[Federal Register Volume 70, Number 187 (Wednesday, September 28, 2005)]
[Notices]
[Pages 56765-56766]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-19359]


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SMALL BUSINESS ADMINISTRATION


Surety Bond Guarantee Program Fees

AGENCY: Small Business Administration (SBA).

ACTION: Notice of fee increase.

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SUMMARY: This notice increases the guarantee fee charged on each 
guaranteed bond (other than a bid bond) and payable by surety companies 
participating in SBA's Surety Bond Guarantee (SBG) Program from 20% of 
the bond premium to 32% of the bond premium, effective April 3, 2006. 
SBA has determined that the fee increase is necessary to supplement 
reserves in the SBG Program's revolving fund to better offset unfunded 
program liabilities resulting from claims filed by sureties under SBA's 
guarantee. This notice also addresses comments received by SBA in 
response to the notice proposing the fee increase, which was published 
in the Federal Register on August 15, 2005.

DATES: This fee increase is effective on April 3, 2006.

FOR FURTHER INFORMATION CONTACT: Barbara Brannan, Special Assistant, 
Office of Surety Guarantees, (202) 205-6545; [email protected].

SUPPLEMENTARY INFORMATION:

A. Background

    On August 15, 2005, SBA published a notice in the Federal Register 
proposing to increase the guarantee fee payable by sureties 
participating in the SBG Program (Sureties) from the present 20% to 32% 
of the bond premium, effective October 1, 2005, and requested comments 
on the proposal (70 FR 47874). In response to SBA's notice and request 
for public comments, which had a 30-day public comment period, SBA 
received 38 written comments. The commenters included four industry 
associations (three letters, one signed jointly); three surety 
companies (each one currently participating in the SBG Program); 18 
contractors (who have or had SBA guaranteed bonding through the SBG 
Program), 13 surety agents, and one Certified Public Accountant. Two 
commenters supported the fee increase. Thirty-six of the 38 commenters 
opposed the fee increase. The comments are addressed below.

[[Page 56766]]

B. Discussion of Public Comments

1. General Comments on Proposed Fee Increase

    One commenter said that the fee increase is inconsistent with the 
Congressional declaration of policy for programs under the Small 
Business Investment Act of 1958, including the SBG Program, to 
stimulate and improve the economy by establishing assistance programs 
for small business which are to be ``carried out in such a manner as to 
insure maximum participation of private financing sources,'' 15 U.S.C. 
661 (Section 661). The commenter said that the fee increase would 
discourage surety companies from participating in the SBG Program 
because it would not be economically viable or cost-effective, and 
several other commenters agreed.
    Thirty-four of the commenters were concerned about the potentially 
negative impact that the fee increase would have on Sureties or small 
businesses. SBA received 23 comments opposing the fee increase because 
it may cause Sureties currently participating in the SBG Program to 
decrease their level of participation in it. One of the Sureties said 
that it would withdraw from the SBG Program completely if SBA increases 
the fee from the present 20% to 32% of the bond premium. Eleven 
commenters were concerned about the potentially negative impact that 
the fee increase would have on small business. Some commenters said 
that small contractors would ultimately bear the burden of the fee 
increase because Sureties would pass the cost on to them in the form of 
higher premium rates. Other commenters said that the fee increase would 
limit availability of bonds for small contractors based on assumptions 
that all Sureties would withdraw from the SBG Program and, 
consequently, the Program would no longer exist. Specific concerns were 
raised about the ability of 8(a), HUBZone, and service-disabled 
veteran-owned small businesses to secure bonding for contracts obtained 
through SBA certification as well as for those small contractors 
seeking contracts to rebuild the Gulf Coast areas damaged by Hurricane 
Katrina.
    SBA has given due consideration to each comment and acknowledges 
the concerns expressed by Sureties, surety agents, small contractors, 
and the industry associations to which those parties belong. In 
response to those comments, however, SBA notes that its duty under 
Section 661 must be balanced with its explicit statutory obligation to 
administer the Program ``on a prudent and economically justifiable 
basis'' and its authority to establish fees for Sureties as SBA 
determines are reasonable and necessary, 15 U.S.C. 694b(h). SBA's 
duties and authorities must work in harmony. Although SBA has 
determined that the fee increase is necessary to supplement the current 
revolving fund reserves to better offset unfunded program liabilities, 
SBA only increased the fee the minimum amount necessary to operate the 
SBG Program ``on a prudent and economically justifiable basis'' to 
limit the negative impact on Sureties. In addition, SBA is considering 
procedural and policy changes to improve the Program to attract new 
surety companies to the SBG Program and to retain existing Sureties.
    Furthermore, SBA recognizes that the fee increase may have some 
impact on small businesses, especially since Hurricane Katrina 
devastated the Gulf Coast. SBA notes that the notice proposing the fee 
increase was published in the Federal Register on August 15, 2005--two 
weeks before Hurricane Katrina struck the Gulf Coast. As a result of 
the disaster, SBA expects that there will be an increase in bond 
activity through the SBG Program in the next six months because surety 
bonds are essential for small businesses seeking contracts to rebuild 
the Gulf Coast after Hurricane Katrina. Although the fee increase 
remains necessary to better offset unfunded liabilities of the SBG 
Program, SBA believes that the expected increase in bond activity due 
to Hurricane Katrina justifies postponing the effective date of fee 
increase from October 1, 2005, as originally proposed, to April 3, 
2006. The 6-month delay will permit SBA, Sureties, and small businesses 
to operate under the existing framework in the aftermath of Hurricane 
Katrina.

2. Suggested Improvements to SBG Program

    Four of the commenters suggested specific operational and policy 
changes to the SBG Program that would streamline it, thus making the 
Program more attractive to new and existing Sureties. Specific changes 
suggested by the commenters include elimination of multiple 
applications requiring original signatures, expediting the application 
process, increasing the number of SBG personnel in the field, and 
providing Sureties with more flexibility to adjust premiums charged on 
guaranteed bonds.
    SBA appreciates the comments from the industry on possible 
improvements to the SBG Program. SBA is considering a variety of 
program changes to encourage new surety companies to participate in the 
SBG Program, retain existing Sureties, and make the Program more 
beneficial for small contractors. SBA reaffirms its commitment to 
expanding availability of bonds for small contractors by maintaining 
SBG program operations and making Program improvements. SBA will 
continue to reassess the Program, including its operations and 
projected costs, and aim to make it more efficient and cost-effective.

(Authority: 13 CFR 115.32(c) and 115.66)

Michael W. Hager,
Associate Deputy Administrator, Office of Capital Access.
[FR Doc. 05-19359 Filed 9-27-05; 8:45 am]
BILLING CODE 8025-01-P