House Report 104-873 - SUMMARY OF ACTIVITIES

[House Report 104-873]
[From the U.S. Government Printing Office]

Union Calendar No. 476
104th Congress Report
HOUSE OF REPRESENTATIVES

2d Session 104-873
_______________________________________________________________________

SUMMARY OF ACTIVITIES

_______

A REPORT

of the

COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

December 31, 1996--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

COMMITTEE ON SMALL BUSINESS

JAN MEYERS, Kansas, Chair
JOHN J. LaFALCE, New York JOEL HEFLEY, Colorado
IKE SKELTON, Missouri WILLIAM H. ZELIFF, Jr.,
NORMAN SISISKY, Virginia New Hampshire
FLOYD H. FLAKE, New York JAMES M. TALENT, Missouri
GLENN POSHARD, Illinois DONALD A. MANZULLO, Illinois
EVA M. CLAYTON, North Carolina PETER G. TORKILDSEN, Massachusetts
MARTIN T. MEEHAN, Massachusetts ROSCOE G. BARTLETT, Maryland
NYDIA M. VELAZQUEZ, New York LINDA SMITH, Washington
CLEO FIELDS, Louisiana FRANK A. LoBIONDO, New Jersey
DOUGLAS ``PETE'' PETERSON, Florida ZACH WAMP, Tennessee
KEN BENTSEN, Texas SUE W. KELLY, New York
WILLIAM P. LUTHER, Minnesota DICK CHRYSLER, Michigan
JOHN ELIAS BALDACCI, Maine JAMES B. LONGLEY, Jr., Maine
JESSE JACKSON, JR., Illinois WALTER B. JONES, Jr.,
JUANITA MILLENDER-MCDONALD, North Carolina
California MATT SALMON, Arizona
EARL BLUMENAUER, Oregon VAN HILLEARY, Tennessee
XAVIER BECERRA, California MARK E. SOUDER, Indiana
JAMES E. CLYBURN, South Carolina SAM BROWNBACK, Kansas
ELEANOR HOLMES NORTON, STEVEN J. CHABOT, Ohio
District of Columbia SUE MYRICK, North Carolina
MAXINE WATERS, California JACK METCALF, Washington
STEVEN C. LaTOURETTE, Ohio
Jenifer Loon, Staff Director
Jeanne M. Roslanowick, Minority
Staff Director

STANDING SUBCOMMITTEES

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Subcommittee on Government Programs

PETER G. TORKILDSEN, Masschusetts,
Chairman
GLENN POSHARD, Illinois JOEL HEFLEY, Colorado
CLEO FIELDS, Louisiana SUE MYRICK, North Carolina
JUANITA MILLENDER-McDONALD, CaliforniaUE W. KELLY, New York
JESSE JACKSON, Jr., Illinois DICK CHRYSLER, Michigan
KEN BENTSEN, Texas STEVEN C. LaTOURETTE, Ohio

------

Subcommittee on Procurement, Exports, and Business Opportunities

DONALD A. MANZULLO, Illinois,
Chairman
EVA M. CLAYTON, North Carolina DICK CHRYSLER, Michigan
NORMAN SISISKY, Virginia MATT SALMON, Arizona
FLOYD H. FLAKE, New York SAM BROWNBACK, Kansas
WILLIAM P. LUTHER, Minnesota STEVEN J. CHABOT, Ohio
JESSE L. JACKSON, Jr., Illinois ROSCOE G. BARTLETT, Maryland
EARL BLUMENAUER, OREGON LINDA SMITH, Washington

------

Subcommittee on Regulation and Paperwork

JAMES M. TALENT, Missouri,
Chairman
NYDIA M. VELAZQUEZ, New York FRANK A. LoBIONDO, New Jersey
IKE SKELTON, Missouri ZACH WAMP, Tennessee
DOUGLAS ``PETE'' PETERSON, Florida SUE W. KELLY, New York
KEN BENTSEN, Texas JAMES B. LONGLEY, Jr., Maine
WILLIAM P. LUTHER, Minnesota WALTER B. JONES, Jr., North
Carolina
VAN HILLEARY, Tennessee
MARK E. SOUDER, Indiana

------

Subcommittee on Taxation and Finance

LINDA SMITH, Washington,
Chairwoman
MARTIN T. MEEHAN, Massachusetts JACK METCALF, Washington
KEN BENTSEN, Texas FRANK A. LoBIONDO, New Jersey
JOHN ELIAS BALDACCI, Maine WALTER B. JONES, Jr., North
CLEO FIELDS, Louisiana Carolina
JUANITA MILLENDER-McDONALD, CaliforniaARK E. SOUDER, Indiana
SAM BROWNBACK, Kansas
ROSCOE G. BARTLETT, Maryland
STEVEN C. LaTOURETTE, Ohio

------

LETTER OF TRANSMITTAL

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U.S. House of Representatives
Committee on Small Business
Washington, DC
December 31, 1996
Hon. Robin H. Carle
The Clerk
U.S. House of Representatives
Washington, DC

Dear Ms. Carle:

On behalf of the Committee on Small Business of the House
of Representatives, I am pleased to transmit the attached
Summary of Activities of the Committee on Small Business for
the 104th Congress.
The purpose of this report is to provide a reference
document for the Members of the Committee, the Congress, and
the public, which can serve as a research tool and historic
reference outlining the Committee's legislative and oversight
activities conducted pursuant to Rule X, Clause 1(o) of the
Rules of the House of Representatives. This document is
intended as a general reference tool, and not as a substitute
for the hearing records, reports, and other Committee files.
This report is filed in conformity with the requirements of
Rule XI, Clause 1(d) of the Rules of the House of
Representatives with respect to the activities of the Committee
and in carrying out its duties as stated in the Rules of the
House of Representatives.

Sincerely,

Jan Meyers
Chair

C O N T E N T S

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Page

Chapter 1.--Introduction......................................... 1

1.1 Historical Background................................ 1
1.2 Extracts from the Rules of the House of
Representatives............................................ 3
1.3 Number and Jurisdiction of Subcommittees............. 4
1.4 Disposition of Legislation Referred to the Committee. 4

Chapter 2.--The Small Business Administration.................... 7

2.1 SBA Programs in General.............................. 7
2.2 SBA Business Loans................................... 7
2.3 Disaster Assistance Loans............................ 8
2.4 Small Business Investment Companies.................. 9
2.5 The 8(a) Program..................................... 9
2.6 Surety Bond Guarantees............................... 10
2.7 Small Business Development Programs.................. 10
2.8 Small Business Innovation Research................... 11
2.9 Small Business Technology Transfer................... 11
2.10 Export Assistance................................... 12
2.11 Office of Advocacy.................................. 13

Chapter 3.--Hearings and Meetings Held by the Committee on Small
Business and its Subcommittees, 104th Congress................. 15

3.1 Full Committee....................................... 15
3.2 Subcommittee on Government Programs.................. 18
3.3 Subcommittee on Procurement, Exports and Business
Opportunities.............................................. 19
3.4 Subcommittee on Regulation and Paperwork............. 19
3.5 Subcommittee on Taxation and Finance................. 19

Chapter 4.--Publications of the Committee on Small Business and
its Subcommittees, 104th Congress.............................. 21

4.1 Reports.............................................. 21
4.2 Hearing Records...................................... 21

Chapter 5.--Summary of Legislative Activities of the Committee on
Small Business................................................. 27

5.1 H.R. 937 (H.R. 926, H.R. 9, S. 942, and H.R. 3136);
Public Law No. 104-121..................................... 27
5.2 H.R. 2150 (S. 895), The Small Business Credit
Efficiency Act of 1995; Public Law No. 104-36.............. 33
5.3 H.R. 2715, The Paperwork Elimination Act of 1996..... 36
5.4 H.R. 3158, Pilot Small Business Technology Transfer
Program Extension Act of 1996; Public Law No. 104-208...... 38
5.5 H.R. 3719, The Small Business Programs Improvement
Act of 1996; Public Law No. 104-208........................ 42

Chapter 6.--Summary of Other Legislative Activities of the
Committee on Small Business.................................... 53

6.1 Committee Meetings................................... 53
6.1.1 Organizational Meeting......................... 53
6.1.2 Oversight Agenda for the 104th Congress........ 54

6.2 Budget Views and Estimates........................... 59
6.2.1 Fiscal Year 1996 Budget........................ 59
6.2.2 Fiscal Year 1997 Budget........................ 59
Chapter 7.--Summary of Oversight, Investigations and Other
Activities of the Committee on Small Business and its
Subcommittees.................................................. 63

7.1 Summary of Committee Oversight Plan and
Implementation............................................. 63

7.1.1 Oversight of the Small Business Administration. 63
7.1.2 Financial Programs............................. 64
7.1.3 Procurement Assistance......................... 72
7.1.4 Advocacy....................................... 73
7.1.5 Technology and Research Assistance............. 74
7.1.6 Minority Enterprise Development................ 76
7.1.7 Women-Owned Businesses......................... 77
7.1.8 Office of Inspector General.................... 78
7.1.9 Office of Disaster Assistance.................. 78
7.1.10 Office of International Trade................. 79
7.1.11 Office of Business Initiatives and Training... 82
7.1.12 Federal Procurement........................... 82
7.1.13 Government & Non-profit Competition........... 84
7.1.14 Regulatory Flexibility & Paperwork Reduction.. 85
7.1.15 Government Regulation......................... 87
7.1.16 Taxation...................................... 91
7.1.17 Minimum Wage.................................. 93
7.1.18 Health Insurance.............................. 94
7.1.19 Other Committee Oversight Activities.......... 95

7.2 Summaries of the Hearings Held by the Committee on
Small Business.............................................

97
7.2.1 Overview of Small Business Tax Proposals in the
``Contract With America''.......................... 97
7.2.2 Home Office Deduction.......................... 98
7.2.3 Independent Contractor Status.................. 99
7.2.4 Health Insurance Deductibility for Self-
Employed Individuals............................... 101
7.2.5 Strengthening the Regulatory Flexibility Act... 102
7.2.6 Oversight--SBA 7(a) Lending Program............ 104
7.2.7 Capital Gains Tax Reform and Investment in
Small Business..................................... 105
7.2.8 Paperwork Reduction Act........................ 106
7.2.9 Estate Tax Reform and the Family Business...... 108
7.2.10 Amending the Regulatory Flexibility Act--Past
Performance and the Need for Meaningful Reform..... 109
7.2.11 Capital Gains Tax Reform...................... 110
7.2.12 Overall Review of the SBA..................... 112
7.2.13 Review of the SBA Procurement Assistance
Programs........................................... 113
7.2.14 Review of SBA Business Development Programs... 114
7.2.15 Review of SBA 504 Program..................... 116
7.2.16 SBA's Pilot Microloan Program................. 118
7.2.17 U.S. Small Business Administration's Business
Development Programs............................... 120
7.2.18 Review of the SBIC and SSBIC Programs......... 122
7.2.19 The Small Business Administration of the
Future............................................. 124
7.2.20 SBA Office of Advocacy........................ 125
7.2.21 Small Business Administration Programs and Tax
and Regulatory Issues Impacting Small Business..... 126
7.2.22 Small Business Participation in Federal
Contracting: Assessing H.R. 1670, the ``Federal
Acquisition Reform Act of 1995''................... 131
7.2.23 Reduction of Airline Ticket Sales Commission
and Its Impact on Small Travel Agencies............ 134
7.2.24 The Administration's Initiatives to Reduce
Regulatory Burdens on Small Business............... 136
7.2.25 Assessing the Implementation of Public Law
103-355, the ``Federal Acquisition Streamlining Act
of 1994''.......................................... 138
7.2.26 The Administration and Congressional
Initiatives to Reform OSHA, and their Impact on
Small Businesses................................... 141
7.2.27 Pension Reform and Simplification: A Small
Business Perspective............................... 143
7.2.28 The Impact of Solid Waste Flow Control on
Small Businesses and Consumers..................... 145
7.2.29 SBA's Venture Capital Programs................ 147
7.2.30 Federal Contract Bundling: How Can Small
Business Compete?.................................. 149
7.2.31 The Effects of Superfund Liability on Small
Business........................................... 151
7.2.32 The Internal Revenue Service's Initiatives to
Reduce Regulatory and Paperwork Burdens on Small
Business........................................... 152
7.2.33 The Cost of Federal Regulations on Small
Business........................................... 154
7.2.34 Railroad Consolidation: Small Business
Concerns........................................... 155
7.2.35 The Abuses in the SBA's 8(a) Procurement
Program............................................ 156
7.2.36 Small Business' Access to Capital: Impediments
and Options........................................ 157
7.2.37 Pilot Small Business Technology Transfer
(STTR) Program and Small Business Innovation
Research (SBIR) Program: Assessing the Results of
Public Law 102-654, the ``Small Business Research
and Development Enhancement Act of 1992''.......... 158
7.2.38 The EPA's Progress in Reducing Unnecessary
Regulatory and Paperwork Burdens Upon Small
Business........................................... 160
7.2.39 SBA FY 1997 Budget............................ 162
7.2.40 The Practice of ``Salting'' and Its Impact on
Small Business..................................... 164
7.2.41 The Kemp Commission Recommendations: A Small
Business Perspective............................... 166
7.2.42 Patent Term and Patent Disclosure Legislation. 168
7.2.43 Small Business' Access to Capital: The Role of
Banks in Small Business Financing.................. 169
7.2.44 Music Licensing and Small Business............ 171
7.2.45 Small Business and Entry-Level Employees: How
to Increase Take-Home Pay and Keep America Working. 172
7.2.46 Proposed Reforms of the Small Business
Investment Company Program......................... 173
7.2.47 Small Business Competition for Federal
Contracts: The Impact of Federal Prison Industries. 174
7.2.48 Unfair Competition with Small Business from
Government and Not-For-Profits: Assessing the
Current State of the Problem and the
Recommendations of the 1995 White House Conference
on Small Business.................................. 176
7.2.49 Proposed Reform of the 8(a) Program Through
H.R. 3994, the Entrepreneur Development Program Act
of 1996............................................ 179
7.2.50 OSHA Reform and Relief for Small Business:
What Needs to be Done?............................. 182

7.3 Summaries of the Hearings Held by the
Subcommittee on Government Programs.................. 184

7.3.1 The Impact of Hanscom Air Force Base Upon Small
Business in the New England Region................. 184
7.3.2 Small Business Administration's Small Business
Innovation Research (SBIR) Program................. 185
7.3.3 Small Business Administration Programs to
Assist the New England Fishing Industry............ 187
7.3.4 Small Business Administration's Disaster Loan
Program............................................ 188
7.3.5 U.S. Small Business Administration Low
Documentation Loan Program......................... 189
7.3.6 SBA's LowDoc Loan Program...................... 191
7.3.7 Professional Certification as a Sole Source Bid
Requirement in Federal Contracting................. 193
73.8 The Export Working Capital Program.............. 195
7.3.9 Loan Packaging................................. 196
7.3.10 The Effects of Bank Consolidation on Small
Business Lending................................... 197
7.3.11 H.R. 2715: Paperwork Elimination Act.......... 198
7.3.12 Venture Capital Marketing Association Charter
Act................................................ 199
7.3.13 H.R. 2579: The Travel and Tourism Partnership
Act of 1995........................................ 201
7.3.14 Oversight of the Environmental Protection
Agency's Progress in Reducing Unnecessary Paperwork
Burdens Upon Small Business........................ 202
7.3.15 Oversight of the Department of Labor's
Progress on Reducing Unnecessary Paperwork Burdens
on Small Business.................................. 203
7.3.16 Massachusetts' Request for Disaster Funds from
the SBA............................................ 205
7.3.17 The Government's Solicitation Process and
Whether or Not it is Discriminatory to Small
Business........................................... 206
7.3.18 H.R. 1863: The Employment Non-Discrimination
Act................................................ 208
7.3.19 Oversight of the Food and Drug
Administration's Progress in Reducing Unnecessary
Paperwork Burdens Upon Small Business.............. 209
7.3.20 SBA Programs to Assist Veterans in Readjusting
to Civilian Life................................... 211
7.3.21 FDIC's Handling of Small Business Asset
Foreclosures....................................... 212

7.4 Summaries of the Hearings Held by the Subcommittee on
Procurement, Exports and Business Opportunities............ 214

7.4.1 Export Promotion Programs: How is Small
Business Helped?................................... 214
7.4.2 Small Business Administration's Surety Bond
Guarantee Program.................................. 215
7.4.3 Agriculture Export Promotion Programs: How are
the Small Farmer and Rancher Helped?............... 217
7.4.4 Federal Export Promotion Programs: An Academic
Perspective........................................ 218
7.4.5 Export Promotion: A Business Perspective....... 219
7.4.6 The Export Working Capital Program............. 220
7.4.7 Technologies for Accessing Foreign Markets and
Resources for Export Assistance.................... 220
7.4.8 The Impact of ``Short Supply'' on Small
Manufacturers...................................... 224
7.4.9 The Effectiveness of U.S. Export Assistance
Centers............................................ 225

7.5 Summaries of the Hearings Held by the Subcommittee on
Regulation and Paperwork................................... 228

7.5.1 Joint Hearing on the Impact of Workplace and
Employment Regulation on Business.................. 228
7.5.2 Regulatory Barriers to Minority Entrepreneurs.. 229
7.5.3 OSHA Fall Protection Standard.................. 230
7.5.4 Candidates for the Regulatory Corrections
Calendar........................................... 231
7.5.5 Examining the Issues Surrounding the National
Labor Relations Board's Rulemaking Concerning
Single Location Bargaining Units in Representation
Cases.............................................. 234

7.6 Summaries of the Hearings Held by the Subcommittee on
Taxation and Finance....................................... 237

7.6.1 The Flat Tax and Small Business................ 237
7.6.2 The Burden of Payroll Taxes on Small Business.. 239
7.6.3 Clarifying the Status of Independent
Contractors........................................ 240
7.6.4 Fundamental Tax Changes Needed to Unleash
America's Small Businesses......................... 243
7.6.5 The Effects of Bank Consolidation on Small
Business Lending................................... 247

Appendix

``What a Difference a Year Makes,'' Majority Staff Report, June
4, 1996........................................................ 251

104th Congress Report
HOUSE OF REPRESENTATIVES

2d Session 104-873
_______________________________________________________________________

SUMMARY OF ACTIVITIES

_______

December 31, 1996.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed

_______________________________________________________________________

Mrs. Meyers of Kansas, from the Committee on Small Business, submitted
the following

R E P O R T

SUMMARY OF ACTIVITIES

CHAPTER ONE

INTRODUCTION

This is the eleventh summary report of the standing
Committee on Small Business. The action by the House of
Representatives in adopting House Resolution 988 on October 8,
1974, providing that the Committee be established as a standing
committee, upgraded the Permanent Select Committee on Small
Business by giving the Committee legislative jurisdiction over
small business matters in addition to the oversight
jurisdiction it previously exercised.
The adoption of the House Rules in the 94th through the
104th Congresses confirmed this action and continued the
process begun on August 12, 1941, when, by virtue of House
Resolution 294 (77th Congress, lst session), the Select
Committee on Small Business was created. In January 1971, the
House designated the Select Committee as a permanent Select
Committee; and on October 8, 1974, the 93d Congress,
recognizing the importance of the work performed, provided that
the Committee should thereafter be established as a standing
committee.

1.1 Historical Background

The history of the Select Committee on Small Business from
its inception in 1941 during the 77th Congress through 1972,
the conclusion of the 92d Congress, may be found in House
Document 93-197 (93d Congress, 2d session) entitled, ``A
History and Accomplishments of the Permanent Select Committee
on Small Business.''
The Committee is bipartisan recognition that the nation's
small business people represent a major segment of our business
population and our nation's economic strength. This Committee,
continuing its vital oversight responsibilities, serves as the
advocate and voice for small business as well as the center for
small business legislation.
In recognition of this expanded jurisdiction, the House of
Representatives has established the Committee's membership at
43 Members. The following Members were named to constitute the
Committee in the 104th Congress:

Jan Meyers (R-KS), Chair; Joel Hefley (R-CO); William Zeliff,
Jr. (R-NH); James M. Talent (R-MO); Donald A. Manzullo (R-
IL); Peter G. Torkildsen (R-MA); Roscoe G. Bartlett (R-MD);
Linda Smith (R-WA); Frank A. LoBiondo (R-NJ); Zach Wamp (R-
TN); Sue W. Kelly (R-NY); Dick Chrysler (R-MI); James B.
Longley, Jr. (R-ME); Walter B. Jones (R-NC); Matt Salmon
(R-AZ); Van Hilleary (R-TN); Mark E. Souder (R-IN); Sam
Brownback (R-KS); Steve J. Chabot (R-OH); Sue Myrick (R-
NC); David Funderburk (R-NC) (resigned September 5, 1996);
Jack Metcalf (R-WA); Steven LaTourette (R-OH) (named June
13, 1995); John J. LaFalce (D-NY); Ike Skelton (D-MO)
(named June 13, 1995); Ron Wyden (D-OR) (resigned February
5, 1996); Norman Sisisky (D-VA); Kweisi Mfume (D-MD)
(resigned February 18, 1996); Floyd H. Flake (D-NY); Glenn
Poshard (D-IL); Eva Clayton (D-NC); Martin T. Meehan (D-
MA); Nydia Velazquez (D-NY); Cleo Fields (D-LA); Walter R.
Tucker III (D-CA) (resigned November 20, 1995); Earl F.
Hilliard (D-AL) (resigned June 4, 1996); Douglas Peterson
(D-FL); Bennie G. Thompson (D-MS) (resigned April 22,
1996); Chaka Fattah (D-PA) (resigned March 5, 1996); Ken
Bentsen (D-TX); Karen McCarthy (D-MO) (resigned June 13,
1995); William P. Luther (D-MN); Patrick Kennedy (D-RI)
(resigned December 15, 1995); John Baldacci (D-ME) (named
June 13, 1995); Jesse Jackson, Jr. (D-IL) (named April 22,
1996); Juanita Millender-McDonald (D-CA) (named April 22,
1996); Earl Blumenauer (D-OR) (named June 5, 1996); Xavier
Becerra (D-CA) (named September 17, 1996); James Clyburn
(D-SC) (named September 17, 1996); Eleanor Holmes Norton
(D-DC) (named September 17, 1996); Maxine Waters (D-CA)
(named September 17, 1996).
1.2 Extracts from the Rules of the House of Representatives

EXTRACT FROM RULE X,

RULES OF THE HOUSE OF REPRESENTATIVES

------

RULE X

ESTABLISHMENT AND JURISDICTION OF STANDING COMMITTEES

The Committees and Their Jurisdiction

1. There shall be in the House the following standing
committees, each of which shall have the jurisdiction and
related functions assigned to it by this clause and clauses 2,
3, and 4; and all bills, resolutions, and other matters
relating to subjects within the jurisdiction of any standing
committee as listed in this clause shall (in accordance with
and subject to clause 5) be referred to such committees, as
follows:

* * *

(o) Committee on Small Business
(1) Assistance to and protection of small business,
including financial aid, regulatory
flexibility and paperwork reduction.
(2) Participation of small-business enterprises in
Federal procurement and Government
contracts.

GENERAL OVERSIGHT RESPONSIBILITIES

2. (b)(1) Each standing committee (other than the Committee
on Appropriations and the Committee on the Budget) shall review
and study, on a continuing basis, the application,
administration, execution, and effectiveness of those laws, or
parts of laws, the subject matter of which is within the
jurisdiction of that committee and the organization and
operation of the Federal agencies and entities having
responsibilities in or for the administration and execution
thereof, in order to determine whether such laws and the
programs thereunder are being implemented and carried out in
accordance with the intent of the Congress and whether such
programs should be continued, curtailed, or eliminated. In
addition, each such committee shall review and study any
conditions or circumstances which may indicate the necessity or
desirability of enacting new or additional legislation within
the jurisdiction of that committee (whether or not any bill or
resolution has been introduced with respect thereto), and shall
on a continuing basis undertake future research and forecasting
on matters within the jurisdiction of that committee. Each such
committee having more than twenty members shall establish an
oversight subcommittee, or require its subcommittees, if any,
to conduct oversight in the area of their respective
jurisdiction, to assist in carrying out its responsibilities
under this subparagraph. The establishment of oversight
subcommittees shall in no way limit the responsibility of the
subcommittees with legislative jurisdiction from carrying out
their oversight responsibilities.
(c) Each standing committee of the House shall have the
function of reviewing and studying on a continuing basis the
impact or probable impact of tax policies affecting subjects
within its jurisdiction as described in clauses 1 and 3.

SPECIAL OVERSIGHT FUNCTIONS

* * *

3. (g) The Committee on Small Business shall have the
function of studying and investigating, on a continuing basis,
the problems of all types of small business.
1.3 Number and Jurisdiction of Subcommittees

During the 104th Congress, the Committee on Small Business
authorized the organization of four standing subcommittees. The
Chair and the Ranking Minority Member served as ex officio
members of all subcommittees, without a vote. The jurisdiction
of the four named subcommittees includes the following:

government programs

Small Business Act, Small Business Investment Act, and
related legislation.
Federal Government programs that are designed to assist
business generally.
Small Business Innovation and Research Program.
Opportunities for minority and women-owned businesses.

procurement, exports and business opportunities

Participation of small business in Federal procurement.
Export opportunities.
General promotion of business opportunities.
General economic problems.

regulation and paperwork

Responsibility for, and investigative authority over, the
regulatory and paperwork policies of all Federal
departments and agencies.
Regulatory Flexibility Act.
Paperwork Reduction Act.
Competition policy generally.

taxation and finance

Tax policy and its impact on small business.
Access to capital.
Finance issues generally.

1.4 Disposition of Legislation Referred to the Committee

A total of 41 House bills and 2 Senate bills were referred
to the Committee on Small Business during the 104th Congress.
The Committee reported five bills to the House, each of which
passed the House, and four were enacted as part of broader
legislation. For a summary of the Committee's legislative
activities, refer to Chapter 5 of this report.
The Committee continued to consolidate related measures
amending the Small Business Act and the Small Business
Investment Act of 1958 into omnibus legislation. The major
legislative effort of the first session of the 104th Congress
was H.R. 2150, The Small Business Credit Efficiency Act of
1995. The Senate-passed legislation (S. 895) was reconciled
with the House bill following a conference, and the President
signed the final legislation on October 12, 1995 as Public Law
104-36. A summary of H.R. 2150 can be found in section 5.2 of
this report.
Small business aspects of regulatory reform were considered
by the Committee early in the first session. The Committee
considered and favorably reported H.R. 937, on February 15,
1995. This legislation was subsumed into H.R. 926, the
Regulatory Reform and Relief Act, which was considered and
favorably reported by the Committee on the Judiciary on
February 16, 1995 and passed by the House by a vote of 415 to
15 on March 1, 1995. Under the provisions of House Resolution
101, the provisions of H.R. 926 were incorporated into H.R. 9,
which was passed by the House on March 3, 1995 by a vote of 277
to 141. Similar legislation concerning small business
regulatory reform was considered in the Senate (S. 942) and was
ultimately incorporated into Title III of H.R. 3136, which
passed the House and the Senate on March 28, 1996. The
President signed the bill on March 29, 1996 as Public Law 104-
121. A summary of this legislation can be found in section 5.1
of this report.
Early in the second session of the 104th Congress, the
Committee considered legislation to further reduce the
paperwork burdens imposed on small business by the Federal
government. The Committee considered and favorably reported
H.R. 2715, the Paperwork Elimination Act of 1996, on March 29,
1996. The House passed the bill on April 24, 1996 by a vote of
418 to 0. The legislation was received in the Senate and
referred to the Senate Committee on Governmental Affairs.
Regrettably, it was not further considered. For a summary of
H.R. 2715, refer to section 5.3 of this report.
The Committee also considered legislation to extend the
pilot Small Business Technology Transfer (STTR) Program and
make certain modifications to the STTR Program and the Small
Business Innovation Research (SBIR) Program. The Committee
favorably reported H.R. 3158, the Pilot Small Business
Technology Transfer Program Extension Act of 1996, on March 28,
1996. The provisions of the bill extending the STTR program
were ultimately incorporated into the omnibus consolidated
appropriations legislation (H.R. 4278), which the House and the
Senate passed together with the 1997 Department of Defense
Appropriations Act (H.R. 3610). The President signed the
legislation on September 30, 1996 as Public Law 104-208. A
summary of H.R. 3158 is included in section 5.4 of this report.
During the second session of the 104th Congress, the
Committee learned that the SBA and the Office of Management and
Budget had revised the subsidy rates for the major lending
programs administered by the SBA, resulting in a dramatic
increase in the rates. In an effort to reduce the subsidy rates
and provide continuing improvement for the long-term longevity
of the loan programs, the Committee considered H.R. 3719, the
Small Business Programs Improvement Act of 1996. On July 18,
1996, the Committee favorably reported the legislation, and the
House passed the bill on September 5, 1996 by a vote of 408 to
0. Due to the pending adjournment of the Congress, a majority
of the bill was incorporated into the omnibus consolidated
appropriations legislation. The President signed that
legislation on September 30, 1996 as Public Law 104-208. A
summary of H.R. 3719 can be found in section 5.5 of this
report.
CHAPTER TWO

THE SMALL BUSINESS ADMINISTRATION

The Committee on Small Business has both legislative and
oversight jurisdiction over the Small Business Administration
(SBA), an independent Federal agency chartered in 1953 to
``aid, counsel, assist and protect the interests of small
business.''
During the 104th Congress, the Committee conducted a
program-by-program review of the SBA. The Committee has
attempted to work with SBA to improve its programs
administratively and, when necessary, through legislative
changes. The Committee recommended significant SBA-related
legislation during the 104th Congress, and these bills and
their disposition are described in Chapter 5 of this report.
The major programs administered by the SBA are briefly
described below.

2.1 SBA Programs in General

The SBA operates through 85 district and branch offices and
has a staff of approximately 4,700 permanent employees and a
varying number of temporary disaster employees (as many as
1,600 in 1996). It provides loans and loan guarantees, both for
business purposes and disaster recovery; assistance to small
business in obtaining government contracts; and management and
technical assistance through paid and volunteer staff. It also
administers a surety bond program for contractors unable to
obtain bonds, which are a prerequisite to bidding for, or
performing on, certain contracts. The SBA also serves as an
advocate for all small businesses, conducts economic research,
and monitors the implementation of small business legislation
and programs at other agencies, such as the Regulatory
Flexibility Act and the Small Business Innovation Research
Program. The SBA administers a portfolio of more than 463,000
loans for more than $35.2 billion of which $6.9 billion is
comprised of loans to disaster victims.

2.2 SBA Business Loans

A major function of the SBA is to make capital available
for those small businesses that cannot normally secure
financing in the private sector. In addition to its general
business loan program, SBA has specialized programs to help
businesses owned by socially and economically disadvantaged
individuals, businesses owned by or employing primarily the
handicapped, businesses owned by veterans, and businesses in
need of long-term fixed-asset financing.
Most SBA financial assistance is provided in the form of
guarantees of commercial loans. Such guarantees can be for as
much as 80 percent of loans up to $100,000 and for as much as
75 percent of loans up to the statutory maximum guarantee of
$750,000 in most cases. (Guarantees of up to $1 million can be
approved for certain fixed-asset financings that promote public
policy objectives set forth in the Small Business Act.) The
interest rates on guaranteed loans are negotiated between the
borrower and lender subject in most cases to a maximum of 2\3/
4\ percent above the prime rate. In fiscal year 1995, SBA
approved 55,596 guaranteed loans, the guaranteed portions
totaling $8.3 billion; in fiscal year 1996, the agency approved
45,845 guaranteed loans totaling $7.7 billion.
Certain applicants who cannot obtain commercial loans, even
with a government guarantee, are eligible to apply for SBA
direct loans. Between October 1, 1985 and September 30, 1994,
eligibility for this type of assistance was limited to
qualified businesses owned by individuals with low incomes or
located in areas of high unemployment, Vietnam-era or disabled
veterans, the handicapped or certain organizations employing
them, certain businesses certified under the minority small
business capital ownership development program, and certain
intermediary non-profit lenders who, in turn, make smaller
``microloans'' to their clients. Funding for SBA direct loans
to others was discontinued on October 1, 1985.
Beginning on October 1, 1994 direct loans were limited to
the handicapped and intermediary ``microlenders.'' Direct loans
are in most cases limited to $150,000, and their interest rate
determined by a formula relating to the government's cost of
borrowing. The interest rate for handicapped assistance loans
was 3 percent. In fiscal year 1995, SBA approved 40 direct
participation (part SBA direct, part bank) handicapped
assistance loans for $4 million, and 30 direct loans to
microloan intermediaries totaling $12.9 million. This money was
``relent'' to entrepreneurs in amounts not exceeding $25,000.
In fiscal year 1996 the Administration canceled funding for the
handicapped assistance leaving the microloan program as the
only direct loan program at the SBA. Microloan intermediaries
received 23 loans totaling $9 million in fiscal year 1996.

2.3 Disaster Assistance Loans

The SBA provides loan assistance to disaster victims,
including homeowners, businesses, and non-profit institutions.
When a disaster strikes, it is important that damaged property
be replaced or repaired and businesses be provided with
adequate working capital to facilitate their recovery as
quickly as possible. SBA disaster loans serve this purpose and
minimize disruptions to jobs, business revenues, and taxes. In
so doing, they play a vital role in restoring the economic
health of a disaster-stricken community, often making the
difference in the survival of businesses necessary to that
recovery. During fiscal year 1995, 45,041 disaster loans were
approved for $1.217 billion to businesses, homeowners and
others affected by hurricanes, tornadoes, earthquakes,
flooding, fires and other disasters. During fiscal year 1996,
37,822 disaster loans were approved for $988 million.
2.4 Small Business Investment Companies

There has been a continuing need for venture capital for
new and growing small businesses. Small businesses historically
have been the origin for new technological development and
expansion. An important source of this venture capital has been
SBA's Small Business Investment Company (SBIC) Program.
SBICs supply equity capital and long-term loan financing to
small firms for expansion, modernization, and sound financing
of their operations. They may also provide management
assistance. They are licensed, regulated and, in part, financed
by SBA, but their transactions with small companies are private
arrangements and have no direct connection with SBA. An SBIC
finances small firms in two general ways--through straight
business loans and through venture capital or equity-type
investments. In fiscal year 1995, 181 licensed SBICs provided
their small business clients with $1.09 billion in 868
financings. During fiscal year 1996, 186 SBICs provided $1.17
billion in 1,041 financings.
The SBA also administers the Specialized Small Business
Investment Company (SSBIC) Program, which is similar to the
SBIC program. SSBICs are specialized SBICs that agree to make
investments solely in small business concerns owned and
controlled by socially or economically disadvantaged
individuals. In fiscal year 1995, 93 licensed SSBICs provided
disadvantaged small businesses with $153.5 million in 1,153
financings. During fiscal year 1996, 86 SSBICs provided $101.5
million in 837 financings.
Beginning in fiscal year 1997, the SSBIC program will be
merged into the overall SBIC program, and all existing SSBICs
will become regular SBICs. Under the combined program, each
SBIC, regardless of its size will be required to invest at
least 20 percent of its aggregate dollar investments in smaller
enterprises. A special leverage reserve will be available to
SBICs that invest at least half of their funds in ``smaller
enterprises''--a small business with a net worth of less than
$6 million and a net income of less than $2 million. The
special reserve and the elimination of certain investment
restrictions will enable the smaller SBICs and former SSBICs to
maintain their focus on financing for primarily minority and
women-owned businesses, which tend to be smaller-sized
businesses. A new reserve of debenture funding will also be
available for the smaller SBICs in lieu of the prior funding
mechanism for the SSBICs. The fund will be financed through the
proceeds of the existing preferred stock repurchase program.

2.5 The 8(a) Program

In addition to the financial assistance programs available
to businesses owned by socially and economically disadvantaged
individuals, the SBA also administers a business development
program for such concerns, the Minority Small Business and
Capital Ownership Development Program, pursuant to Section
7(j)(10) of the Small Business Act. Participants in this
program are eligible for the preferential award of Federal
contracts under the authority of section 8(a) of the Small
Business Act, under which the SBA acts as a ``conduit'' by
channeling selected Federal procurement contracts to qualified
firms owned and operated by socially and economically
disadvantaged individuals. In fiscal year 1995, 6,625 new 8(a)
contracts were let to 1,120 businesses for a total of $3.1
billion. When option year awards on previous contracts awarded
pursuant to section 8(a) are included, the total amount was
$6.2 billion. For fiscal year 1996, over 5,400 new contracts
amounting to over $3.6 billion were let to 8(a) firms. The
amount of total awards pursuant to section 8(a) for fiscal year
1996, including options exercised on contracts awarded in prior
years, was not available as of the date of this report.

2.6 Surety Bond Guarantees

Small business contractors and subcontractors who seek
public (and some private) construction jobs are often required
to furnish surety bonds. The SBA provides assistance to such
contractors by extending a guarantee to a surety of up to 90
percent against potential losses in order for the contractor to
obtain bonding more easily. The SBA's bonding assistance
activity is accomplished through the Prior Approval Program or
the Preferred Surety Bond Program. Bid bonds as well as
performance and/or payment bonds may be guaranteed on contracts
up to $1,250,000. The SBA will pay to the surety participating
in the Prior Approval Program 90 percent of a loss incurred if:
(1) the total amount of the contact is $100,000 or less; and
(2) the bond was issued on behalf of a small concern owned and
controlled by socially and economically disadvantaged
individuals. Otherwise, SBA will pay a surety in an amount not
to exceed an administrative ceiling of 80 percent of a loss on
bonds issued to other than disadvantaged concerns in excess of
$100,000. Under the Preferred Surety Bond program, the SBA's
guarantee is limited to 70 percent of the bond amount for all
small businesses on contracts that do not exceed a face value
of $1,250,000. In fiscal year 1995, 23,034 bid bond guarantees
produced 6,800 final bond guarantees for a total contract
amount of over $1.2 billion. In fiscal year 1996, 15,650 bid
bond guarantees produced 4,684 final bond guarantees, resulting
in a total bond guarantee amount of $923 million.

2.7 Small Business Development Programs

The SBA's economic development assistance programs support
SBA loan recipients and other small business owners/managers
through individual counseling, management training, and
publication of guidance materials. These programs are keyed to
furthering the establishment, growth and success of small
business. It is estimated that managerial deficiencies cause
nine out of ten business failures.
The SBA programs can identify management problems, develop
solutions, and help implement and expand business plans. In
addition to its own business development officers, SBA relies
heavily on national organizations such as the 13,000 volunteer
member Service Corps of Retired Executives (SCORE) to expand
its capability for individual counseling.
An important component of SBA's management assistance
capabilities has been the Small Business Development Center
(SBDC) Program. The SBDC program is a cooperative effort by
universities, the Federal government, State and local
governments, and the private sector to provide specialized
management and technical assistance to the small business
community. Originating as a pilot program at one university in
December 1976, the SBDC program has expanded to include 56
operating SBDCs in all 50 States, the District of Columbia,
Puerto Rico and the Virgin Islands as of 1996. Over 900 branch
centers are located throughout the States at colleges,
universities, and local government offices, as well as in
selected locations such as downtown storefronts easily
accessible to small business clients.

2.8 Small Business Innovation Research

The Small Business Innovation Development Act of 1982,
signed into law on July 22, 1982, provides for the
establishment of Small Business Innovation Research (SBIR)
grant programs in all Federal agencies with annual extramural
research and development (R&D) budgets in excess of $100
million. The Act also requires the establishment of annual
goals for small business research awards in all agencies with
R&D budgets in excess of $20 million. The funding level of SBIR
programs is derived from fixed percentages of an agency's R&D
budget.
Through the SBIR program $834 million was awarded to small
firms in fiscal year 1995. For fiscal year 1996, SBIR awards
from the 11 participating agencies are expected to exceed $1.1
billion.
The SBIR program is highly competitive and provides funds
for the feasibility testing of innovative ideas with Phase I
and Phase II funding levels of up to $100,000 and $750,000 per
grant, respectively. A third phase encourages commercialization
of innovations utilizing private follow-on funding, or
government contracts when appropriate. Roughly 38 percent of
all SBIR projects result in commercially successful products.
In fiscal year 1995, 3,085 Phase I awards for $232.1 million
and 1,263 Phase II awards for $601.9 million were approved. For
fiscal year 1996, an estimated 3,500 Phase I awards for
approximately $450 million and an estimated 1,500 Phase II
awards for approximately $800 million will be approved. The SBA
Office of Innovation, Research and Technology monitors the
implementation of this program at each participating agency and
coordinates the SBIR solicitation releases.

2.9 Small Business Technology Transfer

2.10 Export Assistance

The SBA is authorized to promote the increased
participation of small businesses in international trade. To
offset some of the inherent disadvantages to successful small
business participation in international trade, the SBA, the
U.S. Department of Commerce, other government agencies, and
private associations work together to identify, inform,
motivate, and provide access to financial assistance for the
small businesses seeking to enter into business transactions
abroad. The goal of the SBA's program is to continue to
facilitate financial assistance and other appropriate
management and technical assistance to small business concerns
that have the potential to become successful exporters.
The SBA's export counseling and training includes one-on-
one counseling through SCORE program volunteers with
significant international trade expertise, access to university
research and counseling, assistance from professional
international trade management consulting firms, referral to
other public or private-sector expertise, free consultation
through the Export Legal Assistance Network (ELAN) program,
which enables small businesses interested in starting export
operations to consult with international trade attorneys from
the Federal Bar Association, and access to publications on
international trade and export marketing.
The SBA's financial export assistance includes several loan
programs depending on the purpose for which the funds will be
used. Exporters may obtain funds for fixed asset acquisition
during start-up or expansion and for general working capital
needs through the general 7(a) loan program. Export Trading
Companies (ETCs) can qualify for SBA's business loan guaranty
program, provided that they are for-profit ETCs and have no
bank equity participation.
The Export Working Capital Program (EWCP) allows a
guarantee on private-sector loans of up to $750,000 for working
capital. The guarantee percentage for loans made in fiscal year
1995 and 1996 was 75 percent (80 percent for loans under
$100,000) and in 1997 the percentage will increase to 90
percent. Loans guaranteed under the EWCP program generally have
a 12-month maturity, subject to two 12-month renewal options.
The loans can be for single or multiple export sales and can be
extended for pre-shipment working capital and post-shipment
exposure coverage, although the proceeds cannot be used to
acquire fixed assets. In fiscal year 1995, the SBA approved 215
guaranteed loans under the EWCP, the guaranteed portions
totaling $75.4 million; in fiscal year 1996, the agency
approved 272 guaranteed loans totaling $97.25 million.
Through the 7(a) loan program, the SBA also offers export
assistance through guarantees of international trade loans,
which provide long-term financing to small businesses engaged,
or preparing to engage, in international trade, as well as
those businesses adversely affected by import competition. The
SBA can guarantee loans up to $1.25 million. In fiscal year
1995, the SBA approved 126 guaranteed international trade
loans, totaling $50 million; in fiscal year 1996, the agency
approved 74 guaranteed international trade loans totaling $19.2
billion.

2.11 Office of Advocacy

The SBA Office of Advocacy was created in 1976, pursuant to
Title II of Public Law 94-305, with various stated ``primary
functions'' and other ``continuing'' duties. The law provides
for the President to appoint a Chief Counsel for Advocacy,
subject to the advice and consent of the Senate. The mandated
mission of the Office of Advocacy is to represent and advance
small business interests before the Congress and other Federal
departments and agencies for the purpose of enhancing small
business competitiveness.
The eleven statutorily prescribed ``primary functions'' of
the Office of Advocacy are: (1) examining the role of small
business in the American economy; (2) assessing the
effectiveness of all Federal subsidy and assistance programs
for small business; (3) measuring the cost and impact of
government regulations on small business and making legislative
and non-legislative recommendations for the elimination of
unnecessary or excessive regulations; (4) determining the
impact of the tax structure on small business and making
legislative and other proposals for reform of the tax system;
(5) studying the ability of the financial markets to meet the
credit needs of small business; (6) determining availability
and delivery methods of financial and other assistance to
minority enterprises; (7) evaluating the efforts of Federal
departments and agencies, business, and industry to assist
minority enterprises; (8) recommending ways to assist the
development and strengthening of minority and other small
businesses; (9) recommending ways for small business to compete
effectively and to expand, while identifying common causes for
small business failures; (10) developing criteria to define
small business; and (11) advising and consulting with the
chairman of the Administrative Conference of the United States
on the amount of fees and other expenses awarded during the
fiscal year year by the Federal government to plaintiffs who
prevail in administrative proceedings before Federal
departments and agencies.
The law also prescribes a number of ``continuing'' duties
of the Office of Advocacy, which include: (1) serving as a
focal point for receiving complaints and suggestions regarding
Federal agency policies and activities that affect small
business; (2) counseling small businesses on problems in their
relationships with the Federal government; (3) proposing
changes in the policies and activities of all Federal
departments and agencies to better fulfill the purposes of the
Small Business Act; (4) representing small business before
other Federal departments and agencies whose policies and
activities may affect small business; and (5) enlisting the
cooperation of others in the dissemination of information about
Federal programs that benefit small business.
In 1980, the Regulatory Flexibility Act (Public Law 96-354)
enlarged the responsibilities of the Office of Advocacy to
include the monitoring of Federal departments' and agencies'
compliance with the Act's requirements, performing regulatory
impact analyses, and making annual reports to Congress. Also in
1980, Public Law 96-302 required the SBA Administrator to
establish and maintain a small business economic data base to
provide Congress and the Administration with information on the
economic condition of the small business sector. The statute
prescribed twelve categories of data and required an annual
report on trends. Although none of these data-base functions
was expressly delegated to the Office of Advocacy by statute,
they have historically been assigned to the office by the SBA
Administrator.
The Office of Advocacy also has Regional Advocates who
monitor small business and regulatory activities at the State
level and disseminate relevant information about small business
issues. In fiscal year 1995, the Office of Advocacy had a
budget of $7.9 million to carry out its statutory and other
activities; in fiscal year 1996, its budget was $4.1 million.
CHAPTER THREE

HEARINGS AND MEETINGS HELD BY THE COMMITTEE ON SMALL BUSINESS AND ITS
SUBCOMMITTEES, 104th CONGRESS

3.1 Full Committee

----------------------------------------------------------------------------------------------------------------
Date Subject & Location
----------------------------------------------------------------------------------------------------------------
January 11, 1995................ Organizational Meeting; Washington, D.C.
January 18, 1995................ Hearing: Overview of Small Business Tax Proposals in the ``Contract with
America''; Washington, D.C.
January 19, 1995................ Hearing: Home Office Deduction; Washington, D.C.
January 19, 1995................ Hearing: Independent Contractor Status; Washington, D.C.
January 20, 1995................ Hearing: Health Insurance Deductibility for Self-Employed Individuals;
Washington, D.C.
January 23, 1995................ Hearing: Strengthening the Regulatory Flexibility Act; Washington, D.C.
January 25, 1995................ Hearing: Oversight--SBA 7(a) Lending Program; Washington, D.C.
January 26, 1995................ Hearing: Capital Gains Tax Reform and Investment in Small Business;
Washington, D.C.
January 27, 1995................ Hearing: Paperwork Reduction Act; Washington, D.C.
January 31, 1995................ Hearing: Estate Tax Reform and the Family Business; Washington, D.C.
February 10, 1995............... Hearing: Amending the Regulatory Flexibility Act--Past Performance and the
Need for Meaningful Reform; Washington, D.C.
February 13, 1995............... Meeting: Oversight Agenda; Washington, D.C.
February 14, 1995............... Markup: H.R. 937, to amend Title V, United States Code, to clarify procedures
for judicial review of Federal agency compliance with regulatory flexibility
analysis requirements, and for other purposes; Washington, D.C.
February 22, 1995............... Hearing: Capital Gains Tax Reform; Washington, D.C.
February 28, 1995............... Hearing: Overall Review of SBA; Washington, D.C.
March 2, 1995................... Hearing: Review of the SBA Procurement Assistance Programs; Washington, D.C.
March 6, 1995................... Hearing: Review of SBA Business Development Programs; Washington, D.C.
March 9, 1995................... Hearing: Review of SBA 504 Program; Washington, D.C.
March 14, 1995.................. Hearing: SBA's Pilot Microloan Program; Washington, D.C.
March 16, 1995.................. Hearing: U.S. Small Business Administration's Business Development Programs;
Washington, D.C.
March 28, 1995.................. Hearing: Review of the SBIC and SSBIC Programs; Washington, D.C.
March 30, 1995.................. Hearing: The Small Business Administration of the Future; Washington, D.C.
April 4, 1995................... Hearing: SBA Office of Advocacy; Washington, D.C.
April 27, 1995.................. Hearing: Small Business Administration Programs and Tax and Regulatory Issues
Impacting Small Business; Overland Park, Kansas.
June 29, 1995................... Hearing: Small Business Participation in Federal Contracting: Assessing H.R.
1670, the ``Federal Acquisition Reform Act of 1995''--Part I; Washington,
D.C.
July 12, 1995................... Hearing: Reduction of Airline Ticket Sales Commission and Its Impact on Small
Travel Agencies; Washington, D.C.
July 18, 1995................... Hearing: The Administration's Initiatives to Reduce Regulatory Burdens on
Small Business; Washington, D.C.
July 20, 1995................... Hearing: Assessing the Implementation of Public Law 103-355, the ``Federal
Acquisition Streamlining Act of 1994''; Washington, D.C.
July 26, 1995................... Hearing: The Administration and Congressional Initiatives to Reform OSHA, and
their Impact on Small Businesses; Washington, D.C.
August 3, 1995.................. Hearing: Small Business Participation in Federal Contracting: Assessing H.R.
1670, the ``Federal Acquisition Reform Act of 1995''--Part II; Washington,
D.C.
August 4, 1995.................. Markup: H.R. 2150, Small Business Credit Efficiency Act of 1995, to amend the
Small Business Act and the Small Business Investment Act of 1958 to reduce
the cost to the Federal Government of guaranteeing certain loans and
debentures, and for other purposes; Washington, D.C.
September 8, 1995............... Hearing: Pension Reform and Simplification: A Small Business Perspective;
Washington, D.C.
September 13, 1995.............. Hearing: The Impact of Solid Waste Flow Control on Small Businesses and
Consumers; Washington, D.C.
September 28, 1995.............. Hearing: SBA's Venture Capital Programs; Washington, D.C.
October 11, 1995................ Hearing: Federal Contract Bundling: How Can Small Business Compete?;
Washington, D.C.
October 19, 1995................ Hearing: The Effects of Superfund Liability on Small Business; Washington,
D.C.
October 25, 1995................ Hearing: The Internal Revenue Service's Initiatives to Reduce Regulatory and
Paperwork Burdens on Small Business; Washington, D.C.
October 31, 1995................ Hearing: The Cost of Federal Regulations on Small Business; Washington,
D.C.\1\
November 8, 1995................ Hearing: Railroad Consolidation: Small Business Concerns; Washington, D.C.\1\
December 13, 1995............... Hearing: The Abuses in the SBA's 8(a) Procurement Program; Washington, D.C.

February 28, 1996............... Hearing: Small Business' Access to Capital: Impediments and Options;
Washington, D.C.

March 6, 1996................... Hearing: Pilot Small Business Technology Transfer (STTR) Program and Small
Business Innovation Research (SBIR) Program: Assessing the results of Public
Law 102-654, the ``small Business Research and Development Enhancement Act of
1992''; Washington, D.C.

March 7, 1996................... Hearing: The EPA's Progress in Reducing Unnecessary Regulatory and Paperwork
Burdens upon Small Business; Washington, D.C.

March 14, 1996.................. Meeting: Budget Views and Estimates; Washington, D.C.

March 21, 1996.................. Hearing: SBA FY 1997 Budget; Washington, D.C.

March 29, 1996.................. Markup: H.R. 2715, Paperwork Elimination Act of 1995, to amend chapter 35 of
title 44, United States Code, popularly known as the Paperwork Reduction Act,
to minimize the burden of Federal paperwork demands upon small businesses,
educational and nonprofit institutions, Federal contractors, State and local
governments, and other persons through the sponsorship and use of alternative
information technologies; H.R. 3158, Pilot Small Business Technology Transfer
Program Extension Act of 1996, to amend the Small Business Act to extend the
pilot Small Business Technology Transfer program, and for other purposes;
Washington, D.C.
April 12, 1996.................. Hearing: The Practice of ``Salting'' and Its Impact on Small Business;
Overland Park, Kansas\2\
April 17, 1996.................. Hearing: The Kemp Commission Recommendations: A Small Business Perspective;
Washington, D.C.
April 25, 1996.................. Hearing: Patent Term and Patent Disclosure Legislation; Washington, D.C.
May 1, 1996..................... Hearing: Small Business' Access to Capital: The Role of Banks in Small
Business Financing; Washington, D.C.
May 8, 1996..................... Hearing: Music Licensing and Small Business; Washington, D.C.
May 15, 1996.................... Hearing: Small Business and Entry-level Employees: How to Increase Take-home
Pay and Keep America Working; Washington, D.C.
June 6, 1996.................... Hearing: Proposed Reforms of the Small Business Investment Company Program;
Washington, D.C.
June 27, 1996................... Hearing: Small Business Competition for Federal Contracts: The Impact of
Federal Prison Industries; Washington, D.C.
July 16, 1996................... Hearing: Unfair Competition with Small Business from Government and Not-For-
Profits: Assessing the Current State of the Problem and the Recommendations
of the 1995 White House Conference on Small Business; Washington, D.C.
July 18, 1996................... Hearing: Unfair Competition with Small Business from Government and Not-For-
Profits: Assessing the Current State of the Problem and the Recommendations
of the 1995 White House Conference on Small Business; Washington, D.C.
July 18, 1996................... Markup: H.R. 3719, Small Business Programs Improvement Act of 1996, to amend
the Small Business Act and the Small Business Investment Act of 1958;
Washington, D.C.
July 31, 1996................... Markup (continued): H.R. 3719, Small Business Programs Improvement Act of
1996, to amend the Small Business Act and the Small Business Investment Act
of 1958; Washington, D.C.
September 18, 1996.............. Hearing: Proposed Reform of the 8(a) Program Through H.R. 3994, the
Entrepreneur Development Program Act of 1996; Washington, D.C.
September 25, 1996.............. Hearing: OSHA Reform and Relief for Small Business: What Needs to be Done?;
Washington, D.C.

----------------------------------------------------------------------------------------------------------------

3.2 Subcommittee on Government Programs

----------------------------------------------------------------------------------------------------------------

3.3 Subcommittee on Procurement, Exports and Business
Opportunities

----------------------------------------------------------------------------------------------------------------

3.4 Subcommittee on Regulation and Paperwork

----------------------------------------------------------------------------------------------------------------

3.5 Subcommittee on Taxation and Finance

----------------------------------------------------------------------------------------------------------------
\1\ Joint hearing with the Senate Committee on Small Business.
\2\ Joint hearing with the Committee on Economic and Educational Opportunities.
\3\ Joint hearing by the Subcommittee on Government Programs and the Subcommittee on Procurement, Exports and
Business Opportunities.
\4\ Joint hearing by the Subcommittee on Government Programs and the Subcommittee on Taxation and Finance.
\5\ Joint hearing with the Subcommittee on Education Training Employment and Housing of the Committee on
Veterans' Affairs.
\6\ Joint hearing with the Subcommittee on Oversight and Investigations of the Committee on Economic and
Educational Opportunities.

CHAPTER FOUR

PUBLICATIONS OF THE COMMITTEE ON SMALL BUSINESS AND ITS SUBCOMMITTEES,
104TH CONGRESS

4.1 Reports

----------------------------------------------------------------------------------------------------------------
House Report No. Title & Date
----------------------------------------------------------------------------------------------------------------
104-49 (Part 1)................. Report to accompany H.R. 937, to amend Title V, United States Code, to clarify
procedures for judicial review of Federal agency compliance with regulatory
flexibility analysis requirements, and for other purposes; February 23, 1995.
104-239......................... Report to accompany H.R. 2150, Small Business Credit Efficiency Act of 1995;
September 6, 1995.
104-269......................... Conference report to accompany S. 895, Small Business Lending Enhancement Act
of 1995; September 28, 1995.
104-520 (Part 1)................ Report to accompany H.R. 2715, Paperwork Elimination Act of 1995; April 16,
1996.
104-850 (Part 1)................ Report to accompany H.R. 3158, Pilot Small Business Technology Transfer
Program Extension Act of 1996; September 26, 1996.
104-750......................... Report to accompany H.R. 3719, Small Business Programs Improvement Act of
1996; August 2, 1996.
104-873......................... Summary of Activities; December 31, 1996.
----------------------------------------------------------------------------------------------------------------

4.2 Hearing Records

------------------------------------------------------------------------
Title, Date &
Serial No. Held by * Location
------------------------------------------------------------------------
104-1.................... Full.................... Independent
Contractor Status;
January 19, 1995;
Washington, D.C.
104-2.................... Full.................... Overview of Small
Business Tax
Proposals in the
``Contract with
America''; January
18, 1995;
Washington, D.C.
104-3.................... Full.................... Tax-Home Office
Deduction; January
19, 1995;
Washington, D.C.
104-4.................... Full.................... Health Insurance
Deductibility for
Self-Employed
Individuals;
January 20, 1995;
Washington, D.C.
104-5.................... Full.................... Strengthening the
Regulatory
Flexibility Act;
January 23, 1995;
Washington, D.C.
104-6.................... Full.................... Oversight--SBA 7(a)
Lending Program;
January 25, 1995;
Washington, D.C.
104-7.................... Full.................... Capital Gains Tax
Reform and
Investment in
Small Business;
January 26, 1995;
Washington, D.C.
104-8.................... Full.................... Paperwork Reduction
Act; January 27,
1995; Washington,
D.C.
104-9.................... Full.................... Estate Tax Reform
and the Family
Business; January
31, 1995;
Washington, D.C.
104-10................... Full.................... Amending the
Regulatory
Flexibility Act--
Past Performance
and the Need for
Meaningful Reform;
February 10, 1995;
Washington, D.C.
104-11................... Full.................... Capital Gains Tax
Reform; February
22, 1995;
Washington, D.C.
104-12................... Government.............. The Impact of
Hanscom Air Force
Base upon Small
Business in the
New England
Region; February
13, 1995; Bedford,
Massachusetts.
104-13................... Full.................... Overall Review of
SBA; February 28,
1995; Washington,
D.C.
104-14................... Full.................... Review of the SBA
Procurement
Assistance
Programs; March 2,
1995; Washington,
D.C.
104-15................... Full.................... Review of SBA
Business
Development
Programs; March 6,
1995; Washington,
D.C.
104-16................... Regulation\1\........... Joint Hearing on
the Impact of
Workplace and
Employment
Regulations on
Business; February
2, 1995;
Washington, D.C.
104-17................... Full.................... Review of SBA 504
Program; March 9,
1995; Washington,
D.C.
104-18................... Full.................... SBA's Pilot
Microloan Program;
March 14, 1995;
Washington, D.C.
104-19................... Full.................... U.S. Small Business
Administration's
Business
Development
Programs; March
16, 1995;
Washington, D.C.
104-20................... Full.................... The Small Business
Administration of
the Future; March
30, 1995;
Washington, D.C.
104-21................... Full.................... Review of the SBIC
and SSBIC
Programs; March
28, 1995;
Washington, D.C.
104-22................... Procurement............. Export Promotion
Programs: How is
Small Business
Helped?; March 29,
1995; Washington,
D.C.
104-23................... Full.................... SBA Office of
Advocacy; April 4,
1995; Washington,
D.C.
104-24................... Procurement............. Small Business
Administration's
Surety Bond
Guarantee Program;
April 5, 1995;
Washington, D.C.
104-25................... Government.............. Small Business
Administration's
Small Business
Innovation
Research (SBIR)
Program; April 6,
1995; Washington,
D.C.
104-26................... Government.............. Small Business
Administration
Programs to Assist
the New England
Fishing Industry;
April 10, 1995;
Gloucester,
Massachusetts.
104-27................... Full.................... Small Business
Administration
Programs and Tax
and Regulatory
Issues Impacting
Small Business;
April 27, 1995;
Overland Park,
Kansas.
104-28................... Procurement............. Agriculture Export
Promotion
Programs: How are
the Small Farmer
and Rancher
Helped?; May 17,
1995; Washington,
D.C.
104-29................... Taxation................ The Flat Tax and
Small Business;
May 18, 1995;
Washington, D.C.
104-30................... Procurement............. Federal Export
Promotion
Programs: An
Academic
Perspective; May
23, 1995;
Washington, D.C.
104-31................... Government.............. Small Business
Administration's
Disaster Loan
Program; May 25,
1995; Washington,
D.C.
104-32................... Regulation.............. Regulatory Barriers
to Minority
Entrepreneurs;
June 7, 1995;
Washington, D.C.
104-33................... Regulation.............. OSHA Fall
Protection
Standard; June 15,
1995; Washington,
D.C.
104-34................... Procurement............. Export Promotion: A
Business
Perspective; June
22, 1995;
Washington, D.C.
104-35................... Taxation................ The Burden of
Payroll Taxes on
Small Business;
June 28, 1995;
Washington, D.C.
104-36................... Full.................... Small Business
Participation in
Federal
Contracting:
Assessing H.R.
1670, the
``Federal
Acquisition Reform
Act of 1995''--
Part I; June 29,
1995; Washington,
D.C.
104-37................... Government.............. U.S. Small Business
Administration Low
Documentation Loan
Program; June 28,
1995; Washington,
D.C.
104-38................... Full.................... Reduction of
Airline Ticket
Sales Commission
and Its Impact on
Small Travel
Agencies; July 12,
1995; Washington,
D.C.
104-39................... Full.................... The
Administration's
Initiatives to
Reduce Regulatory
Burdens on Small
Business; July 18,
1995; Washington,
D.C.
104-40................... Government.............. SBA's LowDoc Loan
Program; July 19,
1995; Washington,
D.C.
104-41................... Full.................... Assessing the
Implementation of
Public Law 103-
355, the ``Federal
Acquisition
Streamlining Act
of 1994''; July
20, 1995;
Washington, D.C.
104-42................... Full.................... The Administration
and Congressional
Initiatives to
Reform OSHA, and
their Impact on
Small Businesses;
July 26, 1995;
Washington, D.C.
104-43................... Taxation................ Clarifying the
Status of
Independent
Contractors--Part
I; July 26, 1995;
Washington, D.C.
104-44................... Government.............. Professional
Certification as a
Sole Source Bid
Requirement in
Federal
Contracting;
August 2, 1995;
Washington, D.C.
104-45................... Taxation................ Clarifying the
Status of
Independent
Contractors--Part
II; August 2,
1995; Washington,
D.C.
104-46................... Full.................... Small Business
Participation in
Federal
Contracting:
Assessing H.R.
1670, the
``Federal
Acquisition Reform
Act of 1995''--
Part II; August 3,
1995; Washington,
D.C.
104-47................... Regulation.............. Candidates for the
Regulatory
Corrections
Calendar; August
23, 1995;
Despares,
Missouri.
104-48................... Full.................... Pension Reform and
Simplification: A
Small Business
Perspective;
September 8, 1995;
Washington, D.C.
104-49................... Government & Procurement The Export Working
Capital Program;
September 7, 1995;
Washington, D.C.
104-50................... Full.................... The Impact of Solid
Waste Flow Control
on Small
Businesses and
Consumers;
September 13,
1995; Washington,
D.C.
104-51................... Full.................... SBA's Venture
Capital Programs;
September 28,
1995; Washington,
D.C.
104-52................... Full.................... Federal Contract
Bundling: How Can
Small Business
Compete?; October
11, 1995;
Washington, D.C.
104-53................... Procurement............. Technologies for
Accessing Foreign
Markets; October
11, 1995;
Washington, D.C.
104-54................... Government.............. Loan Packaging;
October 12, 1995;
Washington, D.C.
104-55................... Full.................... The Effects of
Superfund
Liability on Small
Business; October
19, 1995;
Washington, D.C.
104-56................... Full.................... The Internal
Revenue Service's
Initiatives to
Reduce Regulatory
and Paperwork
Burdens on Small
Business; October
25, 1995;
Washington, D.C.
104-57................... Full\2\................. The Cost of Federal
Regulations on
Small Business;
October 31, 1995;
Washington, D.C.
104-58................... Full\2\................. Railroad
Consolidation:
Small Business
Concerns; November
8, 1995;
Washington, D.C.
104-59................... Full.................... The Abuses in the
SBA's 8(a)
Procurement
Program; December
13, 1995;
Washington, D.C.
104-60................... Taxation................ Fundamental Tax
Changes Needed to
Unleash America's
Small Businesses;
February 9, 1996;
Indianapolis;
Indiana; March 25,
1996; Mentor,
Ohio; April 3,
1996; Seattle,
Washington.
104-61................... Procurement............. Resources for
Export Assistance;
February 13, 1996;
Rockford,
Illinois.
104-62................... Full.................... Small Business'
Access to Capital:
Impediments and
Options; February
28, 1996;
Washington, D.C.
104-63................... Full.................... Pilot Small
Business
Technology
Transfer (STTR)
Program and Small
Business
Innovation
Research (SBIR)
Program: Assessing
the results of
Public Law 102-
654, the ``Small
Business Research
and Development
Enhancement Act of
1992''; March 6,
1996; Washington,
D.C.
104-64................... Full.................... The EPA's Progress
in Reducing
Unnecessary
Regulatory and
Paperwork Burdens
upon Small
Business; March 7,
1996; Washington,
D.C.
104-65................... Regulation.............. Examining the
Issues Surrounding
the National Labor
Relations Board's
Rulemaking
Concerning Single
Location
Bargaining Units
in Representation
Cases; March 7,
1996; Washington,
D.C.
104-66................... Government & Taxation... The Effects of Bank
Consolidation on
Small Business
Lending; March 4,
1996; Boston,
Massachusetts.
104-67................... Full.................... SBA FY 1997 Budget;
March 21, 1996;
Washington, D.C.
104-68................... Government.............. H.R. 2715:
Paperwork
Elimination Act;
March 27, 1996;
Washington, D.C.
104-71................... Full\3\................. The Practice of
``Salting'' and
Its Impact on
Small Business;
April 12, 1996;
Overland Park,
Kansas
104-72................... Full.................... The Kemp Commission
Recommendations: A
Small Business
Perspective; April
17, 1996;
Washington, D.C.
104-73................... Government.............. Venture Capital
Marketing
Association
Charter Act; April
18, 1996;
Washington, D.C.
104-74................... Full.................... Patent Term and
Patent Disclosure
Legislation; April
25, 1996;
Washington, D.C.
104-75................... Procurement............. The Impact of
``Short Supply''
on Small
Manufacturers; May
2, 1996;
Washington, D.C.
104-76................... Full.................... Music Licensing and
Small Business;
May 8, 1996;
Washington, D.C.
104-77................... Government.............. H.R. 2579: The
Travel and Tourism
Partnership Act of
1995; May 6, 1996;
Newburyport,
Massachusetts.
104-78................... Full.................... Small Business'
Access to Capital:
The Role of Banks
in Small Business
Financing; May 1,
1996; Washington,
D.C.
104-79................... Full.................... Small Business and
Entry-level
Employees: How to
Increase Take-home
Pay and Keep
America Working;
May 15, 1996;
Washington, D.C.
104-80................... Government.............. Oversight of the
Environmental
Protection
Agency's Progress
in Reducing
Unnecessary
Paperwork Burdens
upon Small
Business; May 30,
1996; Washington,
D.C.
104-81................... Full.................... Proposed Reforms of
the Small Business
Investment Company
Program; June 6,
1996; Washington,
D.C.
104-82................... Government.............. Oversight of the
Department of
Labor's Progress
on Reducing
Unnecessary
Paperwork Burdens
on Small Business;
June 26, 1996;
Washington, D.C.
104-83................... Full.................... Small Business
Competition for
Federal Contracts:
The Impact of
Federal Prison
Industries; June
27, 1996;
Washington, D.C.
104-84................... Government.............. Massachusetts'
Request for
Disaster Funds
from the SBA; July
10, 1996;
Washington, D.C.
104-85................... Government.............. The Government's
Solicitation
Process and
Whether or Not It
is Discriminatory
to Small Business;
July 15, 1996;
Danvers,
Massachusetts.
104-86................... Full.................... Unfair Competition
with Small
Business from
Government and Not-
For-Profits:
Assessing the
Current State of
the Problem and
the
Recommendations of
the 1995 White
House Conference
on Small Business;
July 16, 1996;
Washington, D.C.
104-87................... Government.............. H.R. 1863: The
Employment Non-
Discrimination
Act; July 17,
1996; Washington,
D.C.
104-88................... Government.............. Oversight of the
Food and Drug
Administration's
Progress in
Reducing
Unnecessary
Paperwork Burdens
Upon Small
Business; July 24,
1996; Washington,
D.C.
104-90................... Procurement............. The Effectiveness
of U.S. Export
Assistance
Centers; July 25,
1996; Washington,
D.C.
104-91................... Government\4\........... SBA Programs to
Assist Veterans in
Readjusting to
Civilian Life;
July 31, 1996
Washington, D.C.
104-92................... Full.................... Proposed Reform of
the 8(a) Program
Through H.R. 3994,
the Entrepreneur
Development
Program Act of
1996; September
18, 1996;
Washington, D.C.
104-93................... Full.................... OSHA Reform and
Relief for Small
Business: What
Needs to be Done?;
September 25,
1996; Washington,
D.C.
104-94................... Government.............. FDIC's Handling of
Small Business
Asset
Foreclosures;
September 25,
1996; Washington,
D.C.
------------------------------------------------------------------------
*Full: Full Committee on Small Business.
Government: Subcommittee on Government Programs.
Procurement: Subcommittee on Procurement, Exports and Business
Opportunities.
Regulation: Subcommittee on Regulation and Paperwork.
Taxation: Subcommittee on Taxation and Finance.

\1\ Joint hearing with the Subcommittee on Oversight and Investigations
of the Committee on Economic and Educational Opportunities.
\2\ Joint hearing with the Senate Committee on Small Business.
\3\ Joint hearing with the Committee on Economic and Educational
Opportunities.
\4\ Joint hearing with the Subcommittee on Education Training Employment
and Housing of the Committee on Veterans' Affairs.

CHAPTER FIVE

SUMMARY OF LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL BUSINESS

During the 104th Congress, 41 House bills and 2 Senate
bills were referred to the Committee on Small Business. The
Committee reported five bills to the House, each of which
passed the House, and four were enacted into law as part of
broader legislation.

5.1 H.R. 937 (H.R. 926, H.R. 9, S. 942, and H.R. 3136); Public
Law No. 104-121.

H.R. 926:
February 14, 1995................. Referred to House Committee on the
Judiciary.
February 16, 1995................. Committee Consideration and Mark-up
Session Held.
February 16, 1995................. Ordered to be Reported (Amended) by
Voice Vote.
February 23, 1995................. Reported to House (Amended) by House
Committee on the Judiciary Report
No. 104-48.
February 23, 1995................. Placed on Union Calendar No. 25.
February 27, 1995................. Committee on Rules, by Voice Vote,
Granted an Open Rule Providing 90
Minutes of Debate; Making in Order
the Committee on the Judiciary
Amendment in the Nature of a
Substitute as an Original Bill;
Giving Priority Recognition to
Members who have Pre-Printed their
Amendments in the Congressional
Record Prior to their
Consideration; Providing One Motion
to Recommit With or Without
Instructions.
February 27, 1995................. Rules Committee Resolution H. Res.
100 Reported to House.
February 28, 1995................. Rule Passed House.
March 1, 1995..................... Called up by House by Rule.
March 1, 1995..................... Committee Amendment in the Nature of
a Substitute Considered as an
Original Bill for the Purpose of
Amendment.
March 1, 1995..................... House Agreed to Amendments Adopted
by the Committee of the Whole.
March 1, 1995..................... Passed House (Amended) by Yea-Nay
Vote: 415-15 (Record Vote No. 187).
March 3, 1995..................... Received in the Senate.
March 3, 1995..................... Referred to Senate Committee on
Governmental Affairs.
March 3, 1995..................... Pursuant to the Provisions of H.
Res. 101 the House Incorporated the
Text of this Measure, as Passed by
the House, into H.R. 9.

H.R. 9:
January 4, 1995................... Referred to Committee on Ways and
Means
January 24, 1995.................. Committee on Ways and Means Hearings
Held.
January 25, 1995.................. Committee on Ways and Means Hearings
Held.
January 26, 1995.................. Committee on Ways and Means Hearings
Held.
February 1, 1995.................. Committee on Ways and Means Hearings
Held.
January 4, 1995................... Referred to House Committee on
Commerce.
January 13, 1995.................. Referred to Subcommittee on Energy
and Power.
January 13, 1995.................. Referred to Subcommittee on Health
and Environment.
January 13, 1995.................. Referred to Subcommittee on
Commerce, Trade, and Hazardous
Materials.
February 1, 1995.................. Joint Hearings Held by the
Subcommittee on Health and
Environment and by the Subcommittee
on Commerce, Trade and Hazardous
Materials.
February 2, 1995.................. Joint Hearings Held by the
Subcommittee on Health and
Environment and by the Subcommittee
on Commerce, Trade and Hazardous
Materials.
February 2, 1995.................. Subcommittee on Commerce, Trade, and
Hazardous Materials Discharged.
February 3, 1995.................. Subcommittee on Energy and Power
Discharged.
February 3, 1995.................. Subcommittee on Health and
Environment Discharged.
February 7, 1995.................. Committee on Commerce Consideration
and Mark-up Session Held.
February 8, 1995.................. Committee Consideration and Mark-up
Session Held.
February 8, 1995.................. Ordered to be Reported (Amended) by
the Yeas and Nays: 27-16.
February 15, 1995................. Reported to House (Amended) by House
Committee on Commerce Report No.
104-33 (Part I).
January 4, 1995................... Referred to House Committee on
Government Reform and Oversight.
January 11, 1995.................. Referred to Subcommittee on National
Economic Growth, Natural Resources
and Regulatory Affairs.
January 4, 1995................... Referred to House Committee on the
Budget.
January 4, 1995................... Referred to House Committee on
Rules.
January 4, 1995................... Referred to House Committee on the
Judiciary.
January 4, 1995................... Referred to House Committee on
Science.
January 31, 1995.................. Committee Hearings Held on Title
III, Risk Assessment and Cost/
Benefit Analysis for New
Regulations.
February 2, 1995.................. Committee Hearings Held on Title
III, Risk Assessment and Cost/
Benefit Analysis for New
Regulations.
February 8, 1995.................. Committee Consideration and Mark-up
Session Held.
February 8, 1995.................. Ordered to be Reported (Amended) by
Voice Vote.
February 15, 1995................. Reported to House (Amended) by House
Committee on Science Report No. 104-
33 (Part II).
February 9, 1995.................. Rereferred to the House Committee on
Small Business for Titles V, VI and
Section 4003.
March 3, 1995..................... Called up by House by Rule.
March 3, 1995..................... The House struck all after Section 1
and inserted in lieu thereof the
provisions of a text composed of 4
divisions: (1) H.R. 830; (2) H.R.
925; (3) H.R. 926; and (4) H.R.
1022, as each bill was passed by
the House.
March 3, 1995..................... Motion to Recommit with Instructions
Failed in House by Yea-Nay Vote:
180-239 (Record Vote No. 198).
March 3, 1995..................... Passed House (Amended) by Yea-Nay
Vote: 277-141 (Record Vote No.
199).
March 9, 1995..................... Received in the Senate.
March 9, 1995..................... Referred to Senate Committee on
Governmental Affairs.

S. 942:
June 16, 1995..................... Referred to Senate Committee on
Small Business.
February 28, 1996................. Committee on Small Business Hearings
Held.
March 6, 1996..................... Committee Consideration and Mark-up
Session Held.
March 6, 1996..................... Ordered to be Reported (Amended).
March 6, 1996..................... Reported to Senate (Amended) by
Senate Committee on Small Business.
March 6, 1996..................... Placed on Senate Legislative
Calendar under General Orders.
Calendar No. 342.
March 15, 1996.................... Measure laid before Senate.
March 15, 1996.................... Considered by Senate.
March 19, 1996.................... Passed Senate (Amended) by Yea-Nay
Vote: 100-0 (Record Vote No. 43).
March 22, 1996.................... Referred to House Committee on the
Judiciary.
March 22, 1996.................... Referred to House Committee on Small
Business.
March 22, 1996.................... Referred to House Committee on
Rules.
March 28, 1996.................... For Further Action See H.R. 3136.

H.R. 3136:
March 21, 1996.................... Referred to Committee on Ways and
Means.
March 21, 1996.................... Referred to House Committee on the
Budget.
March 21, 1996.................... Referred to House Committee on
Rules.
March 21, 1996.................... Referred to House Committee on the
Judiciary.
March 21, 1996.................... Referred to House Committee on Small
Business.
March 21, 1996.................... Referred to House Committee on
Government Reform and Oversight.
March 25, 1996.................... Referred to Subcommittee on
Government Management, Information
and Technology of the Committee on
Government Reform and Oversight.
March 27, 1996.................... Rules Committee Resolution H. Res.
391 Reported to House.
March 27, 1996.................... Committee on Rules Granted, by Voice
Vote, a Closed Rule Providing for
the Consideration in the House of
the Bill as Modified by the
Amendment Designated in the Report
of the Committee on Rules on the
Resolution; Waiving All Points of
Order Against Consideration of the
Bill Except Section 425(a) of the
Budget Act (Unfunded Mandate Point
of Order); Providing that if the
Clerk has, Before March 30, 1996,
Received a Message From the Senate
that the Senate has Adopted the
Conference Report on S. 4, the Line
Item Veto Act, then the Clerk Shall
Delete Title II (the Line Item Veto
Act) From the Engrossment of the
Bill (Unless Amended), and the
House Shall be Considered to Have
Adopted the Conference Report.
March 28, 1996.................... Rule Passed House.
March 28, 1996.................... Called up by House by Rule.
March 28, 1996.................... On motion to table the motion to
appeal the ruling of the chair
agreed to by recorded vote: 232-185
(Roll no. 99).
March 28, 1996.................... Motion to Recommit with Instructions
Failed in House by Yea-Nay Vote:
159-256 (Record Vote No. 101).
March 28, 1996.................... Passed House (Amended) by Recorded
Vote: 328-91 (Record Vote No. 102).
March 28, 1996.................... Received in the Senate.
March 28, 1996.................... Passed Senate by Unanimous Consent.
March 28, 1996.................... Cleared for White House.
March 29, 1996.................... Presented to President.
March 29, 1996.................... Signed by President.
March 29, 1996.................... Became Public Law No. 104-121.
------------------------------------------------------------------------

Reason for Legislation

The Regulatory Flexibility Act (RFA) requires agencies to
review any new rules and regulations they promulgate and
determine whether they will have a significant economic impact
on a substantial number of small entities. If they will have a
significant impact, agencies are required to conduct a
regulatory flexibility analysis detailing the impact and
explaining why a less burdensome rule was not available. If the
agency determines that there will be no significant impact, the
agency is allowed to certify that conclusion and no further
analysis is required. Unfortunately, the lack of judicial
review prohibits legal challenges to such determinations or
challenges to flawed regulatory flexibility analyses. This
makes agency compliance with the RFA essentially voluntary as
Federal regulators face no judicial action for failure to
comply. As a result, the RFA needs to be amended to allow
judicial review so that enforcement ``teeth`` exist in the law.
The RFA also directs the Chief Counsel for Advocacy of the
Small Business Administration (SBA) to monitor RFA compliance.
However, that ability has been limited. Legislative changes
must be implemented to improve the cooperation between Federal
agencies and the SBA Chief Counsel for Advocacy and encourage
regulators to minimize the impact of their rules and
regulations on small entities prior to adoption.
Finally, the RFA, as passed in 1980, grants the SBA Chief
Counsel for Advocacy the authority to appear as amicus curiae
in court cases involving review of Federal rules. The Chief
Counsel's ability to exercise this authority, however, has been
severely limited, hampering the Chief Counsel's ability to
represent small business in Federal court. As a result,
legislation is necessary to reaffirm the authority provided in
1980 for the Chief Counsel to speak out on behalf of small
business.

Hearings

The Committee on Small Business held two hearings on the
Regulatory Flexibility Act. The first hearing, held on January
23, 1995, focused on the need for strengthening the RFA. (For
further information on this hearing, refer to section 7.2.5 of
this report). The second hearing, held on February 10, 1995,
examined the past performance of the RFA and the need for
meaningful reform. (For further information on this hearing,
refer to section 7.2.10 of this report). Both hearings also
considered the relevant provisions concerning RFA reform
contained in Title VI of H.R. 9, one of the bills making up the
``Contract with America.''

Summary of Legislation

Judicial Review

Section 1 of H.R. 937 would amend Section 611 of Title V of
the United States Code to allow and clarify the procedures for
judicial review of agency compliance with the RFA. Section 611
as it currently exists prohibits court challenge of an agency
determination of the applicability of the RFA and prohibits
court review of any regulatory flexibility analysis prepared
under the Act, unless it is conducted in the context of the
review of a rule made on an independent basis. Judicial review
of certification under the Act is completely barred. In
practice, this prohibition on judicial challenges has allowed
agencies to ignore the letter and spirit of the RFA.
The primary features of the new judicial review provision
in the bill are: (1) a small entity can only seek judicial
review arising from a final rule; (2) the judicial review can
be for either a wrongful certification that the rule will not
have a significant economic impact on a substantial number of
small entities or a flawed or totally absent final regulatory
flexibility analysis; (3) the small entity seeking judicial
review must do so within 180 days of the effective date of the
final rule. However, if some other provision of law requires a
lesser time for judicial review of a final agency rulemaking
action, then the lesser time prevails; and (4) agencies will be
allowed a short period (90 days) in which to correct regulatory
flexibility defects (after that time, a reviewing court can
stay the operation of the rule or provide whatever relief it
deems appropriate).

Earlier Involvement in the Rulemaking Process by the SBA Chief
Counsel for Advocacy.

While the primary intention of the bill is to strengthen
agency compliance with the Regulatory Flexibility Act, it is
also intended to require agencies to work more closely with the
SBA Chief Counsel for Advocacy, who is charged with monitoring
compliance with the Act, during the drafting of new rules.
Section 2 of H.R. 937 would amend Section 612 of Title V of
the United States Code to require that, when an agency is
drafting a new rule, the agency must provide the SBA Chief
Counsel for Advocacy with an advance copy of the rule 30 days
before publishing a general notice of proposed rulemaking in
the Federal Register pursuant to the Administrative Procedures
Act. An exception to the advance notification approach is made
in the bill for draft proposed rules of certain banking
agencies.
The purpose behind Section 2 of the bill is to attempt to
involve the SBA Chief Counsel for Advocacy in securing agency
compliance with the Act at the earliest possible time and to
allow agencies to benefit from the Chief Counsel's views before
the proposed rule is in the public domain.

Authority of the SBA Chief Counsel for Advocacy to Appear as
Amicus Curiae.

Section 3 of H.R. 937 is a ``sense of Congress'' provision
reaffirming the provisions contained in 5 U.S.C. Sec. 612(b).
The RFA currently gives the SBA Chief Counsel for Advocacy
authority to file amicus briefs in litigation involving Federal
rules. In the history of the RFA, this authority has only been
utilized once, in the 1986 case of Lehigh Valley Farmers. At
that time, the Justice Department indicated that this amicus
authority was unconstitutional because it would impair the
ability of the Executive branch to fulfill its constitutional
functions. After considerable friction between the Department
of Justice and the SBA Chief Counsel for Advocacy, the Chief
Counsel eventually withdrew the amicus brief filed in the
Lehigh Valley Farmers case.
The ability to appear as amicus curiae is important to the
ability of the SBA Chief Counsel for Advocacy to represent the
interests of small businesses in the rulemaking process.
Furthermore, if the bill were to become law with its provision
to permit judicial review of agency compliance with the RFA,
the importance of the SBA Chief Counsel's ability to file
amicus briefs will be magnified.

Final Legislation

Several of the regulatory revisions, which began in H.R.
937, were included in the Small Business Regulatory Enforcement
Fairness Act of 1996 (Title III of H.R. 3136), which became
part of the Federal debt-extension legislation. Title III of
the Act contained five subtitles designed to provide regulatory
relief for small business.

Regulatory Compliance Simplification.

Subtitle A requires agencies to publish easily understood
guides to assist small businesses in complying with regulations
and provide informal, non-binding advice about regulatory
compliance. The subtitle creates permissive authority for Small
Business Development Centers to offer regulatory compliance
information to small businesses and to establish resource
centers of reference materials. The agencies are directed to
cooperate with the States to create guides that fully integrate
Federal and State requirements on small businesses.

Regulatory Enforcement Reforms.

This subtitle creates a Small Business and Agriculture
Regulatory Enforcement Ombudsman at the SBA to give small
businesses a confidential means to comment on and rate the
performance of agency enforcement personnel. It also creates
Regional Small Business Regulatory Fairness Boards at the SBA
to coordinate with the Ombudsman and to provide small
businesses a greater opportunity to come together on a regional
basis to assess the enforcement activities of the various
Federal regulatory agencies.
The subtitle also directs all Federal agencies that
regulate small businesses to develop policies or programs
providing for waivers or reductions of civil penalties for
violations by small businesses under appropriate circumstances.

Equal Access to Justice Act Amendments.

The Equal Access to Justice Act (EAJA) provides a means for
prevailing small entities to recover their attorneys fees and
costs in a wide variety of civil and administrative actions
between small entities and the government. This subtitle amends
the EAJA to allow small entities to recover the fees and costs
attributable to a demand by the agency that is excessive and
unreasonable under the facts and circumstances of the case.
While the small entity would not be required to prevail in the
underlying action, the final outcome of the action must be to
require payment of an amount substantially less than what the
agency originally sought to recover. The amendment also
increases the maximum hourly rate for attorneys fees under the
EAJA from $75 to $125.

Regulatory Flexibility Act Amendments.

Subtitle D of the Act gives teeth to enforcement of the RFA
by specifically providing for judicial review of selected
portions of the Act in order to make agencies accountable for
their failure to comply with the Act's requirements.
Additionally, the subtitle enlarges the scope of the rules to
which the RFA applies by defining a rule to include
interpretative rules involving the Internal Revenue laws.
The subtitle also establishes a small business advocacy
review panel, which will provide small business participation
in the rulemaking process. For proposed rules with a
significant economic impact on a substantial number of small
entities, the Environmental Protection Agency and the
Occupational Safety and Health Administration would have to
collect advice and recommendations from small businesses to
better inform those conducting the agencies' regulatory
flexibility analyses on the potential effects of a rule.

Congressional Review of Agency Rulemaking.

Subtitle E of the Act provides an expedited procedure
whereby Congress may review rules to determine whether they
should be amended or halted prior to taking effect. Each agency
will be required to submit to Congress a copy of each new rule,
along with a report describing its contents. If a rule is a
``major rule'' (i.e., one with an annual effect on the economy
of $100 million or more, or similar effect), the effectiveness
of the rule is stayed for 60 days in order to allow Congress to
act on the proposed rule. Non-major rules will not be stayed
but may be subject to the review process.
In the event that Congress does not believe that the rule
should take effect, each chamber must pass a joint resolution
of disapproval, which then must be signed by the President. The
subtitle creates an expedited procedure for consideration of
the joint resolution in the Senate, which continues in effect
for 60-session days after receipt of the rule from the agency.

5.2 H.R. 2150 (S. 895), The Small Business Credit Efficiency
Act of 1995; Public Law No. 104-36.

S. 895:
June 8, 1995...................... Referred to Senate Committee on
Small Business.
July 13, 1995..................... Committee Consideration and Mark-up
Session Held.
July 13, 1995..................... Ordered to be Reported (Amended).
August 5, 1995.................... Reported to Senate (Amended) by
Senate Committee on Small Business
Report No. 104-129.
August 5, 1995.................... Placed on Senate Legislative
Calendar under General Orders.
Calendar No. 166.
August 11, 1995................... Measure laid before Senate.
August 11, 1995................... Passed Senate (Amended) by Voice
Vote.
September 12, 1995................ Considered by Unanimous Consent.
September 12, 1995................ House Struck All After the Enacting
Clause and Substituted the Language
of H.R. 2150. Agreed to Without
Objection.
September 12, 1995................ Passed House (Amended) by Voice
Vote.
September 12, 1995................ A similar measure H.R. 2150 was laid
on the table without objection.
September 12, 1995................ House Insisted upon its Amendments.
September 12, 1995................ House Requested a Conference.
September 12, 1995................ The Speaker appointed conferees:
Mrs. Meyers, Mr. Torkildsen, Mr.
Longley, Mr. LaFalce, and Mr.
Poshard.
September 26, 1995................ Senate disagreed to the House
amendments by Voice Vote.
September 26, 1995................ Senate agreed to request for
Conference.
September 26, 1995................ The Senate appointed conferees: Sen.
Bond, Sen. Burns, Sen. Coverdell,
Sen. Bumpers, and Sen. Nunn.
September 27, 1995................ Conference Held.
September 27, 1995................ Conferees agreed to file conference
report.
September 28, 1995................ Conference report H. Rept. 104-269
filed.
September 28, 1995................ Senate agreed to the conference
report by Voice Vote.
September 29, 1995................ House Agreed to Conference Report by
Unanimous Consent.
September 29, 1995................ Cleared for White House.
October 3, 1995................... Presented to President.
October 12, 1995.................. Signed by President.
October 12, 1995.................. Became Public Law No. 104-36.
------------------------------------------------------------------------

Reason for Legislation

The estimated subsidy rate for the 7(a) program in 1995 was
2.74 percent, allowing the Small Business Administration (SBA)
to offer a total of $7.8 billion of loan guarantees with
appropriated funds of $215.1 million. Similarly, the estimated
subsidy rate for the 504 program was 0.57 percent for 1995,
permitting a total of $1.4 billion in loan guarantees with
appropriated funds of $8 million. The Committee became aware of
increasing demand for small business credit, which placed
significant burdens on the SBA lending program as then
structured. In addition, the SBA drastically reduced the size
of 7(a) loans that it could guarantee, from $750,000 to
$500,000, and imposed other administrative restrictions in
order to continue to offer credit assistance to the small
business community.
H.R. 2150 was designed to lower the credit subsidy rates
for the SBA's two largest small business loan guarantee
programs, the Section 7(a) guaranteed business loan program and
the Section 504 Certified Development Company program. The bill
accomplished this by restructuring the 7(a) program and
increasing the fees in both programs. The Committee anticipated
that the bill would reduce the subsidy rate for the 7(a)
program to 1.06 percent and eliminate the subsidy rate for the
504 program, making it self-funding.

Hearings

The Committee held two hearings to review the current
structure of both the 7(a) and 504 programs and their ability
to meet small business credit needs. On January 25, 1995, the
Committee held a hearing on the 7(a) program in order to
clarify the reasons for the shortfall in program funds. (For
further information on this hearing, refer to section 7.2.6 of
this report). On March 9, 1995, the Committee held a hearing on
the 504 program and its funding needs. (For further information
on this hearing, refer to section 7.2.15 of this report).

Summary of Legislation

Fee for Loans Sold on Secondary Market.

Section 2 of H.R. 2150 amends Section 634(g)(4)(A) of Title
15 of the United States Code to increase the annual fee charged
to lenders who sell the guaranteed portion of their loans on
the secondary market. The fee would increase from 0.4 percent
of the outstanding principal balance of the guaranteed portion
of the loan to 0.5 percent. In addition, Section 3(b) of the
bill establishes a 0.4 percent annual fee on the outstanding
principal of all guaranteed loans that are not sold into the
secondary market.

General Business Loans.

Section 3(a) of H.R. 2150 reduces and simplifies the level
of guarantee offered through the 7(a) program. Section
636(a)(2) of Title 15 of the United States Code is amended to
change the guarantee percentage to no more than 80 percent of
the total amount of loans up to $100,000 and no more than 75
percent of all loans above $100,000. This will alter the
current system in which loans under $155,000 are guaranteed up
to 90 percent; loans over $155,000 are guaranteed up to 85
percent; and loans from Preferred Lenders are guaranteed up to
70 percent.
Section 3(b) of the bill increases the guarantee fees
charged on guaranteed loans. The current fee is 2 percent of
the guaranteed portion of all loans. Under the bill, the fees
would increase to 2 percent of the gross amount of any loans
below $250,000; 2.5 percent of any loan between $250,000 and
$500,000; and 3 percent of any loan above $500,000. Section
3(c) of the bill also ends the practice of allowing lenders to
keep one half of the guarantee fees on loans under $50,000 or
loans under $75,000 made in rural areas.

Modifications to Development Company Debenture Program.

Section 4(a) of H.R. 2150 amends section 502(2) of the
Small Business Investment Act by increasing the total loan
amount available from $750,000 to $1,250,000. Section 4(b) of
the bill amends Section 697(b)(3) of Title 15 of the United
States Code by adding a \1/8\ of 1 percent fee to the cost of
any loans made by a Certified Development Company under the 504
loan program. This fee is to be passed on directly to the SBA
and is to be used solely to offset the cost of the program.

Conference Agreement

Under the conference agreement, a flat 0.5 percent fee is
established, which will be charged to all lenders participating
in the 7(a) program on the outstanding principal balance of
their 7(a) loans. The conference agreement also reduced and
flattened the guarantee percentage for all loans--for loans up
to $100,000 dollars, the guarantee percentage is lowered to 80
percent and for all loans over $100,000, the guarantee is 75
percent. Finally, the conference agreement established a tiered
fee structure for the guarantee fee paid by the borrower. The
borrower will pay a 3 percent fee on the first $250,000 of a
loan; a 3.5 percent fee on the portion of the loan between
$250,000 and $500,000; and 3.875 percent for the portion which
exceeds $500,000.
With respect to the 504 program, the conference agreement
follows H.R. 2150 and imposed a new fee of \1/8\ of 1 percent
of the outstanding principal balance of the loan. This fee is
to be paid by the borrower. The conference agreement left the
maximum amount for a 504 loan at $1 million.

5.3 H.R. 2715, The Paperwork Elimination Act of 1996.

Legislative History
------------------------------------------------------------------------
Date Action
------------------------------------------------------------------------
December 5, 1995.................. Referred to the House Committee on
Small Business
December 5, 1995.................. Referred to Subcommittee on
Government Programs of the
Committee on Small Business.
December 5, 1995.................. Referred to the Committee on
Government Reform and Oversight.
December 11, 1995................. Referred to Subcommittee on National
Economic Growth, Natural Resources
and Regulatory Affairs of the
Committee on Government Reform and
Oversight.
March 27, 1996.................... Subcommittee on Government Programs
Hearings Held.
March 29, 1996.................... Subcommittee on Government Programs
Discharged.
March 29, 1996.................... Committee Consideration and Mark-up
Session Held.
March 29, 1996.................... Ordered to be Reported in the Nature
of a Substitute by Voice Vote.
April 3, 1996..................... Committee on Government Reform and
Oversight Waives Jurisdication and
Defers to the House Committee on
Small Business.
April 16, 1996.................... Reported to House (Amended) by House
Committee on Small Business Report
No. 104-520 (Part I).
April 23, 1996.................... Rules Committee Resolution H. Res.
409 Reported to House.
April 23, 1996.................... Committee on Rules Granted, by Voice
Vote, an Open Rule Providing One
Hour of General Debate; Making in
Order an Amendment in the Nature of
a Substitute Recommended by the
Committee on Small Business for the
Purpose of Amendment Under the Five-
minute Rule; Providing One Motion
to Recommit, With or Without
Instructions.
April 24, 1996.................... Rule Passed House.
April 24, 1996.................... Called up by House by Rule.
April 24, 1996.................... Committee Amendment in the Nature of
a Substitute Considered as an
Original Bill for the Purpose of
Amendment.
April 24, 1996.................... House Agreed to Amendments Adopted
by the Committee of the Whole.
April 24, 1996.................... Passed House (Amended) by Yea-Nay
Vote: 418-0 (Record Vote No. 130).
April 25, 1996.................... Received in the Senate.
April 25, 1996.................... Referred to Senate Committee on
Governmental Affairs.
------------------------------------------------------------------------

Reason for Legislation

As part of the continuing efforts to enable the Federal
government to take advantage of the Information Age, the
Committee on Small Business recognized the need to encourage
and monitor the progress of Federal agencies in their efforts
to utilize new ``information technology'' to reduce the public
costs and burdens of meeting the Federal government's
information needs. The legislation also addresses the need for
small businesses, taxpayers, and others with access to
computers and modems to be able to use them when dealing with
the Federal government. As a result, the bill is intended to
amend chapter 35 of title 44, United States Code, popularly
known as the Paperwork Reduction Act, to minimize the burden of
Federal paperwork demands upon small businesses, educational
and non-profit institutions, Federal contractors, State and
local governments, and other persons through the sponsorship
and use of alternative information technologies.

Hearings

On March 27, 1996, the Subcommittee on Government Programs
of the Committee on Small Business held a hearing on H.R. 2715
to examine the need for legislation to permit the use of new
information technologies in meeting the Federal government's
information demands and the effect of such legislation on small
business. (For further information on this hearing, refer to
section 7.3.11 of this report).

Summary of Legislation

Purposes.

Section 2 of H.R. 2715 stresses that the intention of the
legislation is to advance the use of alternative information
technologies and, in so doing, decrease the burden of paperwork
demands imposed by the Federal government. The intended
beneficiaries of the legislation are small businesses,
educational and non-profit institutions, Federal contractors,
State and local governments, and others. Small businesses,
which face a disproportionate burden in complying with Federal
regulations, are especially targeted by the legislation.

Authority and Functions of the Director of the Office of
Management and Budget.

Section 3(a) of H.R. 2715 describes the responsibilities of
the Director of the Office of Management and Budget (OMB) to
oversee the acquisition and use of information technology and
compels the Director to consider alternative information
technologies when working with agencies to develop strategies
to reduce paperwork burdens. Section 3(b) of the bill directs
the Director of OMB to promote the use of electronic
submission, maintenance, and disclosure as an option for
entities complying with the regulations of Federal agencies.
The section complements and is added to section 3504(h) of the
Paperwork Reduction Act, which outlines the Director's
obligations to advance the use of information technology.

OMB Report.

Section 4 of H.R. 2715 supplements the requirement that the
Director of OMB, in consultation with other Federal agencies,
provide a progress report on the status and success of efforts
to advance information resources management. The bill requires
that the report include the extent to which the paperwork
burden on small businesses and individuals has been relieved as
a result of the use of electronic submissions, maintenance, or
disclosure of information as a substitute for paper.
Federal Agency Responsibilities.

Section 5(a) of H.R. 2715 requires the Federal agencies,
when it is appropriate, to provide respondents with the option
of maintaining, submitting, or disclosing information
electronically when complying with Federal regulations. Section
5(b) of the bill states that each agency must certify and
report on the extent to which it has considered and relieved
the burdens of paperwork, particularly on small businesses and
individuals, by enabling the optional use of electronic
maintenance, submission, or disclosure of information. Section
5(c) of the bill amends section 3506(c)(3)(J) of the Paperwork
Reduction Act to specify that, when certifying and reporting on
information technologies used to collect information, Federal
agencies must also consider the ability of respondents to
maintain, submit, and disclose information electronically.

Public Information Collection Activities.

Section 6 of H.R. 2715 prohibits agencies from collecting
information until they have first published a notice in the
Federal Register describing how the information may, if
appropriate, be electronically maintained, submitted or
disclosed by a respondent.

Responsiveness to Congress.

Under the bill, when responding to Congress annually or at
other times, the Director of OMB must report on how the
collection of information by electronic means has affected
regulatory burdens on small businesses and other persons. The
report must specifically include any instances in which the
maintenance, submission, or disclosure of information
electronically, as opposed to with paper, increased regulatory
burdens. It should specifically identify such instances that
involve the collection of information by the Internal Revenue
Service.

Effective Date.

The provisions of H.R. 2715 would take effect on October 1,
1997.

5.4 H.R. 3158, Pilot Small Business Technology Transfer Program
Extension Act of 1996; Public Law No. 104-208.

H.R. 4278:
September 28, 1996................ Passed House pursuant to Unanimous
Consent Agreement Following the
Passage of H.R. 3610.
September 30, 1996................ Measure laid before Senate by
Unanimous Consent.
September 30, 1996................ Received in the Senate, read twice.
September 30, 1996................ Passed Senate by Yea-Nay Vote: 84-15
(Record Vote No. 302).
September 30, 1996................ Cleared for White House (together
with H.R. 3610).
September 30, 1996................ Presented to President.
September 30, 1996................ Signed by President.
September 30, 1996................ Became Public Law No. 104-208.
------------------------------------------------------------------------

Reason for Legislation

The pilot Small Business Technology Transfer (STTR) Program
was established by Title II of Public Law 102-564, the Small
Business Research and Development Enhancement Act of 1992, and
authorized for an initial three-year demonstration, beginning
in fiscal year 1994. Building upon the established model of the
Small Business Innovation Research (SBIR) Program, the pilot
STTR Program provided the statutory basis for structured
collaborations between small technology entrepreneurs and non-
profit research institutions, such as universities or
Federally-funded Research and Development Centers (FFRDCs) to
foster commercialization of the results of Federally-sponsored
research. Title I of Public Law 102-564 provided a multi-year
extension of the SBIR Program, extending it through fiscal year
2000. This 1992 extension of the SBIR Program was the third,
and longest, since that Program's creation in 1982. Unless
reauthorized, the pilot STTR program would have terminated on
September 30, 1996.
The SBIR Program and pilot STTR Program both seek to
stimulate technological innovation and increase private-sector
commercialization of innovations derived from basic research as
well as more mission-oriented advanced research and development
undertaken by Federal agencies. Both programs assure that small
business is not excluded from the extramural research and
development (R&D) activities conducted by Federal agencies;
that is, those undertaken through private-sector sources, and
often dominated by Federally-supported research institutions
such as universities and FFRDCs. To assure a baseline of small
business participation and to maintain stable funding for
technology commercialization, both the SBIR Program and the
pilot STTR Program require a participating Federal agency to
reserve a small percentage of its external R&D budget for each
program. Both the pilot STTR Program and the basic SBIR Program
use a highly competitive three-stage process that is designed
to identify and nurture only the most promising technology
innovations, seeking to move them to full commercialization,
under the technical and entrepreneurial leadership of small
business owners. The two programs differ, however, in one
fundamental aspect: under the pilot STTR Program, a small
business must collaborate with a non-profit research
institution, such as a university or FFRDC.
The STTR Program enjoys broad support among its private-
and public-sector participants, and the Small Business
Administration (SBA) and the General Accounting Office (GAO)
have urged that the pilot STTR Program be continued. In
addition, a recommendation regarding both the SBIR Program and
the pilot STTR Program was ranked 13th by the delegates to the
1995 White House Conference on Small Business. The
recommendations call on Congress and the President to ``expand,
improve and make permanent the SBIR/STTR programs.'' A
recommendation ranked 6th by the delegates to the 1980 White
House Conference on Small Business was instrumental in the
enactment of the initial authorization for the SBIR Program in
1982. Similarly, a recommendation ranked 14th by the delegates
to the 1986 White House Conference on Small Business was used
to propel the enactment of Public Law 102-564.
H.R. 3158 extends the pilot STTR Program through September
30, 2000, and puts the expiration of STTR on the same timetable
as the most recent extension of SBIR Program. This extension
will facilitate concurrent oversight and future legislative
consideration of these related small business technology
programs by Congress and provide an additional four years to
assess more conclusively the value of the pilot STTR Program.

Hearings

The Committee held a hearing on March 6, 1996 to assess the
implementation of Public Law 102-564, the Small Business
Research and Development Enhancement Act of 1992, which
improved and expanded the SBIR Program and authorized the pilot
STTR Program. Testimony was received from small business
participants in both the pilot STTR Program and the established
SBIR Program. Two of these small business witnesses expressed
support on behalf the U.S. Chamber of Commerce and National
Small Business United. The SBA also expressed support for
extension of the pilot STTR Program on behalf of the
Administration. Similarly, GAO's representatives recommended
extension of the pilot STTR Program to provide a longer period
for evaluation, but were complimentary of STTR in their
preliminary assessments of the Program.

Summary of Legislation

Program Extension.

Section 2 of H.R. 3158 extends the pilot STTR Program,
authorized by Section 9(n) of the Small Business Act, through
September 30, 2000. The proposed program extension provides for
the expiration of the pilot STTR Program at the same time as
the Small Business Innovation Research (SBIR) Program,
initially authorized in 1982 and most recently reauthorized in
1992 by Title I of Public Law 102-564.
This section also provides for a \1/10\ of 1 percent
increase in the percentage of extramural research budgets
dedicated to awards under the pilot STTR Program, from 0.15
percent to 0.25 percent, by those agencies participating in the
program. Only those Executive agencies with an annual
extramural research budget of $1 billion or more are required
to reserve at least the specified percentage for exclusive
competition among proposals from small businesses collaborating
with non-profit research institutions, such as universities or
FFRDCs. The proposed percentage would remain constant during
the entire four-year term of the program extension.

Assessment by the Comptroller General.

Section 3(a) requires the GAO to monitor the implementation
of both the extension of the pilot STTR Program and the on-
going SBIR Program, specifying the matters to be assessed.
Section 3(b) specifies that the GAO assessment address
implementation of both the SBIR Program and the STTR Program
over a four-year period, covering fiscal year 1995 through
fiscal year 1999. Section 3(c) requires that a report be
submitted by not later than February 1, 2000. The report is to
include summaries of previous GAO reports relating to the SBIR
Program and the STTR Program as well as any reports by the SBA,
any of the sponsoring agencies, or others that would be helpful
during consideration of the reauthorization of both programs
during fiscal year 2000.

Interagency Task Force on Commercialization.

Section 4(a) establishes an interagency task force on
fostering commercialization of the results of projects being
undertaken by small businesses through the SBIR Program and the
pilot STTR Program. The Administrator of the SBA (or a
designee) is given the responsibility of leading the effort.
Section 4(b) establishes the purposes and objectives of the
work of the interagency task force.
Section 4(c) specifies the Executive agencies to be
represented on the interagency task force, including:
representatives of the SBA Office of the Chief Counsel for
Advocacy, the five Executive departments or agencies having the
greatest dollar value of awards under the SBIR Program during
fiscal year 1995, the five Executive departments or agencies
participating in the pilot STTR Program in fiscal year 1995,
and the President's Office of Science and Technology Policy.
The SBA Administrator may invite participation by
representatives of other Executive agencies, and the subsection
requires the interagency task force to consult closely with
representatives of the small business community and others in
the private sector.
Section 4(d) requires the SBA Administrator to give notice
of the work of the interagency task force, invite public
participation, and announce any schedule of public meetings.
The subsection also makes explicit that the interagency task
force should seek public participation throughout its work.
Section 4(e) requires the interagency task force to submit a
report of its work, including recommendations for appropriate
legislative and administrative actions, to the Senate and House
Committees on Small Business by March 1, 1999.

Technical Correction.

Section 5 corrects an erroneous cross-reference in Section
9(e) of the Small Business Act, which authorizes the SBIR
Program.

Final Legislation

Provisions extending the pilot STTR Program through
September 30, 1997 were included in the omnibus consolidated
appropriations legislation (H.R. 4278), which the House and the
Senate passed together with the 1997 Department of Defense
Appropriations Act (H.R. 3610) at the end of the 104th
Congress. The remaining provisions of the bill were not
enacted.

5.5 H.R. 3719, The Small Business Programs Improvement Act of
1996; Public Law No. 104-208.

Legislative History
------------------------------------------------------------------------
Date Action
------------------------------------------------------------------------
H.R. 3719:
June 26, 1996..................... Referred to House Committee on Small
Business.
July 10, 1996..................... Committee Consideration and Mark-up
Session Held.
July 18, 1996..................... Committee Consideration and Mark-up
Session Held.
July 18, 1996..................... Ordered to be Reported (Amended) by
Voice Vote.
August 2, 1996.................... Reported to House (Amended) by House
Committee on Small Business Report
No. 104-750.
August 2, 1996.................... Placed on Union Calendar No. 396.
September 4, 1996................. Rules Committee Resolution H. Res.
516 Reported to House.
September 4, 1996................. Committee on Rules Granted, by Voice
Vote, an Open Rule Providing One
Hour of General Debate; Waiving All
Points of Order Against
Consideration of the Bill for
Failure to Comply with Clause
2(1)(2)(B) of Rule XI (requiring
roll call votes to be printed in
the committee report); Waiving
Points of Order Against the
Committee Amendment in the Nature
of a Substitute for Failure to
Comply with Clause 5(a) of Rule XXI
(prohibiting appropriations in an
authorization measure); Providing
One Motion to Recommit, With or
Without Instructions.
September 5, 1996................. Rule Passed House.
September 5, 1996................. Called up by House by Rule.
September 5, 1996................. Committee Amendment in the Nature of
a Substitute Considered as an
Original Bill for the Purpose of
Amendment.
September 5, 1996................. House Agreed to Amendments Adopted
by the Committee of the Whole.
September 5, 1996................. Passed House (Amended) by Yea-Nay
Vote: 408-0 (Record Vote No. 406).
September 6, 1996................. Received in the Senate.
September 28, 1996................ For Further Action See H.R. 4278
(H.R. 3719 was largely subsumed
into H.R. 4278).
H.R. 4278:
September 28, 1996................ Passed House pursuant to Unanimous
Consent Agreement Following the
Passage of H.R. 3610.
September 30, 1996................ Measure laid before Senate by
Unanimous Consent.
September 30, 1996................ Received in the Senate, read twice.
September 30, 1996................ Passed Senate by Yea-Nay Vote: 84-15
(Record Vote No. 302).
September 30, 1996................ Cleared for White House (together
with H.R. 3610).
September 30, 1996................ Presented to President.
September 30, 1996................ Signed by President.
September 30, 1996................ Became Public Law No. 104-208.
------------------------------------------------------------------------

Reason for Legislation

In October of 1995, the President signed into law Public
Law 104-36, the Small Business Lending Enhancement Act of 1995,
which was designed to lower the subsidy rate of the 7(a) and
504 loan programs, which are administered by the Small Business
Administration (SBA), in an effort to reduce substantially the
cost of the programs to the taxpayers. The subsidy rate for the
7(a) program was decreased by approximately 60 percent, from
2.74 percent to 1.06 percent. The subsidy rate for the 504
program was reduced to zero, effectively making it a self-
financing loan program. The legislation was drafted and passed
relying on estimates and information provided by the Office of
Management and Budget (OMB) and the SBA. (For further
information on this legislation, H.R. 2150, refer to section
5.2 of this report).
Under Public Law 104-36, the SBA was to be able to operate
its loan programs at a significantly reduced cost. As a result,
fewer funds were appropriated for the 7(a) program, and no
funds were appropriated for the 504 program in fiscal year
1996. With an appropriation of $114.5 million for the 7(a)
program (which would produce a lending level of $11 billion)
and demand for fiscal year 1996 estimated to be approximately
$8.75 billion, a carryover of approximately $22.5 million will
result for fiscal year 1997 (assuming a subsidy rate of 1.06
percent).
In March of 1996, on the eve of the release of the
President's Fiscal Year 1997 Budget, the Committee learned for
the first time that the subsidy rate for the 7(a) and 504
programs had been recalculated and had increased significantly.
The recalculation was the result of an SBA and OMB study of
portfolio performance in the programs over the past 13 years.
The result was an estimated subsidy rate for the 7(a) program
of 2.68 percent, almost the same rate as prior to the enactment
of Public Law 104-36. In the case of the 504 program, the
increase was more than twelve-fold, from the fiscal year 1996
estimated rate of 0.57 percent (prior to the enactment of
Public Law 104-36) to an estimated rate of 6.85 percent for
fiscal year 1997.
The Administration's ``solution'' to the fiscal crisis, as
embodied in the President's Budget, was simply to request more
money and deny any responsibility for creating or contributing
to this situation. The Administration also proposed converting
the 504 program into a direct lending program. In contrast,
H.R. 3719, the Small Business Programs Improvement Act of 1996,
makes a number of changes to the SBA's lending programs and
implements management changes designed to make the programs
more efficient and thereby reduce the subsidy rates.

Hearings

The Committee held a hearing on March 21, 1996, to review
the President's fiscal year 1997 budget for the SBA and to
examine the reasons behind the substantially increased subsidy
rates. (For further information on this hearing, refer to
section 7.2.39 of this report). The Committee also held a
series of meetings with the SBA, OMB, and various private-
sector lending partners to try and identify the problems, and
causes thereof, that contributed to the dramatic increase in
the subsidy rates for the major SBA lending programs. The major
problems identified included the need for better data
collection in order to correct problems at an earlier date, and
the existence of significant management problems in the SBA's
liquidation practices, which contribute greatly to the high
subsidy rates.

Summary of Legislation

Comprehensive database.

Section 102 of H.R. 3719 amends the Small Business Act to
require that the SBA establish a comprehensive and fully
integrated computer database to track the performance of the
7(a), 504, and disaster assistance loan programs, and stratify
and identify loan underwriting problems.

Section 7(a) Loan Program Reforms.

Section 103(a) of H.R. 3719 amends the Small Business Act
to specify that Preferred Lenders shall have full authority to
collect on, and liquidate loans that they made to small
businesses without having to obtain prior written approval of
the SBA for routine activities.
Section 103(b) of the bill clarifies Section 7(a)(19) of
the Small Business Act regarding the Certified Lender Program
and also institutes new authority for Certified Lenders to
begin performing liquidation of SBA guaranteed loans subject to
the approval of the Administration. The section also requires
that loans under the low documentation loan program (LowDoc) be
made only through Certified and Preferred Lenders or lenders
with significant small business lending experience.
Section 103(c) of the bill provides that the SBA may not
establish a pilot program or initiative in the 7(a) program
that exceeds 10 percent of the loans guaranteed in the 7(a)
program during that year. Section 103(d) of the bill amends the
Small Business Act to allow banks, as well as non-banks, to
securitize the non-guaranteed portion of SBA loans. Section
103(e) establishes procedures to reduce the servicing fees or
accrued interest paid to a lender for the period of time
between the default of a loan and the payment on the guarantee.
Section 103(f) of the bill requires the SBA to report on
its progress with centralizing loan-servicing functions.
Section 103(g) of the bill requires the SBA to issue a Request
for Proposals to implement its standard review program for
Section 7(a) Preferred Lenders.
Section 103(h) of the bill provides that the Administrator
shall issue a solicitation and award a contract, through full
and open competition, for an independent study and
comprehensive report on the status of the 7(a) and 504 loan
programs. The report shall compare information with the subsidy
model for the programs as prepared by OMB.
Section 103(i) of the bill calls for a study by the GAO to
compare the costs of liquidating loans both privately and
through the SBA.

Disaster Loan Program.

Section 104(a) of H.R. 3719 changes the interest rate on
disaster assistance loans to a rate equal to three-fourths of
the rate for a Treasury instrument of a similar duration.
Section 104(b) of the bill provides for a pilot project to be
conducted on a competitive basis, to contract with private
sector entities to service and liquidate a total of 25,000
randomly chosen disaster loans. Section 104(c) of the bill
provides for expansion of the definition of disaster to include
the closure of customary fishing waters by government action,
regulatory or otherwise.

Microloan Program.

Section 105(a) of H.R. 3719 amends the Small Business Act
to decrease the maximum amount an intermediary may receive
through technical assistance grants. Section 105(b) of the bill
requires the SBA to either implement the Microloan Guarantee
Pilot Program or issue a report on why the agency is unable to
implement it.

Small Business Development Centers.

Section 106 of the bill provides clear authority for the
Associate Administrator for Small Business Development Centers
to establish a comprehensive certification and eligibility
review program for Small Business Development Centers.

Miscellaneous authorities to Provide Loans and Other Financial
Assistance.

Section 107 of H.R. 3719 eliminates several provisions for
programs that are either redundant or are no longer being
funded or implemented.

Small Business Competitiveness Program.

Section 108 of H.R. 3719 extends the Small Business
Competitiveness Demonstration Program through fiscal year 2000.
In addition, the section requires the SBA to submit a detailed
report on the program, complete with the procurement statistics
on the program from 1992 through 1995, within 60 days of
enactment. The bill also provides clarification of the small
businesses eligible under the pilot program.

Amendment to the Small Business Guaranteed Credit Enhancement
Act of 1993.

Section 109 of H.R. 3719 repeals section 7 of the Small
Business Guaranteed Credit Enhancement Act of 1993 and
eliminates the sunset of the fee on the sale of guaranteed
loans on the secondary market.

1998 Authorizations.

Section 110 of H.R. 3719 reauthorizes the Small Business
Administration and its programs through fiscal year 1998.

Level of Participation for Export Working Capital Loans

Section 111 of H.R. 3719 restores the 90-percent guarantee
level for Export Working Capital Loans, which was reduced to a
maximum of 75 percent (80 percent for loans under $100,000) in
Public Law 104-36.
Modifications to the 504 program.

Section 202(a) of H.R. 3719 modifies the contribution
required from a small business for receipt of a 504 loan.
Start-up small businesses and borrowers seeking financing for a
special purpose building, must put a minimum of 15 percent
down, instead of the minimum of 10 percent as required under
current law. Section 202(b) of the bill amends Section
503(b)(7)(A) of the Small Business Investment Act to increase
the \1/8\ of 1 percent fee that the borrower pays on the annual
outstanding balance to 13/16 of 1 percent. Section 202(c) of
the bill amends Section 503(d) of the Small Business Act to
include two new fees for this program; a one-time, up-front fee
of \11/2\ of 1 percent on the total participation of the first
mortgage holder, and a \1/8\ of 1 percent annual servicing fee
collected from Development Companies that will be passed
through to the SBA.

Required Actions Upon Default.

Section 203(a) of the bill instructs the SBA to take action
on defaulted loans within a certain time frame in order to
speed recoveries and liquidations. Within 45 days of a missed
payment, the SBA must act to bring the loan current or get a
deferral agreement. Within 65 days of a missed payment and
absent a deferral, the SBA must start to accelerate (foreclose)
on the loan. Section 203(b) of the bill prohibits the SBA from
paying late fees or prepayment penalties on defaulted loans. It
also prohibits the SBA from paying any ``default interest
rate'' on a defaulted loan.

Loan Liquidation Pilot Program.

Section 204 of H.R. 3719 requires the SBA to develop and
implement a pilot program in which Certified Development
Companies (CDCs) will have the authority to liquidate their own
loans. This responsibility will be delegated only to a select
number of the most experienced and active CDCs.

Registration of Certificates.

Section 205 of H.R. 3719 amends the Small Business Act and
the Small Business Investment Act to allow SBIC and 504
development company debentures and securities to be registered
electronically.

Preferred Surety Bond Guarantee Program.

Section 206 of H.R. 3719 amends the surety bond program to
give new applicants expeditious responses to their
applications. It also requires that the SBA police the use of
the program to ensure that participant companies are using
their bonding authority and authorizes the removal of program
participants who do not use their authority adequately.

Final Legislation

The vast majority of the provisions contained in H.R. 3719
were included in the omnibus consolidated appropriations
legislation (H.R. 4278), which the House and the Senate passed
together with the 1997 Department of Defense Appropriations Act
(H.R. 3610) at the end of the 104th Congress. The final
language included in the omnibus appropriations legislation
contained several changes and some additional provisions from
H.R. 3719.

Comprehensive database.

The final legislation includes the provisions of H.R. 3719
that establish a comprehensive and fully integrated computer
database to track the performance of the 7(a), 504, and
disaster assistance loan programs, and stratify and identify
loan underwriting problems.

Section 7(a) Loan Program Reforms.

The 7(a) Loan Program is modified under the final
legislation to specify that Preferred Lenders shall have full
authority to collect on, and liquidate loans that they made to
small businesses without having to obtain prior written
approval of the SBA for routine activities. In addition,
Certified Lenders are permitted to begin performing liquidation
of SBA guaranteed loans subject to the approval of the
Administration. The section also requires that LowDoc loans be
made only through Certified and Preferred Lenders or lenders
with significant small business lending experience.
The provision in H.R. 3719 prohibiting new pilot programs
or initiatives in the 7(a) program from exceeding 10 percent of
the loans guaranteed by the 7(a) program during that year is
also included in the final language.
The bill also incorporates the various report provisions
from H.R. 3719 that: (1) requires the SBA to report on its
progress with centralizing loan-servicing functions; (2)
instructs the SBA to issue a solicitation and award a contract
for an independent study and comprehensive report on the status
of the 7(a) and 504 loan programs, including a comparison to
the subsidy model for the programs as prepared by OMB; and (3)
requests the GAO to compare the costs of liquidating loans both
privately and through the SBA.

Securitization of the Non-guaranteed Portion of 7(a) Loans.

The final legislation provides that securitization of the
non-guaranteed portion of 7(a) loans will continue under
current practices until regulations are issued by the SBA that
permit both bank and non-bank lenders to undertake
securitization subject to certain terms and conditions,
including the maintenance of appropriate reserve requirements
and other safeguards necessary to protect the safety and
soundness of the 7(a) program. If the SBA fails to promulgate
these final regulations by March 31, 1997, the authority to
sell the non-guaranteed portion of 7(a) loans will be suspended
for all lenders until a final regulation is published.

Disaster Loan Program.

The pilot loan-servicing program for disaster loans is
expanded to include up to 30 percent of the residential loan
portfolio, and commercial loans are excluded from the pilot
program. The section of H.R. 3719 that would have changed the
interest rate on disaster assistance loans to a rate equal to
three-fourths of the rate for a Treasury instrument of a
similar duration was excluded from the final legislation,
thereby leaving the interest rate on disaster assistance loans
unchanged.
Microloan Program.

The final legislation excludes the sections of H.R. 3719
that decrease the maximum amount an intermediary may receive
through technical assistance grants and that require the SBA to
either implement the Microloan Guarantee Pilot Program or issue
a report on why the agency is unable to do so. The final
legislation did contain language that allows the SBA to lend
funds to intemediaries in excess of the statutory limit if
unused appropriated funds are available in the fourth quarter
of a fiscal year.

Small Business Development Centers.

The final bill provides clear authority for the Associate
Administrator for Small Business Development Centers to
establish a comprehensive certification and eligibility review
program for Small Business Development Centers.

Miscellaneous authorities to Provide Loans and Other Financial
Assistance.

The provisions of H.R. 3719 that eliminate several SBA
programs that are either redundant or are no longer being
funded or implemented are included in the final bill.

Small Business Competitiveness Program.

The Small Business Competitiveness Demonstration Program is
extended under the final legislation through fiscal year 1997.
In addition, the legislation includes the provisions requiring
the SBA to submit a detailed report on the program, complete
with the procurement statistics on the program from fiscal
years 1991 through 1995, not later than February 28, 1997.

Amendment to the Small Business Guaranteed Credit Enhancement
Act of 1993.

The final legislation repeals section 7 of the Small
Business Guaranteed Credit Enhancement Act of 1993 and
eliminates the sunset of the fee on the sale of guaranteed
loans on the secondary market.

Small Business Technology Transfer Program.

The Small Business Technology Transfer (STTR) program is
extended through September 30, 1997. (For further information
on legislative action with respect to the STTR program, refer
to section 5.4 of this report).

Level of Participation for Export Working Capital Loans

The final legislation incorporates the section of H.R. 3719
that restores the 90-percent guarantee level for Export Working
Capital Loans.

Modifications to the 504 program.

The final bill modifies the contribution required from a
small business for participation in a 504 loan such that start-
up small businesses and borrowers seeking financing for a
special purpose building, must put a minimum of 15 percent
down, instead of the minimum of 10 percent as required under
current law. The bill also allows the fee that the borrower
pays on the annual outstanding balance to be up to \15/16\ of 1
percent as needed to bring the overall program subsidy rate to
zero. Two new fees are also added for the 504 program; a one-
time, up-front fee of \1/2\ of 1 percent on the total
participation of the first mortgage holder, and a \1/8\ of 1
percent annual servicing fee collected from Development
Companies that will be passed through to the SBA.

Required Actions Upon Default.

The final legislation includes the section of H.R. 3719
that instructs the SBA to take action on defaulted loans in
order to speed recoveries and liquidations. Accordingly, within
45 days of a missed payment, the SBA must act to bring the loan
current or get a deferral agreement; and within 65 days of a
missed payment and absent a deferral, the SBA must start to
accelerate (foreclose) on the loan. The legislation prohibits
the SBA from paying late fees or prepayment penalties on
defaulted loans and prohibits the SBA from paying any ``default
interest rate'' on a defaulted loan.

Loan Liquidation Pilot Program.

The SBA is required under the final legislation to develop
and implement a pilot program in which CDCs will have the
authority to liquidate their own loans. This responsibility
will be delegated only to a select number of the most
experienced and active CDCs.

Registration of Certificates.

The final bill allows SBIC and 504 development company
debentures and securities to be registered electronically.

Preferred Surety Bond Guarantee Program.

The surety bond program is amended under the final
legislation to give new applicants expeditious responses to
their applications. It also requires that the SBA police the
use of the program to ensure that participant companies are
using their bonding authority and authorizes the removal of
program participants who do not use their authority adequately.

Sense of Congress.

The final legislation includes a sense of Congress that the
subsidy models prepared by the OMB for SBA loan programs tend
to overestimate potential risks of loss and overemphasize
historical losses that may be anomalous and that do not truly
reflect the success of the loan program. This section of the
bill also mandates the independent study provided under section
103(h) of the bill in order to improve the ability of the OMB
to reflect the budgetary implications of the SBA's loan
programs more accurately.

Small Business Investment Company Program.

The small business provisions included in the omnibus
legislation also include a number of improvements to the Small
Business Investment Company (SBIC) program, which were inserted
by the Senate based on S. 1784. These provisions restructure
the SBIC program to incorporate several vital changes to the
program, which are effective upon enactment of the legislation.
First, the minimum capital requirements for new license
applicants are increased. New applicants for debenture licenses
must have $5 million in private capital; new applicants for
participating security licenses must have $10 million in
private capital. The SBA, however, is permitted to approve a
participating security applicant if it has between $5 and $10
million, given a sound investment plan. All existing licensees
are fully grandfathered allowing existing licensees to
refinance or borrow additional leverage.
The final legislation also changes two fees paid by SBICs.
SBICs will pay an annual charge of 1 percent on the value of
all outstanding leverage granted after the effective date, and
the non-refundable up-front fee, which is currently 2 percent,
is increased to 3 percent of new leverage amounts. These fees
will greatly reduce the subsidy cost of the program, enabling
Congress to provide more venture capital funding for small
business than ever before.
A number of changes to enhance the safety and soundness of
the SBIC program are also included in the final legislation.
The SBA must ensure that each license applicant maintains
diversification between the management and ownership of the
SBIC. The SBA must also regulate SBICs closely to (1) ensure
that they do not incur excessive third-party debt; (2) ensure
that no SBIC receives leverage when it is under capital
impairment; and (3) require each SBIC to adopt valuation
criteria set forth by the SBA to establish the values of loans
and investments of each SBIC, subject to an annual review by an
independent certified accountant.
The SBA is also required to submit to the Senate and House
Committees on Small Business a detailed plan to expedite the
orderly disposition of all licensee assets currently in
liquidation. The final legislation contains provisions to speed
up the processing of applications for business entities seeking
an SBIC license, and a requirement that the SBA provide an
applicant with a status report within 90 days of filing the
application.

Specialized Small Business Investment Company Program.

Under the final legislation, section 301(d) of the Small
Business Investment Act of 1958 is repealed, and the
Specialized Small Business Investment Company (SSBICs) program
is merged into the SBIC program, with all existing SSBICs
becoming regular SBICs. Currently, SSBICs are restricted to
investing in socially or economically disadvantaged businesses,
most of which are owned by women and minorities. Merging the
programs will address the SSBICs' historic objection that the
restriction hinders their ability to grow like other SBICs.
The legislation removes certain investment restrictions and
creates a special leverage reserve available only to SBICs that
invest at least half of their funds in ``smaller enterprises,''
which are defined as small businesses with individual net worth
of less than $6 million and a net income of less than $2
million. These provisions will enable smaller SBICs, especially
the former SSBICs, to maintain their focus on financing for
primarily minority and women-owned businesses, which tend to be
smaller-sized businesses, without any specific restrictions
that might negatively affect the ability to seize investment
opportunities.
The new reserve of debenture funding for smaller SBICs is
also established in lieu of the prior funding mechanism for the
SSBICs. The fund will be financed through the proceeds of the
existing preferred stock repurchase program. The availability
of this special pool of leverage, along with leverage available
to all SBICs, will substantially increase access to capital for
minority and women-owned business investments.
The legislation also requires that each SBIC, regardless of
its size, invest at least 20 percent of its aggregate dollar
investments in smaller enterprises. This new focus is designed
to ensure that the smaller businesses continue to obtain full
benefit of the SBIC program from all its participants.
CHAPTER SIX

SUMMARY OF OTHER LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL
BUSINESS

6.1 Committee Meetings

6.1.1 organizational meeting

On January 11, 1995, the Committee on Small Business held
an organizational meeting. The primary purpose of the meeting
was the consideration of the Committee rules for the 104th
Congress. The Members of the Committee considered a draft set
of rules to govern the Committee operations and a number of
revisions were incorporated. First, an additional seat was
added for the Minority to each of the subcommittees. Second,
proposed rule 12(b) was modified to allow the salaries of the
Minority staff to be set independent of Majority staff
salaries. In prior Congresses, the Minority staff salaries
could be no higher than those of the Majority staff. Third, the
Committee decided that jurisdiction over the 8(a) program
administered by the Small Business Administration would rest
with the Subcommittee on Government Programs as opposed to the
Subcommittee on Procurement, Exports and Business
Opportunities.
A discussion on the use and issuance of subpoenas by the
Committee also occurred. Under the rules, a subpoena may be
issued by the Chair of the Committee with notification to the
Ranking Minority Member, or by the Chair of a subcommittee with
the approval of a majority of the subcommittee members. The
Committee decided, as in prior Congresses, that the approval of
the Ranking Minority Member was not required for a subpoena to
be issued. There was also a discussion on the new rule for the
104th Congress that prohibits proxy voting. As a result of the
new rule, rolling quorums for Committee votes were also
prohibited.
Once the Committee had completed its review and
modification of the draft rules, a voice vote was taken, and
the rules were adopted.
The Chair explained the process for Committee assignments
and introduced the Subcommittee Chairmen and the Ranking
Subcommittee Members. The Subcommittee on Government Programs
was chaired by Peter Torkildsen and the Ranking Member was
Glenn Poshard. The Subcommittee on Procurement, Exports, and
Business Opportunities was chaired by Donald Manzullo and the
Ranking Member was Eva Clayton. The Subcommittee for Regulation
and Paperwork was Chaired by Jim Talent and the Ranking Member
was Ron Wyden. The Subcommittee on Taxation and Finance was
chaired by Linda Smith and the Ranking Member was Martin
Meehan.
The meeting concluded with the distribution of a hearing
schedule for the first nine hearings of the Committee and a
review of the procedures that the Committee would follow when
conducting hearings (e.g., the Chair and Ranking Minority
Member would make opening statements with all other Members
permitted to submit written statements for the record;
questioning of the witnesses would be conducted under the five
minute rule, with Members offering questions in the order of
appearance at the hearing).

6.1.2 oversight agenda for the 104th congress

On February 13, 1995, the Committee on Small Business met
to consider its oversight agenda for the 104th Congress. One of
the new provisions in the House Rules requires that each
Committee adopt a plan of oversight activities and forward that
plan to the Committees on Government Reform and Oversight and
House Oversight by February 15th of the first year of the
Congress.
The Committee's draft oversight plan included a three-
pronged agenda: First, a top-to-bottom review of the Small
Business Administration (SBA) and its programs; second, efforts
to implement a common sense tax code for small business; and
third, actions to lighten the regulatory burden on small
business. After reviewing the draft plan, the Chair explained
that the purpose behind the agenda was to lay out an overall
plan for the Committee, with the understanding that some aspect
of the agenda may be referred to the subcommittees. The Chair
also noted that the agenda would not preclude oversight or
investigation of additional matters as the need arose. With the
Committee's broad oversight jurisdiction, the Chair pointed out
that any issue affecting small business, from minimum wage to
health insurance, could be addressed in a Committee or
subcommittee hearing.
The Committee considered a number of amendments to the
oversight plan. Mr. LaFalce offered amendments on the following
issues: specialized small business investment companies, the
preferred surety bond guarantee programs, procurement from very
small businesses, participation of the handicapped in set-aside
contracts, debenture prepayment penalties, and women-owned
businesses. After discussion of the amendments, a motion was
made to accept the amendments en bloc, and the amendments were
agreed to by a vote of 14 to 11.
Mr. Mfume proposed two additions to the agenda regarding
Federal procurement programs designed to promote minority-
business development and access to capital and credit for
minorities and small businesses operating in distressed
communities. After the Chair noted that the amendments were too
detailed for the agenda, Mr. Mfume revised his amendments to
add the phrase, ``and other Federal programs to promote
minority business development to include access to capital and
credit,'' to the minority-enterprise development section of the
agenda. The agreement was agreed to by a voice vote.
Mr. Manzullo offered an amendment on behalf of himself, Mr.
Hilleary, Mr. Longley, Mr. Brownback, Mr. Salmon, Mr. Chabot,
Mr. Chrysler, Mr. Funderburk, Mr. Wamp, Ms. Kelly, and Mr.
Metcalf, that would add the following to the first part of the
oversight plan concerning the top-to-bottom review of the SBA:
``The Committee will conduct hearings on every program in the
Small Business Administration to determine its effectiveness
and whether it should be continued.'' A debate followed
concerning the scope of the amendment and whether it was within
the jurisdiction of the Committee, and constitutionally
permitted, to determine if SBA programs should be continued.
The Chair noted that under the House Rules, the Committee has
both the legislative and oversight jurisdiction to review SBA
programs and make recommendations on which programs should be
continued or eliminated. Mr. Mfume pointed out that some of the
SBA programs had been created by Executive Order, and he
maintained that Congress, not the Executive Branch, had
jurisdiction over them. Following the debate, the amendment was
agreed to by voice vote.
The Committee then turned to the approval of the oversight
plan together with the various amendments previously adopted by
the Committee. Upon a voice vote, the oversight plan, as
amended, was adopted.
The text of the oversight plan follows:

OVERSIGHT PLAN FOR THE COMMITTEE ON SMALL BUSINESS
104TH CONGRESS
U.S. HOUSE OF REPRESENTATIVES
Congresswoman Jan Meyers, Chair

Rule X, clause 2(d), of the Rules of the House requires
each standing Committee to adopt an oversight plan for the two-
year period of the Congress and to submit the plan to the
Committees on Government Reform and Oversight and House
Oversight not later than February 15 of the first session of
the Congress.
This oversight plan of the Committee on Small Business
includes areas in which the Committee expects to conduct
oversight activity during the 104th Congress. However, this
agenda does not preclude oversight or investigation of
additional matters as the need arises.

OVERSIGHT OF THE SMALL BUSINESS ADMINISTRATION

The Committee will conduct hearings on every program in the
Small Business Administration to determine its effectiveness
and whether it should be continued.

FINANCIAL PROGRAMS

The Committee will conduct hearings on the effectiveness
and efficiency of the SBA's financial programs. Particular
emphasis is to be placed on the economic benefits of these
programs to the small business community versus their cost to
the taxpayer.

(a) General Business Loan Program

Following on a hearing conducted in January, 1995, the
Committee will investigate current shortfalls and study
proposed program modifications that have been put forward by
the Administration and others. Oversight will also focus on the
underlying need for the program, and the root causes of credit
shortages in the small business sector. (Winter, 1995)

Certified Development Company Program

Oversight activities will focus on the recent restructuring
of the certified development company and its effect on business
development efforts. The Committee will also ascertain if there
are any improvements that can be made to the program. (Winter,
1995)

Small Business Investment Company Program

Oversight will focus on the new participating securities
program and the new licensees that have entered the program.
The Committee will also investigate current program management
activities and efforts that have been made to stem losses in
the program and stabilize the program's portfolio.
Hearings will also investigate possibilities for
privatization of the SBIC program and other modifications that
might serve to continue access to venture capital for the small
business community. (Winter/Spring, 1995)

Specialized Small Business Investment Company Program

Oversight will focus on the Specialized Small Business
Investment Company Program which delivers venture capital to
socially or economically disadvantaged small businesses,
including the benefits it has provided to the assisted firms,
the economy, and to State and local governments, as well as to
the Federal Government.
Particular attention will be given to a report anticipated
from a blue ribbon commission which has been appointed by the
SBA.
The Committee will also investigate reports of misuse of
the Specialized Small Business Investment Companies and what
actions have been taken to prevent further abuses. (Winter/
Spring, 1995)

Microloan Program

The Committee will conduct hearings concerning the
expansion and progress of this innovative program. Hearings
will focus on the effectiveness of this program in providing
seed capital to start-up small businesses and in alleviating
economic hardship in rural and urban areas. The Committee will
also investigate the progress of the guarantee-based microloan
pilot program, and its possible extension. (Winter, 1995)

Surety Bond Guarantee Program

The Committee, in conjunction with legislatively mandated
reports, will investigate the effectiveness of this program in
providing bonding capability to underserved sections of the
construction community. Oversight will also focus on the need
for recent infusions of capital to the Surety program account.
The Committee will also examine the effectiveness of, and
benefits provided by, the Preferred Surety Bond Guarantee
Program which sunsets on September 30, 1995. (Winter/Spring,
1995)

Debenture Prepayment Penalty Relief

The Committee will review the adequacy of Title V of the
Small Business Administration Reauthorization and Amendments
Act of 1994 (Public Law 103-403) to provide some relief to
participants in the now defunct section 503 development company
program. Legislation enacted last year authorized and
subsequently provided $30 million to mitigate against
prepayment penalties under this program.

PROCUREMENT ASSISTANCE

The Committee will examine the effectiveness of the SBA's
procurement assistance activities. Hearings will focus on the
Certificate of Competency program and its effectiveness in
protecting small business contractors.
The Committee will also investigate the Natural Resources
assistance program and the effectiveness of the procurement
center representatives, particularly in the area of contract
bundling.
The Committee will also examine the Agency's progress in
implementing a pilot program included in the Small Business
Reauthorization and Amendments Act of 1994 (Public Law 103-403)
to allow very small businesses to participate in Federal
procurement programs.
The Committee will also examine the extent to which
organizations of the handicapped have been permitted to
participate in small business set-aside contracts under section
15 of the Small Business Act. The Small Business Administration
Reauthorization and Amendments Act of 1994 (Public Law 103-403)
authorized such organizations to participate during fiscal year
1995 only in an aggregate amount of contracts not to exceed $40
million. (Winter/Spring, 1995)

ADVOCACY

The Office of Advocacy provides small business with an
effective voice inside the government. The Committee will
conduct hearings on how to strengthen this voice and make sure
the Chief Counsel for Advocacy continues to effectively
represent the interests of small business. (Winter/Spring,
1995)

TECHNOLOGY AND RESEARCH ASSISTANCE
Small Business Innovation and Research

The Small Business Innovation and Research (SBIR) program
aids small business in obtaining Federal research and
development funding for new technologies. In conjunction with
statutorily mandated reports from the General Accounting
Office, the Committee will monitor the progress of this
program. Oversight will focus on the ability of this program to
develop new, marketable technologies, and compare the
effectiveness of the 2 percent of Federal research dollars
directed to the SBIR program with the commercial applications
resulting from the other 98 percent of Federal R&D spending.
(Spring, 1995)

Small Business Technology Transfer

The Small Business Technology Transfer program
authorization will expire on September 30, 1995. Committee
oversight will focus on the program's success at helping small
business access technologies developed at Federal laboratories
and put that knowledge to work. (Spring/Summer, 1995)

MINORITY ENTERPRISE DEVELOPMENT

The Committee will conduct hearings on the history and
effectiveness of the 8(a) program and other Federal programs to
promote minority business development, including access to
capital and credit. Recent administrative changes will be
investigated along with several recent legislative proposals.
(Winter/Spring, 1995)

WOMEN-OWNED BUSINESSES

The Committee will continue its active involvement in
encouraging the development of women-owned small businesses,
and its oversight of relevant Federal programs including the
activities of the statutorily-created Office of Women's
Business Ownership; the implementation of the newly established
government-wide 5 percent procurement goal; and the
establishment and activities of the new Interagency Committee
and National Women's Business Council. (Spring 1995 through
Fall 1996)

OFFICE OF INSPECTOR GENERAL

The Committee will conduct hearings and investigations
regarding the effectiveness of the Inspector General's office
at the SBA. The Committee's efforts will center on the IG's
ability to effectively monitor the myriad financial programs at
the agency. (Summer, 1995)

OFFICE OF DISASTER ASSISTANCE

In declared disasters the SBA is the little-known hero that
helps business owners and homeowners put their communities back
together. Committee oversight will focus on recent increases to
the disaster loan limits and their effect on rebuilding ravaged
communities. The Committee will also study the Administration's
proposals for improving the subsidy rate and cost-effectiveness
of the disaster assistance program. (Spring, 1995 through
Spring, 1996)

OFFICE OF ECONOMIC RESEARCH

The Committee will investigate the activities of the Office
of Economic Research and its work product. We will consider the
value of the research provided, and coordination with the
research of other Federal agencies. (Spring, 1995)

OFFICE OF INTERNATIONAL TRADE

The Committee will conduct oversight concerning the new
Export Assistance Centers initiative. Committee investigations
will center on the effectiveness of SBA's small business export
efforts. (Spring, 1995)
The Committee also intends to determine the extent of
efforts at other agencies to serve the small business
community's trade and export needs. In particular, the
Committee will investigate efforts to provide financing for the
small business community in export markets and the efforts or
lack of effort to aid small business in overcoming foreign
trade barriers. (Spring, 1995 through Summer, 1996)

OFFICE OF BUSINESS INITIATIVES AND TRAINING

The Committee will explore the agency's commitment to these
business development programs and their interrelation with the
SBA's other program efforts. Investigations and hearings will
center on the amount and types of assistance provided and their
relationship to the changing business environment.
The Committee will also investigate small business
assistance programs at the other Federal agencies to determine
their effectiveness and the need for coordination between the
agencies. These hearings will cover the activities of the Small
Business Development Centers, Business Information Centers,
SCORE, and the Small Business Institute program. (Winter/
Spring, 1995)

FEDERAL PROCUREMENT

The Committee will examine the changes in Federal
procurement since the last Congress. The Federal Acquisition
Streamlining Act instituted sweeping changes in the way the
government will purchase goods and services. The Committee will
investigate the implementation of these changes and the effect
they are having on small businesses involved in government
contracting. (Fall, 1995 through Fall, 1996)
The Committee will also be conducting hearings concerning
any new proposals that would affect opportunities for small
business in Federal procurement.

GOVERNMENT & NON-PROFIT COMPETITION

The Committee will be conducting hearings and
investigations of the extent to which non-profit organizations
and the Federal government itself compete with small business.
Our focus will include activities in both the private sector
and government procurement. (Winter, 1996)

REGULATORY FLEXIBILITY & PAPERWORK REDUCTION

The Committee will continue its oversight of agency
implementation of the Regulatory Flexibility Act and Paperwork
Reduction Act. This oversight will include implementation of
any future amendments to these Acts. (Winter 1995 through Fall
1996)

GOVERNMENT REGULATION

The Committee will continue to investigate the regulatory
agenda of the various Federal agencies and the impact of
regulations, both specific requirements and the cumulative
effect of regulations, on the small business community.
(Winter, 1995 through Fall, 1996)

TAXATION

The Committee will continue to conduct oversight hearings
into common sense reduction of the tax burden on small
business. These hearings will include not only the fiscal but
the paperwork burden of the Federal tax system and Federal
enforcement efforts. (Winter, 1995 through Fall, 1996)

MINIMUM WAGE

The Committee will be conducting hearings on proposals to
increase the minimum wage and on the restoration of the minimum
wage exemption for certain small businesses. These hearings
will focus on the economic impact of these proposals
particularly regarding inflation and job creation. (Spring/
Summer, 1995)

HEALTH INSURANCE

The Committee will be considering new proposals for
improving access to the health care system for small business
owners and their employees. We will also focus on the economic
impact of expanding the health insurance deduction for the
self-employed and related self-insurance issues. (Spring, 1995
through Spring, 1996)
6.2 Budget Views and Estimates

Pursuant to Section 301(c) of the Congressional Budget Act
of 1974, the Committee prepared and submitted to the Committee
on the Budget its views and estimates on the fiscal year 1996
and fiscal year 1997 budget with respect to matters under the
Committee's jurisdiction.

6.2.1 fiscal year 1996 budget

On March 7, 1995, the Committee submitted its views and
estimates on the fiscal year 1996 budget. The Committee
emphasized that the SBA provides important services to the
small business community, and as part of the continuing efforts
to reduce the Federal deficit, the Committee committed to
working towards that goal with regard to expenditures under its
jurisdiction. While the President's fiscal year 1996 budget
request represented a 5.3 percent reduction from the SBA's
fiscal year 1995 appropriation, the Committee planned, as an
initial goal, to identify spending reductions amounting to at
least an additional 10 percent over the President's request.
The Committee noted that it was beginning the task of
identifying programs within SBA that are in need of reform or
have outlived their purpose, with the goal being a total review
of the SBA. The Committee noted that the review will be a
bipartisan and total small business effort that will include
all viewpoints. In the end, the entire small business community
will benefit from a leaner and stronger SBA.

6.2.2 fiscal year 1997 budget

On March 14, 1996, the Committee submitted its budget views
and estimate on the fiscal year 1997 budget. The Committee did
not have the benefit of the President's fiscal year 1997 budget
submission, which had not been filed in February as is
customary, or final appropriations figures for fiscal year
1996. As a result, the Committee's views and estimates were
based on the funding provided in the Conference report for H.R.
2076, the FY 1996 Commerce, Justice, State, the Judiciary, and
Related Agencies Appropriations Act.
In general, the Committee recommended a 10 percent
reduction in appropriated funds for the SBA in fiscal year
1997. The Committee made specific recommendations with respect
to four areas: (1) assistance programs, (2) financial programs,
(3) Office of the Inspector General, and, (4) disaster loans.

Assistance Programs.

The Committee noted that the SBA has been successful in
providing a number of programs that benefit and assist small
businesses financially throughout the country, including the
Office of Advocacy and the various management assistance
programs. The Committee found, however, that there were
programs that had either outlived their usefulness or become
ineffective. The Committee expected that no further funding
would be provided to programs that were not funded in the 1996
Conference Report for H.R. 2076, such as the Small Business
Institute (SBI) or the Natural Resources Development Program.
In addition, the Committee supported lifting the prohibition on
Small Business Centers (SBDC), which has prevented them from
charging reasonable fees to clients, when appropriate. It was
believed that such fees would help provide much needed revenue
for the SBDC program.

Financial Assistance Programs.

The Committee recommended with regard to the general
business loan programs that all SBA loan programs operate on a
guaranteed basis rather than as direct loans. Recalling that it
acted in 1995 to lower the subsidy rate of the 7(a) and 504
programs, the Committee believed that no budget increase would
be necessary and that any carryover should be applied to
maintain the programs. The Committee also recommended that any
increases in the subsidy rates for these programs, which may
require increased appropriations, should be offset by reduction
in the SBA's salaries and expenses account.
With respect to the Small Business Investment Company
(SBIC) Program, the Committee recommended the implementation of
changes designed to enhance program safety and soundness and
also to reduce the subsidy rate of the program. The Committee
found that SBIC liquidation practices were not efficient and
recommended new methods of portfolio management, including
contracting out all liquidation activities. The Committee
believed that the SBIC program levels could be maintained
without additional appropriations through subsidy rate
reductions.

Disaster Loan Program.

The Committee was concerned by the shortfalls in the SBA's
disaster loan program both in terms of salaries and expenses
and in loan funding. The Committee suggested that the SBA
immediately begin a program of privatization of loan servicing
and liquidation functions and recommended that 40 percent of
the loan portfolio be privatized, which is expected to result
in a 10 percent savings over previous appropriations. It was
emphasized that the cost of this program must be reduced but
without burdening the victims of natural disasters.

Office of the Inspector General.

The Committee recommended an increase to $10 million for
fiscal year 1997 funding for the Office of the Inspector
General. The Committee believed that the fiscal year 1996
Conference Report level of $8.5 million was far below that
needed to police adequately an agency with a multi-billion
dollar lending authority.

Minority Views.

The Minority members of the Committee submitted their views
and estimates on the SBA fiscal year 1997 budget. Like the
majority, the Minority members were concerned by the lack of an
Administration budget submission and final fiscal year 1996
appropriations for the SBA and the difficulty inherent in
formulating budget views and estimates without such
information. The Minority also noted that if the SBA receives
the funding for all of fiscal year 1996 that was proposed in
H.R. 2076, it will constitute a budget cut of more than one-
third from the prior year. The Minority believed that such a
deduction was excessive and that with the advancements realized
by the small business community in recent years, SBA's programs
need to be expanded and additional appropriations need to be
made, or at a minimum the budget should be frozen at current
levels.
The Minority was also concerned about the Committee's
recommendation that funding be shifted from the SBA's salaries
and expenses account to the program accounts rather than
appropriating additional funds or reconsidering the amount of
fees imposed on borrowers. The Minority noted that there may be
ways to improve the delivery of SBA programs and urged the
Committee to explore those options.
CHAPTER SEVEN

SUMMARY OF OVERSIGHT, INVESTIGATIONS AND OTHER ACTIVITIES OF THE
COMMITTEE ON SMALL BUSINESS AND ITS SUBCOMMITTEES

7.1 Summary of Committee Oversight Plan and Implementation

Pursuant to a new rule adopted by the 104th Congress, the
Committee on Small Business adopted on February 13, 1995 an
oversight agenda for the two-year period of the Congress. (For
a discussion of the Committee's consideration of the oversight
agenda and final agenda, refer to section 6.1.2 of this
report). Rule X, clause 2(d), of the Rules of the House of
Representatives also requires that each Committee summarize its
activities undertaken in furtherance of the oversight agenda as
well as any additional oversight actions taken by the
Committee.
In the following portions of this section 7.1, each
provision of the oversight agenda is separately set forth and
is followed by a discussion of the related Committee hearings
and legislative or other activities. A summary of each hearing
conducted by the Committee appears in section 7.2 of this
report and summaries of each subcommittee hearing appear in
sections 7.3 through 7.6 of this report. An overview of the
Committee's legislative activities appears in chapter 5 of this
report.

7.1.1 oversight of the small business administration

The Committee will conduct hearings on every program in the
Small Business Administration to determine its effectiveness
and whether it should be continued.

From the outset of the 104th Congress, the Committee held a
number of hearings to examine each program administered by the
Small Business Administration and evaluate whether particular
programs should be continued, reformed, or eliminated. The
Committee's hearings began with an overall review of the SBA on
February 28, 1995 and also included a hearing dedicated to the
future of the SBA on March 30, 1995. (For further information
on these hearings, refer to sections 7.2.12 and 7.2.19 of this
report). In addition, the Committee and its subcommittees held
hearings on specific SBA programs, which are summarized below
with respect to the relevant portion of the Committee's
oversight agenda.
Legislatively, the Committee marked up and favorably
reported two pieces of legislation, H.R. 2150 and H.R. 3719,
which were designed to address specific weaknesses in
particular SBA programs as well as to promote greater
efficiency within the agency. The relevant portions of these
legislative efforts are discussed below with the corresponding
section of the Committee's oversight agenda. In addition, the
Committee considered one other bill, H.R. 3158, which was
designed to extend and improve the Small Business Innovation
and Research and the pilot Small Business Technology Transfer
programs. This legislation is discussed in section 7.1.5 of
this report.

7.1.2 financial programs

7(a) General Business Loan Program.

The Committee began the 104th Congress with a hearing
dedicated to the SBA's 7(a) general business loan program. The
Committee heard testimony from agency and small business
witnesses who agreed that the 7(a) program has been a vital
tool for small business growth and development. The agency
witnesses noted that the number and size of 7(a) loans had been
rising consistently and stressed that with the heavy demand for
7(a) loans, the agency would run out of guarantee authority by
the Summer of 1995. As a result, the agency administratively
capped the maximum loan guarantee at $500,000 rather than the
statutory maximum of $750,000.
The witnesses representing the small business community and
the 7(a) lenders testified that the 7(a) program is critical
for many small businesses seeking operating capital, especially
those in the start-up phase. These panelists also emphasized
that the 7(a) program is an important and successful example of
how a public/private-sector partnership should operate. In
general, the panels urged the Committee to continue and, if
possible, expand the program. (For further information on this
hearing, refer to section 7.2.6 of this report).
The Subcommittee on Government Programs also held hearings
on the 7(a) program, with a particular emphasis on the pilot
low documentation, or LowDoc, program. The witnesses at these
hearings generally praised the pilot program, which was
designed to reduce the SBA paperwork to a two-page application
for borrowers seeking loans of $100,000 or less. Concerns were
raised, however, about the rising subsidy rate for the overall
7(a) program and lack of information about the overall
performance of LowDoc loans, which have become a significant
portion of the overall 7(a) portfolio. A witness from the
Office of Management and Budget (OMB) testified that the
administration had decided against developing a separate
subsidy rate for the LowDoc loans. (For further information on
these hearings, refer to sections 7.3.5 and 7.3.6 of this
report).
The Subcommittee on Government Programs also examined
current developments involving loan packaging, which generally
involves 7(a) loans. At its hearing on October 12, 1995,
witnesses testified about increasing incidents of fraud and
abuse by loan packagers. The Subcommittee also received
testimony on various proposals to reduce such incidents and
better regulate the loan-packaging industry. The SBA witnesses
reviewed their efforts to investigate improper activities by
loan packagers and prevent fraud in the industry. (For further
information on this hearing, refer to section 7.3.9 of this
report).
In the Summer of 1995, the full Committee considered
legislation designed to address the increasing subsidy rate in
the 7(a) program and reduce the overall costs of the program to
the American taxpayer. Under the conference agreement to H.R.
2150, a flat 0.5 percent fee was established, which will be
charged to all lenders participating in the 7(a) program on the
outstanding principal balance of their 7(a) loans. The
conference agreement also reduced and flattened the guarantee
percentage for all loans--for loans up to $100,000 dollars, the
guarantee percentage was lowered to 80 percent and for all
loans over $100,000, the guarantee was reduced to 75 percent.
Finally, the conference agreement established a tiered fee
structure for the guarantee fee paid by the borrower. The
borrower will pay a 3 percent fee on the first $250,000 of a
loan; a 3.5 percent fee on the portion of the loan between
$250,000 and $500,000; and 3.875 percent for the portion which
exceeds $500,000. (For further information on this legislation,
refer to section 5.2 of this report).
At the beginning of the second session of the 104th
Congress, the Committee learned that the subsidy rate for the
7(a) program had been recalculated by the SBA and the OMB and,
as a result, had nearly doubled from the estimates that the
Committee relied upon in its consideration of H.R. 2150. At a
hearing on March 21, 1996, the SBA Administrator came before
the Committee to explain the surprising increase in the subsidy
rate for the program. He attributed much of the increase to the
results of a comprehensive study of the 7(a) loan portfolio
that OMB had recently completed. Despite repeated inquires by
Committee members about the specific details of the study and
the actual calculation of the subsidy rate, the SBA witnesses
were unable to provide satisfactory answers. The SBA's answer
to the problem was to request additional appropriations for the
program without addressing the underlying reasons for the
increase in the subsidy rate. (For further information on this
hearing, refer to section 7.2.39 of this report).
In response to the alarming increase in the subsidy rate
for the 7(a) program, the Committee marked up and favorably
reported H.R. 3719, in July of 1996. After passing the House,
this legislation was largely incorporated into the omnibus
consolidated appropriations legislation that was signed into
law at the end of September, 1996. The final legislation
contained a number of provisions that addressed problems that
the Committee had identified in the 7(a) program. While the
Committee avoided adding additional fees on the borrowers or
lenders in the program after the increases included in H.R.
2150, the legislation focused extensively on improving the
liquidation results of 7(a) loans by allowing more private-
sector involvement. In particular, the legislation gives
Preferred Lenders full authority to collect on, and liquidate,
loans that they made to small businesses without having to
obtain prior written approval of SBA for routine activities.
Certified Lenders are also permitted to begin performing
liquidation of SBA guaranteed loans subject to the approval of
the Administration. The legislation also establishes procedures
to reduce the servicing fees or accrued interest paid to a
lender for the period of time between the default of a loan and
the payment on the guarantee.
The legislation addresses the potential risks associated
with the SBA's LowDoc loans by requiring that LowDoc loans be
made only through Certified and Preferred Lenders or lenders
with significant small business lending experience. In
addition, for all future pilot programs or initiatives in the
7(a) program, the legislation prohibits the pilot program or
initiative if it exceeds 10 percent of the loans guaranteed in
the 7(a) program during that year.
The legislation contains several reporting requirements and
a comprehensive database designed to monitor loan liquidation
and the subsidy rate for 7(a) loans. (For further information
on this legislation, refer to section 5.5 of this report).

Certified Development Company Program.

The Committee held a hearing on March 9, 1995 to examine
the performance of the SBA's 504 loan program. The agency and
small business witnesses agreed that the 504 program is vital
for small businesses seeking to acquire or expand their
facilities given the frequent lack of long-term, fixed-rate
capital available to the small business sector of the economy.
The small business witnesses also provided the Committee with
considerable anecdotal evidence of the program's success. (For
further information on this hearing, refer to section 7.2.15 of
this report).
In response to concerns about the overall cost of the
program, the Committee marked up and favorably reported H.R.
2150. Through a new fee of one-eighth of 1 percent of the
outstanding principal balance of the loan imposed on the
borrower, the Committee expected to reduce the subsidy rate for
the 504 program to zero and make the program essentially self-
funding. (For further information on this legislation, refer to
section 5.2 of this report).
At the Committee's March 21, 1996 hearing on the SBA's
budget submission for fiscal year 1997, the Committee learned
that the subsidy rate for the 504 program, as recalculated by
the SBA and OMB, had risen from 0 to 6.85 percent. As with the
7(a) program, the SBA Administrator was unable to a provide
satisfactory explanation for the increase, and one small
business witnesses concluded that the exceedingly high loss
rate is due either to inadequate collateral or to poor or
inattentive handling of liquidation once the loan goes into
default. The agency's answer to the problem was to convert the
504 program into a direct lending program, an alternative that
met with considerable opposition from the Committee. (For
further information on this hearing, refer to section 7.2.39 of
this report).
The Committee addressed the 504 program's subsidy rate in
H.R. 3719, the relevant provisions of which were included in
the omnibus consolidated appropriations legislation that was
enacted at the end of September, 1996. This legislation
modifies the contribution required from a small business for
participation in a 504 loan such that start-up small businesses
and borrowers seeking financing for a special purpose building,
must put a minimum of 15 percent down, instead of the minimum
of 10 percent as required under current law. The bill also
increases the fee that the borrower pays on the annual
outstanding balance to a maximum of \15/16\ of 1 percent as
needed to bring the overall program subsidy rate back to zero.
For fiscal year 1997, this fee will be \13/16\ of 1 percent.
Two other new fees were also added for the 504 program; a one-
time, up-front fee of \1/2\ of 1 percent on the total
participation of the first mortgage holder, and a \1/8\ of 1
percent annual servicing fee collected from Development
Companies that will be passed through to the SBA.
The Committee also included provisions in the final
legislation that were designed to improve the loan liquidation
results under the 504 program. Specifically, the legislation
instructs the SBA to take action on defaulted loans within
specific time periods in order to speed recoveries and
liquidations. The bill also prohibits the SBA from paying late
fees or prepayment penalties on defaulted loans and prohibits
the SBA from paying any ``default interest rate'' on a
defaulted loan.
Finally, the legislation requires the SBA to develop and
implement a pilot program in which Certified Development
Companies (CDCs) will have the authority to liquidate their own
loans. This responsibility will be delegated only to a select
number of the most experienced and active CDCs. (For further
information on this legislation, refer to section 5.5 of this
report).

Small Business Investment Company Program.

The Committee held three hearings during the 104th Congress
that focused specifically on the SBA's Small Business
Investment Company (SBIC) program. At two hearings during the
first session of the Congress, the Committee heard testimony
about the benefits that SBICs represent in terms of providing a
vital source of capital for many small businesses. Witnesses at
these hearings, however, also identified a number of problems
with the SBA's oversight, examinations, licensing, and
liquidation activities with respect to the program. (For
further information on these hearings, refer to sections 7.2.18
and 7.2.29 of this report).
The Subcommittee on Government Programs also held a hearing
on April 18, 1996 to evaluate H.R. 2806, ``The Venture Capital
Marketing Association Act,'' introduced by Chairman Peter
Torkildsen (R-MA). The bill is designed to privatize the SBIC
program, through a government-sponsored enterprise called the
Venture Capital Marketing Association (Vickie Mae). The
witnesses at the hearing were supportive of the legislation,
and several panelists contended that establishing Vickie Mae
would lower costs to the government of administering the
program, enhance the safety and soundness of SBICs by ensuring
a stable flow of capital, and increase the capital available to
small businesses by releasing funds currently restricted by
government appropriations. (For further information on this
hearing, refer to section 7.3.12 of this report).
In the Summer of 1996, the Committee held a hearing to
continue its review of the program and assess legislation that
was introduced in the Senate that would reform the SBIC
program. The witnesses at this hearing noted that some
improvements had been made in the program, and they generally
supported the Senate legislation, including the increased fees
and the efforts to expand the availability of debenture
funding. The witnesses also agreed with the Committee's desire
to ensure the stability of the program. (For further
information on this hearing, refer to section 7.2.46 of this
report).
The small business provisions that were included in the
omnibus consolidated appropriations legislation at the end of
the 104th Congress included a number of improvements to the
Small Business Investment Company (SBIC) program. In general,
these provisions restructure the SBIC program to incorporate
several vital changes, which are effective upon enactment of
the legislation. First, the minimum capital requirements for
new license applicants are increased, while all existing
licensees are fully grandfathered allowing existing licensees
to refinance or borrow additional leverage.
The final legislation also changes two fees paid by SBICs.
SBICs will pay an annual charge of 1 percent on the value of
all outstanding leverage granted after the effective date, and
the non-refundable up-front fee is increased to 3 percent of
new leverage amounts. These fees will greatly reduce the
subsidy cost of the program and allow additional venture
capital funding for small business.
A number of changes to enhance the safety and soundness of
the SBIC program were also included in the legislation. The SBA
must ensure that each license applicant maintains
diversification between the management and ownership of the
SBIC. The SBA must also regulate SBICs closely to (1) ensure
that they do not incur excessive third-party debt; (2) ensure
that no SBIC receives leverage when it is under capital
impairment; and (3) require each SBIC to adopt valuation
criteria set forth by the SBA to establish the values of loans
and investments of each SBIC, subject to an annual review by an
independent certified accountant.
The legislation also addressed the disposition of SBIC
assets that are in liquidation. Under the bill the SBA is
required to submit to the Senate and House Committees on Small
Business a detailed plan to expedite the orderly disposition of
these assets. (For further information on this legislation,
refer to section 5.5 of this report).
Specialized Small Business Investment Company Program.

The Committee held three hearings that focused on the
Specialized Small Business Investment Company (SSBIC) program
during the 104th Congress. At the first two hearings on March
28 and September 28, 1995, the Committee received testimony,
primarily from the General Accounting Office (GAO), about
continuing oversight and management weaknesses within the SSBIC
program. These problems were underscored by a number of well-
publicized failures of SSBICs and allegations of mismanagement
and improper activities.
The GAO also testified before the Committee on its
investigation of the SBA's 3-percent stock buy-back program,
under which SSBICs are permitted to repurchase their preferred
stock from the SBA at a significant discount from the face
value of the stock. The GAO informed the Committee that based
on preliminary data, 15 SSBICs have participated in this
program, and they have repurchased preferred stock with a par
value of $41 million from SBA for only $14 million, resulting
in a significant loss to the government. (For further
information on these hearings, refer to sections 7.2.18 and
7.2.29 of this report).
In the Summer of 1996, the Committee continued its
assessment of the SSBIC program and evaluated legislation
introduced in the Senate that would significantly modify the
program. At a hearing on June 6, 1996, witnesses expressed
support for the legislation's proposal to merge the SSBIC
licensees into the SBIC program. One witness cautioned,
however, that for smaller SBICs, alternative sources of
financing should be sought and protections should be included
for existing SSBICs.
The industry witnesses also addressed the SSBIC's 3-percent
preferred stock repurchase program. The witnesses responded to
concerns that the program permitted significant forgiveness of
SSBIC debt to the SBA by allowing SSBICs to repay only about 35
percent of their stock value. The witnesses noted that the
SSBICs were paying what was agreed to be a fair market price,
and pointed out that the stock had no mandatory repayment term.
(For further information on this hearing, refer to section
7.2.46 of this report).
A number of provisions affecting the SSBIC program were
included in the omnibus consolidated appropriations legislation
in September, 1996. In particular, the final legislation merges
the SSBIC and the SBIC programs, with all existing SSBICs
becoming regular SBICs. This provision was designed to address
the SSBICs' historic objection that the program restrictions
hinder their ability to grow like other SBICs.
The legislation also removes certain investment
restrictions and creates a special leverage reserve available
only to SBICs that invest at least half of their funds in
smaller enterprises. These provisions will enable the smaller
SBICs to maintain their focus on financing for primarily
minority and women-owned businesses, which tend to be smaller-
sized businesses, without any specific restrictions that might
negatively affect the ability to seize investment
opportunities.
A new reserve of debenture funding for these smaller SBICs
was also established in lieu of the prior funding mechanism for
the SSBICs. The fund will be financed through the proceeds of
the existing preferred stock repurchase program. The
availability of this special pool of leverage, along with
leverage available to all SBICs, will substantially increase
the access to capital for minority and women-owned business
investments.
Finally, the legislation requires that each SBIC,
regardless of its size, invest at least 20 percent of its
aggregate dollar investments in smaller enterprises, which is
designed to ensure that smaller businesses continue to obtain
full benefit of the SBIC program from all its participants.
(For further information on this legislation, refer to section
5.5 of this report).

Microloan Program.

On March 14, 1995, the Committee held a hearing to review
the SBA's Microloan Demonstration Project. The witnesses
expressed the belief that the program is an important tool for
meeting the needs of the smallest of small businesses in the
most efficient and cost effective way. It was also emphasized
that the program accomplishes this goal while leveraging the
Federal dollars loaned by requiring the intermediary lenders to
come up with matching capital. The small business
representatives also expressed broad support for the program
and provided the Committee with anecdotal evidence of its
success.
The witnesses also identified areas for improvement within
the Microloan program including: minimizing the expense of
micro lending; reducing the risk of micro lending as compared
to general business lending; incorporating and leveraging more
effectively primary SBA resources; and addressing the fact that
the current initiative will never generate sufficient funds to
meet the level of demand. (For further information on this
hearing, refer to section 7.2.16 of this report).
Pursuant to its legislative jurisdiction, the Committee
approved two changes to the Microloan program. First, Section
105(a) of H.R. 3719 amends the Small Business Act to decrease
the maximum amount that an intermediary may receive through
technical assistance grants. Second, Section 105(b) of the bill
requires the SBA to either implement the Microloan Guarantee
Pilot Program or issue a report on why the agency is unable to
do so. (For further information on this legislation, refer to
section 5.5 of this report).

Surety Bond Guarantee Program.

The full Committee reviewed the status of the SBA's Surety
Bond Guarantee Program as part of its overall consideration of
the SBA of the future on March 30, 1995. At the hearing, the
SBA Administrator noted the benefits that the program provides
for qualifying small businesses and testified that the agency
plans to consolidate the surety bond delivery system with its
government contracting oversight operations. (For further
information on this hearing, refer to section 7.2.12 of this
report).
The Subcommittee on Procurement, Export and Business
Opportunities also held a hearing on April 5, 1995 to examine
in greater detail the efficacy of the program and areas for
improvement. The witnesses generally agreed that the Surety
Bond Guarantee Program was critical to small businesses seeking
to participate in many Federal contracts. The SBA witnesses
noted the success of the program in guaranteeing more than
218,000 bonds for more than $21 billion in contracts for small
businesses. The witnesses also noted that the pilot Preferred
Surety Bond Guarantee Program enables the SBA to provide a
reduced guarantee to participating sureties in exchange for the
sureties having authority to issue, monitor and service bonds
without SBA's prior approval.
The industry witnesses stressed the importance of the SBA's
Surety Bond Program and offered several recommendations for
improving the program, including an increase in the maximum
bond size allowable under the program; extension of the pilot
Preferred Surety Bond Guarantee Program; a requirement that
bond underwriters disclose fully the basis for denying a surety
bond and the actions that the applicant must take in order for
the bond to be approved; and amendment of the Miller Act to
improve the payment rights for subcontractors and suppliers
through payment bonds. (For further information on this
hearing, refer to section 7.4.2 of this report).
The full Committee addressed the Surety Bond Guarantee
Program legislatively in Section 206 of H.R. 3719, which amends
the surety bond program to give new applicants expeditious
responses to their applications. It also requires that the SBA
police the use of the program to ensure that participant
companies are using their bonding authority and authorizes the
removal of program participants who do not use their authority
adequately. (For further information on this legislation, refer
to section 5.5 of this report).
Debenture Prepayment Penalty Relief.

During the 104th Congress, the Committee monitored the
implementation of the debenture prepayment penalty relief
provisions that were included in the Small Business
Administration Reauthorization and Amendments Act of 1994. This
legislation authorized the appropriation of $30 million to
enable small businesses with 503 loans or small business
investment companies with similar debenture debt to prepay or
refinance those loans with a reduced penalty for early
prepayment. The prepayment penalty that was a condition of the
original loan agreement was so high that it often surpassed the
amount owed on the loan and was prohibiting small businesses
from taking advantage of reduced interest rates. Repayment
under the terms of the legislation was completed by the end of
fiscal year 1995. By the end of the 104th Congress, 706 small
businesses had prepaid or refinanced 503 loans with an
outstanding principal balance totaling $117,072,580. None of
the small business investment companies eligible elected to
participate because their remaining balance was too small to
make the option feasible.

7.1.3 procurement assistance

The Committee held a hearing on March 2, 1995 to review the
activities of the SBA's procurement assistance to small
business. The witnesses at this hearing noted the expansion of
SBA's procurement assistance efforts and that small business
has a significant voice in the government procurement process
through the various Procurement Center Representatives in the
Government Contract Division at the SBA. The panel also
addressed the benefits that the Small and Disadvantaged
Business Offices provide to small business. Several of the
panelists also gave anecdotal testimony about the success of
the SBA's government contracting programs. (For further
information on this hearing, refer to section 7.2.13 of this
report).
The Committee also held a hearing in the Fall of 1995
specifically to examine the trend in the Clinton Administration
of bundling contracts to the exclusion of small businesses.
This hearing focused on two instances of contract bundling. The
first involved an effort by the General Services Administration
(GSA) to consolidate air-freight contracts by raising the
minimum requirements that private air-freight carriers must
meet in order to qualify for government-contracted business.
The proposal raised the requirements to a level so high that
there was little chance that small businesses competing in the
government procurement process could have complied. The
proposal would have made the GSA the sole negotiator and
contractor for 67 government agencies and departments and would
have covered almost all of the U.S. government's heavy air-
freight business.
The second instance of contract bundling involved a
proposal by the Military Traffic Management Command (MTMC) to
consolidate its $1.1 billion per year personal property program
under which household-goods movers and forwarders are hired to
move military families who have been transferred from one
military installation to another. The proposal would have
abolished, rather than modified and improved, the existing
procurement procedures specifically developed for that
industry. (For further information on this hearing, refer to
section 7.2.30 of this report).
Following the hearing and significant follow up by the
Chair and Committee staff, the GSA withdrew their proposal
concerning air-freight contracts. In addition, the Committee
saw some progress in reaching a compromise between MTMC and the
household-goods movers and forwarders with respect to contracts
for moving the property of military families.
The Subcommittee on Government Programs also held a hearing
on professional certification as a sole-source bid requirement
in Federal contracts. At its August 2, 1995, hearing, the
Subcommittee received testimony from witnesses who gave
anecdotal evidence of the problems faced by small businesses
that are affected by the sole-source bid requirements in
government contracting. Witnesses also testified that
certification requirements have become very pervasive either as
a condition of employment, directly or indirectly, or as a
condition of doing business. Additionally, even though
certification is for individuals, it is often the case that a
company cannot do business unless it has certified individuals
on its payroll. (For further information on this hearing, refer
to section 7.3.7 of this report).

7.1.4 advocacy

* * *

As part of its overall review of the SBA, the Committee
held a hearing on April 4, 1995 to focus specifically on the
SBA's Office of Advocacy and the offices under its auspices,
including the Office of Economic Research. The current and
former Chief Counsels for Advocacy emphasized that one of the
great strengths of that office is its greater degree of
independence than most other Federal officials. As a result,
the Chief Counsel has the opportunity to truly be the
``independent advocate'' for small business. They noted that
one of the most significant challenges facing small business is
to help policy makers at all levels of government understand
that small business is a driving force in the economy. The
witnesses maintained that the Office of Advocacy is well placed
to assist small businesses in achieving that goal. The small
business witnesses agreed that the Office of Advocacy serves an
important purpose in furthering the policies that nurture the
small business and entrepreneurial sector of the economy.
Both the agency and small business witnesses offered a
number of suggestions for strengthening and expanding the role
of the Office of Advocacy and its Chief Counsel. The
suggestions ranged from giving the Chief Counsel for Advocacy
greater authority to prevent burdensome regulations on small
business to enhancing the economic research functions of the
Office and expanding its mission of commenting on proposed
regulations. (For further information on this hearing, refer to
section 7.2.20 of this report).
On October 31, 1995, the Committee also held a joint
hearing with the Senate Committee on Small Business to examine
the report to Congress by the Chief Counsel for Advocacy of the
SBA requested under section 613 of Public Law 103-403 on ``the
impact of all Federal regulatory, paperwork, and tax
requirements upon small business.'' The sole witness for the
hearing was the SBA's Chief Counsel for Advocacy who maintained
that the regulatory burden on businesses has leveled off as a
percentage of the gross domestic product. He noted that the
biggest increase in burden, however, has been in environmental
regulations. The next largest increase is in process
regulation, which is basically paperwork and involves the
Internal Revenue Service and payroll and Social Security
records. According to the Chief Counsel, social regulation
costs such as Occupational Safety and Health Administration
(OSHA) and worker safety rules have not increased
significantly. (For further information on this hearing, refer
to section 7.2.33 of this report).
While the Committee did not consider legislation that
directly affects the Office of Advocacy, members of the
Committee worked diligently to ensure that the Office received
continued funding during the 104th Congress. These efforts were
especially important for fiscal year 1996 when a proposal was
made to eliminate the appropriation for the Office.

7.1.5 technology and research assistance

Small Business Innovation and Research.

The full Committee and its Subcommittee on Government
Programs held hearings in the first and second sessions of the
104th Congress on the Small Business Innovation and Research
(SBIR) program. The Subcommittee found at its hearing, held on
April 6, 1995, that the small business community rated their
experience with the SBIR program as favorable. The witnesses
noted that the program has been instrumental in helping many
small businesses begin operations and in some cases assisting
existing small businesses to expand their exports. The
government witnesses also noted that the SBIR program
contributes one of the highest returns to taxpayers and
redirects money to small businesses that might otherwise have
gone to large firms, universities, and Federal government labs
that are far less efficient, far less innovative, and less able
to commercialize their technologies. Despite the general praise
for the SBIR program, several witnesses expressed concerns
about the program including the documentation and accounting
system requirements, which can be overly burdensome for small
businesses. Two witnesses also suggested that a fraction of
SBIR set-aside funds be used to provide commercialization
assistance to SBIR awardees and to support administrative costs
of the program's operation. (For further information on this
hearing, refer to section 7.3.2 of this report).
The full Committee hearing, held on March 6, 1996, also
found wide-spread praise for the SBIR program. The witnesses
provided additional anecdotal evidence of the program's
success, and emphasized the vital role that the program plays
in the high-technology sector of the small business community
and in the nation's research agenda, ensuring a flow of
innovative new products and services to the American
marketplace. In addition, the panelists stressed the need for
the program to be continued and at current funding levels. (For
further information on this hearing, refer to section 7.2.37 of
this report).
Legislatively, the Committee favorably reported H.R. 3158
on March 29, 1996. This bill would have called on the General
Accounting Office to monitor the implementation of the SBIR
program over a four-year period, covering fiscal year 1995
through fiscal year 1999 and to submit a report on its finding
by February 1, 2000. The bill also would have established an
interagency task force on fostering commercialization of the
results of projects being undertaken by small businesses
through the SBIR program. Unfortunately, the provisions of H.R.
3158 concerning the SBIR program were not included in
legislation that was signed into law. (For further information
on this legislation, refer to section 5.4 of this report).

Small Business Technology Transfer.

As part of its hearing on the SBIR program on March 6,
1996, the Committee examined the success of the pilot Small
Business Technology Transfer (STTR) program. Overall, the
witnesses testified that the pilot STTR program had been very
beneficial for small businesses, and the GAO report on the
program found that participating agencies rated highly both the
quality and commercial potential of the proposals and have not
found any evidence that the pilot STTR program was competing
for quality proposals with the SBIR program.

Witnesses from the small business community provided
numerous examples of success stories from the pilot STTR
program and the critical role that the program plays in
fostering the transfer of technology to the marketplace. They
expressed concern that the contribution to the nation's economy
and defense from the resulting technologies and products would
not have been possible without small business participation in
the STTR program. For these reasons, the witnesses urged the
Committee to reauthorize the pilot program, which was set to
expire at the end of fiscal year 1996. (For further information
on this hearing, refer to section 7.2.37 of this report).

The Committee's consideration of H.R. 3158 included several
provisions concerning the pilot STTR program. Primarily, the
bill would have reauthorized the pilot STTR program through
September 30, 2000, placing it on the same authorization time
frame as the SBIR program. The bill would also have provided a
\1/10\ of 1 percent increase in the percentage of extramural
research budgets dedicated to awards under the pilot STTR
program.

In addition, the bill would have called on the GAO to
monitor the implementation of the program during the extension
and submit a report by February 1, 2000. Under the bill, the
interagency task force on fostering commercialization of the
results of projects being undertaken by small businesses
through the SBIR program would also have covered projects in
the pilot STTR program.

Provisions extending the pilot STTR program through
September 30, 1997, were included in the omnibus consolidated
appropriations legislation (H.R. 4278), which the House and the
Senate passed together with the 1997 Department of Defense
Appropriations Act (H.R. 3610) at the end of the 104th
Congress. The remaining provisions of the bill were not
enacted. (For further information on this legislation, refer to
section 5.4 of this report).

7.1.6 minority enterprise development

The Committee held three hearings to review the SBA's 8(a)
Business Development Program. The 8(a) program was originally
created to assist businesses owned by individuals who are
socially and economically disadvantaged. The Committee's
objective for the hearings was to examine the program's
continuing efficacy and ability to meet its statutory
objectives as well as to review reports of fraud and abuse
within the program.

During the Committee's hearings on March 6, 1995, December
13, 1995, and September 18, 1996, the witnesses focused on a
number of problems with the 8(a) program. Specifically, the
hearings focused on charges that the program offers opportunity
to only a relative few well-to-do individuals at the expense of
the majority of persons whom the program was designed to
assist. The witnesses at the hearings also pointed out that a
number of companies have remained in, and have taken advantage
of, the program long after they have become successful and
self-sustaining, that most companies do not become self-
sufficient by the time they leave the program, and that the
program is laden with fraud and abuse. In reviewing these
charges, the Committee heard testimony from the General
Accounting Office, the SBA and its Office of the Inspector
General, and numerous small business owners. (For further
information on these hearings, refer to sections 7.2.14,
7.2.35, and 7.2.49 of this report).
In addition to the full Committee's inquiries into the 8(a)
program, the Subcommittee on Regulation and Paperwork held a
hearing to discuss the impact of Federal regulation on minority
entrepreneurship. The witnesses agreed that because many small
businesses are owned by and employ a large percentage of
minorities, Federal regulations and taxes are said to fall
disproportionately on minorities. The witnesses also emphasized
that government programs such as welfare and minority set-
asides are solutions for the symptoms of poverty among
minorities, but do not go to the root of the problem, which is
a lack of economic opportunities provided to minorities because
small businesses are stifled with high taxes and oppressive
regulations. (For further information on this hearing, refer to
section 7.5.2 of this report).

7.1.7 women-owned businesses

As part of its overall review of the SBA's programs, the
Committee evaluated the various outreach efforts by the agency
including the Women's Business Ownership Program. The witnesses
agreed that the program was an important part of SBA's efforts
to promote small business ownership by women and served to
provide important resources for starting and operating small
firms. (For further information on this hearing, refer to
section 7.2.17 of this report).
The Committee also focused on a number of issues that
directly affect the ability of women to start and continue
their own businesses. For example, the Committee held a hearing
dedicated to the home-office deduction and the 1993 Supreme
Court case that drastically narrowed its availability. At that
hearing, the witnesses, all of whom were women, testified to
the importance of the home-office deduction for the smallest of
small businesses that do not have the capital to acquire office
space outside the home. (For further information on this
hearing, refer to section 7.2.2 of this report).
Similarly, the Committee held individual hearings on the
deductibility of health-insurance costs by the self-employed,
which is a significant issue for women business owners, and
access to capital for small businesses. At the latter hearings,
the Committee heard testimony concerning the particular
difficulties of women business owners who seek debt and equity
capital to start or expand their business. (For further
information on these hearings refer to sections 7.2.4, 7.2.36,
and 7.2.43 of this report).

7.1.8 office of inspector general

During both sessions of the 104th Congress, the Committee
undertook several investigations of alleged misconduct by
employees of the SBA and by certain program participants. In
each investigation, the Committee called on the Office of the
Inspector General to conduct internal reviews and
investigations of the particular matter. The Committee
monitored the work product of the Office and evaluated it in
comparison to the results of staff investigations and those of
other outside investigative sources. Overall, the Committee
found the efforts of the Inspector General and his staff to be
satisfactory.
The Committee also endeavored to ensure that the Office of
the Inspector General received adequate funding in both fiscal
year 1996 and 1997 in order to carry out its responsibilities
to the fullest extent.

7.1.9 office of disaster assistance

During the 104th Congress, the Committee held hearings on
the overall management of the SBA. Testimony at these hearings
and investigations and research by Committee staff showed that
the disaster loan program continues to provide prompt and
effective aid to areas of the country struggling to rebuild
after the onset of disasters. The hearings on the SBA's budget
also revealed that the subsidy rate for the disaster loan
program dropped during fiscal years 1995 and 1996. The single
largest component of the disaster assistance loan program's
subsidy rate is the difference between the interest rate on the
loans (capped at 4 percent in most cases) and the cost of
borrowing money for the government (currently at 5.25 percent).
The narrowing of this spread due to lower interest rates has
significantly reduced the subsidy rate. Loss rates in the
program remained within acceptable limits given the nature of
the loan portfolio, and the Committee received reports and
testimony from the Inspector General concerning fraud and abuse
and found that the SBA had responded adequately.
Representative Torkildsen, Chairman of the Subcommittee on
Government Programs held three additional hearings specifically
on the disaster assistance program. The first of these hearings
focused on the overall functioning of the disaster program and
mirrored the full Committee's findings. While testimony
revealed that the program has an excellent ability to respond
quickly and efficiently, suggestions were developed for
administrative efforts to decrease loan processing time and
reduce the threshold level for assistance eligibility. The
other two hearings dealt specifically with problems facing the
fisheries industries in New England due to a dramatic and
disastrous decline in groundfish stocks. The Subcommittee heard
extensive testimony from small business owners and local
government officials regarding the plight of the fisheries
industry in New England. The Committee also developed evidence
of mismanagement of the fisheries by regulatory agencies. While
the SBA expressed a desire to be of assistance, SBA officials
testified that the conditions in the area could not be
construed as a disaster. (For further information on these
hearings, refer to sections 7.3.3, 7.3.4, and 7.3.16 of this
report).
Legislatively, the Committee acted to pass several
improvements to the disaster assistance program as part of H.R.
3719. Recognizing the need to continue to reduce program costs
whenever possible, the Committee proposed a pilot loan-
servicing program for disaster loans that would test
privatization of the servicing of 10 percent of the disaster
loan portfolio. Due to its similarity to residential mortgage
portfolios, the Committee believed that current commercial
providers might effectively service the disaster portfolio. The
Committee also examined an Administration suggestion to
increase the interest rate structure for disaster loans from
its current level of one-half the rate of similar government
securities (but not more than 4 percent) to the full rate of
similar government securities. The Committee felt that such a
steep increase would be unwise in light of the nature of
lending in disaster stricken areas, but agreed to an increase
to three-fourths of the rate of similar government securities.
Finally, the Committee accepted an amendment by Mr. Torkildsen
expanding the definition of a disaster to include fisheries
closed by government regulation.
The disaster assistance program provisions of H.R. 3719
were included in the final version of the omnibus
appropriations legislation with some modification. The pilot
disaster loan servicing program was expanded to 30 percent of
the loan portfolio but restricted to residential loans. Mr.
Torkildsen's amendment to provide disaster assistance to the
New England fisheries was amended slightly to incorporate
technical definitions. The modified version of the
Administration's interest rate increase was omitted in the
final version of the legislation. (For further information on
this legislation, refer to section 5.5 of this report).

7.1.10 office of international trade

The Committee's international trade activities were
conducted through its Subcommittee on Procurement, Exports and
Business Opportunities, which held a series of eight hearings
on the subject of increasing small business exports. The first
hearing on March 29, 1995, centered on the various Federal
export-promotion programs. The export-promotion divisions of
the International Trade Administration (ITA) of the Department
of Commerce (including Trade Development, International
Economic Policy, and the U.S. & Foreign Commercial Service),
the Small Business Administration (SBA), the Overseas Private
Investment Corporation (OPIC), and the Trade Development Agency
(TDA) provided the Subcommittee with information on the various
export-promotion programs and the availability of their
benefits to small businesses. (For further information on this
hearing, refer to section 7.4.1 of this report).
The second hearing on May 17, 1995, focused almost
exclusively on agriculture export-promotion programs. The
Subcommittee received testimony from the Foreign Agricultural
Service (FAS) of the U.S. Department of Agriculture and
private-sector witnesses concerning the importance of
agricultural exports and some of the obstacles that exists for
small business. The Subcommittee also heard from John
Frydenlund of the Heritage Foundation, who is a key opponent of
these programs. (For further information on this hearing, refer
to section 7.4.3 of this report).
The third hearing, on May 23, 1995, allowed individuals not
directly connected with any of these programs to present an
academic critique of the Federal export-promotion programs,
including the costs and benefits of these programs and the need
for these programs in an era of immense foreign competition to
the country's exporters. Following this hearing, the
Subcommittee held a hearing on export promotion from the small
business perspective. On June 22, 1995, four small to medium-
sized businesses testified before the Subcommittee about
Federal export-promotion programs and how they benefited their
companies and increased job growth in their communities. In
addition, the Subcommittee heard testimony about how a public-
private sector partnership between the Federal government and a
local college has helped disseminate trade information to
resource-poor small businesses. (For further information on
these hearings, refer to sections 7.4.4 and 7.4.5 of this
report).
The fifth hearing, which was a joint hearing with the
Committee's Subcommittee on Government Programs, on September
7, 1995, focused on the problems of trade finance with an
emphasis on the potential problems with a change in the
guarantee rate for the Export Working Capital Program at the
SBA, which is part of the SBA's 7(a) loan program. At that
time, small business exporters were able to obtain a 90-percent
guarantee for pre-export working capital for deals under
$750,000 through the SBA. For export sales above that amount,
the Export-Import Bank of the United States (Eximbank) had a
harmonized program also with the 90-percent guarantee level.
(For further information on this hearing, refer to section
7.4.6 of this report).
In October of 1995, a comprehensive bill to reduce the
guarantee rate for all SBA loan programs to 80 percent for
loans below $100,000 and 75 percent for loans above $100,000
was enacted into law, thus placing a temporary disparity
between the export-financing programs administered by the SBA
and Eximbank. The guarantee rate for export working capital
loans was restored to 90 percent in the legislation that was
included in the omnibus consolidated appropriations legislation
in September of 1996. (For further information on both
legislative changes, refer to sections 5.2 and 5.5 of this
report).
Two subsequent hearings on October 11, 1995 and February
13, 1996 focused on technologies for accessing foreign markets.
These hearings allowed representatives from the Federal
government and the private sector to demonstrate technologies
designed to assist small businesses in obtaining timely and
concise information at relatively low cost about overseas
markets and foreign customers. The final Subcommittee hearing,
on July 25, 1996, examined the effectiveness of the newly
opened U.S. Export Assistance Centers (USEACs). This hearing
permitted the GAO and the Inspector General of the Department
of Commerce to present their findings and allow a response from
the Federal agencies that are part of the USEAC system
(Commerce, SBA, and Eximbank). (For further information on
these hearings, refer to section 7.4.7 and 7.4.9 of this
report).
In addition to its series of hearings on trade, the
Subcommittee also held a hearing on the ``short supply''
problem in the anti-dumping laws facing small manufacturers. On
May 2, 1996, the Subcommittee heard from both the Congressional
proponent and the opponent of H.R. 2822, legislation to provide
discretion to the Department of Commerce to waive anti-dumping
duties for up to one year when it can be demonstrated that the
long-term survivability of a U.S. business is in jeopardy
because it cannot find at a competitive price certain goods
subject to anti-dumping orders. No further legislative action
was taken on H.R. 2822 during the 104th Congress. (For further
information on this hearing, refer to section 7.4.8 of this
report).
In addition to its hearings, the Subcommittee took an
active interest in the ``Made in USA'' labeling issue. The
Subcommittee protested proposed changes by the Federal Trade
Commission that would have weakened the ``Made in USA''
labeling standards through regulatory changes. The FTC
ultimately agreed to slow the regulatory change to seek more
public comment. The Subcommittee also requested and received a
comprehensive report from the GAO on the impact of defense
offsets on the U.S. manufacturing base. This GAO report helped
set the stage for the Administration to include an entire
chapter in the 1996 National Export Strategy report to Congress
outlining areas in which the Executive Branch will undertake to
negotiate in multilateral forums with the country's trading
partners to reduce this practice. Finally, on November 30,
1995, the Subcommittee held an open briefing, along with the
Subcommittee on International Economic Policy and Trade and the
Subcommittee on Asia and the Pacific of the House Committee on
International Relations, on the potential U.S. export
opportunities to the Three Gorges Dam project along the Yangtze
River in the People's Republic of China. This forum allowed
specific companies, along with trade, environmental, and
engineering experts, to comment on the worthiness of this
immense project and the decision by Eximbank to deny export-
credit assistance to any U.S. company seeking to sell products
to the Three Gorges Dam project, which effectively put American
companies out of the competition for these export sales.

7.1.11 office of business initiatives and training

The Committee held a hearing on March 16, 1995 to review
the SBA's Business Development Programs. In particular, the
hearing focused on the Service Corps of Retired Executives
(SCORE), the Small Business Development Centers (SBDCs), the
Small Business Institutes (SBIs); the Office of International
Trade; the Office of Women's Business Ownership, and the Office
of Veterans Affairs.
The witnesses generally agreed that the SBA's business
development programs are very beneficial for small business
growth and development, and they provide small business owners
with significant resources either for free or for a small
affordable fee. Several witnesses offered suggestions for
improving the programs, including such things as better
coordination between the SBA and the Export-Import Bank of the
United States to encourage exports. (For further information on
this hearing, refer to section 7.2.17 of this report).
Legislatively, the Committee favorably reported H.R. 3719,
which provides clear authority for the Associate Administrator
for Small Business Development Centers to establish a
comprehensive certification and eligibility review program for
Small Business Development Centers. These provisions were
included in the omnibus consolidated appropriations legislation
enacted in September of 1996.

7.1.12 federal procurement

The Committee held several hearings on legislation
concerning Federal procurement and, in particular, its effect
on small business. On June 29, 1995, the Committee on Small
Business held the first in a series of two hearings on H.R.
1670, the Federal Acquisition Reform Act of 1995 (FARA). The
first hearing was to provide representatives of small business
an opportunity to assess the potential impact of H.R. 1670 on
their ability to compete for Federal contracts. On August 3,
1995, the Committee held a second hearing to assess the impact
of H.R. 1670, as reported by the Committee on Government Reform
and Oversight on July 27, 1995.
Witnesses at the June 29, 1995 hearing testified that H.R.
1670 would reduce the number of participating government
contractors by replacing ``full and open competition'' with a
standard based on ``maximum practicable competition.''
Witnesses testified that the maximum practicable competition
clause would give government officials too much power over
business decisions and that anything less than full and open
competition would artificially restrain trade and hurt smaller
companies disproportionately.
At the August 3, 1995 hearing, witnesses testified that the
government must put forth an effort to achieve vigorous
commercial-style competition, and the bureaucracy that is
preventing the government's ability to serve the taxpayer must
be ended. According to the witnesses there is an extreme
distrust in the current system toward front-line contracting
and program professionals and a complete lack of faith in their
ability to use common sense and good judgment to make sound
business decisions in the best interest of the taxpayer. The
witnesses also stated that the Federal government has a
fiduciary responsibility to follow rational procedures, as
opposed to the often arbitrary procedures established by
contracting officers. (For further information on these
hearings, refer to section 7.2.22 of this report).
On July 20, 1995, the Committee held a hearing to assess
the implementation of Public Law 103-355, the Federal
Acquisition Streamlining Act of 1994 (FASA), and its effect on
small firms seeking to market supplies, services, and
construction to the government. The witness representing the
GAO reviewed three elements of the on-going implementation of
FASA. First, they provided an assessment of the status of the
proposed and final implementing regulations to be promulgated
by the Executive Branch in accordance with FASA's statutory
schedule. They also provided the Committee with a preliminary
assessment of FACNET's implementation and its use by the
Federal procuring agencies and the vendor community. Finally,
the GAO's testimony provided a status report on the
implementation of FASA's new authority regarding micro-
purchases and the use of the IMPACT Purchase Card.
The witness representing the SBA's Office of Advocacy made
a number of observations about the implementation of FASA and
its potential impact on small firms seeking to market to the
Federal government. First, the SBA Chief Counsel for Advocacy
testified that while FASA made the most sweeping changes to the
Federal procurement process in 10 years, FASA's specific
effects, especially on small firms, cannot be assessed until
its implementation regulations are in place given the
substantial discretion accorded to the regulation writers. He
also noted that the Office of Advocacy was applying steady
pressure on the FASA regulation drafters to force their fullest
compliance with the Regulatory Flexibility Act. In addition, he
discussed his concerns about the implementation of FACNET,
which he noted was proceeding quite slowly with very few
procurement opportunities available through the system, and he
emphasized that some of the provisions of FASA remained
potentially dangerous to future small business participation.
Finally, he urged the Committee to give the fullest
consideration to the recommendations of the delegates to the
1995 White House Conference on Small Business and to the
concerns being expressed by many groups within the small
business community. (For further information on this hearing,
refer to section 7.2.25 of this report).

7.1.13 government & non-profit competition

The Committee held two hearings on unfair competition by
government and non-profit organizations against small
businesses. The first hearing, held on June 26, 1996, dealt
with the Federal Prison Industries (FPI) and its competition
with small manufacturers. The witnesses provided the Committee
with substantial anecdotal evidence that FPI's super-
preference, which forces many government agencies to buy from
FPI rather than the private-sector, has prevented many small
companies from competing for government business. The witnesses
also noted that FPI's prices have not been competitive with
industry prices and maintained that FPI's quality of products
and contract performance in delivering products does not match
that of the private sector. In defense of the current system,
the FPI witnesses asserted that FPI is performing an important
function of providing work for inmates at Federal correctional
institutions. The small business witnesses stressed that in
many cases their survival depends on FPI being required to
compete on a level playing field with all businesses for
government contracts. (For further information on this hearing,
refer to section 7.2.47 of this report).
The Committee also held two days of hearings on the general
topic of competition with small businesses by government and
not-for-profit organizations. On July 16 and 18, 1996, the
Committee heard from a number of witnesses about the current
status of unfair government competition with small business,
the ineffectiveness of existing administrative restraints, and
the current status of various legislative proposals being
advanced in the 104th Congress. These witnesses also gave
anecdotal evidence of commercial activities being undertaken by
an array of Federal agencies to the detriment of small firms.
The witnesses also provided the Committee with anecdotal
evidence of the devastating effect of unfair competition by
government-sponsored entities, in particular the National
Industries for the Severely Handicapped (NISH) and the National
Industries for the Blind (NIB). The witnesses raised concerns
about a number of practices by these organizations including:
potential unfair pricing, underutilization of persons with
disabilities, and excessive subcontracting to selected for-
profit companies in order to be able to meet their contractual
performance obligations to the government. (For further
information on these hearings, refer to section 7.2.48 of this
report).
7.1.14 regulatory flexibility & paperwork reduction

The Committee held four hearings regarding the Regulatory
Flexibility Act and the Paperwork Reduction Act. These hearings
focused on the effect of those laws since their enactment and
the history of government compliance with their provisions.
On January 23, 1995, the Committee on Small Business held a
hearing on strengthening the Regulatory Flexibility Act (RFA).
The consensus of the witnesses was that Congress must put some
``teeth'' into the RFA. In addition, testimony indicated that
the SBA's Office of Advocacy was being hindered by its
inability to represent small business as an amicus curiae in
judicial proceedings. More specifically, the witnesses
recommended reforming the Paperwork Reduction Act, imposing a
six-month moratorium on new regulations, strengthening private-
property rights protection, allowing for a cost-benefit
analysis and/or risk assessment, establishing a regulatory
budget, and ``sun setting'' regulations. There was also support
among the panelists for the provisions in H.R. 9, which would
allow for judicial review of Federal agencies' regulatory
decisions and their indirect effect on small business. The bill
would also increase the role and authority of the SBA's Office
of Advocacy in reviewing and improving regulations. Several
witnesses focused on specific agencies, such as the
Occupational Safety and Health Administration (OSHA), and the
burdens that their regulations represent to small businesses.
(For further information on this hearing, refer to section
7.2.5 of this report).
On February 10, 1995, the Committee on Small Business held
a second hearing on the RFA. While the first hearing focused on
legislation to strengthen the Act, this hearing was designed to
provide the Committee with a historical perspective. In
particular, the witnesses were asked to examine specific areas
in which the RFA has worked as well as ways to improve the Act.
The witnesses provided the Committee with historical background
on the RFA and offered several suggestions, including judicial
review of regulations. The testimony highlighted the inability
of the RFA to provide small business with an effective means of
enforcement of agency compliance. Evidence presented to the
Committee showed that agency compliance was at best perfunctory
and at worst deliberately insufficient. (For further
information on this hearing, refer to section 7.2.10 of this
report).
Hearings on the Paperwork Reduction Act (PRA) were held by
both the full Committee and its Subcommittee on Government
Programs. The full Committee held a hearing on January 27, 1995
focusing on agency compliance with the provisions of the PRA
and agency information gathering efforts. At that hearing, the
Committee heard from Sally Katzen, Administrator of Office of
Information and Regulatory Affairs (OIRA), Office of Management
and Budget (OMB). Ms. Katzen testified that the current 5-
percent goal per year in paperwork reduction is important to
have as a goal, but that a fixed number would not be
constructive. She also emphasized the need to use technology to
make government more efficient. While she could not provide the
Committee with the number of cases in which her office had
disapproved of agencies' paperwork requests, she testified that
the number had gone down and that the decline was likely due to
agencies better understanding what OMB expects.
The small business witnesses at the hearing testified that
they were pursuing the goal of overhauling the Federal
regulatory process, which would result in more efficient
rulemaking and greater, less expensive, compliance. The
witnesses expressed solid support for Title V of H.R. 9. In
addition, the witnesses endorsed the concept of adding a cost-
benefit analysis to the PRA, since it has been generally
required with respect to regulatory burdens but not paperwork
burdens. (For further information on this hearing, refer to
section 7.2.8 of this report).
On March 27, 1996, the Subcommittee on Government Programs
held a hearing to discuss H.R. 2715, the Paperwork Elimination
Act. The bill, introduced by Chairman Torkildsen (R-MA), would
minimize the burden of Federal paperwork demands upon small
businesses, educational and non-profit institutions, Federal
contractors, State and local governments, and other persons
through the use of alternative information technologies,
including electronic maintenance, submission, or disclosure of
information as a substitute for paper. OIRA Administrator Sally
Katzen provided the Subcommittee with the Administration's
position on H.R. 2715. While supporting the intent of the
legislation as an effort to reduce paperwork burdens and
modernize government, the Administration had reservations about
its necessity and requirements. Ms. Katzen claimed that the
Administration was already doing its part to reduce paperwork
burdens by complying with the PRA, and she questioned the
timing of the Paperwork Elimination Act, citing that too many
departments and agencies do not have the technological
capability to comply with its requirements.
Two witnesses representing small businesses testified about
the benefit that the small business community would receive
from the passage of the Paperwork Elimination Act. In
particular, one witness noted that individuals in the health-
care industry have been significantly burdened by Federal
paperwork demands. The witness maintained that this burden
could be significantly reduced if regulators allowed compliance
by alternative technological means. The other witness testified
that the technology needed to comply with this legislation
exists and using it could save at least $22 billion in mailing,
receiving, rekeying, and routing costs. The two SBA witnesses
testified that small businesses face tremendous burdens in
terms of paperwork mandated by the Federal government, and
noted that the SBA was making efforts to disseminate
information electronically via the Internet. In addition, they
testified that the SBA was conducting outreach and training
activities to inform small businesses about the Federal
government's transition from a paper-based procurement program
to an electronic-based system. (For further information on this
hearing, refer to section 7.3.11 of this report).
The Subcommittee on Government Programs also held a series
of hearings to evaluate the extent to which various Executive
Branch departments and agencies were complying with the PRA. In
particular, the Subcommittee focused on the Environmental
Protection Agency, the Department of Labor, and the Food and
Drug Administration. At each hearing, the Subcommittee received
testimony from the Administration concerning the initiatives
that the department or agency was undertaking and from
representatives of the small business community concerning the
effectiveness of these efforts. In general, the consensus of
the small business community was that the Administration was
making some progress in reducing the paperwork burdens imposed
on small business but considerable ground remains to be
covered. (For further information on these hearings, refer to
sections 7.3.14, 7.3.15, and 7.3.19).
Legislatively, the Committee acted to remedy the
deficiencies in the Regulatory Flexibility Act through H.R.
937. The provisions of this legislation would add judicial
review of RFA determinations, strengthen the amicus authority
of the SBA, and close a loophole in the law that allows the
Internal Revenue Service to avoid any RFA compliance. The bill
was marked up by the Committee on the Judiciary and then by the
Committee on Small Business. Final passage was delayed until
the Regulatory Flexibility Act provisions were included in the
Small Business Regulatory Enforcement Fairness Act of 1996,
Title III of H.R. 3136, which became Public Law 104-121. This
legislation included five sections on small business regulatory
relief including the judicial review provisions from H.R. 937,
the establishment of regional regulatory fairness boards, and a
Regulatory Ombudsman at the SBA. (For further information on
this legislation, refer to section 5.1 of this report).
Revisions to the PRA were included in Title V of H.R. 9,
which were ultimately incorporated into H.R. 830. H.R. 830
passed the House on March 10, 1995 as an amendment to S. 244
and was enacted as Public Law 104-13 on May 22, 1995. Pursuant
to the Committee's legislative jurisdiction over Title V of
H.R. 9, it submitted a report of its findings at the
Committee's hearings to the Committee on Government Reform and
Oversight. These findings were incorporated in House Report
104-37, which accompanied H.R. 830.
The Committee also marked up H.R. 2715, the Paperwork
Elimination Act of 1995, which was designed to encourage
Federal agencies to increase opportunities for small businesses
to complete forms and respond to requests for information
electronically. The bill was marked up and favorably reported
by the Committee on March 29, 1996, and passed the House on
April 24, 1996, by a unanimous vote. Unfortunately, Senate
action on this legislation was not completed before the
adjournment of the 104th Congress. (For further information on
this legislation, refer to section 5.3 of this report).

7.1.15 government regulation

During the 104th Congress, the Committee conducted a series
of hearings on the Clinton Administration's initiatives to
reduce regulatory burdens on small business. Beginning with a
hearing on July 17, 1995, the Committee sought a progress
report on implementing President Clinton's March 1, 1995
directive to all Executive Branch departments and agencies to
cut obsolete regulations, reduce red tape, work cooperatively
with those being regulated, and negotiate instead of dictate.
The Administration witnesses testified about the efforts that
the various departments and agencies were undertaking to comply
with the Executive Order and reduce the burdens on small
businesses.
The small business witnesses provided the Committee with an
opposing view point. In particular, the National Federation of
Independent Business testified that its members have indicated
that despite the Administration's claims that the agencies'
have changed their focus toward assisting rather than
penalizing small businesses, NFIB members continue to see
significant problems especially with the Occupational Safety
and Health Administration (OSHA) and the Environmental
Protection Agency (EPA), not to mention the Internal Revenue
Service, which poses the most significant burdens for most
small businesses. Another small business advocate noted that
while a change in policy with regard to regulation of small
businesses would be helpful, what is really needed is a change
in the process of enforcing those regulations.
The panelists also offered a number of suggestions for
improving regulatory reform efforts including providing better
guidance to Federal agencies on exactly what is expected from
the regulators and providing agency performance standards as a
means of improving the process of helping small businesses to
comply with existing regulations rather than continuing the
history of enforcement actions. Witnesses from the General
Accounting Office also urged the Committee to utilize the
Government Performance and Results Act (GPRA) to its fullest
extent as a tool for focusing on the particular outcomes that
each agency is charged with achieving. (For further information
on this hearing, refer to section 7.2.24 of this report).
The Committee's series on regulatory reform also included
individual hearings designed to examine the reform efforts of
specific agencies. The Committee held two hearings on the
Occupational Safety and Health Administration (OSHA). At the
first hearing on July 26, 1995, the Committee heard testimony
from the OSHA Administrator about his efforts to reinvent the
agency through such initiatives as the Maine 200 program,
bringing common sense to agency regulations, and measuring
performance based on reductions in worker injuries and deaths
as opposed to the number of violations found and penalties
imposed. The Committee also heard testimony on legislative
proposals designed to reform OSHA on a statutory level.
The small business witnesses at the hearing stressed that
compliance with OSHA's relations represents a greater burden
for small businesses than for large business, in part due to
the fact that small businesses typically have fewer employees
to review, monitor, and implement the voluminous amount of
regulations concerning worker safety. While the witnesses
generally congratulated OSHA for its efforts to be more
consultative and less confrontational, they were also
supportive of legislation as a means of reinforcing the
organizational changes that the Administration pledged to
implement. (For further information on this hearing, refer to
section 7.2.26 of this report).
Nearly a year later, on September 25, 1996, the Committee
held a second hearing on OSHA to evaluate the progress made to
date and determine areas for continued improvement. The
witnesses noted that OSHA continues to be one of the least-
liked regulatory agencies in Washington due to a disjointed
approach to enforcement and confusing, burdensome standards
among other agency practices. In addition, the witnesses
continued to favor legislation to reform OSHA, since, as one
witness pointed out, there can be no guarantees that the next
OSHA Administrator will maintain the policies set forth in the
``Reinventing OSHA'' initiative. With regard to specific reform
provisions, several witnesses were supportive of the
requirement that OSHA and other Federal agencies perform a
cost/benefit analysis on regulations prior to their
promulgation to ensure that the regulations do not impose
unnecessary or duplicative burdens on the small business
community. (For further information on this hearing, refer to
section 7.2.50 of this report).
The Subcommittee on Regulation and Paperwork also held two
hearings on workplace regulations. Beginning with a hearing on
February 2, 1995, the Subcommittee examined from a broad
perspective the impact of workplace and employment regulations
on small business. At this hearing, the Subcommittee heard
testimony concerning the detrimental effects of direct and
indirect government regulations on small businesses, including
minimum wage requirements, payroll and income taxes, and
workplace safety rules. The Subcommittee also received a number
of recommendations for easing these burdens, including
reviewing all current regulations using cost-benefit analyses;
providing information on regulations in ``plain English'';
reporting the cost of regulations; providing sunset
requirements that would require regulations to be reviewed
periodically before they are extended; placing the burden of
proof on those who want to pass new regulations; and
individualized regulatory requirements for businesses. (For
further information on this hearing, refer to section 7.5.1 of
this report).
At a subsequent hearing, the Subcommittee focused in
particular on the new OSHA fall-protection standard, which
lowered the fall-protection threshold from 16 feet to 6 feet.
While the Administration witnesses testified that the fall
protection threshold would prevent more injuries to workers and
reduce workers' compensation payments without having a
disproportionately adverse impact on small businesses, the
small business witnesses agreed that this new standard would
not only cost more money than anticipated, but would also
result in more accidents. (For further information on this
hearing, refer to section 7.5.3 of this report).
The full Committee also held hearings to examine the
regulation-reduction efforts of the IRS and the EPA. At a
hearing on October 25, 1995, the IRS Commissioner explained
some of the programs that the IRS had been developing to
streamline procedures for the small business owner. The small
business witnesses stressed the need for much more to be done
both by the IRS and the Congress. They maintained that the tax
code is so convoluted and difficult to understand that it needs
to be thrown out and totally rewritten from scratch. In
addition, the small business witnesses testified that reforms
in the Regulatory Flexibility Act, the Taxpayer Bill of Rights,
and the Paperwork Reduction Act must be passed to further
enhance the process. The small business witnesses, however,
opposed the final rule promulgated to implement the 1995
Paperwork Reduction Act given its public-protection exemption
for the IRS. (For further information on this hearing, refer to
section 7.2.32 of this report).
At the Committee's hearing on the EPA, the Administration
witnesses noted that the EPA was half-way toward the reduction
of its paperwork burden by 20 million hours, which EPA
Administrator Carol Browner promised in March of 1995, with the
implication being that the EPA would satisfy the 10-percent
reduction goal established by the 1995 Paperwork Reduction Act.
In particular, the witnesses noted the EPA's implementation of
a new, streamlined, universal waste rule, less cumbersome Toxic
Release Inventory reporting for small businesses, plans for
cutting the frequency of Clean Air Act reports, and plans for
phasing-in an electronic reporting system for discharge
monitoring reports. The General Accounting Office (GAO)
provided written testimony for the hearing and reported that
while EPA claimed to have identified 18 million of the 20
million hours of its promised reduction, it was not likely to
meet its actual reduction goals because of double counting and
overstating of accomplishments. GAO predicted an increase in
the EPA paperwork burdens for fiscal year 1996 as opposed to a
decrease.
The small business witnesses overwhelmingly stressed that
small businesses fear environmental regulatory agencies. They
noted that these perceptions will not change simply as a result
of policy pronouncements or shifts in attitude--concrete
actions over time will be necessary to convince small business
that the EPA is serious about changing its enforcement
mentality. Several witnesses stressed that EPA regulations
often prevent small businesses from being innovative and
creating more environmentally conscious and economically
efficient business practices. Small business owners also
experience frustration in dealing with ever-changing
regulations in many industries imposed on them by the EPA and
State counterparts. Other witnesses stressed the importance of
minimizing cost and avoiding duplication and complexity of
regulatory compliance. (For further information on this
hearing, refer to section 7.2.38 of this report).
In addition to its hearings on the initiatives of specific
Executive Branch agencies, the Committee and two of its
subcommittees held several hearings on various regulatory
issues. The full Committee held a joint hearing with the Senate
Committee on Small Business on October 31, 1995 to review the
report issued by the Chief Counsel for Advocacy on the cost of
Federal regulations on small business. The report was ordered
by section 613 of Public Law 103-403 and was to include
findings on ``the impact of all Federal regulatory, paperwork,
and tax requirements upon small business.'' The Chief Counsel
reported that the regulatory burden had leveled off as a
percentage of the gross domestic product and that two
regulatory costs had actually gone down over the last two
decades: the economic efficiency cost and the economic transfer
cost. The biggest increase in burden, however, has been in
environmental regulations. The next largest increase is in
process regulation, which is basically paperwork and involves
the Internal Revenue Service and payroll and Social Security
records. Social regulation costs such as Occupational Safety
and Health Administration (OSHA) and worker safety rules had
not increased significantly, according to the Chief Counsel.
(For further information on this hearing, refer to section
7.2.33 of this report).
The Committee also held a hearing on the effects of
Superfund liability on small businesses on October 19, 1995.
The witnesses at this hearing reviewed the Administration's
efforts to address the problems with Superfund and the
initiatives designed specifically to benefit small businesses.
Other witnesses at the hearing testified about the failure of
Superfund to cleanup hazardous waste sites, and the need to
eliminate the system of retroactive liability. (For further
information on this hearing, refer to section 7.2.31 of this
report).
The Subcommittee on Regulation and Paperwork held a hearing
to identify regulation candidates for the House's new
corrections calendar, which sets aside one morning every month
to discuss regulations that face non-partisan opposition in an
effort to eliminate regulations that are outdated or otherwise
fail to achieve their purpose without having to go through the
normal, laborious procedures required in passing legislation in
the House. The Subcommittee received recommendations concerning
FDA regulations governing the approval of new medical devices;
regulations limiting the amount of water expelled per flush of
a toilet; wetland-protection regulations; motor-carrier-safety
regulations; and various tax regulations. (For further
information on this hearing, refer to section 7.5.4 of this
report).
Finally, the Subcommittee on Government Programs held a
hearing to examine whether unrestricted government requests for
proposals are discriminatory toward small business. The small
business witnesses at this hearing provided anecdotal evidence
that contract solicitations by Federal government agencies
often include requirements that preclude or limit small
business participation in the bid process. (For further
information on this hearing, refer to section 7.3.17 of this
report).

7.1.16 taxation

The Committee held a wide array of hearings on tax issues
affecting small businesses. The Committee began the 104th
Congress with an overview of the tax proposals included in the
``Contract with America.'' The Committee also held hearings on
individual provisions in the Contract including the reduction
of the capital-gains tax rate; modification of the estate tax
system, especially with regard to family-owned businesses; and
restoration of the home-office deduction. Overall, the
Committee heard testimony from dozens of small businesses
stressing the need for meaningful tax reform in order to reduce
the economic costs on small businesses as well as the
compliance costs of the tax system, which have risen
dramatically in recent years. The witnesses also generally
embraced the tax provisions contained in the Contract as a
first step toward achieving overall tax reform. (For further
information on these hearings, refer to sections 7.2.1, 7.2.2,
7.2.7, 7.2.9, 7.2.11, and 7.2.21).
The Committee also held a hearing in September of 1995 on
pension reform and simplification from the perspective of small
business. The small business representatives and government
witnesses overwhelmingly supported the various legislative
proposals designed to ease the regulatory burdens of pension
administration and encourage small businesses to offer pension
benefits to their employees. (For further information on this
hearing, refer to section 7.2.27 of this report).
Although the Committee does not have legislative
jurisdiction over tax issues affecting small business, members
of the Committee actively promoted the legislation implementing
the tax provisions of the Contract and the pension-reform
proposals. In particular, these members were successful in
having the capital-gains tax reduction, estate tax reform,
increase in small business equipment expensing, S corporation
reform, pension reform, and restoration of the home-office
deduction included in the Balanced Budget Act of 1995 as passed
by the House. While the final version of that legislation
included these same provisions, except for the home-office
restoration, the bill was vetoed by President Clinton in
December of 1995.
The Committee also focused on the deductibility of health
insurance by the self-employed and held a hearing on that issue
on January 20, 1995. The witnesses stressed that the expiration
of the deduction for health insurance costs by the self-
employed in 1994 was a major set-back for the small business
community and the deduction needs to be restored. (For further
information on this hearing, refer to section 7.2.4 of this
report). In response to these pleas, Chairwoman Jan Meyers (R-
KS) introduced legislation to make the deduction permanent and
increase it to 30 percent. In April of 1995, H.R. 831 was
signed into law making the deduction permanent and increasing
it to 30 percent. The Committee saw a further increase to the
deduction in August of 1996 when H.R. 3103 was signed into law
raising the deduction limit to 80 percent over a ten year
period.
The clarification of the definition of independent
contractors was also the focus of several hearings by the full
Committee and its Subcommittee on Taxation and Finance. At
three hearings, the full Committee and Subcommittee heard
testimony about the lack of consistent rules for the
classification of workers as either employees or independent
contractors and the vigorous and often unreasonable enforcement
activities of the Internal Revenue Service in this area.
Overall, the small business witnesses were very supportive of
legislative proposals for correcting the ambiguity in the
definition and stressed the need for swift action to reduce the
economic and compliance costs on small businesses. (For further
information on these hearings, refer to sections 7.2.3 and
7.6.3 of this report).
While legislation that completely addressed the independent
contractor issue was not enacted during the 104th Congress, the
Committee saw the inclusion of procedural changes beneficial to
small business included in the Small Business Job Protection
Act (H.R. 3448). In addition, the Chairs of both the full
Committee and the Subcommittee on Taxation and Finance
submitted extensive comments to the Internal Revenue Service on
its proposed training manual for handling issues involving the
classification of workers.
On a related topic, the Subcommittee on Taxation and
Finance held a hearing on June 28, 1995 on the burden of
payroll taxes on small business. The small business witnesses
testified that the burden of payroll taxes falls excessively on
small businesses. The witnesses maintained that payroll taxes
are the greatest inhibitors to increased expansion and job
creation because employers who are faced with payroll taxes
must either raise prices, lower wages, or lay-off workers. (For
further information on this hearing, refer to section 7.6.2 of
this report).
Finally, the full Committee and its Subcommittee on
Taxation and Finance dedicated a number of hearings to tax
reform and the recommendations of the National Commission on
Economic Growth and Tax Reform, also known as the ``Kemp
Commission.'' The Subcommittee began these efforts with a
hearing on May 18, 1995 to discuss how a flat tax might affect
small businesses. At this hearing, the witnesses reviewed and
evaluated the various proposals for tax reform and focused
especially on the flat tax proposals introduced in both Houses
of Congress. (For further information on this hearing, refer to
section 7.6.1 of this report).
Following the release of the Kemp Commission's final report
in January of 1996, the Subcommittee conducted a series of
three field hearings across the country and received extensive
testimony about the defects in the current tax code and the
need to replace it with a new tax system that is fairer,
simpler, and less burdensome on small businesses. The witnesses
at these field hearings also embraced the recommendations of
the Kemp Commission that the new system must: (1) promote
economic growth; (2) be fair and treat all persons equally; (3)
be simple enough for anyone to understand; (4) be neutral (tax
consequences should not be the prime factor in an individual's
or business' economic decision-making); (5) be visible (special
loopholes and benefits should not be hidden from view in a tax
system); and (6) be stable (taxpayers should be able to plan
their lives without the rules changing every year). The full
Committee completed the series with a hearing on April 17, 1996
at which three commissioners from the Kemp Commission testified
about their findings and the effects of tax reform on small
business. (For further information on these hearings, refer to
sections 7.6.4 and 7.2.41 of this report).

7.1.17 minimum wage

The Committee held a hearing on May 15, 1996, to assess
from an economic and small-business point of view, how a
proposed increase in the Federal minimum wage would affect
small businesses' ability to provide jobs. The Committee also
explored alternatives to an increase in the minimum wage that
would boost take-home pay and encourage employers to offer more
job opportunities. In addition, the hearing focused on the
Small Business Job Protection Act, which included several
provisions that were designed to help increase the productivity
of small businesses and promote opportunities for expansion.
The small business witnesses generally agreed that an
increase in the minimum wage would be extremely detrimental to
small business and would lead to the loss of jobs. The
witnesses embraced alternatives to increasing the minimum wage,
such as earned-income tax credits or payroll tax credits, which
they stressed would better target the demographic groups in
need of assistance. In addition, the costs of such targeted
income redistribution through the tax code would be borne by
the society as a whole rather than levied on a particular
segment of the industry, namely, small businesses. (For further
information on this hearing, refer to section 7.2.45 of this
report).
Following the hearing, on May 23, 1996, the House
considered and approved legislation that would increase the
minimum wage by $0.90 over a two-year period. This legislation
was coupled with a package of small business incentives
designed to offset the detrimental effects of the minimum-wage
increase on small business. The legislation was signed into law
on August 20, 1996, as Public Law 104-188.

7.1.18 health insurance

As one of its first oversight activities, the Committee
held a hearing on January 20, 1995, to consider the importance
of the deduction for health-insurance costs by the self-
employed. The witnesses noted that the 25-percent tax deduction
for health-insurance costs for self-employed individuals was
enacted by the Tax Extension Act of 1991 and expired on June
30, 1992. The deduction was extended for an additional year in
the Omnibus Budget Reconciliation Act of 1993 through December
31, 1993. The deduction was not renewed after its expiration.
The witnesses agreed that health-care benefits are a
necessity for small businesses and their employees. They
stressed, however, that there is a great disparity between
large companies, which generally can deduct 100 percent of
their health-insurance costs, and small businesses, which
historically have been able to deduct up to 25 percent and as
of the date of the hearing none of their health-care costs. As
a result, many small businesses are unable to offer their
employees health-care benefits simply because of the costs
involved. The panel stressed that companies would be more
likely to provide benefits for their employees if they were
able to offset these health-care costs with a tax deduction at
some level, ideally 100 percent. (For further information,
refer to section 7.2.4 of this report).
Following the hearing in April of 1995, H.R. 831 was signed
into law making the health-care deduction permanent and
increasing it to 30 percent. A further increase to the
deduction occurred in August of 1996 when H.R. 3103 was signed
into law, and the deduction limit will rise to 80 percent over
a ten year period.

7.1.19 other committee oversight activities

Current Developments.

Throughout the 104th Congress, the Committee held a number
of hearings to address developments that affected small
businesses. For instance, the Committee held a hearing on July
12, 1995 to examine the effects on small travel agencies of the
cap placed on airline ticket sales commissions by the major
airlines. In 1995, the Committee also held hearings to review
the effects of solid waste ``flow control'' on small businesses
and consumers and the impact of the recent trend of railroad
mega-merges on small business. In the Spring of 1996, the
Committee held a joint hearing with the Subcommittee on
Employer-Employee Relations of the Committee on Economic and
Educational Opportunities to examine the union organizing
practice know as ``salting'' and to assess its effects on small
business. (For further information on these hearings, refer to
sections 7.2.23, 7.2.28, 7.2.34, and 7.2.40 of this report).
The Subcommittee on Government Programs also held a number
of topical hearings beginning with a February 13, 1995 hearing
on the importance of Hanscom Air Force Base to small businesses
in the New England region. In 1996, the Subcommittee held a
hearing to examine how the Federal Deposit Insurance
Corporation was handling small business asset foreclosures and
a joint hearing with the Subcommittee on Education Training
Employment and Housing of the Committee on Veterans' Affairs to
evaluate programs administered by the Small Business
Administration that assist veterans in readjusting to civilian
life. (For further information on these hearings, refer to
sections 7.3.1, 7.3.20, and 7.3.21 of this report).
The Subcommittee on Regulations and Paperwork held a
hearing on March 7, 1996, to examine the ramifications of the
National Labor Relations Board's proposed rule concerning
single location bargaining units in labor representation cases.
Also in March of 1996, the Subcommittee on Taxation and Finance
held a joint field hearing with the Subcommittee on Government
Programs to assess the effects of bank consolidations on small
business lending. (For further information on these hearings,
refer to sections 7.5.5 and 7.6.5 of this report).

Intellectual Property.

The Committee held two hearings to examine intellectual
property rights and the particular concerns of small
businesses. On April 25, 1996, the Committee held a hearing on
patent term and patent disclosure issues. The hearing focused
on two pending legislative proposals: H.R. 359, introduced by
Congressman Dana Rohrabacher (R-CA), and H.R. 1733, introduced
by Congressman Carlos Moorhead (R-CA). On May 8, 1996, the
Committee held a hearing on music licensing and small business,
which examined the issues in light of pending legislation, H.R.
789, introduced by Congressman James Sensenbrenner (R-WI),
which would exempt certain smaller businesses from licensing
fees for music that is aired on radio or television, which the
business uses for background only without separate charge to
the customers. (For further information on these hearings,
refer to sections 7.2.42 and 7.2.44).

Access to Capital.

In the Spring of 1996, the Committee held two hearings on
small business' access to capital. The first hearing, held on
February 28th, focused on the overall impediments and options
that small businesses face when seeking to raise capital. The
witnesses noted that the primary source of capital available to
small businessmen and women continues to be bank lending. The
Committee pursued the banking aspect of capital access in a
hearing on May 1, 1996, and received testimony from two Federal
regulatory agencies as well as several banks that focus
significantly on small business lending. (For further
information on these hearings, refer to sections 7.2.36 and
7.2.43 of this report).

Proposed Legislation.

The Subcommittee on Government Programs held two hearings
to examine legislation pending in the 104th Congress that
affects small businesses. On May 6, 1996, the Subcommittee held
a field hearing to assess the effects of H.R. 2579, the Travel
and Tourism Partnership Act of 1995, on the New England region
and the country as a whole. Later, on July 17, 1996, the
Subcommittee held a hearing on H.R. 1863, the Employment Non-
Discrimination Act, and its impact on the small business
community. (For further information on these hearings, refer to
sections 7.3.13 and 7.3.18 of this report).

Committee Investigations.

As part of its general oversight jurisdiction, the
Committee undertook several investigations concerning
allegations of wrongdoing by various personnel at the SBA. In
addition, the Committee investigated reports of improper
activities by certain business entities licensed by the SBA or
participating in SBA programs. At the time of the filing of
this report, a number of these investigations were still on-
going.
7.2 Summaries of the Hearings Held by the Committee on Small
Business

7.2.1 overview of small business tax proposals in the
``contract with america''

Background

On January 18, 1995, the Committee on Small Business held a
hearing to provide an overview of small business tax proposals
in H.R. 9, part of the legislation to enact the ``Contract with
America.'' This was the first in a series of hearings to look
at the Contract with America and what its provisions mean for
small business. The witnesses were asked to give broad overall
impressions of the Contract's provisions for small business and
how they would be helpful. The witnesses were also asked to
address any concerns and problems for small business that are
not covered in the Contract and how they would recommend that
Congress address those problems and concerns.

Summary

The hearing was comprised of two panels, and the witnesses
for the first panel included: John Motley, National Federation
of Independent Business (NFIB); John Satagaj, Small Business
Legislative Council (SBLC); and Karen Kerrigan, Small Business
Survival Committee. The first panel emphasized the need for
less taxation and regulation of small businesses. There was
support for the Contract's proposal to clarify the home-office
deduction and its S-corporation provisions. Because of the
Contract's small business perspective, this panel gave it a
grade of ``B plus.''
In particular, NFIB testified that many parts of the
Contract with America, including the tax provisions, are
supported by small-business owners according to its polls. NFIB
indicated that the criteria it uses to judge the value of
changes in the tax code include the following principles: keep
it simple, cash flow is key, capital formation is needed for
growth, and any tax cut needs to promote economic growth so the
economy as a whole can grow. SBLC noted four provisions of H.R.
9 that were of interest to its members: capital gains tax
relief, expansion of the direct expensing provision for small
business under section 179 of the Internal Revenue Code, estate
taxes relief, and restoration of the home-office deduction. In
addition, NFIB and SBLC testified that they have developed a
proposal for a fair classification of individuals as
independent contractors or employees.
Witnesses for the second panel included: Ron Cohen, Cohen &
Company, representing National Small Business United (NSBU);
Alson Martin, Attorney, representing Small Business Council of
America (SBCA); Ronald Sandmeyer, Jr., Sandmeyer Steel Company,
representing the National Association of Manufacturers (NAM);
and John Wharton, Miller and Long, representing the Associated
Builders and Contractors (ABC).
SBCA expressed support for most, but not all, of the
Contract with America. Specifically, its members supported:
raising the estate and gift tax exemption, expanding the
Individual Retirement Account and creating the American Dream
Savings account, correcting the ``marriage penalty,''
establishing tax-exempt ``Medisave'' accounts through which the
uninsured could pay for health insurance, allowing a per child
tax credit of $500, providing long-term capital-gains tax
relief, clarifying the home-office deduction, increasing
allowable write-offs for new equipment, simplify the tax
system, allowing employee stock ownership plans to be
established by subchapter S corporations, and simplifying the
pension and ERISA rules. NAM recommended that any tax cuts
enacted as part of the Contract should be fully funded by
offsetting spending reductions and urged the Committee not to
lose sight of overhauling the Federal tax structure after the
completion of the Contact with America.
ABC stressed that the Committee should take a serious look
at the effects that some of the tax burdens are having on the
construction industry and small businesses in every industry.
In particular, ABC recommended that the lookback rule under the
percentage-of-completion method for calculating annual income
for long-term contracts should not apply to small contractors
given the burdens that it imposes and its revenue neutrality to
the Treasury. ABC also stressed the need for reform of the S-
corporation rules. NSBU testified that the Contract with
America was silent on several important small business issues:
the rising cost of payroll taxes, S-corporation reform, and
inequitable treatment of the health-care deduction between the
self-employed and corporations. Overall, most of the panel gave
the Contract a grade of ``B'' with respect to its small
business proposals.
For further information on this hearing, refer to Committee
publication number 104-2.

7.2.2 home office deduction

Background

On January 19, 1995, the Committee on Small Business held a
hearing on restoring the home-office deduction. This was the
second in a series of hearings devoted to tax policy and small
business. Home offices are popular among small businesses
because they make sense for businesses, families, and
individuals. The hearing was designed to focus on the ability
of taxpayers to deduct expenses relating to a home office that
is used in the course of business. The hearing was also
intended to explore the current limitations imposed by the
Internal Revenue Service and the U.S. Supreme Court in
Commissioner v. Soliman, 113 S.Ct. 701 (1993).

Summary

The hearing was comprised of two panels, and the witnesses
for the first panel included: Wayne Allard (R-CO), Member of
Congress; and Kweisi Mfume (D-MD), Member of Congress.
Congressman Mfume introduced legislation to try to restore the
deduction for home offices for small business in order to
encourage the start-up of home-based businesses. Congressman
Allard agreed with Congressman Mfume and added that the home-
office deduction is both pro-family and helps our economy.
The second panel included: Beverly Williams, Williams
Associates--Desk Top Publishing; Sandra Hanlon, Hanlon and
Associates, representing the Bureau of Wholesale Sales
Representatives; Carolyn Hennige, Creative Tutors; and Debra
Lessin, D.J. Lessin and Associates, representing the National
Association of Women Business Owners (NAWBO) and the Illinois
Women's Economic Development Summit.
Ms. Williams expressed concerns with regard to local zoning
and safety regulations and their effect on the home-office
deduction. The Supreme Court's ruling in Soliman requires that
a taxpayer must satisfy two tests before he or she may claim a
deduction for expenses relating to a home office: (1) the
customers/clients of a home-based business must physically
visit the home office, and (2) the business must be generated
from within the home office itself and not from transactions
that occur outside the home office. Ms. Williams testified that
local zoning regulations often prevent many owners from seeing
clients in the home. In addition, home-based business owners
may feel uncomfortable having total strangers in their homes.
Both of these factors indicate that the Soliman decision
precludes many home based businesses from claiming a deduction.
Ms. Hanlon pointed out that as the costs of conducting
business continue to rise, and technology makes it easier to
conduct business from the home, more businesses are moving back
to the home office. Ms. Lessin testified that the requirements
imposed by the Supreme Court's Soliman decision are short
sighted and ignore the way that business is conducted today. In
addition, she testified that the decision caught off guard many
small business owners who had incorporated the effects of the
home-office deduction into their economic planning.
Each of the small-business owners who testified expressed
support for section 12003 of H.R. 9, the ``Contract with
America,'' which would restore the home-office deduction to its
congressionally intended form.
For further information on this hearing, refer to Committee
publication number 104-3.

7.2.3 independent contractor status

Background

On January 19, 1995, the Committee held a hearing on
clarification of the status of independent contractors. This
was the third hearing in a series devoted to tax policy and
small business. The hearing focused on problems associated with
the classification of workers as either employees or
independent contractors by the Internal Revenue Service and was
designed to look at the broad range of views on how best to
classify workers.
In response to the intensity with which the Internal
Revenue Service had pursued independent-contractor audits in
the early 1970s, Congress dealt with the independent contractor
issue beginning with the Revenue Act of 1970, which was
modified in the early 1980s. Throughout its review of this
issue, Congress found that classification of workers was
extremely divisive and complicated. Currently, the most
difficult problem remains the lack of a clear definition of
what constitutes an independent contractor.

Summary

The hearing was comprised of two panels, the first of which
included: Cheryl M. Bass, American Professional Temporaries,
Inc. and American Professional Home Health Inc.; Claudia Hill,
National Association of Enrolled Agents; James Parmelee,
Advertising Consultant and Freelance Writer, representing the
National Association for the Self-Employed (NASE); Marc S.
Wagner, H.D. Vest Financial Services; and Craig Willett, CPA,
Willett and Associates, representing the National Federation of
Independent Business (NFIB).
In general, the panel agreed that because of the intensity
with which the IRS conducts independent-contractor audits,
Congress needs to take steps to clarify the status of workers
especially for small business persons who are frequently faced
with this issue. Mr. Parmelee, who testified both as an
independent contractor and representative of NASE, indicated
that NASE's 320,000 small business owners have long supported
the clarification of independent-contractor status. Other
witnesses, including Ms. Bass, testified that legislation is
particularly necessary to curb the IRS' intentional abuse of
the independent-contractor designation in order to resolve many
cases in favor of classifying workers as employees.
Members of the Committee and the witnesses generally agreed
that the existing system is not achieving an equitable result
with respect to classifying workers. In addition, Mr. Willett
drew the Committee's attention to section 530 of the Revenue
Act of 1978, which provides a ``safe harbor'' for businesses
that have consistently treated and reported certain workers as
independent contractors. Mr. Willett pointed out, however, that
the criteria under Section 530 do not completely address the
needs of NFIB's members. As a result, in 1991 NFIB developed a
new, clearer safe-harbor proposal to prevent inadvertent
reclassification of a worker who is currently considered an
independent contractor.
The second panel included: Ronald Baker, BGM Industries,
representing the Building Service Contractors Association
International (BSCAI); Brickford Faucette, Perimeter
Maintenance Corp.; Keith R. Fetridge of Aronson, Fetridge,
Wiegle, and Stern, representing the Associated General
Contractors of America (AGC); Wayne Kaufman, United Homecraft,
Inc., representing the National Association of the Remodeling
Industry (NARI); and Don Owen, P&P Contractors, representing
the Associated Builders and Contractors (ABC).
The second panel echoed many of the same sentiments
expressed by the first panel and agreed that independent
contractors are an extremely valuable resource to the small
business contracting community. Witnesses also emphasized that
worker misclassification is an old issue for both the IRS and
employers. In fact, Mr. Fetridge testified that AGC has been
working with the IRS for over three years to resolve
differences related to the twenty-factor common law test that
the IRS uses to classify workers in order to arrive at more
simplified classification criteria.
Mr. Kaufman illustrated the current climate for small
businesses by discussing an audit that the State of Missouri
undertook on his remodeling company in which every person that
the company treated as an independent contractor was
reclassified by the State as an employee. After the State
imposed its fines, the IRS learned of the State's audit and
fined the company an additional $3,000. The other witnesses
concurred with Mr. Kaufman's concerns about audits and
emphasized the damaging consequences of misclassifications
mistakes. The panel agreed that Congress should provide small
business and the IRS with clear guidelines on how to determine
who is and who is not an employee. Toward these ends, Mr.
Kaufman testified that NARI is working with a coalition headed
by NFIB and Small Business Legislative Counsel to develop a new
independent contractor ``safe harbor'' test that will be simple
to understand and implement.
For further information on this hearing, refer to Committee
publication number 104-1.

7.2.4 health insurance deductibility for self-employed
individuals

Background

On January 20, 1995, the Committee on Small Business held a
hearing on the deductibility of health insurance by self-
employed individuals. This was the fourth in a series of
hearings devoted to tax policy and small business. The 25
percent health-insurance tax deduction for the self-employed
was enacted by the Tax Extension Act of 1991 for the period
ending on June 30, 1992. The deduction was extended for an
additional year in the Omnibus Budget Reconciliation Act of
1993 for the period from July 1, 1992 to December 31, 1993. The
deduction has been extremely important for small business
owners, although in 1994, after its expiration, the deduction
was not renewed. By extending the health deduction one year at
a time, small-business owners were often not able to make
necessary business planning decisions. As a result, Chairwoman
Meyers introduced a bill to restore the deduction retroactively
and to make the deduction permanent. Similarly, Congressman
Earl Pomeroy introduced a bill to extend the deduction to 100
percent.

Summary

The hearing was comprised of a single panel, which
included: Richard Enmeier, Marrick Company, representing the
National Association for the Self-Employed (NASE); Jeanie
Morrissette, Homestead Construction Company, representing the
National Association of the Remodeling Industry (NARI); Lisa
Sprague, Manager of Employee Benefits, Small Business Center
for the U.S. Chamber of Commerce; Betty Stehman,
Entrepreneurial Services, Inc., representing the National
Association of Home-based Businesses (NAHB); and Craig Willett,
Willett and Associates, representing the National Federation of
Independent Business (NFIB). Overall, the panel agreed that
health-care benefits are a necessity for small businesses and
their employees. In addition, the panel stressed that companies
would be more likely to provide better benefits for their
employees if they were able to deduct 100 percent of the
associated costs as is the case for C corporations.
Research that Ms. Stehman prepared for her testimony
revealed that 80 percent of all businesses in the United States
are classified as small or home-based. As a result, 80 percent
of all businesses are not able to deduct 100 percent of their
medical-insurance costs as a business expense. Ms. Morrissette
offered as an example her company, Homestead Construction
Company, which provides health insurance to its shareholders,
including Ms. Morrissette and her husband and one employee.
Because the company is structured as an S corporation, the
health-insurance benefits that Ms. Morrissette receives
constitutes income to her resulting in the imposition of State
and Federal taxes on value of this benefit. She, along with the
National Association of the Remodeling Industry, testified that
health-care insurance is an issue of importance to small
business because of its significant cost to the business and
the inequity in the treatment of the deductibility of health-
care costs among C corporations, small businesses that are
organized as S corporations, partnerships, and sole
proprietorships.
Mr. Enmeier agreed with the other members of the panel that
small business owners need the 25 percent health-care deduction
and should be permitted to claim 100 percent of the cost of
these benefits. Mr. Willett, as a small business owner and CPA,
added that small business owners pay approximately 30 percent
more than larger companies for similar health-care benefits. He
was encouraged to hear that the Committee on Ways and Means
planned to implement a 25 percent deduction for health-care
insurance retroactive to January 1, 1994, although he would
rather see 100 percent deductibility for small business.
Ms. Sprague testified that the Chamber of Commerce counts
among its members 215,000 businesses, 96 percent of which have
fewer than 100 employees and 71 percent of which have fewer
than 10 employees. Ms. Sprague noted that the 25 percent
health-care deduction for the self-employed was adopted in 1986
and was renewed annually until 1994. On behalf of the Chamber,
Ms. Sprague asked the Committee to advocate for the 25 percent
deduction to be restored retroactively to January 1, 1994 and
for 100 percent deductibility to be phased-in over the near
term.
For further information on this hearing, refer to Committee
publication number 104-4.

7.2.5 strengthening the regulatory flexibility act

Background

On January 23, 1995, the Committee on Small Business held a
hearing on strengthening the Regulatory Flexibility Act (RFA).
With the enactment of RFA in 1980, Congress established the
principle that small businesses are unique and that regulators
could no longer promulgate rules and regulations without
considering the effect on small businesses as well as less
burdensome alternatives. Regulatory relief and flexibility were
dominant themes at the 1980 White House Conference on Small
Business, and the delegates and participants at that conference
advocated the passage of legislation to lighten the regulatory
burdens imposed on small business. While RFA has met with some
success, its primary weakness is its lack of an enforcement
mechanism. As a result, the requirements of RFA are often
ignored by some agencies.

Summary

The hearing was comprised of one panel, which included:
Jere Glover, Chief Counsel for Advocacy, U.S. Small Business
Administration (SBA); Jack Faris, President and CEO, National
Federation of Independent Business (NFIB); Charles ``Rusty''
Griffiths, Jr., Binghamton Slag Roofing Company, Inc.,
representing the National Roofing Contractors Association
(NRCA); James P. Carty, Vice President for Small Manufacturers,
National Association of Manufacturers (NAM); Robert Pool,
Homestyle Publishing; and Lee Taddonio, Vice President of TEC/
Pennsylvania Small Business United, representing National Small
Business United (NSBU).
The consensus of the panel was that Congress must put some
``teeth'' into RFA. The witnesses testified that small business
owners want the government off their backs and out of their
pockets. More specifically, NFIB recommended reforming the
Paperwork Reduction Act, passing H.R. 450, which would include
a six-month moratorium on new regulations, strengthening
private-property rights protection, allowing for a cost-benefit
analysis and/or risk assessment, establishing a regulatory
budget, and ``sun setting'' regulations.
Mr. Griffiths focused on the asbestos standard, which is
administered by the Occupational Safety and Health
Administration (OSHA) and apply to the roofing industry. As Mr.
Griffiths pointed out, the roofing industry consists of many
small businesses that lack the resources and expertise to cope
with OHSA's complicated standard, and NRCA emphasized the need
for judicial review of the asbestos standard. Requiring OSHA to
comply with RFA would help prevent arbitrary and burdensome
regulations like the asbestos standard from adversely effecting
small roofing companies as well as other small businesses.
Mr. Carty reminded the Committee that Federal agencies are
not solely at fault; Congress needs to look at the laws that
have been passed, and those that are under consideration, to
assess their effect on the business community. NAM also
suggested that one Federal agency, such as the SBA, be charged
with ensuring that the other agencies are complying with RFA.
He also pointed out that the Federal Trade Commission (FTC) was
in the process of reviewing its regulations and asking specific
questions of small business owners concerning the effects of
FTC regulations on small business, and other agencies should be
required to do the same type of review.
Several witnesses discussed H.R. 830, introduced by
Congressman Thomas Ewing (R-IL) in the 103rd Congress, which
would have provided regulatory reform and helped small
business. Mr. Pool testified that the threat of judicial review
could improve the seriousness with which RFA is treated by
Federal agencies and improve the efficiency of the law. There
was also general support among the panelists for the provisions
in H.R. 9, which relate to the Regulatory Flexibility Act and
would allow for judicial review of Federal agencies' regulatory
decisions and their indirect effect on small business. H.R. 9
would also increase the role and authority of the SBA's Office
of Advocacy in reviewing and improving regulations.
For further information on this hearing, refer to Committee
publication number 104-5.

7.2.6 oversight--sba 7(a) lending program

Background

On January 25, 1995, the Committee on Small Business held
an oversight hearing on the SBA's 7(a) General Business
Guarantee Loan Program. The 7(a) program provides for $7.8
billion in small business loans, most of them for amounts under
$100,000, to small businesses unable to obtain financing and
credit from other sources. The 7(a) program is a significant
aid to what is widely considered small business' greatest
obstacle, the access to capital.

Summary

The hearing was comprised of two panels, the first of which
included: Philip Lader, Administrator, U.S. Small Business
Administration (SBA), accompanied by Patricia Forbes, Deputy
Administrator for Economic Development, SBA, and John Cox,
Associate Administrator for Financial Assistance, SBA. Mr.
Lader testified that in 1991 the average size of a loan under
the 7(a) program was $231,000. In contrast, for 1995, the SBA
projected that the average loan will be $139,000. In addition,
the number of loans was on the increase while the size of the
loan was declining. Mr. Lader also testified that the 7(a)
program had a current loss rate of 1.3 percent, which compares
favorably with the 1 to 1.5 percent rate experienced by
commercial lenders. When asked if he had put a cap on loans
under the 7(a) program, Mr. Lader explained that the SBA had
been approving loans in the amount of $38 million per day, and
given the increased demand for 7(a) loans, the SBA would run
out of guarantee authority by July, 1995. Mr. Lader testified
that, as a result, he had administratively capped 7(a) loans at
$500,000 instead of the statutory limit of $750,000 per loan.
The witnesses for the second panel included: James Maguire,
Overhead Door Company; Paul Mayhew, SBA Officer; Deryl Shuster,
President, Emergency Business Capital; Timothy Terry,
President, Terry and Associates; and Anthony Wilkinson,
President, National Association of Government Guaranteed
Lenders (NAGGL). Mr. Terry testified that it is virtually
impossible to find a lender who will lend to a small business
startup, which is why the 7(a) program is so important. If a
new business has a good business plan and a supportable sale
forecast, the SBA will support the business and provide the
guarantee for the bank to provide the loan. Mr. Terry
mentioned, however, that there was some concern in the small
business community about the limited SBA personnel available to
review loan applications.
Two witnesses were associated with NAGGL and testified that
NAGGL members make over 70 percent of all the 7(a) loans
annually. They reminded the Committee of the conclusions made
by former SBA Administrator Saiki that the 7(a) program is an
excellent example of how a public/private-sector partnership
should be structured and even though it is a Federal government
program, it should be held to a high standard. The witnesses
assured the Committee that NAGGL is very serious about finding
ways to reduce the subsidy rate for the 7(a) program while
continuing to respond to as many potential borrowers as
possible.
To illustrate a successful case involving a 7(a) loan, Mr.
Maguire testified about the experience that his firm, the
Overhead Door Company, had had with the program. Mr. Maguire
stressed that without his company's SBA loan in 1993, he would
not be in business today. As a result of the loan, he was able
to restructure the company's financing and reduce the monthly
debt payments, which enabled him to increase annual sales to $6
million in 1994. Since obtaining the loan, the company has paid
down the balance by $90,000 and increased staff from 15 to 87
employees.
For further information on this hearing, refer to Committee
publication number 104-6.

7.2.7 capital gains tax reform and investment in small
business

Background

On January 26, 1995, the Committee on Small Business held
an additional hearing on the small business incentives in the
Contract With America focusing on the capital-gains tax
reduction. The Contract provision would reduce the capital-
gains tax rate by 50 percent across the board and would index
the value of capital asset for inflation to prevent the tax
from being levied on illusory gains, which are created largely
as a result of inflation.

Summary

The hearing was comprised of a single panel, which
included: Dr. John Goodman, President and CEO, National Center
for Policy Analysis (NCPA); Sydney Hoff-Hay, President and
Executive Director, Lincoln Caucus and Member, Board of
Directors, Small Business Survival Committee (SBSC); Pete
Linsert, Martek Biosciences Corp., accompanied by Chuck Ludlam,
Esq., Vice President for Government Relations, Biotechnology
Industry Organization (BIO); Paul Pryde, Pryde and Company; and
Alan Sklar, CPA, Gleeson, Sklar, Sawyers, and Cumpata LLP.
While the witnesses generally had varying points of view on
the issue of capital-gains taxes, the panel agreed that there
should be some form of reduction or elimination of the tax
levied on capital gains. Dr. Goodman, testified that NCPA was
supportive of the proposal in the Contract With America to cut
the capital gains tax rate in half and to index capital gains,
which he believed would benefit both taxpayers and the Federal
government. These sentiments were echoed by the witnesses
representing the biotechnology industry, although BIO continues
to support a targeted capital-gains incentive that would
supplement an across-the-board capital-gains incentive.
Similarly, Mr. Hoff-Hay testified that SBSC fully supports
eliminating the capital-gains tax and stressed that the
Contract With America proposal is the most pro-growth, pro-
American-dream step taken by the new Congress.
The importance of reducing the capital-gains tax was
underscored by Mr. Pryde who operates a consulting firm
specializing in capital and business formation issues. Mr.
Pryde testified that according to research on capital-access
problems of small and minority-owned firms to reduce
joblessness in the Hispanic and African American communities,
there needs to be an increase in the number of minority-owned
business, which tend to hire more minority workers. To
encourage the development of minority-owned business and
increase minority hiring, Mr. Pryde testified that capital
needs to be more accessible to these emerging enterprises. He
also recommended that Congress strengthen Sections 1044 and
1202 of the Internal Revenue Code, which govern the rollover of
certain gains into Specialized Small Business Investment
Companies and the exclusion of gain from the sale of certain
small business stock.
The final panelist, Alan Sklar, also favored reducing the
capital-gains tax rate as an incentive for investment in small
businesses. He recommended that Congress adopt a ``small
business investment incentive act'' to correct the illusory
aspects of Section 1244 of the Internal Revenue Code, which
govern the treatment of certain losses on the sale of small
business stock. Mr. Sklar testified that such legislation would
create an inducement for investors to provide needed capital to
the small business community as well as provide a tax deduction
for certain investments in small business.
For further information on this hearing, refer to Committee
publication number 104-7.

7.2.8 paperwork reduction act

Background

On January 27, 1995, the Committee on Small Business held a
hearing on reducing the paperwork burdens on small business.
The Paperwork Reduction Act (PRA), enacted in December of 1980,
consolidated control over Federal agencies' paperwork
requirements and compliance enforcement efforts within the
Office of Management and Budget (OMB) through a newly created
Office of Information and Regulatory Affairs (OIRA.) The
Director of OMB is empowered to review all Federal agency
paperwork requirements and reject those that are inappropriate,
impose a budget limitation of each agency's total paperwork
burdens, and assign an OMB control number to each approved
paperwork requirement. Small business is the group identified
to benefit the most from the reforms contained in PRA.
The hearing was designed to explore the issues surrounding
the paperwork reduction provisions in Title V of H.R. 9, the
Job Creation and Wage Enhancement Act of the Contract With
America. These provisions were modeled upon H.R. 2995, ``the
Paperwork Reduction Act of 1993,'' which was introduced during
the 103rd Congress in an effort to require Federal agencies,
before they impose paperwork burdens, to determine the true
cost of these requirements on small businesses and weigh the
burdens against the expected benefits.

Summary

The hearing was comprised of two panels. The first panel
included a single witness: Sally Katzen, Administrator, Office
of Information and Regulatory Affairs, Office of Management and
Budget (OMB). Ms. Katzen initially reviewed the legislative
history of PRA and then discussed the Administration's efforts
to comply with the Act. In addition, Ms. Katzen testified that
the current 5-percent goal per year in paperwork reduction is
important to have as a goal, but she indicated that to impose a
fixed number legislatively would not be constructive. She also
emphasized the need to use technology to make Government more
efficient. Finally, Ms. Katzen could not state the number of
cases in which her office had disapproved of agencies'
paperwork requests, but she testified that the number had gone
down in recent years. She indicated that the decline was likely
due to the fact that agencies are getting better at
understanding what OMB expects. Ms. Katzen also indicated that
the Treasury Department accounts for 75 to 80 percent of the
paperwork burden.
The witnesses for the second panel included James P. Carty,
Vice President for Small Manufacturers, National Association of
Manufacturers (NAM); Guy Courtney, President and CEO, The
Machaira Group; William Koeblitz, President and CEO, Med
Center, Inc., accompanied by Nancy Fulco, Manager, Regulator
Policy, U.S. Chamber of Commerce, and David Voight, Director,
Small Business Center, U.S. Chamber of Commerce; Dr. David
Massanari, a private practitioner; and Dr. Victor Tucci, Three
Rivers Health and Safety.
Several witnesses testified on behalf of the U.S. Chamber
of Commerce, which has undertaken efforts to ensure a sound
Federal regulatory infrastructure that is fair and conducive to
business growth and job creation and that does not subject
industry or the public to unreasonable regulatory costs and
burdens. These witnesses testified that the Chamber is pursuing
the goal of overhauling the Federal regulatory process, which
would result in more efficient rulemaking and greater, but less
expensive, compliance by regulated entities. The Chamber also
strongly supports efforts to provide more reasonable
regulations. The witnesses testified that Title V of H.R. 9
would strengthen OIRA's responsibilities under the original
PRA, but H.R. 9 fails to include the corresponding provisions
that would strengthen the PRA responsibilities of each agency.
Dr. Massanari provided the Committee with the health-care
industry's perspective and testified that Federal regulatory
activity and its paperwork burden are challenging health-care
providers' ability to provide attentive, cost-efficient service
to their patients. A physician's practice is a small business,
and the Federal government regularly makes demands on doctors
for more information and documentation, which increases
overhead. Dr. Massanari also offered several recommendations
for strengthening the Paperwork Reduction Act's ability to hold
Federal agencies accountable for paperwork burdens that they
impose on the medical community.
In general, the panel expressed solid support for Title V
of H.R. 9. In addition, the witnesses endorsed the concept of
adding a cost-benefit analysis to the PRA, since it has been
generally required with respect to regulatory burdens but not
paperwork burdens. Mr. Carty testified that while NAM strongly
supports Title V of H.R. 9, the bill's current goal of reducing
paperwork burdens by 5 percent should be raised to 10 percent.
For further information on this hearing, refer to Committee
publication number 104-8.

7.2.9 estate tax reform and the family business

Background

On January 31, 1995, the Committee on Small Business held
an additional hearing on tax reform and the Contract With
America, with a particular focus on the estate tax and its
effects on the family business. Estate taxes are a critical
issue for small business owners who want to build a business
and leave something for their children and families. In
addition, the continuity of a business into the second and
third generation of a family is vital to the American economy
and an important aspect of our American society. Section 12001
of H.R. 9, the Job Creation and Wage Enhancement Act, contains
a provision that would address this important issue by
increasing the estate and gift tax exclusion from its current
$600,000 to $750,000.

Summary

The hearing was comprised of two panels, the first of which
included: Lee William McNutt, Jr., President, Collin Street
Bakery, representing the National Federation of Independent
Business; Diemer True, True Companies, Chairman of the Board,
U.S. Business and Industrial Council; Harold Apolinsky, Sirote
& Permutt, representing the Small Business Council of America
(SBCA); Joseph Bracewell, Chairman, Century National Bank; and
Robert Spence, President, Pacific Lumber and Shipping.
There was a general consensus among the first panel that
the Contract With America provisions increasing the estate and
gift tax exclusion would greatly benefit small businesses.
Current estate-tax rates impose an often overwhelming burden on
small family-run businesses, and many contend that the small
amount of revenue generated by this tax does not justify the
long-term damage that it has on small businesses. In the long
run, the estate tax results in less economic activity, loss of
jobs, and prevention of the continuity and fulfillment of the
American dream of owning your own business and passing it on to
your children. The panel recognized that exempting business
assets from estate taxation would remove a tremendous
governmental burden imposed on small family businesses.
Mr. Apolinsky reminded the Committee that the 1986 White
House Conference on Small Business recommended eliminating
estate and gift taxes on the transfer of small business assets
to family members. He also noted that only 30 percent of
family-owned businesses are passed on to a second generation,
and then only 13 percent make it to the third generation. Mr.
Apolinsky testified that the Federal estate tax, which can be
as high as 55 percent, is the primary cause of this low rate of
handing small businesses down to succeeding generations. In
addition, the panel agreed that the best thing that Congress
could do to help family businesses grow and provide new jobs
would be to repeal completely the estate and gift tax.
The witnesses on the second panel included: Raymond Arth,
President, Phoenix Products, representing National Small
Business United (NSBU) and the Council of Small Enterprises;
Harry S. Bell, President, South Carolina Farm Bureau
Federation; Patty DeDominic, President, PDQ Personnel Services,
Inc., representing the National Association of Women Business
Owners (NAWBO); Mark Vorsatz, Chairman, Estate and Gift Tax
Committee of the American Institute of Certified Public
Accountants (AICPA); and Chandler Noerenberg, Vice President,
Washington Farm Forestry Association.
The members of the panel overwhelmingly supported the
provision in H.R. 9 that would raise the non-taxable portion of
an estate from the current $600,000 level to $750,000. Several
witnesses also praised the provisions of the bill that would
index the exemption for inflation. Additionally, the witnesses
offered a number of other suggestions to the Committee. Mr.
Arth testified that small businesses are eager to find more
innovative and equitable ways to allow the continuation of
family businesses. NSBU also supports another proposal, not in
the Contract With America, that would specifically exempt
family-owned businesses from the estate tax. Mr. Bell testified
that the farming industry has advocated for many years that the
estate tax should be abolished and that the annual gift-tax
exemption per donee should be increased from $10,000 to
$20,000. Ms. DeDominic also raised the issue of valuation of
small businesses under the estate and gift tax, which is
extremely important to small business and the NAWBO membership.
Mr. Vorsatz testified that family-owned businesses have
many special problems and circumstances that should be given
special consideration. He mentioned, for example, that transfer
taxes frequently cause a tremendous financial strain on a small
business. The AICPA recommended a number of technical and
procedural changes to help small business owners deal with the
burdens imposed by the estate tax. Finally, Ms. Noerenberg
proposed a National Family Enterprise Preservation Act of 1995,
which, she testified, would offer estate-tax relief to more
that 98 percent of the country's family-owned farms and
businesses.
For further information on this hearing, refer to Committee
publication number 104-9.

7.2.10 amending the regulatory flexibility act--past per-
formance and the need for meaningful
reform

Background

On February 10, 1995, the Committee on Small Business held
a second hearing on the Regulatory Flexibility Act (RFA). While
the first hearing (held on January 23, 1995) focused on current
legislation designed to strengthen the Act, this hearing was
designed to provide the Committee with a historical perspective
on the RFA. In particular, the witnesses were asked to examine
specific areas in which the RFA has worked as well as ways to
improve the Act in the areas in which it has not accomplished
its intended purpose.

Summary

The hearing was comprised of two panels with witnesses from
various Federal agencies. The first panel included: Jere
Glover, Chief Counsel for Advocacy, U.S. Small Business
Administration (SBA), and Frank Swain, former SBA Chief Counsel
for Advocacy and currently with the firm of Baker & Daniels.
Both witnesses provided the Committee with historical
background on the RFA and offered several suggestions.
Specifically, Mr. Swain urged that it is time to change the RFA
so that if an agency fails to meet the standards for how a rule
affects small business, the agency could be taken to court and
made to justify that its regulation is not arbitrary and
capricious. In addition, Mr. Glover testified that the RFA
requires agencies to go back and do a periodic review of their
regulations and look at the impact on small business. When the
RFA was originally enacted, agencies were given 10 years in
which to perform the review. Mr. Glover testified, however,
that virtually no agency has complied.
The witnesses for the second panel included: Richard
Roberts, Commissioner, Securities and Exchange Commission; John
Spotila, SBA General Counsel; and Christian White, Director,
Bureau of Consumer Protection, Federal Trade Commission (FTC).
Like the first panel, the witnesses focused largely on
suggestions for improving the RFA, including those included in
pending legislation such as Title VI of H.R. 9. While the
panelists generally recognized the need for judicial review as
a means of enforcement for the RFA, one witness stressed that
Congress should limit any new judicial remedy to avoid another
class of unnecessary, unlimited, and unproductive litigation.
There was also considerable concern about the proposal for
agencies to notify the SBA Chief Counsel for Advocacy at least
30 days before publishing a notice of a proposed rulemaking.
The requirement could extend the time period required for
providing much needed rules and regulations as well as impose
additional cost on the agencies and regulated businesses.
For further information on this hearing, refer to Committee
publication number 104-10.

7.2.11 capital gains tax reform

Background

On February 22, 1995, the Committee on Small Business held
a hearing on the capital-gains tax reduction provisions in H.R.
9, which included many of the provisions of the Contract with
America. On January 26, 1995, the Committee heard from several
small business and economic development specialists regarding
the need for investment in small business and how this could be
enhanced through special tax treatment for capital gains. For
this hearing, expert economic witnesses were asked to comment
on the capital-gains tax reduction provisions in H.R. 9 and
provide the Committee with their assessment of whether reducing
the capital-gains tax rate would be a cost effective way to
spur investment in economic growth. Additionally, the witnesses
were asked to examine whether an across-the-board cut in
capital gains taxes would stimulate investment in all areas of
the small business community or whether a more targeted
incentive would be required.

Summary

The hearing was comprised of two panels, the first of which
included: Henry Aaron, Brookings Institute; Sheldon Friedman,
Department of Economic Research, American Federation of Labor-
Congress of Industrial Organizations (AFL-CIO); Gary Robbins,
President, Fiscal Associates; and Norman B. Ture, Institute for
Research on the Economics of Taxation. A majority of the first
panel supported the capital-gains tax reduction provisions
included in H.R. 9. Witnesses noted that both of the principal
features of the proposed capital-gains tax reform--reduction in
marginal tax rates applicable to capital gains and the
inflation adjustment to the basis of capital assets--would
contribute to moderating the destructive income-tax bias
against savings and would be a strong first step toward the
complete elimination of tax on capital gains. Witnesses also
emphasized that in order to promote economic growth in the
United States--increased wealth for American taxpayers--
requires an increase in domestic investment, which can only be
accomplished if the savings level is also increased.
In contrast, the AFL-CIO strenuously opposed any further
cuts in tax preferences accorded to capital gains. From labor's
perspective, the capital-gains tax reduction provisions of H.R.
9 would have a severely negative effect on the Federal budget
and would not stimulate productive investment, economic growth,
or the creation or retention of jobs. Concern was also raised
about the cost of the capital-gains tax reduction and the
corresponding revenue effects. Witnesses noted that the larger
the revenue loss attributed to capital gains, the greater the
spending reductions that will have to be made somewhere else,
making passage of the capital-gains tax reduction more
difficult.
The second panel included the following witnesses: Dr. Jane
Gravelle, Senior Specialist in Economic Policy, Congressional
Research Service (CRS); Dr. Richard Rahn, Small Business
Survival Committee; and J.D. Foster, Executive Director and
Chief Economist, Tax Foundation. Witnesses on the second panel
noted that a reduction in the capital-gains tax can affect
small business in several ways. First, the capital-gains tax
has a serious effect on the ability of a small business to
begin and expand. Without the availability of capital, small
businesses would have little chance of starting operations, and
as the business succeeds, the capital-gains tax can have
limiting effect on the business' ability to sell assets or
stock in the company in order to obtain additional capital for
expansion. On a broader level, a reduction in the capital-gains
tax could cause interest rates to rise as capital is diverted
into equities. In addition, a generally available capital gains
provision could undermine the effect of the existing 50-percent
exclusion for gains on new stock issues of small firms, which
was enacted in 1993. One witness also noted that indexing of
capital assets would be beneficial, although it would not offer
significant relief for most small businesses.
The panelists offered differing opinions as to whether
capital-gains tax relief should be targeted specifically toward
small businesses. Suggestions for targeting capital-gains tax
reductions included expansion of the present small-business
stock exclusion, providing a lifetime dollar exclusion with
respect to capital gains, and permitting averaging of capital-
gains recognition. The witnesses cautioned, however, that
targeting capital-gains tax relief may increase the
administrative complexity of the tax system considerably. Other
witnesses stressed that a reduction in the capital-gains tax
should be across the board and treat all taxpayers as evenly
and fairly as possible.
For further information on this hearing, refer to Committee
publication number 104-11.

7.2.12 overall review of the sba

Background

On February 28, 1995, the Committee on Small Business held
the first in a series of hearings on the overall review of the
Small Business Administration. The purpose of this hearing was
to give a broad review the SBA's programs and operations. The
Committee undertook the hearing as part of its oversight
jurisdiction in an effort to examine the success of current SBA
programs as well as opportunities for efficiency among the
programs and initiatives.

Summary

The hearing was comprised of one panel, which included
three past SBA Administrators: Eugene Foley, who served as SBA
Administrator under both Presidents Kennedy and Johnson; Vernon
Weaver, who administered the SBA under President Carter; James
Sanders, who served President Reagan at the SBA; and Barry
Baldwin, Head of Research, Small Firms in the U.K., Small
Business Bureau.
Mr. Foley discussed the financial programs at SBA and the
importance of access to capital for small businesses. He also
gave a short history of the SBA starting with the
Reconstruction Finance Corporation (RFC) initiated by President
Hoover in 1931, which was designed to help businesses during
the Depression. The program existed until 1953 and was not
restricted to small business. President Eisenhower turned the
RFC into the Small Business Administration in 1953 and limited
the program to small businesses.
Mr. Weaver listed some common complaints and misconceptions
about the SBA. He testified that the agency should not be
abolished, although some programs should be merged with others,
while other programs could be eliminated. He also expressed the
belief that most of the management assistance efforts
undertaken by SBA should be privatized. Mr. Weaver also
advocated that all SBA direct-lending programs should be
eliminated, and he stressed the importance of the SBA Office of
Advocacy.
Mr. Sanders testified primarily about two programs at SBA.
He applauded the SBA's efforts with the disaster assistance
program, although he expressed his belief that the program
belongs under the administration of the Federal Emergency
Management Agency (FEMA). Mr. Sanders also testified that the
8(a) program is one of the biggest sources of scandal at SBA,
and the program needs to be revamped.
Mr. Baldwin brought to the panel the perspective of the
British government's efforts to assist small business through
the Small Business Bureau, in London, England. Mr. Baldwin
testified that in the late 1970's the small firms in England
had been in long-term decline. In contrast, the British found
that small business in the U.S. was viewed as the foundation of
national security and free enterprise. He noted that
historically, in contrast to the American Small Business Act
under which the Federal government had a legal obligation to
aid, counsel, assist and protect small businesses, the British
government provided no support for small business. Mr. Baldwin
indicated that the British continue to recognize the role of
the SBA and the commitment of the agency to the success of
American small businesses. Today the British government remains
committed to the smaller firms and is confident that they will
form a dynamic and growing part of the British economy
throughout the 1990s and into the 21st century.
For further information on this hearing, refer to Committee
publication number 104-13.

7.2.13 review of the sba procurement assistance pro-
grams

Background

On March 2, 1995, the Committee on Small Business held the
second in a series of hearings on the overall review of the
Small Business Administration (SBA). The purpose of this
hearing was to continue with the top-to-bottom review of the
SBA's programs and focus particularly on the SBA's Procurement
Assistance programs.

Summary

The hearing was comprised of two panels, the first of which
included: Philip Lader, Administrator, SBA, accompanied by Mary
Jean Ryan, Senior Finance Executive, SBA, Patricia Forbes,
Senior Finance Executive, SBA, Robert Neal, Associate Deputy
Administrator, SBA, Robert Stillman, Associate Administrator
for Investment, SBA, Marty Teckler, Deputy General Counsel,
SBA, Doris Freedman, Associate Administrator for Disaster
Assistance, SBA, and Douglas Criscitello, Deputy Administrator
for Management and Administration, SBA.
At the outset, Administrator Lader reviewed the SBA's
current loan portfolio, which he stated included 137,000 loans
and financings of almost $23 million with a loss rate of 1.3
percent. The average size of the loans has gone from $250,000
down to $139,000. In addition, he noted that there were 250,000
current loans in the disaster loan portfolio totaling $5.5
billion. Administrator Lader also outlined his program for
reinventing the SBA, which includes four areas of focus: (1)
access to capital including the 7(a) loan and SBIC programs;
(2) emphasis on education and training primarily through the
Small Business Development Centers (SBDCs) and the Business
Information Centers (BICs); (3) the SBA's role in advocacy and
contract opportunities for small business; and (4) the ``SBA
nobody knows,'' which includes the disaster assistance program.
The second panel included: Robert Neal, Associate Deputy
Administrator, Government Contracting and Minority Enterprise
Development Program, SBA, accompanied by Debra Libow,
Procurement Center Representative, Robert Moffitt, and Thomas
Dumar, Esq.; Anthony DeLuca, Small and Disadvantaged Business
Officer, Department of the Air Force; Colette Nelson, Small
Business Legislative Council; James Lee, Southeastern Lumber
Manufacturer's Association; and Dona O'Bannon, National
Association of Women Business Owners (NAWBO).
The second panel focused on the SBA's government
contracting programs. Mr. Neal testified that these programs
have an annual budget of $20 million and 250 employees, 7
percent of the SBA's work force, are assigned to this area. In
1994, the SBA's government contracting programs saved the
taxpayer almost $220 million, ten times what it costs to run
the program. Ms. Libow noted that small business has a
significant voice in the government procurement process through
the various Procurement Center Representatives in the
Government Contract Division at the SBA. Mr. Neal offered as an
example of the procurement assistance that the SBA provides for
small businesses the Certificate of Competency (COC) program.
He explained that the COC program is an appeal process for
small businesses that are rejected for an award of a government
contract based on a contracting officer's doubts about the
company's ability to perform satisfactorily.
The panel also addressed the benefits that the Small and
Disadvantaged Business Offices (SADBUs) provide to small
business. Mr. DeLuca, a SADBU with the Department of the Air
Force, emphasized the efforts that his office has made to
expand the information available on Federal contracting
opportunities for small business, especially through electronic
media. Mr. DeLuca suggested that the Committee explore options
for allowing contracting agencies more latitude in awarding
advance payments and urged support for the Mentor-Protege
program, which he testified has been very successful in helping
small minority businesses.
Several of the panelists also gave anecdotal testimony
about the success of the SBA's government contracting programs.
In particular, Ms. O'Bannon praised the SBA programs and
congressional goals for promoting women-owned businesses, in
part through Federal contract awards.
For further information on this hearing, refer to Committee
publication number 104-14.

7.2.14 review of sba business development programs

Background

On March 6, 1995, the Committee on Small Business held a
hearing on the Small Business Administration's 8(a) Business
Development Program. This hearing is one in a series on the
top-to-bottom review of the SBA. The 8(a) program was
originally created to assist businesses owned by individuals
who are socially and economically disadvantaged. The
Committee's objective for the hearing was to examine the
program's continuing efficacy and ability to meet its statutory
objectives as well as to review reports of fraud and abuse
within the 8(a) program.

Summary

The hearing was comprised of two panels. The witnesses for
the first panel included: Robert Neal, Associate Deputy
Administrator, Government Contracting and Minority Enterprise
Development, Small Business Administration (SBA), accompanied
by Herbert Mitchell, Associate Administrator for Minority
Enterprise Development, SBA; Judith England Joseph, Director,
Housing and Community Development Issues, Division of
Resources, Community, Economic Development Division, General
Accounting Office (GAO); Ralph Thomas, Associate Administrator,
National Aeronautics and Space Administration (NASA); Fernando
Galaviz, Vice Chairman, National Federation of 8(a) Companies;
and Walter Sorg, past Director of the Office of Minority
Business, U.S. Department of Commerce.
Members of the panel noted that the SBA's Office of
Minority Enterprise Development currently assists small,
disadvantaged business in developing the capacity to compete
successfully in the mainstream economy. Mr. Sorg provided the
Committee with some history and testified that in March of
1969, President Nixon signed an Executive Order establishing
minority business as a national priority. The mission was to
confirm every citizen's right to participate in the America
enterprise system as a business owner. Currently, there are
5356 certified firms in the 8(a) program, and while several
witnesses stressed the need for reform within the program,
evidence continues to indicate that there is still a need for
assistance to small disadvantaged businesses.
Ms. Joseph reviewed the SBA's progress in implementing key
changes that were designed to make the 8(a) program a more
effective business-development initiative. She expressed
concern, however, that many firms nearing the end of their
program terms are still dependent on 8(a) contracts. These
firms often leave the program without an adequate base of non-
8(a) contracts, raising doubts about the firms' viability for
success. Participants in the 8(a) program are required to
develop business plans that include objectives for future 8(a)
and non-8(a) contracts in an effort to plan for the day when
they graduate from the 8(a) program. Ms. Joseph noted that the
SBA is supposed to review the business plan of each firm in the
8(a) program annually.
Mr. Thomas provided the Committee with the perspective of a
Federal agency that provides contracts to 8(a) companies. He
testified that NASA has doubled its awards to small
disadvantaged businesses in the last five years. In addition,
NASA has doubled its subcontracting dollars to small
disadvantaged businesses in the last four years. As a result,
the 8(a) program represents one-fourth of NASA's total dollars
going to small disadvantaged businesses. Mr. Thomas noted that
NASA's increased participation in the 8(a) program was the
result of the agency's efforts to integrate small disadvantaged
businesses fully into NASA's competitive base of contractors.
On behalf of the National Federation of 8(a) Companies, Mr.
Galaviz offered specific recommendations to improve the 8(a)
program. In particular, he stressed that the SBA needs to make
a greater effort to educate new participants in the 8(a)
program concerning the responsibilities and obligations of a
government contractor. He also recommended that Federal
programs similar to 8(a) that are aimed at small disadvantaged
businesses could be consolidated in order to help cut costs of
running the Federal government. Mr. Galaviz also recommended
that firms who are currently participating in the 8(a) program,
as well as graduates, should be encourage to provide mentoring
for other small firms.
The second panel included: Melvin Clark, President,
Metroplex Corp.; Lloyd Parker, President and CEO, Contract
Services, Inc.; Joe Gomez, President and Owner, Gomez Electric;
Arnold O'Donnell, Vice President, O'Donnell Construction; Kemma
Walsh, President, Lake Michigan Contractors, Inc.; Robert
McCallie, President, McCallie Associates, Inc.; and Nancy
Archuleta, President, MEVATEC Corp.
Several members of the panel were either current
participants or graduates of the 8(a) program. These witnesses
generally agreed that the program was a valuable tool for
eligible small businesses that enables them to compete better
in the marketplace. The witnesses, however, stressed that
problems within the program need to be addressed. Specifically,
the current high business failure rate among graduates of the
8(a) program should be reversed, and one witness recommended a
postgraduate program to address this issue. Other problem areas
within the program identified by the witnesses include:
insufficient review by the SBA of applicants' background to
ascertain their level of expertise; SBA's failure to enforce
the two-years-in-business requirement; prevalence of contract
awards outside the business area of expertise; failure of the
program to provide competitive bidding; inadequate enforcement
by the SBA of the required level of competitive work and 8(a)
work; and participation in the program by firms not in need.
In contrast, two witnesses testified that the 8(a) program
should be eliminated. These witnesses stressed that the SBA's
efforts should be refocused towards guaranteeing the equality
of opportunity rather than mandating the conformity of results
to predetermined levels. In addition, these witnesses
emphasized that the anti-competitiveness of the program and its
use of sole-sourced contracts was detrimental to small
businesses and should be halted.
For further information on this hearing, refer to Committee
publication number 104-15.

7.2.15 review of sba 504 program

Background

On March 9, 1995, the Committee on Small Business held a
hearing on the Small Business Administration's 504 Program.
Through the 504 program small businesses access financing for
capital improvement--often referred to as ``bricks and mortar
work''--through a unique cooperative effort among bankers, non-
profit certified development companies, and the Small Business
Administration (SBA). Historically, this cooperative effort,
coupled with a requirement for job creation, has made the 504
program a solid tool for economic development and a program
that has required little maintenance. Recent developments in
the program include legislation considered in the 103rd
Congress to streamline the 504 program loan-approval process.
In addition, the SBA recently decertified a number of CDCs
under their Associate Development Company Initiative.

Summary

The hearing was comprised of one panel, which included:
Mary Jean Ryan, Associate Deputy Administrator for Economic
Development, SBA, accompanied by Doug Criscitello, Deputy
Associate Deputy Administrator for Management and
Administration, SBA, John Cox, Associate Administrator for
Financial Assistance, SBA, and LeAnn Oliver, Acting Director,
Office of Rural Affairs and Economic Development, SBA; Kenneth
Lueckenotte, Executive Director, Rural Missouri, Inc., and
President, National Association of Development Companies
(NADCO); A. Jeffrey Donaldson, Vice President, Northwest
National Bank; Katharine Delahaye Paine, CEO, The Delahaye
Group, Inc.; William Ruettgers, President, Southern Cast, Inc.;
John Jensen, former owner of a Motel 60 in Centerville, Iowa;
and Michael Kehoe, President of Kehoe Ford.
The witnesses on the panel representing the SBA testified
that the 504 Program is vitally important because it provides
long-term fixed-rate financing typically for buildings and
heavy equipment acquired by small businesses. This program
exists and needs to exists because the private market does not
adequately provide financing for these purposes. The SBA
witnesses stressed that banks typically do not undertake this
type of lending because they frequently are unable to make
long-term and fixed-rate loans. The 504 program is cost
effective and there is a significant return on every dollar
spent in the program. In an effort to achieve additional
efficiencies, the SBA is currently implementing two new
initiatives, such as the Accredited Lenders Program and the
Premier Certified Lenders Program.
The small business witnesses also expressed support for the
504 program, noting that it enables certified development
companies to finance businesses that are starting up,
expanding, and relocating. Mr. Lueckenotte testified that the
efficiency of the program is demonstrated by the fact that for
every dollar of appropriated Federal funds, $400 of private
capital is created in the marketplace. In addition, the program
has financed 20,000 businesses and created over 350,000 jobs.
Mr. Lueckenotte testified that NADCO has been working with the
SBA to make the program more efficient, mainly through the
creation of the Premier Certified Lenders Program as well as
efforts to streamline and automate the program. Mr. Donaldson
also expressed the belief that the 504 Program served a
valuable role in providing capital to assist credit-worthy
small businesses that would have not qualified for commercial
real estate loan without the program. In addition, he noted
that banks use the 504 program to enhance bank liquidity, since
their portion of the 504 loans can be sold into the secondary
market.
Other small business witnesses provided the Committee with
anecdotal evidence of the program's success and the additional
jobs that small businesses are able to create as a result of
financing under the 504 program. In contrast, one witness, Mr.
Jensen, testified that he was financially ruined because a
competing motel was able to start operations with financing
from the 504 program, leaving Mr. Jensen without the ability to
compete due to a loss of jobs and customers.
For further information on this hearing, refer to Committee
publication number 104-17.

7.2.16 sba's pilot microloan program

Background

On March 14, 1995, the Committee on Small Business held a
hearing to review the Small Business Administration's Microloan
program. Created in October, 1991, the Microloan Demonstration
Project is a pilot loan program that is based on a partnership
between the Small Business Administration (SBA), non-profit
lending intermediaries, and technical assistance providers. The
SBA provides loans to the intermediaries, which in turn make
loans up to $25,000 to the small business borrowers. The loans
made by SBA provide the basis for a revolving fund managed by
the intermediary. In addition to the lending function, the
Microloan program also makes grants for technical assistance
available to small business borrowers. Recently, the program
was expanded to increase the number of intermediaries from 35
to 101. The number of technical assistance providers was also
increased, along with the aggregate amount of SBA funding
available to intermediaries. In addition, a pilot guarantee
program for microloans was signed into law in 1994. The purpose
of the hearing was to examine the Microloan pilot project in
order to determine if it has fulfilled its stated mission of
providing very small loans to small businesses--loans that
would otherwise not have been available through conventional
lending sources.

Summary

The hearing was comprised of two panels, the first of which
consisted of program managers from the SBA including: Patricia
Forbes, Associate Deputy Administrator for Economic
Development, SBA, accompanied by John Cox, Associate
Administrator for the Office of Financial Assistance, SBA, Jody
Raskind, Financial Assistant, Office of Financial Assistance,
SBA, and Mike Curren, Budget Office, SBA. The witnesses
testified that the Microloan Demonstration Project was off to a
good start. In 1992, the SBA funded 35 intermediaries to
provide microloans and technical assistance in 30 States; there
are now 101 intermediaries in 48 States. Forty-three percent of
the borrowers are women-owned businesses, 36 percent are
minority-owned businesses, 12.5 are veteran-owned businesses,
15 percent are manufacturers, and over 27 percent of the
microloans have gone to retail establishments.
The panel expressed the belief that the Microloan
Demonstration Program is an important tool for meeting the
needs of the smallest of small businesses in the most efficient
and cost effective way. As evidence of the program's
efficiency, the witnesses pointed to the fact that the program
is designed to leverage the Federal dollars loaned to the
intermediary lenders by requiring them, a prerequisite to
qualification, to come up with a 15 percent cash match. The
match can come from local communities as long as it is non-
Federal money and is set aside as a loan loss reserve as each
microloan is made.
The second panel was comprised of lenders, technical
assistance providers, and a microloan borrower. The witnesses
included: Scott Daugherty, Executive Director, North Carolina
Small Business Development Center; Ellen Golden, Coastal
Enterprises, Inc.; Etienne LaGrand, Women's Initiative for
Self-Employment; Joe Martinez, Economic Development Director,
Chicanos Por La Causa; Robert Schall, President Self-Help
Venture Fund; and Matt Toolan, President, Grade A T.E.M.P.S.
Each witness expressed broad support for the continuation
of the Microloan program. In particular, the witnesses
representing the certified development company lenders
testified that by coordinating the provision of technical
assistance with the availability of financing and delivering
both services through intermediaries that are experienced in
micro-enterprise development, the Microloan program responds to
the needs of micro-enterprises for technical as well as
financial support. In addition, because the intermediaries are
locally based, they can respond to particular needs of small
businesses in a particular geographic area. The witnesses also
noted that the program fosters a broad partnership among the
SBA, the local Small Business Development Centers (SBDCs), the
minority development centers, banks, and local municipalities.
Small businesses often have little or no access to capital from
lending institutions since many banks shy away from lending
small amounts of money, in large part because small firms
frequently have little collateral to secure a loan. As a result
of the Microloan program, financing is being made available to
many small businesses that might not otherwise be in business
today.
As the owner of a small business that has received a
microloan, Mr. Toolan gave the Committee anecdotal evidence of
the program's success. After being turned down for private bank
loans due to a lack of collateral, in 1992 Mr. Toolan turned to
the North Carolina Small Business Technology and Development
Center and was introduced to the Self-Help Credit Union, which
loaned him $5,000 for start-up costs of a new office. Without
the loan, Grade A T.E.M.P.S. would have closed their doors in
1992. In March, 1993, Mr. Toolan received an additional $2,000
loan from Self-Help, and as a result of the microloan
financing, the revenue of Grade A T.E.M.P.S. increase 81
percent in 1993 over 1992. In addition, the company was able to
expand its operations to include a permanent placement service
and human resources consulting. Mr. Toolan testified that his
company is proof that the Microloan program has a tremendous
impact on the businesses that it helps.
The panel also identified areas for improvement within the
Microloan program including: minimizing the expense of micro-
lending; reducing the risk of micro-lending as compared to
general business lending; incorporating and leveraging more
effectively primary SBA resources; and addressing the fact that
the current initiative will never generate sufficient funds to
meet the level of demand.
For further information on this hearing, refer to Committee
publication number 104-18.

7.2.17 u.s. small business administration's business devel-
opment programs

Background

On March 16, 1995, the Committee on Small Business held a
hearing on the Business Development Programs of the U.S. Small
Business Administration (SBA). The purpose of this hearing was
to examine each of the SBA's Business Development Programs and
evaluate whether they are providing the best service for the
best price. The Business Development Programs include the
Service Corps of Retired Executives (SCORE), the Small Business
Development Centers (SBDCs), the Small Business Institutes
(SBIs); the Office of International Trade; the Office of
Women's Business Ownership, and the Office of Veterans Affairs.
These programs generally deliver services through workshops,
seminars, one-on-one counseling, as well as publications and
the SBA's electronic bulletin board.

Summary

The hearing was comprised of one panel. The witnesses
included: Mary Jean Ryan, Associate Deputy Administrator for
Economic Development, SBA, accompanied by Jeanne Sclater,
Assistant Administrator for International Trade, SBA, Monika
Edwards Harrison, Associate Administrator for Business
Initiatives, SBA, Johnnie Albertson, Associate Administrator/
SBDC, SBA, Leon Bechet, Assistant Administrator for Veterans
Affairs, SBA, and Betsy Myers, Assistant Administrator, Women's
Business Ownership, SBA; Alexander Balc, President and Owner,
C.S. Johnson Company; E. Martin Duggan, Small Business
Exporters Association; Lee Borland, CSP, President, Security
Press; Gregg S. Poorman, Poor Man Distributors; Amy DeLouise,
President, Take Aim Productions; Sergeant Major Mickey Ehlo,
USMC, Retired; and Lavern Hicks, President, Goode Computer
Service, Inc.
The witnesses from the SBA reviewed the various program
comprising the SBA's business development efforts. They noted
that SCORE is an association of 13,000 business executives who
volunteer their time and expertise to counsel small businessmen
and women. The SBDCs are in 940 locations around the country
and provide counseling and training on a wide range of topics
primarily for established small businesses. The Women's
Business Ownership program is designed to help women business
owners with everything from loans to procurement. The Business
Information Centers (BICs) offer the latest in computer
hardware and software and an extensive business library. There
are 14 existing BICs and 38 others are expected in the near
future.
The SBA witnesses also testified that the Business
Development Programs focus on one of the four major components
of the SBA, education and training. Often training is the
critical link for a business to access capital or can be the
difference between success and failure. The SBA, through its
wide network of offices and national resource partners, offers
a broad range of business education and training programs,
which are offered either for free or for a small affordable
fee. These programs are good examples of the SBA's public-
private partnerships at work. Many of these programs operate
through the use of volunteers, such as SCORE, and many require
significant matching funds and leverage very substantial
amounts of corporate investment.
The SBA witnesses provided the Committee with an example of
how an individual actually receives service through the SBA's
Business Development Programs: a person can go into a BIC and
actually take a business planning guide down from the shelf and
find one for a particular business, such as an ice cream shop.
The plan may not fit all the individual's needs but it helps
get a business owner or potential owner started. If an idea
looks feasible, a small business owner can get further
assistance through a BIC or SCORE with such issues as cash
management and cash-flow projections.
The witnesses from the small business community expressed
strong support for the SBA Business Development Programs and
offered several suggestions for improvement. Mr. Balc testified
that his company had benefited greatly from the SBA's Export
Working Capital Program, which guarantees export loans. Mr.
Balc suggested two ways to improve the program: First, the
cooperative effort between the SBA and the Export-Import Bank
needs to be improved in order to minimize the need for small
business owners to have to deal with two different sets of
rules and organizations with respect to export financing.
Second, he suggested that the focus of the export programs
needs to be more entrepreneurial as opposed to the strict
regime that banks tend to follow.
Mr. Duggan testified about the SBA's international business
development efforts. He noted that the SBA's International
Trade Office lacks the focus, commitment, training, and
experience necessary to assist aspiring or even seasoned
exporters. In the area of promotion, SBA has no recognition
overseas and yet promotes trade missions that clearly could be
better organized and promoted by the International Trade
Association at the Department of Commerce.
Two witnesses testified to the merits of the SBDC program.
Mr. Borland explained his experience with SBDCs and attributed
much of the success of his four businesses to the guidance he
received from the local SBDC. He also noted that current data
indicates that businesses that received SBDC assistance grew at
twice the rate of the non-SBDC-counseled businesses. Mr. Ehlo
also testified about the benefits of SBDC assistance and the
Veterans Entrepreneurial Training (VET) Program, in which he
participated. He emphasized that the VET Program is a
successful way to provide veterans with the tools they need to
operate a small business and compete in a changing economy.
The small business witnesses also testified about several
other SBA programs that are viewed as very beneficial to small
businesses. In particular, Mr. Poorman commended the SBI
program and credited the management counseling that he received
through the program to the success of his business. Ms.
DeLouise praised the SBA's Women Business Ownership Program and
indicated that it had enabled her to advance significantly her
business as well as assist her in handling management issues
such as creating a business plan, producing her own financial
statements, handling payroll, and expanding her marketing
efforts. Lastly, Ms. Hicks testified about the substantial
assistance that her business had received through the SCORE
program.
For further information on this hearing, refer to Committee
publication number 104-19.

7.2.18 review of the sbic and ssbic programs

Background

On March 28, 1995, the Committee on Small Business held a
hearing on the Small Business Investment Company (SBIC) and
Specialized Small Business Investment Company (SSBIC) Programs.
Originated under the Small Business Investment Act of 1958,
SBICs are venture capital companies that use private funds
supplemented with government leverage to provide financing for
small businesses, which have historically lacked long-term
capitalization. In 1972, the program was expanded to include
Specialized Small Business Investment Companies, which provide
financing to businesses owned by socially or economically
disadvantaged persons who have had difficulties participating
in the economic mainstream.
As of the date of the hearing, SBICs and SSBICs represented
$4 billion in a total venture capital industry that has over
$37 billion in assets under management. The SBIC industry has
not been free of problems, however. Over the years, a series of
well-publicized failures and overall difficulties have led to
changes in the program. For instance, Congress created the
Participating Securities Program in 1991, which is designed to
provide patient capital for the SBICs and cure a mismatch
between financing and investments. In addition, management
changes were implemented, transferring auditing functions from
the Inspector General's Office back to the Investment Division
of the Small Business Administration (SBA). Despite these
efforts, problems have continued to arise in the SBIC and SSBIC
Programs. As of the hearing date, 192 SBICs were in liquidation
and approximately $523 million of government leverage was at
risk. In addition, during the previous year the Committee
received a GAO report documenting the misuse of an SSBIC in
Arkansas by wealthy individuals connected to the White House.
The hearing was designed to investigate the
Administration's initiatives for overcoming these problems and
to review the current state of the SBIC and SSBIC Programs.
Witnesses were asked to consider a number of specific issues
with respect to the SSBIC program, such as financial returns,
budget issues, and the SBA program management.

Summary

The hearing was comprised of one panel, and the witnesses
included: Mary Jean Ryan, Associate Deputy Administrator for
Economic Development, SBA, accompanied by Robert Stillman,
Associate Administrator, Investment Division, SBA, and Marty
Teckler, Deputy General Counsel, SBA; Will Dunbar, Chairman,
National Association of Small Business Investment Companies
(NASBIC); James Hoobler, Inspector General, SBA; Terry Jones;
Chairman, National Association of Investment Companies (NAIC);
William Thomas, President Capital Southwest Corporation; and
Jim Wells, Associate Director of Housing and Community
Development Issues, General Accounting Office (GAO).
The SBA witnesses testified that part of the
Administration's reinvention initiative included a proposal for
restructuring the SBA and a directive that SBA study the
concept of privatizing the SBIC program. The study will also
focus on additional ways to improve the program and to further
decrease the program's costs. The SBA witnesses also reviewed
the programs, noting that the SBIC program is designed to
increase the availability of equity capital and long-term debt
as well as to fill a gap that other SBA loan programs do not
address. The program is funded primarily through investments by
the private sector, leaving the cost to the U.S. Government at
approximately $11 for every $100 of the guaranteed leverage.
Ms. Ryan expressed her belief that the program had been
strengthened by the new requirement that 30 percent of the
private capital raised by the SBIC must come from investors who
are unrelated to the SBIC's management.
The two industry witnesses emphasized that the programs are
essential to many small businesses given that long-term capital
is of critical importance and it often takes many years to
build a company from the early stages to the point where it can
financially self-sustain itself. The witnesses provided the
Committee with anecdotal evidence of the programs' success and
effects on participating small businesses. One witness
testified that as a result of the SBIC Program's effectiveness,
it had now served its purpose, and this is an appropriate time
to either phase out the program or privatize it.
Mr. Wells testified that the GAO has started a
comprehensive assessment of the investment programs at SBA,
including the agency's oversight, examinations, licensing, and
liquidation activities. He gave several examples of the
problems that currently exist with SBA's oversight of the
program, especially with respect to liquidations. Mr. Wells
also testified that the GAO is investigating the SBA's 3-
percent stock buy back program, under which SSBICs are
permitted to repurchase their preferred stock from the SBA at a
significant discount from the face value of the stock. While
the investigation is not complete, Mr. Wells noted that as of
the date of the hearing, 15 SSBICs have participated in this
program, and they have repurchased preferred stock with a par
value of $41 million from SBA for only $14 million.
For further information on this hearing, refer to Committee
publication number 104-21.

7.2.19 the small business administration of the future

Background

On March 30, 1995, the Committee on Small Business held a
hearing to explore the future of the U.S. Small Business
Administration (SBA). On Monday, March 27, 1995, the Clinton
Administration unveiled a plan to reduce spending in several
independent agencies including the SBA. The plan for
streamlining the SBA, entitled, Stretching Taxpayers Dollars,
proposes significant program changes in the primary SBA loan
programs--the 7(a) and 504 loan programs--and reductions in the
field office structure of the agency. The Administration
estimates that the plan will reduce the SBA budget by 29
percent from the original fiscal year 1996 request and save
approximately $1.2 billion over five years. The purpose of the
hearing was to have the SBA Administrator explain in detail the
Administration's streamlining plan for SBA.

Summary

The hearing was comprised of a single panel, which
included: Philip Lader, Administrator, SBA, accompanied by
Cassandra Pulley, Deputy Administrator, SBA. Mr. Lader gave an
overview of how critical small business is to the U.S. economy
and a brief summary of SBA programs. He testified that the
Administration's proposal for streamlining the SBA would
include the following features with the goal of reducing the
government's cost of small business financing, while serving
more customers: (1) the SBA intends to consolidate its field
operations by making greater use of public/private
partnerships; (2) the SBA will continue to rely on effective
Small Business Development Centers (SBDCs) to provide technical
assistance to business owners; (3) the SBA intends to
centralize its loan processing to achieve economics of scale
and use current technology and has consolidated most of the
business loan servicing for its loan portfolio into two
locations; (4) the SBA plans to consolidate the surety bond
delivery system with its government contracting oversight
operations; (5) the SBA intends to relocate more headquarter
functions to field operations; and (6) the SBA intends to
explore alternatives for streamlining the Small Business
Investment Company (SBIC) program, including the possibility of
privatization.
Mr. Lader concluded that the Administration's proposal
reflects a dedication to small business and a commitment to
maximizing taxpayers dollars. He indicated that the Agency will
continue to build on the progress it has made in improving
customer service and programs, as well as enhancing efficiency,
reducing regulatory and paperwork burden, and increasing small
business access to capital.
For further information on this hearing, refer to Committee
publication number 104-20.
7.2.20 sba office of advocacy

Background

On April 4, 1995, the Committee on Small Business held a
hearing on the SBA's Office of Advocacy. The hearing was the
last in a series that focused on a top-to-bottom review of the
Small Business Administration's programs and policies.
The Office of Advocacy was created in 1976 and is headed by
the Chief Counsel for Advocacy who is a Senate confirmed,
presidential appointee. The Office of Advocacy was designed to
serve as a small business ombudsman advocating the interests of
small business throughout the Federal government. In that
capacity, the Office has played an important role in pursuing
legislative and regulatory solutions for problems faced by the
Nation's small businesses. The Office of Advocacy also serves
the important function of monitoring Federal agency compliance
with the Regulatory Flexibility Act (RFA).

Summary

The hearing was comprised of two panels. The first panel
included the current and former SBA Chief Counsels for
Advocacy: Jere Glover, Chief Counsel for Advocacy at the Small
Business Administration; Milton D. Stewart, former SBA Chief
Counsel for Advocacy (Carter Administration); Frank Swain,
former SBA Chief Counsel for Advocacy (Reagan Administration);
and Thomas Kerester, former SBA Chief Counsel for Advocacy
(Bush Administration).
The current and three former SBA Chief Counsels for
Advocacy reviewed the purpose and operation of the Office of
Advocacy and its importance to the small business community.
The Office of Advocacy is the only part of SBA that is not
focused on programs. Rather, it is policy oriented, and was
created to handle the broader policy and regulatory issues,
both inside the government and in the private sector. In
addition, Congress designed the Chief Counsel position to have
a significantly greater degree of independence than most other
Federal officials. As a result, the Chief Counsel has the
opportunity to truly be the ``independent advocate' for small
business.
The witnesses also stressed that the Office of Advocacy has
and must continue to foster recognition of the link between the
success of small business and the prosperity of the country as
a whole. One of the greatest challenges facing small business
is to make policy makers at all levels of government understand
that small business is a driving force in the economy. The
witnesses maintained that the Office of Advocacy is well placed
to assist small businesses in achieving that goal.
The current and former Chief Counsels also offered several
suggestions to the Committee for strengthening the Office of
Advocacy and its ability to promote the interests of small
business. One witness urged that the Chief Counsel of Advocacy
be given authority to put a hold on burdensome regulations
until Advocacy has given a final stamp of approval, which would
help reduce the negative effects of retroactive legislation and
any regulations with unreasonable effective dates. Another
recommendation was to establish a small business forms review
committee to monitor the ever-changing tax and other forms and
reports, which small business must file with the Federal
government. The witnesses also stressed the need for increased
information flow to small business on a timely basis.
The second panel consisted of leading representatives from
the small business community, including: John Galles,
President, National Small Business United; Karen Kerrigan,
President, Small Business Survival Committee; John Satagaj,
President, Small Business Legislative Council; Bennie Thayer,
President, National Association for the Self-Employed; and
David Voight, Director, Small Business Center, U.S. Chamber of
Commerce. The panelists shared their views on Advocacy's
mission, its history, how it might be improved, and its future
as an important and independent voice for small business
throughout the Federal government.
The general consensus of all the witnesses on the second
panel was that the Office of Advocacy serves an important
purpose in furthering the policies that nurture the small
business and entrepreneurial sector of the economy. The
witnesses offered a number of suggestions for strengthening and
expanding the role of the Office of Advocacy and its Chief
Counsel. In particular, it was recommended that the Chief
Counsel be given more authority as well as autonomy within the
Administration in order to effectuate the Office's mission. The
witnesses also stressed the need for the Office of Advocacy to
focus creatively on the future for small business in order for
small business to be more proactive instead of reactive to
economic and regulatory changes. The Committee was urged to
enhance the economic research functions of the Office and to
expand its mission of commenting on proposed regulations.
For further information on this hearing, refer to Committee
publication number 104-23.

7.2.21 small business administration programs and tax
and regulatory issues impacting small
business

Background

On April 27, 1995, the Committee on Small Business held a
field hearing in Overland Park, Kansas, on the programs
administered by the Small Business Administration (SBA) and tax
and regulatory issues effecting small business. Small business
plays a vital role in the economy of this region, as well as
across the country, and the overwhelming majority of new jobs
are created by small businesses. At the beginning of the 104th
Congress, the Committee on Small Business held a number of
hearings on the SBA's small business programs and received
testimony from the Administration as well as small businesses
and advocacy groups representing a cross section of the
country. At this hearing, the Committee received testimony from
the small business owners of Kansas and Missouri in order to
provide a local perspective, and the witnesses were asked to
evaluate which SBA programs worked and which ones needed
improvement. The witnesses were also asked to focus on tax and
regulatory burdens imposed on small business and ways that
Congress can seek to eliminate or at least reduce those
burdens.

Summary

The hearing was comprised of six panels with each panel
focusing on different SBA programs as well as tax and
regulatory burdens on small enterprises. The first panel
examined small business financing programs and included: Keith
Cowen, President, Airport Systems International, Inc.; Don
Sladek, Coast to Cost Hardware; Bill Goble, Snack-eze
Convenience Store; Caroline Salyer, Santa Fe Optical, Inc.;
Jerry Darnell, Avis Furniture Company; Bill Reisler, Kansas
City Equity Partners; Gary Thomas, Guaranty Bank & Trust; Rob
Park, Commerce Bank; and Deryl Schuster, Emergent Business
Capital.
The first panel discussed small business financing from
both the borrowers and lenders perspectives. The witnesses
testified about the SBA's lending programs and provided the
Committee with anecdotal evidence as to the success of these
programs and their importance to small businesses. Two
witnesses reviewed their experience with the 504 loan program,
which is designed to provide long-term debt financing for small
businesses that seek to expand their physical premises. The
witnesses noted that their 504 loans allowed them to construct
their own buildings, which enabled them to construct facilities
that met their particular needs and avoid paying high rents.
Witnesses also testified about the benefits of the SBA's 7(a)
loan program, which is designed to provide working capital for
small enterprises on a shorter term than the 504 program. While
the witnesses were generally very supportive of the program,
several suggested changes that would improve the program. One
witness also testified about the SBA's small business
investment company (SBIC) program, which provides venture
capital to small businesses. The witness emphasized the
critical role that SBIC capital played in the initial
development of his company.
The small business lenders on the first panel were also
very supportive of the SBA's financing programs. Mr. Reisler of
Kansas City Equity Partners, an SBIC, testified that recent
changes to the SBIC program have improved the program and moved
towards lowing its cost to the Federal government. He
attributed much of the improvement to the new licensing
criteria, stringent monitoring of SBICs after being licensed,
the increased capital requirement, and the participating
securities. The two witnesses representing local banks
testified from the lender's perspective about the benefits of
the 504 loan program and the critical role of long-term
financing for small businesses. They also noted that the 7(a)
and low documentation (or LowDoc) programs have been very
beneficial to small businesses with respect to shorter-term
working capital. The witnesses also offered a number of
suggestions for improving the SBA lending programs. With regard
to the 504 program, steps should be taken to increase the turn-
around time on application approvals. In the 7(a) program, the
guarantee percentage should not be changed and the maximum
guarantee amount should be reduced from $750,000 to $500,000.
The witnesses also recommended that the certified and preferred
lending status program be continued and evaluated on an annual
or every other year basis.
The second panel focused on the SBA's small business
development programs. The witnesses included: Mike O'Donnell,
Director, Small Business Development Center, University of
Kansas; Winston Joe Sowers, CPS; Ana Riojas, Riojas
Enterprises, Inc.; Randee Brandy, Center for Technology and
Business Development, Central Missouri State University at
Warrensburg; Richard Hunt, Rockhurst College, Small Business
Institute; Don Stevenson, Kansas City District Manager, SCORE;
and Jan Ilames, Owner, American Balloon Factory.
Two of the witnesses represented local Small Business
Development Centers (SBDCs). Over the last five years the
amount of small businesses seeking assistance from SBDCs has
increased dramatically, in one case over 700 percent. The SBDCs
provide a wide variety of assistance to small business owners
from developing a business plan to marketing and cash-flow
management. SBDC funding comes from State and local sources
subject to Federal matching funds. To improve the SBDC program,
the witnesses recommended that they leverage existing
resources, utilize new technology, and increase services to
small business through program revenue such as a nominal
consultation fee. Two other witnesses on the panel testified
about the Small Business Institute (SBI) and the Service Corps
of Retired Executives (SCORE) programs, which are two of the
three consultation programs administered by the SBA, the other
being the SBDC program. The SBI program handles special
projects for the small businesses that the business owners
cannot handle in-house or cannot afford to contract out to a
professional consultant. SBIs serve over 6,000 small businesses
a year with an average of 120 hours per client on a no-charge
basis except for special services like mailings. Based on local
surveys of SBI clients, the value of SBI consultations to small
businesses range from $2,000 to $10,000. The SCORE program uses
retired executives who volunteer their time to the program to
counsel business owners. By providing consultation programs for
existing business owners and those contemplating a new business
venture, the program is able to impart the knowledge and
experience of retired executives to small firms at a low cost
to the government.
The small business witnesses on the panel provided the
Committee with anecdotal evidence of the value of the SBA's
business development programs. Two witnesses testified about
their experience with local SBDCs, and commended the program
for providing training on survival and business-planning skills
as well as programs designed to improve efficiency, increase
profits, and reduce overhead. One witness suggested that the
Committee consider expanding the scope of the SBDC program in
order to assist more small business owners and recommended that
the SBDCs be permitted to charge minimal consultation fees of
$10 or $15 per hour to finance the expansion of the program.
Another small-business witness testified about the benefits
that she received from the SBA programs as a minority business
owner. She noted that small minority and women-owned businesses
often have a difficult time competing against large
corporations, and the SBA programs help level the playing
field.
The third panel examined SBA programs from a regional
perspective, and included a single witness: Bruce Kent, SBA
Regional Administrator, Kansas City, Missouri. Mr. Kent
testified that the SBA has aggressively moved forward in the
area of better access to capital for small business owners and
has been working with the Certified Development Companies to
improve the 504 loan program. He also testified that the LowDoc
program is helping small businesses with access to capital by
easing the application process for loans under the 7(a)
program, with LowDoc constituting approximately 56 percent of
the SBA's loan approvals in 1995. Mr. Kent noted that the
Kansas City Regional Office is attempting to expand its
activities, despite staff reductions, and is working closely
with the SCORE program and the SBDCs to leverage the benefits
of these consultation activities.
The fourth panel focused on tax issues affecting small
businesses. The witnesses included: Al Martin, Shook, Hardy, &
Bacon; Dennis Parker, Independent Telecommunications Network,
Inc.; Linda Gill Taylor, Of Counsel, Inc. The panel reviewed
the current tax burdens imposed on small businesses and
emphasized the need for meaningful reform of the tax system.
The witnesses offered a number of recommendations to the
Committee. One witness focused largely on estate tax reform and
noted that at a minimum, the estate tax needs to be revised, if
not repealed completely. In addition, the current $600,000
exemption from the estate and gift tax should be raised to at
least $1 million per person, although the increase to $750,000
in the Contract with America is a step in the right direction.
The exemption from estate and income taxation for retirement
plans should be restored, and the generation-skipping tax
should also not be applied to retirement plans.
The witnesses also recommended a broad range of tax reforms
to assist small business, the most important of which was to
simplify the tax laws. Small businesses have a difficult time
keeping up with the constantly changing tax laws and
regulations, which requires monetary and personnel resources
that are not always available to small firms. On a more
specific level, the witnesses urged Congress to restore the
investment tax credit so that small businesses can compete
effectively with larger businesses. Alternatively, the
equipment expensing provision under Section 179 of the Internal
Revenue Code should be expanded. In addition, the deduction for
business meals and entertainment should be restored to 100
percent, and the availability of Employee Stock Ownership Plans
(ESOPs) should be extended to S corporations. Witnesses also
emphasized that the complexities of the payroll tax deposit
system must be addressed by Congress and simplified so that
small businesses can comply without incurring substantial
burdens and costs.
The fifth panel addressed the regulatory and paperwork
issues affecting small business. The witnesses on this panel
included: Chuck Vogt, All Star Awards and Ad Specialties; Dan
Wright, Mid-America Signal; Ben Griffith, Central Cooperatives,
Inc.; and Greg Shuey, Tensortech Corporation. The witnesses
testified that Congress should concentrate on creating a
stable, positive economic climate that will foster the
country's free enterprise system and enable it to reach its
fullest potential. A number of examples of oppressive
regulatory burdens on small business were brought to the
Committee's attention, but particular emphasis was placed on
the regulations promulgated by the Occupational Safety and
Health Administration (OSHA), the Environmental Protection
Agency (EPA), and the Internal Revenue Service (IRS). The
witnesses testified that the amount of paperwork and the
potential penalties are often oppressive for small businesses
with few employees and resources that can be dedicated to all
of the compliance burdens that the government imposes on
businesses. In some cases, these burdens can force a small firm
out of business. One witness emphasized the need for cost-
benefit analysis to be applied when regulations are implemented
and reviewed to make sure that the regulations achieve their
intended purpose at a reasonable cost to the regulated parties.
The final panel was designed as an open forum, and the
witnesses included: William Miller, Building Erection Services
of Olathe, Kansas, representing the American Subcontractors
Association; Ernest Fleischer, Blackwell, Sanders Law Firm;
Judy Burngen, Former Rockhurst College SBDC Director; Patty
Klinko, Center for Business Innovation; John Halsey, IBT
Reference Laboratory; and Clyde McQueen, Full Employment
Council of Kansas City, Kansas. The six witnesses on this panel
presented testimony on a wide variety of small-business issues.
Mr. Miller expressed his support for the recently passed
Paperwork Reduction Act of 1995 and reminded the Committee that
another powerful tool to combat unnecessary regulatory and
paperwork is the proposed amendments to the Regulatory
Flexibility Act (RFA). Although the RFA, was enacted in 1980,
Federal agencies have failed to implement it fully. Mr. Miller
noted that the Department of Labor leads the way in oppressive
regulations for small business, namely the OSHA regulation
governing worker-safety standards. He stressed that the most
effective way to achieve the goal of occupational safety should
be performance-based prevention and education rather than
enforcement-driven tactics like fines.
The effects of burdensome regulations on small business
were exemplified by another panelist, Mr. Halsey, who testified
about the recent regulatory activities of the Food and Drug
Administration (FDA). Mr. Halsey noted that the majority of the
medical device industry is made up of small businesses and is
an important contributor to the national economy in terms of
both domestic products as well as exports. The overzealous
regulation by the FDA poses a significant threat to the
industry, for the FDA regulates too many products that do not
need to be regulated. In addition, it currently takes too long
for the FDA to approve new products, and the FDA's export
certification program is in need of improvements if small
businesses are to expand their export activities. On a related
issue, Mr. Fleischer testified that the Congress should adopt a
Truth in Government Act that would permit citizens to challenge
enforcement actions by the government. He maintained that every
law passed by Congress should provide a means by which a
citizen can seek the reversal of an adverse action by the
government.
Two panelists provided additional testimony on the SBA's
business development programs. Ms. Burngen stresses the
benefits and importance of the SBDC program and emphasized that
the program greatly leverages Federal funds by requiring
contributions from State and local governments. She recommended
that Congress combine the SBDC program with the SCORE and SBI
programs, the Women's Business Development Program, and the
Minority Business Development Administration, which is managed
by the Department of Commerce. She also recommended that SBDCs
be permitted to charge a fee for the services they provide and
that the SBDC's reporting requirements be modified to focus on
economic impact rather than the number of businesses visiting
the centers. Ms. Klinko testified about the SBA's Microloan
Program, which fills an important capital gap for small
businesses by providing loans from as low as $500 to a maximum
of $25,000. An important part of the Microloan Program is the
technical assistance that is made available as part of each
loan. Ms. Klinko urged the Committee to retain the technical
assistance aspect of the program since it has proven to be a
significant benefit to small businesses needing assistance with
such projects as setting up an accounting system, hiring
personnel, preparing cash flow projections, marketing, and
direct mailings.
The final panelist addressed the issue of child labor laws.
Mr. McQueen testified that under current rules young people
between the ages of 14 and 15 can only work 25 hours a week
without the employer being fined. As a result, many employers
will not hire individuals between 14 and 15 years old, which
reduces the number of jobs available for this age group. Mr.
McQueen maintained that the law should be changed to permit
individuals in this age group to work up to 40 hour per week.
For further information on this hearing, refer to Committee
publication number 104-27.

7.2.22 small business participation in federal contract-
ing: assessing h.r. 1670, the ``federal
acquisition reform act of 1995''

Background

On June 29, 1995, the Committee on Small Business held the
first in a series of two hearings on H.R. 1670, the Federal
Acquisition Reform Act of 1995. The first hearing was to
provide representatives of small business an opportunity to
assess the potential impact of H.R. 1670 on their ability to
compete for Federal contracts. Many of the provisions of the
bill would fundamentally change the Federal procurement
process, making it substantially less open and fair and could
present obstacles to small business participation. The bill
proposed to abandon the standard of ``full and open
competition,'' established by the landmark Competition in
Contracting Act of 1984. H.R. 1670 would repeal, as
duplicative, the very provisions of the Small Business Act that
ensure adequate notice of contracting opportunities and
adequate time for small firms to fashion an offer.
On August 3, 1995, the Committee held a second hearing to
assess the impact of H.R. 1670, as reported by the Committee on
Government Reform and Oversight on July 27, 1995. While the
reported bill had addressed some of the concerns raised by
small business and others, H.R. 1670 still sought to eliminate
the practice of ``full and open competition,'' while appearing
to keep the words in the statute. There are many provisions
that would empower contracting officers to preclude small firms
from competing for contracts and to eliminate them earlier from
consideration for awards, if they were permitted to compete
initially.

Summary

The June 29, 1995, hearing was comprised of two panels, the
first of which included: Jere W. Glover, Chief Counsel for
Advocacy, U.S. Small Business Administration (SBA), accompanied
by Jim O'Connor, Chief Counsel for Procurement Policy, SBA, and
Kay Ryan, Deputy Counsel, SBA; Amy Erwin, Procurement Technical
Assistance Program, George Mason University, representing the
Association of Government Marketing Assistance Specialists;
William F. Blocher, Jr., a small businessman; and James E.
Lewin, Jr., Vice-President, Government Affairs, Sprint.
Mr. Glover testified that H.R. 1670 would reduce the number
of participating government contractors by replacing ``full and
open competition'' with a standard based on ``maximum
practicable competition.'' He further said that small
businesses received three times more contracts under the
competitive process than they did under any non-competitive
process and that only 4 percent of non-competitive contracts
over $25,000 go to small businesses.
Other witnesses testified that H.R. 1670 would prove a
hindrance to small business. One witness stated that the
maximum practicable competition clause would give government
officials too much power over business decisions and that
anything less than full and open competition artificially
restrains trade and hurts the smaller companies
disproportionately. Overall, witnesses believed that a
streamlined process that will save taxpayer dollars would be
appropriate, but if the implementation is not done carefully,
the small business community will be severely damaged in the
process.
The second panel of the June 29th hearing included: Tom
Frana, President, Vion Corporation; Gerry Nowak, President,
Meridian Construction, representing the Associated Builders and
Contractors; Matthew S. Forelli, President, Precision Gear,
Inc.; and Aleta Robinson Wilson, Past Chairperson, National
Association of Minority Business. The panelists testified that
by repealing the standard of ``full and open competition,''
government agencies would be encouraged to exclude those
companies that have not already demonstrated their abilities,
thereby prohibiting new participants from entering the market.
One problem, a witness noted, is that government contracting
officers do not clearly define their needs and/or allow less
than fully qualified vendors to compete. It is believed that
this may be the reason that the government receives and
evaluates too many bids from unqualified vendors.
Another witness stated that the current standard of ``full
and open competition'' has been a proven method of assuring
equal access for all qualified contractors and has made it
possible for construction contractors to gain entry and build a
resume in Federal work. Efforts to reform the Federal
procurement system should not only benefit the Federal
purchasing agents or the large companies that receive the
majority of the contracts, but should strengthen the
opportunities for local and small businesses, and certainly
should not impose further obstacles for these companies to
enter the Federal market.
The August 3, 1995, hearing was also comprised of two
panels. The first panel included: Marshall J. Doke, Esq.,
McKenna & Cuneo; Ronald W. Berger, Associate General Counsel,
U.S. General Accounting Office (GAO); Steven Kelman,
Administrator for Federal Procurement Policy, Office of
Management and Budget; Kevin Johnson, Contracting Officer,
Internal Revenue Service; Jere W. Glover, Chief Counsel for
Advocacy, SBA; and Derek J. Vander Schaaf, Deputy Inspector
General, Department of Defense.
Several witnesses testified that while the government must
put forth an effort to achieve vigorous commercial-style
competition, the bureaucracy that is preventing the
government's ability to serve the taxpayer must be ended. One
witness stated that there is an extreme pathological distrust
in the current system toward front-line contracting and program
professionals and a complete lack of faith in their ability to
use common sense and good judgment to make sound business
decisions in the best interest of the taxpayer. The witness
went on to say that because of the fear of discretion, endless
paper trails are created.
The SBA witness testified that while the amendments to H.R.
1670 are an improvement over the original bill, they do not
reach far enough to mitigate the serious concerns of the small
business community. Mr. Glover stated that while the words
``maximum practicable competition'' are gone, the current
standard of ``full and open competition'' is diluted. The
revised bill would require the government to obtain competition
that provides open access and promotes efficiency in fulfilling
the government's procurement process.
The second panel of the August 3rd hearing included: E.
Colette Nelson, Chair, Small Business Working Group on
Procurement Reform; Edward J. Black, President, Computer and
Communications Industry Association, accompanied by David S.
Cohen, Esq., Cohen & White; Matthew S. Forelli, President,
Precision Gear, Inc., representing American Gear Manufacturers
Association; Edward Hammond, President, K.C. Bobcat, Inc.,
representing North American Equipment Dealers Association,
accompanied by John Mullenholz, Counsel to the Association; and
Thomas R. Gunerman, President and CEO, Intersurgical, Inc.,
representing the Health Industry Manufacturers Association.
Small business witnesses on the second panel were strong
opponents of the Federal Acquisition Streamlining Act of 1994
(FASA) and H.R. 1670. They testified that the Federal
government has the same fiduciary responsibility to follow very
rational procedures and not arbitrary procedures established by
a contracting officer. Witnesses testified that they believe
that H.R. 1670, as then drafted, has serious flaws that will
jeopardize the ability of small- and medium-sized firms to
compete fairly for Federal procurement contracts. It was also
noted that H.R. 1670, in its revised form, increased the
potential for the use of other than competitive procedures
under two broad new exceptions: ``not appropriate'' or ``not
feasible.'' Under the bill, these new conditions were left to
the regulators to define.
One witness representing the Health Industry Manufacturers
Association stated that members of his organization do not
object to most of the other reforms in FASA, only to the
implementation of a cooperative purchasing program without
complete information on its broad effects. He stated that under
a one-size-fits-all concept, it becomes extremely difficult to
structure a single contract that will meet the needs of the
Federal, as well as State and local, buyers. The witness went
on to describe the concerns of the health-care industry with
regards to H.R. 1670.
For further information on these hearings, refer to
Committee publication numbers 104-36 and 104-46.

7.2.23 reduction of airline ticket sales commission and
its impact on small travel agencies

Background

On July 12, 1995, the Committee on Small Business held a
hearing on the reduction of airline ticket sales commission and
its impact on small travel agencies. The purpose of this
oversight hearing was to review the situation faced by many
small travel agencies in which the commissions provided by many
airlines had been capped. In February 1995, many airlines
placed a cap on the commission paid to travel agents for the
sale of domestic airline tickets. Under the cap, the maximum
commission for the sale of a ticket over $500 is $50 for a
round-trip ticket and $25 for a one-way ticket. Previously, the
commission was 10 percent of the total cost of each ticket
sold. The reduction in commission has been a hardship for many
travel agencies, and some of these small businesses, which
average annual airline ticket sales of $1.7 million per year
and have an average of five employees, have been forced to lay
off employees or close their doors completely.
On March 3, 1995, the American Society of Travel Agents
(ASTA) filed a lawsuit against six major airlines, Delta,
American, Northwest, U.S. Air, United, and Continental,
alleging price fixing. The Committee held the hearing to allow
the travel and tourism industry, an important industry to
thousands of small businesses, to testify about the perceived
effect of the airline industry's actions on their economic well
being. The hearing was also designed to give the Committee a
better understanding of the travel agent industry and its
relationship with the airline industry.

Summary

The hearing was comprised of one panel, which included: Dan
Bohan, CEO, Omega World Travel, Inc.; David Edgell,
Commissioner of Tourism, U.S. Virgin Islands; Jeanne Epping,
President and CEO, American Society of Travel Agents (ASTA);
Mary Hogan, former owner, Hogan Travel; Lauraday Kelley,
President, Association of Retail Travel Agents; and J. Diane
Panegasser, CTC, Travel Trends, Ltd. The Air Transport
Association was also invited to testify but declined. In
addition, TWA was invited but was unable to testify before the
Committee.
The panel provided the Committee with considerable
background on the industry and commission situation, noting
that the airlines and travel-agency industry have been tightly
intertwined since the inception of both industries. The
airlines have always controlled the relationship and continue
to do so, which is evidenced by the fact that any travel agency
seeking to sell airline tickets must obtain the approval of the
particular carrier through the Airline Reporting Corporation
(ARC). ARC is wholly owned by the airlines, and they determine
the standards applicable to travel agents. In addition, every
travel agency must utilize one or more of the computer systems
that the airlines own. For instance, all ticketing, boarding
passes, and itineraries must be done through the computerized
reservation system (CRS). One witness noted that, although the
airlines were deregulated in 1978 and the Civil Aeronautics
Board (CAB) no longer exists, most of the systems that were in
place prior to deregulation are still with the industry today.
The panel also noted that consumers seem to favor the use
of travel agents, with travel agents making up 60 percent of
the airline ticketing in 1978, and over 80 percent at the time
of the hearing. Witnesses also testified that 10 percent
commission on ticket sales was reached 14 years ago and has
been in effect until Delta Airline's announcement of the new
commission cap on February 9, 1995. Shortly thereafter, all the
major airlines followed suit with a few exceptions. The
witnesses pointed out, however, that all the major airlines
continue to pay the 10 percent commission to Canadian travel
agents when they book tickets in the United States. In
addition, the Scheduled Airline Ticket Office (SATO), which
handles ticketing for the Federal government, pays over 9
percent and continues to do that without caps.
The panel emphasized that the new cap will have a
detrimental effect on the travel-agent industry. Prior to the
new caps, travel agents worked on a 1 to 2 percent net profit
with very low salaries and benefits. The consensus of the panel
was that the many small travel agencies will not be able to
make a profit under the new caps and will be forced out of
business. In addition, the witnesses cautioned that the caps
could have a broader impact on more than just the travel
agencies--a loss of travel agencies and jobs will result in
reduced spending within the overall small business community as
well as a reduction in tax base. For instance, Dr. Edgell
testified that the commission caps have had a detrimental
effect on the hotel bookings in the U.S. Virgin Islands so much
so that one hotel has responded by offering to pay the lost
commission to travel agents along with their normal hotel
commission. Dr. Edgell also noted the disparity in the
airline's treatment of the U.S. Virgin Islands and Puerto Rico
as domestic destinations while the other U.S. Commonwealths are
considered international.
The witnesses offered a number of suggestions with respect
to the commission caps and asked for the Committee's
consideration. In particular, one witness recommended low
interest small business loans that are easy and fast to obtain
in order to help some of the adversely affected agencies. Mr.
Bohan suggested that the Justice Department should investigate
SATO's unfair and anticompetitive price fixing and boycotting
activities and urged that SATO be dismantled. He also advocated
that the Defense Department not consolidate its travel
management awards into giant contracts for which only a few
companies would be able to bid.
For further information on this hearing, refer to Committee
publication number 104-38.

7.2.24 the administration's initiatives to reduce regu-
latory burdens on small business

Background

On July 18, 1995, the Committee on Small Business held a
hearing to examine the Administration's initiatives to reduce
regulatory burdens on small business. This hearing was one in a
series of oversight hearings on what was happening to reduce
paperwork and regulatory burdens upon small business. The
Administration was asked to provide a progress report on
implementing the President's March 1, 1995, directive to all
executive departments and agencies to cut obsolete regulations,
reduce red tape, work with the grassroots, and negotiate
instead of dictate. As part of cutting obsolete regulations,
the President asked the department and agency heads for a list
of regulations that should be eliminated or modified, which was
to be delivered to him by June 1, 1995. As of the date of the
hearing, no list had been sent to the President.

Summary

The hearing was comprised of three panels, the first of
which included: Sally Katzen, Administrator, Office of
Information and Regulatory Affairs (OIRA), Office of Management
and Budget (OMB); Jere Glover, Chief Counsel for Advocacy; U.S.
Small Business Administration (SBA); Mark Isakowitz, Director
of Federal Government Relations, House, National Federation of
Independent Businesses (NFIB); and John Paul Galles, President,
National Small Business United (NSBU).
The Administration witnesses testified about the steps that
the Administration was taking to ease the regulatory and
paperwork burdens on small businesses. Ms. Katzen noted that
the government was scrapping 16,000 pages of the Code of
Federal Regulations and injecting common sense into the rest,
with a particular focus on the Environmental Protection Agency
(EPA) and the Occupational Safety and Health Administration
(OSHA). The EPA is implementing changes to focus on assisting
small businesses to clean up environmental hazards rather than
on historical practices of assessing fines. Ms. Katzen also
submitted a report on OSHA entitled, ``The New OSHA:
Reinventing OSHA, Reinventing Worker Safety and Health.'' The
report is based on OSHA's experience in the Maine 200 program,
in which OSHA went to companies with the highest workers
compensation claims and offered to work with the companies to
correct unsafe conditions, instead of fine them. The results
showed far fewer worker injuries and have prompted OSHA to
expand the program on a nationwide basis.
Mr. Glover noted that regulatory-reform recommendations
received the most votes of all the recommendations at the 1995
White House Conference on Small Business. He stressed that the
Regulatory Flexibility Act (RFA) is the strongest tool to
attack the cumulative burden of regulation on small business
and provides an excellent road map on how the government should
treat small business in rule-makings, although some questions
remain unresolved with regard to the compliance procedures
under the Act. Mr. Glover testified that the most important
measure of success in reducing regulatory burdens is the
dollars saved by small business, which is also the hardest to
measure. Other measurements, such as reducing the number of
pages of regulations in the Federal Register and the Code of
Federal Regulations and lowering the burden-hours of paperwork
required, all go to identify burden. Regulatory reform is not
just regulatory reduction, but crafting better, more efficient
regulations and must focus on small business. Mr. Glover opined
that continued vigilance by Congress, OIRA and the Office of
Advocacy will help in removing regulatory burdens for small
business.
The small business witnesses on the panel testified about
the success of the Administration in reaching its goals with
regard to regulatory reform. Mr. Isakowitz testified that NFIB
has surveyed its members, and the results indicate that small
businesses do not see any improvement in the regulatory
environment created by the Federal government. NFIB's members
indicated that despite the Administration's claims that the
agencie's have changed their focus towards assisting rather
than penalizing small businesses, they continue to see
significant problems especially with OSHA and EPA, not to
mention the Internal Revenue Service, which poses the most
significant burdens for most small businesses. Both small
business witnesses expressed their supports for regulatory
reform legislation. Mr. Galles noted that while a change in
policy with regard to regulation of small businesses would be
helpful, what is really needed is a change in the process of
enforcing those regulations.
The second panel included Rep. Tom Delay (R-TX) who
testified that he wanted to see the shackles of regulatory
burden, which had been imposed by the Federal government,
removed from small business. Regulations affect small
businesses disproportionately to larger businesses. Besides the
incredible number of hours, money, and effort spent filling out
forms and complying with these regulations, small businesses
feel an even bigger effect on lost profit. Small business
owners spend a least a billion hours a year filling out
government forms at an annual cost of $100 billion, according
to SBA. Mr. Delay noted that despite the good intentions of the
Administration, there is little evidence that any reduction in
the regulatory burden is taking place. He called on the
Congress and the Administration to examine why the agencies are
not complying with the President's Executive Order and
determine whether they are fulfilling the requirements of the
Paperwork Reduction Act.
The third panel included: Jeff Joseph, Vice President,
Domestic Policy, U.S. Chamber of Commerce; C. Boyden Gray,
Chairman, Citizens for a Sound Economy; Mike Baroody, Vice
President, Public Affairs, National Association of
Manufacturers (NAM); and L. Nye Stevens, Director of Federal
Management and Work Force Issues, General Accounting Office
(GAO), accompanied by Curtis Copeland, Assistant Director, GAO.
The small business witnesses on the panel stressed the need
for regulatory reform in order to reduce the burdens imposed on
small businesses. Witnesses noted two issues that are at the
center of the regulatory debate: First, the interaction of
Federal agencies with the private sector must be examined along
with the subsequent level of and need for the regulations and
paperwork requirements. Second, some standard of accountability
to which the agencies will be held must be established.
The witnesses also echoed the testimony of the small
business witnesses on the first panel, stressing that the
regulatory burdens are not being reduced. Instead, they
continue to grow, and State and local regulations add to the
overall burden. Mr. Joseph testified that according to the
Chamber of Commerce's surveys: 67 percent of the Chamber's
members said that Federal regulations require them to purchase
additional equipment; 72 percent had to modify their
facilities; and 72 percent spend up to 25 hours a month filing
out forms required by the government. Mr. Baroody also
testified that many times a small busines's compliance costs
with respect to Federal regulations exceeds its pretax profits,
a result that demonstrates the destructive nature of
regulations on small business.
The panel also offered several suggestions to the Committee
for improving regulatory reform efforts. Congress must make
tough decisions about public policy choices, giving better
guidance to Federal agencies on exactly what is expected from
the regulators. The regulated community must also be a better
participant in the process, voicing its views loud and clear.
Finally, Federal agencies themselves must be prepared to answer
for both the intended and unintended consequences of their
actions and their failure to follow the rules. Witnesses also
stressed the need for agency performance standards as a means
of improving the process of helping small businesses to comply
with existing regulations rather than continuing the history of
enforcement actions. The GAO witnesses urged the Committee to
utilize the Government Performance and Results Act (GPRA) to
its fullest extent as a tool for focusing on the particular
outcomes that each agency is charged with achieving. GPRA will
also enable Congress to examine whether the regulatory burdens
imposed by the agency are necessary for achieving the
particular outcome.
For further information on this hearing, refer to Committee
publication number 104-39.

7.2.25 assessing the implementation of public law 103-
355, the ``federal acquisition
streamlining act of 1994''

Background

On July 20, 1995, the Committee on Small Business held a
hearing to assess the implementation of Public Law 103-355, the
``Federal Acquisition Streamlining Act of 1994'' (FASA), and
its effect on small firms seeking to market supplies, services,
and construction to the government. Signed into law on October
13, 1994, and effective October 1, 1995, FASA made the most
sweeping statutory changes to the Federal procurement process
since the landmark ``Competition in Contracting Act of 1984.''
During the consideration of the legislation that became
FASA, the small business community struggled to assure that the
changes being made in the name of ``procurement streamlining''
did not become obstacles to small business participation. In
the end, they were only partially successful since FASA granted
expansive authority to the regulation writers, constrained only
by broad statutory standards in many key areas relating to the
solicitation and award of Federal contracts, especially those
below $100,000, the new small purchase threshold, which FASA
increased from $25,000 and renamed the Simplified Acquisition
Threshold (SAT).
The small business community also worked hard to link the
SAT and other grants of permissive authority to the
implementation of the Federal Acquisition Network (FACNET).
Through the use of computer-assisted electronic commerce,
FACNET would provide small firms with better access to
information about contracting opportunities, especially those
below the $100,000 threshold, at various Executive departments
and agencies. Through FACNET, small firms (or any firm) could
electronically obtain copies of the government's contract
solicitation (and any modifications), submit offers, receive
notices of award (and indirectly a notice that a offeror was
not successful), communicate with the government regarding
contract administration during performance, and receive
payments. Data generated by transactions through FACNET would
also become a valuable source of information.
FASA also established a new micropurchase threshold at
$2,500, and purchases below this threshold were no longer
reserved for competition among small businesses. This
significant change was strongly advocated by the Administration
as essential to facilitate ``streamlined'' purchases using the
new government purchase card, the IMPACT Card. The IMPACT Card
was intended to be used more broadly by agency personnel to
purchase simple commercial products without any assistance from
the agency's procurement specialist. Since purchases below the
new threshold do not have to be announced or even competed,
small firms now confronted a new and significant challenge in
continuing to tap this segment of the market.

Summary

The hearing was comprised of a single panel, which
included: David E. Cooper, Associate Director, Acquisition
Policy, Technology and Competitiveness, National Security and
International Affairs Division (NSIAD), U.S. General Accounting
Office (GAO), accompanied by David Childress, Assistant
Director for Acquisition Policy, Technology and Competitiveness
Issues, NSIAD, GAO, William T. Woods, Assistant GAO General
Counsel, and Chris Martin, Assistant Director, Office of the
Chief Scientist, GAO; Jere W. Glover, Chief Counsel for
Advocacy, U.S. Small Business Administration (SBA), accompanied
by James M. O'Connor, Assistant Chief Counsel for Procurement
Policy, SBA.
The GAO witnesses reviewed three elements of the on-going
implementation of FASA. First, they provided an assessment of
the status of the proposed and final implementing regulations
to be promulgated by the Executive Branch in accordance with
FASA's statutory schedule. The witnesses reviewed the extensive
efforts being made to develop the necessary revisions to the
government-wide Federal Acquisition Regulation (FAR). While the
Administrator of Federal Procurement Policy at the Office of
Management and Budget projected that the new regulations would
be completed almost three months ahead of the October 1
statutory deadline, the GAO witnesses testified that the
accelerated timetable had not been met. They noted that some of
the most important implementing regulations, such as those
pertaining to SAT and FACNET, were issued in so-called interim
final form, in which the proposed regulations were made
effective, and public comment sought after the fact.
Second, the GAO witnesses provided the Committee with a
preliminary assessment of FACNET's implementation and its use
by the Federal procuring agencies and the vendor community.
They confirmed that the implementation of FACNET was proceeding
very slowly, with only a small fraction of the available
procurement opportunities being solicited and awarded through
FACNET. The primary obstacle for implementation was system
reliability. The witnesses observed that FACNET implementation
would require additional leadership and direction from senior
management in the Executive Branch.
Third, the GAO's testimony provided a status report on the
implementation of FASA's new authority regarding micropurchases
and the use of the IMPACT Purchase Card. The witnesses reported
that agency use of the IMPACT Card has been expanding rapidly.
While the GAO issued a report on August 6, 1996 concerning
acquisition reform, it did not include any data on the effect
on small business of the expanding use of the purchase card or
the elimination of the small business reserve for purchases
below the Micropurchase threshold. Without such information,
small firms cannot compete for the millions of purchases below
$10,000, which is now the threshold below which no form of
public notice is required.
The SBA's Chief Counsel for Advocacy made five principal
observations about the implementation of FASA and its potential
impact on small firms seeking to market to the Federal
government. First, he testified that while FASA made the most
sweeping changes to the Federal procurement process in 10
years, FASA's specific effects, especially on small firms,
cannot be assessed until its implementation regulations are in
place given the substantial discretion given to the regulation
writers. He cited several examples relating to the new SAT,
including the potential benefit to small business by having
these contracting opportunities reserved for small business and
the potential adverse effects of having lost the statutory
guarantees for adequate advance notice of contracting
opportunities and the adequate time to develop and submit
offers.
Second, Mr. Glover noted that the Office of Advocacy was
applying steady pressure on the FASA regulation drafters to
force their fullest compliance with the Regulatory Flexibility
Act. His office has been admonishing the regulation writers
that a simple assertion that a regulatory proposal would
generally benefit small business government contractors was
unacceptable to absolve them from conducting an initial
regulatory flexibility analysis meeting the Act's standards. He
also stressed the importance of the small business community's
participation in the public comment process with regard to the
new regulation.
Third, Mr. Glover discussed his concerns about the
implementation of FACNET, which he noted was proceeding quite
slowly with very few procurement opportunities available
through the system. Given the status of FACNET, participating
small firms were subject to unreasonably high government
marketing costs in the form of the subscription and transaction
fees charged for transacting electronic commerce through
FACNET. Mr. Glover stressed the need for smaller firms, which
are limited participants in the Federal procurement market, to
obtain access to FACNET at reduced costs.
Fourth, he emphasized that some of the provisions of FASA
remained potentially dangerous to future small business
participation. Among others, he cited FASA's provisions that
would further encourage the bundling of contracting
opportunities, which would effectively eliminate chances for a
capable small firm to become a prime contractor. He also
expressed concern about FASA's elimination, as part of the new
$2,500 Micropurchase threshold, of the reservation of small
purchase opportunities for small firms.
Finally, Mr. Glover urged the Committee to give the fullest
consideration to the recommendations of the delegates to the
1995 White House Conference on Small Business and to the
concerns being expressed by many groups within the small
business community. He stressed that given the opportunity to
compete on fair terms, small business can remain a source of
quality products, services, and construction that are
innovative and cost effective.
For further information on this hearing, refer to Committee
publication number 104-41.

7.2.26 the administration and congressional initiatives
to reform osha, and their impact on
small businesses

Background

On July 26, 1995, the Committee on Small Business held a
hearing to examine the initiatives undertaken by the
Administration and Congress to reform the Occupational Safety
and Health Administration (OSHA) and their effect on small
businesses. The hearing was the second in a series of oversight
hearings that focused on the Administration's efforts to reduce
paperwork and regulatory burdens on small business.
At the White House Conference on Small Business in June
1995, the President described the Administration's initiatives
to reduce regulatory burdens on small business. He referred to
his March 1, 1995, memorandum to department and agency heads to
make regulatory reform a priority. Agency heads were directed
to review their regulations page by page and indicate by June
1, 1995, which regulations they would eliminate or modify and
which needed legislative attention in the reinvention exercise.

Summary

The hearing was comprised of two panels, the first of which
included a single witness: Charlie Norwood (R-GA), Member of
Congress. The Congressman's testimony focused on H.R. 1834,
``Safety and Health Improvement and Regulatory Reform Act of
1995,'' introduced by Congressman Cass Ballenger (R-NC), which
would protect small businesses by requiring employees to work
with employers to fix a perceived problem before OSHA becomes
involved in the issue. The Clinton Administration has agreed
that OSHA needs to be changed and has indicated that it will be
guided by three principles: more cooperation between OSHA and
employers; more common sense solutions; and a focus on results,
not red tape. Congressman Norwood urged the Committee to
monitor OSHA's activities closely to make sure that it adheres
to these principles.
The second panel included: Joseph A. Dear, Assistant
Secretary of Labor and Occupational Health, U.S. Department of
Labor; Giovanni Coratolo, Owner, Port of Italy Restaurant;
Eamonn McGready, President, Martin Imbach, Inc.; Richard
Palmer, Vice President and Secretary Treasurer, Palmer Painting
Co., Inc.; William Roth, Finite Industries of New Jersey; and
William Stone, President, Louisville Plate Glass Co.
Mr. Dear reviewed the Administration's efforts to reform
OSHA and reduce the burdens on small business. One of the
primary changes undertaken by the agency was to offer employers
a choice between traditional enforcement or a partnership with
OSHA to achieve better worker safety. Mr. Dear gave the
Committee as an example of the partnership approach the so-
called Maine 200 program, in which OSHA identified the 200
firms throughout the State of Maine with the highest workers
compensation claims and offered them the opportunity to work
with OSHA in collaboration to modify the factors contributing
to the high levels of worker injuries. Out of the 200 offers,
198 of the firms accepted and 60 percent have reduced their
incidents of injury and illness.
Mr. Dear also testified that OSHA is bringing common sense
to the regulations and how they are developed and enforced. In
addition, OSHA is focusing on ways to change the way that the
agency measure performance. Instead of measuring performance
based on the number of violations found and penalty dollars
collected, OSHA has refocused its efforts on reducing illness,
injuries, and deaths as a measurement of the agency's success.
The balance of the panel was comprised of witnesses from
the small business community who testified about the tremendous
burdens that OSHA regulations represent for small businesses in
this country. Witnesses noted that small business compliance
with OSHA's relations represents a greater burden than for
large business, in part due to the fact that small businesses
typically have fewer employees to review, monitor, and
implement the voluminous amount of regulations concerning
worker safety. This is especially true for the restaurant
industry, which one witness noted, is second only to the
nuclear power industry in terms of number of applicable
regulations.
The witnesses also commented that old regulations are
rarely replaced by new regulations; rather the new ones are
just added to the list. OSHA standards and regulations should
be based on common sense and sound scientific judgment in order
to produce reasonable and efficient rules that promote the
safety and protection of workers. The witnesses generally
congratulated OSHA for its efforts to be more consultative and
less confrontational. In addition, the panel supported the aims
of the Ballenger legislation as a means of reinforcing the
organizational changes that Mr. Dear pledged to implement.
The panelists stressed that worker safety is particularly
important to small businessmen and women, for they are the
prime investors in the business and they suffer the
consequences of work-related injury through increased workers-
compensation insurance premiums. In addition, the greatest
assets to small businesses are their employees, and
historically small businesses are the primary job creators in
the nation. As a result, it is in the direct interest of small
business owners to make every effort to reduce worker injury.
For further information on this hearing, refer to Committee
publication number 104-42.

7.2.27 pension reform and simplification: a small busi-
ness perspective

Background

On September 8, 1995, the Committee on Small Business held
a hearing on pension reform and simplification from the
perspective of small business. As the seventh highest vote-
receiving recommendation from the 1995 White House Conference
on Small Business, pension reform and simplification has
significant effects on small business. Historically, however,
the number of small businesses that offer pension benefits to
their employees has been alarmingly low. The witnesses were
asked to address this problem in two ways. First, they were
asked to evaluate the technical aspects of H.R. 2037, the
``Pension Simplification Act of 1995,'' the Joint Committee on
Taxation's ``Description of Miscellaneous Tax Proposal's''
(Committee Print JCS-19-95), and the proposal formulated by the
White House. In many cases, each of the three proposals
contained provisions on a specific pension issue, and the
witnesses were asked to identify the version most favorable to
small business. Second, the witnesses were asked to identify
alternatives through which pension plans could be made more
accessible to small business in this country.

Summary

The hearing was comprised of three panels. The first panel
consisted of Congressman Rob Portman (R-OH) who testified about
H.R. 2037, which he and Congressman Ben Cardin (D-MD)
sponsored. Congressman Portman emphasized that the level of
small businesse's sponsorship of pension plans was dangerously
low, which has long-term detrimental effects on private
retirement savings. This low level is largely due to the fact
that small businesses are faced with enormously complex
reporting and compliance requirements if they chose to offer
pension benefits. He testified that his bill was intended to
alleviate many of these burdens and encourage small businesses
to make pensions available to their employees.
The second panel consisted of representatives from the
small-business community, including: Paula Calimafde, Chair,
Small Business Council of America, also representing the Small
Business Legislative Council, and the National Association of
Women Business Owners; Sandra Turner, Bates, Turner &
Associates, representing National Federation of Independent
Business; Ron Merolli, Director, Pension Legislative &
Technical Services, National Life Insurance Company; Janice
Matthews, Manager, Employee Benefits, Trans Financial Bank,
representing National Small Business United; and Sam Gilbert,
President, United Plan Administrators, Inc., representing the
U.S. Chamber of Commerce.
The panel agreed on a number of the pension provisions
contained in the three legislative proposals. Specifically, the
panel overwhelmingly supported the repeal of the following
pension rules under the current law: the family aggregation
rules, the ``top heavy'' restrictions, the $150,000 limit on
compensation, the minimum participation rules, the 15-percent
excise tax on excess distributions and estate tax on excess
accumulations, the combined plan limitations under section
415(e) of the Internal Revenue Code, the lump-sum distribution
limits imposed under the GATT legislation, and the 150 percent
full-funding limitation imposed under the Omnibus Budget
Reconciliation Act of 1987.
In addition, the panel expressed strong support for a
simplified definition of ``highly compensated employee'' and
generally agreed that a person should be so classified if he or
she is a 5-percent owner in the current or preceding year or if
his or her compensation in the preceding year exceeded $80,000,
indexed for inflation. There was also strong support for
design-based safe-harbors for 401(k) plans, which the witnesses
stated would be a significant improvement over current law. If
asked to choose among the three proposals, the witnesses
generally favored the Joint Committee's design-based safe-
harbors or those contained in H.R. 2037. The panel also
supported the provisions for a look-back rule for determining
maximum 401(k) contributions and the proposal to make
corrective distributions for 401(k) plans optional, subject to
a consistency rule.
The Committee also heard support for the provisions in H.R.
2037 and the Administration's proposal that would repeal the
required distributions for individuals beginning at age 70\1/
2\, although they would go further and allow 5-percent owners
to also postpone distributions. The panel agreed with the
provisions in H.R. 2037 and the Administration's proposal to
coordinate the pension reporting penalties with other penalties
imposed under the Internal Revenue Code. Finally, the panel
expressed support for the prohibition on State source taxes on
pension benefits and the exemption for small businesses from
the partial termination rules, which currently cover multi-
employer plans.
With respect to alternatives to encourage small businesses
to offer pension benefits, the panel generally agreed that the
single most effective step would be the adoption of designed-
based safe-harbors for 401(k) plans. These safe-harbors would
eliminate many of the regulatory and compliance burdens
associated with these plans. Some of the small business
witnesses also testified that if the Administration's national
employee savings trust, or NEST, were adopted, it might be
useful to some small businesses, but they expressed concerns
about the mandatory employer contributions required under the
plan. In addition, the panel expressed support for the
proposals to expand salary reduction simplified employee plans,
known as SARSEPs, to cover employers with up to 100 employees.
The Committee also heard support for the tax credit under H.R.
2037 for small businesses that set up a new pension plan,
although some witnesses questioned whether the $1,000 amount
was a sufficient incentive.
The second panel consisted of two Administration witnesses:
Jere Glover, Chief Counsel for Advocacy, U.S. Small Business
Administration; and J. Mark Iwry, Benefits Tax Counsel, U.S.
Department of Treasury.
The Administration's representatives expressed general
support for the same issues emphasized by the small business
panel but generally advocated the version of each provision
that was set forth in the Administration's proposal. This panel
did, however, disagree with the small business witnesses in
certain aspects. For instance, the Administration supported
retention of the top heavy rules, although Mr. Iwry suggested
that the Treasury Department would be open to modifications of
the existing rules.
Similarly, the Administration supported the repeal of the
minimum participation rules only for defined contribution
plans; not all plans as advocated by the small business
witnesses. In addition, the Administration expressed a
preference for repealing the combined-plan limitations under
section 415(e) rather than repealing the 15-percent excise tax
on excess distributions and the estate tax on excess
accumulations. Finally, the Administration witnesses advocated
the creation of a NEST as a means for encouraging small
businesses to offer pension benefits.
For further information on this hearing, refer to Committee
publication number 104-48.

7.2.28 the impact of solid waste flow control on small
businesses and consumers

Background

On September 13, 1995, the Committee on Small Business held
a hearing to examine the impact of solid waste flow control on
small businesses and consumers. Flow control is the legal
authority given to States and local governments to designate
specifically where