[House Report 114-409]
[From the U.S. Government Publishing Office]


114th Congress   }                                             {  Report
                        HOUSE OF REPRESENTATIVES
 2d Session      }                                             { 114-409

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



 
            SMALL BUSINESS CAPITAL FORMATION ENHANCEMENT ACT

                                _______
                                

February 1, 2016.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 4168]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4168) to amend the Small Business Investment 
Incentive Act of 1980 to require an annual review by the 
Securities and Exchange Commission of the annual government-
business forum on capital formation that is held pursuant to 
such Act, having considered the same, report favorably thereon 
without amendment and recommend that the bill do pass.

                          Purpose and Summary

    Introduced by Representative Poliquin on December 3, 2015, 
H.R. 4168, the Small Business Capital Formation Enhancement 
Act, requires the Securities and Exchange Commission (SEC) to 
respond to any findings and recommendations put forth by the 
SEC's annual Government-Business Forum on Small Business 
Capital Formation (Forum). This statutory requirement is 
consistent with the current obligations related to findings and 
recommendations submitted by the Investor Advisory Committee as 
required by Title IX of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act.

                  Background and Need for Legislation

    In 1980, Congress required the SEC to conduct an annual 
government-business forum to review the current status of 
problems and programs relating to small business capital 
formation. A summary of the proceedings of the forum--known as 
the Government-Business Forum on Small Business Capital 
Formation--and any related findings and recommendations are 
submitted to, among others, the SEC and the appropriate 
congressional committees for review. The Forum has generated a 
number of sound recommendations that the Financial Services 
Committee has used to develop legislation, including many 
provisions of the bipartisan Jumpstart Our Business Startups 
(JOBS) Act.
    Unfortunately, the SEC is not statutorily obligated to 
respond to the Forum's recommendations and findings. Although 
Congress has deemed the recommendations worthy of response and 
action, the SEC has not. Interestingly, SEC Commissioners 
typically offer opening statements at Forum meetings that 
praise the Forum's work and the expertise of its members. For 
example, at the November 19, 2015, commencement of this year's 
forum, Chair White observed that:

          This is . . . the latest in a remarkable series of 
        open and direct discussions that have given the 
        Commission critical insight into the impact of our 
        rules on small businesses and on their efforts to raise 
        capital. This Forum can be counted on to be another 
        frank and productive conversation, and we welcome all 
        of your perspectives as leaders of the small business 
        community.

    Unfortunately, the interest and excitement reflected by the 
Forum's opening statements have not generated rule proposals 
once the SEC issues a summary of the Forum's recommendations 
the following year. As SEC Commissioner Michael Piwowar told 
attendees of the 2015 Forum:

        [g]iven your tremendous efforts to develop thoughtful 
        recommendations, I believe that the Commission should 
        respond to each one. By statute, the Commission is 
        required to respond to each recommendation provided by 
        the Investor Advisory Committee. It should not take a 
        law to require the Commission to respond to the Forum's 
        recommendations--it is more of a matter of common 
        courtesy and good government.

    Other experts have spoken about the need to statutorily 
obligate the SEC to respond to any findings and recommendations 
put forth by the Forum. At a December 2, 2015, Subcommittee on 
Capital Markets and Government Sponsored Enterprises hearing, 
Brian Hahn, who appeared on behalf of the Biotechnology 
Industry Organization and is the Chief Financial Officer of 
GlycoMimetics, testified that:

        small businesses understand their own regulatory 
        environment, and are uniquely equipped to advise the 
        SEC on how it could be reformed to enhance capital 
        formation. However, despite the fact that most Forum 
        recommendations could be adopted by the SEC through its 
        standard rule proposal process, the SEC is often 
        reluctant to act.

    Chris Mathieu, who testified at the same hearing on behalf 
of the Small Business Investor Alliance, also noted that ``in 
its current form, the Forum is weak and unfortunately most of 
its ideas are left for dead.''
    At the December 2nd hearing, Tom Quaadman, Vice President 
of the U.S. Chamber of Commerce's Center for Capital Markets 
Competitiveness, testified that:

        [t]oo often, regulatory restructures remain stagnant 
        over the course of decades while the marketplace is 
        constantly evolving. In fact, the proactive efforts by 
        this Subcommittee and Congress in passing the JOBS Act 
        and other bills to advance capital formation are 
        directly related to the inertia of the SEC to modernize 
        regulations . . . This bill would require the 
        Commission to pay closer attention to the Forum and 
        take affirmative action to move forward or not. 
        Therefore, the needs of capital formation cannot simply 
        be ignored.

                                Hearings

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing examining matters relating to H.R. 4168 on December 2, 
2015.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
December 8, 2015 and December 9, 2015, and ordered H.R. 4168 to 
be reported favorably to the House without amendment by a 
recorded vote of 55 yeas to 1 nay (recorded vote no. FC-81), a 
quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole record vote was a motion by Chairman Hensarling to report 
the bill favorably to the House without amendment. That motion 
was agreed to by a recorded vote of 55 yeas to 1 nay (Record 
vote no. FC-81), a quorum being present.


                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 4168 
will remedy the SEC's lack of response to the Government-
Business Forum on Small Business Capital Formation's 
recommendations and findings by statutorily obligating the SEC 
to respond to any findings and recommendations put forth by the 
Forum.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, January 15, 2016.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4168, the Small 
Business Capital Formation Enhancement Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                        Robert A. Sunshine,
                                        (For Keith Hall, Director).
    Enclosure.

H.R. 4168--Small Business Capital Formation Enhancement Act

    H.R. 4168 would require the Securities and Exchange 
Commission (SEC) to review the recommendations generated at an 
annual forum of government and business experts brought 
together to discuss small business capital formation. The bill 
also would require the SEC to assess each recommendation made 
by the forum and disclose any action the agency intends to take 
with respect to such recommendations.
    Based on information from the SEC, CBO estimates that 
implementing H.R. 4168 would cost less than $500,000 over the 
2016-2020 period to complete the review and assessment of 
recommendations as directed under the bill. Under current law, 
the SEC is authorized to collect fees sufficient to offset its 
annual appropriation; therefore, CBO estimates that 
implementing the bill would have a negligible effect on net 
discretionary costs, assuming appropriation actions consistent 
with that authority.
    Enacting H.R. 4168 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply. CBO 
estimates that enacting H.R. 4168 would not increase net direct 
spending or on-budget deficits in any of the four consecutive 
10-year periods beginning in 2026.
    H.R. 4168 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Susan Willie. 
The estimate was approved by H. Samuel Papenfuss, Deputy 
Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 4168 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 4168 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 4168 contains no directed 
rulemaking.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section cites H.R. 4168 as the ``Small Business 
Capital Formation Enhancement Act.''

Section 2. Annual review of government-business forum on capital 
        formation

    This section requires the Securities and Exchange 
Commission to review the findings and recommendations of the 
forum. It also requires the Commission to assess the finding 
and disclose any action the Commission intends to take with 
respect to the finding or recommendation.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italics and existing law in which no change is 
proposed is shown in roman):

   SECTION 503 OF THE SMALL BUSINESS INVESTMENT INCENTIVE ACT OF 1980


         ANNUAL GOVERNMENT-BUSINESS FORUM ON CAPITAL FORMATION

  Sec. 503. (a) Pursuant to the consultation called for in 
section 502, the Securities and Exchange Commission shall 
conduct an annual Government-business forum to review the 
current status of problems and programs relating to small 
business capital formation.
  (b) The Commission shall invite other Federal agencies, such 
as the Department of the Treasury, the Board of Governors of 
the Federal Reserve System, the Small Business Administration, 
organizations representing State securities commissioners, and 
leading small business and professional organizations concerned 
with capital formation, to participate in the planning for such 
forums.
  (c) The Commission may request any of the Federal 
departments, agencies, or organizations such as those specified 
in subsection (b), or other groups or individuals, to prepare 
statements and reports to be delivered at such forums. Such 
departments and agencies shall cooperate in this effort.
  (d) A summary of the proceedings of such forums and any 
findings or recommendations thereof shall be prepared and 
transmitted to the participants, appropriate committees of the 
Congress, and others who may be interested in the subject 
matter.
  (e) The Commission shall--
          (1) review the findings and recommendations of the 
        forum; and
          (2) each time the forum submits a finding or 
        recommendation to the Commission, promptly issue a 
        public statement--
                  (A) assessing the finding or recommendation 
                of the forum; and
                  (B) disclosing the action, if any, the 
                Commission intends to take with respect to the 
                finding or recommendation.