[Federal Register Volume 59, Number 46 (Wednesday, March 9, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5432]


[[Page Unknown]]

[Federal Register: March 9, 1994]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 123

 

Disaster--Physical Disaster and Economic Injury Loans (Definition 
of Major Source of Employment)

AGENCY: Small Business Administration.

ACTION: Interim final rule.

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SUMMARY: The Small Business Administration is revising on an immediate 
basis the definition of ``major source of employment.'' Effective for 
any disaster commencing on or after January 1, 1994, a major source of 
employment will mean a concern which has one or more locations in the 
Disaster Area which, individually or in the aggregate, employed at 
least 10 percent of the work force of the commuting area of a community 
located within the Disaster Area, not including any area more than 50 
miles away from the community; or employed at least 5 percent of the 
work force in an industry within the Disaster Area and also employed a 
certain minimum number of people in the Disaster Area; or employed at 
least 250 people in the Disaster Area. This revision is being 
undertaken on an emergency basis and is therefore published as an 
interim final rule.

DATES: This rule is effective March 9, 1994. Comments must be received 
on or before May 9, 1994.

ADDRESSES: Comments should be submitted to Bernard Kulik, Assistant 
Administrator for Disaster Assistance, U.S. Small Business 
Administration, 409 Third Street, SW., 8th Floor, Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT:
Michael E. Deegan, Office of Disaster Assistance, (202) 205-6734.

SUPPLEMENTARY INFORMATION: The Small Business Act (Act) limits the 
total amount of disaster assistance a business borrower may receive 
from the Small Business Administration (SBA) in connection with any one 
disaster to $1.5 million unless the borrower is a major source of 
employment (MSE) in the Disaster Area and SBA, in its discretion, 
waives the $1.5 million limitation. 15 U.S.C. 636(c)(6). ``Major source 
of employment'' has never been defined in the Act; instead, SBA has 
provided a definition in its regulations. 13 CFR 123.3.
    On December 9, 1993, SBA revised its definition of major source of 
employment to mean a concern which has one or more locations in the 
Disaster Area which, individually or in the aggregate, (a) employed at 
least 10 percent of the work force of the commuting area of a community 
located within the Disaster Area, not including any area more than 50 
miles away from the community (Text #1); or (b) employed at least 10 
percent of the work force in an industry within the Disaster Area and 
also employed a certain minimum number of people in the Disaster Area 
(Test #2); or (c) employed at least 1,000 people in the Disaster Area 
(Text #3). 58 FR 64672. The revision was intended to ensure that loans 
in excess of $1.5 million would be made available only to concerns that 
were large enough to assist in maintaining the economic viability of 
the Disaster Area.
    SBA reaffirms its intention to grant MSE waivers only under those 
circumstances where a large loan is necessary to permit a location to 
reopen or stay open in order to avoid substantial unemployment in the 
Disaster Area. SBA has come to believe, however, that substantial 
unemployment can result when a concern that has fewer employees than 
required by the criteria in the current MSE definition is forced to 
close its doors. Accordingly, SBA is relaxing the threshold so that 
more companies will be eligible for an MSE waiver, although the waiver 
will still only be granted if it is necessary to avoid substantial 
unemployment in the Disaster Area.
    SBA is satisfied with Test #1 of the MSE definition at the present 
time. Test #2, however, may unfairly exclude large employers from 
qualification as an MSE when a disaster occurs in a large urban area or 
one that is dominated by one or several industries. In such locations, 
a concern which employs less than the required 10 percent of the work 
force in an industry in the Disaster Area (see Text #2 above) may, 
nevertheless, be a major employer in that area. In fact, in the 
thirteen years since the 10 percent test has been in the regulations, 
an average of only one concern per year has requested MSE status under 
Test #2. Because the standard may be overly restrictive, SBA has 
decided to reduce the proportion of the work force in the industry that 
is required to be employed by the concern under Test #2. Under today's 
interim final rule, a business employing at least 5 percent of the work 
force in an industry in the Disaster Area will be permitted to qualify 
as a major source of employment under Test #2. The provision is 
modified accordingly, and is effective for all disasters commencing on 
or after January 1, 1994. A concern seeking MSE status under Test #2 
must still satisfy the second requirement of the test, which requires 
that a minimum number of people be employed by the concern (50 for non-
manufacturing firms, 150 for manufacturing firms).
    Large businesses seem to have found it even more difficult to 
qualify as a major source of employment under Test #3 of the 
definition, which requires the employment of 1,000 people in the 
Disaster Area. In the last thirteen years, no company has been afforded 
MSE status under the provision. SBA has decided that the standard set 
forth in Test #3 is too strict. Experience in communities affected by 
disasters has convinced SBA that firms with at least 250 employees are 
regarded as significant employers by their communities. Firms of this 
size are wooed by state and local development officials because they 
are recognized as major employers with the potential to significantly 
impact job creation in a community. SBA is therefore amending Test #3 
to being it into conformance with the general view of the size of a 
``major'' employer. Effective for all disasters commencing on or after 
January 1, 1994, a concern will be able to qualify as a major source of 
employment under Test #3 if it employs at least 250 people in the 
Disaster Area. The number of companies meeting this test will still be 
small; according to 1990 census data, only 0.67% of U.S. business 
establishments employ at least 250 people.
    No other changes to the definition are necessary at this time.
    Applicants for MSE waivers are reminded that qualification of a 
concern as a major source of employment does not mean that such concern 
is automatically eligible for disaster assistance in excess of $1.5 
million. SBA has the discretion to lend a major source of employment 
more than $1.5 million only if the concern's damaged location is out of 
business or in imminent danger of going out of business as a result of 
the disaster and the loan is necessary to permit the location to reopen 
or stay open in order to avoid substantial unemployment in the Disaster 
Area. The MSE must also have exhausted all of its own funds and all 
available Credit Elsewhere. See 13 CFR 123.28 (1994).
    SBA is adopting the new MSE definition effective upon publication 
pursuant to 13 CFR 123.1(b) which authorizes emergency changes in the 
regulations governing its disaster assistance program, and 5 U.S.C. 
553(b)(B) which permits publication of regulations in final form 
without notice or comment when an agency finds that good cause exists 
for publication in final form on an emergency basis, and that notice 
and comment is impracticable, unnecessary or contrary to the public 
interest. In this regard, the public interest in seeing to it that the 
new standards are effective as to the recent California earthquake 
disaster makes the utilization of notice and comment rulemaking 
impracticable.
    SBA is soliciting comments on this interim final rule, and will 
consider both the comments received and the Agency's experience with 
the new definition of major source of employment before issuing a final 
rule. In particular, SBA will review the continuing usefulness of Test 
#2 of the definition in light of the relaxation of Test #3 accomplished 
by this interim final rule. If SBA's experience indicates that Test #1 
and the newly-revised Test #3 are sufficient to identify the concerns 
that are truly major sources of employment, Test #2 will be eliminated 
from the definition.

Compliance With Executive Orders 12866, 12612, and 12778; Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq.; and the Paperwork Reduction Act, 
44 U.S.C. ch. 35

    For purposes of Executive Order 12866, SBA certifies that this rule 
will not have an annual economic effect in excess of $100 million, 
result in a major increase in costs for individuals or governments, or 
have a significant adverse effect on competition and, therefore, will 
not constitute a major or significant rule. SBA has made this 
determination based upon the fact that even though this rule will 
loosen the criteria for qualification as a major source of employment, 
SBA does not expect that the number of applicants for MSE status will 
increase significantly. On August 12, 1993, the Act was amended to 
increase from $500,000 to $1.5 million the aggregate amount of disaster 
assistance a business borrower could receive from SBA, unless the 
borrower qualified as a major source of employment. Pub. L. 103-75. 
When non-MSEs became eligible for disaster assistance of up to $1.5 
million, the relevance of the MSE exception was significantly 
diminished. Loans between $500,000 and $1.5 million are now available 
without regard to status as a major source of employment. Moreover, 
while this rule will allow more companies to be eligible for large 
loans, the number of companies expected to fall into that category will 
be too small to cause this to be a significant regulatory event.
    For purposes of Executive Order 12612, SBA certifies that this rule 
will not have federalism implications warranting the preparation of a 
Federalism assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in section 2 of that Order.
    For purposes of the Regulatory Flexibility Act, SBA certifies that 
this rule will not have a significant economic effect on a substantial 
number of small entities for the same reason that it is not a major or 
significant rule.
    For purposes of the Paperwork Reduction Act, SBA certifies that 
this rule will not impose a new recordkeeping or reporting requirement.

(Catalog of Federal Domestic Assistance Program No. 59.008, Small 
Business)

List of Subjects in 13 CFR Part 123

    Disaster, Physical disaster and economic injury loans.

    For the reasons set forth above, part 123 of title 13 of the Code 
of Federal Regulations is amended to read as follows:

PART 123--[AMENDED]

    1. The authority citation for part 123 continues to read as 
follows:


    Authority: Secs. 5(b)(6), 7 (b), (c), (f) of the Small Business 
Act, 15 U.S.C. 634(b)(6), 636 (b), (c), (f); Pub. L. 102-395, 106 
Stat. 1828, 1864; and Pub. L. 103-75, 107 Stat. 739.


    2. Section 123.3 is amended by revising, the definition of ``Major 
Source of Employment'' to read as follows:


Sec. 123.3  Definitions.

* * * * *
    Major Source of Employment: (a) For disasters commencing on or 
after January 1, 1994, a concern which has one or more locations in the 
Disaster Area which, individually or in the aggregate, (1) employed 10 
percent or more of the entire work force of the commuting area of a 
geographically identifiable community, no larger than a county; 
Provided That the commuting area shall not extend more than 50 miles 
from such community; or (2) employed 5 percent or more of the work 
force in an industry within the Disaster Area and, if the concern is a 
non-manufacturing concern, employed no less than 50 employees in the 
Disaster Area or, if the concern is a manufacturing concern, employed 
no less than 150 employees in the Disaster Area; or (3) employed no 
less than 250 employees within the Disaster Area.
    (b) For disasters commencing on or after October 1, 1983, employees 
of concerns sharing common business premises shall be aggregated to 
determine major source of employment status for a non-profit applicant 
owning such premises.
* * * * *
    Dated: February 22, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-5432 Filed 3-8-94; 8:45 am]
BILLING CODE 8025-01-M