[Senate Report 110-145]
[From the U.S. Government Publishing Office]
110th Congress Report
SENATE
1st Session 110-145
======================================================================
SUMMARY OF LEGISLATIVE AND OVERSIGHT ACTIVITIES DURING THE 109TH
CONGRESS
_______
August 3, 2007.--Ordered to be printed
_______
Mr. Kerry, from the Committee on Small Business and Entrepreneurship,
submitted the following
R E P O R T
I. OVERVIEW
During the 109th Congress, the Committee's agenda
concentrated on the highest priorities of the small business
community. The Committee focused on a host of concerns,
including small business access to affordable health insurance,
manufacturing, targeted regulatory reform, the impact and
recovery from Hurricanes Katrina and Rita, access to capital,
and oversight and the reauthorization of the Small Business
Administration (SBA). The Committee received testimony and
information about these topics from small business owners and
employees and from experts across the United States. This
report summarizes the legislative and oversight activities of
the Committee on these critical issues of concern and interest
to small businesses.
II. OVERSIGHT OF THE SMALL BUSINESS ADMINISTRATION
A. The Small Business Reauthorization and Improvements Act of 2006 (S.
3778)
At the end of the 109th Congress, the Committee unanimously
approved comprehensive legislation reauthorizing the SBA for
fiscal years 2007, 2008, and 2009. This bipartisan bill was
reported out of the Committee unanimously and was introduced as
an original bill by Chair Olympia J. Snowe on July 27, 2006. In
accordance with Senate procedure, original bills reported from
a Committee may only be introduced by one Senator. Members of
the Committee who wished to cosponsor the bill included:
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 Small Business Reauthorization and Improvements
Act of 2006 (S. 3778) was subsequently adopted as amended by
unanimous vote of 18-0.
The bill would have provided the opportunity to revitalize
and renew the SBA, to improve outreach to the small business
community, and to meet the changing needs of the 21st-century
entrepreneur. Since the last reauthorization in 2004 (P.L. 108-
447), the Committee has held a series of hearings, meetings,
and roundtables to analyze the SBA's programs and services in
preparation for the introduction of new legislation to
reauthorize the SBA and build on the agency's success of
helping small businesses create jobs that drive America's
economy.
Beginning in 2005, following Hurricanes Katrina and Rita,
the Committee convened two hearings on the SBA's disaster
response. The first hearing, ``The Impact of Hurricane Katrina
on Small Businesses,'' held on September 22, 2005, focused on
the effects 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 hurricanes; (2) analyze the
SBA's immediate and long-term response plans; (3) receive
feedback on Hurricane Katrina-related small business
legislation; and (4) investigate how Congress and the SBA could
improve assistance to 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
the 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 (GAO), and the Office of the Governor of
Louisiana. These hearings provided insight into the immediate
needs of affected small businesses and 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 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 would go to the SBA's core
programs. This proposal continued an alarming trend of
decreases to the SBA's budget. Since 2001, the SBA's overall
budget has been reduced by 37 percent.
During the hearing, the Committee examined: (1) the SBA's
diminishing budget and funding proposals for essential
programs, including the Microloan, Small Business Development
Center (SBDC), and Women's Business Centers; (2) the
administration's proposal to impose administrative fees on the
small business participants of Section 7(a) and Section 504
lending programs; and (3) issues regarding Small Business
Investment Companies (SBICs).
On April 26, 2006, the Committee held a hearing,
``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 the 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.
On July 12, 2006 at another hearing entitled
``Strengthening Participation of Small Businesses in Federal
Contracting and Innovation Research Programs,'' 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 the 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 valuable 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 were introduced
in the 109th Congress, including the Small Business Compliance
Assistance Enhancement Act (S. 769), which would have clarified
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
have directed 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 (S.
3778).
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 limited 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 2006, the Kaiser Family Foundation reported that
only 48 percent of our Nation's smallest businesses, with fewer
than ten employees were able to offer health insurance as a
workplace benefit. In stark contrast, health insurance is
nearly universally provided by larger businesses with more than
200 employees.
Based on the testimony presented at the hearing, the
Committee included a Health Insurance Title to the Small
Business Reauthorization and Improvements Act of 2006, with
provisions to increase small business education and awareness
regarding health insurance coverage options in various
geographic areas with the intention of encouraging more of our
Nation's smallest businesses to offer health insurance to their
employees.
Throughout the hearings and roundtables, the Committee
singled out the SBA programs that are working well, identified
the reasons for their superior performance, and then sought to
apply those principles to programs that are in need of
improvement. The voluminous amount of information that the
Committee collected through the hearings and roundtable
discussions held in the 109th Congress as well as in previous
Congresses, and the information received directly from small
business stakeholders contributed greatly to achieving that
goal and the results were reflected in the bill. The bill also
reflected information obtained from numerous reviews undertaken
at the Committee's request by the GAO and the SBA Inspector
General.
The Small Business Reauthorization and Improvements Act of
2006 (S. 3778) would have provided a sound foundation for the
agency to provide improved service to the Nation's small
businesses and entrepreneurs. However, S. 3778 was not taken up
by the full Senate during the 109th Congress. The House was
also unable to pass its version of a comprehensive SBA
reauthorization bill. As a result, Congress approved a short-
term extension of the SBA's authorization to enable the SBA to
continue functioning, and to allow the SBA's programs to
continue to be used by small businesses. This extension
continued into fiscal year 2007, when new SBA reauthorization
legislation will need to be introduced.
B. 7(a) Loan Program--The Small Business Lending Improvement Act of
2005 (S. 1603)
Under the 7(a) Business Loan Guaranty program, organized
under Section 7(a) of the Small Business Act, the SBA
guarantees a portion of a loan that a commercial lender makes
to a qualified small business. Loans may be up to a maximum of
$2 million, and the maximum guarantee is $1.5 million. To
receive a 7(a) loan, a small business must be unable to obtain
comparable credit elsewhere. Loans made under this program are
most often for working capital, real estate, expansion, or
other business expenses. In 2005, the SBA guaranteed 88,845
7(a) loans, and in 2006, the SBA guaranteed 90,483 7(a) loans
(more than ever before) with a total value of approximately
$13.8 billion.
In order to improve the 7(a) program, Chair Snowe
introduced the Small Business Lending Improvement Act of 2005
(S. 1603) to enhance the accessibility, attractiveness, and
convenience of the 7(a) program for small business borrowers
and for lenders.
Under current law, the most prolific lenders in the SBA's
7(a) loan program can participate in the ``Preferred Lender
Program'' (PLP), which allows them to use their own processing
facilities 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 and they must
re-apply each year in each district. S. 1603 allowed qualifying
lenders to participate in the PLP program on a nationwide basis
after just one licensing process. This provision reduced
administrative costs and standardized the operation of the PLP
program. A National Preferred Lenders Program would increase
the ease with which loans are made to small businesses, thereby
improving small businesses' access to capital. Increased
competition among lenders for small business customers would
expand financing alternatives and lower costs for small
businesses.
S. 1603 would have increased the maximum size of a 7(a)
loan to $3 million from the current $2 million and increased
the maximum size of a 7(a) guarantee to $2.25 million from the
current $1.5 million. This would maintain the maximum 75
percent guarantee. This increase in 7(a) program loans to $3
million would bring 7(a) loans closer in size to 504 program
loans, while still leaving 7(a) loans smaller than 504 program
loans.
The bill also would have required the SBA to implement an
alternative size standard, in addition to the program's current
standard, for the 7(a) program. Under the 7(a) program, a small
business's eligibility to receive a loan is currently
determined by reference to a multi-page chart that has
different size standards for every industry. This is extremely
confusing, especially for small lenders that do not make many
7(a) loans. Under S. 1603, the SBA would create an alternative
size standard for the 7(a) program, as it has done for the 504
program, that considers a business's net worth and income. This
would simplify the 7(a) lending process and provide small
businesses with a streamlined procedure for determining their
eligibility for 7(a) loans, and it would conform the standards
used by the 7(a) and 504 programs.
S. 1603 was referred to the Committee but never considered
by the full Senate. Instead, the bill was included in the Small
Business Reauthorization and Improvements Act of 2006 (S.
3778), which passed unanimously out of Committee but was never
considered by the full Senate.
C. CDC/504 Loan Program--The Local Development Business Loan Program
Act of 2005 (S. 2162)
In the Certified Development Company (CDC) loan program,
also known as the 504 loan program, (it is organized under
Section 504 of the Small Business Investment Act of 1958), the
SBA guarantees 40 percent of a financing package supplied to a
small business to purchase either real estate or capital
equipment. To obtain a 504 loan, a small business works with a
CDC, a non-profit community development organization, to
construct an appropriate financing package. The CDC provides a
loan for 40 percent of the total financing package, and the SBA
guarantees 100 percent of this portion of the total package; a
commercial bank, separate from the CDC, provides a commercial
loan that funds 50 percent of the financing package, and the
SBA guarantees no portion of this commercial loan. Finally, the
small business is required to contribute 10 percent of the
total financing package. In fiscal year 2006, 8,162 loans under
the 504 loan program were funded for a total of $5.7 billion.
In December 2005, Chair Snowe introduced the Local
Development Business Loan Program Act of 2005 (S. 2162) to
improve the 504 loan program by streamlining the lending
process and providing small businesses with greater
opportunities to obtain affordable financing. For many small
businesses, expansion plans face constraints imposed by
facilities that are too small or equipment that has
insufficient capacity or outdated features. These small
businesses often lack capital to remedy these needs, and
without the SBA, they are limited to obtaining short-term
financing with higher, often variable, rates.
Job creation and retention is a bedrock element of local
development efforts throughout the country. One of the
statutory purposes of the 504 loan program is to create new
jobs and help small businesses retain existing jobs. The
purpose of the bill was to strengthen the local development
impact of the 504 loan program. To reflect that, the bill would
have re-named the 504 loan program the ``Local Development
Business Loan program'' (Local Development program). Many small
business owners commented to the Committee that the name ``504
program'' was neither clear nor indicative of the program's
purposes. The bill would not have required the SBA to discard
existing program materials that refer to the previous name but
to use the program's new name on any new materials produced
after the bill's enactment.
This legislation would have also reduced regulatory
barriers that constrained CDCs from expanding their operations
into new areas. By increasing competitive opportunities for
CDCs, the bill would have increased the number and quality of
financing options available to small businesses. Complex
regulations made compliance both costly and difficult and
deterred many CDCs from expanding into new areas. Simplifying
these regulations would result in increased access to capital
for small businesses.
S. 2162 allowed borrowers to provide more than the required
minimum amount of equity when initiating a loan and to use that
excess equity to reduce the amount of a first-lien mortgage
made by a private lender in the program. By contributing a
larger down payment at the onset of the loan, this provision
would have provided an opportunity for these borrowers to
reduce their periodic payment obligations.
This bill also would have designated Local Development
Program loans that qualify under the New Markets Tax Credit
Program as a public policy goal under the Local Development
Program, and, thus, made them eligible for larger financing
packages. The New Markets Tax Credit program permits taxpayers
to receive a credit against Federal income taxes for making
qualified equity investments in designated Community
Development Entities.
The legislation also would have permitted the ownership
interest of two or more small business owners to be combined to
determine whether the small business is 51 percent owned by
minorities, women, or veterans in order to qualify as a
business eligible for a public policy loan. The act's goal of
improving access to capital for small businesses was also
furthered by another provision that would have permitted Local
Development Program borrowers to obtain financing at the
maximum level allowed under this program and also under the
SBA's 7(a) loan program.
This legislation also sought to allow a borrower to
refinance a limited amount of existing debt. The amount that
could be refinanced could not exceed 50 percent of the
expansion project funded by the loan and would have been
limited to certain situations. By giving small businesses the
ability to refinance and obtain lower-cost capital, the bill
would have provided greater opportunity for success.
The bill also would have eliminated a fee now imposed on
the first-mortgage lenders (i.e., private banks) in a Local
Development Program financing package. The lender's fee is a
one-time fee equal to 0.5 percent of the first-mortgage loan.
Currently, the first mortgage lenders pass this fee on to CDCs
and borrowers. The bill would not have increased the total fees
paid by the CDCs or the borrowers, but it would have clarified
that the CDC's stipulated annual fee would be increased by 0.06
percent and that the borrower's stipulated fee would be
increased by approximately 0.06 percent to replace the fees
currently imposed on CDCs and borrowers by private lenders. In
other words, instead of a fee imposed on CDCs and borrowers by
the private lenders, which is not always clearly identifiable
to those outside the program, this provision specified the fee
be paid directly by the CDCs and borrowers.
S. 2162 was referred to the Committee but never considered
by the full Senate. Instead, the bill was included in the Small
Business Reauthorization and Improvements Act of 2006 (S.
3778), which passed unanimously out of Committee but was never
considered by the full Senate.
D. The SBA Disaster Loan Program
1. The Red Tide Emergency Relief Act of 2005 (S. 1316).--
The ``Red Tide'' is a toxic algae bloom in coastal waters that,
if eaten, renders any infected shellfish (e.g., clams or
oysters) potentially fatal to humans and animals. The Red Tide
affecting Maine, Massachusetts, and New Hampshire in 2005 was
the worst since at least 1972. Thousands of small businesses
were unable to operate normally. These small businesses
included clammers, oystermen, restaurants, processing plants,
and shipping companies. The estimated losses exceeded $3
million per week.
The SBA declared disasters in the shellfish industries in
Maine, Massachusetts, and New Hampshire, and, therefore,
offered Disaster Loans to small businesses that suffered
economic injuries because of the disaster. The SBA could loan
money to fishermen who fish for cod or shrimp, but it could not
issue loans to oystermen and clammers who sought to replenish
their shellfish beds, because under current law these trades
are considered ``aquaculture.'' Under current law, small
``aquaculture'' businesses (i.e., businesses that grow food
products in an aquatic environment) are not eligible to receive
SBA Disaster Loans. Instead, they are only eligible for loans
from the United States Department of Agriculture (USDA). This
legal anomaly caused hardship for hundreds of small aquaculture
businesses.
To address this anomaly, Chair Snowe, along with Senators
Kerry, Collins, Kennedy, and Chafee, introduced the Red Tide
Emergency Relief Act of 2005 (S. 1316). This bill would have
made small businesses engaged in aquaculture eligible to
receive SBA Disaster Loans from the SBA if the SBA has declared
a Federal disaster for a particular region. S. 1316 passed the
Senate by Unanimous Consent but was held at the desk and, thus,
never became law.
2. The Small Business, Homeowners, and Renters Disaster
Relief Act of 2005 (S. 1724).--On September 19, 2005, Chair
Snowe, along with Senators Vitter and Talent, introduced S.
1724 to enable small businesses, homeowners, and renters to
recover from Hurricane Katrina. The legislation would have made
significant changes to the SBA Disaster Loan Program primarily
by allowing borrowers to defer the repayment of SBA Disaster
Loans for up to 12 months. This 12-month period could be
extended to 24 months at the discretion of the SBA
Administrator if the administration thought that Katrina
victims needed additional time to begin repaying their loans.
Second, the bill would have increased the maximum size of an
SBA Disaster Loan from $1.5 million per loan to $10 million per
loan. Third, the bill sought to allow victims of Hurricane
Katrina who had existing SBA Disaster Loans prior to the
hurricane to refinance those loans into new Disaster Loans. It
also would have allowed victims to refinance business debt into
Disaster Loans even if the debt was non-mortgage based.
Currently only mortgage-based debt may be refinanced. The bill
also would have allowed non-profit institutions to apply for
Disaster Loans and established an extended period for applying
for Disaster Loans for Hurricane Katrina. In addition, this
legislation would have appropriated $86 million to increase the
program level for SBA Disaster Loans by $600 million, to $4.0
billion, for fiscal year 2006.
In addition to changing the SBA's Disaster Loan Program,
the bill would have established a pilot program to assist small
businesses and farms coping with rapid increases in energy
costs. This 4-year pilot program would have allowed small
businesses and farms to apply for SBA Disaster Loans if the
business or farm needed the loan to contend with the increased
cost of oil or gas following Hurricane Katrina. Businesses and
farms could only apply in the event of a 40 percent increase in
energy prices.
S. 1724 would also have affected the SBA Entrepreneurial
Development program by appropriating funds to increase business
counseling in the damaged areas. The bill sought to
appropriate: (1) $21 million for Small Business Development
Centers (SBDCs), with $15 million for non-matching grants to
provide Hurricane Katrina assistance; (2) $2 million for
Service Corps for Retired Executives (SCORE), with $1 million
to provide Hurricane Katrina assistance; (3) $4.5 million for
Women's Business Centers (WBCs), with $2.5 million for non-
matching grants to provide Hurricane Katrina assistance; (4)
$1.25 million for Veterans Business Centers, with $750,000
provided for Hurricane Katrina assistance; and (5) $5 million
for Microloan Technical Assistance to provide Hurricane Katrina
assistance.
S. 1724 would have also affected the SBA's 7(a) and 504
Business Loan programs in the following ways: First, it would
have increased the authorization for the SBA's 7(a) program
from a program level of $17 billion to $20 billion and the
authorization for the 504 program from a program level of $7.5
billion to $10 billion. No appropriation would be necessary for
these increases, as both programs are zero-subsidy and fully
supported by fees. Second, it would have allowed the SBA to
defer repayments for up to 12 months for borrowers in the SBA's
504 loan program in states damaged by Hurricane Katrina. This
12-month period could be extended to 24 months at the
discretion of the SBA Administrator. Third, the bill would have
allowed the SBA to offer 7(a) program business loans with lower
fees to small businesses adversely affected by Hurricane
Katrina. After the September 11 attacks, Congress created the
``Supplemental Terrorist Activity Relief'' (STAR) loan program.
STAR loans were made under the SBA's 7(a) loan program, but
with lower fees for lenders. The loan program created under
this bill would have established clearer criteria than the STAR
Loan Program for requiring applicants to demonstrate how they
were adversely affected by Hurricane Katrina. It would only
have been offered for one year from the date of enactment, and,
unlike STAR loans, fees would be lowered for borrowers, as well
as for lenders.
S. 1724 would also have affected small business contracting
provisions by designating the Hurricane Katrina disaster area
as a HUBZone, which would have enabled small businesses
locating in the disaster area and employing people in that area
to receive contracting preferences and price evaluation
preferences to offset the greater costs of doing business. The
bill also would have increased the maximum size of surety bonds
from $2 million to $10 million enabling local small businesses
in the Gulf Coast area to use the higher bonds to compensate
for the damage to their assets from the hurricane. This
legislation sought to promote job creation and development
through small business set-asides on reconstruction contracts
by establishing a 30 percent prime contracting goal and a 40
percent subcontracting goal for each agency's Katrina-related
reconstruction contracts. These goals are consistent with the
Department of Homeland Security's history of small business
achievements of approximately 40 percent of prime contracts and
subcontracts.
Finally, S. 1724 would have appropriated a total grant of
$400 million to all five States that suffered physical damage
from Hurricane Katrina: Louisiana, Mississippi, Alabama, Texas,
and Florida to be administered by the Department of Commerce.
States that suffered from Hurricane Katrina would have
discretion to use the grants as they chose. Grants could be
used to provide ``bridge loans'' to homeowners or businesses
while these entities waited for their SBA Disaster Loans to be
reviewed.
The bill was referred to the Committee but never considered
by the full Senate. Many provisions were included in the Small
Business Reauthorization and Improvements Act (S. 3778), which
passed the Committee unanimously but was not considered by the
full Senate. Additionally, S. 1724 was identical to S.A. 1717,
offered by Chair Snowe and Senators Vitter and Talent to the
Commerce, Justice, and Science (CJS) Appropriations Act of 2005
(H.R. 2862) to assist persons and businesses harmed by
Hurricane Katrina. Senators Kerry and Landrieu subsequently
cosponsored that amendment, which the Senate approved by a vote
of 96-0 on September 15, 2005. Despite widespread support in
the Senate, Chair Snowe's amendment was ultimately stripped
from the Senate CJS bill during conference with the House bill.
3. The Small Business Hurricane Relief and Reconstruction
Act of 2005 (S. 1807).--On September 30, 2005, Chair Snowe,
along with Senators Kerry, Landrieu, Vitter, Pryor, Cornyn,
Bayh, Kennedy, Cochran, and Talent, introduced the Small
Business Hurricane Relief and Reconstruction Act of 2005 (S.
1807), which incorporated many provisions from S. 1724
(described in the preceding section), including Disaster Loan
program provisions, SBA Entrepreneurial Development programs,
SBA 7(a) and 504 Business Loan program provisions, and Small
Business Contracting provisions.
The Disaster Loan program provisions would have granted the
SBA the authority to defer borrowers' repayments of disaster
loans for up to 12 months. This would have allowed borrowers
(homeowners, renters, or businesses that receive Disaster
Loans) to have a 12-month period in which to re-establish their
own incomes, or re-establish their business cash flow, before
they must begin making principal and interest payments on the
loan. This 12-month period could be extended to 24 months at
the SBA Administrator's discretion.
The provision in the bill also would have allowed hurricane
victims who had existing SBA disaster loans prior to the
hurricanes to refinance prior loans into new Disaster Loans. In
addition, the bill would have provided victims the opportunity
to refinance business debt into disaster loans even if the debt
was non-mortgage based. Currently, only mortgage-based debt may
be refinanced. Additionally, this provision would have
permitted recipients of disaster loans to increase the size of
their loan if the additional amounts would be spent on
mitigation efforts to prepare for future disasters. 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.
S. 1807 would have provided the SBA the ability to offer
Economic Injury Disaster Loans (EIDLs) to small businesses
throughout the country if the businesses suffered direct
economic injuries from the hurricanes, regardless of their
location in the United States. The bill would have allowed
small businesses and small farms throughout the country to
apply for SBA Disaster Loans if the business or farm needed the
loan to cope with the increased cost of oil or gas following
the hurricanes.
Finally, with respect to disaster loans, S.1807 would have
increased the maximum size of a SBA disaster loan from $1.5
million per loan to $10 million per loan, and allowed non-
profit institutions to apply for Disaster Loans. Victims of
Hurricane Katrina and Hurricane Rita would have been granted an
extended period to apply for Disaster Loans.
S. 1807 also would have authorized additional funds for the
SBA's entrepreneurial development programs to increase business
counseling in the damaged areas. The bill would have provided:
(1) $21 million for a SBDC with at least $15 million for non-
matching grants to provide hurricane assistance; (2) $2 million
for Service Corps of Retired Executives (SCORE) with at least
$1 million to provide hurricane assistance; (3) $4.5 million
for Women's Business Centers (WBCs) with at least $2.5 million
for non-matching grants to provide hurricane assistance; (4)
$1.25 million for Veterans Business Centers with at least
$750,000 provided for hurricane assistance; and (5) $5 million
for Microloan Technical Assistance to provide hurricane
assistance.
In addition, the bill would have authorized the SBA
Administrator to waive the $100,000 maximum size for SBDC
portability grants for Hurricane Katrina. This provision would
have given the Administrator the authority to waive that
maximum level, so that SBDCs could fully service the victims of
the affected region.
For the SBA's 7(a) and 504 business loan program
provisions, the bill did four things: First, it increased 7(a)
and 504 program levels for fiscal year 2006 from $17 billion to
$27 billion for 7(a) loans and $7.5 billion to $12.5 billion
for 504 loans. No appropriation would have been necessary for
these increases, as both programs are zero-subsidy and fully
supported by fees. Second, by appropriating $75 million the
bill would have allowed the SBA to defer repayments owed to the
SBA by borrowers in the SBA's 504 loan program. Third, the bill
would have offered 7(a) program business loans with lower fees
to small businesses adversely affected by Hurricane Katrina
authorizing an additional $75 million in appropriations.
Finally, this provision would have protected future borrowers
in the SBA's business loan programs from paying higher fees to
compensate the Federal government for defaults that may occur
due to the businesses of some current borrowers being destroyed
in the hurricanes. Those defaults would not be included in the
calculation of future program costs in the SBA's business loan
programs.
The small business contracting provisions would have
designated the hurricane disaster area as a HUBZone. Those
provisions would have increased the maximum size of SBA surety
bonds from $2 million to $5 million and would have provided the
SBA with the authority to increase the maximum size to $10
million. The bill also would have further directed the SBA and
the directors of Small and Disadvantaged Business Utilization
to create a contracting outreach program for small businesses
located or willing to locate in the Hurricane Katrina disaster
area and to promote job creation and development through small
business set-asides on reconstruction contracts.
Additionally, this provision would have increased the
micro-purchase threshold to $15,000 from $2,500, and allowed
Federal agencies to use the same emergency procurement
authorities for contracting related to the hurricanes that are
authorized for response to weapons of mass destruction attacks
and military contingency operations. These authorities would
have expired within 180 days of enactment. At the same time,
this provision would immediately sunset the excessive increases
in various contracting thresholds that were inserted into the
Second Emergency Supplemental Appropriations Act to Meet
Immediate Needs Rising from the Consequences of Hurricane
Katrina (P.L. 109-62) in September 2005. As a result, this
provision would have restored anti-fraud protections and
competitive protections for small businesses.
Finally, the legislation would have authorized grants at a
total appropriation of $450 million to the five States that
suffered physical damage from Hurricane Katrina and Hurricane
Rita: Louisiana, Mississippi, Alabama, Texas, and Florida.
S. 1807 was referred to the Committee but not considered.
Portions of the bill were included in the other legislation
that the Committee considered.
4. The Small Business Disaster Response and Loan
Improvements Act of 2006 (S. 4097).--The Small Business
Disaster Response and Loan Improvements Act of 2006 (S. 4097)
built on the disaster provisions in the Committee's SBA
reauthorization bill in the following ways. First, it would
have increased the maximum size of an SBA disaster loan from
$1.5 million per loan to $5 million per loan and made it
possible for non-profit institutions to be eligible for
disaster loans. Second, it would have created a Private
Disaster Loan (PDL) program that allowed for PDLs to be made to
disaster victims by private banks, approved by the SBA. A
business would be eligible for a PDL if the county in which the
business is located was declared a disaster area at any time in
the last 24 months. The business would not have to show a nexus
between its need for a loan and the disaster that occurred. It
would be enough to be located in that county. The SBA would
provide an 85 percent guarantee for these loans. Third, the
bill would have provided authorization for the SBA to enter
into agreements with qualified private contractors to process
disaster loans. This provision required the SBA to provide
Congress with a report on how the SBA disaster loan application
process could be improved, including methods to expedite loan
processing and verification for sources vital to rebuilding
efforts. Fourth, the bill would have required the SBA to
promulgate rules within one year that would create a new
``expedited disaster assistance business loan program.'' These
short-term loans would have low interest rates similar to
regular disaster loans. The program was intended to provide
businesses with short-term assistance while those businesses
retained SBA disaster loans or insurance payouts following
future disasters. This program would have addressed one of the
major issues following Hurricanes Katrina and Rita--the lack of
access to immediate capital to keep businesses afloat.
The bill also would have created a ``Catastrophic National
Disaster'' declaration to allow the SBA to issue nationwide
Economic Injury Disaster Loans to small businesses affected by
a disaster. Finally, it would have allowed the disaster loan
program to provide relief to small businesses when energy
prices reach a certain threshold.
The bill was referred to the Committee but never considered
by the full Senate. Many provisions were included in the Small
Business Reauthorization and Improvements Act of 2006 (S.
3778), which passed the Committee unanimously.
5. The Government Accountability Office's Findings on the
SBA's Response to the Gulf Coast Hurricanes.--At the request of
Chair Snowe, the GAO completed a report evaluating how well the
SBA provided victims of the Gulf Coast hurricanes with timely
assistance. This report details: (1) the challenges the SBA
experienced in providing victims of the Gulf Coast hurricanes
with timely assistance; (2) factors that contributed to these
challenges; and (3) steps the SBA has taken since the Gulf
Coast hurricanes to enhance its disaster preparedness.
The GAO identified several significant systemic and
logistical challenges that the SBA experienced in responding to
the Gulf Coast hurricanes. These challenges undermined the
SBA's ability to provide timely disaster assistance to victims.
For example, the limited capacity of the SBA's automated loan
processing system--the Disaster Credit Management System
(DCMS)--restricted the number of staff who could access the
system at any one time to process disaster loan applications.
In addition, the SBA staff who could access the DCMS initially
encountered multiple system outages and slow response times in
completing loan-processing tasks. The SBA also faced challenges
training and supervising the thousands of mostly temporary
employees the agency hired to process loan applications and
obtaining suitable office space for its expanded workforce.
While the large volume of disaster loan applications that
the SBA received clearly affected its ability to provide timely
disaster assistance to Gulf Coast hurricane victims, the GAO's
report found that the absence of a comprehensive and
sophisticated planning process beforehand likely limited the
effectiveness of the agency's initial response. For example, in
designing the capacity of the DCMS, the SBA primarily relied on
historical data such as the number of loan applications that
the agency received after the 1994 earthquake in Northridge,
California--the most severe disaster that the agency had
previously encountered.
According to the GAO report, the SBA did not consider
disaster scenarios that were more severe or use the information
available from disaster simulations (developed by Federal
agencies) or catastrophe models (used by insurance companies to
estimate disaster losses). The report also indicated that the
SBA did not adequately monitor the performance of a DCMS
contractor or completely stress test the system prior to its
implementation. Moreover, SBA did not engage in comprehensive
disaster planning prior to the Gulf Coast hurricanes for other
logistical areas, such as workforce planning or space
acquisition, at either the headquarters or field office levels.
In the aftermath of the Gulf Coast hurricanes, the SBA has
planned or initiated several measures that officials said would
enhance the agency's capacity to respond to future disasters.
For example, the SBA has completed an expansion of DCMS's user
capacity to support a minimum of 8,000 concurrent users as
compared with just 1,500 for the Gulf Coast hurricanes.
Additionally, the SBA initiated steps to increase the
availability of trained and experienced disaster staff and
redesigned its process for reviewing loan applications and
disbursing funds. However, the SBA has not established a time
line for completing key elements of its disaster management
plan, such as cross-training agency staff not typically
involved in disaster assistance to provide back-up support in
an emergency. The SBA also has not: (1) assessed whether its
disaster planning process could benefit from the supplemental
use of disaster simulations or catastrophe models; and (2)
developed a long-term strategy to obtain suitable office space
for its disaster staff. While the SBA agreed with GAO's report
recommendations for addressing these concerns, it remains to be
seen how comprehensive the agency's final disaster plan will be
and how the agency will respond to a future disaster.
E. Information Security--The Small Business Information Security Act of
2006 (S. 3786)
In 2006, Chair Snowe introduced the Small Business
Information Security Act of 2006 (S. 3786), a bill that would
have created a Small Business Information Security Task Force
within the SBA to better assist small businesses to both
understand cyber-security issues and to identify resources to
help meet those complex challenges.
Currently, small businesses turn to the SBA for assistance
when developing and maintaining their ventures, but information
security resources are not readily available. The Task Force
this bill sought to create would have provided resources and
information to small businesses to help them decrease the risks
posed to their businesses by cyber criminals. It would have
consisted of public- and private-sector experts and continually
updated a database of information as new technologies and new
threats emerged. The Task Force would have been designed to:
(1) identify information-security concerns and the services
that address those concerns; (2) make recommendations to the
SBA; (3) promote programs and services; and (4) inform and
educate small businesses about available resources.
The cyber-security threat and efforts to prevent and reduce
it carry a tremendous sense of urgency. This bill would have
provided an opportunity for the SBA to address those needs. S.
3786 was referred to the Committee but never considered by the
full Senate.
F. Small Business Investment Companies Program
The Small Business Investment Companies (SBIC) program
provides equity capital, long-term loans, debt-equity
investments, and management assistance to small businesses,
particularly during their growth stages. SBICs are privately
owned and managed for-profit entities that invest with the
prospect of sharing in the success of the small businesses.
There are approximately 400 SBICs nationwide. The SBA matches
private capital raised by each SBIC with government-guaranteed
capital on a 2:1 basis.
There are two types of SBICs: Participating Securities and
Debenture SBICs. For Participating Securities SBICs, the SBA
guarantees the SBIC's sale of equity securities to private
investors, and the SBIC invests the proceeds of that sale, as
well as the private capital the SBIC raised, in small
businesses. For Debenture SBICs, the SBA guarantees the SBIC's
debt securities (``debentures'').
The SBIC program has been a major contributor of venture
capital to small businesses. SBIC investing peaked in 2000, at
$5.4 billion, but then declined to $4.5 billion in fiscal year
2001, $2.7 billion in fiscal year 2002, and $1.7 billion in
fiscal year 2003. It rebounded to $2.8 billion in fiscal year
2004 and $2.9 billion for both fiscal years 2005 and 2006. For
Participating Securities SBICs, the securities issued to fund
the SBICs (that are guaranteed by the SBA) earn interest
payable to the SBA, but the payment is contingent upon the SBIC
being profitable. The SBA receives a pre-arranged return on the
securities if the SBICs are profitable (usually not more than 7
percent to 9 percent), plus a small percentage of any
additional profit earned by the SBIC.
According to the SBA, the Participating Securities program
has suffered losses, or will suffer losses based on current
projections, of $2.7 billion since 1994, because of three
primary problems: (1) a program structure that caused the SBA
to share fully in any losses suffered by each SBIC but
prevented it from sharing fully in profitable investments
(i.e., its profits were capped at 7 percent to 9 percent of the
SBICs' profits, but its losses could be up to 67 percent of the
SBICs' losses); (2) the bursting of the stock-market bubble in
2000; and (3) poor investments by some SBIC managers. As a
result, the SBA has proposed that the Participating Securities
program be eliminated. The Debenture Program has not suffered
any program-wide losses, and no stakeholders have suggested
that it be terminated.
The Debenture SBIC program began in 1958, and the
Participating Securities Program began in 1994. The latter was
a result of Debenture SBICs' complaints that their program's
structure prevented them from making equity investments. Both
are zero-subsidy programs, meaning that they receive no
appropriation and are designed to be fully self-funded by fees
and profits received in the program. The programs previously
received some Federal appropriations to serve as a reserve fund
to compensate the SBA for losses, but they became zero-subsidy
in the late 1990s when the programs were showing a profit
because private industry, Congress, and the SBA thought the
programs could be self-sustaining.
Because of these problems, the SBA predicted the program
would have a subsidy rate for fiscal year 2005 of 24.75 percent
rather than the previous zero-subsidy rate. This meant that to
support $2 billion in investments in fiscal year 2005 (the
expected demand), approximately $500 million in appropriations
(roughly 24.75 percent of $2 billion) would have been necessary
to fund the program.
Because no appropriations were available (none were
requested by the SBA or the SBICs), there will be no new
financing issued to SBICs until (and unless) Congress can
restructure the program to have a zero-subsidy. The program
will continue for up to five years, as the SBICs invest the
funds the SBA has already committed to provide to them.
1. The Small Business Investment and Growth Act of 2005 (S.
1923).--During the 109th Congress, the Committee undertook the
task of reforming and enhancing the SBIC program. On October
26, 2005, Chair Snowe introduced the Small Business Investment
and Growth Act of 2005 (S. 1923). This bill created a third
type of Small Business Investment Company (SBIC) program, the
Participating Debenture, designed to prevent the losses the
existing Participating Securities program has suffered. In
creating the new Participating Debenture program, this bill
would have made the program a zero-subsidy, with no Federal
appropriations necessary. Additionally, the new program would
have prevented financial losses to the government by increasing
its share of SBICs' profits. The bill included 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 investors.
Original cosponsors to S. 1923 included Senators Talent,
Bond, Cochran, Coleman, Isakson, Thune, and Vitter.
G. Small Business Surety Bonds--Surety Bonding Improvement Act of 2006
(S. 3785)
Chair Snowe introduced the Surety Bonding Improvement Act
of 2006 (S. 3785) on August 3, 2006. The bill was designed to
strengthen the SBA's Surety Bond Guarantee program (SBG) and
increase the ability of small businesses to secure surety
bonds. Over the last several years, the number of surety
bonding companies participating in the SBG program has declined
substantially, a trend that has adversely affected the number
of small businesses that can receive SBG bond guarantees.
S. 3785 addressed a number of issues that decreased surety
bonding companies' program participation. The legislation would
have prohibited the SBA from rejecting a claim on a surety
bond, or unwinding the bond, for technical reasons that the SBA
should have discovered through the bond underwriting process.
The legislation would also have updated the Preferred Surety
Bond (PSG) program's outdated fee structure. Under current law,
sureties in the PSG program are forced to use insurance rates
set on August 1, 1987. These rates limit the fees sureties can
charge small businesses, greatly reducing the sureties'
profitability and willingness to participate in the SBG
program. The bill would have allowed sureties to use the rates
approved by the insurance commissioner in the state in which
the contract would be performed. The legislation also would
have raised the amount of a bond that a small business can
obtain through the program. Currently, the limit for the SBG
program is $2 million. The bill proposed a modest increase in
this amount to $3 million.
Surety bonds are critical to small businesses' ability to
survive and compete. Without bonding, small firms cannot secure
the contracts they need to grow. Unfortunately, many new small
businesses lack the stable credit histories and assets they
need to secure surety bonding. Many sureties also refuse to
bond small companies because of the greater risks associated
with insuring unproven firms. For many small businesses, their
inability to obtain surety bonds has become a barrier that
prevents them from competing in defense contracting,
construction, services, and other markets.
Following introduction, S. 3785 was referred to the
Committee, but no further action was taken.
H. Veterans Business Issues
1. Congressional Budget Office Study on the Effects of
Military Deployments on Small Businesses.--On October 30, 2003,
Chair Snowe formally requested that the Congressional Budget
Office (CBO) analyze the impact of reserve component call-ups
on small businesses and examine the potential costs and
effectiveness of options to alleviate hardships without
weakening our national defense. In May 2005, the CBO issued the
study, The Effects of Reserve Call-Ups on Civilian Employers.
Summary of CBO Study: Currently, the Uniformed Services
Employment and Reemployment Rights Act of 1994 (USERRA)
provides primary job protection rights to reservists and their
employers. The USERRA provides coverage to service members that
meet certain criteria regardless of their employers' firm size.
The act: (1) prohibits employers from discriminating against
reservists in hiring, retention, and compensation; (2) requires
employers to reemploy reservists released from active duty
(unless it is an undue hardship to the employer or if the job
was temporary); and (3) mandates the continuation of certain
benefits for the activated reservists.
The National Guard and Reserve is becoming increasingly
critical to military missions. Not since fiscal year 1991 have
U.S. reservists seen such a drastic increase in average days in
support of missions. In fact, the average days in support of
missions per reservist increased from 14.5 in fiscal year 2001
to 46.8 in fiscal year 2002, and again to 70.2 in fiscal year
2003. These increases have led to the lengthy absence of a
significant portion of the domestic workforce, which in turn
has hindered the productivity of many small businesses.
The hurdles that small businesses face when reservist
employees are called to duty include difficulties recruiting
and hiring replacements, as well as losses in productivity and
profitability. The unexpected vacancies created by call-ups
lead to an increase in businesses' costs. The USERRA further
compounds this problem because it does not allow these costs to
be avoided and mandates the continuation of some benefits,
increases the risk of litigation that businesses could face if
their compliance with USERRA is in question, and creates
unequal losses among firms. Finally, call-ups can also have a
disproportionate impact upon small businesses, employers with
highly skilled or specialized personnel, and self-employed
reservists.
The CBO report notes that businesses often suffer due to a
lack of knowledge and uncertainty about the timing and duration
of reservist call-ups. Historically, employers have received
little advance warning of an employee's call-up. The average
notification occurs 13 days before a call-up, and 60 percent of
all firms surveyed were given less than one week's notice.
Often, for many firms, changes in call-up timing and tour
durations exacerbate vacancy problems. As a result of the
timing changes and tour extensions, some employers found that
they could not completely avoid vacancies left by call-ups.
Many of these same firms stated that they could have taken
actions to avoid the vacancies had they previously received
accurate information.
While most businesses are not affected, about 6 percent of
all firms employ reservists. In addition, less than one-half of
one percent of those who are self-employed are reservists
(equal to approximately 50,000 troops). Call-ups have the
greatest impact upon businesses that require specialized
skills, firms that lose key employees (those are especially
difficult to replace) and self-employed reservists.
Potentially, 8,500 to 32,000 small businesses are affected by
the USERRA. With 40 percent of the reservist force activated,
approximately 13,000 small businesses may have already
experienced the aforementioned difficulties. Among all
businesses that employ reservists, 18 percent are small firms
that have fewer than 100 employees. Approximately 35 percent of
deployed National Guard and reservists are either employed by a
small business or are self-employed.
The CBO study also discusses ways Congress can balance
reservists' rights against the costs to their employers. Some
options for new policy include: (1) direct payments to
employers; (2) tax credits to employers; (3) low interest
loans; (4) government-subsidized insurance; and (5) limitations
placed upon call-ups.
2. Supporting Our Patriotic Businesses Act of 2005 (S.
1014).--On May 12, 2005, Chair Snowe introduced Supporting our
Patriotic Businesses Act of 2005 (S. 1014). Original cosponsors
to this legislation were Senators Allen, Coleman, Santorum,
Talent, Burns, Isakson, Smith, and Thune.
The genesis of this legislation came from the CBO Study on
The Effects of Reserve Call-Ups on Civilian Employers
(described above). The bill would have increased authorized
appropriations for the SBA's Office of Veterans Business
Development to $2 million for fiscal year 2006, $2.1 million
for fiscal year 2007 and $2.2 million for fiscal year 2008.
Increasing funding would have allowed the SBA's Office of
Veterans Business Development to better assist our Nation's
veterans and provide them the business services they need.
The SBA's Advisory Committee on Veterans Business Affairs
has served as a valuable independent source of advice and
policy on veterans business issues to the SBA Administrator;
the SBA's Associate Administrator for Veterans Business
Development; the Congress; the President; and other U.S.
policymakers. The Advisory Committee was authorized under P.L.
106-50 and was set to terminate its duties on September 20,
2006. This legislation would have permanently extended the
authority and duties of the SBA's Advisory Committee on
Veterans Business Affairs.
Many Guard and Reserve personnel have continuing education
requirements that they are unable to satisfy because of being
called to active duty. These patriotic individuals should not
have to satisfy these continuing education requirements. To
address this problem, S. 1014 would have provided that a
service member need not satisfy any continuing education
requirements imposed with respect to their profession or
occupation while they are called-up or within the 120-day
period after they are released from the call-up.
Because some of the SBA's contracting and business
development programs have defined time limits for
participation, small business owners who get called-up to
active duty in the National Guard or Reserve are effectively
penalized because their active duty time is counted against the
time limitations on participation in the SBA's programs. This
legislation would have amended 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. A survey published by the
Department of Defense (DoD) in November 2003 (DMDC Report No.
2003-10), which questioned guard and reservists who had been
called-up over the previous 24 months, indicated that they
notified their civilian employers an average of 13 days before
their call-up began. The survey also showed that almost 60
percent of guard and reservists gave their employers advance
notice of one week or less. Unfortunately, providing short
notice to employers does not allow them time to adequately plan
for a guard member or reservist's absence, and ultimately hurts
a business's bottom line. It is critical that employers have
ample time to make the adjustments necessary to sustain their
businesses.
S. 1014 would have required that the Secretary of each
military department ensure that counseling is provided, at
least once a year, to members of the National Guard and
Reserves on the importance of notifying their employers
regarding their mobilization.
The bill was referred to the Committee but was not
considered by the full Senate.
3. The Patriot Loan Act of 2006 (S. 3122).--Since September
2001, nearly 600,000 National Guard and Reserve personnel have
been mobilized in support of current operations. As a result of
call-ups, many small businesses have been forced to operate
without their owners and key personnel for months and sometimes
years on end. In an attempt to mitigate this problem, Chair
Snowe and Senator Craig introduced the Patriot Loan Act of 2006
(S. 3122).
This bill would have improved the SBA's Military Reservist
Economic Injury Disaster Loan (MREIDL) program by raising the
maximum loan amount from $1.5 million to $2 million, which is
the same level as the SBA's other loan programs (e.g., 7(a)
loans, International Trade loans, and 504 Certified Development
Corporation loans). It also would have permitted the SBA
Administrator to offer loans up to $25,000 without requiring
collateral from the Guard or Reserve Member. Currently, the SBA
offers military reservist loans up to $5,000 without requiring
collateral. To improve the information available to military
reserve troops who have been called to serve on active duty the
measure would have required the SBA and DoD to develop a joint
website and printed materials providing information regarding
this program.
Finally, the bill would have mandated the SBA and the DoD
to jointly study the feasibility of subsidizing loan payments
and fees paid by members of the Guard and Reserve and veterans
on these loans. The SBA and DoD would have been required to
study business mobilization and interruption insurance programs
for members of the Guard or Reserve who own or operate small
business concerns and the feasibility of creating an insurance
program to repay debts to the SBA in the event of death or
significant injury of a Guard or Reserve Member.
The bill was referred to the Committee but was not
considered by the full Senate.
I. Small Business Women's Issues
According to the Center for Women's Business Research, in
2006, there were 10.4 million women-owned businesses,
generating almost $2 trillion in revenues and employing more
than 12.8 million Americans. With women entrepreneurs making
significant contributions to the economy, Chair Snowe wanted to
ensure that programs, such as the SBA's Women's Business Center
program, continued to help these women succeed. During the
109th Congress, Chair Snowe introduced two bills related to
improving programs and services for women in small business.
1. A Bill to Permit Women's Business Centers To Re-Compete
for Sustainability Grants (S. 1517).--On July 27, 2005, Senator
Snowe, along with Senators Kerry, Coleman, Domenici, and Pryor,
introduced S. 1517, a bill to permit Women's Business Centers
to re-compete for sustainability grants. The Senate approved
the bill by unanimous consent late that day, but it was never
taken up by the House. This bill would have provided critical
funding needed to preserve the operation of existing Women's
Business Centers. In accordance with outdated legislation, the
SBA planned to award 92 competitive grants to regular and
sustainability Women's Business Centers in September 2005.
However, 11 of the longest-standing centers were not eligible
to compete for these grants. This was not the Senate's intent.
During the 108th Congress, the Senate agreed to transform the
Women's Business Center program into a three-year competitive
grant program which was reflected in Senator Snowe's
reauthorization bill, The Small Business Administration's 50th
Anniversary Reauthorization Act of 2003 (S. 1375). While a
long-term solution still needed to be provided, this emergency
legislation temporarily solved the problem. With this
legislation, existing centers that have been established for
the longest period of time would have been able to operate
without disruption in funding and could continue the programs
and services they currently offer. Moreover, this provision
would not have required any additional appropriations but only
re-allocation of current funds.
2. The Women's Small Business Ownership Programs Act of
2006 (S. 3659).--On July 13, 2006, Chair Snowe, along with
Senator Kerry, introduced the Women's Small Business Ownership
Programs Act of 2006 (S. 3659). This bill was designed to
improve the programs and services that the SBA delivers across
the Nation for women business owners through the Office of
Women's Business Ownership, the Women's Business Centers
program, the National Women's Business Council, and the
Interagency Committee on Women's Business Enterprise. The bill
would have provided consolidation, direction, and integration
of existing programs that have previously been created to offer
opportunities for women through their entrepreneurial
endeavors. Additionally, the bill would have made the Women's
Business Center program permanent for existing eligible centers
so that women could depend on the experienced services of long-
term counseling and small business education and training.
These centers have proven to be a great value to the
communities they serve, and this bill would have ensured that
these programs and services continue to be available.
During the Committee's consideration of SBA reauthorization
in 2003, the Committee found 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 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 the Small Business Administration 50th
Anniversary Reauthorization Act of 2003 (S. 1375).
However, in fiscal year 2005, a revised version of the
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.
In 2006, to address these concerns and to meet the
increasing demand for the program's services, Chair Snowe,
along with Senator Kerry, introduced the Women's Small Business
Ownership Programs Act of 2006 (S. 3659). Most of the
provisions in S. 3659 were updated during the reauthorization
process and incorporated in The Small Business Reauthorization
and Improvements Act of 2006 (S. 3778), which passed the
Committee unanimously but was not considered by the full
Senate.
J. SBA Budget and Appropriations
1. Fiscal Year 2006 Views and Estimates Letter to Senators
Gregg and Conrad.--On February 18, 2005, Chair Snowe sent a
letter to Budget Committee Chairman Judd Gregg and Ranking
Member Kent Conrad regarding her views on the President's
fiscal year 2006 budget request for the SBA. The
administration's proposed budget of $592 million for the SBA
represented a 13-percent decrease from the agency's 2005
request and a 26-percent decrease from the 2004 request. Chair
Snowe's letter listed concerns regarding the request for zero
appropriations and recommended funding levels for the Microloan
program, Microloan Technical Assistance, Federal and State
Technology Partnership program, and U.S. Export Assistance
Centers. In addition, Chair Snowe requested an increase in
funding for the Small Business Development Center program,
Women's Business Center program, Veterans Business Development
program, SCORE, and to hire additional Procurement Center
Representatives.
2. Amendment to S. Con. Res. 18.--On March 16, 2005, the
Senate agreed to S. Amdt. 216 offered by Chair Snowe and
Senator Kerry to increase the budget authority for the SBA in
the Senate Budget Resolution for fiscal year 2006. By
increasing the SBA's budget authority, the agency would more
effectively be able to provide its lending and technical
assistance resources more effectively to our Nation's small
businesses. The amendment increased funding for the SBA's
programs such as Microloans, SBDCs, Women's Business Centers,
the HUBZone program, and other small business programs by
offsetting the costs through a reduction in funds under
function 150 for Foreign Microloans and other programs. With
the SBA helping to create or retain more than 4.5 million jobs
since 1999, this amendment provided necessary funds to aid the
agency in its efforts to revitalize our Nation's economy. The
amendment increased the SBA's budget by $55 million over fiscal
year 2005 appropriations and $78 million above the President's
fiscal year 2006 budget proposal.
3. Fiscal Year 2006 Appropriations Letter to Senators
Shelby and Mikulski.--On April 22, 2005, Chair Snowe, with
support from the entire Committee, sent a letter to Chairman
Richard Shelby and Ranking Member Barbara Mikulski of the
Senate Appropriations Subcommittee on Commerce, Justice,
Science, and related Agencies requesting that they utilize the
additional funding available in the fiscal year 2006 Senate
passed budget resolution. The request included funding for the
SBDC, Microloan, Women's Business Center, HUBZone, and the
Veterans Business Development programs among others. The letter
also requested the SBA's 7(a) and 504 loan programs be provided
with full lending authority for fiscal year 2006. In addition,
the letter addressed the SBA's proposal to eliminate line-item
funding for the 7(j) program, Advocacy Research, HUBZone
program, National Ombudsman, Native American Outreach, and the
USEAC programs, and also requested that they be included in the
agency's overall operating budget.
4. Amendment to Science, State, Justice, Commerce, and
Related Agencies Appropriations Act, 2006 (H.R. 2862).--On
September 16, 2005, the Senate agreed, by a vote of 96-0, to S.
Amdt. 1717 offered by Chair Snowe and Senators Kerry, Talent,
Vitter, Landrieu, Pryor, Bingaman, Obama, and Corzine to
provide assistance for small businesses damaged by Hurricane
Katrina. This amendment provided emergency funding and
necessary legislation, so that the SBA could provide immediate
and vital resources to the victims of Hurricane Katrina.
5. Fiscal Year 2007 Views and Estimates Letter to Senators
Gregg and Conrad.--On March 2, 2006, Chair Snowe sent a letter
to Budget Committee Chairman Judd Gregg and Ranking Member Kent
Conrad regarding her views on the President's fiscal year 2007
budget request for the SBA. The administration's proposed
budget of $624 million for the SBA represented a 25-percent
reduction in the agency's core loan and technical assistance
programs over the prior six years. Moreover, this signified an
astounding 37 percent reduction in the SBA's overall budget
since 2001. Chair Snowe's letter addressed overall small
businesses concerns, including affordable health insurance and
small business tax simplification. The letter rejected the
SBA's proposal to increase fees to small businesses
participating in the 7(a), 504, SBIC and Disaster Loan programs
as well as the request to eliminate funding for the Microloan
program and Microloan Technical Assistance. In addition, Chair
Snowe requested an increase in funding for the SBDC program,
Women's Business Center program, Veterans Business Development
program, and SCORE program, as well as to hire additional
Procurement Center Representatives.
6. Amendment to S. Con. Res. 83.--On March 16, 2006, the
Senate agreed to S. Amdt. 3134, offered by Chair Snowe and
Senator Kerry, to increase the budget authority for the SBA in
the Senate Budget Resolution for fiscal year 2007. By
increasing the SBA's budget authority the agency would more
effectively be able to provide its lending and technical
assistance resources more effectively to our Nation's small
businesses. This amendment prevented an increase in interest
rates paid by disaster victims and increased funding for the
SBA's Microloans, SBDCs, HUBZones, and other small business
development programs by offsetting the cost through a reduction
in funds under function 920. With the SBA helping to create or
retain more than 5.3 million jobs since 1999, this amendment
provided necessary funds to aid the agency in its efforts to
revitalize our Nation's economy. This amendment provided $130
million in additional budgetary authority to be added to the
SBA's fiscal year 2007 budget.
7. Fiscal Year 2007 Appropriations Letter to Senators
Shelby and Mikulski.--On April 7, 2006, Chair Snowe and Ranking
Member Kerry, with support from all the members of the
Committee, sent a letter to Chairman Richard Shelby and Ranking
Member Barbara Mikulski of the Senate Appropriations
Subcommittee on Commerce, Justice, Science and related Agencies
requesting that they utilize the additional funding available
in the fiscal year 2007 Senate passed budget resolution. The
requested appropriations would restore needed funding, prevent
higher costs from being borne by small businesses, and deliver
essential support for the SBA's core programs that continue to
prove their success and economic importance, including the
SBDC, Microloan, Women's Business Center, HUBZone, and Veterans
Business Development programs, among others. The letter also
addressed the SBA's proposal to eliminate line-item funding for
the 7(j) program, Advocacy Research, HUBZone program, National
Ombudsman, Native American Outreach, and the USEAC programs and
requested they be included in the agency's overall operating
budget.
III. HURRICANE KATRINA RECONSTRUCTION AND DISASTER CONTRACTING
The chief challenges experienced by the small contractors
and subcontractors during the 109th Congress related to the
workings of the Federal procurement system in the aftermath of
the devastation caused by Hurricanes Katrina, Rita, and Wilma
in 2005.
A. Disaster Contracting Oversight
In times of disaster, government contracts and subcontracts
can help the Federal government leverage the expertise and
manpower of contractors to implement disaster recovery, relief,
and reconstruction efforts. Simultaneously, government
contracts can provide instant funding to private businesses
damaged in a disaster or located around the areas damaged by a
disaster. To that end, the Small Business Act requires priority
in the award of contracts and subcontracts to those small
businesses that will perform a substantial portion of the work
in the areas of unemployment and underemployment.
However, immediately after Hurricane Katrina, the Committee
was flooded with complaints from small businesses that they
were being excluded from any reconstruction opportunities as
prime contractors, were required to work for free, or were
required to work only as low-tier subcontractors for a fraction
of the price paid by the government to large firms. Stories in
the media and complaints from small businesses also questioned
several billion dollars of sole-source awards of disaster
contracts to large corporations. Of particular concern were the
awards of large prime contracts by the Department of Homeland
Security's Federal Emergency Management Agency (FEMA) to three
companies that were cited by GAO in its report, Department of
Energy: Improved Oversight Could Better Ensure Opportunities
for Small Business Contracting (GAO-05-459), for multi-million
dollar overstatements of subcontracting on Department of Energy
(DOE) projects. Under the Small Business Act, agencies should
take compliance with subcontracting requirements in future
awards of prime contracts to large companies in because these
companies would be expected to manage small business
subcontracts in the future.
Within a month of Hurricane Katrina, on September 28, 2005,
Chair Snowe and House Small Business Chairman Donald Manzullo
requested that the GAO investigate small business participation
federally-funded disaster contracts and subcontracts.
In October 2005, Chair Snowe twice wrote to R. David
Paulison, Acting Director of FEMA concerning small business
participation in Hurricane Katrina disaster contracts awarded
by the Department of Homeland Security (DHS). On October 7,
Chair Snowe wrote to Director Paulison with a request that DHS
make provisions to ensure that its $1.5 billion in four sole-
source reconstruction contracts held by large businesses would
be recompeted on terms that allowed small businesses to bid. On
October 10, FEMA announced that it would reserve a portion of
its future contracts for small business participation, but that
only 8(a)-certified small disadvantaged businesses would be
eligible to bid on this set-aside. On October 11, Chair Snowe
again wrote to Director Paulison requesting that DHS increase
FEMA's proposed small business reconstruction contracts and
expand them beyond the 8(a) program so as to include as many
small businesses as possible. Chair Snowe also requested that
FEMA terminate its big business non-competitive contracts
rather than allow these contracts to run their course. Finally,
Chair Snowe requested that DHS/FEMA ensure that the ``big
four'' reconstruction contractors and other incumbent Katrina
contractors be held accountable for meeting small business
subcontracting goals and that subcontracting plans be in place
for each large prime contractor. Chair Snowe noted that three
out of the ``big four'' companies were cited by GAO Report No.
05-459 for ``misleading'' subcontracting reports on DOE
projects.
Under the leadership of Chair Snowe, the Committee
addressed the concerns with Katrina contracting during three
hearings that took place in September 2005, November 2005, and
March 2006. In particular, on November 8, 2005, Chair Snowe
convened a hearing that included appearances by the Chief
Procurement Officer of DHS, the Deputy Commander of the U.S.
Army Corps of Engineers, the Director of Acquisition Sourcing
and Management at the GAO, and small business representatives.
The hearing addressed the challenges to small business
participation in disaster contracting, including lax compliance
with subcontracting requirements of the Small Business Act, the
exclusion of qualified local small businesses, and the
allegations of wasteful spending on contracts for temporary
trailer classrooms due to lack of competition, poor acquisition
planning, and potential ``fronting.'' During the hearing, Chair
Snowe pressed the represented agencies to close out no-bid
awards to large businesses as soon as possible and to open them
for competition by small businesses. Chair Snowe received a
commitment from the DHS that subcontracting requirements of the
Small Business Act would be strictly enforced.
On March 31, 2006, the DHS announced the award of 36
contracts to small businesses, as well as 8(a) small
disadvantaged businesses, worth $3.6 billion for Gulf Coast
reconstruction. As a result of Chair Snowe's November 5
oversight hearing and her letters to Acting FEMA Director R.
David Paulison, DHS expanded the dollar value of these awards
by $2.1 billion and expanded the eligibility pool to small
businesses beyond those already certified under the 8(a)
program.
B. Legislation on Disaster Contracting
1. Repeal of the Anti-Small Business Provisions in the
Second Katrina Emergency Supplemental Act.--On September 8,
2005, the House passed the Second Emergency Supplemental
Appropriations Act to Meet Needs Arising from the Consequences
of Hurricane Katrina, 2005 (H.R. 3673). The Senate approved the
act late that day. In addition to funding provisions, the act
contained authorizing language to effectively repeal the
application of small business set-asides to all Katrina
contracts under $250,000, as well as permit the non-application
of small business subcontracting requirements to various
Katrina contracts.
Chair Snowe and House Small Business Committee Chairman
Manzullo both spoke out in opposition to these provisions
during the debate before the act's final passage on September
8, 2005, as P.L. 109-62. On October 19, 2005, Chair Snowe
cosponsored S. Amdt. 2070 to the Transportation, Treasury,
Housing and Urban Development, The Judiciary, The District of
Columbia, and Independent Agencies Appropriations Act, 2006
(H.R. 3058) to permanently repeal these provisions. The bill
was enacted as P.L. 109-115.
2. S. Amdt. 1717 to the Commerce, Justice, Science
Appropriations Act.--On September 15, 2005, the Senate
unanimously agreed to Chair Snowe's S. Amdt. 1717 to the
Science, State, Justice, Commerce, and related Agencies
Appropriations Act of 2006 (H.R. 2862) concerning disaster
recovery. Senators Kerry, Pryor, Vitter, Talent, Obama,
Bingaman, Corzine, and Landrieu cosponsored the amendment. The
amendment designated areas affected by Hurricane Katrina as
HUBZones and established contracting outreach programs to small
businesses operating in these areas.
3. The Small Business, Homeowners, and Renters Disaster
Relief Act of 2005 (S. 1724).--On September 19, 2005, Chair
Snowe, together with Senators Vitter and Talent, introduced the
Small Business, Homeowners, and Renters Disaster Relief Act of
2005 (S. 1724). The bill again sought to designate Hurricane
Katrina areas as HUBZones; create outreach programs to small
business contractors operating in disaster areas; and authorize
the SBA to conclude assistance agreements with government
agencies, educational institutions, and private non-profit
organizations in order to carry out these outreach programs.
The bill also would have established small business
participation goals of not less than 30 percent for prime
contracting and not less than 40 percent for subcontracting on
all Hurricane Katrina-related work.
4. The Small Business Partners in Reconstruction Act of
2006 (S. 2608).--On March 7, 2006, Chair Snowe and Senator
Vitter introduced the Small Business Partners in Reconstruction
Act of 2006 (S. 2608), which contained wide-ranging reforms to
Federal government practices concerning small business
participation in disaster contracting. The bill would have
directed the Administrator for Federal Procurement Policy to
ensure compliance with the OMB Guidelines on Emergency
Procurement Flexibilities issued on May 30, 2003 and continue
to encourage the Federal government to utilize small business
procurement flexibilities in times of disaster, contingency,
and other emergency. The bill also would have required
reciprocity with respect to contracting certifications for
small businesses owned and controlled by socially and
economically disadvantaged individuals in Federal and
federally-funded programs. It required an update of the Federal
Procurement Data System with respect to small business
participation in Hurricane Katrina- or Rita-related
contracting. The bill also created the Disaster Contracting
Outreach program for small businesses, and established a 30
percent goal for small business participation in disaster-
related Federal contracts and a 40 percent goal for small
business participation in disaster-related subcontracts. It
also directed the Federal government to establish advance,
multiple-award contracts with small businesses for disaster-
related services, as well as clarified the statutory priority
for disaster-area small businesses. Finally, the bill would
have ensured that the Small Business Act's requirements
concerning reservation of contracts for small businesses and
requirements concerning subcontracting plans on contracts
awarded to large businesses be applicable to disaster contracts
regardless of adjustments in the Simplified Acquisition
Threshold or designations of disaster contracts as commercial
item acquisitions. The bill also would have waived the Small
Business Competitiveness Demonstration program for all
Hurricane Katrina disaster contracts.
5. Katrina Small Business Contracting (S. Amdt. 3627).--On
April 26, 2006, Senator Vitter introduced an amendment to the
Defense, Global War on Terror, and Tsunami Relief Emergency
Supplemental Appropriations Act (H.R. 4939). The amendment
designated Hurricane Katrina areas as HUBZones and would
suspend the Small Business Competitiveness Demonstration
program (Comp Demo) for Hurricane Katrina contracts. The
amendment was cosponsored by Chair Snowe, Ranking Member Kerry,
and Senators Landrieu and Lott. The Senate approved the
amendment by voice vote on May 2, 2006.
6. Disaster Contracting Provisions in SBA Reauthorization
Bill (S. 3778).--The Committee included disaster-contracting
provisions in the Small Business Reauthorization and
Improvements Act (S. 3778), which was unanimously approved by
the Committee on August 3, 2006. This bill would have directed
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 to 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.
To promote job creation and development in a disaster
region, the bill would have established a 30 percent prime
contracting goal and a 40 percent subcontracting goal on each
agency's disaster-related reconstruction contracts. These goals
are consistent with the DHS and the U.S. Army Corps of
Engineers' history of small business achievements.
Moreover, the bill would have protected 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 with qualified small
businesses. Many small businesses qualify for contracts under
expedited procedures under the Small Business Act, which helps
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 would have restored the
parity between the SBR and the SAT any time the SAT is
increased for disaster-related contracts. In addition, the
legislation would have preserved requirements for small
business subcontracting plans on large disaster contracts,
while providing a grace period to conclude them.
In recent disaster reconstruction efforts, small business
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
would have ensured 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 would have also directed the Administrators of the
OFPP and the SBA to work with other Federal agencies to ensure
creation of multiple-award contracts for disaster recovery that
are set aside for small business concerns. In response to the
Gulf Coast hurricanes, the GAO testified before the Committee
that Federal agencies lacked adequate acquisition planning for
disaster relief. In response, the bill sought to ensure that
the Federal Government establish and maintain 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 SBA Administrator would have been required to
submit to the Committee, as well as to the House Small Business
Committee, 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 sought to designate disaster areas as
eligible for this priority and authorized 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 would have authorized set-asides to be performed in a
targeted labor surplus area or substantial unemployment area.
The bill also would have terminated the application of the
Small Business Competitiveness Demonstration (Comp Demo)
program. The Comp Demo program denies the protections of the
Small Business Act, including set-asides, for small businesses
involved in construction and specialty trade contracting;
refuse systems and related services; landscaping, pest control,
and 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 the DoD and nine other agencies the ability to do small
business set-asides. Essentially, the Comp Demo program
reserves whole industries for big business.
In 2005, at the request of the DoD, 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 the Comp Demo program. The House, however, rejected the
provision in conference. Chair Snowe again offered the same
amendment in 2006, with Senator Kerry as a cosponsor. Again,
the Senate approved it unanimously as part of the National
Defense Authorization Act, but the House rejected it in
conference. The Committee believes that terminating this
program would go a long way towards restoring fair treatment
for small businesses affected by disasters.
IV. MISCELLANEOUS CONTRACTING ISSUES
During the 109th Congress, the Committee under the
leadership of Chair Snowe actively pursued legislation and
oversight to expand access of small firms to prime contracts
and subcontracts.
A. Contracting Amendments to the Fiscal Year 2006 National Defense
Authorization
The Committee actively pursued enhancement to small
business contracting policies as part of the fiscal year 2006
National Defense Authorization Act (S. 1042). Chair Snowe filed
several amendments concerning small business contracting.
First, S. Amdt. 2528 directed the SBA to determine whether it
would be equitable to provide relief to battlefield contractors
by excluding the high costs of security that are passing
through small business contracts in Iraq and Afghanistan.
Second, S. Amdt. 2529 confirmed the Congressional policy that
overseas contracts shall be subject to the Small Business Act's
procurement goals and set-aside authorities. Third, S. Amdt.
2530 confirmed the Congressional policy that multiple-award
contracts are subject to statutory small business contracting
goals and authorized small business set-asides in multiple-
award contracts. Fourth, S. Amdt. 1538, introduced at the
request of the Department of Defense, provided for termination
of the Small Business Competitiveness Demonstration program.
Finally, S. Amdt. 2574 authorized the Federal government to
enter into long-term contracts of up to 20 years to purchase
power from small power plants (up to 60 megawatts) located on
HUBZone Base Realignment and Closure Areas. The purpose of this
amendment was to assist the redevelopment of the old power
plant at the former Loring Air Force Base into an active power
plant generating renewable energy. All of the amendments above
were adopted unanimously by the Senate. S. Amdt. 2528 was
enacted into law.
Also, Senator Kerry offered S. Amdt. 1500 requiring the
Department of Defense to provide a report on the impact of its
Radio Frequency Identifier Technology requirements on small
business. The amendment was unanimously adopted by the Senate.
B. Contracting Amendments to the Fiscal Year 2007 National Defense
Authorization Act
In June 2006, Chair Snowe again offered S. Amdt. 4464 to
the fiscal year 2007 National Defense Authorization Act (S.
2766) to repeal the Small Business Competitiveness
Demonstration program (Comp Demo). Ranking Member Kerry
cosponsored the amendment, which was unanimously approved by
the Senate.
C. Accountability for Small Business Spending with Government Purchase
Cards (S. Amdt. 4191)
On June 6, 2006, Chair Snowe offered an amendment (S. Amdt.
4191) to The Purchase Card Waste Elimination Act (S. 457), to
require the Federal government to ensure small business
participation in government credit card purchases that are not
subject to competitive bidding. The Senate agreed to the
amendment by unanimous consent. Since Federal agencies spend
$16 billion each year through credit card orders that are not
subject to competitive requirements, Chair Snowe put forth this
amendment to ensure fair small business participation. It
directed the OMB to better track Federal government credit card
purchases and to meet a 23 percent small business participation
goal for purchases up to $2,500. The amendment encouraged the
Federal government to work with credit card companies to help
track small business spending more accurately and locate small
businesses that accept government credit cards. The Purchase
Card Waste Elimination Act would require the government to
utilize a strategic approach to its credit card spending.
Senator Snowe's amendment applied the Strategic Sourcing
Guidance of the OMB to Federal credit card orders, which would
require that small business participation be a necessary part
of the government's strategic approach to purchasing. Under
Senator Snowe's leadership, the Committee worked with the OMB,
the General Services Administration, and major credit card
associations, such as Visa and MasterCard, to promote accurate
accounting of Federal credit card purchases from small
businesses.
D. Application of the Small Business Act to Postal Contracting (S.
Amdt. 2696)
On January 27, 2006, Chair Snowe filed S. Amdt. 2696 to the
Postal Accountability and Enhancement Act (S. 662) in order to
extend to the Postal Service (USPS) the provisions of the Small
Business Act and other contracting laws. The USPS purchases
over $11 billion of goods and services a year. However, in
recent years, reports by the GAO and the Postal Service
Inspector General have documented serious problems with the
access of small businesses to Postal Service contracting. In
particular, the Postal Service abandoned small business
participation goals even though such goals were found by the
GAO to represent best practices in modern supply chain
management. In addition, Postal Service contracts were found
vulnerable to misrepresentation of small business status. For
instance, in May 2004 and December 2005, the GAO issued two
reports, Postal Service: Progress In Implementing Supply Chain
Management Initiatives (GAO-04-540) and Postal Service:
Purchasing Changes Seem Promising, But Ombudsman Revisions and
Continued Oversight Are Needed (GAO-06-190) recommending that
the USPS reestablish small business goals as consistent with
sound Congressional oversight and best commercial practices.
The GAO found that without small business contracting goals,
``it would be difficult for stakeholders to hold USPS officials
accountable for their actions or ensure that USPS (1) maintains
a diversified supplier base, (2) achieves its desired
efficiencies, and (3) implements its revised regulations in a
manner consistent with principles of postal procurement,'' such
as accountability and social responsibility.
On February 28, 2006, the USPS' Acting Vice President for
Supply Management wrote to Chair Snowe promising to reestablish
goals for small, women-owned, and disadvantaged businesses
consistent with the SBA's standards.
E. July 2006 Hearing on Strengthening Small Business Participation in
Federal Contracting and Innovation Programs
On July 12, 2006, Chair Snowe convened a hearing of the
Committee to address the challenges faced by small businesses
in Federal contracting and subcontracting. The Committee heard
testimony on procurement issues from SBA Inspector General Eric
Thorson, as well as from representatives of minority, veterans,
and technology contracting organizations. The testimony focused
on the need to strengthen the integrity of small business
certifications; to enforce the penalties against
misrepresentation of small business size and status in Federal
contracts; to reduce contract bundling; and to enhance bidding
opportunities for service-disabled veterans and for small
disadvantaged businesses.
In addition, written testimony was solicited and received
from Marcia Madsen, Chair of the White House Acquisition
Advisory Panel, concerning the recommendations of the panel's
Small Business Working Group. These recommendations concerned
reductions in contract bundling, improvement of contracting
data quality in the Federal Procurement Data System, and, most
importantly, providing clear authority to set aside task order
competitions under multiple-award contracts such as Federal
Supply Schedules for bidding by small business concerns. In
2004, Chair Snowe sought and received a written commitment from
the White House Office of Federal Procurement Policy that the
Advisory Panel would consider small business contracting issues
and that an SBA representative would serve on the panel.
F. Contracting Provisions in the SBA Reauthorization Bill (S. 3778)
The Committee approved legislative changes to the way small
firms participate in Federal procurement as part of the Small
Business Reauthorization and Improvements Act of 2006 (S.
3778), sponsored by Chair Snowe. This bill would have
reauthorized critical small business contracting programs such
as the HUBZone and the Business Matchmaking programs. The bill
also would have reformed the current definition of contract
bundling by codifying the President's 2002 policy statement on
bundling and making the Small Business Act's definition more
consistent with this statement. In addition, the bill sought to
address the problem of misrepresentation of small business size
or status in Federal contracts. The bill would have extended
the time period for hearing misrepresentation protests to 100
days from the current time periods of 10 to 15 days, depending
on the particular small business program. The bill also would
have clarified that companies misrepresenting their small
business status should be denied Federal contracts. In
addition, the bill sought to address the problems faced by
service-disabled veterans in accessing Federal contracts by
temporarily suspending the ``rule of two'' that requires
veterans to prove the absence of competition in order to
receive a sole-source contract award. Finally, the bill would
have extended the HUBZone program to economically distressed
areas located in suburban and rural counties. For instance, the
Katahdin region in Maine is located in the same county that
includes the metropolitan area of Bangor. Under current law,
only census tracts in Bangor qualify for the HUBZone program,
even though the Katahdin region has experienced double-digit
unemployment.
1. Title X of S. 3778.--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 a contract's 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
(OFPP) cited an estimate that small businesses lose more than
$30 dollars 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's 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 more than 50 percent, from 26,506 in fiscal year
1991 to 11,651 in fiscal year 2000.
In its report on the 1997 SBA Reauthorization Act (S.
Rept.105-63), 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), is currently staffed by less than ten
people, and has saved the Federal government over $2.5 billion
since 1985.
On March 19, 2002, the President directed Federal agencies,
as part of a ``contract bundling initiative'' 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 OFPP announced a 9-point strategy 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 OSBDUs to the
President's Small Business Agenda.
Five 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 the GAO report, Impact of
Strategy to Mitigate Effects of Contract Bundling on Small
Business is Uncertain (GAO-04-454), Federal 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 Federal agencies and the SBA disagree on the
definition of bundling, and 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.
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 definition of bundling must be simplified in line
with the President's definition and the original meaning of the
term as consolidation that is restrictive of competition.
The Committee's SBA reauthorization bill would have
provided that agencies shall presumptively treat as bundled any
contract that is at least three times the amount of the
relevant substantial bundling threshold. Among other things,
this presumption would have triggered 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 the impact of bundling must be collected. The
Committee has also directed the SBA to conduct a 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. 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 ten years. The Committee believes that the failure to
maintain sufficient levels of PCRs diminishes the SBA's ability
to carry out its statutory mandate. GAO reports disclose that
the SBA is struggling to accomplish its mission and lacks the
assurances that PCRs are reviewing proposed acquisition
strategies to identifying barriers to small business
participation. The GAO also concluded the number of PCR-
recommended small business set-asides have 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 businesses. The
Committee's reauthorization bill would have required 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 Committee's reauthorization bill would have further
clarified that these individuals 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 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, arguing 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 would have provided
an enhanced authority for the SBA to overcome any impediments
it may have and proceed with the construction of the database.
2. Title XI of S. 3778.--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 the GAO report,
Department of Energy: Improved Oversight Could Better Ensure
Opportunities for Small Business Contracting (GAO-05-459),
numerous large contractors have overstated their small business
subcontracting achievements (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 Committee's SBA reauthorization bill would have provided
that compliance of Federal prime contractors with small
business subcontracting plans 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 re-adopted small business subcontracting
provisions that the Senate passed unanimously 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
contractors to win contracts, only to have the prime
contractors switch and not follow through with their
subcontracting plan commitments once the contracts were
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 Committee's reauthorization
bill made several changes to the Small Business Act that would
have held prime contractors responsible for the validity of
subcontracting data and imposed penalties for false
certifications of past compliance with small business
subcontracting.
Specifically the bill would have imposed 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 include fines of not more than $500,000,
imprisonment for not more than ten years, or both. The bill
also would have authorized 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
Committee's reauthorization bill would have required large
prime contractors to certify that they would 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 Committee's reauthorization bill also would have
required 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 included amendments that would 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 called for recognition of a prime
contractor's past performance in supporting small business
subcontracting participation in other Federal contracts.
Finally, the bill also would have included a provision that
directed the SBA to develop and implement a pilot initiative to
test the feasibility of allowing direct payments to
subcontractors. In an effort to encourage greater compliance
with small business subcontracting obligations, the bill would
have authorized 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 would have been used to fund mentor-protege
assistance to small business subcontractors, and counted for
purposes of subcontracting credit.
3. Title XII of S. 3778.--Since its inception, the HUBZone
program has facilitated over one-half billion dollars in
private-sector investment by small businesses into economically
distressed areas, and HUBZone firms employ over 124,000 HUBZone
residents. The Committee's reauthorization bill would have
reauthorized 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 distressed 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 average or unemployment requirements (e.g., income less
than 80 percent of statewide income or unemployment higher than
140 percent of the 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 is high or income is low. To correct
this inequity, the Committee's reauthorization bill would have
expanded 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 of 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 Committee's reauthorization bill
would have strengthened this authority by making sole-source
awards to service-disabled veteran-owned small firms mandatory
instead of permissive. This would have put disabled veterans on
par with other small business programs that have sole-source
authority. In addition, the Committee sought to provide 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 to 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 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 17 years ago and are restricting access to legitimately
disadvantaged businesses as a result of not being adjusted for
inflation. The Committee's reauthorization bill would have
instructed 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 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 the Small Business Reauthorization
Act of 2000 (P.L. 106-554) 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 for women-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 Committee's reauthorization bill would have
directed the SBA to implement the program within 90 days.
4. Title XIII of S. 3778.--The Committee's reauthorization
bill would have improved collection of acquisition-related data
on contract bundling; provided for government-wide training on
small business matters; and implemented the White House
Acquisition Advisory Panel's recommendation to authorize small
business set-asides in multiple awards and multi-agency
contracting vehicles to correct the 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 that 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 businesses
have had trouble securing business through the multiple-award
contracts. For example, within the GSA Federal Supply
Schedules, small businesses represented about 80 percent of
Schedule holders but only 36.8 percent of Schedule sales
dollars in fiscal year 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. However, 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 to meet
its procurement goals with regard to women, service-disabled
veterans, and HUBZone firms. The Committee's reauthorization
bill would have implemented a White House Acquisition Advisory
Panel recommendation to give priority in small business set-
asides to those groups for which the relevant agency failed to
achieve its small business contracting goals. In addition, the
bill would have required advance plans on small business
spending in the agencies' budgets and directed the SBA
Administrator to report to Congress annually on small business
participation in overseas government contracts.
5. Title XIV of S. 3778.--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, as well as
testimony by the SBA Inspector General (IG) before the
Committee, indicated that these numbers are misleading because
many large corporations have been classified as small
businesses for contracting purposes. Since fiscal year 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 have
contributed 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 ten years. However,
the SBA IG 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 IG testified that
such cases still involve both the societal loss and the
programmatic loss to the Federal government. To solve this
problem, the Committee's reauthorization bill would have
created an irrefutable 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 intended that this
presumption 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 would have codified 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 that 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 Committee's
reauthorization bill would have provided 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 would have required paper-based certifications by
signature of responsible officials. The SBA was to be 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 IG, Eric Thorson, 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 Committee's reauthorization bill would have
provided for annual certifications of small business size and
status, and that small business size or status be determined,
as part of a company's responsibility, at the time of the award
of a contract.
The Small Business Act already contains numerous provisions
mandating that companies misrepresenting their size or category
status as a small business concern be subject to immediate
suspension and debarment from Federal contracts and to other
civil, contractual, and criminal penalties. These authorities
include Section 16(a) and (d), 15 U.S.C. Sec. 645(a) and (d),
Section 8(m), 15 U.S.C. Sec. 637(m), and Section 36(d), 15
U.S.C. Sec. 657f(d). The Committee has expressed concerns that
current regulations and practices of the GAO, the SBA, and the
Federal Acquisition Regulation Council have actually hindered
the enforcement of these provisions as Congress intended. 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. Procurement protests usually result in stays of
contracts awarded or to be awarded. However, Committee
oversight indicates that large businesses often receive small
business contracts because Federal agencies are given a green
light not to respect SBA decisions on whether a company is
large or small.
For instance, in Planned Systems International, Inc.
(2004), the GAO reviewed existing SBA and FAR regulations and
found that Federal agencies do not have to wait longer than ten
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 formal determination
that the awardee was not a qualified small business. The
Committee views such practice as improper and contrary to the
statutory policy of Section 16(d) of the Small Business Act
concerning the integrity of small business contracting.
The Committee further notes that the Small Business Act
supersedes the GAO advisory rulings as well as the Federal
regulations on which these rulings are based insofar as those
rulings and regulations are inconsistent with the statute.
Federal agencies have the obligation to comply with the act's
anti-misrepresentation provisions, and to the maximum extent
possible, to promptly terminate small business contracts
awarded to ineligible firms and make the eligible firms whole.
When termination is impossible, honest small businesses should
still be made whole for their bid, proposal, and protest costs
as customary in procurement integrity protests. In all cases,
agencies should refer cases of misrepresentation to the
appropriate Inspector General.
However, under the current system, contracts protested to
the GAO on any grounds may be stayed for up to 100 days, but
contracts protested on the grounds of small business size
misrepresentations may not be delayed beyond ten days. The
Committee's reauthorization bill sought to remedy this problem
by giving the SBA the ability 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.
SBA IG Thorson testified before the Committee that Federal
officials often lack training in small business laws and
regulations. As a result, the Committee's reauthorization bill
would have directed development of such training courses, and
also mandated a policy on prosecutions of small business size
and status fraud.
Reports and testimony from the SBA IG 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 would have authorized 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 holding
multiple-awards contracts, the Committee's reauthorization bill
would have required holders of such contracts to submit 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 ten
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 1,500, 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 million to $21.5 million, depending on the particular
service being provided; (4) Retailing: annual receipts may not
exceed $5.0 million 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 million 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 million to $9.0 million, depending on the
agricultural product; and (8) Small innovative companies
participating in the Small Business Innovation Research (SBIR)
and the Small Business Technology Transfer (STTR) 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 program basis. Lower-tier, small firms could bid on
contracts suitable for upper-tier small firms, but not vice
versa. The Committee's reauthorization bill would have
authorized development of tier-based size standards. The
Committee recognizes that a great deal of time and effort has
been spent exploring the feasibility of this proposal and
alternative proposals for addressing size standards. For this
reason, the Committee sought to authorize the development of
tier-based size standards and leave 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 classification. The Committee's reauthorization bill would
have directed the SBA to use full-time employee equivalents in
computing size standards.
V. OVERSIGHT OF SMALL BUSINESS CONTRACTING AND SUBCONTRACTING
Oversight of small business participation in government
contracting and subcontracting has been a major priority of the
Committee under Chair Snowe's leadership.
A. The Government-Wide Small Business Performance Scorecard
Chair Snowe's oversight efforts led to reform of the way
the Bush administration rates the Federal agencies' small
business performance. In August 2006, OMB's Deputy Director for
Management wrote to Chair Snowe to express the administration's
intention to establish a scorecard to rate Federal agencies
implementation of the President's Initiative Against Contract
Bundling and to increase the number of SBA Procurement Center
Representatives. On November 17, 2006, the OMB Office of
Federal Procurement Policy released the design of the small
business scorecard. The new scorecard is modeled after the
President's Management Agenda scorecard, putting the
accountability level for small business contracting and the
President's Initiative Against Contract Bundling on par with
the accountability level for other Presidential initiatives.
B. General Services Administration Government-Wide Acquisition
Contracts
Through staff oversight activities during 2006, Chair Snowe
and House Small Business Committee Chairman Donald Manzullo
have ensured that the General Services Administration preserved
the $15 billion Alliant Small Business Contract for Information
Technology, the largest GSA small business IT set-aside in
history. In particular, the Committee rejected the GSA's
attempt during 2006 to reduce the dollar size of the contract.
In addition, Committee oversight ensured that the GSA
rolled out the $5 billion VETS Government-wide Acquisition
Contract during 2006. The President's 2004 Executive Order 13-
360 on contracting with service-disabled veterans mandated the
contract.
On October 25, 2006, Chair Snowe sent a letter to Lurita
Doan, Administrator of the GSA, questioning the agency's
decision to consolidate all of its regional information
technology contracts and award them as one large task order
under the GSA's 8(a) STARS Government-wide Acquisition
Contract. Chair Snowe was concerned that this opportunity was
not set-aside for HUBZone firms since information technology is
ideally suited for development of HUBZone areas such as
Machias, Maine. A December 27, 2006, report of the GSA
Inspector General (A050213/Q/6/P07001) indicated that the STARS
contract is vulnerable to ``fronting'' through disproportionate
subcontracting to large businesses.
C. Army Food Services Contracting
Small businesses in the food services industry brought to
the attention of Chair Snowe and the Committee that the
Department of the Army intended to bundle all of the Army's
food supply contracts and, henceforth, procure them from large
businesses through the Defense Logistics Agency's Prime Vendor
program. In response to oversight activities by Chair Snowe,
Senator Kerry, and Congressman Mark Kirk, the Army reversed its
policy. On August 25, 2006, the Army Installation Management
Agency's Principal Deputy Director issued a memorandum
committing Army installations to purchasing food services
through contracts with local small businesses. The Committee
commends the Army's policy favoring fair small business
participation.
D. Iraq and Afghanistan Contracting
Participation of small businesses in overseas contracts to
support the Global War on Terror as well as the democracy-
building, relief, and other efforts has been a priority for the
Committee. On January 12, 2005, Chair Snowe, Senator Coleman,
and Senator Bennett wrote to Secretary of State Colin Powell
and Secretary of State-Nominee Condoleezza Rice expressing
concern with the proposed language in the Department of State
Acquisition Regulation stating that compliance with the Small
Business Act on contracts awarded domestically would be
mandatory regardless of the place of performance, but
compliance on contracts awarded overseas would be
``voluntary.'' Although the Department of State initially
disagreed with the Committee's request to reverse the
``voluntary'' compliance proposal, the Committee was recently
advised that the State Department began including small
business subcontracting clauses in Iraq contracting projects.
E. Small Business Contracting and Subcontracting at the Department of
Energy
A major oversight priority for the Committee has been the
ability of small businesses to access prime contracting and
subcontracting opportunities at the Department of Energy (DOE),
the Nation's largest civilian contracting agency. DOE awards
most of its procurement dollars to large corporations and
educational institutions operating the DOE's government-owned,
contractor-operated laboratories and other facilities. Many of
these contracts have been awarded to the same incumbents for
more than 20 years. Historically, DOE contracts with large
contractors provided that these large contractors act as DOE
representatives. Large DOE contractors were authorized to award
prime contracts on behalf of DOE subject to ``the Federal
norm'' in awarding and administering these contracts. Following
the precedents of the GAO and the U.S. Court of Appeals for the
Federal Circuit, which held that large DOE contractors are no
longer subject to ``the Federal norm'' and are no longer DOE
agents for contracting purposes, awards made by large DOE prime
contractors have been properly considered subcontracts. At less
than 5 percent, DOE has been posting the lowest levels of small
business prime contracts among all Cabinet agencies. In order
to fully ascertain the status of DOE small business
contracting, the Committee asked the GAO to review DOE efforts
to improve access of small firms to contracts and subcontracts.
Chair Snowe and Ranking Member Kerry received assurances from
other committees with jurisdiction over the DOE contracting
that any legislative action concerning small business
participation in DOE contracts would take place following the
GAO review and with full consent of the Committee.
However, on April 6, 2005, the Senate Appropriations
Committee reported the Defense, Global War on Terror, and
Tsunami Relief Appropriations Act (H.R. 1268), which, under
Section 6023, would have allowed the DOE to count its small
business subcontracts as prime contracts towards goals under
the Small Business Act and to impose a total cap on small
business contracts at the DOE at not more than 23 percent of
total DOE contracts. In contrast, the Small Business Act
imposes on the Federal government a statutory prime contracting
goal of at least 23 percent. This language would have had a
disastrous effect on the ability of small businesses to receive
prime contracts at the DOE and would have reduced the total
small business spending at the DOE by about 50 percent. The
stated purpose of Section 6023 was to respond to the potential
displacement of local small business subcontractors from DOE
projects in New Mexico through prime contracts awarded to
Alaska Native Corporations. However, the terms of Section 6023
did not address the displacement.
On April 12, 2005, Chair Snowe filed S. Amdt. 338 to strike
Section 6023 from H.R. 1268. Chair Snowe was joined by Ranking
Member Kerry and Senators Lieberman, Bayh, and Cantwell as
original cosponsors. Senators Enzi, Talent, Collins, McCain,
and Clinton also later signed on as cosponsors. While the
amendment was not considered on the floor, Chair Snowe and
Ranking Member Kerry expressed strong objections to inclusion
of Section 6023 in the conference committee report.
On April 15, 2005, Chair Snowe and Ranking Member Kerry,
along with House Small Business Committee Chairman Manzullo and
Ranking Member Velazquez, wrote to the Director of the OMB
urging the administration to repudiate Section 6023.
In May 2005, the GAO formally issued, Department of Energy:
Improved Oversight Could Better Ensure Opportunities for Small
Business Subcontracting (GAO-05-459), which found that many DOE
facility management contractors have routinely overstated their
small business subcontracting achievements once the reported
percentages were converted to dollars. This finding further
undermined the rationale for counting subcontracts as prime
contracts. However, the DOE disagreed with the GAO
recommendation to measure subcontracting dollars. Chair Snowe
raised concerns about the DOE position.
On May 10, 2005, the Senate passed the Conference Report
for H.R. 1268. President Bush subsequently signed the Emergency
Supplemental Appropriations Act (P.L. 09-13) into law. The
Conference Report replaced Section 6023 of the Senate version
with a new Section 6022. Section 6022 required the DOE and the
SBA to enter into a memorandum of understanding concerning the
methodology for counting small business prime contracts and
subcontracts. In addition, Section 6022 required the SBA, the
DOE, the National Nuclear Security Administration, and the
Defense Nuclear Facilities Safety Board to conduct a study on
the feasibility of changing large DOE management and operating
contracts to increase small business participation. Further,
Section 6022 directed DOE to consider, as part of the decision
to break out work from large prime contracts, whether the
services were previously performed by small businesses and
whether the contract was the type capable to be performed by a
small business.
On June 13, 2005, the Deputy Secretary of Energy wrote a
letter to Chair Snowe with the promise to reverse the DOE's
previous position concerning the GAO recommendations and to
begin measuring subcontracting dollars reported by large DOE
contractors. The DOE also promised to review proposed contracts
over $3 million and to study breaking out its existing
facilities management contracts to provide prime contracting
opportunities to small businesses. The DOE also committed to
ensuring that it will increase contracting opportunities for
service-disabled veteran-owned small businesses. The Deputy
Secretary promised regular accountability to the Congressional
Small Business Committees concerning these issues. Finally,
with regard to the Emergency Supplemental Appropriations Act,
DOE acknowledged that Congress chose to replace Section 6023 of
the Senate-passed version for the new Section 6022. DOE pledged
that it ``does not intend to reduce its commitment to small
business participation at the prime and subcontract level as a
result of enactment of Section 6022.'' On September 30, 2005,
the SBA and the DOE entered into a Memorandum of Understanding
directed by Section 6022. The memorandum retained the practice
of treating small business subcontracts as subcontracts and not
as prime contracts.
Further, in April 2006, the GAO issued its report,
Department of Energy Contracting: Improved Program Management
Could Help Achieve Small Business Goal (GAO-06-501), which
compared DOE contracting practices with practices at the
agencies well known for integrating small business contractors
into agency missions that are similar to that of the DOE: the
U.S. Army Corps of Engineers, the Department of Health and
Human Services' Center for Disease Control, and the National
Aeronautics and Space Administration. The GAO recommended that
DOE make management improvements in order to integrate small
businesses into the DOE mission, including: (1) identifying
clear steps necessary to achieve the statutory prime
contracting goals; and (2) collecting information necessary to
evaluate its small business program. The DOE agreed with the
GAO's recommendations.
On June 27, 2006, the SBA's Office of Advocacy released the
study mandated by Section 6022 of the Emergency Supplemental
Appropriations Act. The study, Encouraging New Opportunities
for Small Businesses As Prime Contractors Through Changes to
DOE's Management and Operating and Other Management Contracts,
was conducted jointly by the SBA Office of Advocacy, the DOE,
the National Nuclear Security Administration, the Defense
Nuclear Facilities Safety Board, the DOE Office of Management,
and the SBA Office of Government Contracting and Business
Development. The study represented a major victory for the
Committee and for America's small businesses. It concluded that
changing the methodology for reporting DOE small business
subcontracts as prime contracts was not feasible since doing so
would contradict Congress's action of rejecting proposed
legislation authorizing this type of reporting, the laws and
regulations applying to DOE management and operating contracts,
and the policy of uniform accountability among Federal
agencies. The study, however, recommended several changes that
all agencies involved found to be feasible. These changes
include: on a pilot basis, breaking out work for small
businesses from DOE management and operating contracts;
stimulating large DOE contractors to build up the capability of
small businesses; and awarding suitable management and
operating contracts to small businesses.
F. Field Hearing on the Women-Owned Small Business Contracting Program
In October 2006, Senator George Allen held a field hearing
at the George Mason University in Fairfax, Virginia, concerning
the implementation of the Women-Owned Small Business
Contracting program. The Committee heard testimony from Karen
Hontz, the Assistant Administrator for Government Contracting
at the SBA, Emily Murphy, the Chief Acquisition Officer of the
GSA, and from representatives of women's small business groups
and women-owned small businesses. The hearing focused on the
multi-year delays in implementing the Women-Owned Small
Business program set-asides authorized by the Congress in 2000
for select industries where women have traditionally faced
barriers to fair participation in Federal contracting. The
Committee received assurances that the SBA intends to comply
with the Women-Owned Small Business statute. In addition, the
Committee received assurances that Women-Owned Small Business
status may be used as a primary evaluation factor in awarding
GSA Federal Supply Schedule task order contracts under the
existing GSA policy.
G. Hubzone Forums
In December 2005, Chair Snowe sponsored six HUBZone forums
across the state of Maine in partnership with the SBA and the
Maine Procurement Technical Assistance Center. In Maine, areas
in 9 out of 16 counties qualified for the HUBZone program, and
all six Indian reservations also qualified. These forums were
held in South Paris, Farmington, Skowhegan, Dover-Foxcroft,
Presque Isle, Houlton, and Machias. The purpose of the forums
was to increase the number of HUBZone-certified firms in Maine.
The forums were attended by economic developers, local
officials, and business executives.
VI. SMALL BUSINESS INNOVATION RESEARCH AND SMALL BUSINESS TECHNOLOGY
TRANSFER
In the field of innovation, the Committee has jurisdiction
over the Small Business Innovation Research (SBIR) and the
Small Business Technology Transfer (STTR) programs. These
programs provide about $2 billion a year in contracts and
grants to small businesses and partnerships between small
businesses and research institutions to develop technologies to
meet national priorities. Chair Snowe was an original cosponsor
of the Small Business Innovation Development Act of 1982, which
created the SBIR program.
A. Section 252 of the Fiscal Year 2006 National Defense Authorization
Act and the SBIR Commercialization Pilot Program
In 2005, Chair Snowe and Ranking Member Kerry sponsored
legislation amending the Small Business Act to create the SBIR
Commercialization Pilot program at the DoD and to provide other
needed enhancements to the SBIR programs. This legislation was
adopted as Section 252 of the National Defense Authorization
Act for Fiscal Year 2006. According to private industry, this
legislation is expected to result in additional contracts and
subcontracts for SBIR technologies worth several billions of
dollars.
B. Oversight of SBIR and STTR
On May 15, 2006, Chair Snowe, Ranking Member Kerry, and
House Small Business Committee Chairman Donald Manzullo sent a
letter to Kenneth Krieg, Under Secretary of Defense for
Acquisition, Technology, and Logistics, concerning Section 252
of the National Defense Authorization Act for Fiscal Year 2007,
which would have amended the Small Business Act to authorize
the SBIR Commercialization Pilot program (CPP) and made other
changes to the SBIR and the STTR programs. The letter provided
guidance to the DoD concerning the implementation of the CPP
and requested that DoD provide specific plans for key areas
addressed in Section 252, including: (1) the SBIR quadrennial
portfolio review and the program research focus; (2) the
involvement of the program managers and program executive
officers in SBIR topic selection; (3) the authority to make
Phase II and Phase III awards for testing and evaluation of
small business innovations; (4) the implementation of priority
for SBIR and STTR manufacturing topics; and (5) the
identification of high-priority SBIR projects for the SBIR CPP.
In response to the letter, the Department of the Air Force
and the DoD issued memoranda concerning the implementation of
the SBIR CPP. The Air Force memorandum was issued on June 16,
2006, and the DoD memorandum was issued on June 27, 2006. As a
result, all defense agencies and military services
participating in the SBIR program will review the pool of SBIR
projects that have received endorsement from acquisition
program managers. DoD policy requires such endorsement for at
least 50 percent of DoD and SBIR projects. Unfortunately, these
memoranda did not address the types of incentives that will be
available for greater SBIR commercialization. The Committee
expects that the DoD will provide this information, along with
the information on the number of SBIR firms assisted and the
dollar value of additional Phase III commercialization awards,
in the annual report to Congress on the CPP.
C. SBIR Issues Raised During the Hearing on Strengthening Small
Business Participation in Federal Contracting and Innovation
As stated above, on July 12, 2006, Chair Snowe convened a
Committee hearing on strengthening the participation of small
businesses in Federal contracting and innovation programs.
During the hearing, the Committee received testimony from Dr.
Charles Wessner, director of the Board of Science, Technology,
and Economic Policy at the National Academies of Sciences and
the director of the Congressionally-mandated study of the SBIR
program. The testimony unequivocally confirmed the need for the
SBIR program for small businesses seeking to survive the
financial ``valley of death'' created by imperfections in the
market for innovations. In addition, the testimony confirmed
the positive impact of the SBIR program on meeting national
innovation needs. Additional testimony was received from
representatives of the Biotechnology Industry Organization and
the Small Business Technology Council concerning participation
of venture capital in the SBIR program.
D. SBIR and STTR Reauthorization
Following the hearing discussed in the preceding section,
the Committee approved wide-ranging changes to the SBIR and
STTR programs as part of the Small Business Reauthorization and
Improvements Act of 2006 (S. 3778). Title I of this bill would
have permanently re-authorized both programs and changes
included doubling the size of the SBIR and the STTR programs
and increasing small business research and development funding
by over $2 billion a year. The changes also included: an
elevation in stature for the SBA Office of Technology; an
extension of the Defense Commercialization Pilot program to top
civilian contracting agencies; an increase of the statutory
SBIR and STTR award sizes to account for inflation;
restrictions on ``jumbo'' SBIR and STTR awards that are many
times in excess of the generally established statutory award
sizes; repeal of the SBA pre-approval requirement for
Cooperative Research and Development Agreements between SBIR
and STTR firms and Federal laboratories; and priority status
for SBIR and STTR projects related to energy efficiency. Small
businesses would also have been given the flexibility to
transfer between the SBIR and STTR programs depending on their
need to partner with research institutions and to compete for
follow-up Phase II SBIR and STTR awards at agencies other than
those which made the original Phase I awards. The legislation
also would have established a 3-percent SBIR and STTR
technology insertion goal for Federal research and development
contracts. In addition, the Committee voted to include an
amendment that would allow the businesses majority owned and
controlled by venture capital firms to participate in the SBIR
program.
E. The SBA Reauthorization Bill, Title XV, Small Business Innovation
Research and Small Business Technology Transfer
Under the Committee's SBA reauthorization bill (S. 3778),
which passed the Committee unanimously, Federal agencies with
annual extramural research and development budgets of more than
$100 million must reserve 2.5 percent of their research and
development funds for awards to small businesses. In the SBIR
program's 24-year history, small high-tech firms have submitted
more than 250,000 proposals, which have resulted in over 60,000
awards worth more than $21 billion.
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 private investors alone are unwilling to assume all
the risk. Approximately one third of initial Phase I SBIR
projects convert to Phase II. 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
extramural 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 STTR program's goal 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.
F. The 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
to encompass activities, such as monitoring government-wide
compliance with the SBA's SBIR and STTR Policy Directives;
carrying out the Federal and State Assistance program and the
Rural Outreach program; and carrying out the President's
Executive Order 13-329, Encouraging Innovation in
Manufacturing. At the same time, the budget and staff for this
office have decreased. Specifically, since fiscal year 1991,
funding for the programs has increased nearly fourfold, 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 ten positions. In 2003, the Office of Technology
had a budget of $280,520 and five positions.
The Committee has raised this issue with the agency on
numerous occasions over the years, but there has been no
increase in the resources for this office. Consequently, there
has been inadequate oversight of participating agencies to meet
their 2.5 percent requirement, and other compliance violations
have put at risk significant SBIR dollars. For example, at the
Missile Defense Agency, $75 million and $93 million were at
risk in fiscal year 2002 and fiscal year 2003, respectively. At
the Air Force $175 million was at risk in fiscal 2005. Senator
Kerry 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 SBA to request that OMB and
the administration support requests that are sufficient for the
Office of Technology to successfully operate.
The Committee's reauthorization bill also would have
required the SBA's 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. The Committee's
reauthorization bill would have restored 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 the Congressional Small
Business Committees must be consulted concerning appointments
to head the SBA Office of Technology in the same manner that
relevant Congressional committees have been consulted regarding
appointments to the White House Acquisition Advisory Panel. To
provide continuous improvements in the administration of these
programs, the bill would have established a National Small
Business Innovation and Technology Transfer Advisory Board
appointed from individuals with relevant experience to advise
the Office of Technology.
The Committee's reauthorization bill also would have
directed the SBA to prepare and submit to the Congress a
national plan on the SBIR and STTR programs. The SBA is already
required to publish annual government-wide reports on SBIR and
STTR at the end of each fiscal year. The SBA's report is based
on the annual statutory reports of participating agencies.
However, Federal agencies need advance planning and technology
``road-mapping'' to ensure better planning and utilization of
small high-tech firms in Federal innovation development. Many
SBIR and STTR technologies can have applications across
multiple agencies, especially at the commercialization stage.
According to SBA data, in fiscal year 2004, 2 out of 11 SBIR
agencies (NASA and the Department of Homeland Security) under-
funded SBIR technologies. There were similar shortfalls in the
STTR program.
In fiscal year 2004, the Federal government shortchanged
small business-university partnerships in the STTR program by
$20 million. The Committee expects the National SBIR/STTR 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 high-tech firms
and small business-university partnerships in Federal research
and development, 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 5 percent of Federal research
and development dollars. This exclusion of small businesses has
wasted valuable Federal research and development dollars.
To unleash American innovation, Congress must support the
tremendous innovative potential of small firms. According to
the SBA Office of Advocacy: (1) small firms represent 40
percent of highly innovative firms (i.e., firms with 15 or more
patents); (2) small firms produce 13 to 14 times more patents
per employee than large firms; (3) small firms' share of U.S.
patents equals small firms' share of U.S. manufacturing
employment, 41 percent; (4) small firms' patents are on average
twice as technically important as large firm patents (2 to 1
ratio of the top 1 percent of the most cited patents); (5)
small-firm innovation is more extensively linked to outside
technology (large-firms build more of their own technology);
and (6) small-firm innovators are more dependent on local
technology.
To stimulate America's most innovative sector of the
economy and to remedy the problem of exclusion of small
businesses from Federal research and development, the
Committee's reauthorization bill would have permanently
reauthorized these worthy programs. The bill would have doubled
both the SBIR and the STTR programs as reflected in the Small
Business Growth Initiative Act of 2005 (S. 2161) introduced on
December 15, 2005, by Senator Bayh. Such an increase would
benefit the universities, laboratories, and research
institutions that partner with small businesses. To ensure
smooth administration, the SBIR and STTR increases are spread
out over five years.
Small business innovators must not only receive a greater
share of Federal funds, but the SBIR and STTR awards they
receive must also 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. The size of Phase II awards for the STTR
program, which was created after the SBIR program, has not been
increased since 2001. The Committee attempted to correct this
deficiency, in its reauthorization bill, by raising the award
sizes for the programs from $100,000 to $150,000 in Phase I and
from $750,000 to $1,250,000 for Phase II. The bill also would
have addressed the problem of ``jumbo'' awards that routinely
exceed legislative guidelines. For example, the GAO conducted a
review of the program, Small Business Innovation Research:
Information on Awards Made by NIH and DoD in Fiscal years 2001
through 2004 (GAO-06-565), 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'' awards
hurt them because they reduce the number of grants and awards
that can be given out. For example, in the case of a Phase I
award for $1.7 million, the possibility of 16 awards of
$100,000 were eliminated, and in the case of a Phase II award
for $6.5 million, the possibility of almost seven awards of
$750,000 were eliminated. To address this issue, the
Committee's reauthorization bill would have prohibited Federal
agencies from making an award more than 50 percent higher than
the guidelines established in the legislation, which is a cap
of $225,000 for Phase I awards and $1,875,000 for Phase II
awards.
The Committee's reauthorization bill also would have
provided for portability of awards among 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 would have ensured that small
innovative businesses receive the maximum opportunity for
participation in Federal research and development and that the
Nation would have received the full benefits of the resulting
small business innovations. Today, research and development
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 Committee's reauthorization bill also addressed
relevant SBIR and STTR intellectual property protections. To
attract small businesses for participation in Federal research
and development, the SBIR and 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, Court of Federal Claims No. 03-1214C, on
November 8, 2005. 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 that are part
of SBIR and STTR. The Committee's reauthorization bill would
have overruled the Night Vision case and reasserted protections
for prototypes 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, the bill also would have
ensured 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.
There are concerns that the Court of Federal Claims
disregarded the special acquisition preference Congress
intended for Phase III awards by effectively placing the burden
of proof on small businesses regarding the practicality of a
Phase III award. The Committee believes that any questions
regarding the ability of small businesses to perform as Phase
III awardees should be established by the relevant agency
through the SBA's Certificate of Competency determination
process. The Committee's reauthorization bill would have also
codified and clarified the existing special acquisition
preference. In addition, the legislation contained requirements
for advance review of contract solicitations on topics that
duplicate SBIR or STTR awards, so that taxpayer money invested
in SBIR and STTR projects would not be wasted, and time,
particularly on sensitive projects of health, defense and
energy, not lost duplicating the work. To avoid and reduce
duplication, relevant Federal officials were directed to
consult the SBA's Tech-Net database prior to issuing the
solicitation.
To promote the effective enforcement of the SBIR and STTR
Policy Directives, Section 1537 of the Committee's
reauthorization bill would have required 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 the SBA must always be presented an
opportunity to defend its programs in legal proceedings.
In the 2000 SBIR Reauthorization Act (P.L. 106-554),
Congress created the Federal and State Technology Partnership
program (FAST) to strengthen the technological competitiveness
of small businesses 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, or 2007. In fiscal year 2004, the administration
requested funding of $3 million for the FAST program and
$500,000 for the ROP program. In appropriations for fiscal year
2004, Congress provided $2 million for FAST and $250,000 for
ROP. Although the administration made the same funding request
the previous year (fiscal year 2003), the programs were not
funded in fiscal year 2003 appropriations. Instead, the SBA was
given authority to fund the program, but according to the SBA
IG's Office, chose not to do so. During fiscal year 2002 and
fiscal year 2001, the FAST program was funded at $2.7 million
and $3 million, respectively.
The FAST and the ROP programs serve to bring into the SBIR
and the STTR programs small businesses and state technology
research organizations located in states with historically low
participation in Federal small business research and
development and technology contracting. 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 has not made the case that its district
offices are better suited to provide FAST and ROP development
services. The Committee's reauthorization bill would have
reauthorized these two important programs and increased
authorized funding for the ROP 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 and publications to the Committee on July 12, 2006.
The academies confirm the SBIR program's value and the need to
continue it. This Committee's reauthorization would have
extended the authorization for the Academies' study for one
year and provided additional areas that 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. The study is
vital to deliberations regarding the reauthorization of the
program. Concerns were also raised 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
Committee's provision was not intended to create a mandate on
those Federal agencies that funded the SBIR and STTR study to
provide more funding to NAS beyond the $5 million they have
already disbursed. The provision required good-faith
negotiation between the Academies and the agencies and would
have given NAS the 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. The Committee's reauthorization
bill would have authorized 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 would have
included provisions modeled after the President's Executive
Order 13-329, Encouraging Innovation in Manufacturing, to give
priority in SBIR and STTR awards to energy efficiency and
renewable energy projects.
This bill addressed 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, particularly 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's OHA ruled in 2001,
2002, and 2003, that ``individual'' refers to 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. Rules have also required that 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 requirements 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 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 not sufficiently far along 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; the SBA suddenly changed the definition and rules that
were in effect for 20 years; funding to venture firms had
diminished since the SBA made its ruling; and 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 of dollars 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 National
Institutes of Health (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 the SBA's ruling,
or the extent to which firms with venture capital participated
and commercialized SBIR projects, Senators Kerry and Kennedy,
along with Senator Snowe, Senator Enzi and Congressman
Manzullo, 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.
Specifically they asked GAO to quantify venture capitalists'
involvement in the program and the impact of the SBA's ruling
on firms with venture capital and the SBIR program. The GAO
could not determine which firms were majority-owned by venture
capital firms, but its staff did 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, following the
ruling.
The Committee's reauthorization bill included an amendment
proposed by Senator Bond that would have allowed the
participation of small firms that are majority-owned by venture
capital firms in the SBIR program. It would have authorized any
participating agency, upon submission of a written
determination to the Congressional Small Business Committees,
to permit small businesses majority-owned by venture capital
firms and otherwise eligible under the other terms of the SBIR
program, to compete for SBIR awards at such agency. The
determination was required to demonstrate that using the
authority would 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 would have limited majority venture-owned firms to a
maximum of 25 percent of SBIR funds at the relevant agency,
allowing the head of each participating agency to ``direct''
not more than that amount toward these firms. The figure
represented a cap on the amount that could be awarded and was
not an authorization for a set-aside for small businesses
majority-owned by venture capital firms. This distinction is
important because, as Senator Kerry noted at the markup, 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 derived its 25 percent cap on SBIR
awards to qualified majority venture-owned small U.S. firms
from the aforementioned GAO study that found in 2003 and 2004
that 21 percent of the firms that received NIH SBIR awards had
some venture funding. However, opponents contend that the
percentages do not correspond because the 25 percent cap is for
companies majority-owned by venture firms and that 21 percent
is assumed to encompass firms that are not majority owned by
venture capital firms, but merely have some venture funding.
They say that 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.
The Committee's intent was that the increase in the program
percentages and the authority to allow firms majority owned by
venture capital firms be adopted and enacted together as
contained in the Committee's reauthorization. The doubling of
the SBIR and the STTR programs, phased in over five years,
could have provided more than $1.5 billion in new funding
opportunities to non-venture-backed small businesses, which
proponents contended would have held harmless the firms not
majority-owned by venture capital firms.
Further, the Committee's reauthorization bill would have
included an amendment proposed by Senator Coleman during markup
that provided for up to $10,000 a year in grants to SBIR firms
to encourage them to hire science, technology, engineering, and
mathematics students.
G. Federal Laboratory Consortium for Technology Transfer
To fully develop their inventions, small innovators
frequently need to access the scientific resources that are
typically available only to large businesses. Small firms have
often attempted to overcome this challenge by entering into a
Cooperative Research and Development Agreement with Federal
laboratories that exist within many civilian and defense
agencies. The Committee has worked with the Federal Laboratory
Consortium (FLC) on Technology Transfer concerning greater
cooperation between small businesses and Federal laboratories.
The FLC has begun the process of tracking participation of
small businesses in Federal lab technology transfer projects.
Also, under consideration is the establishment of a small
business committee within the FLC. The Committee will continue
to encourage and monitor these efforts.
H. Maine SBIR Forum
In July 2006, Chair Snowe teamed with the Maine Technology
Institute and the SBA to hold an SBIR forum at the University
of Southern Maine. During the forum, SBIR program staff and
Chair Snowe's Committee staff assisted multiple firms and
individuals with the SBIR application process.
VII. SMALL BUSINESS HEALTH INSURANCE
The rising cost of health insurance remains one of the top
concerns facing small businesses today. According to the Kaiser
Family Foundation, the cost of health insurance has increased
at double digit percentage levels in four of the past six
years--far outpacing wage gains and inflation. In fact, health
insurance costs are on track to become the largest share of
employers' total benefit packages, surpassing total retirement
benefits.
Meanwhile, there are now 46.6 million uninsured Americans.
The number has risen dramatically this decade, by over
4,000,000 since 2001. The Congressional Research Service has
concluded that the number of the uninsured has risen almost
every year since 1989 and is expected to continue rising into
the future.
Clearly, the size of a business plays a pivotal role in
whether an employer will offer health insurance as a workplace
benefit. Small employers are far less likely than larger
employers to provide health insurance to their workers. The
Small Business Administration's Office of Advocacy recently
found that less than 40 percent of employees in the smallest
firms were eligible for health insurance coverage, while
slightly more than 77 percent of the largest firms' employees
were eligible for coverage. Additionally, the 2006 Kaiser
Family Foundation Survey of Employer Health Benefits found that
health insurance is offered by only 48 percent of businesses
with three to nine employees. This is down from 58 percent in
2002 and 52 percent in 2004. By contrast, health insurance is
nearly universally offered as an employer-provided benefit in
larger firms (200 or more employees), which offer insurance to
98 percent of their employees.
Further compounding the problem, there simply is no
competition among insurers in the small group insurance markets
in the states. In May 2005, Chair Snowe requested, along with
Senator Talent, that the GAO research the competitiveness of
small group health insurance markets in every state. The GAO's
report, released in October 2005, revealed that a handful of
large insurance carriers dominate the small group market,
leaving small businesses with few, if any, choices when it
comes to securing affordable, quality health insurance for
their employees. More specifically, the GAO discovered that the
median market share of the largest small group carrier was
about 43 percent in 2005, compared to 33 percent in 2002. And
when combined, the five largest carriers in the small group
market represent 75 percent or more of the market in 26 states,
up from 19 states in 2002. Finally, the median market share of
all Blue Cross and Blue Shield (BCBS) carriers was about 44
percent, up from 34 percent in 2002.
The Committee believes that there are simply not enough
health insurance carriers competing in the small group market.
This lack of competition has contributed to higher prices for
the handful of products that do exist in the small group
market. In this way, small businesses are trapped in stagnant,
dysfunctional health insurance markets, in which prices are
spiraling out of control and viable coverage options have moved
far beyond their budgetary reach. Despite accounting for nearly
75 percent of all new jobs in America, small businesses are
treated like the ``pariahs'' in the current health insurance
marketplace and are often priced out of the market altogether.
To counter these alarming trends, the Committee considered the
following proposals.
A. Small Business Health Plans
In February 2005, Chair Snowe introduced the Small Business
Health Fairness Act of 2005 (S. 406) which would have allowed
small businesses to pool together nationally, through Small
Business Health Plans (SBHPs), to provide uniform health
insurance plans to their employees at significantly lower
costs. It is a matter of simple fairness; small businesses
ought to receive the same advantages under current Federal law
as Fortune 500 companies and unions. SBHPs would help cover up
to 8.5 million Americans at nominal cost to the Federal
government at a time when more than 46 million Americans are
among the ranks of the uninsured. SBHPs are supported by a
coalition of more than 100 organizations representing more than
12 million employers and 80 million individuals.
Chair Snowe's legislation would have amended the Employee
Retirement and Income Security Act (ERISA) to include sections
on the certification and regulation of Association Health
Plans, now also known as SBHPs. The legislation would have
expanded ERISA to allow small businesses to pool together
through bona-fide trade and professional associations, which
would operate and administer health plans that would receive
the same advantages under Federal law that larger businesses
and unions currently receive.
Chair Snowe's SBHP legislation would have allowed SBHPs to
either ``self-insure'' (i.e., to bear their own risk in
providing health insurance to their employees, without going
through an insurance carrier) or to be ``fully-insured'' (i.e.,
to purchase health insurance through an insurer). Under the
measure, the Department of Labor would solely regulate self-
insured SBHPs, just as the Department of Labor solely regulates
over 300,000 self-insured plans of larger employers and union
plans, covering 78 million people. The states would solely
regulate ``fully-insured'' SBHPs, just as the states solely
regulate other types of fully insured products.
Chair Snowe's SBHP legislation contained strict
requirements under which only bona-fide professional and trade
associations can sponsor an SBHP. These organizations would
have to be established for purposes other than providing health
insurance for at least three years. Finally, the Small Business
Health Fairness Act contained tough new solvency provisions
that would have increased consumer protections for many small
business workers. These new provisions included: claims
reserves certified by a qualified actuary; minimum surplus
reserves; both specific and aggregate stop-loss insurance; and
indemnification insurance to ensure that all claims are paid.
On April 20, 2005, Chair Snowe held a Committee hearing
focused on the Small Business Health Fairness Act.
B. Small Business Health Insurance Tax Incentives
The Committee continues to believe that Congress must
explore all means of encouraging small businesses to offer
health insurance. To that end, in the 109th Congress, Chair
Snowe introduced the Small Business Health Insurance Relief Act
(S. 2457), which would have utilized the tax code to both: (1)
encourage our Nation's smallest employers to offer health
insurance to their employees; and (2) inject competition among
insurers into stagnant, dysfunctional state insurance markets.
This proposal contained a targeted tax credit that would
have encouraged our Nation's smallest businesses to offer
health insurance as a workplace benefit. This tax incentive
would have helped to ensure that our Nation's smallest
businesses can offer health insurance in the same way that
larger businesses currently do. The measure targeted small
businesses with 50 or fewer employees because these are the
small businesses most desperately in need. The maximum tax
credit under the proposal would have been $1,500 for single
coverage and $3,000 for family coverage. The tax credit would
have phased out as a business increased in size. Notably, the
proposal was neutral between types of insurance; small
businesses and their employees could choose what worked best
for them--traditional employer-sponsored health insurance or
health savings accounts (HSAs).
Second, the legislation also would have provided a
necessary reform of the state small group health insurance
markets. As described above, there is simply no competition in
the small group market, and coverage and affordability are real
problems. To counter this market consolidation, the measure
would have provided insurers with a 50 percent tax deduction
for claims and expenses incurred in serving the small group
market and Small Business Health Plans (SBHPs). This incentive
would have served as a powerful motivator for new insurers to
enter this dysfunctional marketplace.
Finally, the legislation would have reduced barriers
insurance companies face in entering new markets. Specifically,
it would have provided a tax credit to defray the cost of state
licensing requirements. Under the proposal, an insurer could
have claimed a tax credit of the lesser of 50 percent of
qualified costs or $10,000 to cover the administrative costs
and expenses incurred in satisfying state licensing
requirements. Available with respect to each state in which an
insurer operates, this incentive sought to encourage a host of
insurers to provide products in the state small group market.
C. Small Business Health Education and Awareness
Finally, Chair Snowe introduced, with Senator Bennett, the
Small Business Health Education and Awareness Act (S. 2607),
which would have established a pilot, competitive matching-
grant program for Small Business Development Centers (SBDCs) to
provide educational resources and materials to small businesses
designed to increase awareness regarding health insurance
options available in their areas. This measure was based on
recent research conducted by the non-partisan Healthcare
Leadership Council that found that following brief educational
and counseling sessions, small businesses are up to 33 percent
more likely to offer health insurance to their employees.
The legislation would have required the SBA to provide up
to 20 matching grants to qualified SBDCs across the country. No
more than two SBDCs (one per state) would be chosen from each
of the SBA's ten regions. The grants would be more than
$150,000, but less than $300,000 and would be consistent with
the matching requirement under current law. In creating the
materials for their grant programs, participating SBDCs would
evaluate and incorporate relevant portions of existing health
insurance options, including materials created by the non-
partisan Healthcare Leadership Council, the Kaiser Family
Foundation, and the National Association of Insurance
Commissioners.
Enacting this legislation would be an important step in the
right direction towards assisting small businesses as they work
to strengthen themselves, remain competitive against larger
businesses that are able to offer affordable health insurance,
and in turn bolster the entire economy. This bill was included
in the Small Business Reauthorization and Improvements Act of
2006, which was unanimously reported out of the Small Business
Committee.
VIII. SMALL BUSINESS REGULATORY/LEGAL REFORM
The Committee has long worked to reduce the burden that
Federal regulations exert on small businesses. Over the past 20
years, the number and complexity of Federal regulations have
multiplied at an alarming rate. These regulations impose a much
more significant impact 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.
This is 44.8 percent more than the $5,282 per-employee cost
faced by businesses with 500 or more workers.
The Committee believes that Congress needs to assist the
nation's 25 million small businesses by stimulating innovation
and creativity, lowering the cost of starting and running a
business, and providing the tools and resources to grow and
expand. In the 109th Congress, the Committee considered the
following small business regulatory and legal reform proposals.
A. Small Business Regulatory Compliance Assistance
As noted, regulatory compliance is far more expensive for
smaller companies than it is for larger ones. As a result,
small business owners have found it increasingly difficult to
meet their regulatory obligations while at the same time 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. Small business owners need additional
compliance assistance tools and resources to both understand
and comply with complex regulatory actions.
To address this issue, in April 2005, Chair Snowe
introduced the Small Business Compliance Assistance Enhancement
Act (S. 769), a bill that would have clarified existing
requirements under Federal law so that agencies publish useful
regulatory compliance guides for small businesses. In 1996, the
full Senate unanimously passed the Small Business Regulatory
Enforcement Fairness Act (SBREFA), which made the Regulatory
Flexibility Act more effective in curtailing the impact of
regulations on small businesses. One of the SBREFA's most
important provisions compels agencies to produce compliance
assistance materials to help small businesses satisfy the
requirements of agency regulations. Unfortunately, over the
years, agencies have used numerous loopholes to avoid
satisfying this requirement. 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.
In 2002, GAO-02-536R found that agencies have ignored this
requirement or failed miserably in their attempts to satisfy
it. The GAO also found that SBREFA's language is unclear in
some places about what is actually required. That is why Chair
Snowe introduced the Small Business Compliance Assistance
Enhancement Act, to close those loopholes and to make it clear
that Congress was serious when it required that agencies
produce quality compliance assistance materials to help small
businesses understand how to deal with regulations
The Small Business Compliance Assistance Enhancement Act
was drawn directly from the GAO recommendations and intended
only to clarify an already existing legal requirement not to
add anything new. It simply detailed how and when Federal
agencies must publish small business compliance guides. The
agency-produced guides would have suggested how to satisfy a
regulation's requirements but would not have imposed further
requirements or additional enforcement measures. Additionally,
this bill does not in any way interfere or undercut an agency's
ability to enforce their regulations to the full extent
currently enjoyed.
As a freestanding bill, the Small Business Compliance
Assistance Enhancement Act enjoyed the support of 15 of the 18
members of the Committee. The measure was also included in the
Small Business Reauthorization and Improvements Act, which the
Committee unanimously approved.
B. Targeted Regulatory Reform
The Committee has long fought to ensure that small
businesses across the country are treated fairly by Federal
government regulations. Unfortunately, in far too many cases,
Federal agencies promulgate regulations without adequately
addressing the economic impacts on small businesses. The
Regulatory Flexibility Act (RFA) was enacted in 1980 and
requires Federal government agencies to propose rules that keep
the regulatory burden at a minimum on small businesses. The RFA
requires agencies to analyze the economic impact of proposed
regulations when there is likely to be a significant economic
impact on a substantial number of small entities and to
consider less burdensome alternatives.
Unfortunately, there remain a number of loopholes in the
RFA that undermine its effectiveness in reducing these
regulatory burdens. To close these loopholes, in July 2005,
Chair Snowe introduced the Regulatory Flexibility Reform Act of
2005 (RFRA) (S. 1388). This measure would have ensured that
Federal agencies conduct a complete analysis of the effects of
Federal regulations, thereby providing small businesses, which
represent more than 99 percent of all firms in America and
create more than two-thirds of all net new jobs each year, with
much needed regulatory relief.
This legislation would have required Federal agencies to
consider comments provided by the Small Business
Administration's Office of Advocacy. Codifying this necessary
change would have ensured that agencies give the proper
deference to the Office of Advocacy, and hence, to the comments
and concerns of small businesses. This is a straightforward and
simple reform that could have major benefits. The Committee
believes that the SBA's Office of Advocacy does not receive the
public attention it deserves.
In case after case it has been the last, best hope for
small businesses, faced with burdensome, duplicative and
nonsensical Federal regulations. The Office of Advocacy serves
two critical roles: (1) it represents small businesses'
interests before the Federal government in regulatory matters,
and (2) it conducts valuable research to further our
understanding of the importance of small businesses and their
job-creating potential in our economy.
The Regulatory Flexibility Reform Act was a primary focus
of a staff-led regulatory reform roundtable held in the
Committee.
IX. SMALL BUSINESS TAX ISSUES
A. Small Business Expensing
In the 109th Congress, the Committee worked to maintain the
ability of small businesses to deduct more of their costs in
acquiring capital assets used in their business in the year of
purchase. On July 28, 2005, Chair Snowe introduced the Small
Business Expensing Permanency Act of 2005 (S. 1523), which
would have made permanent the increased $100,000 (adjusted
annually for inflation) expensing limit for small business
investments. On February 15, 2006, Chair Snowe introduced S.
2287 reflecting the President's fiscal year 2007 budget
proposal to double small business expensing to $200,000 and
make it permanent.
Although neither bill was enacted into law, the legislation
played a large role in the small business expensing extension
that was included in the Tax Increase Prevention and
Reconciliation Act of 2005 (H.R. 4297), which Congress passed
and the President signed into law on May 17, 2006 (P.L. 109-
222). H.R. 4297 extended for two years (through 2009) the
increased small business expensing enacted into law by the Jobs
and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108-27).
B. Taxable Year (S. 2462)
On March 28, 2006, Chair Snowe introduced the Small
Business Tax Flexibility Act of 2006 (S. 2462) to provide small
business start-ups with greater flexibility to choose the
taxable year that best suits their business cycle. Until 1986,
businesses could elect the taxable year-end that made the most
economic sense for the business. As a result, Certified
Professional Accountants (CPAs) were able to spread the
preparation of their clients' financial audits and tax returns
over an entire year. In 1986, Congress adopted legislation
requiring partnerships and S corporations to adopt a December
31st year-end.
As a result, the problem of workload compression was
exacerbated. Now in addition to preparation of individual tax
returns, CPAs and other return preparers must squeeze in all
their work for partnerships and S corporations between January
1 and April 15 of each year. As a consequence, small businesses
find themselves competing for their tax preparers' time during
filing season, often at a higher fee.
The Small Business Tax Flexibility Act would have allowed
small partnerships and S Corporations to elect taxable years
other than the calendar year (e.g., to elect a July 1-June 30
taxable year). The election could be made only by start-up
small businesses, or partnerships and S corporations, with
gross receipts of less than $5 million.
C. Cash Method of Accounting (S. 543)
On March 7, 2005, Chair Snowe introduced S. 543 to expand
the availability of the cash method of accounting for small
businesses. Currently, the general rule under the tax code is
that only those small businesses that generally earn less than
$5 million in annual gross receipts are able to use the cash
method of accounting in determining their federal income tax
liability. Chair Snowe's bill would have increased this
threshold to $10 million in annual gross receipts.
Chair Snowe's bill also would have permitted those
taxpayers that have inventory to potentially qualify for the
cash method of accounting. Currently, if a taxpayer otherwise
satisfies the requirements for using the cash method of
accounting but also has inventory in its business, the taxpayer
cannot use the cash method. Chair Snowe's bill provides an
exception for such taxpayers who have inventory by permitting
them to account for those costs as if they are an incidental
material supply, which is a standard that exists under current
law.
D. Simple Cafeteria Plans (S. 723)
On April 6, 2005, Chair Snowe introduced the SIMPLE
Cafeteria Plan Act of 2005 (S. 723), to create a separate
mechanism under which small businesses could enable their
employees to purchase health insurance that they offer with
tax-free dollars. Additionally, this bill would have modified
current tax law provisions that limit the availability of
certain employee benefits to the self-employed and employees of
small businesses. Accordingly, this bill addressed specifically
the access to health care issue for small business owners and
their employees, and it would have improved substantially their
capability of purchasing health insurance.
Currently, although many large companies are able to offer
their employees cafeteria tax plans, small businesses may be
unable to do so. The reason for this discrepancy is a result of
``non-discrimination'' rules in the tax code that essentially
prevent smaller firms from qualifying for this benefit solely
because they cannot satisfy numerical tests based solely on the
number of their employees.
E. New Markets Tax Credit (S. 1800)
In 2000, Congress enacted the New Markets Tax Credit (NMTC)
in order to increase the flow of private capital to low-income
communities. The purpose of the NMTC is to stimulate investment
in low-income communities where small businesses predominate by
providing for a 39 percent tax credit to taxpayers who make
equity investments in community development entities (CDEs).
The CDEs, in turn, make investments in or provide loans to
qualified businesses in low-income communities. Taxpayers who
participate in these deals as investors will receive the tax
credit over seven years (i.e., the tax credit is equal to five
percent of their investments in each of the first three years
and six percent of their investment for each of the remaining
four years).
The NMTC program, as currently established, is temporary
and was set to expire at the end of 2007. Thus, in order for
the program to continue, it needed to be reauthorized. As a
result, Chair Snowe introduced and Ranking Member Kerry
cosponsored the New Markets Tax Credit Reauthorization Act (S.
1800). The proposed reauthorization legislation would have
extended the program for five years and provided $17 billion in
tax credit authority. Although the legislation was not enacted,
it played a large role in the one-year extension, through
December 31, 2008, that was enacted as part of H.R. 6111, the
Tax Relief and Health Care Act of 2006 (P.L. 109-432).
F. Payroll Tax Deposit Agents (S. 3583)
Under current tax law, the IRS has no legal authority to
assess the firms that process payroll taxes for business
clients with the tax liability of its clients, oftentimes small
businesses. Rather, the IRS must assess the liabilities to the
taxpayers themselves. The reason for this apparent inequity is
because under current law, the duty to withhold payroll taxes
rests on the employer, which in this case is the accounting
firm's client. Upon withholding payroll taxes from its
employees, the employer is then deemed to hold these taxes in
trust for the benefit of the United States. As such, if the
employer fails to turn over those taxes to the government, it
becomes liable as a responsible party for the unpaid payroll
taxes.
On June 27, 2006, Chair Snowe introduced S. 3583 to prevent
payroll agents, such as accounting firms, from defrauding
innocent taxpayers in the future. The legislation would have
amended Section 6672 of the Internal Revenue Code to include
payroll withholding agents as ``responsible parties.'' As a
result, the IRS would be able to assess a 100 percent penalty
against these persons. By assessing this penalty against the
payroll agents, the IRS would not automatically re-assess the
tax against the innocent third-party taxpayers who paid what
they thought was their payroll tax obligation to the payroll
agent. Moreover, if the IRS was to assess this Section 6672
penalty against the payroll agent, payroll agents could not
file for federal bankruptcy protection in hopes of being
relieved from this obligation.
Although the legislation was not enacted, Chair Snowe,
during Senate Finance Committee consideration of the Telephone
Excise Tax Repeal and Taxpayer Protection and Assistance Act of
2006 (S. 1321), proposed an amendment based on the bill during
a markup. The amendment was included as part of the Chairman's
modifications to the mark. The underlying bill including the
Snowe amendment was subsequently passed out of the Finance
Committee.
G. Qualified Intermediaries
On February 7, 2006, the Department of the Treasury and the
IRS issued a notice of proposed rules for deferred like-kind
exchanges with respect to funds held by qualified
intermediaries (QIs). Under IRS Section 1031 taxpayers are
allowed to engage in like-kind exchanges of business property.
QIs hold the proceeds of a sale of business property while the
taxpayer locates replacement property. Generally, QIs generate
revenue by charging a fee and retaining a portion of the
interest earned on the exchange proceeds that they manage. The
proposed regulations would treat the funds held by the QI as a
loan from the exchanging taxpayer to the QI. This change has
substantial tax implications for small business QIs.
Chair Snowe, joined by Ranking Member Kerry and Senators
Isakson and Pryor, sent a letter to Treasury and the IRS
expressing the Committee's concerns regarding the potentially
devastating and negative impact that these proposed regulations
would have on small businesses. Specifically, the letter
requested a full and complete Regulatory Flexibility Act (RFA)
analysis be conducted and legal analysis under the proposed
regulations be reconsidered. In response to the Snowe-Kerry-
Isakson-Pryor letter, the IRS has committed to conducting a new
RFA.
H. Retail Depreciation
On August 3, 2006, Chair Snowe, Ranking Member Kerry,
Senator Hutchison, and Senator Lincoln introduced the
``Recovery Period for Depreciation of Certain Improvements to
Retail Space'' (S. 3806). This legislation would reduce from 39
to 15 years the depreciable life of improvements that are made
to retail stores that are owned by a retailer. Under current
law, only retailers that lease their property are allowed this
accelerated depreciation, which means it excludes retailers
that also own the property in which they operate. Critically,
this proposal would conform the tax code to the realities that
retailers face. Studies conducted by the Treasury Department,
Congressional Research Service, and private economists have all
found that the 39-year depreciation life for building
improvements is far too long. Retailers generally remodel their
stores every 5 to 7 years to reflect changes in customer base
and compete with newer stores. Moreover, many improvements such
as interior partitions, ceiling tiles, restroom accessories,
and paint, may only last a few years before requiring
replacement. Upon introduction, S. 3806 was referred to the
Senate Finance Committee.
X. ACCESS TO CAPITAL AND MARKET ISSUES
A. Improving Small Businesses' Financial Health, and Making Small
Businesses More Competitive With Larger Businesses
As she had during the 108th Congress, Chair Snowe
cosponsored the Interest on Business Checking Act of 2005 (S.
1586) that Senator Hagel introduced on July 29, 2005. The bill
would have assisted small businesses and small banks by
permitting banks to offer interest on business checking
accounts and allowing the Federal Reserve to pay interest on
the bank reserves it holds. Senator Reed (D-RI) also
cosponsored the bill, which was referred to the Senate
Committee on Banking, Housing, and Urban Affairs.
Small businesses consistently report that the difference
between success and failure often depends upon their ability to
make the most efficient use of capital. Current Federal law
prohibits banks from offering interest on business checking
accounts. Because large businesses have large cash reserves,
they can often circumvent these restrictions by structuring
``sweep'' arrangements with large banks that also sell or trade
securities, in which the businesses are compensated for the
short-term use of the cash reserves in the securities markets.
This compensation can replace the prohibited interest, creating
the same result. As a result, small businesses are placed at a
competitive disadvantage.
These complicated ``sweep'' arrangements are expensive to
establish, and small businesses have never been able to utilize
them in the same manner as larger businesses. The prohibition
on interest for business checking accounts has: (1) benefited
larger banks and businesses at the expense of smaller banks and
businesses; (2) discouraged small businesses from banking with
local community banks, which cannot offer expensive ``sweep''
arrangements; and (3) prevented small businesses from earning
interest on their deposits.
Congress enacted the prohibition on paying interest on
business checking accounts during the Depression as part of the
Banking Act of 1933 (the regulation was technically implemented
by Board Regulation Q). Regulations outlawed paying interest on
checking accounts because it was believed that it would lead to
bank failures.
Although the Interest on Business Checking Act of 2005 was
never considered by the full Senate during the 109th Congress,
its provision authorizing the Federal Reserve to pay interest
on bank reserves was included in the Financial Services
Regulatory Relief Act of 2006. President Bush signed this
legislation into law on October 13, 2006 (P.L. 109-351).
B. Assessing the Effects of the Sarbanes-Oxley Act of 2002 on Smaller
Public Companies
In April 2006, Chair Snowe and Senator Enzi issued a GAO
report that investigated the effects of the Sarbanes-Oxley Act
(the Act) on small business. Senators Snowe and Enzi jointly
requested the study in 2005 in response to small business
concerns about new legislation. The final report, entitled
Consideration of Key Principles Needed in Addressing
Implementation for Smaller Public Companies (GAO-06-361), found
that the Act's cost was disproportionately higher, as a
percentage of revenues, for smaller public companies than it
was for larger public companies. The study also included a list
of regulatory actions the Securities and Exchange Commission
(SEC) and the Public Company Accounting Oversight Board could
take to help small companies meet the Act's compliance
requirements.
In 2006, in addition to the GAO study, Chair Snowe sent two
letters to the SEC concerning the Act. The first letter was
sent on March 6, 2006, to SEC Chairman Christopher Cox. In this
letter, Chair Snowe voiced her concerns about the
recommendations of the Advisory Committee on Smaller Public
Companies. She stressed that the SEC's necessary, but ongoing
review, of the Act put many small public companies in a state
of regulatory limbo that left them unsure as to whether they
would be required to comply with Section 404's requirements on
internal controls.
On May 18, 2006, Chair Snowe sent another letter to
Chairman Cox about the effects of the Act on public offerings
in the United States. Chair Snowe raised concerns that the
Act's costly compliance requirements were motivating domestic
companies to raise capital in London and other foreign capital
markets where regulatory requirements were not as costly or as
cumbersome.
Although strong support remains for the Act's investor
protections, many small companies argued that some provisions,
such as Section 404 on internal controls, are excessively
vague, costly, and cumbersome, hurting small companies'
profitability more than they protect investors. Between 2003
and 2006, anecdotal evidence suggested that the costs of
implementing the Act helped to drive smaller public companies
from the U.S. stock markets and discouraged small firms from
taking their stocks public in the U.S. This restricted access
to domestic capital could significantly reduce small firms'
ability to create innovative new products, expand into new
markets, and hire additional employees.
C. Helping Start-Up Small Businesses To Get Off the Ground
To meet the clear need of encouraging new ``angel''
investors to provide equity stakes in start-up small
businesses, Chair Snowe and Ranking Member Kerry on September
27, 2006, introduced the Access to Capital for Entrepreneurs
Act of 2006 (ACE Act) (S. 3950). The legislation was referred
to the Senate Finance Committee.
Although opening a new business requires a substantial
amount of initial resources, venture capital is no longer a
realistic source of financing for the start-up phase of a
company's development. Recent research shows that venture
capitalists are now targeting their investments for larger
businesses or for later in a business's development, leaving
precious little seed money for new ventures. Today, venture
capitalists invest an average of $7 million per deal, an amount
that far exceeds the needs of a nascent small business.
Moreover, in 2005, of the $21.7 billion invested by venture
capitalists, just 3.3 percent was allocated to start-up small
businesses.
With few venture capital dollars available for start-up
small businesses, so-called ``angel'' investors (high-net-worth
individuals who invest in and support start-up companies in
their early stages of growth) are beginning to help fill this
gap. In contrast to venture capitalists who invest an average
of $7 million per deal, angel investors typically invest
between $500,000 and $1 million, an amount more in concert with
what start-up small businesses need. While 227,000 angel
investors were active in 2005, there are a large untapped
number of potential angel investors whose capital could
significantly benefit small businesses. IRS statistics on
wealth and income suggest that the number of potential angel
investors to active angel investors is between 7 to 1 and 10 to
1.
The ACE Act provides qualified angel investors a 25 percent
tax credit to offset up to $500,000 of investments per year.
The bill limits the investment per small business to $250,000,
so the investor would have to invest in at least two companies
for the $500,000 tax credit. To qualify, angel investors must
have an income of $200,000 over a two-year period, or a net
worth of $1 million. The bill references the Small Business Act
definitions to determine the size of enterprises that can be
invested in for purposes of the credit.
Given that angel investments have already created thousands
of new jobs, enacting the ACE Act could create thousands more.
Angel investments helped create 198,000 new jobs in the United
States in 2005, or four jobs per angel investment. Notably,
this tracks only jobs created at the time of the angel
investment, so 198,000 is likely the minimum number of jobs
created by angels in 2005. In addition, the credit in the ACE
Act is likely to be particularly effective because it is
patterned after successful tax credits in 21 states: Arkansas,
Arizona, Colorado, Hawaii, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maine, Maryland, Michigan, Missouri, New York, North
Dakota, Ohio, Oklahoma, South Carolina, Utah, West Virginia,
and Wisconsin.
XI. SMALL BUSINESS PENSION REFORM
A. Small Business Pensions and Retirement Savings Act of 2006 (S. 3715)
On June 24, 2006, Chair Snowe introduced the Small Business
Pensions and Retirement Savings Act of 2006 (S. 3715). The bill
would have amended the Internal Revenue Code and the Employee
Retirement Income Security Act of 1974 (ERISA) to establish a
hybrid tax-exempt retirement plan for small businesses with
fewer than 500 employees. Also known as a combined, defined
benefit/401(k) plan, or DBK plan, this type of retirement
account would have allowed small employers to offer their
employees the benefits of both defined benefit plans and
qualified cash or deferred compensation arrangements. The bill
sets forth benefit, contribution, vesting, and
nondiscrimination requirements for DBK retirement plans. It
also included provisions that would have allowed employers to
make automatic contributions to DBK accounts on behalf of
employee participants. The DBK language contained in S. 3715
was included in H.R. 4 the Pension Protection Act of 2006,
which President Bush signed into law on August 17, 2006 (P.L.
109-280).
XII. HEARINGS OF THE 109TH CONGRESS, 1ST SESSION
A. February 17, 2005: Hearing--``The President's Budget Request for the
Small Business Administration for Fiscal Year 2006''
On February 17, 2005, the Committee held a hearing to
review and make recommendations to the administration's budget
proposal for the SBA for fiscal year 2006. The hearing examined
the critical role the SBA's lending and technical assistance
programs have played in aiding America's small businesses
during a time of economic recovery. With two-thirds of all new
jobs created by small businesses, the SBA continues to prove
its investment in America's economic future, having created or
retained more than 6 million jobs since 1999.
The SBA's budget has been drastically reduced by 36 percent
over the past five years. Moreover, the administration's
proposed $592 million budget represented a 13 percent decrease
from the agency's 2005 request and a 26 percent decrease from
the 2004 request. Considering that the SBA's budget represents
less than 3/100ths of one percent of the total Federal budget,
there should be no doubt these unwarranted cuts must be
stopped, and instead investments made for future economic
vitality. The hearing analyzed the SBA's ability to provide the
same level of services under the administration's budget
proposal for reduced funding.
B. April 20, 2005: Hearing--``Solving the Small Business Health Care
Crisis: Alternatives for Lowering Costs and Covering the Uninsured''
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 limited 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 2006, the Kaiser Family Foundation reported that
only 48 percent of our Nation's smallest businesses, with fewer
than ten employees were able to offer health insurance as a
workplace benefit. In stark contrast, health insurance is
nearly universally provided by larger businesses with more than
200 employees.
The primary focus of the hearing was on the Small Business
Health Fairness Act, introduced by Chair Snowe, which would
have created National Association Health Plans, also known as
Small Business Health Plans, to allow small businesses to pool
their employees together, across state lines, to offer uniform
health plans and receive the same bulk purchasing and
administrative efficiencies already enjoyed by large employers
and unions. The Committee discussed other pooling mechanisms
and also ways of using the tax code as a mechanism for
increasing small business access to health insurance--primarily
through legislation that would enable more small business
owners to offer a choice of ``cafeteria plans'' that would
allow employees to purchase health insurance with tax-free
dollars.
Other witnesses who testified at the hearing included Doug
Newman, Newman Concrete Services in Hallowell, Maine; Al
Mansell, President, National Association of Realtors; Tom
Haynes, Executive Director, Coca-Cola Bottlers' Association;
Len Nichols, Director, Health Policy Program, New America
Foundation; John Morrison, Montana State Auditor, Commissioner
for Insurance and Securities; and William Lindsay, Past Chair,
National Small Business Association.
C. September 19, 2005: Field Hearing--``Military Reservists and Small
Businesses: Supporting Our Military Families and Their Patriotic Small
Business Employers''
On September 19, 2005, Ranking Member Kerry chaired a field
hearing entitled, ``Military Reservists and Small Business:
Supporting our Military Families and their Patriotic Small
Business Employers.'' The hearing was held on the campus of
Boston College in Chestnut Hill, Massachusetts. The hearing
focused on the consequences of call-ups on civilian employers.
Witnesses for this hearing included: Douglas Holtz-Eakin,
Director, Congressional Budget Office; Marshall Hanson,
Legislative Director, Reserve Officers Association of the
United States; Kenneth Forchielli, Chairman, Massachusetts
Committee for the Employer Support of the Guard and Reserve;
and Colonel Samuel Poulten, a reservist and small business
employee.
D. September 22, 2005: Hearing--``Impact of the Hurricanes Katrina and
Rita on Small Businesses''
On September 22, 2005, Senator Snowe chaired a hearing on
the impact of Hurricane Katrina on small business. This hearing
provided the Committee the opportunity to receive: (1) a
briefing on how the SBA had responded to the hurricane up to
that point; (2) analysis regarding the SBA's immediate and
long-term response plans; (3) feed-back on Senator Snowe's
Hurricane Katrina small business legislation; and (4) input on
how Congress and the SBA could further efforts to help the
victims, particularly small businesses, of Hurricane Katrina.
Witnesses for this hearing included: SBA Administrator
Hector Barreto; SBA Associate Administrator, Office of Disaster
Assistance, Herb Mitchell; and a panel of small business owners
located in the Gulf Coast disaster areas.
E. November 8, 2005: Hearing--``Strengthening Hurricane Recovery
Efforts for Small Businesses''
On November 8, 2005, Senator Snowe chaired a hearing on
``Strengthening Hurricane Recovery Efforts for Small
Businesses.'' This hearing gave the Committee the opportunity
to: (1) receive an update from the SBA on the agency's response
to the 2005 Gulf Coast hurricanes; (2) analyze SBA's disaster
response over the two months since the hurricanes struck and
examine the agency's long-term disaster response plans; (3)
analyze the administration's policy regarding prime and
subcontracting opportunities for small businesses; (4) discuss
Senator Snowe's SBA Disaster Response bill, S. 1807; and (5)
receive input on how Congress and the SBA can further efforts
to help hurricane victims and small business contractors
assisting in the recovery efforts.
Witnesses for this hearing included: Rep. Bennie Thompson
of Mississippi; SBA Administrator Hector Barreto; Major General
Ronald L. Johnson, Deputy Commander, U.S. Army Corps of
Engineers; Mr. Gregory Rothwell, Chief Procurement Officer,
Department of Homeland Security; and Mr. David E. Cooper,
Director, Acquisition and Sourcing Management, Government
Accountability office.
XIII. HEARINGS OF THE 109TH CONGRESS, 2ND SESSION
A. March 1, 2006: Hearing--``The Nomination of Eric Thorson To Be the
SBA's Inspector General''
On June 28, 2005, President Bush nominated Eric Thorson to
serve as the SBA's Inspector General. Mr. Thorson brings to the
SBA substantial investigative experience, including more than a
decade of experience in investigating and reforming major
Federal contracting programs. Mr. Thorson is a graduate of the
U.S. Air Force Academy and a Vietnam veteran. In the Executive
Branch, he previously served as the Senior Advisor for
Investigative Operations and Agency Planning at the Office of
Personnel Management, as well as the Deputy Assistant Secretary
and the Acting Assistant Secretary of the Air Force. In the
Legislative Branch, Mr. Thorson served on both sides of the
aisle as a Special Assistant to Senate Republican Leader Trent
Lott, the Chief Investigator for the Senate Finance Committee
and for the Senate Permanent Subcommittee on Investigations
under Senator William Roth, and as a senior House committee
staff member under Congressmen John Dingell and John Conyers.
The late Senator Roth profiled Mr. Thorson's
professionalism, exemplary character and integrity, and strong
dedication to public service in his landmark book, The Power to
Destroy: How the IRS Became America's Most Powerful Agency, How
Congress Is Taking Control, and What You Can Do to Protect
Yourself Under the New Law. In addition, Mr. Thorson's efforts
to investigate and root out racial discrimination at the IRS
received an official commendation from the National Association
for the Advancement of Colored People (NAACP). Mr. Thorson also
received plaudits from Senators Grassley and Kyl, as well as
numerous endorsements from law enforcement and investigative
professionals. The Committee held a hearing concerning Mr.
Thornton's nomination on March 1, 2006. During the hearing, the
Committee examined the nominee's extensive experience,
including his investigations of major Air Force contracts and
his participation in the 1997 and 1998 oversight hearings of
the Internal Revenue Service. The Committee unanimously and
favorably reported the nomination by a vote of 16-0 on March 9,
2006. On March 31, 2006, the Senate unanimously confirmed Eric
Thorson as the SBA Inspector General.
B. March 9, 2006: Hearing--``The President's Budget Request for the
Small Business Administration for Fiscal Year 2007''
On March 9, 2006, the Committee held a hearing to review
and make recommendations to the SBA's budget proposal for
fiscal year 2007. The hearing examined the agency's lending and
technical assistance programs and the resources the SBA needed
to respond to the 2005 Gulf Coast Hurricanes.
The administration proposed a budget for the SBA of $624
million for fiscal year 2007. Excluding the Disaster Loan
program, this represented a 25 percent reduction in the
agency's core loan and technical assistance programs over the
last six years. Moreover this signified an astounding 37
percent reduction in SBA's overall budget since 2001. The
hearing analyzed this steady decline in the SBA's budget and
how it could jeopardize the agency's ability to provide small
businesses with the ability to grow, flourish, and thrive.
C. April 26, 2006: Hearing--``Reauthorization of SBA Financing and
Economic Development Programs''
On April 26, 2006, the Committee held a hearing,
``Reauthorization of SBA Financing and Economic Development
Programs.'' The Committee focused on the issue of 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 the SBA's credit programs.
The Committee also considered how the reauthorization process
could be used to improve the broad range of finance programs
that play a vital role in assisting America's entrepreneurs to
obtain operating and equity capital.
Additionally, the hearing examined the SBA's economic
development programs and non-credit programs including the
Small Business Development Centers (SBDCs), the SBA's Office of
Women's Business Ownership programs, the National Women's
Business Council, and the Veterans Business Development
program. Witness testimony illustrated the highly effective
role these entities play in the SBA's primary infrastructure.
D. June 21, 2006: Hearing--``The Nomination of Steven C. Preston To Be
Administrator of the Small Business Administration''
President Bush on May 16, 2006, nominated Steven C. Preston
to be SBA Administrator. The previous SBA Administrator, Hector
Barreto, resigned on April 25, 2006, to become the National
Chairman of The Latino Coalition, a Hispanic Advocacy
organization. Mr. Barreto was the second longest serving
Administrator in the SBA's history.
Between January 2004 and his nomination, Mr. Preston served
as the Executive Vice President of the ServiceMaster Company,
working on issues including information technology, corporate
streamlining efforts, strategy, and acquisitions. From April
1997 to January 2004, he served as the company's Chief
Financial Officer. Prior to his tenure at ServiceMaster, Mr.
Preston was the Senior Vice President and Treasurer of First
Data Corporation from September 1993 to March 1997, and an
investment banker and Senior Vice President at Lehman Brothers
from October 1985 to August 1993.
Mr. Preston received his undergraduate degree with highest
distinction (Cum Laude) from Northwestern University in 1982
and an MBA from the University of Chicago. Currently, he is the
recipient of various academic recognitions and scholarships,
including the G.S. Parker Valedictorian Scholarship and the Phi
Beta Kappa award.
Mr. Preston was active in numerous civic, professional,
religious, and charitable organizations during his academic and
professional career. These memberships include, the Hinsdale
Hospital Foundation, Voices for Children, Operation Exodus
Inner City, and Trinity Presbyterian Church. Mr. Preston has
also served on the Advisory Board of Concentric Equity
Partners, a ServiceMaster sponsored private-equity firm and
Tri-Artisan Capital Partners, a privately-held merchant bank.
It should be noted that Concentric Equity Partners' chief
mission is to assist entrepreneurs in building leading service
and related businesses.
On June 21, 2006, the Committee held a confirmation hearing
for Preston. Although the focus and purpose of the hearing was
to examine the qualifications of the nominee, this hearing
provided the Committee with a forum to discuss their primary
small business initiatives and ideas for improving and
revitalizing the SBA. Mr. Preston was questioned about the
SBA's credit, non-credit, and equity capital programs, the
administration's disaster response, and his commitment to
ensuring small businesses a fair opportunity to access Federal
government contracts and subcontracts.
Mr. Preston's nomination was unanimously reported out the
Committee on June 29, 2006, and the full Senate confirmed the
nomination by a voice vote on June 29, 2006.
E. July 12, 2006--Second Hearing on SBA Reauthorization Regarding
``Strengthening Participation of Small Businesses in Federal
Contracting and Innovation Research Programs''
On July 12, 2006, the Committee held a hearing,
``Strengthening Participation of Small Businesses in Federal
Contracting and Innovation Research Programs.'' During the
hearing, the Committee focused on procurement issues, which too
often present insurmountable obstacles to small businesses
seeking to compete in the Federal marketplace for a share of
the more than $200 billion that Federal agencies award in
contracts each year. The hearing examined the Small Business
Innovation Research (SBIR) program and the Small Business
Technology Transfer program (STTR), as well as the Technology
Rural Outreach program and Federal and State Technology
Partnership program (FAST), all of which would have been
reauthorized under the Small Business Reauthorization and
Improvements Act of 2006 (S. 3778). The Committee heard from a
broad cross section of the small business stakeholders of these
programs, as well as from SBA representatives who oversee these
programs.
In addition, the hearing also served to review the SBA's
government contracting and business development programs, which
include the SBA's Prime Contracting and Subcontracting
programs, HUBZone program, Section 8(a) Business Development
program, and BusinessLINC program. Stakeholders of these
programs provided important insight to the Committee, and many
of their recommendations were incorporated into S. 3778.
F. October 3, 2006: Hearing--``Challenges Facing Women-Owned Businesses
in Government Contracting''
In October 2006, Senator George Allen held a field hearing
at the George Mason University in Fairfax, Virginia, concerning
the implementation of the Women-Owned Small Business
Contracting program. The Committee heard testimony from Karen
Hontz, the Assistant Administrator for Government Contracting
at the SBA and Emily Murphy, the Chief Acquisition Officer of
the General Services Administration, as well as from
representatives of women's small business groups and women-
owned small businesses. The focus of the hearing concerned the
multi-year delays in implementing the Women Owned Business
(WOSB) set-asides authorized by the Congress in 2000 for select
industries where women have traditionally faced barriers to
fair participation in Federal contracting. The Committee
received assurances that the SBA intends to comply with the
WOSB statute. In addition, the Committee received assurances
that WOSB status may be used as a primary evaluation factor in
awarding GSA Federal Supply Schedule task order contracts under
the existing GSA policy.
G. December 6, 2006: Hearing--``The Nomination of Jovita Carranza To Be
Deputy Administrator of the Small Business Administration''
President Bush on September 7, 2006 nominated Jovita
Carranza to be Deputy Administrator of the SBA. The previous
SBA Deputy Administrator, Melanie Sabelhaus, resigned on June
15, 2005, to return to the private sector.
Prior to her nomination, Ms. Carranza spent her entire
professional career with United Parcel Service (UPS), working
her way from a part-time, night-shift clerk in Los Angeles in
1976 to regional manager for international relations in Miami
in 2000. Throughout her UPS career, Ms. Carranza was steadily
promoted. She served as a workforce planning manager (1987),
human resources manager (1990), district shipping hub manager
(1991-1996), and manager of the Americas region (1999).
Ms. Carranza served as a board member for the National
Center for Family Literacy and the United Way. She is also
active in other organizations that support various children's
and urban causes. For her accomplishments throughout her
career, Ms. Carranza was named Hispanic Business Magazine's
``Woman of the Year'' in 2004.
Ms. Carranza received her MBA from the University of Miami.
She also has received executive, management, and financial
training at the INSEAD Business School in Paris, France, the
University of Michigan, and the University of Chicago.
On December 6, 2006, the Committee held a confirmation
hearing for Ms. Carranza. Prior to the hearing, critics of Ms.
Carranza's nomination cited her lack of small business
experience. However, during the hearing, Ms. Carranza cited
small businesses as one of the largest customer bases for UPS.
Ms. Carranza stated that she is well aware of the needs of
small businesses, and that throughout her career, she has been
active in helping to address the requirements that enable small
businesses to remain competitive in the global marketplace.
These initiatives include providing financing to small
businesses, consulting services on ways to reduce shipping
costs, and assistance with disaster contingency plans.
Ms. Carranza's nomination was unanimously reported out of
the Committee on December 6, 2006, and the full Senate
confirmed the nomination by unanimous consent on December 9,
2006.
XIV. SMALL BUSINESS COMMITTEE STAFF DELEGATIONS
A. Staff Trip to Gulf Coast To Tour Hurricane-Ravaged Areas (October
2005)
In October 2005, the Committee led a bipartisan staff
delegation to Baton Rouge, Louisiana, and Fort Worth, Texas, to
observe and analyze SBA's response to Hurricanes Katrina and
Rita. The SBA played a vital role in assisting individuals and
small businesses victimized by Hurricanes Katrina and Rita and
was responding to an unprecedented natural disaster. However,
two months after Hurricane Katrina hit, only 12 percent of
SBA's disaster loans had been processed and less than 2 percent
of them had been approved. The goal of the staff delegation was
to determine the reasons for SBA's delays and to provide
recommendations to improve the agency's disaster response.
Committee staff provided the following findings and
recommendations following the Gulf Coast trip.
(1) The SBA should hire 1,000 additional employees for the
Fort Worth processing center, including business loan officers
and data entry staff, to meet the current demand for loan
processing. A disaster application may sit inactive for 8-10
days before being typed into the computer, and thus it is
delayed before loan processing even begins.
(2) The SBA should hire 450 additional Loss Verification
Officers to analyze the damages of homes and businesses in
Louisiana and Mississippi.
(3) The SBA should simplify credit tests for disaster loan
applications to make them less burdensome. By law, the interest
rates on a home, business or economic injury loan depend on
whether each applicant has credit available elsewhere. The SBA
has determined that over 97 percent of disaster loan applicants
do not have credit available elsewhere.
(4) Allow SBDCs to apply for additional non-matching funds
such as ``portability grants'' that are larger than $100,000.
(5) The SBA should hire at least five additional full-time
Procurement Center Representatives and five additional full-
time Commercial Market Representatives, as well as leverage the
personnel and expertise of Procurement Technical Assistance
Centers (PTACs) to help small businesses with prime and
subcontracting opportunities.
(6) The SBA and its resource partners should increase one-
on-one business counseling and services to small businesses
affected by a disaster.
(7) The SBA should enhance its disaster loan computer
system, the Disaster Credit Management System (DCMS), to make
it more efficient and effective for future disasters, and
expedite the implementation of an on-line loan application
system.
(8) The SBA should improve notification to the public of
application deadline changes.
B. Staff Trip to Gulf Coast To Tour Hurricane-Ravaged Areas (October
2006)
On October 23 and 24, 2006, the Congressional delegation's
participants had the opportunity to meet with small businesses
located in New Orleans East, the French Quarter, Magazine
Street, St. Bernard Parish, and Lake Charles, Louisiana. The
interactions with these small businesses led to extremely
informative discussions. Staff was also able to participate in
two roundtable discussions with community business leaders,
regional SBA staff, and Federal, State, and local government
representatives, among others.
All the businesses that the staff visited shared compelling
stories, and several central themes emerged from the roundtable
conversations, including: (1) anger and dissatisfaction with
the Federal government's response to the 2005 hurricanes; and
(2) the rising costs of insurance, rent, and doing business in
a post-Katrina environment. Additionally, many of the affected
businesses discussed specific issues with the SBA including,
borrower-SBA communication, lost documentation, bridge loans,
and duplication of benefits.
On Wednesday, October 25, 2006, the delegation traveled to
Fort Worth, Texas, to visit the SBA Processing Disaster Center.
On this occasion, staff had the opportunity to tour the SBA's
Processing Disaster Center and see a demonstration of the
application process for disaster loan borrowers. Staff also was
able to see first hand the agency's implementation of the
Accelerated Disaster Response Initiative.
SBA staff and the delegation also engaged in a question-
and-answer session to go over several concerns and issues
observed by Committee staff during tours and roundtable
discussions held in Louisiana. Staff sent a follow-up letter to
the agency with recommendations on how to deal with some of
these issues, including loan modifications and clarification
regarding flood insurance requirements.