[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.

                                  
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