[Senate Report 115-449]
[From the U.S. Government Publishing Office]


 						  Calendar No. 350

115th Congress}                                            { Report
                                 SENATE
  2d Session  }                                            { 115-449

======================================================================
 
              SPURRING BUSINESS IN COMMUNITIES ACT OF 2017

                                _______
                                

               December 20, 2018.--Ordered to be printed

                                _______
                                

 Mr. Risch, from the Committee on Small Business and Entrepreneurship, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 1995]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Small Business and Entrepreneurship, to 
which was referred the bill (S. 1995) to amend the Small 
Business Investment Act of 1958 to improve the number of small 
business investment companies in underlicensed States, and for 
other purposes, having considered the same, reports favorably 
thereon without amendment and recommends that the bill do pass.

                            I. INTRODUCTION

    S. 1995 was introduced by Senator Marco Rubio, for himself, 
on October 24, 2017. The bill's cosponsors include Senator 
Tammy Baldwin and Senator John Kennedy.
    This bill requires the Small Business Administration (SBA) 
Administrator to give first priority to Small Business 
Investment Company (SBIC) program applicants located in 
underlicensed and under-financed states, expands a provision in 
the Small Business Investment Act of 1958 providing certain 
exemptions from full private capital requirements to include 
applicants from underlicensed states, and directs the 
Administrator to include additional information in the SBA's 
annual report to Congress on small business investment 
activities.
    During the markup of the bill, the bill was approved 
unanimously by a roll call vote as part of a manager's package.

              II. HISTORY (PURPOSE & NEED FOR LEGISLATION)

    The SBIC program was authorized in the 85th Congress by the 
Small Business Investment Act of 1958 to bridge the gap between 
entrepreneurs' need for capital and traditional financing 
sources. The SBIC program participants are made up of private 
equity funds that use their own capital in addition to leverage 
gained through SBA guaranteed loans to invest in small 
businesses. In fiscal year 2017, the SBA committed to guarantee 
$1.96 billion in SBIC small business investments. SBICs 
invested another $3.77 billion from full private capital for a 
total of $5.73 billion in financing for 1,077 small businesses.
    While the investments of Small Business Investment 
Companies (SBICs) are broadly distributed, the geographic 
locations of the investment firms receiving SBA backing are 
not: 72 percent of all SBICs are located in ten states. The 
Small Business Investment Act of 1958 declares a mission to 
``ensure the provision of small business investment company 
financing to all areas of the country.'' As a government-backed 
venture, the SBIC program should be resistant to market 
pressures that concentrate investment in finance-heavy regions, 
instead using its funds to ensure a broader distribution of its 
benefits. The legislation would increase the ability of the SBA 
to meet this standard, and increase the SBA's accountability to 
Congress.

                      III. HEARINGS & ROUNDTABLES

    In the 112th Congress, the Committee held a roundtable on 
March 22, 2012 entitled, ``A Spotlight on Small Business 
Investment Companies and Their Role in the Entrepreneurship 
Ecosystem.'' The roundtable included a discussion about 
entrepreneurial education in relation to SBICs and the display 
of a map demonstrating that there were few SBICs located 
outside of a small number of states.
    In the 114th Congress, the Committee held a hearing on July 
14, 2016 entitled, ``How Venture Capitalist and Angel Investors 
Fund Entrepreneurs and Startup Companies.'' During this 
hearing, Mr. Joe Schocken, President of Broadmark Capital, 
observed in his opening statement that there were enormous 
regional disparities in access to startup financing and that 
regional concentrations in venture capital were concerning. 
During the course of questioning, Senator Peters also noted and 
expressed concern about the regionalization of innovation. 
Senator Hirono expressed similar concerns about her home state 
of Hawaii.
    In the 115th Congress, Small Business Administrator Linda 
McMahon responded to a question pertaining to the importance of 
equity funding for startups and small businesses when the 
majority of venture funding is concentrated in cities on the 
west and east coasts. Administrator McMahon noted that 
geographic diversity is essential to the growth of 
entrepreneurship and innovation that drive our economy.
    Also in the 115th Congress, the Committee held a hearing on 
April 26, 2017 entitled, ``The Challenges and Opportunities of 
Running a Small Business in Rural America.'' During this 
hearing, Senator Shaheen asked Mr. John Lettieri, of the 
Economic Innovation Group, what public policy changes could be 
made to encourage rural business. He observed that regional 
disparities in access to capital were concerning and that 
public policy could help leverage private investment and 
change, in a market-based way, the risk profile of investments 
in rural areas.

                        IV. DESCRIPTION OF BILL

    This bill requires the Small Business Administration (SBA) 
Administrator to give first priority to Small Business 
Investment Company (SBIC) program applicants located in 
underlicensed and under-financed states, expands a provision in 
the Small Business Investment Act of 1958 providing certain 
exemptions from full private capital requirements to include 
applicants from underlicensed states, and directs the 
Administrator to include additional information in the SBA's 
annual report to Congress on small business investment 
activities.

                           V. COMMITTEE VOTE

    In compliance with rule XXVI (7)(b) of the Standing Rules 
of the Senate, the following vote was recorded on March 14, 
2018.
    A motion to adopt the Spurring Business in Communities Act 
of 2017, a bill to amend the Small Business Investment Act of 
1958 to improve the number of small business investment 
companies in underlicensed States, and for other purposes, was 
approved unanimously by a roll call vote as part of a manager's 
package. Senators Risch, Rubio, Paul, Scott, Ernst, Inhofe, 
Young, Enzi, Rounds, Kennedy, Cardin, Cantwell, Shaheen, 
Heitkamp, Markey, Booker, Coons, Hirono, and Duckworth voted 
for the bill.

                           VI. COST ESTIMATE

    In compliance with rule XXVI (11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed in the 
following letter from the Congressional Budget Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, November 16, 2018.
Hon. James E. Risch,
Chairman, Committee on Small Business and Entrepreneurship,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1995, the Spurring 
Business in Communities Act of 2017.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
Rabent.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

S. 1995--Spurring Business in Communities Act of 2017

    The Small Business Administration (SBA) operates a program 
that provides loan guarantees to Small Business Investment 
Companies (SBICs) that make investments in qualifying small 
businesses. The SBA must approve applications for an SBIC to 
operate. S. 1995 would direct the SBA to give first priority to 
applicants that wish to operate SBICs in states where the 
number of SBICs per person is below the median number of SBICs 
per person for all states. The bill also would make an SBIC 
operating in an under-licensed state eligible to receive loan 
guarantees from SBA if it was otherwise ineligible. Lastly, the 
bill would expand existing SBA reporting requirements for the 
SBIC program.
    Using information from the SBA, CBO estimates that 
establishing a prioritization process would increase the number 
of SBIC applications that the SBA would review. CBO estimates 
that implementing the bill would increase gross costs by about 
$2 million a year over the 2019-2023 period for the agency to 
hire about 15 additional staff to review a larger number of 
applications on an expedited basis; such spending would be 
subject to the availability of appropriated funds. A portion of 
those costs could be offset by SBIC licensing fees that the 
agency typically charges under current law; therefore, CBO 
estimates that S. 1995 would increase net costs to the SBA by 
about $8 million over the 2019-2023 period, assuming agency 
action consistent with that authority.
    CBO also estimates that expanding the availability of loan 
guarantees to SBIC's that otherwise would not be eligible would 
increase the amount and the gross cost of loan guarantees that 
the SBA could make; however, CBO estimates that the estimated 
net subsidy cost to the government would not be affected 
because the SBA would raise fees to cover any such costs.
    Enacting S. 1995 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    CBO estimates that enacting S. 1995 would not increase net 
direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2029.
    S. 1995 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.

                  VII. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI (11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation.

                   VIII. SECTION-BY-SECTION ANALYSIS

Section 1. Short title

    This section provides the short title for the Act, the 
``Spurring Business in Communities Act of 2017''.

Sec. 2. Improving the number of small business investment companies in 
        underlicensed states

    This section provides a definition for an ``under-
licensed'' state. It also directs the SBA Administrator to give 
first priority to SBIC applicants located in underlicensed and 
under-funded states, while expanding an exemption from full 
private capital requirements in the Small Business Investment 
Act of 1958 to include underlicensed states. Finally, this 
section requires the SBA to include information on SBIC 
licensing, the identification of underlicensed states, and the 
SBA's plans to increase the number of licensees in 
underlicensed states in their annual report to Congress on 
small business investment activities.

                                  [all]