[Federal Register Volume 59, Number 65 (Tuesday, April 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8138]


[[Page Unknown]]

[Federal Register: April 5, 1994]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

 

Business Loan Policy--Media Policy Rule

AGENCY: Small Business Administration (SBA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: SBA is proposing to repeal its present media or opinion molder 
policy rule. Under the rule, as proposed, small business concerns 
engaged in media activity would be eligible for SBA financial 
assistance unless they are otherwise ineligible (such as businesses 
engaged in illegal activities or in activities that could not be funded 
by SBA under the Constitution, and businesses which are not 
creditworthy). This action is being taken to enable SBA to promote job 
growth and economic development by making SBA financial assistance 
available to a larger number of small business concerns.

DATES: Comments may be submitted on or before May 20, 1994.

ADDRESSES: Comments may be mailed to John R. Cox, Assistant 
Administrator for Financial Assistance, Small Business Administration, 
409 Third Street, SW., Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT:
John R. Cox, 202/205-6493.

SUPPLEMENTARY INFORMATION: It is timely for the Agency to consider 
major substantive changes in the media policy rule. Under SBA's present 
regulatory policy, no business loan may be made to an applicant engaged 
in the ``creation, origination, expression, dissemination, propagation 
or distribution of ideas, values, thoughts, opinions or similar 
intellectual property, regardless of medium, form or content.'' (13 CFR 
120.101-2(b) (1993)). There are several express exceptions to this 
prohibition.
    This policy was originally adopted by SBA in 1953 under the 
authority granted by section 4(d) of the Small Business Act (15 U.S.C. 
633(d)) which authorizes the Agency to ``establish general policies 
(particularly with reference to the public interest * * *), which shall 
govern the granting and denial of applications for financial assistance 
by the Administration.'' The Reconstruction Finance Agency, the 
predecessor to SBA, had a similar media policy rule.
    There were three basic reasons for the policy: First, the 
prohibition is based upon SBA's desire to avoid any possible accusation 
that the Government is attempting to control editorial freedom by 
subsidizing media or communication for political or propaganda 
purposes. Second, the Agency has generally sought to avoid Government 
identification through its business assistance programs with concerns 
which might publish or produce matters of a religious or controversial 
nature. Third, SBA recognizes that the constitutionally protected 
rights of freedom of speech and press ought not to be compromised 
either by the fear of Government reprisal or by the expectation of 
Government financial assistance.
    Over the years, Congress has considered the policy and has not 
objected to SBA's approach. In H.R. Rep. No. 840, 94th Cong., 2d Sess. 
28 (1976), the Subcommittee on SBA Oversight and Minority Enterprise 
acknowledged that SBA's statutory duty to assist small business ``must 
be in balance with supervening First Amendment prohibitions. The 
Subcommittee does not believe that the SBA should engage in activities 
which would necessitate its assumption of a censorship role. By 
censorship we mean the ability of SBA to direct a business as to what 
it can do or cannot do, relative to First Amendment protected activity, 
coupled with the power to enforce its will through the use of 
sanctions. The subcommittee believes such censorship would exist if SBA 
were to place in its loan agreements a prohibition against the 
promulgation of certain ideas and values, a breach of which would allow 
the Agency to liquidate the loan.''
    Many individual members of Congress have expressed concern with the 
substance of SBA's regulations in this area. Several bills have been 
introduced to deal with the rule legislatively, although none has been 
enacted. For example, S. 2084, 98th Cong., 2nd Sess. (1984), would have 
abolished the rule except in cases where the financial assistance would 
have been used primarily to (1) advance or inhibit religion; (2) 
threaten the overthrow of organized Government by unlawful means; or 
(3) engage in any illegal activity or the dissemination of obscene 
materials which may be unlawful in any jurisdiction in which the small 
concern may operate. S. 2084 also would have required SBA to look at 
the content of the publications or communications in making its 
decision to assist a particular small concern.
    H.R. 1157, 98th Cong., 1st Sess. (1983), would have required SBA to 
hold a hearing, if the business was covered by the media policy rule, 
in order to ascertain if the SBA financial assistance would have been 
(1) adverse or detrimental to a legitimate public interest, or (2) used 
primarily to promote or criticize political or religious ideas. This 
approach would have led to lengthy hearings on applications for 
assistance every time the Agency interpreted the law adversely to an 
applicant.
    SBA testified on both of these bills and supported a legislative 
remedy to the problems associated with administration of the rule. 
However, no legislation has been forthcoming.
    In hearings on March 7, 1984, before the House Subcommittee on 
Export Opportunity and Special Small Business Problems, which was 
considering H.R. 1157, an expert in Constitutional Law on the faculty 
of the George Washington University Law School testified that the media 
policy rule was constitutional and was a justifiable approach in light 
of SBA's business and financial orientation and limited First Amendment 
expertise. However, there have been concerns raised over the years 
regarding the breadth of the present rule.
    The regulation presently provides a very broad list of ineligible 
enterprises which includes publishers, producers, importers, exporters 
or distributors of all types of communications (such as newspapers, 
sheet music, posters, film, tape, theatrical productions, greeting 
cards, and books), plus transportation concerns limited to the 
distribution of such products. Regulatory exceptions have been granted 
to commercial printing firms, advertising agencies, technical 
production facilities (such as a recording studio), and vocational 
schools. Eligible for assistance based on administrative 
interpretations are general merchandise stores which sell books, 
magazines and newspapers, and general book, music, record or videotape 
stores. Not eligible for assistance are specialty book or videotape 
stores which sell or rent items in a single or limited subject area. 
The rationale underlying the distinction between general and specialty 
stores has been that a general store covers a broad range of ideas, 
values and thoughts, rather than a particular or narrow set of ideas or 
values. SBA no longer regards this distinction as a proper basis for 
determining eligibility.
    SBA is well aware that small media concerns often have difficulty 
in raising capital or borrowing money. The media policy rule applicable 
to the financing of business loans has not been applicable to 
assistance provided by small business investment companies (SBICs) 
which are licensed by SBA. Thus, SBICs are permitted to help businesses 
engaged in the media. The policy surrounding SBIC assistance to media 
concerns is similar to the approach taken by the Congress in funding 
broadcasting through the nonprofit Corporation for Public Broadcasting. 
SBICs operate within SBA regulations, but their transactions with small 
companies are private arrangements which carry no SBA guaranty. Their 
funding comes from private, SBA and other nonprivate sources.
    SBA also has been making physical injury disaster loans to media 
concerns and academic schools since 1953, based on humanitarian 
grounds. The disaster loan program attempts to restore to an injured 
party that which was lost due to circumstances beyond its control. No 
distinction is made for eligibility purposes between media and non-
media concerns for physical disaster loans, but economic injury 
disaster loans are subject to the limitations of the media policy rule.
    SBA believes that the assistance it presently makes available under 
the exceptions to the media rule and under the SBIC and disaster 
programs are not sufficient to assist small businesses in the media 
industries which are demonstrably in need of increased aid. 
Accordingly, SBA is proposing to change its policy so as to make 
assistance available, under the 7(a) business, economic injury disaster 
and development company loan programs, to media concerns which are 
otherwise eligible for such assistance.
    While SBA is proposing to repeal the present rule primarily in 
order to make assistance available to a larger universe of small 
businesses, it is not unmindful of the implications of a total reversal 
of the policy. It has considered whether the policy determinations 
which where the underpinnings of the former rule should be maintained. 
After careful review, SBA is persuaded that repeal is appropriate.
    A revision of the present rule which would attempt to differentiate 
among media businesses on the basis of business activity likely would 
be challenged in court. There is a risk that such proposed revision 
would be found unconstitutional. Keeping the Government from becoming 
involved with controversial speech may be a worthy goal, but it 
arguably puts the Government in the position of allocating benefits 
with reference to the content of speech. This type of decision could be 
held by courts to be in conflict with the First Amendment.
    SBA believes that it present regulatory apparatus and 
administrative practice are sufficient to protect the public interest. 
In this regard, the present credit criteria under which applications 
for such assistance are reviewed and the prohibition on funding illegal 
activities should be sufficient to provide the desired level of 
protection. (See 13 CFR parts 120 et seq. and 122 et seq., specifically 
13 CFR 120.101-2(d) and 120.103-2.)

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

    For purposes of the Regulatory Flexibility Act, 5 U.S.C. 601 et 
seq., SBA certifies that this proposed rule, if promulgated in final 
form, will not have a significant economic impact on a substantial 
number of small entities.
    SBA certifies that this proposed rule, if promulgated in final 
form, will not constitute a significant regulatory action for the 
purposes of Executive Order 12866, since the proposed change is not 
likely to result in an annual effect on the economy of $100 million or 
more. While the proposed rule is intended to make eligible more media 
small business concerns, it is reasonable to assume that SBA will not 
be requested to process a disproportionate number of additional media 
loan applications. For example, in fiscal 1991, 1992 and 1993, 
respectively, SBA guaranteed 202, 199 and 241 section 7(a) loans to 
eligible bookstores, advertising agencies, video stores and vocational 
schools. The aggregate amounts of the SBA guaranteed portions for those 
three years for such businesses were, respectively, $27.7, $28.7 and 
$35.2 million.
    SBA certifies that the proposed rule, if promulgated in final form, 
would not impose additional reporting or recordkeeping requirements 
which would be subject to the Paperwork Reduction Act, 44 U.S.C. 
chapter 35.
    SBA certifies that this proposed rule would not have federalism 
implications warranting the preparation of a Federalism Assessment in 
accordance with Executive Order 12612.
    Further, for purposes of Executive Order 12778, SBA certifies that 
this proposed rule, if promulgated in final form, is drafted, to the 
extent practicable, in accordance with the standards set forth in 
section 2 of that Order. (Catalogue of Federal Domestic Assistance 
Programs, No. 59.012, Small Business Loans)

List of Subjects in 13 CFR Part 120

    Loan programs/businesses; Small businesses.

    Accordingly, pursuant to the authority contained in section 5(b)(6) 
of the Small Business Act (15 U.S.C. 634(b)(6)), SBA proposes to amend 
part 120, chapter I, title 13, Code of Federal Regulations, as follows:

PART 120--BUSINESS LOAN POLICY

    1. The authority citation for Part 120 would continue to read as 
follows:


    Authority: 15 U.S.C. 634(b)(6) and 636 (a) and (h).

    2. Section 120.101-2 would be amended by removing paragraph (b) in 
its entirety, and redesignating paragraphs (c) through (h) as 
paragraphs (b) through (g).

    Dated: March 17, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-8138 Filed 4-4-94; 8:45 am]
BILLING CODE 8025-01-M