy costs. In 
addition, CBO estimates that it would cost about $510 million 
over the 2007-2011 period to administer the disaster loan 
program and service the loans.
    New Disaster Loan Guarantee Program. Section 401 would 
establish a new loan guarantee program for small businesses 
located in an area impacted by a disaster. Under the proposal, 
a small business could apply directly to a private lender for a 
disaster loan instead of applying to the SBA, as under current 
law. Loan proceeds could be used for any authorized use under 
SBA's 7(a) program or the existing disaster loan program as 
well as to acquire and develop real estate for the purpose of 
selling or renting it. The loan limit on individual loans would 
be $3 million and the federal government would guarantee up to 
85 percent of the loan. In addition, the federal government 
would pay a fee to the lenders for each loan originated under 
this program and could reduce the interest rate offered by 
private lenders by up to 3 percent.
    Due to the uncertainty of when or where a disaster might 
strike, it is difficult to estimate demandfor this new program. 
The terms of this new disaster loan guarantee program would be more 
favorable than those of the current 7(a) program, making it attractive 
to 7(a) borrowers who suffer a disaster. This new program would not 
have borrower-lender fees, and the interest rate would likely be lower 
than the 7(a) program due to the interest subsidy from SBA. Based on 
information from SBA, CBO estimates that the subsidy rate for this new 
loan guarantee could range from 12 percent to 36 percent depending on 
the level of interest rate subsidy provided to the lenders. For this 
estimate, we assume that most of the demand for this private disaster 
loan program would come from current 7(a) borrowers who wish to 
refinance their current debt into this new program.
    CBO expects that approximately 1 percent of the balance of 
outstanding 7(a) loan guarantees would reside within a declared 
disaster area and would refinance their loans under this new 
loan guarantee program each year. Depending on the location and 
severity of future disasters, the number of 7(a) borrowers that 
use the new program to refinance loans could vary significantly 
from year to year. Based on information from SBA, CBO estimates 
that the cumulative loan balance for the 7(a) program was about 
$55 billion at the end of 2006. CBO expects that the cumulative 
loan balance would continue to increase about 10 percent 
annually. We estimate that under this new loan program, lenders 
would make approximately $600 million in new loans in 2007 and 
$2.0 billion over the 2007-2011 period. CBO assumes that the 
SBA would guarantee 85 percent (the maximum guarantee level 
authorized) of those loans and would subsidize the interest 
rate at the maximum allowable level under the bill. Assuming 
appropriation of the necessary funds, CBO estimates that 
implementing this new loan guarantee program would cost about 
$110 million in 2007 and about $715 million over the 2007-2011 
period. Also, CBO estimates that additional discretionary 
outlays for administrative costs would cost about $405 million 
over the 2007-2011 period.
    New Disaster Loan Program for States. Section 452 would 
authorize the SBA to guarantee loans to states that have been 
adversely affected by a disaster. The legislation would 
authorize the SBA to develop regulations for this new loan 
program including appropriate uses of funds, loan terms, and 
loan processing fees. Currently, local governments may apply to 
the Federal Emergency Management Agency (FEMA) for loans if 
they have suffered a substantial loss of tax and other revenue 
following a disaster. Prior to the Gulf Coast hurricanes of 
2005, demand for this program was very low. Following the 
catastrophic effects of the 2005 Gulf Coast hurricanes, the 
Congress authorized FEMA to provide up to $1 billion in loans 
to local governments.
    For this estimate, CBO assumes that demand for this new 
loan guarantee program would occur following rare catastrophic 
events. Although CBO cannot predict the timing and severity of 
future disasters, we expect that this program would have a 
negligible cost over the next five years.
    Catastrophe Loan Program. Under this bill, if a major 
disaster causes a significant amount of damage, the President 
could deem the event to be a catastrophe. If that designation 
were invoked, the SBA would be able to offer economic injury 
loans to small businesses nationwide that were adversely 
impacted by the catastrophe. The terms of this loan program 
would be identical to the terms of the economic injury loan 
program under current law. CBO cannot estimate the additional 
cost of this new loan program because CBO cannot predict the 
timing and severity of future disasters, nor whether the 
President might declare them to be catastrophic disasters. Over 
the next five years, however, we expect that program would have 
a negligible cost.
    Energy Emergency Loan Program to Nonfarm Businesses. 
Section 472 would authorize the SBA to provide loans up to $1.5 
million to small businesses that have suffered substantial 
economic injury as the result of a significant increase in the 
price of heating fuel since October 2004. Small businesses 
could use loan proceeds to convert heating systems from heating 
fuel to renewable or alternative energy sources.
    The average size of an economic injury loan in the existing 
disaster loan program over the 2003-2005 period was about 
$75,000. The SBA has distributed an average of 1,300 economic 
injury loans over the 2003-2005 period. CBO estimates that 
demand for the energy emergency loan program would increase the 
number of economic injury loans by 40 percent. In addition, CBO 
assumes that loans made to cover operating costs associated 
with higher energy costs would be more risky than economic 
injury loans made under the regular disaster loan program. 
Therefore, CBO expects that subsidy costs associated with this 
program would be higher. The existing disaster loan program has 
a subsidy rate of 15 percent. Based on information from SBA, 
CBO estimates that such loans would have a subsidy rate of 20 
percent. CBO estimates that implementing this loan program 
would cost $45 million in subsidy costs over the 2007-2011 
period and about $40 million over the same period to service 
and administer those new loans.
    Agricultural Producer Emergency Loans. Section 473 would 
amend a credit program administered by the Farm Service Agency 
of the USDA. The bill would expand eligibility for the 
emergency loan program to allow loans to producers with losses 
resulting from increased energy costs. The provisions expanding 
loan eligibility would expire four years after enactment. CBO 
estimates the proposed legislation would increase the volume of 
loans under the USDA program by about 40 percent and cost about 
$12 million over the 2007-2011 period, assuming appropriation 
of the necessary amounts.
    Grants to Small Businesses. Section 453 would authorize SBA 
to provide up to $25,000 to small businesses with 10 or fewer 
employees that are adversely affected by the call-up of 
employees who are military reservists. The SBA currently 
provides economic injury loans to businesses with military 
reservists on the payroll. Over the 2002-2006 period, the SBA 
approved an average of about 50 such loans a year. CBO expects 
that demand for this grant program would also be low. For this 
estimate, CBO assumes that approximately 50 small businesses a 
year would receive grants under this new program. Assuming 
appropriation of the necessary funds, CBO estimates that 
implementing this provision would cost about $1 million a year.
    Development and Implementation of Major Disaster Response 
Plan. Section 457 would authorize the SBA to amend and update 
its disaster response plan to include major and catastrophic 
disasters. Based on information from SBA, CBO estimates that 
implementing this provision would cost $1 million in 2007.
    Guaranteed and Direct Business Loan Programs. S. 3778 would 
authorize direct loans and loan guarantees under SBA's business 
loan programs known as the 7(a), microloan, certified 
development company, and New Markets Venture Capital (NMVC) 
programs.
    14. Under the 7(a) program, SBA provides limited guarantees 
on loans made by certain lending institutions to small 
businesses.
    16. Under the certified development company program (also 
known as section 504 loans), SBA provides guarantees on 
debentures issued by certified development companies to provide 
funding to small businesses for major fixed assets such as 
land, structures, machinery, and equipment.
    18. The microloan program provides direct loans to 
nonprofit lenders which then offer loans to small businesses 
just starting up, whose capital needs are too small to qualify 
for the 7(a) program.
    20. The NMVC program provides guarantees on debentures 
issued by companies authorized by SBA to invest in small 
businesses located in low income areas.
    The estimated subsidy rates for the different types of 
business loans and loan guarantees offered by SBA currently 
range from zero for 7(a) and section 504 programs to about 17 
percent for the NMVC program. Incorporating program amendments 
in the bill and using historical demand and default rates for 
those loan programs, CBO estimates that the subsidy costs for 
the authorized levels of guaranteed and direct business loans 
would be $23 million in 2007 and about $128 million over the 
2007-2011 period.
    As specified in FCRA, subsidy rates do not reflect the 
administrative costs to service loan programs. CBO estimates 
that the administrative costs for the business loan programs 
authorized in the bill would be $91 million in fiscal year 2007 
and $604 million over the 2007-2011 period, adjusted annually 
for anticipated inflation.
    SBIC Participating Debenture Program. Through two 
programs--participating securities and debentures--SBA has 
provided funding to privately owned companies that provide 
venture capital to small businesses, known as small business 
investment companies (SBICs). SBICs are licensed by SBA and use 
a combination of financing from SBA and the private sector to 
provide capital to qualified small businesses.
    Section 301 would establish a new SBIC program \1\--the 
participating debentures program--to replace the participating 
securities program, which ceased providing financing to SBICs 
in 2004. Under the new program, SBICs would issue participating 
debentures to SBA representing a pledge of interest payments 
and a balloon payment of principal at the end of the 10-year 
term of the debenture. Unlike the existing participating 
securities program, an SBIC would be considered to be in 
default under the new program if it failed to make required 
payments of principal and interest on participating debentures. 
The bill would authorize SBA to impose various fees on 
borrowers to reduce the program's subsidy cost to zero.
---------------------------------------------------------------------------
    \1\ Congressional Budget Office, letter to the Honorable Judd Gregg 
(October 17, 2005).
---------------------------------------------------------------------------
    The participating debentures program would include a profit 
component similar to that of the participating securities 
program. Before an SBIC would be able to make profit 
distributions, it would be required to fully repay all 
principal and interest due on its participating debentures. 
After full repayment of the participating debentures, SBICs 
would be required to use gross receipts received to make profit 
distributions to both SBA and private investors.
    CBO recognizes the risk associated with these investments 
and assumes that profit distributions received would be similar 
to returns on a federally owned investment portfolio. In 
estimating such returns on risky investments, CBO's practice is 
to adjust the rate of return to account for that risk. CBO used 
the Treasury interest rate (the standard proxy for the return 
on a risk-free investment) to estimate the cash flow from 
profits that would be available for distribution.
    Before incorporating fees, CBO estimates that the subsidy 
rate for loans under this program would be between 15 percent 
and 20 percent. That means, for example, if SBA were to make 
$100 million in participating debenture loans, it would need to 
collect fees over the loan term with a total net present value 
of between $15 million and $20 million to fully offset the 
estimated cost of loans under the program. The estimated 
subsidy rate results from costs to SBA for net losses of 
principal and interest due to defaults. The estimate 
incorporates a 40 percent rate of default and a 35 percent rate 
of recoveries on those defaults as well as a risk-adjusted 
profit component. Those assumptions are based on SBA's 
experience with the participating securities program, which is 
similar to the new participating debentures program.
    Historically, SBA has charged fees to SBICs at various 
points in the financing process: one-time fees are levied at 
the time SBA makes a funding commitment to an SBIC and again 
when the SBIC draws down committed funds; an annual fee is 
charged on outstanding loan balances as well. S. 3778 would 
authorize SBA to charge guarantee fees to institutions that 
provide financing to SBA for the program. CBO expects that SBA 
will develop a fee schedule that will meet the bill's 
requirement that the participating debenture program operate at 
a zero subsidy rate. Accordingly, CBO estimates that 
implementing the participating debenture program would have no 
net cost.
    Small Business Intermediary Lending Pilot Program. Section 
1803 would authorize a three-year program to provide up to $20 
million in direct loans ranging in size from $35,000 to 
$200,000 to nonprofit lenders over the 2007-2009 period. The 
Small Business Intermediary Lending Pilot Program would be 
established to make direct loans to nonprofit intermediaries 
which would, in turn, make loans to eligible small businesses. 
The program, modeled after the microloan program, would feature 
a 20-year loan term, an interest rate of 1 percent, and a two-
year grace period. Based on information from SBA, CBO estimates 
that the subsidy rate for the program would be around 37 
percent, largely due to the difference between the rate that 
SBA would borrow funds and the rate SBA would charge the 
borrowers. We estimate that the subsidy cost for the authorized 
loan amounts would be about $7 million over the 2007-2011 
period.
    SBA's Noncredit Programs. S. 3778 would authorize 
appropriations for several SBA programs that provide technical 
support and training to qualified small businesses, the 
salaries and expenses of the SBA and the disaster loan program, 
as well as expenses related to the Small Business Investment 
Act. Based on information from SBA, implementing these 
noncredit provisions of S. 3778 would cost $208 million in 2007 
and about $2.1 billion over the 2007-2011 period, assuming 
appropriation of the necessary amounts.
    CBO estimates that $775 million of that cost over the 2007-
2011 period would be for programs including the SCORE program, 
the small business development company program, the Paul 
Coverdell drug-free workplace program, women's small business 
programs as well as veterans and Native American business 
development programs. Technical assistance grants under the 
microloan program and the New Markets Venture Capital program 
would also be included in this cost.
    The bill also would create several new pilot programs 
including initiatives to provide health insurance information 
to small businesses, help small businesses comply with federal 
regulations, and promote entrepreneurship in minority 
communities. CBO estimates costs for those programs would total 
$87 million over the 2007-2011 period.
    Salaries and expenses for SBA employees, other than those 
involved in the administration of direct loans and loan 
guarantees, make up the balance of the cost. CBO estimates the 
cost for grant administration, advocacy, and entrepreneurial 
programs--as well as programs to support preferences for small 
businesses in government contracting--would be about $1.2 
billion over the 2007-2011 period. We assume that these costs 
will continue beyond the period in which loans would be 
authorized under this bill, adjusted annually for inflation.
    Procurement and Contracting Preferences for Small 
Businesses. S. 3778 would make changes to a number of programs 
designed to increase the participation of small businesses in 
government procurement and contracting activities. Assuming 
appropriation of the necessary amounts, CBO estimates these 
provisions would cost about $22 million in 2007 and $144 
million over the 2007-2011 period.
    Specifically, section 1002 would require additional staff 
to be placed in each major federal procurement center and in 
certain states to help small businesses obtain federal 
contracts. This provision would cost $9 million in 2007 and $60 
million over the 2007-2011 period. Section 1201 would authorize 
appropriations for the HUBZone program which provides 
preferences in federal government contracts for small 
businesses operating in economically distressed communities. 
The bill specifically authorizes the appropriation of $10 
million annually for this program. And finally, the bill would 
require SBA and the Office of Management and Budget to expand 
administrative oversight and reporting requirements related to 
contract bundling, the practice of combining two or more 
contracts into a single agreement. CBO estimates these new 
oversight and reporting requirements would cost about $6 
million annually over the 2007-2011 period.

Direct spending

    Section 302 of the bill would require SBA to disburse 
certain funds committed to SBICs under the participating 
securities program under new terms and conditions. Under this 
provision, SBICs would have 60 days prior to the expiration 
date of the commitment to request the funds to be paid out by 
SBA. This new authority to request funds would apply to 
commitments made by SBA in 2002, 2003, and 2004; therefore, 
disbursements would occur through fiscal year 2009.
    Through the participating securities program, SBA provided 
funding to privately owned and operated SBICs to make venture 
capital investments in qualified small businesses. SBICs would 
be required to share any profits earned from those investments 
with SBA.
    Under the program, SBA issued a commitment to provide 
federal funds to an SBIC after analyzing the fiscal stability 
of the SBIC, including its ability to repay any funds received 
from SBA. The commitments were limited to a term of five years. 
During that time, an SBIC, after demonstrating an appropriate 
business need approved by SBA, could draw against the 
commitment, using the funds to invest in small business 
ventures or for operating liquidity. At the end of the five-
year period, the funding commitments under this program expire 
and any unused amounts cease to be available to the SBICs. 
Section 302 would allow SBICs, in the 60-day period before the 
commitment would expire, to request payment of all committed 
funds without demonstrating a business need. Based on 
information from SBA, we estimate that about $1 billion in 
committed funds would be available to SBICs under this 
provision; we expect about 90 percent of the funds available 
would be requested by SBICs.
    Prior to March 2005, the Administration treated the 
participating securities program as a credit program under 
FCRA, so costs for the loan guarantees were recorded on a net-
present-value basis. The Administration no longer treats the 
participating securities program as a credit program, however, 
and now considers the program to be an equity investment in the 
operation of an SBIC. Because S. 3778 would authorize 
disbursement of committed-but-undrawn funds after the 
participating securities program was determined to be an equity 
investment rather than a loan guarantee, the full amount of the 
funds drawn (rather than the present value) would be charged to 
the program as direct spending on a cash basis. Based on 
information from SBA, CBO estimates the cost of this measure 
would be $80 million in 2007 and $915 million over the 2007-
2011 period.
    Intergovernmental and private-sector impact: S. 3778 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments.
    Estimate prepared by: Federal costs: Susan Willie, Julie 
Middleton, Matthew Pickford, and Greg Hitz. 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.

                   V. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who utilize the services provided.
    In fact, the Committee believes that the Small Business 
Reauthorization and Improvements Act of 2006 will significantly 
reduce the economic impacts of regulations on individuals, 
consumers, and small businesses across the country. For 
example, the Compliance Assistance Title improves a landmark 
small business law, the Small Business Regulatory Enforcement 
Fairness Act (SBREFA)--which originally intended to aid small 
businesses in understanding and complying with federal 
regulations. SBREFA requires that Federal agencies publish a 
small business compliance assistance guide when the agencies 
promulgate rules that will have a significant impact on a 
substantial number of small businesses. Unfortunately, Federal 
agencies have done a poor job of meeting a basic requirement of 
SBREFA over the years. The end result is small businesses have 
been forced to figure out how to comply with these regulations 
on their own, wasting time and creating confusion that SBREFA 
was supposed to help prevent. In many instances, small business 
owners do not learn about their failure to comply with a 
regulation until it is too late and an inspector or auditor 
walks through the door. Small business owners need additional 
compliance assistance tools and resources to both understand 
and comply with complex regulatory actions. The Committee 
believes that the Compliance Assistance Title would close 
loopholes in the original law that the Government 
Accountability Office (GAO) has identified as allowing federal 
agencies to either ignore or poorly fulfill their duties to 
provide small businesses compliance assistance. This Title 
would clarifies existing requirements under SBREFA, which 
passed the Senate unanimously in 1996--providing much-needed, 
targeted regulatory relief for small businesses.
    Title XVII, entitled ``National Small Business Regulatory 
Assistance,'' establishes a four-year pilot program to provide 
resources to SBDCs so they may provide free regulatory 
compliance assistance and counseling to small business owners. 
The bill capitalizes on the current SBDCstructure, which 
provides management and technical assistance counseling and educational 
programs to small business owners. The Committee believes that this 
Title helps small businesses comply with complex Federal regulations 
that have multiplied at an alarming rate over the past 20 years. These 
regulations have a much more significant impact on small businesses 
than larger businesses.
    The bill includes several other provisions that would ease 
the economic and regulatory burden on small businesses. Section 
601 makes 7(a) express loans available to qualifying small 
businesses that wish to purchase renewable energy systems or 
make energy efficiency improvements to their existing 
businesses. As opposed to having to participate in the 
traditional 7(a) program, this provision enables small business 
to use the SBA Express program. Under this program, qualified 
lenders use their own forms and procedures and they are not 
required to take collateral for loans up to $25,000. Lenders 
may use their existing collateral policy for loans over $25,000 
up to $150,000. In addition, Section 331 removes regulatory 
barriers that have constrained multi-state expansion for 
Certified Development Companies (CDCs).
    Finally, Section 430 provides paperwork relief for small 
businesses by promoting reciprocity between the Disadvantaged 
Business Enterprise Program and the Small Disadvantaged 
Business Program.

                    VI. SECTION-BY-SECTION ANALYSIS


                  TITLE I--REAUTHORIZATION OF PROGRAMS

Sec. 101. Reauthorization of programs in the Small Business Act

Sec. 102. Other reauthorizations

Sec. 103. Change in average smaller loan size in Microloan program

    Microloan intermediaries can receive additional technical 
assistance grants from the SBA for making microloans with 
smaller average loan sizes. To conform to past statutory 
changes, this section increases the micro qualifying average 
loan size for these grants from $7,500 to $10,000.

Sec. 104. Subsidy rate model in Microloan program

    Requires the SBA to develop an improved subsidy rate model 
to determine the cost of microloans.

Sec. 105. Inclusion of individuals with disabilities in ``purposes'' of 
        Microloan program

    Requires making loans to individuals with disabilities as 
one of the statutorily enumerated ``purposes'' of the microloan 
program. It does not change the implementation of the program.

              TITLE II--NATIONAL PREFERRED LENDERS PROGRAM

Sec. 201. National Preferred Lenders Program

    Requires the SBA to issue regulations regarding a National 
Preferred Lenders Program under which lenders could participate 
in the SBA's Preferred Lenders Program on a nationwide basis 
after satisfying just one licensing process.

Sec. 202. Maximum loan amount

    Increases the maximum size of a 7(a) loan to $3 million 
(from the current $2 million), and increases the maximum size 
of the accompanying guarantee to $2.25 million (from the 
current $1.5 million). This would maintain the maximum current 
guarantee rate of 75 percent.

Sec. 203. Alternative size standard

    Requires the SBA to implement an alternative size standard 
for the 7(a) program that considers a small business's net 
worth and income, and brings the 7(a) program into conformity 
with the 504 Program.

Sec. 204. Minority small business development

    Creates an Office of Minority Business Development at the 
SBA, headed by the Associate Administrator for Minority Small 
Business and Capital Ownership Development, under a new title 
with expanded authority and an annual budget to carry out its 
mission. This provision expands the Office's authority and 
duties to work with and monitor the outcomes for programs under 
the SBA's Capital Access, Entrepreneurial Development, and 
Government Contracting programs. It also requires the head of 
the Office to work with SBA's partners, trade associations and 
business groups to identify more effective ways to market to 
minority business owners, and to work with the head of Field 
Operations to ensure that district offices have staff and 
resources to market to minorities. This provision authorizes $5 
million for each Fiscal Years 2007, 2008, and 2009.

Sec. 205. Lowering of fees

    Revises current statute so that, if the SBA receives 
appropriations for the 7(a) program, or more fee revenue in the 
program than anticipated, those funds can be used to reduce 
fees on program participants, both borrower and lenders.

            TITLE III--SMALL BUSINESS INVESTMENT ACT OF 1958

                 SUBTITLE A--DEBENTURES AND SECURITIES

Sec. 301. Participating Debenture Companies

    The provision reforms and enhances the Small Business 
Investment Companies (SBIC) program. This section creates a new 
SBIC program that would be a ``zero-subsidy'' program with no 
Federal appropriations necessary that would provide financing 
to small businesses. Additionally, the new program would 
mitigate financial losses to the government by increasing its 
share of SBIC's profits.

Sec. 302. Participating securities

    This section provides procedures for the continuation of 
existing SBICs affected by the current suspension in issuances 
of new financing by the SBA, including financing that had 
previously been promised to SBICs by the SBA.

                   SUBTITLE B--DEVELOPMENT COMPANIES

Sec. 321. Development company loan programs

    Provides that the 504 Loan Program will be known as the 
Local Development Business Loan Program (LDB Program).

Sec. 322. Loan liquidations

    Provides that a Certified Development Company (CDC) can 
elect to not foreclose or liquidate its own defaulted loans, 
and can instead contract with a third party for that third 
party to carry out the foreclosures and liquidations. CDCs can 
receive reimbursement from the SBA for foreclosure expenses 
that the SBA authorizes.

Sec. 323. Additional equity injections

    Allows certain borrowers to contribute more equity (down-
payments) if they choose.

Sec. 324. Businesses in low-income areas

    Provides that loans to businesses in communities that would 
qualify for a New Markets Tax Credit can qualify as ``public 
policy goal'' loans in LDB Program, and therefore can be made 
for larger sizes than ``regular'' LDB loans.

Sec. 325. Combination of certain goals

    Allows businesses to qualify as ``minority owned'' for 
purposes of qualifying as a public policy goal loan if a 
majority of the business's ownership interests belong to one or 
more individuals who are minorities.

Sec. 326. Maximum 504 and 7(a) loan eligibility

    Permits a small business to obtain financing in the maximum 
amount permitted under the 504 program and also to obtain a 
7(a) loan in the maximum amount permitted under that program.

Sec. 327. Refinancing under the Local Development Business Loan Program

    Permits a borrower to refinance a limited amount, based on 
a formula, of the business's pre-existing debt, if that debt is 
already secured by a mortgage on the property being expanded by 
the new loan.

Sec. 328. Technical correction

    Corrects a technical drafting error made in legislation 
enacted in 2004.

Sec. 329. Definitions for the Small Business Act of 1958

    Provides definitions of a ``development company'' and a 
``certified development company.''

Sec. 330. Repeal of sunset on reserve requirements for premier 
        certified lenders

    This provision would make permanent a temporary statute, 
otherwise set to expire in the summer of 2006, that allows CDCs 
qualified by the SBA as ``Premier Certified Lenders'' to 
amortize their reserve requirements and withdraw from the 
reserves the amount attributable to debentures as the 
debentures are repaid.

Sec. 331. Certified Development Companies

    This section provides criteria to identify the types of 
entities that can qualify as certified development companies 
(CDCs) and thus participate in the LDB Program, and removes 
regulatory barriers that have constrained CDC multi-state 
expansion.
    The provision also imposes ethical requirements on CDCs, 
their employees, and banks participating in the program. This 
section also provides minimum requirements for CDCs regarding 
members, boards of directors, staffing and management 
expertise, and use of proceeds. The section details 
requirements CDC loan review committees must meet in order to 
ensure that CDCs pursue local development goals, and allows 
CDCs operating in multiple states to elect to maintain their 
accounting on an aggregate basis. This section also allows CDC 
Board Members to assist other CDCs by serving on another CDC 
Board.

Sec. 332. Conforming amendments

Sec. 333. Closing costs

    Provides borrowers with the option to include loan and 
debenture closing costs in their loans.

Sec. 334. Definition of rural

    Conforms the SBA's definition of a ``rural area'' in the 
504 program, for the purposes of eligibility for a larger loan 
supporting a ``public policy'' goal, to the definition used by 
the Department of Agriculture.

Sec. 335. Regulations and effective date

    Authorizes and directs the SBA to publish proposed 
regulations to implement this Act within 120 days of the date 
of enactment and to publish final regulations within an 
additional 120 days.

Sec. 336. Low-income geographic areas in New Markets Venture Capital 
        (NMVC) program

    Replaces the New Markets Venture Capital (NMVC) program's 
statutory definition of ``Low-Income Geographic Area'' with the 
definition of ``Low-Income Community'' as provided in the New 
Markets Tax Credit statute, to conform the two programs.

Sec. 337. Limitation on time for final approval of NMVC companies

    Establishes a limitation of two years for final approval of 
companies.

                      title iv--disaster response


                   SUBTITLE A--PRIVATE DISASTER LOANS

Sec. 401. Private Disaster Loans

    This section establishes a Private Disaster Loan (PDL) 
program that allows for PDLs to be made to disaster victims by 
private banks, which would have to apply to the SBA for 
eligibility. The SBA will provide an 85 percent guarantee for 
the loans.

Sec. 402. Technical and conforming amendments

             SUBTITLE B--DISASTER RELIEF AND RECONSTRUCTION

Sec. 421. Definition of disaster area

    Defines ``disaster area,'' and other terms.

Sec. 422. Disaster loans to non-profits

    Allows non-profit institutions to apply for Disaster Loans 
under Section 7(b). Under existing regulations, only 
homeowners, renters, and for-profit businesses can normally 
apply for Disaster Loans.

Sec. 423. Disaster loan amounts

    Increases the maximum size of an SBA disaster loan from 
$1.5 million per loan to $5 million per loan. Sets the maximum 
amount to $450,000 for home loans and $90,000 for personal 
property loans. It allows disaster victims to borrow additional 
amounts (20 percent of the uninsured portion) to be spent on 
mitigation projects to reduce the damage caused by future 
disasters.

Sec. 424. Small Business Development Center (SBDC) portability grants

    Authorizes the Administrator to waive the $100,000 maximum 
size for SBDC portability grants for disaster areas. All grants 
provided to SBDCs require a one-to-one match except for $1 
million which is available for non-matching portability grants 
for special projects up to $100,000.

Sec. 425. Assistance to out-of-state businesses

    Authorizes an SBDC to provide services to small businesses 
located outside the SBDC's own home state if the small business 
concerns are located in a disaster area. In addition, this 
section permits SBDCs to operate in disaster recovery sites if 
permissible.

Sec. 426. Outreach programs

    Directs the SBA and the Directors of Small and 
Disadvantaged Business Utilization to create a contracting 
outreach program for small businesses located in a disaster 
area.

Sec. 427. Small business bonding threshold

    Increases the maximum size of SBA surety bonds to $5 
million for bonds issued for disaster recovery, and provides 
the SBA with authority to increase the maximum size to $10 
million.

Sec. 428. Small business participation

    Promotes job creation and development through small 
business set-asides on reconstruction contracts.

Sec. 429. Emergency procurement authority

    Protects the Small Business Reservation (SBR) for disaster-
related contracts below the Simplified Acquisition Threshold 
(SAT) and restores the parity between the SBR and the SAT any 
time the SAT is increased for disaster-related contracts.

Sec. 430. Paperwork reciprocity for small disaster contractors

    Reduces paperwork by promoting reciprocity between the 
Disadvantaged Business Enterprise Program and the Small 
Disadvantaged Business Program.

Sec. 431. Small business multiple-award disaster contracts

    This provision directs the Administrators of the Office of 
Federal Procurement Policy (OFPP) and the SBA to work with 
other Federal agencies to ensure creation of multiple-award 
contractsfor disaster recovery which are set aside for small 
business concerns.

Sec. 432. Contracting priority for local small businesses in high-
        unemployment areas

    Strengthens the Small Business Act's existing priority for 
local small businesses ``which shall perform a substantial 
proportion of the production on those contracts and 
subcontracts within areas of concentrated unemployment or 
underemployment or within labor surplus areas.'' The provision 
designates disaster areas as areas eligible for this priority 
and authorizes Federal agencies to use contractual set-asides, 
incentives, and penalties to enhance participation of local 
small business concerns in disaster recovery contracts and 
subcontracts. In addition, this provision authorizes set-asides 
to be performed in a targeted labor surplus area or substantial 
unemployment area. This provision ensures that disaster 
contracts which meet the dollar thresholds for small business 
subcontracting plans actually contain small business 
subcontracting plans, and allows a grace period of 30 days to 
conclude an acceptable plan.

Sec. 433. Termination of program

    This provides for the termination of the Small Business 
Competitiveness Demonstration program.

Sec. 434. Increasing collateral requirements

    Under current law, the SBA may not disburse disaster loans 
of more than $10,000 without requiring collateral. The 
provision increases that level to $12,000.

                     SUBTITLE C--DISASTER RESPONSE

Sec. 451. Definitions

Sec. 452. State bridge loan guarantee

    Requires the SBA to issue guidelines for an SBA-approved 
state bridge loan program for future disasters. Once the 
guidelines are issued, states may then submit their bridge loan 
programs for approval to receive SBA guarantee assistance on 
bridge loans in the event of a disaster.

Sec. 453. Catastrophic national disaster declaration for nationwide 
        Economic Injury Disaster Loans (EIDLs)

    Creates a presidential declaration of ``Catastrophic 
National Disaster,'' to be declared when an event causes 
significant adverse economic conditions outside of the 
geographic reach of the disaster area. This declaration 
triggers nationwide economic injury disaster loans for any 
small business that can demonstrate being adversely affected by 
the disaster for which the declaration is made.

Sec. 454. Public awareness of disaster declaration and application 
        periods

    Directs Federal Emergency Management Agency (FEMA) and the 
SBA to coordinate assistance application period start and end 
dates to the maximum extent possible. Also requires the SBA and 
FEMA to notify congressional oversight committees as to whether 
or not a deadline for assistance will be extended not later 
than ten days before the date of the deadline. In addition, 
this section directs SBA to create a proactive marketing plan 
to make the public aware of disaster response services.

Sec. 455. Consistency between Administration regulations and standard 
        operating procedures

    Directs the SBA to undertake a study to determine whether 
Administration standard operating procedures are consistent 
with regulations with respect to the disaster loan program.

Sec. 456. Processing disaster loans

    Authorizes the SBA to enter into agreements with qualified 
private contractors to process disaster loans. It also requires 
SBA to provide Congress with a report on how the disaster loan 
application process can be improved, including alternative 
methods for assessing an applicant's ability to repay that 
consider factors other than credit score, as well as methods to 
expedite loan processing and verification for sources vital to 
the rebuilding effort.

Sec. 457. Development and implementation of Major Disaster Response 
        Plan

    Directs the SBA to update its hurricane response plan to 
address all future disasters and to develop simulation 
exercises that demonstrate the viability of the plan.

Sec. 458. Congressional oversight

    Requires the SBA to provide monthly, and when necessary 
daily, reports detailing activity and funding levels for the 
disaster loan program, and to report three months in advance of 
any funding run-out date for the disaster loan program. Also, 
this section requires the SBA to report on the number of small 
business contracts awarded during declared disasters.

                     SUBTITLE D--ENERGY EMERGENCIES

Sec. 471. Findings

Sec. 472. Small business energy emergency disaster loan program

    Authorizes the SBA to make disaster loans to assist small 
businesses that have suffered or are likely to suffer 
substantial economic injury as the result of a significant 
increase in the price of heating oil, natural gas, propane, or 
kerosene, and prohibits such loans from being made if the total 
amount outstanding and committed to the borrower would exceed 
$1.5 million, unless the borrower is a major source of 
employment in its surrounding area.

Sec. 473. Agricultural producer emergency loans

    Authorizes the Secretary of Agriculture to make loans to 
farm operations that qualify as a small business and that have 
or are likely to suffer substantial economic injury on or after 
October 1, 2004, as the result of a significant increase in 
energy costs in connection with an energy emergency declared by 
the President or the Secretary.

Sec. 474. Guidelines and rulemaking

    Must occur within 30 days of enactment.

Sec. 475. Reports

    Must be submitted to Congress within 12 months of 
enactment.

         TITLE V--VETERANS AND MEMBERS OF THE GUARD AND RESERVE

Sec. 501. Definitions

                          SUBTITLE A--VETERANS

Sec. 521. Findings

Sec. 522. Increased funding for the Office of Veterans Business 
        Development

    Authorizes increased appropriations for the SBA's Office of 
Veteran Business Development to $2 million for Fiscal Year 
2006, $2.1 million for Fiscal Year 2007 and $2.2 million for 
Fiscal Year 2008.

Sec. 523. Extension of Advisory Committee on Veterans Business Affairs

    Permanently extends the authority and duties of the SBA's 
Advisory Committee on Veterans Business Affairs.

Sec. 524. Relief from time limitations for Veteran-Owned Small 
        Businesses

    Amends the Small Business Act by allowing small businesses 
owned by veterans and service-disabled veterans to extend their 
SBA program participation time limitations by the duration of 
their owners' active duty service after September 11, 2001.

                     SUBTITLE B--GUARD AND RESERVE

Sec. 541. Guard and reserve loans

    Raises the maximum military reservist loan amount to $2 
million, and allows the Administrator to offer loans up to 
$25,000 without requiring collateral from the Guard or Reserve 
Member. The provision requires the SBA and the Department of 
Defense (DoD) to develop a joint websiteand printed materials 
providing information regarding this program. This section also 
requires banks and other lending institutions to refer the loan 
applicant to appropriate technical assistance programs offered by the 
SBA.

Sec. 542. Study of insurance program for members of the Guard and 
        Reserve

    Provides that within six months of enactment, the SBA and 
the DoD shall jointly study the Guard and Reserve loan 
programs.

Sec. 543. Grant assistance for Military Reservists' small business 
        concerns

    Provides for grants of up to $25,000 to businesses affected 
by the call-up to duty of employees who are reservists. It 
authorizes $3 million for the program for each of FY 2007 
through FY 2009.

                    SUBTITLE C--VETERANS CORPORATION

Sec. 561. Purposes of the Corporation

    Establishes the purposes of the National Veterans Business 
Development Corporation, also know as ``The Veterans 
Corporation'' or ``TVC''.

Sec. 562. Management of the Corporation

    The VC shall be run by a board consisting of nine members. 
These board members shall be appointed by the President based 
on recommendations given by the Senate and Senate Committees on 
Small Business and Entrepreneurship and Veterans Affairs. Board 
members are prohibited from recommending any individual for 
another position on the board, and their term is limited to 
four years.

Sec. 563. Timing of transfer of Advisory Committee duties

    On October 1, 2009, the TVC shall assume the duties, 
responsibilities, and authority of the SBA's Advisory Committee 
on Veterans Affairs.

Sec. 564. Authorization of appropriations

    Authorizes appropriations for TVC of $2 million for each 
Fiscal Year 2007 through 2009.

Sec. 565. Privatization

    Requires that the TVC must establish a plan to raise 
private funds and become self-sustaining within six months from 
the date of enactment.

           TITLE VI--ENERGY LOANS FOR SMALL BUSINESS CONCERNS

Sec. 601. Express loans for renewable energy and energy efficiency

    This title makes 7(a) Program Express Loans available to 
qualifying small businesses that wish to purchase renewable 
energy systems or make energy efficiency improvements to their 
existing businesses.

                      TITLE VII--HEALTH INSURANCE

Sec. 701. Purpose

    Establishes a four-year pilot, competitive grant program to 
provide information, counseling, and educational materials, 
through Small Business Development Centers (SBDCs), to small 
businesses regarding all health insurance options, including 
coverage options within local insurance markets.

Sec. 702. Definitions

Sec. 703. Small Business Health Insurance information pilot program

    Provides that, within 30 days of enactment, the SBA 
Administrator shall establish a pilot, competitive grant 
program to make grants to SBDCs to provide information and 
educational materials regarding small business health insurance 
options. The grant amounts authorized under this section shall 
be not less than $150,000 per fiscal year, and not more than 
$300,000 per fiscal year.

Sec. 704. Reports

    Requires each participating SBDC to submit a quarterly 
report to the Administrator and Chief Counsel for the SBA 
Office of Advocacy.

Sec. 705. Authorization of appropriation

    Authorizes $5 million to be appropriated for the first 
fiscal year beginning after the date of enactment and 
authorizes $5 million to be appropriated for each of the three 
fiscal years following the fiscal year.

         TITLE VIII--WOMEN'S SMALL BUSINESS OWNERSHIP PROGRAMS

Sec. 801. Office of Women's Business Ownership

    Amends the Small Business Act by directing the SBA Office 
of Women's Business Ownership (OWBO) to develop new programs 
and services for established women-owned businesses.
    In addition, this provision requires the Office of Women's 
Business Ownership to consult with the associations 
representing the Women's Business Centers, the National Women's 
Business Council, and the Interagency Committee on Women's 
Business Enterprise. This section also requires that training 
be provided for SBA District Office personnel responsible for 
carrying out Agency programs. Finally, this provision requires 
the Administration to improve the women's business center grant 
process and the programmatic and financial oversight process.

Sec. 802. Women's Business Center Program

    This section replaces a five-year grant program and pilot 
Sustainability Program with a permanent grant program that can 
be renewed at three-year intervals. This section requires that 
an organization must represent not less than 30 percent of the 
women's business centers participating in the SBA's Women's 
Business Center Program. This provision also authorizes that 
the SBA may grant four-year initial grants and three-year 
renewal grants of not more than $150,000 per year. Provides a 
one-year extension for sustainability grants scheduled to 
expire not later than June 30, 2007.
    Authorizes $500,000 for supplemental sustainability grants 
to women's business centers with a limitation of $125,000 in 
grant funding for the grant period beginning on July 1, 2006 
and ending on June 30, 2007. The Fiscal Year authorizations 
include: Fiscal Year 2007 ($16.5 million); Fiscal Year 2008 
($17 million); Fiscal Year 2009 ($17.5 million). Recognizes the 
existence and activities of associations of women's business 
centers as defined in Section 312(a).

Sec. 803. National Women's Business Council

    Provides the National Women's Business Council 
cosponsorship authority. Clarifies membership representation on 
the Council. Establishes Committees under the direction of the 
chairperson on Manufacturing, Technology, Professional 
Services, Travel, Tourism, Product and Retail Sales, 
International Trade, and Federal Procurement and Contracting.
    Provides authority for the Council to serve as a 
clearinghouse for information on small business owned and 
controlled by women. Changes the Council's research allocation 
from $550,000 to 30 percent of appropriated funds.

Sec. 804. Interagency Committee on Women's Business Enterprise

    Provides an acting chairperson for the Interagency 
Committee on Women's Business Enterprise.
    Establishes a Policy Advisory Group to assist the 
chairperson in developing policies and programs, and defines 
the composition of the Policy Advisory Group.
    Creates subcommittees, establishes duties, and states 
activities of the Interagency Committee.

Sec. 805. Preserving the independence of the National Women's Business 
        Council

    Requires an equal number of members appointed to serve on 
the Council represent each of the two major political parties. 
This also requires that if a vacancy is not filled, or if there 
exists animbalance of party-affiliated members on the Council, 
in a 30-day period, a report must be submitted to the Senate Committee 
on Small Business and Entrepreneurship and House Committees on Small 
Business and Entrepreneurship.

                     TITLE IX--INTERNATIONAL TRADE

Sec. 901. Small Business Administration Associate Administrator for 
        International Trade

    This provision establishes an Associate Administrator for 
International Trade.

Sec. 902. Office of International Trade

    This section expands the trade distribution network to 
include the United States Export Assistance Centers (USEACs). 
This section also designates one individual within the 
Administration as a trade financial specialist to oversee the 
international loan programs. In addition, this section ensures 
that all smaller exporters nationwide will continue to have 
access to export financing. This provision establishes a floor 
of International Finance Specialists at the level the SBA had 
in January 2003.

Sec. 903. International Trade Loans (ITL)

    This provision increases the maximum loan guarantee amount 
to $2.75 million and specifies that the loan cap for ITLs is 
$3.67 million, as well as sets out that working capital is an 
eligible use for loan proceeds. The bill also makes ITLs 
consistent with regular SBA 7(a) loans in terms of allowing the 
same collateral and refinancing terms as with regular 7(a) 
loans.

                       TITLE X--CONTRACT BUNDLING

Sec. 1001. Presidential policy

    This section states that it is the policy of Congress that 
each Federal agency shall endeavor to promote competition and 
small business procurement opportunities by unbundling 
government contracts in accordance with the Presidential policy 
on contract bundling.
    The provision also redefines the term ``bundling of 
contract requirements,'' to mean a use of solicitation for a 
single contract or a multiple award contract to satisfy two or 
more requirements of any Federal agency for goods or services 
that restricts competition or limits the number of suppliers by 
being likely unsuitable for award to a small business concern 
due to the diversity, size, or specialized nature of the 
elements of the performance specified; the aggregate dollar 
value of the anticipated award; the geographical dispersion of 
the contract performance sites; unduly restrictive contract 
requirements or other procurement strategy or factor which 
impedes participation of responsible small businesses as prime 
contractors; or any combination of the described factors.

Sec. 1002. Leadership and oversight

    In addition to submitting an annual report on all incidents 
of bundling to the Administrator as may be required by law, 
this provision requires the head of each Federal agency to 
submit an annual report on all incidents of bundling to the 
Office of Federal procurement Policy. The provision also 
requires the Administrator of the Small Business Administration 
to promptly review and annually report to Congress information 
on any discrepancies between reporting on bundled contracts 
from Federal agencies to the Small Business Administration, the 
Office of Federal Procurement Policy, and the Federal 
Procurement Data System.
    In addition, the provision mandates implementation of 
recommendations of the GAO Report 04-454 concerning collection 
of contract bundling data. The provision also requires the SBA 
review of government-wide anti-bundling policies, directs the 
SBA to publish a guide on best practices to reduce bundling, 
develop Federal personnel policies concerning compliance with 
small business contracting laws and the President's Initiative 
Against Contract Bundling.
    The provision further directs the SBA to implement the 
recommendations of the SBA Inspector General's Audit of the 
Contract Bundling Program No. 5-20. The provision requires 
additional assignments of SBA Procurement Center 
Representatives (PCRs) and Commercial Market Representatives 
(CMRs), and clarifies PCR authority.

Sec. 1003. Removal of impediments to contract bundling database 
        implementation

    This section removes impediments to completion of the 
contract bundling database authorized in existing law by 
directing Federal agencies to provide to the SBA any relevant 
procurement information as may be required to implement the 
provisions of this section, and shall perform at the request of 
the Administrator.

                   TITLE XI--SUBCONTRACTING INTEGRITY

Sec. 1101. GAO Recommendations on subcontracting misrepresentations

    This section is designed to prevent misrepresentations in 
subcontracting by implementing government-wide the Comptroller 
General's recommendations on subcontracting integrity. 
Specifically, compliance of Federal prime contractors with 
small business subcontracting plans shall be evaluated as a 
percentage of obligated prime contract dollars, as well as a 
percentage of subcontracts awarded. Further, not later than 180 
days from the date of enactment of this Act, the head of each 
Federal agency shall issue a policy on small business 
subcontracting compliance.

Sec. 1102. Small business subcontracting bait and switch fraud

    This section imposes criminal penalties on bidders that 
falsely certify to the government that they will acquire 
articles, equipment, supplies, services, or materials, or 
obtain the performance of construction work, from small 
business concerns in the amount and quality used in preparing 
the bid or proposal, unless such small business concerns are no 
longer in business or can no longer meet the quality, quantity, 
or delivery date.

Sec. 1103. Evaluating subcontractor participation

    This section states that a report submitted by the prime 
contractor to determine the attainment of a subcontract 
utilization goal under any subcontracting plan entered into 
with a Federal agency under this subsection shall contain the 
name and signature of the president or chief executive officer 
of the contractor, certifying that the subcontracting data 
provided in the report are accurate and complete. Evaluation 
results shall be included in a national centralized government 
wide database.
    Each Federal agency having contracting authority shall 
ensure that the terms of each contract for goods and services 
includes a provision allowing the contracting officer of an 
agency to withhold an appropriate amount of payment with 
respect to a contract (depending on the size of the contract) 
until the date of receipt of complete, accurate, and timely 
subcontracting reports.

Sec. 1104. Pilot program on direct payments to subcontractors

    This section states that the failure of a civilian agency 
prime contractor to make a timely payment, as determined by the 
contract with the subcontractor, to a subcontractor that is a 
small business concern shall be a material breach of the 
contract with the Federal agency. Before making a determination 
the contracting officer shall consider all reasonable issues 
regarding the circumstances surrounding the failure to make the 
timely payment.
    Not later than 30 days after the date on which a material 
breach under subparagraph (A) is determined by the contracting 
officer, the Federal agency may withhold any amounts due and 
owing the subcontractor from payments due to the prime 
contractor and pay such amounts directly to the subcontractor. 
This pilot shall be in effect until September 30, 2009.

Sec. 1105. Pilot program

    This section states that each Federal agency on the 
President's Management Council or any successor council is 
authorized through September 30, 2009, to operate a pilot 
program to assess funds from prime contractors for failure to 
comply with small business subcontracting plans and require 
these prime contractors to become mentors to small business 
concerns and to spend such funds on mentor-protege; assistance 
to small business concerns.
    The assessment under the terms of this program shall be 
determined in relation to the dollar amount by which the prime 
contractor failed its small business subcontracting goals. The 
prime contractor shall expend the assessments under the terms 
of this program on mentor-protege; assistance to small business 
concerns, as provided by a mentor-protege; agreement approved 
by the relevant Federal agency.
    In addition, each Federal agency shall submit an annual 
report to the House and Senate Committees on Small Business and 
Entrepreneurship containing a detailed description of thepilot 
program.

       TITLE XII--SMALL BUSINESS PROCUREMENT PROGRAMS IMPROVEMENT

Sec. 1201. Definitions

                      SUBTITLE A--HUBZONE PROGRAM

Sec. 1211. HUBZone reauthorization

    This section reauthorizes the HUBZone program through 
Fiscal Year 2012.

Sec. 1212. Equity for suburban HUBZONE

    This section creates a qualified suburban HUBZone area to 
mean any village, city, town, or other unit of local government 
which is located in an urban county, provided that such unit of 
local government meets income or unemployment requirements 
applicable to rural counties.

   SUBTITLE B--SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESS PROGRAM

Sec. 1221. Certification

    This section directs the Administrator of the Small 
Business Administration to make regulations to provide for 
certifications of service-disabled veteran-owned small business 
concerns. The SBA Administrator is authorized to accept 
Federal, state and local government certifications as well as 
certifications from responsible national certifying entities, 
provided that the SBA Administrator specifies appropriate 
safeguards by regulation.

Sec. 1222. Temporary waiver

    This section provides a temporary waiver for ``the rule of 
two'' in sole-source contracts awarded to service-disabled 
veteran-owned small businesses until September 30, 2009. The 
waiver would enable contracting officials to award a sole-
source contract to service-disabled veteran-owned firms even if 
there are other service-disabled veteran owned firms available. 
This provision would give service-disabled veterans the same 
rights currently available to 8(a) firms. The provision is a 
temporary waiver to enable the Federal government to improve 
its service-disabled veteran goal achievements.

Sec. 1223. Transition period for surviving spouses or permanent 
        caregivers

    This section allows the surviving spouse of a service 
disabled veteran to retain the service-disabled veteran-owned 
designation for the businesses up to 10 years following the 
death of the service-disabled veteran.

Sec. 1224. Contracting authority

    This section shall make the sole-source authority for 
service-disabled veteran mandatory instead of permissive.

             SUBTITLE C--WOMEN-OWNED SMALL BUSINESS PROGRAM

Sec. 1231. Implementation deadline

    This section stipulates that no later than 90 days from the 
date of enactment of this Act, the Administrator shall 
implement the existing Women-Owned Small Business Federal 
Contract Assistance Program.

Sec. 1232. Certification

    This section directs the Administrator of the SBA to make 
regulations to provide for certifications of women-owned small 
business concerns. The SBA Administrator is authorized to 
accept Federal, state and local government certifications as 
well as certifications from responsible national certifying 
entities, provided that the SBA Administrator specifies 
appropriate safeguards by regulation.

            SUBTITLE D--SMALL DISADVANTAGED BUSINESS PROGRAM

Sec. 1241. Certification

    This section directs the Administrator of the SBA to make 
regulations to provide for certifications of small 
disadvantaged business concerns. The SBA Administrator is 
authorized to accept Federal, state and local government 
certifications as well as certifications from responsible 
national certifying entities, provided that the SBA 
Administrator specifies appropriate safeguards by regulation.

Sec. 1242. Net worth threshold

    This provision directs the SBA to adjust the net worth 
thresholds for 8(a) program participants. Currently the 
threshold excludes business owners with more than $250,000 in 
personal assets, and graduates 8(a) participants with more than 
$750,000 in personal assets. These thresholds have not been 
adjusted since 1989.

                    SUBTITLE E--BUSINESSLINC PROGRAM

Sec. 1251. BusinessLINC program

    A provision to extend the SBA authority to issue grants to 
private, public, and non-profit entities in order to expand 
business-to-business relationships between large and small 
businesses. Grants are also available for entities that provide 
a database of companies interested in mentor-protege programs 
or community based, statewide or local business development 
programs.

                    TITLE XIII--ACQUISITION PROCESS

Sec. 1301. Procurement improvements

    This provision builds on the recommendations of the White 
House Acquisition Advisory Panel Small Business Working Group 
and the GAO contained in Report 04-454 by requiring that, 
within 7 days of agencies bundling or consolidating contracts 
they are required to report in the Federal government 
procurement data system: (1) the number of contracts that 
displaced small businesses because of bundling or 
consolidation; (2) the number of small businesses able to bid 
on all or part of the new bundled contracts; and (3) the 
estimated cost savings to be achieved as a result of the 
bundled contracts.
    Further, the provision requires government-wide courses on 
small business contracting, subcontracting and the role of the 
small business specialist within the acquisition team.

Sec. 1302. Reservation of prime contracts for award to small business

    This provision builds on the recommendations of the White 
House Acquisition Advisory Panel Small Business Working Group. 
Within 180 days of enactment, each agency head will be required 
to establish for their agency contracting criteria that: (1) 
set aside part of multiple awards contracts for small 
businesses; (2) set aside multiple awards contracts for 
subcategories of small businesses; and (3) to reserve 1 or more 
contracts for small businesses and subcategories of small 
businesses for multiple full and open awards.

Sec. 1303. GAO study of reporting systems

    Under this provision, the Comptroller of the United States 
shall study the availability, accuracy and timeliness of data 
in the SBA Pro-Net database or any successor thereof, the 
Federal Procurement Data System, and the Subcontracting 
Reporting System, as recommended by the White House Acquisition 
Advisory Panel's Small Business Working Group.

Sec. 1304. Meeting small business goals

    Under this provision, before setting aside contracts for 
small businesses, contracting officers should first consider 
those small business subcategories for which the agency failed 
its goals the most during the preceding year.

Sec. 1305. Micro-purchase guidelines

    Within 180 days the SBA shall issue guidelines for the use 
of purchase cards to measure the participation of small 
business in government micro purchases. These guidelines shall 
be consistent with existing national policy on small business 
participation in micro purchases credit purchases.

Sec. 1306. Reporting on overseas contracts

    This provision requires the SBA to submit an annual report 
to Congress concerning the portion of Federal contracts awarded 
for performance overseas which have gone to small business.

Sec. 1307. Agency accountability

    Each agency is required to identify a percentage of their 
procurement budget to be awarded to small businesses, and must 
include this information in the agency's strategic plan and 
annual budget submission. Each agency will also include if they 
fulfill their budget goals and if they do not meet the goals a 
justification for the shortfall.
    Further, each contracting officer is required to 
communicate to their subordinates the importance of meeting 
small business goals and employees will be assessed annually on 
their help in fulfilling agency small business goals.

          TITLE XIV--SMALL BUSINESS SIZE AND STATUS INTEGRITY

Sec. 1401. Policy and presumptions

    The provision contains an irrebuttable presumption of a 
dollar-for-dollar loss to the United States in any contract, 
subcontract, cooperative agreement, cooperative R&D agreement, 
or grant reserved for small business concerns which is obtained 
by misrepresentation of small business size or status.
    The provision also establishes that submissions of bids or 
proposals on contracts, agreements, or grants reserved for 
small business, or registrations in Federal databases to be 
considered as a small business concern, constitutes an 
affirmative certification of small business size or status.
    Finally, the provision requires that every contract or 
grant solicitation contain a place for certification of small 
business size or status by a high-level corporate official of 
the contractor. The provision allows the SBA Administrator to 
issue ``safe harbor'' regulations to protect contractors from 
liability for unintentional errors and technical glitches.

Sec. 1402. Annual certification

    This provision requires annual certification of small 
business size or status on the SBA's Pro-Net database or any 
successor database.
    The provision also clarified the timing of determination of 
small business size and status. Small business size or status 
shall be determined at the time of award of a Federal contract, 
subcontract, or other funding instrument. For interagency 
multiple-award contracts, small business size and status will 
be determined at the time of the award of the contract and also 
at the time of the award of each task or delivery order 
reserved for a small business.

Sec. 1403. SBA suspensions and debarments authority

    This provision gives the SBA the authority to suspend or 
debar contractors that violate small business laws and 
regulations.

Sec. 1404. Meaningful protests of small business size and status

    This provision prevents Federal agencies from awarding 
small business set-aside contracts to large businesses if 
another company protests the award.
    This provision gives the SBA the very same authority to 
hear and decide protests within 100 days as the GAO currently 
possesses. Automatic stays on contract awards will be imposed 
in SBA protests. The SBA will be able to recommend appropriate 
contractual relief, including termination. Under this 
authority, protests may be overridden by the agency of they are 
in the best interest of the United States or if urgent and 
compelling circumstances require. The provision also authorizes 
protective orders, express options for decisions, and 
recommendations to reimburse protest costs.
    The SBA is required to report to Congress all instances 
when Federal agencies have not followed its recommendations 
concerning the challenged contract. This section does not in 
any way prohibit the SBA to establish or maintain supplementary 
protest processes using existing standards and authorities. The 
SBA is authorized to use this protest authority in non-
procurement programs as well.

Sec. 1405. Training for contracting and enforcement personnel

    This provision directs the SBA, together with other 
agencies, to develop training on small business size standards. 
The provision also directs the SBA IG and heads of other 
agencies to issue a policy on prosecutions of size standards or 
status fraud.

Sec. 1406. Protests of sole-source awards

    This provision authorizes small business concerns with 
standing as an interested party to challenge small business 
size or status of companies receiving sole-source awards under 
the Small Business Act.

Sec. 1407. Small business size and status for purpose of multiple-award 
        contracts

    This provision requires small businesses holding multiple-
award contracts to annually certify their small business size 
or status. This requirement shall be interpreted in concert 
with other size and status certification provisions in this 
legislation.

Sec. 1408. Size standards development

    This provision authorizes the SBA Administrator to 
establish two or more tiers within an overall small business 
size standard cap for the purpose of facilitating the growth 
and development of small business concerns as well as 
facilitating peer-based competition among small business 
concerns for Federal contracts and subcontracts. In 
establishing tier-based size standards, the Administrator shall 
take into account national and international industry 
conditions, including the size of industry leaders, the trends 
in the sizes of Federal government contracts and subcontracts. 
The Administrator shall establish dollar-based thresholds 
within each industrial category for contracts and subcontract 
suitable for reservation solely to small business concerns 
within lower tier or tiers in that industrial category.

Sec. 1409. Full-time employee equivalents

    This provision requires the SBA to use full-time employee 
equivalents in computing the number of employees for purposes 
of size determinations.

    TITLE XV--SMALL BUSINESS INNOVATION RESEARCH AND SMALL BUSINESS 
                TECHNOLOGY TRANSFER PROGRAMS (SBIR/STTR)

Sec. 1501. Definitions

    This provision restates applicable definitions from the 
Small Business Act.

Sec. 1502. Congressional findings and policy

    The provision states Congressional findings and policy on 
promoting effectiveness in Federal research and development 
efforts and removing barriers to participation of small 
business concerns, as well as of partnerships between small 
business concerns and universities or other research 
institutions, in Federal R&D programs.

            SUBTITLE A--SMALL BUSINESS INNOVATION LEADERSHIP

Sec. 1511. Status of the SBA Office of Technology; National Advisory 
        Board; Transfer Plan

    This provision requires the SBA to maintain an Office of 
Technology (headed by an Assistant Administrator appointed in 
consultation with Congressional Small Business Committees) to 
administer SBIR and STTR; to submit a separate line-item 
budget, staffing, and performance information for this Office 
as part of the Administration's annual budget request to 
Congress; to appoint a National SBIR/STTR Advisory Board, and 
to submit to the Congressional small business committees an 
annual national plan containing a forecast of SBIR and STTR 
opportunities.

       SUBTITLE B--FAIR ACCESS TO FEDERAL INNOVATIONS INVESTMENTS

Sec. 1521. Accuracy in funding base calculations; Comptroller General's 
        audits

    This provision requires the GAO to perform periodic fiscal 
and management audits of the SBIR and STTR programs.

Sec. 1522. SBIR cap increase

    This provision increases the SBIR set-aside cap from 2.5 
percent to not less than 5 percent in Fiscal Year 2011 and 
thereafter.

Sec. 1523. STTR cap increase

    This provision increases the STTR set-aside cap from 0.3 
percent to 0.6 percent for Fiscal Year 2011 and thereafter.

Sec. 1524. Adjustments in SBIR/STTR award levels

    This provision adjusts for inflation the size of SBIR and 
STTR awards from $100,000 for Phase I and $750,000 for Phase II 
to $150,000 and $1,250,000 respectively.
    This provision also requires the SBA to make annual 
adjustments of the awards size for inflation. The provision 
also prohibits any agency from issuing an SBIR or an STTR award 
if the size of the award exceeds the award guidelines 
established in this Section by more than 50 percent.
    This provision also allows SBIR and STTR applicants to 
receive awards for subsequent SBIR or STTR phases at another 
agency. The provision also allows small business concerns which 
received SBIR or STTR awards to receive awards for subsequent 
phases at either STTR or SBIR program, respectively.

Sec. 1525. Majority-venture investments in SBIR firms

    This provision allows Federal agencies to apply for the 
authority to permit Venture Capital SBIR Investment Companies 
to compete for not more than 25 percent of the agency's SBIR 
funds (as part of the increase in the SBIR set-aside). The 
provision also establishes qualification requirements for and 
companies.

         SUBTITLE C--ACQUISITION OF SMALL BUSINESS INNOVATIONS

Sec. 1531. National SBIR/STTR technology insertion goal; Reporting 
        requirements

    This provision establishes, beginning with 2007, a 
established a government-wide goal for insertion of SBIR and 
STTR technologies through Phase III awards of not less than 3 
percent of total value of Federal prime contracts for research, 
development, testing and evaluation, to be met through either 
prime contracts or subcontracts. The provision contains 
reporting requirements.

Sec. 1532. Intellectual property protections for small business 
        innovations

    This provision reinforces data rights protections for SBIR 
and STTR awards. It clarifies that prototypes are subject to 
the data rights protections. The provision clarifies that SBIR 
data rights have trade secret status, and provides that data 
developed by small businesses with private funds qualify for 
data rights protections if they are used in SBIR or STTR 
awards. The provision also clarifies that SBIR/STTR data rights 
protections apply to any contracts or subcontracts developed 
with Federal funds or intended for use by the Federal 
government, and any mentor-protege agreements.

Sec. 1533. SBIR/STTR special acquisition preference

    The provision codifies the language from the SBIR/STTR 
Policy Directives confirming the intent of Congress to 
establish a special acquisition preference for SBIR and STTR 
Phase III awards. The provision clarifies that preference for 
contracts concerning research developed with SBIR or STTR funds 
should go to developers and holders of SBIR and STTR 
technologies to the greatest extent practicable, unless the 
agency is able to demonstrate on record that such an award is 
impracticable. The provision also requires Federal agencies to 
submit any bids or proposals for award of contracts on any 
topic duplicating the agency's prior SBIR or STTR awards to the 
SBA for review and possible appeal at least 30 days prior to 
the solicitation.

Sec. 1534. SBIR/STTR Mentor-Protege Programs

    This section authorizes mentor-protege programs for SBIR/
STTR firms in Federal agencies. The terms of mentor-protege; 
agreements generally match the terms established at the 
Department of Defense. The provision authorizes contractual 
incentives for mentor firms, and imposes data rights 
protections for the benefit of protege firms.

Sec. 1535. Subcontracting with Federal laboratories and research and 
        development centers

    This provision reduces the burden on cooperation between 
SBIR/STTR firms and Federal laboratories. Currently, small 
businesses which would like to subcontract a portion of the 
work to Federal labs have to seek a waiver from the SBA. This 
provision would ensure that such subcontracting is generally 
permitted without the requirement for waiver, but subject to 
appropriate protections ensuring the Federal agencies are not 
requiring SBIR or STTR firms to subcontract work to Federal 
labs.

Sec. 1536. Innovation Commercialization Pilot Programs

    This provision authorizes Innovation Commercialization 
Pilot Programs to encourage Phase III awards at the major 
contracting agencies which participate in the SBIR and the STTR 
program. The provision includes authorization of incentives to 
prime contractors for inserting SBIR technologies. A small 
portion of SBIR/STTR funds (not more than 1 percent) will be 
made available for administration and outreach efforts related 
to the programs.

Sec. 1537. Enforcement

    This provision ensures that the SBA is notified any time 
the SBIR or STTR policy directives are challenged in court. In 
addition, the provision requires the SBA to report to Congress 
on actions taken to enforce SBIR and STTR policy directive.

   SUBTITLE D--TECHNICAL AND FINANCIAL ASSISTANCE FOR SMALL BUSINESS 
                               INNOVATION

Sec. 1541. Reauthorization and enhancement of state, local, and rural 
        innovation assistance programs

    This provision reauthorizes the Federal and State Program 
(FAST) Program and the Rural Outreach Program, and increases 
the authorization to $5 million from $2 million.

Sec. 1542. Continued evaluation by the National Academies of Sciences

    This provision reauthorizes the current SBIR study by the 
National Academies of Sciences until the end of 2009. It also 
directs the Academies to study state and international 
innovation development policies, as well as desirability and 
feasibility of establishing a public, Federally-backed 
secondary capital market mechanism to fund securities 
representing investments in highly promising small innovative 
companies, and barriers to greater commercialization of small 
business innovations. The provision does not impose a mandate 
on any Federal agency to fund the studies of additional SBIR 
topics. Rather, it requires good-faith negotiations between the 
Academies and the agencies which fund the Academies' SBIR 
review efforts to ensure that such additional SBIR topics would 
be studied subject to availability of funds under the existing 
agreement.

Sec. 1543. Phase II innovation development challenge pilot program

    This provision authorizes a Phase II Challenge Program 
suggested by the National Academy of Sciences during the 
hearing before the Small Business Committee. This program 
authorizes Federal agencies to grant Phase II awards up to 2 
times the regular size (up to $2.5 million) to support advanced 
development of small business technologies which are facing 
high manufacturing or regulatory costs. As a condition of the 
awards, matching private or Federal non-SBIR funds are 
required.

Sec. 1544. Encouraging innovation in energy efficiency

    Under this provision, the Administrator shall consult with 
other agencies and departments to ensure that small businesses 
that participate in or conduct energy efficiency and renewable 
energy research are given high priority under the SBIR and STTR 
programs.

Sec. 1545. SBIR-STEM workforce development pilot-program

    This provision establishes a five-year workforce 
development grant pilot program to match up innovative small 
businesses with college students studying science, technology, 
engineering and math. The proposal would provide SBIR grantees 
with a 10 percent bonus grant, for either Phase I or Phase II 
SBIR grants, with a total maximum award of $10,000 per year for 
small businesses that provide opportunities to these students.

                       SUBTITLE E--IMPLEMENTATION

Sec. 1551. Conforming amendments to the SBIR and the STTR policy 
        directives.

    This provision requires conforming amendments to the SBA 
SBIR and STTR Policy directives within 180 days to implement 
the provisions of this Act.

     TITLE XVI--NATIVE AMERICAN SMALL BUSINESS DEVELOPMENT PROGRAM

Sec. 1601. Short title

Sec. 1602. Native American Small Business development program

    This section provides financial assistance to tribal 
governments, tribal colleges, Native Hawaiian organizations, 
and Alaska Native corporations to create Native American 
business centers. These centers shall conduct five-year 
projects that offer culturally tailored business development 
assistance. This program would be authorized at $5 million per 
year for Fiscal Years 2006 through 2010.

Sec. 1603. Pilot programs

    Native American Development Grant Program This section 
awards Native American development grants to provide culturally 
tailored business development training and related services to 
Native Americans and Native American small business concerns. 
The grants may be awarded to (i) any small business development 
center; or (ii) any private, nonprofit organization that has 
members of an Indian tribe comprising a majority of its board 
of directors; is a Native Hawaiian organization; or is an 
Alaska Native corporation. The program would be authorized at 
$1 million per year for Fiscal Years 2006 through 2009.
    American Indian Tribal Assistance Center Grant Pilot 
Program This section awards not less than three American Indian 
Tribal Assistance Center grants to establish joint projects to 
provide culturally tailored business development assistance to 
prospective and current owners of small business concerns 
located on or near tribal lands. The program would be $1 
million per year for Fiscal Years 2006 through 2009.

       TITLE XVII--NATIONAL SMALL BUSINESS REGULATORY ASSISTANCE

Sec. 1701. Title

Sec. 1702. Purpose

    Establishes a four-year pilot program to provide resources 
to Small Business Development Centers (SBDC) so they may 
provide free regulatory compliance assistance and counseling to 
small business owners.

Sec. 1703. Small business regulatory assistance pilot program.

    This section requires the Small Business Administration 
(SBA) to provide matching grants to the Small Business 
Development Center (SBDC) programs of two states in each of the 
SBA's 10 regions. The grants shall be more than $150,000, but 
less than $300,000 and shall be consistent with the matching 
requirement under current law.
    Grant Purpose SBDCs are required to use the grants to 
provide: access to information and resources, including current 
Federal and State non-punitive compliance and technical 
assistance programs; conduct training and educational 
activities; and offer confidential, free-of-charge, one-on-one, 
in-depth counseling to the owners and operators of small 
business concerns regarding compliance with Federal and State 
regulations derived from Federal law.
    SBDCs participating in the pilot program would be required 
to submit a quarterly report, and the SBA would have 
responsibility for evaluating the pilot program and making 
recommendations on the extension of the program to other SBDCs.

Sec. 1704. Rulemaking

    The SBA must promulgate final regulations to carry out the 
pilot program within 180 days of passage.

            TITLE XVIII--INTERMEDIARY LENDING PILOT PROGRAM

Sec. 1801. Short title

    The short title for this subtitle is the ``Small Business 
Intermediary Lending Pilot Program Act of 2003.''

Sec. 1802. Findings

    This section provides findings for the pilot program 
detailed in the following section.

Sec. 1803. Small business intermediary lending pilot program

    This section creates a new pilot program for the SBA to 
provide long-term loans to intermediaries, which would then re-
loan these funds to small businesses in loan amounts of between 
$35,000 and $200,000. This pilot program is intended to assist 
small businesses that need loans larger than those available 
through the Microloan program but, due to a lack of 
conventional collateral, are unable to secure credit through 
conventional lenders, even with the assistance of SBA's 7(a) 
Loan Guarantee program. The pilot is also intended to create 
employment opportunities for low-income individuals. This 
section requires the SBA to provide reports about the pilot 
program to the Committee and the House Committee on Small 
Business.

                      TITLE XIX--OTHER PROVISIONS

Sec. 1901. Compliance assistance

    This provision would facilitate the compliance of small 
businesses with Federal regulations that directly impact their 
productivity.
    This provision would: Clarify the SBREFA requirement that 
agencies produce small entity compliance guides. Ensure that 
these compliance guides provide adequate and useful compliance 
assistance materials to help small businesses meet the 
compliance obligations imposed by regulations. Require that 
agencies ``designate'' the publications prepared under the 
section as ``small entity compliance guides.'' Clarify that 
compliance guides should be published simultaneously with, or 
as soon as possible after, the final rule is published, or no 
later than the rule's effective date. Clarify the phrase 
``compliance requirements.'' In addition this provision, 
requires that agencies annually report to Congress about their 
compliance with the Act's requirements.

Sec. 1902. Appointment of officials

    This provision requires the SBA to appoint the following 
officials of the Administration with the advice and consent of 
the Senate: the General Counsel; the Associate Deputy 
Administrator for Capital Access; the Associate Deputy 
Administrator for Capital Access; the Associate Deputy 
Administrator for Management and Administration; the Associate 
Deputy Administrator for Entrepreneurial Development; the 
Associate Deputy Administrator for Government Contracting and 
Business Development; and, the Associate Administrator for 
Disaster Assistance.

Sec. 1903. Second-stage pilot program

    This amendment establishes a three-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 through the 
development of peer learning opportunities; (3) utilize the 
network of SBDCs to expand access to peer learning 
opportunities; and, (4) assist businesses owned by minority 
individuals, service-disabled veterans, and women.
    No later than 60 days after regulations are established, 
the Administrator will select two eligible entities from 10 
regions around the country. A grant given to an eligible entity 
will not be less than $50,000 and the money is to be used for 
identifying second stage small business concerns in the service 
delivery areas of the entity and for establishing peer learning 
opportunities. The grant will also be matched from sources 
other than the Federal Government that is equal to the grant, 
or (1) in the case of a community college, historically Black 
college, Hispanic serving institution, or other minority 
institution, 50 percent of the grant; (2) not less than 50 
percent cash; (3) not more than 50 percent comprised of 
indirect costs and in-kind contributions; and, (4), does not 
include indirect costs or contributions from any Federal 
Program.
    Each entity that receives a grant shall submit to the 
Administrator, in electronic form, a quarterly report on the 
program. The Administrator will submit to the President and 
Congress, no later than November 1st of each year, a report 
evaluating the pilot program for the previous year. Nolater 
than three years after the establishment of the pilot program, the 
Comptroller General of the U.S. shall evaluate the program and transmit 
to Congress and the Administrator a report containing the results. The 
pilot program will terminate on September 30, 2009 and authorizes $1.5 
million per FY 2007-2009.

Sec. 1904. PRIME reauthorization

    This provision reauthorizes the Program for Investment in 
Microentrepreneurs (``PRIME''), and transfers the statutory 
language for PRIME to the Small Business Act. PRIME is a 
program to provide grants to intermediaries that use the funds 
to: (1) train other intermediaries to develop microenterprise 
training and services programs; (2) research microenterprise 
practices; or, (3) provide training and technical assistance to 
disadvantaged entrepreneurs. This section adds a data 
collection provision and reauthorizes the program at $15 
million for Fiscal Years 2007, 2008 and 2009.

Sec. 1905. Child Care lending

    This provision allows loans to be made in the SBA's 504 
program to assist nonprofit child care businesses. Prohibits 
more than seven percent of the total number of 504 program 
loans in any fiscal year from being awarded under such program.

Sec. 1906. Study on the impact of Low-Doc program

    Not later than three months after the date of enactment of 
this Act, the Administrator shall undertake a study on the 
elimination of the Low Doc Program. The study shall examine: 
the effectiveness of the Low Doc program on rural communities; 
the effect of the program's elimination on rural lending; and 
the overall accessible and effectiveness of rural lending for 
rural communities.
    The Administrator must submit to the Senate Committee on 
Small Business and Entrepreneurship and the House Committee on 
Small Business a report containing the results of the study and 
recommendations for program improvement.

Sec. 1907. Enforcement ombudsman

    This section assists small businesses with bringing cases 
or complaints, formal or informal, before federal regulatory 
boards and agencies, including, but not limited to, the Surface 
Transportation Board, the Environmental Protection Agency, 
Occupational Health and Safety Administration, and the Federal 
Communications Commission.

Sec. 1908. Minority entrepreneurship and innovation pilot program of 
        2006

    This provision directs the Administrator of the Small 
Business Administration to make grants to Historically Black 
Colleges and Universities, Tribal Colleges, and Hispanic 
serving institutions, or to any entity formed by a combination 
of such institutions: (1) to assist in establishing an 
entrepreneurship curriculum for undergraduate or graduate 
studies; and (2) for the placement of small business 
development centers or a small business incubator on the 
physical campus of the institution.
    Requires an institution of higher education receiving a 
grant to: (1) develop a curriculum that includes training in 
various skill sets needed by successful entrepreneurs; and (2) 
open a small business development center.
    Authorizes this pilot program for two fiscal years, and 
authorizes grants of up to $500,000 per fiscal year for any one 
institution of higher education. In addition, there is 
authorized to be appropriated $10 million each FY 2007 and 
2008.

Sec. 1909. Office of Native American Affairs pilot program

    This section authorizes a two-year pilot program for the 
Office of Native American Affairs to develop and publish a 
self-assessment tool for evaluation and implementation of best 
practices for economic development for Indian tribes. The 
provision includes a reporting requirement on the effectiveness 
of the self-assessment tool. It also authorizes assistance in 
identifying economic development opportunities to Indian tribes 
through the Inter-Agency Working group, which is comprised of 
key federal agencies. The provision does not include nor 
require authorization of appropriations.

Sec. 1910. Institutions of higher education

    This provision requires SBDC grantees that are institutions 
of higher education to be accredited and grandfathers any SBDC 
grantee institution of higher education that is not yet 
accredited but is seeking accreditation.

                                  
