Small Business: SBA's Health Care Reform Activities (Letter Report,
09/06/94, GAO/RCED-94-240).

In late September 1993, anticipating strong interest in the
administration's health care reform proposal, the Small Business
Administration (SBA) and the Commerce Department jointly produced a
brochure describing how health insurance would be provided and what role
small employers would play in financing insurance for their workers
under the proposed Health Security Act. GAO concludes that SBA did not
violate the statutory prohibition on lobbying by preparing and
distributing the brochure. The brochure did not unlawfully lobby for the
President's plan because it did not urge businesses to contact Members
of Congress to support the plan. Furthermore, SBA has the authority
under the Small Business Act to publish and distribute the brochure.
When SBA distributed copies of the brochure to the Democratic National
Committee (DNC)--one of many recipients of the document--it did not
follow customary government procedures for distributing large quantities
of agency publications. Government agencies usually do not give large
quantities of free publications to private sector organizations;
however, SBA initially gave the DNC 10,000 free copies of the brochure.
DNC officials later paid SBA $5,000 for copies of the brochure.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-94-240
     TITLE:  Small Business: SBA's Health Care Reform Activities
      DATE:  09/06/94
   SUBJECT:  Proposed legislation
             Health care services
             Health insurance
             Small business assistance
             Lobbying activities
             Government publications
             Information dissemination operations
             Telephone communications operations
             Health care costs
IDENTIFIER:  American Health Security Act of 1993
             Health Security Act
             Clinton Health Care Plan
             National Health Care Reform Initiative
             Managed Competition Act of 1993
             Affordable Health Care Now Act of 1993
             Health Equity and Access Reform Today Act of 1993
             Business Assistance Trust Fund
             
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Cover
================================================================ COVER


Report to Congressional Requesters

September 1994

SMALL BUSINESS - SBA'S HEALTH CARE
REFORM ACTIVITIES

GAO/RCED-94-240

SBA's Health Care Reform Activities


Abbreviations
=============================================================== ABBREV

  DNC - Democratic National Committee
  GAO - General Accounting Office
  GPO - Government Printing Office
  NAFTA - North American Free Trade Agreement
  SBA - Small Business Administration

Letter
=============================================================== LETTER


B-256340

September 6, 1994

The Honorable Larry Pressler
Ranking Minority Member
Committee on Small Business
United States Senate

The Honorable Richard K.  Armey
The Honorable Cass Ballenger
The Honorable John A.  Boehner
The Honorable Mel Hancock
The Honorable J.  Dennis Hastert
The Honorable Jon Kyl
The Honorable H.  James Saxton
The Honorable Bob Stump
The Honorable Robert S.  Walker
House of Representatives

In late September 1993, anticipating strong interest in the
administration's health care reform proposal, the Small Business
Administration (SBA) and the Department of Commerce jointly produced
a brochure entitled The Health Security Act--Benefits for Business. 
The brochure describes how health insurance would be provided and
what role small employers would play in financing insurance for their
employees under the administration's proposed Health Security Act. 
SBA also explored other methods of providing information to small
businesses about the health care reform proposal, including a
toll-free (800 number) health care hotline. 

You asked us to review SBA's efforts to produce and distribute the
Health Security Act brochure and establish the toll-free health care
hotline.  Specifically, you asked us to

  determine whether the publication and distribution of the brochure
     violated laws concerning lobbying or any laws or regulations on
     the dissemination of information by SBA;

  review the circumstances surrounding SBA's issuance of the
     brochure, including who authorized it, how much it cost, and
     under what circumstances the brochure was distributed to the
     Democratic National Committee;

  examine whether the brochure accurately portrays the elements of
     the proposed Health Security Act;

  review the role of SBA's Office of Advocacy in health care reform;
     and

  determine the status of the health care hotline and review the
     hotline's costs. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

SBA did not violate the statutory prohibitions on lobbying by
preparing and distributing the brochure.  The brochure did not
unlawfully lobby for the President's plan because it did not exhort
businesses to contact Members of Congress to support the plan. 
Furthermore, SBA had the authority under the Small Business Act to
publish and distribute the brochure.  The act requires SBA to
disseminate information on matters of interest to small businesses. 
Thus, SBA is entitled to use appropriated funds to prepare and
distribute publications like the brochure.  In addition, there are no
statutory or regulatory provisions prohibiting the White House from
working with SBA in the development of the brochure. 

The brochure differs from the type of publication SBA usually
produces and grew out of the agency's desire to provide small
businesses with information about the President's plan and its effect
on the health care costs of small businesses.  SBA's Chief of Staff
authorized and led the development of the brochure, which cost
$92,591 for approximately 202,250 copies.  SBA's Office of Advocacy,
which is normally responsible for publications on current policy and
legislative issues, and other SBA staff offices had a limited role in
the development of the brochure.  When SBA distributed copies of the
brochure to the Democratic National Committee (DNC), one of the many
recipients of the brochure, it did not follow customary government
procedures for distributing large quantities of agency publications. 
Government agencies do not usually give large quantities of free
publications to private organizations; however, SBA initially gave
the DNC 10,000 copies of the brochure free of charge.  Later, DNC
officials paid SBA $5,000 for copies of the brochure. 

Generally, SBA's brochure accurately describes the key elements of
the proposed Health Security Act and the way it would affect small
businesses.  However, because the brochure was published before the
proposed act was finalized, some details about the costs and benefits
of the plan are missing or inaccurate. 

SBA's Office of Advocacy is involved in health care reform as part of
its role as the government's principal advocate of small businesses. 
The Office's health care activities have centered on monitoring
health care reform efforts in the Congress and providing small
businesses and others with an overview (primarily in monthly
publications) of the major health care plans.  The Office is also
sponsoring studies of health care issues. 

SBA's health care hotline was never activated for public use.  SBA
decided that the hotline--at a projected quarterly operating cost of
$759,000 to $928,344--was too costly to operate.  SBA believed it
would have needed several hundred operators to answer the phones
efficiently.  Instead, SBA developed a self-help work sheet that
business owners can use to compute their estimated health care costs
under the President's plan.  The work sheet is distributed to owners
of small businesses on request. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Health care reform is one of the leading issues facing the country. 
With 15 million to 20 million small businesses in existence, the
small business community is potentially one of the most heavily
affected constituents of the proposed reform.  SBA's Health Security
Act brochure was one of at least three U.S.  government publications
available in October 1993 on the President's Health Security Act
proposal, before the Health Security Act proposal was introduced in
the Congress on November 20, 1993.\1

Under the Health Security Act proposal, the current employer-based
health insurance system would be expanded to provide a comprehensive
benefits package to all Americans.  Consumers would still have a
choice of several health plans, and employers and consumers would
join together in large purchasing cooperatives, called alliances, to
gain bargaining power.  Employers and employees would both contribute
to health insurance premiums, and these contributions would remain
tax deductible for employers and tax exempt for employees.  In
addition, small employers would no longer face insurance restrictions
on preexisting conditions or other discriminatory actions. 

The President's plan was one of at least five proposed plans under
consideration when SBA's Health Security Act brochure was published
in late September and early October 1993.  The American Health
Security Act of 1993 (H.R.  1200), which was introduced in the
Congress on March 3, 1993, proposes Canadian-style (single-payer)
insurance.  A new version of the Managed Competition Act of 1993
(H.R.  3222) was introduced in the Congress on October 6, 1993.\2

This bill proposes that employers be required to offer insurance but
not be required to finance the insurance.  The Affordable Health Care
Now Act of 1993 (H.R.  3080), which also proposes that employers be
required to offer--but not finance--health insurance, was introduced
on September 15, 1993.  The Health Equity and Access Reform Today Act
of 1993 (S.  1770), which would require all individuals to purchase
insurance and all employers to offer employees a health plan, was
available in summary form in July 1993 and was formally introduced in
the Congress as a bill on November 22, 1993. 


--------------------
\1 The President transmitted a draft of the Health Security Act to
the congressional leadership on October 27, 1993.  The final bills
(H.R.  3600 and S.  1757) were introduced on November 20, 1993. 

\2 An earlier version of this bill (H.R.  5936) was introduced on
September 15, 1992. 


   SBA DID NOT VIOLATE LOBBYING OR
   OTHER STATUTES
------------------------------------------------------------ Letter :3

SBA was legally entitled to develop and publish its Health Security
Act brochure.  In our view, SBA did not violate the laws prohibiting
indirect or "grass roots" lobbying because the brochure contains no
statement exhorting the public to contact Members of Congress to urge
the passage of the proposed Health Security Act.\3 Furthermore, SBA
was authorized, as part of its overall mission of informing small
businesses about relevant issues, to use funds to prepare and
distribute the brochure.\4 (As requested, these legal issues are
analyzed in detail in app.  I.)

During our review, congressional concerns were raised about the White
House's involvement in preparing the brochure.  We confirmed that no
statutory or regulatory provision prohibited the White House from
working with SBA in the development of the brochure. 


--------------------
\3 "Grass roots" lobbying means that the government agency contacts
third parties, either members of special interest groups or the
general public, and asks them to contact their legislators to urge
them to support or oppose a bill. 

\4 Similarly, the Department of Commerce was entitled to use
appropriated funds to prepare and distribute the brochure.  The
brochure, by describing the costs and benefits of the proposed Health
Security Act, furthers Commerce's mandate to promote the development
of business.  (See app.  I for additional information.)


   DEVELOPMENT AND PUBLICATION OF
   SBA'S BROCHURE
------------------------------------------------------------ Letter :4

SBA's Health Security Act brochure, produced by the Administrator's
Office, was not a typical SBA publication, and SBA's Office of
Advocacy and other staff offices had a limited role in its
development.  In addition, in initially giving copies of the brochure
to the DNC free of charge, SBA did not follow the customary
government practice for distributing large quantities of agency
documents. 


      THE BROCHURE IS NOT A
      TYPICAL SBA PUBLICATION
---------------------------------------------------------- Letter :4.1

The Health Security Act brochure is unlike most SBA publications in
that it is issue oriented rather than program oriented.  SBA's
program offices primarily produce brochures that explain existing SBA
programs and services.  The topics are relevant to people who are in
business or who are entering business. 

SBA produces very few publications that provide information on
policy-related matters or on enacted or proposed legislation.  Those
it has published have been issued by the Office of Advocacy.\5 The
Office of Advocacy, which has a significant role in keeping small
businesses informed on issues that affect them, is the SBA office
normally responsible for distributing information on issues or
legislation that concern small businesses.  According to the
then-Acting Chief Counsel of the Office of Advocacy, the Health
Security Act brochure is the type of document that the Office of
Advocacy would normally publish.  However, the Office was not asked
to produce the brochure. 


--------------------
\5 In the past, the Office of Advocacy has published documents on
legislation such as the federal prompt payment legislation and the
Davis-Bacon Act, which covers wages paid in connection with
government construction contracts. 


      PRODUCTION AND COST OF THE
      BROCHURE
---------------------------------------------------------- Letter :4.2

SBA's brochure was produced in late September 1993 at the direction
of SBA's Chief of Staff.  She produced the brochure in conjunction
with the Assistant Deputy Secretary of Commerce and his Confidential
Assistant, and with assistance from two advisers from the White
House's health care reform task force.  The publishing branch of the
Executive Office of the President designed the brochure at the
request of SBA's Chief of Staff.  (App.  II contains information on
this assistance.)

Approximately 202,250 copies of the brochure were printed at a cost
of $92,591; this cost includes a 9-percent surcharge for rush
printing.  SBA used funds from its fiscal year 1993 administrative
account to pay the printing costs.  About 123,300 copies were sent to
SBA's field offices, Service Corps of Retired Executives, and Small
Business Development Centers to be distributed to small businesses;
10,000 went to the DNC; 25,000 went to the Department of Commerce;
and about 33,000 went to other SBA offices, the White House,
congressional offices, other federal agencies, private associations,
and individuals.  (App.  III contains additional information on the
brochure's distribution.)

SBA's Chief of Staff said that she produced the brochure because she
thought it would be a good way to educate and inform small business
owners about the proposed Health Security Act and its costs and
benefits to individual businesses.  She and the Administrator had
seen a brochure produced by the White House on the North American
Free Trade Agreement,\6 and they thought such a brochure would be a
good way of informing the public about health care reform.  According
to the Chief of Staff, to develop the brochure's contents, she, the
Assistant Deputy Secretary of Commerce, and an adviser to the White
House's health care reform task force reviewed all the available
information on the President's plan, including documents prepared by
the White House's task force.  Even though the proposed Health
Security Act had not been formally presented to the Congress at the
time, much information was available about the plan, including a
draft summary of the plan dated September 7, 1993, prepared by the
task force's working group. 

In discussing with us congressional concerns that SBA's brochure was
limited to information about only one health care reform proposal,
SBA's Chief of Staff said that she decided to limit the brochure to
information about the proposed Health Security Act because she did
not think enough details were available about the other health care
reform proposals and because most questions from small businesses
concerned the President's proposed plan.  She also said that SBA does
not plan to issue any other brochures dealing with the President's
health care reform proposal or any other proposals. 

Our work has shown that information was available about the other
health care reform proposals.  At the time SBA produced its brochure,
at least two bills on other proposed health care plans had been
introduced in the Congress and a third bill had been reintroduced.\7
In early April 1993, SBA's Office of Advocacy was already reporting
information on the different proposed health care reform bills in its
Small Business Health Update, which is sent to SBA's regional
advocates. 


--------------------
\6 The NAFTA:  Expanding U.S.  Exports, Jobs and Growth.  Clinton
Administration Statement on the North American Free Trade Agreement,
Office of the U.S.  Trade Representative, July 1993. 

\7 The American Health Security Act of 1993 (H.R.  1200) and the
Affordable Health Care Now Act of 1993 (H.R.  3080) had already been
introduced.  A new version of the Managed Competition Act of 1993
(H.R.  3222) was introduced on October 6, 1993. 


      INVOLVEMENT OF SBA'S OFFICE
      OF ADVOCACY AND OTHER SBA
      STAFF OFFICES IN BROCHURE'S
      DEVELOPMENT
---------------------------------------------------------- Letter :4.3

SBA's Office of Advocacy and other staff offices had a limited role
in the development of the brochure.  As part of its duties, the
Office of Advocacy disseminates information about federal programs
and services that are of benefit to small businesses.  In keeping
with its duties, the Office of Advocacy has been providing small
businesses with information about the different health care reform
proposals.  However, the Office was not asked to take the lead in
producing the brochure.  The Office of Advocacy did review a draft of
the brochure.  According to the then-Assistant Advocate for Health
Policy, she was not aware the brochure was being prepared until she
was asked to review it.  She was given about 30 minutes to review the
brochure, together with the then-Acting Chief Counsel for Advocacy. 
She said that she had several comments about the brochure's substance
and design but that she did not know to whom these comments were
given.  She did not know whether her comments about the draft
brochure were addressed before its publication, although she said
that the final version of the brochure is different from the draft
she reviewed.  She became aware that the brochure had been published
only when she started receiving requests for copies generated by an
article in The Los Angeles Times that referred to it and included the
Office of Advocacy's address for people who wanted to write to
request copies. 

Other SBA departments, including those that would normally be
involved in the development and distribution of publications, were
not involved in decisions about the brochure.  For example, the
Director of SBA's Office of Publications and Graphics was not
notified that the brochure was being developed, although an editor in
the Office was consulted.  SBA's publications are managed and
budgeted centrally by the Office of Publications and Graphics, which
is part of the Office of Business Initiatives, Education, and
Training.  SBA's policy requires SBA program offices to coordinate
any publications with the Director of the Office, but the Director
said that this coordination does not always occur. 

According to the SBA staff we interviewed, they were included in the
work only when the Chief of Staff needed them to perform specific
tasks.  For example, SBA's Office of Congressional and Legislative
Affairs was informed about the brochure and the pending distribution
late in the process.  According to the Assistant Administrator for
Congressional and Legislative Affairs, this Office is usually advised
of publications that the program offices are developing and,
depending on its workload, gets more or less involved in the
publication process.  The Office usually gives advice to SBA program
offices on distributing their products to the appropriate people. 
The Office was not told about the Health Security Act brochure until
it had already been drafted and was close to being published.  The
Office was told about the brochure because the Chief of Staff wanted
the Office to be ready to distribute it to Members of Congress. 
However, the Office was not told that SBA planned to give copies of
the brochure to the DNC; it learned about this distribution after it
occurred. 


      DISTRIBUTION OF THE BROCHURE
      TO THE DNC
---------------------------------------------------------- Letter :4.4

Private organizations normally obtain large quantities of a U.S. 
government publication in two ways:  (1) by purchasing the
publication from the Superintendent of Documents at the Government
Printing Office (GPO) or (2) by getting the negatives or page proofs
of the document from the originating agency or GPO and having the
document printed themselves.  SBA did not follow either of these
practices.  Rather, SBA initially gave the DNC 10,000 copies of the
Health Security Act brochure free of charge.  After questions were
raised in the Congress about the appropriateness of SBA's giving the
DNC copies of the brochure, DNC officials agreed to pay SBA for the
copies.  On January 25, 1994, the DNC paid SBA $5,000. 

During our work, officials at GPO and the Publishing Branch of the
Executive Office of the President questioned SBA's distribution of
the brochure free of charge to the DNC in light of Joint Committee on
Printing regulations.  These regulations, specifically section 39-1,
prohibit a government agency from distributing more than 50 free
copies of a document to a private organization without the
Committee's prior approval.  SBA was not aware of this regulation
when it gave copies of its brochure to the DNC.  When we brought the
regulation to SBA's attention, SBA invoked an exception in the
regulations to support its contention that it had not been required
to follow section 39-1 of the regulations.  The relevant part of the
exception, section 39-3, reads as follows: 

     This restriction [i.e., obtaining the Committee's prior
     approval] includes the free distribution in bulk of any material
     to private individuals or organizations for redistribution to
     any names on their mailing lists.  Committee approval is not
     required when the initiative for distribution through
     nongovernmental facilities is taken by departments. 

According to the staff of the Joint Committee on Printing, SBA could
rightfully invoke the exception.  The staff stated that the purpose
of section 39 is to prevent a private, for-profit organization from
getting free copies of a government publication and then selling
them.  The staff pointed out that those circumstances did not apply
to the DNC's receipt of copies of SBA's brochure.  SBA gave copies to
the DNC, a noncommercial entity, which in turn distributed them at no
charge to small businesses. 

SBA's acceptance of $5,000 from the DNC for copies of the brochure
was also contrary to the agency's normal practice of distributing its
publications free of charge.  SBA does not usually sell its
publications, according to the Director of SBA's Office of
Publications and Graphics.  Under SBA's publications program, the
Business Assistance Trust Fund,\8 donations are requested but not
mandatory.  SBA had planned to deposit the DNC's payment in the SBA
account used to fund the brochure.  Instead, SBA gave the money to
the Department of the Treasury.  According to SBA, it determined that
it was not entitled to keep the money. 

The DNC's acquisition and distribution of SBA's brochure was
different from the way the DNC normally produces and distributes
information.  A DNC official told us that disseminating SBA's
brochures was very unusual for the DNC.  Rather than purchasing
negatives or proofs and reprinting a government document itself, the
DNC develops and prints its own publications, containing the
information it wants to disseminate.  When the DNC publishes its own
material, it tries to reduce costs by using inexpensive layouts and
producing short publications.  For example, the DNC recently produced
its own fold-out pamphlet on health care reform and small businesses. 
However, by obtaining copies of SBA's brochure, the DNC was able to
disseminate information more quickly than it could have if it had
produced its own publication, according to the DNC official. 

According to the GPO contractor that printed SBA's brochure, if it
had used SBA's negatives to print the brochure for the DNC at private
rates, the cost would have been about $7,325.  The contractor said
that certain fixed costs are associated with each printing and that
the DNC would have had to pay the full amount of these costs rather
than only a portion, as it did when it reimbursed SBA.  The DNC
stated that it could have had its own contractor print the brochure
for less than the $5,000 it paid SBA.  The DNC provided us with a
price quotation from its printing contractor estimating a charge of
$4,600 to print 10,000 copies of SBA's brochure.  We did not verify
the accuracy or the appropriateness of these two price quotations. 


--------------------
\8 The Fund is managed by the Comptroller's office.  In fiscal year
1993, the Fund collected and spent approximately $330,000, according
to information from SBA's Chief of Staff. 


      CONTINUED AVAILABILITY OF
      BROCHURE
---------------------------------------------------------- Letter :4.5

On November 12, 1993, SBA reported to the Senate Small Business
Committee that it was no longer distributing the brochure.  However,
SBA never asked its field offices, GPO, or other agencies to stop
distributing copies of the brochure.  For example: 

  The GPO bookstores in both Washington, D.C., and Los Angeles
     continued to sell the brochure.  As of March 28, 1994, there
     were 8 copies on the shelf in the Washington, D.C., bookstore
     and 12,000 copies in GPO's warehouse.  As of May 1994, the
     brochure was available at the GPO bookstore in Los Angeles. 

  As of April 7, 1994, the brochure was available on the White
     House's electronic bulletin board through FedWorld, an on-line
     bulletin board. 

  At one of the five SBA district offices we visited in April 1994,
     the brochure was available from SBA counselors. 


   BROCHURE ACCURATELY DESCRIBES
   ELEMENTS OF THE HEALTH SECURITY
   ACT, BUT SOME INFORMATION WAS
   QUICKLY OUTDATED
------------------------------------------------------------ Letter :5

Generally, SBA's brochure accurately describes the key elements of
the proposed Health Security Act and the way it would affect small
businesses.  The brochure describes how health insurance would be
provided and what role small employers would play in financing
insurance for their employees.  However, some information in the
brochure became outdated almost immediately. 

Information became outdated because the brochure was published over a
month before the proposed act was introduced in the Congress.  The
brochure is written to portray key elements of the proposed act.  The
brochure does not indicate that the information it contains was based
on draft versions of the act or that the act's provisions were
subject to change. 

Two significant inaccuracies stemming from differences between the
draft and final versions of the proposed act involve the discounts
that small employers would receive through caps on required premium
contributions.  The first inaccuracy concerns the ceiling on the
number of employees that small businesses can have and still be
eligible for discounts.  This ceiling was raised from 50 employees to
75 employees between the time the brochure was issued and the time
the proposed act was introduced in the Congress.  The new ceiling is
more favorable to small businesses than the ceiling reported in the
brochure. 

The second inaccuracy concerns the caps on maximum premium
contributions for firms of different sizes and with different wage
structures.  (See table 1.) The brochure lists caps on premium
contributions for small employers with fewer than 50 employees, but
the caps shown in the brochure are lower for firms with between 25
and 49 employees than the caps offered under the proposed act. 
Furthermore, under the President's proposal, firms with between 50
and 75 employees are eligible for some graduated caps on premiums,
but these are not reflected in SBA's brochure. 



                                     Table 1
                     
                     Small Employers' Maximum Contribution as
                        a Percentage of Payroll, Based on
                      Average Wages and Number of Employees


                                                               Firms       Firms
                                Firms with    Firms with        with        with
Average wage (in thousands      fewer than    fewer than       25-49       50-75
of dollars)                   50 employees  25 employees   employees   employees
----------------------------  ------------  ------------  ----------  ----------
0-12                                  3.5%          3.5%        4.4%        5.3%
12-15                                  4.4           4.4         5.3         6.2
15-18                                  5.3           5.3         6.2         7.1
18-21                                  6.2           6.2         7.1         7.9
21-24                                  7.1           7.1         7.9         7.9
Over 24                                7.9           7.9         7.9         7.9
--------------------------------------------------------------------------------
SBA has made few efforts to notify recipients of the brochure that
portions of the brochure have become outdated.  After a draft of the
act was transmitted to the Congress on October 27, 1993, SBA's Chief
of Staff sent SBA regional administrators, district directors, and
branch managers a fax alerting them to two significant differences
between the brochure and the draft legislative proposal.  These
differences were (1) the change in the ceiling up to which small
businesses are eligible for discounts and (2) the staggering of
employers' caps on premium contributions according to the firms' size
and wage structure.  She included an updated table on maximum premium
contributions.  The field offices were asked to explain the revisions
when they distributed the brochure and were told that they might also
want to include the table in the brochure as an insert.  By the time
SBA's Chief of Staff sent her fax, most of the brochures had been
distributed.  Only 22,040 out of 202,250 copies of the brochure
remained undistributed at SBA headquarters as of October 22, 1993. 

We have not been able to confirm that any recipients of the brochure
were given a copy of the insert or were made aware that portions of
the brochure were outdated when the proposed act was finalized.  We
found that the DNC, SBA's Office of Advocacy, and SBA's Office of
Administration were not aware of an insert.  SBA's Director of
Administrative Services, who was responsible for getting the brochure
printed and distributed, told us that he never included an insert
with the copies his office distributed.  GPO's copies of the brochure
do not include an insert, and a copy of the brochure we got from
SBA's Chicago district office did not contain an insert. 

The brochure also emphasizes features of the proposed act that are
favorable for small businesses.  For example, the brochure does not
mention that many small employers do not currently finance insurance
for their employees but would be required to do so under the proposed
act.\9 At a minimum, small employers would be required to contribute
3.5 percent of their payroll costs towards health premiums.  This
premium cap would be beneficial for many small firms that offer
insurance; however, a contribution of 3.5 percent of payroll could
erode the profit margins of those firms that do not offer insurance,
particularly firms that are labor-intensive. 

Furthermore, the brochure does not mention that small employers could
be subject to an additional assessment to fund the difference between
the revenues owed to and collected by the regional alliances.  This
assessment would be in excess of any capped premium payments made by
the employers as shown in table 1. 


--------------------
\9 Thirty-three percent of firms with fewer than 10 employees offer
health insurance, and 72 percent of firms with between 10 and 24
employees offer insurance.  About 50 percent of the working uninsured
are employed by firms with fewer than 25 employees.  See Rising
Health Care Costs:  Causes, Implications, and Strategies,
Congressional Budget Office, Apr.  1991. 


   OFFICE OF ADVOCACY'S HEALTH
   CARE REFORM ACTIVITIES
------------------------------------------------------------ Letter :6

In its role as the government's principal advocate of small
businesses, SBA's Office of Advocacy is involved in health care
reform.  As part of its duties, the Office of Advocacy is supposed to
measure the direct costs and other effects of government regulations
on small businesses, disseminate information about the federal
programs and services that benefit small businesses, and represent
the views and interests of small businesses before other federal
agencies. 

The Office of Advocacy's health care activities have centered on
providing small businesses with information about the different
health care reform proposals, including the President's plan.  The
Office produces two monthly publications that include information on
health care reform.  Its Small Business Advocate, which provides
small businesses with information on various issues that affect them,
has included articles describing and comparing the health care plans
that have been introduced.  The Small Business Health Update provides
SBA's regional advocates with the latest information on the various
health care plans and issues, including forthcoming congressional
hearings.  The Office of Advocacy also monitors developments in
health care reform in the Congress. 

In addition, the Office of Advocacy is sponsoring health care studies
to develop objective information on health care issues.  A recently
completed study by the University of Kentucky developed information
on the number of uninsured people who are employed by or dependents
of employees of small businesses in the United States.  The study
analyzed data from the Bureau of the Census's annual household census
to develop the information.  The university is to provide SBA with a
computer program so that the Office of Advocacy can review and
analyze census data annually for this information. 

A second study, which is being performed by a company called
Lewin-VHI, will follow up on a 1987 study that assessed the types of
health care benefits that small businesses provide.  The study will
develop a wide variety of information on the businesses' operations
and ownership history and the nature and type of health benefits
provided by the businesses.  As part of this study, a questionnaire
will be sent to 3,700 small and large businesses.  The study is
currently in the pilot stage. 

The Office of Advocacy has not issued any policy-related publications
on the possible effects of health care reform on small businesses. 
The Office did not have a permanent Chief Counsel until May 1994, and
the Acting Chief Counsel did not feel that, as Acting Counsel, she
should set the agenda for the Office of Advocacy. 


   HEALTH CARE HOTLINE WAS NEVER
   ACTIVATED
------------------------------------------------------------ Letter :7

SBA's health care hotline and computer program were never activated
for public use because of the high cost of operating the service. 
According to SBA's Special Assistant for Finance and Investment,
there was initially no thought of an 800 number.  Rather, a health
care policy adviser at the White House approached SBA with the idea
of creating a series of formulas that could be used to provide
business owners with estimates of their health care costs under the
President's plan.  SBA and the White House adviser began developing a
computer program that could perform the calculations.  The computer
program consisted of a series of questions that a business owner
needed to answer about the firm's type and number of employees,
current payroll, and current health insurance so that the costs could
be calculated.  Up to 17 pieces of information could be needed to
calculate a business owner's health care costs under the proposed
act. 

According to SBA's Special Assistant for Finance and Investment,
while developing the computer program, SBA decided to explore the
feasibility of operating an 800 number that small businesses could
call to receive answers to their questions about health care and
estimates of their health care costs under the President's plan. 
Initially, SBA considered using its 800 answer desk--the number the
public uses to obtain general information on SBA's programs--but the
agency soon realized that the operators could not handle all the
calls that would be generated.  Instead, SBA decided to try setting
up an 800 number that would be dedicated to answering questions about
the President's proposal. 


      PROPOSED HOTLINE TESTED
---------------------------------------------------------- Letter :7.1

SBA conducted a test of the proposed hotline to uncover potential
problems and determine (1) how many calls the operators could handle
versus how many calls SBA expected to receive, (2) how much it would
cost to operate the system, (3) how long it would take to train the
telephone operators to answer questions correctly, and (4) how long
it would take to provide small businesses with estimates of their
health care costs.  The testing took place over 2 weeks; SBA did not
test every day. 

Equipment used in the test came from existing stock or was bought
through the General Services Administration under an existing
communications contract.  To pay for the equipment, SBA used money
remaining in its budget for telecommunications for fiscal year 1993
that it had no plans to spend.  SBA's Office of Communications
Technology Services bought the equipment for the test instead of
borrowing it because the Office was told to be prepared to activate
the hotline at the time of the test.  SBA spent approximately $42,500
for the telecommunications equipment and computers it used to test
the hotline. 

During the test, staff from SBA's 68 district offices contacted small
businesses to obtain information about their operations.  SBA's
district office staff, using the information they had obtained from
the small businesses, called the test hotline as small businesses
would and asked for information about health care costs.  At SBA
headquarters, 10 to 15 staff members from the offices of Advocacy,
Congressional and Legislative Affairs, and Public Communications
answered the calls from the district offices.  The operators had
received some training from the advisers to the White House's health
care reform task force--one of whom became the health care adviser to
SBA's Administrator--about how to use the computer program and how to
answer the questions.  SBA estimates that about 1,500 calls were made
to SBA headquarters during the test. 


      HOTLINE PROJECT CANCELED;
      WORK SHEET DEVELOPED INSTEAD
---------------------------------------------------------- Letter :7.2

In October 1993, SBA canceled the hotline project because it decided
that it did not have the personnel resources or funds to operate the
hotline.  SBA's Special Assistant for Finance and Investment told us
that SBA would have needed several hundred operators to answer the
phones efficiently.  SBA was very concerned about underestimating the
volume of calls the hotline could expect.  In SBA's view, it would be
worse to underestimate the demand for the service and be flooded with
more calls than the agency could take care of than not to operate the
hotline at all.  SBA estimated that the quarterly cost of operating a
hotline with 25 operators would be between $759,000 and $928,344,
depending on whether the hotline had features that allowed callers to
be placed on hold or gave out information outside of normal operating
hours.  Personnel costs were a significant component of the projected
costs of operating the hotline--$633,000 per quarter. 

From inception to cancellation, the computer program/hotline project
lasted less than 2 months.  When the hotline project was canceled,
most of the telephone and computer equipment was distributed to other
offices within SBA, either to replace broken equipment or to supply
offices that were being relocated.  According to several SBA
officials, including SBA's Chief of Staff and the Acting Deputy to
the Deputy Associate Administrator for Management and Administration,
no final report was prepared on the results or costs of the test. 

To replace the hotline, SBA officials, in conjunction with the
Assistant Deputy Secretary of Commerce and the adviser to the White
House's health care reform task force, developed a work sheet that
small businesses can use to compute their health care costs
themselves.  According to SBA's Chief of Staff, the work sheet
contains basically the same questions that were used to develop the
computer program for the hotline.  SBA is distributing the work sheet
on request only. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

We conducted our review from January through June 1994 in accordance
with generally accepted auditing standards. 

To determine the legality of SBA's publishing and distributing the
brochure, we examined SBA documents and reviewed applicable laws and
regulations concerning lobbying, SBA's authority, the Office of
Advocacy's authority, and government printing.  To obtain information
on the circumstances surrounding the publication and dissemination of
the brochure and the proposed health care hotline and computer
program, we interviewed officials at SBA, the Department of Commerce,
the GPO, the DNC, and the Executive Office of the President.  Our
review of the computer program and hotline was limited because SBA's
Special Assistant for Finance and Investment, who led the development
of the computer program, was unable to provide us with any
documentation.  He told us that all his papers were disposed of when
he changed offices after the computer program and hotline were
canceled.  (App.  IV contains additional information on our scope and
methodology.)


   AGENCY COMMENTS
------------------------------------------------------------ Letter :9

We discussed this report with SBA's Chief of Staff, who stated that
it accurately portrays the facts.  She also told us that she and the
SBA Administrator think the report treats the agency fairly. 


---------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Administrator of SBA, the
Secretary of Commerce, the DNC, and other interested parties.  We
will also make copies available to others on request. 

If you have any questions, please contact me at (202) 512-7631. 
Major contributors to this report are listed in appendix V. 

Sincerely yours,

Judy A.  England-Joseph
Director, Housing and Community
 Development Issues


LEGALITY OF USE OF APPROPRIATED
FUNDS TO ISSUE AND DISSEMINATE
BROCHURE ON ADMINISTRATION'S
HEALTH CARE PROPOSAL
=========================================================== Appendix I

This analysis addresses the legality, under laws prohibiting "grass
roots" lobbying and "self-aggrandizement," of actions taken by the
Small Business Administration (SBA) and the Department of Commerce in
using appropriated funds to issue and distribute to the public a
brochure on the administration's proposed Health Security Act. 

For the reasons explained below, we have concluded that the issuance
and dissemination of the brochure do not violate the laws prohibiting
grass roots lobbying and self-aggrandizement. 

BACKGROUND

The Health Security Act\1 is a proposal by the administration to deal
with problems in this nation's system of health care.\2 SBA and
Commerce produced a brochure outlining the problems in the nation's
health care system and the ways in which the proposed Health Security
Act would address them.  The brochure is aimed at employers,
particularly small business employers, and is introduced by a cover
letter from President Clinton. 

The brochure has a section entitled "Benefits for Business"\3

and another section entitled "Additional Benefits for Small
Business."\4 A series of questions and answers are also presented,
designed to allay employers' concerns about the impact the proposed
Health Security Act might have on their businesses.  Readers of the
brochure who want more information are advised to contact SBA or
Commerce and are given addresses to write to.  SBA published
approximately 202,250 brochures at a cost of $92,591.  Commerce's
contribution was $10,500. 

DISCUSSION

There are generally two broad categories of government agency
lobbying:  direct lobbying and grass roots lobbying.  Direct
lobbying, as the term implies, means direct contact by the agency
with legislators, either in person or by various means of written or
oral communication.  In indirect or grass roots lobbying, the agency
contacts third parties, either members of special interest groups or
the general public, and asks them to contact their legislators to
urge them to support or oppose a bill. 

Restrictions on lobbying by government officials derive from two
sources:  criminal statutes and provisions in appropriation acts.  We
first discuss the relevant criminal statute. 


--------------------
\1 The administration's proposed Health Security Act was introduced
in the Congress in late November 1993 and assigned bill numbers H.R. 
3600 and S.  1757. 

\2 Inadequate health insurance coverage (or no coverage at all) for
millions of Americans, escalating health care costs, the decreasing
quality of health care, and burgeoning administrative costs are some
of the problems the proposed Health Security Act identifies as
crippling the nation's health care system and purports to address. 

\3 According to the brochure, the proposed Health Security Act, if
enacted, would reduce employers' direct out-of-pocket costs because
it, among other things, "[g]uarantees that no employer in a regional
alliance will pay more than 7.9 percent of payroll .  .  .  [o]ffers
greater discounts (30% to 80%) to the smallest businesses and to low
wage employees .  .  .  [e]nds insurance abuse:  no more occupational
red-lining, restrictions on pre-existing conditions, or
discrimination against small businesses."

\4 Among the additional benefits cited by the brochure are that
"[t]he plan is phased in over a period of years as the cost of health
care is brought down[,] .  .  .  [t]he plan provides caps and
discounts to hold down the cost of health insurance so that small
businesses can afford to provide their employees with comprehensive,
real insurance coverage[,] .  .  .  [t]he plan enables the
self-employed to deduct 100 percent of the cost of health care
coverage from their taxes."


      SECTION 1913 OF TITLE 18
------------------------------------------------------- Appendix I:0.1

Section 1913 of title 18, United States Code, provides as follows: 

     No part of the money appropriated by any enactment of Congress
     shall, in the absence of express authorization by Congress, be
     used directly or indirectly to pay for any personal service,
     advertisement, telegram, telephone, letter, printed or written
     matter, or other device, intended or designed to influence in
     any manner a Member of Congress, to favor or oppose, by vote or
     otherwise, any legislation or appropriation by Congress .  .  . 
     ; but this shall not prevent officers or employees of the United
     States or of its departments or agencies from communicating to
     Members of Congress on the request of any Member or to Congress,
     through the proper official channels, requests for legislation
     or appropriations which they deem necessary for the efficient
     conduct of the public business. 

The statute provides criminal penalties for violations:  a $500 fine
or a year in jail, or both, plus removal from federal employment. 

Representative Good, who introduced the measure, explained the
rationale behind the statute: 

     The bill also contains a provision which .  .  .  will prohibit
     a practice that has been indulged in so often, without regard to
     what administration is in power--the practice of a bureau chief
     or the head of a department writing letters throughout the
     country, sending telegrams throughout the country, for this
     organization, for this man, for that company to write his
     Congressman, to wire his Congressman, on behalf of this or that
     legislation.  .  .  .  Now, it was never the intention of
     Congress to appropriate money for this purpose, and [ï¿½ 1913]
     will absolutely put a stop to that sort of thing. 

58 Cong.  Rec.  403 (1919). 

Consistent with this purpose, the Department of Justice, which is
responsible for enforcing federal criminal statutes, construes
section 1913 as not applying to direct communication between
officials of the executive branch and the Congress, but only to
indirect or grass roots lobbying, in which an attempt is made to
induce members of the public to contact their representatives in the
Congress to persuade them to either support or oppose legislation.\5
13 Op.  Off.  Legal Counsel 361 (1989); 5 Op.  Off.  Legal Counsel
180 (1981); 2 Op.  Off.  Legal Counsel 160 (1978); 2 Op.  Off.  Legal
Counsel 30 (1978). 

We share the Department's view of the statute.  Section 1913 does not
prohibit executive branch agencies from expressing their views to the
Congress or the public on the merits or deficiencies of legislation. 
B-217896, July 25, 1985; 63 Comp.  Gen.  624, 626 (1984).  The
objective of expressing those views may even be to persuade the
public to support the agency's position, provided the public is not
urged to contact Members of Congress.  See B-216239, Jan.  22,
1985.\6

In our view, therefore, the actions of SBA and Commerce plainly do
not constitute grass roots lobbying as prohibited by 18 U.S.C.  ï¿½
1913 because there is no statement in the brochure exhorting the
public to contact Members of Congress to urge the passage of the
proposed Health Security Act. 


--------------------
\5 Enforcement of section 1913 is the responsibility of the
Department of Justice and the courts, and GAO has no decision-making
authority to determine that a given action constitutes a violation. 
However, GAO does determine whether appropriated funds were used in a
given instance and refers matters to the Justice Department in
appropriate cases.  See, for example, B-192658, Sept.  1, 1978;
B-164497(5), Mar.  10, 1977.  In addition, since a violation of
section 1913 is by definition an improper use of appropriated funds,
such a violation could form the basis of a GAO exception or
disallowance.  GAO can take no action unless the Justice Department
or the courts first determine that there has been a violation. 
B-164497(5), Mar.  10, 1977.  To our knowledge, there has never been
a prosecution under section 1913. 

\6 See also B-223098/B-223098.2, Oct.  10, 1986.  Written materials
prepared and disseminated by SBA in support of a proposal by the
administration to transfer the SBA to Commerce did not, in our
opinion, violate section 1913.  None of the material urged members of
the public to contact Members of Congress to support the
administration's proposal.  Consequently, we did not refer the case
to the Justice Department.  B-229257, June 10, 1988.  No exhortation
to members of the public to contact their legislators was found in
speeches and written materials by the Chairman of the Federal Trade
Commission expressing opposition to the Postal Service's "monopoly"
status for letter class mail.  Hence, we concluded that section 1913
had not been violated and that referral of the case to the Justice
Department was not appropriate. 


      APPROPRIATION ACT
      RESTRICTIONS
------------------------------------------------------- Appendix I:0.2

The relevant appropriations for fiscal years 1993 and 1994 (Pub.  L. 
No.  102-395 and Pub.  L.  No.  103-121), covering salaries and
expenses at SBA and Commerce, provide for the two agencies' necessary
expenses.  In view of SBA's and Commerce's statutory authority,
discussed below, we believe that the expenses involved in issuing and
disseminating the brochure are consistent with the appropriation
acts.\7

The appropriation act for 1993 for SBA and Commerce (Pub.  L.  No. 
102-395, 106 Stat.  1828, 1872 (1992)) contains the following
prohibition: 

     SEC.  601.  No part of any appropriation contained in this Act
     shall be used for publicity or propaganda purposes not
     authorized by the Congress.\8

In our view, section 601 prohibits both indirect or grass roots
lobbying and activities that constitute self-aggrandizement or
"puffery." We discuss each of these separately below. 


--------------------
\7 SBA gave to the Democratic National Committee (DNC), free of
charge, 10,000 copies of the brochure.  (After questions were raised
about SBA's free distribution of the brochures to the DNC, SBA and
the DNC agreed that the DNC would pay a pro rata share of the costs
incurred to print the brochure.  However, when SBA gave the DNC the
brochures, it did not, nor did it have any plans to, charge for
them.) The DNC, in turn, distributed the brochures to interested
small business owners.  According to the SBA and the DNC, the DNC
volunteered to distribute the brochures for informational and
educational purposes.  The fact that SBA gave the DNC more than 50
free copies raised the possibility that SBA had violated section 39-1
of the Government Printing and Binding Regulations.  Section 39-1
prohibits government agencies from distributing more than 50 copies
of any publication free of charge to private organizations without
the prior approval of the Joint Committee on Printing.

SBA did not obtain approval from the Joint Committee on Printing
before giving the 10,000 brochures to the DNC.  Citing section 39-3
of the regulations, SBA maintains that it was not required to obtain
the Committee's approval.  Section 39-3 allows the distribution of
agency publications without the Committee's approval "when the
initiative for distribution through nongovernmental facilities is
taken by departments." SBA contacted the staff of the Joint Committee
after it had distributed the brochures, and the staff of the Joint
Committee agreed with the agency that the exception contained in
section 39-3 to the general rule in section 39-1 applied to the
distribution of the brochures to the DNC.  The staff of the Joint
Committee confirmed to us that the exception was applicable and that
the Committee's approval was not required in this case.  According to
the staff, the purpose of section 39 is to prevent a private,
for-profit organization from getting a substantial number of free
copies of a government publication and then selling them.  The staff
pointed out that those circumstances did not apply to the DNC's
receipt of the brochures.  SBA gave the brochures to the DNC, a
noncommercial entity, which, in turn, distributed them at no charge
to small businesses, the constituency of the SBA. 

\8 This provision is also contained in the appropriations act for
1994 for SBA and Commerce.  Pub.  L.  No.  103-121,  601, 107 Stat. 
1153, 1194 (1993). 


         GRASS ROOTS LOBBYING
----------------------------------------------------- Appendix I:0.2.1

Section 601 is patterned after an appropriation act restriction that
was enacted every year from the 1950s to fiscal year 1984 as part of
the annual Treasury, Postal Service, and General Government
Appropriations Act.  See, e.g., Treasury, Postal Service, and General
Government Appropriations Act, 1980, Pub.  L.  No.  96-74, ï¿½ 607(a),
93 Stat.  559, 575 (1979).  The restriction prohibited the spending
of appropriated funds "contained in this or any other Act," for
publicity or propaganda purposes "designed to support or defeat
legislation pending before Congress."\9

Section 601 does not explicitly prohibit, as did the governmentwide
provision formerly in effect, the spending of appropriated funds for
publicity or propaganda "designed to support or defeat legislation
pending before Congress." Nevertheless, section 601 necessarily
prohibits the use of appropriated funds for that purpose--grass roots
lobbying--since, by its terms, it prohibits the spending of
appropriated funds for publicity or propaganda of any sort unless
authorized by the Congress.  The Congress has not authorized grass
roots lobbying by federal officials.  Indeed, through enactment of 18
U.S.C.   1913, the Congress made it a crime for federal officials to
engage in such activity. 

Like section 1913, antilobbying restrictions such as the one
contained in section 601 prohibit appeals to members of the public
suggesting that they contact their elected representatives to support
or oppose pending legislation, thereby expressly or implicitly urging
the legislators to vote in a particular manner.  See 60 Comp.  Gen. 
423 (1981); 56 Comp.  Gen.  889 (1977).  By the same token, an agency
has a legitimate interest in communicating with the public and with
legislators about its policies and activities.  If any policy or
activity of an agency is affected by pending or proposed legislation,
discussion by officials of that policy or activity will necessarily,
either explicitly or by implication, refer to such legislation and
will arguably either support or oppose that legislation.  An
interpretation that strictly prohibited expenditures of public funds
for the dissemination of views on programs proposed or affected by
pending legislation would preclude virtually any comment by officials
on administration or agency policies or activities, a result we do
not believe was intended.  56 Comp.  Gen.  889 (1977); B-212235(1),
Nov.  17, 1983. 

These general considerations have formed the basis for our
determination in any given instance of whether the antilobbying
restrictions contained in appropriation acts have been violated.  For
example, in one case, the Department of Transportation set up
displays on the U.S.  Capitol grounds of passenger cars equipped with
passive restraint systems (airbags).  Department of Transportation
employees at the displays distributed brochures, explained the
devices, and answered questions from Members of Congress and the
public.  All this was done while legislation was pending to prohibit
mandatory enforcement of the airbag standard.  Since there was no
evidence that the Department of Transportation urged members of the
public to contact their elected representatives, we concluded that
there was no violation of the antilobbying restriction.  B-139052,
Apr.  29, 1980. 

In another case, we examined 1,462 news releases prerecorded and
disseminated to radio stations by 18 federal executive departments
and agencies.  We concluded that all but 10 of the news releases did
not violate the relevant antilobbying restriction, either because
they were clearly expositions of the administration's policy or
because, although they discussed pending legislation, they did not do
so in terms that were clearly designed to suggest that the public
contact Members of Congress to influence their vote on pending
legislation.  B-178648, Sept.  21, 1973. 

In the current case, the brochure contains no suggestion that members
of the public contact their representatives to urge them to support
the proposed Health Security Act.  Hence, the spending of
appropriated funds by SBA and Commerce to publish and distribute the
brochure did not violate the restriction in section 601 against
lobbying.\10


--------------------
\9 As long as this provision was in effect, it applied--by virtue of
the language "this or any other Act"--to all government agencies,
regardless of which appropriation act provided their funds. 

\10 SBA was aware of the prohibitions against grass roots lobbying:

.  .  .  we have been very careful not to engage in impermissible
lobbying or propagandizing.  None of our efforts have been directed
at influencing any member of Congress to favor or approve the
President's plan.  We set out to explain the plan, and the benefits
the President believes would follow if the plan were adopted.  We
specifically did not ask anyone to contact their elected
representatives to urge them to vote one way or another on the
proposed legislation.

Letter to the Honorable William Zeliff, Jr., House of
Representatives, from Erskine B.  Bowles, Administrator, SBA, dated
Nov.  4, 1993. 


         RESTRICTION ON
         SELF-AGGRANDIZEMENT
----------------------------------------------------- Appendix I:0.2.2

On numerous occasions, we have interpreted language substantively
identical to the language in section 601.  The purpose of such
language is generally to prohibit "publicity of a nature tending to
emphasize the importance of the agency or activity in question." 31
Comp.  Gen.  311, 313 (1952).  The restriction is directed toward
activities whose obvious purpose is self-aggrandizement or puffery. 
B-212069, Oct.  6, 1983.  See, e.g., B-161686, June 30, 1967
(anti-puffery restriction not violated by State Department
publications about the Vietnam War). 

Under our decisions, section 601 and other statutes using
substantively identical language do not prohibit an agency's
legitimate activities to provide information.  B-223098, B-223098.2,
Oct.  10, 1986; B-212069, Oct.  6, 1983.  Under this restriction,
public officials may report on and justify government policies to the
public.  See B-114823, Dec.  23, 1974.  The executive branch has a
duty to inform the public about government policies, and
policy-making officials have traditionally used government resources
to explain and defend their policies.  B-194776, June 4, 1979. 

The brochure explaining the administration's health care proposal
does not, in our view, constitute puffery or self-aggrandizement as
prohibited by section 601.  Rather, as SBA contends, the publication
and dissemination of the brochure fulfill the agency's mission under
the Small Business Act as authorized by the Congress. 

SBA cites section 8(b)(15) of the Small Business Act as constituting
authority for the agency to publish the brochure explaining the
administration's health care initiative.  That section provides: 

     (b) It shall also be the duty of the [Small Business]
     Administration and it is empowered, whenever it determines such
     action is necessary-- (15) to disseminate .  .  .  data and
     information, in such form as it shall deem appropriate, to
     public agencies, private organizations, and the general public. 

15 U.S.C.   637(b)(15). 

Referring to section 8(b)(15), SBA states: 

     It seems clear that this provision imposes an obligation on the
     part of the SBA to produce and distribute written materials
     which will inform the small business community about relevant
     issues, including Administration proposals. 

Memorandum entitled "Printing and Distribution of Publication `The
Health Security Act:  Benefits for Business,'" dated Mar.  4, 1994,
from General Counsel, SBA, to Administrator, SBA.\11

The Small Business Act does grant the SBA wide discretion to carry
out the purposes of the act.  See Duke City Lumber Co.  v.  Butz, 382
F.  Supp.  362, 370 (D.D.C.  1974), aff'd in relevant part, 539 F.2d
220 (D.C.Cir.  1976), cert.  denied, 429 U.S.  1039 (1977).  We
believe that SBA had the authority under 15 U.S.C.   637(b)(15) to
issue and disseminate the brochure.  An initiative for a national
health care plan, such as the administration's initiative,
necessarily concerns matters of interest to small businesses and is
properly the subject of an SBA analysis.  The brochure lays out for
small businesses the costs and benefits to them of the President's
health care initiative from SBA's perspective.  We conclude that the
issuance and dissemination of the brochure is a legitimate
informational activity on SBA's part and does not constitute puffery
or self-aggrandizement as restricted by section 601.\12

CONCLUSION

We do not believe that the contents of the brochure violated the
prohibition against grass roots lobbying contained in 18 U.S.C.  
1913.  Therefore, we will not refer the matter to the Justice
Department for possible prosection of the responsible agency
officials under that criminal statute.  Nor do we find any violation
of the prohibitions against grass roots lobbying or
self-aggrandizement contained in section 601 of SBA and Commerce's
fiscal year 1993 and 1994 appropriation acts. 


--------------------
\11 See also Letter to the Honorable William Zeliff, Jr., House of
Representatives, from Erskine B.  Bowles, dated Nov.  4, 1993, in
which Mr.  Bowles states:

The Small Business Act expresses the declared policy of the Congress
that the SBA aid, counsel, assist and protect the interests of small
business concerns.  It authorizes the SBA to make studies of matters
materially affecting the competitive strength of small businesses;
and to disseminate data and information, in such form as it shall
deem appropriate, to public agencies, private organizations, and the
general public.  We believe that the Small Business Act clearly
authorizes the SBA to publish a brochure explaining the President's
health care initiative. 

\12 Neither does the brochure constitute puffery or
self-aggrandizement by the Department of Commerce.  As with SBA,
publication and dissemination of the brochure by Commerce fulfill the
Department's responsibility under its authorizing legislation.  That
responsibility is stated under 15 U.S.C  1512:  "It shall be the
province and duty of [the] Department to foster, promote, and develop
the foreign and domestic commerce.  .  .  ." This broad mandate
plainly encompasses the authority to issue and distribute a brochure
outlining for businesses the costs and benefits to them of the
administration's health care initiative. 


ASSISTANCE IN THE DEVELOPMENT OF
SBA'S BROCHURE
========================================================== Appendix II

Two advisers from the White House's health care reform task force
participated in developing SBA's brochure, and the publishing branch
of the Executive Office of the President designed the brochure.  One
of the task force advisers, who is an executive from the private
sector, was instrumental in developing the contents of the brochure,
along with SBA's Chief of Staff and the Assistant Deputy Secretary of
Commerce. 

The other person from the White House's health care reform task force
who played a role in the development of the brochure was a special
government employee on the task force from February 1993 through May
1993 and September 1993 to October 1993.\1 On October 4, 1993, she
became a temporary employee of SBA as the health care adviser to
SBA's Administrator.  She was hired by the Office of Advocacy but
works in the Administrator's office and reports to the Administrator
on a day-to-day basis.\2 She is the only staff person from the Office
of Advocacy who reports to the Administrator.  According to the
former Acting Chief Counsel, the authority to hire temporary
employees was given to the Office of Advocacy so that it would have
the flexibility to hire people with experience and knowledge of
current issues.  The Office of Advocacy currently has about 20
temporary appointees.  It is not unusual for a temporary employee to
work at SBA for several years. 

The publishing manager of the publishing branch of the Executive
Office of the President designed the brochure.  The office had
produced a brochure on the North American Free Trade Agreement. 
SBA's Chief of Staff said she asked the White House publishing branch
to design SBA's brochure because she was impressed with the
publishing branch's work on the other brochure.  SBA could not do the
design layout for the brochure quickly enough to meet the deadline
for the job, so the White House's publishing manager wrote the
specifications the Government Printing Office's (GPO) contractor used
in printing the brochure. 


--------------------
\1 Special government employees are employed by an agency or the
Executive Office of the President for no more than 130 days in a
365-day period, either with or without compensation. 

\2 SBA's Office of Advocacy has the statutory authority to procure
the temporary services of experts and consultants.  The Chief Counsel
for the Office of Advocacy, after consultation with and subject to
the approval of the Administrator, may temporarily employ experts and
consultants without regard to certain limitations concerning
appointments in the competitive service or compensation. 


DISTRIBUTION OF SBA'S BROCHURE
========================================================= Appendix III

SBA distributed the Health Security Act brochure to its field and
district offices and to a variety of congressional offices, federal
agencies, and private associations.  The recipients that received the
largest number of brochures were SBA offices, the Department of
Commerce, and the Democratic National Committee (DNC).  SBA's records
show that as of June 1994, SBA's shipping and distribution section
still had 10,800 copies out of the approximately 202,250 brochures
that were printed. 

SBA sent 123,300 copies of the brochure to its field offices, Service
Corps of Retired Executives, and Small Business Development Centers. 
These offices were expected to distribute the copies of the brochure
to small businesses.  However, SBA has no record of who received the
brochures from SBA or the DNC or how many remain at SBA's various
offices.  SBA also put the brochure on the agency's computerized
bulletin board, which is available to small businesses and others. 
Shortly thereafter, SBA decided to take the brochure off the bulletin
board because the numbers associated with the plan were changing, and
SBA did not want to have to update the figures each time a change
occurred. 

The Department of Commerce received 25,000 copies of the brochure and
reimbursed SBA $10,500 under an interagency agreement.  It
distributed about 20,000 copies to the 535 Members of
Congress--between 30 and 40 copies to each member.  Commerce sent a
letter and a copy of the brochure to each of the Fortune 1000 firms
and about 130 trade associations in the Washington, D.C., area. 
About 450 copies of the brochure were distributed during town
meetings that Commerce held in Texas and California.  Other copies
were distributed at meetings attended by the Secretary of Commerce. 
As of January 25, 1994, Commerce still had about 1,000 copies of the
brochure on hand. 

The DNC received 10,000 copies of the brochure and distributed them
to its 20 field offices, where they were given to small businesses. 
The DNC paid SBA $5,000 for its copies of the brochure after
questions arose about the fact that it received copies free of
charge. 

The GPO printed 15,000 copies of the brochure to be sold in GPO
bookstores.  As of December 15, 1993, 2,364 copies had been sold.  In
addition, GPO printed 908 copies for depository libraries and 15
copies for the Library of Congress. 

Table III.1 details how the brochure was distributed. 



                         Table III.1
           
                Distribution of SBA's Brochure

                                                   Number of
Recipient                                             copies
--------------------------------------------  --------------
SBA's district offices                                80,800
Department of Commerce                                25,000
SBA's regional offices                                20,000
Service Corps of Retired Executives and               16,200
 Small Business Development Centers
SBA's Office of Congressional and                     10,500
 Legislative Affairs
Democratic National Committee                         10,000
National Leadership Coalition on Health Care           7,600
 Reform
SBA's branch offices                                   6,300
White House's Office of Public Liaison                 4,000
SBA's Office of Public Communication                   3,000
SBA's Chief of Staff, other SBA staff, and             1,660
 executive departments and agencies
Small business trade associations                      1,200
White House's Office of Communications                 1,000
Retail Druggist Association                              800
Women's Business Development Centers                     400
Department of the Treasury                               400
U.S. Coast Guard                                         400
SBA's town hall meeting, Denver, Colorado                400
SBA's town hall meeting, Portland, Oregon                350
SBA's town hall meeting, Cleveland, Ohio                 350
SBA's town hall meeting, Houston, Texas                  350
Trade Representatives, United Nations                    300
American Association of Black Women                      100
 Entrepreneurs
------------------------------------------------------------
Source:  SBA. 


SCOPE AND METHODOLOGY
========================================================== Appendix IV

We performed our work from January through June 1994, primarily at
SBA headquarters in Washington, D.C.  We interviewed officials at
SBA, the Department of Commerce, the Government Printing Office
(GPO), the Democratic National Committee (DNC), and the Executive
Office of the President.  As requested, a list of the people we
interviewed is included as part of this appendix. 


      LOBBYING AND OTHER LEGAL
      ISSUES
------------------------------------------------------ Appendix IV:0.1

To determine whether SBA violated laws and regulations on lobbying by
issuing the brochure, we reviewed relevant statutory provisions,
including appropriation act restrictions, as well as Department of
Justice and Comptroller General decisions on those provisions.  In
addition, we reviewed SBA correspondence and opinions on the
brochure.  To determine SBA's authority to publish the brochure, we
reviewed the Small Business Act, SBA correspondence and opinions, and
relevant court decisions.  We also reviewed relevant legislation,
regulations, and court decisions to determine whether there were any
prohibitions against the White House's involvement in executive
branch activities. 


      CIRCUMSTANCES SURROUNDING
      THE BROCHURE
------------------------------------------------------ Appendix IV:0.2

To determine the circumstances surrounding the publication and
distribution of the health care brochure, we interviewed officials at
SBA, GPO, the Department of Commerce, and the Executive Office of the
President, and we reviewed supporting documents.  We interviewed
SBA's Chief of Staff to determine who authorized the brochure, what
sources of information were used to develop the brochure, and who was
involved in preparing the brochure.  We held similar discussions with
the Confidential Assistant to the Assistant Deputy Secretary of
Commerce, an adviser to the White House's health care reform task
force from the Executive Office of the President, the then-Assistant
Advocate for Health Policy, and the health care adviser to SBA's
Administrator. 

To determine how the health care brochure compared with other SBA
publications in terms of the issue covered and the SBA offices
involved in the publication, we spoke to staff in SBA's offices of
International Trade, Publications and Graphics, Advocacy, and
Congressional and Legislative Affairs.  We also reviewed SBA's policy
on the production of SBA publications. 

To determine the Office of Advocacy's responsibilities in the
publication of information on issues such as health care reform, we
reviewed the 1976 amendments to the Small Business Act that
established the Office of Advocacy and defined its duties and
responsibilities.  We also discussed this issue with the then-Acting
Chief Counsel and the then-Assistant Advocate for Health Policy and
with the Director of the Office of Publications and Graphics.  To get
an idea of the types of publications the Office of Advocacy prepares,
we also reviewed its recent publications on small businesses'
compliance with (1) community and worker right-to-know laws on
hazardous materials and (2) federal requirements on prompt payment. 

For information on the distribution of the brochure, we interviewed
officials at GPO.  We also contacted the Publications Branch of the
Executive Office of the President to learn about how organizations
usually obtain large quantities of government publications. 

To assess whether SBA was in compliance with government printing
requirements, we reviewed title 44 of the United States Code, "Public
Printing and Documents," and Government Printing and Binding
Regulations issued by the Joint Committee on Printing.  We also spoke
with the Committee's General Counsel and a professional staff member
as well as printing officers from SBA, the Executive Office of the
President, and GPO. 

We reviewed correspondence between SBA and the DNC on the
distribution of copies of SBA's brochure to the DNC and its payment
for these copies.  We also examined the Department of the Treasury's
financial system records of the DNC's payment to SBA. 

To determine whether the DNC may have benefited from being allowed to
purchase copies of the brochure, we interviewed officials at GPO.  We
also obtained a price quotation from GPO's contractor, which printed
SBA's brochure, on the cost of printing the brochure at nongovernment
rates.  We also asked the DNC to obtain a price quotation from the
printing contractor it uses.  We did not determine whether these
quotations were accurate or appropriate. 

To determine whether the brochure is still available, we visited five
SBA district offices--Los Angeles; Chicago; New York; San Francisco;
and Washington, D.C.  We also checked two electronic bulletin
boards--SBA's on-line information system and FedWorld.  In addition,
we visited GPO bookstores in Washington, D.C., and Los Angeles, but
we did not attempt to determine if other GPO bookstores are still
selling the brochure. 


      ACCURACY OF THE BROCHURE
------------------------------------------------------ Appendix IV:0.3

To analyze the accuracy of the brochure's description of the proposed
Health Security Act, we compared the information in the brochure with
three different published versions of the act:  (1) a 200-page
summary of the act dated September 7, 1993, prepared by the working
group of the White House health care reform task force; (2) a draft
of the proposed act in legislative language, which was transmitted to
the Congress on October 27, 1993; and (3) the Health Security Act
introduced by Representative Gephardt on November 20, 1993 (H.R. 
3600). 


      OFFICE OF ADVOCACY'S HEALTH
      CARE ACTIVITIES
------------------------------------------------------ Appendix IV:0.4

To obtain information on the Office of Advocacy's involvement in
health care reform, we interviewed the Assistant Advocate for Health
Policy, the Director of the Applied Policy Branch, and the
then-Acting Chief Counsel.  In addition, we obtained copies of the
Office's publications and reviewed some internal documents.  We were
unable to obtain a copy of the Office of Advocacy's comments about
the draft brochure.  Neither the Office of Advocacy's Acting Chief
Counsel nor SBA's Chief of Staff had a copy of the comments. 


      HOTLINE
------------------------------------------------------ Appendix IV:0.5

To determine the status of the toll-free (800) hotline and computer
project, we interviewed SBA officials and an adviser to the White
House's health care reform task force.  We also gathered information
from SBA on the costs and configuration of the telephone systems
under consideration.  However, we did not analyze the cost
information to determine whether the costs were accurate or
appropriate. 

We did not review SBA's computer program to verify the reliability of
the program. 


      OFFICIALS CONTACTED
------------------------------------------------------ Appendix IV:0.6

As requested, the following lists the people we interviewed by office
and job title at the time of our review. 


         SMALL BUSINESS
         ADMINISTRATION
---------------------------------------------------- Appendix IV:0.6.1

Chief of Staff, Office of the Administrator

Special Assistant for Finance and Investment, Office of the
Administrator

General Counsel, Office of the General Counsel

Chief Counsel for Administrative Law, Office of the General Counsel

Attorney/Adviser, Office of the General Counsel

Acting Chief Counsel, Office of Advocacy

Assistant Advocate for Health Policy, Office of Advocacy

Director, Applied Policy Branch, Office of Advocacy

Health Care Analyst, Office of Advocacy

Acting Deputy to the Deputy Associate Administrator for Management
and Administration, Office of the Associate Administrator for
Management and Administration

Assistant Administrator for Administration, Office of Administration

Director, Administrative Services, Office of Administration

Acting Director, Office of Communications Technology Services, Office
of Information Technology Services

Telecommunications Specialist, Office of Information Technology
Services

Director, Office of Financial Management, Office of the Comptroller

Senior Budget Analyst, Office of Planning and Budget, Office of
Comptroller

Director, Office of Planning and Budget

Writer/Editor, Office of Publications and Graphics

Director, Office of Publications and Graphics

Export Development Specialist, Office of International Trade

Assistant Administrator for Congressional and Legislative Affairs,
Office of Congressional and Legislative Affairs

Printing Specialist, Office of Administration


         DEPARTMENT OF COMMERCE
---------------------------------------------------- Appendix IV:0.6.2

Confidential Assistant to the Assistant Deputy Secretary of Commerce

Director, Office of Budget Operations


         EXECUTIVE OFFICE OF THE
         PRESIDENT
---------------------------------------------------- Appendix IV:0.6.3

Adviser to the health care reform task force

Publishing Manager, Publishing Branch, Office of Administration


         DEMOCRATIC NATIONAL
         COMMITTEE
---------------------------------------------------- Appendix IV:0.6.4

Director of Marketing and Materials for the National Health Care
Campaign

General Counsel

Former Chief of Staff


         GOVERNMENT PRINTING
         OFFICE
---------------------------------------------------- Appendix IV:0.6.5

Assistant Comptroller

Assistant Superintendent of Customer Service


         CONGRESSIONAL RESEARCH
         SERVICE
---------------------------------------------------- Appendix IV:0.6.6

Specialist in Social Legislation


         DELANCEY PRINTING COMPANY
---------------------------------------------------- Appendix IV:0.6.7

Government Representative


         MOUNT VERNON PRINTING
         COMPANY
---------------------------------------------------- Appendix IV:0.6.8

Executive Vice President


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

Karen Zuckerstein, Assistant Director
Stan Ritchick, Assignment Manager
Susan L.  Purcell, Evaluator-in-Charge

HEALTH, EDUCATION AND HUMAN
SERVICES DIVISION, WASHINGTON,
D.C. 

Rafe Forland, Evaluator (Health Policy Issues)

OFFICE OF THE GENERAL COUNSEL

John McGrail, Senior Attorney

