[Federal Register Volume 77, Number 138 (Wednesday, July 18, 2012)]
[Proposed Rules]
[Pages 42211-42225]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17442]


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

SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

RIN 3245-AG36


Small Business Size Standards: Arts, Entertainment, and 
Recreation

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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

SUMMARY: The U.S. Small Business Administration (SBA) proposes to 
increase the small business size standards for 17 industries in North 
American Industry Classification System (NAICS) Sector 71, Arts, 
Entertainment, and Recreation. As part of its ongoing comprehensive 
review of all size standards, SBA has evaluated all size standards in 
NAICS Sector 71 to determine whether the existing size standards should 
be retained or revised. This proposed rule is one of a series of 
proposed rules that examines size standards of industries grouped by 
NAICS Sector. SBA issued a White Paper entitled ``Size Standards 
Methodology'' and published a notice in the October 21, 2009 issue of 
the Federal Register that the document is available on its Web site at 
www.sba.gov/size for public review and comments. The ``Size Standards 
Methodology'' White Paper explains how SBA establishes, reviews and 
modifies its receipts based and employee based small business size 
standards. In this proposed rule, SBA has applied its methodology that 
pertains to establishing, reviewing and modifying a receipts based size 
standard.

DATES: SBA must receive comments to this proposed rule on or before 
September 17, 2012.

ADDRESSES: You may submit comments, identified by RIN 3245-AF36, by one 
of the following methods: (1) Federal

[[Page 42212]]

eRulemaking Portal: www.regulations.gov; follow the instructions for 
submitting comments; or (2) Mail/Hand Delivery/Courier: Khem R. Sharma, 
Ph.D., Chief, Size Standards Division, 409 Third Street, SW., Mail Code 
6530, Washington, DC 20416. SBA will not accept comments submitted by 
email.
    SBA will post all comments to this proposed rule on 
www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at www.regulations.gov, 
you must submit such information to U.S. Small Business Administration, 
Khem R. Sharma, Ph.D., Chief, Size Standards Division, 409 Third 
Street, SW., Mail Code 6530, Washington, DC 20416, or send an email to 
sizestandards@sba.gov. Highlight the information that you consider to 
be CBI and explain why you believe SBA should hold this information as 
confidential. The SBA will review your information and determine 
whether it will make the information public.

FOR FURTHER INFORMATION CONTACT: Jorge Laboy-Bruno, Economist, Size 
Standards Division, (202) 205-6618 or sizestandards@sba.gov.

SUPPLEMENTARY INFORMATION: To determine eligibility for Federal small 
business assistance, SBA establishes small business definitions 
(referred to as size standards) for private sector industries in the 
United States. SBA uses two primary measures of business size--average 
annual receipts and average number of employees. SBA uses financial 
assets, electric output, and refining capacity to measure the size of a 
few specialized industries. In addition, SBA's Small Business 
Investment Company (SBIC), Certified Development Company (504) and 7(a) 
Loan Programs use either the industry based size standards or net worth 
and net income based alternative size standards to determine 
eligibility for those programs. At the start of the current 
comprehensive size standards review, there were 41 different size 
standards covering 1,141 NAICS industries and 18 sub-industry 
activities (``exceptions'' in SBA's Table of size standards). Thirty-
one of these size standards were based on average annual receipts, 
seven were based on average number of employees, and three were based 
on other measures.
    Over the years, SBA has received comments that its size standards 
have not kept up with changes in the economy, in particular the changes 
in the Federal contracting marketplace and industry structure. The last 
time SBA conducted a comprehensive review of all size standards was 
during the late 1970s and early 1980s. Since then, most reviews of size 
standards were limited to a few specific industries in response to 
requests from the public and Federal agencies. SBA also makes periodic 
inflation adjustments to its monetary based size standards. The SBA's 
latest inflation adjustment to size standards was published in the 
Federal Register on July 18, 2008 (73 FR 41237).
    Because of changes in the Federal marketplace and industry 
structure since the last overall review, SBA recognizes that current 
data may no longer support some of its existing size standards. 
Accordingly, in 2007, SBA began a comprehensive review of all size 
standards to determine if they are consistent with current data, and to 
adjust them when necessary. In addition, on September 27, 2010, the 
President of the United States signed the Small Business Jobs Act of 
2010 (Jobs Act). The Jobs Act directs SBA to conduct a detailed review 
of all size standards and to make appropriate adjustments to reflect 
market conditions. Specifically, the Jobs Act requires SBA to review at 
least one-third of all size standards during every 18-month period from 
the date of its enactment and do a complete review of all size 
standards not less frequently than once every 5 years thereafter. 
Reviewing existing small business size standards and making appropriate 
adjustments based on current data are also consistent with Executive 
Order 13563 on improving regulation and regulatory review.
    Rather than review all size standards at one time, SBA is reviewing 
a group of industries within an NAICS Sector. An NAICS Sector generally 
consists of 25 to 75 industries, except for the manufacturing sector, 
which has considerably more industries. Once SBA completes its review 
of size standards for industries in an NAICS Sector, it will issue a 
proposed rule to revise size standards for those industries for which 
currently available data and other relevant factors support doing so.
    Below is a discussion of SBA's size standards methodology for 
establishing receipts based size standards, which SBA applied to this 
proposed rule, including analyses of industry structure, Federal 
procurement trends and other factors for industries reviewed in this 
proposed rule, the impact of the proposed revisions to size standards 
on Federal small business assistance, and the evaluation of whether a 
revised size standard would exclude dominant firms from being 
considered small.

Size Standards Methodology

    SBA has recently developed a ``Size Standards Methodology'' for 
establishing, reviewing and modifying size standards when necessary. 
SBA has published this document on its Web site at www.sba.gov/size for 
public review and comments and also included it, as a supporting 
document, in the electronic docket of this proposed rule at 
www.regulations.gov. SBA does not apply every feature of its 
methodology to every size standard evaluation because not all features 
are appropriate for every industry. For example, since all industries 
in NAICS Sector 71 have receipts based size standards, the methodology 
described in this proposed rule applies to establishing receipts based 
standards. However, the methodology is made available in its entirety 
for parties who are interested in SBA's overall approach to 
establishing, evaluating, and modifying small business size standards. 
SBA always explains its analysis in individual proposed and final rules 
relating to size standards for specific industries.
    SBA welcomes comments from the public on a number of issues 
concerning its ``Size Standards Methodology,'' such as suggestions on 
alternative approaches to establishing and modifying size standards; 
whether there are alternative or additional factors that SBA should 
consider; whether SBA's approach to small business size standards makes 
sense in the current economic environment; whether SBA's use of anchor 
size standards is appropriate in the current economy; whether there are 
gaps in SBA's methodology because of the lack of comprehensive data; 
and whether there are other facts or issues that SBA should consider. 
Comments on the SBA's methodology should be submitted via: (1) the 
Federal eRulemaking Portal: www.regulations.gov; the docket number is 
SBA-2009-0008; follow the instructions for submitting comments; or (2) 
Mail/Hand Delivery/Courier: Khem R. Sharma, Ph.D., Chief, Size 
Standards Division, 409 Third Street SW., Mail Code 6530, Washington, 
DC 20416. As with comments received to this and other proposed rules, 
SBA will post all comments on its methodology on www.regulations.gov. 
As of July 18, 2012, SBA has received 13 comments to its ``Size 
Standards Methodology.'' The comments are available to the public at 
www.regulations.gov. SBA continues to welcome comments on its 
methodology from interested parties.
    Congress granted discretion to SBA's Administrator to establish 
detailed small business size standards. 15 U.S.C.

[[Page 42213]]

632(a)(2). Section 3(a)(3) of the Small Business Act (15 U.S.C. 
632(a)(3)) requires that ``* * * the [SBA] Administrator shall ensure 
that the size standard varies from industry to industry to the extent 
necessary to reflect the differing characteristics of the various 
industries and consider other factors deemed to be relevant by the 
Administrator.'' Accordingly, the economic structure of an industry 
serves as the underlying basis for developing and modifying small 
business size standards. SBA identifies the small business segment of 
an industry by examining data on the economic characteristics defining 
the industry structure itself (as described below). In addition to the 
analysis of an industry's structure, SBA also considers current 
economic conditions, together with its own mission, program objectives, 
and the Administration's current policies, suggestions from industry 
groups and Federal agencies, and public comments on the proposed rule, 
when it establishes small business size standards. SBA also examines 
whether a size standard based on industry and other relevant data 
successfully exclude businesses that are dominant in the industry.
    This proposed rule includes information regarding the factors SBA 
evaluated and the criteria the Agency used to propose any adjustments 
to size standards in NAICS Sector 71. It also explains why SBA has 
proposed to adjust some size standards in NAICS Sector 71 but not 
others. This proposed rule affords the public an opportunity to review 
and comment on SBA's proposals to revise size standards in NAICS Sector 
71 as well as on the data and methodology it uses to evaluate and 
revise a size standard.

Industry Analysis

    For the current comprehensive size standards review, SBA has 
established three ``base'' or ``anchor'' size standards--$7.0 million 
in average annual receipts for industries that have receipts based size 
standards, 500 employees for manufacturing and other industries that 
have employee based size standards (except for Wholesale Trade), and 
100 employees for industries in the Wholesale Trade Sector. SBA 
established 500 employees as the anchor size standard for manufacturing 
industries at its inception in 1953. Shortly thereafter, SBA 
established $1 million in average annual receipts as the anchor size 
standard for nonmanufacturing industries. SBA has periodically 
increased the receipts based anchor size standard for inflation, and it 
stands today at $7 million. Since 1986, SBA has set 100 employees as 
the size standard for all industries in the Wholesale Trade Sector for 
SBA's financial assistance programs. However, NAICS codes for Wholesale 
Trade Industries (NAICS Sector 42) and their 100 employee size 
standards for the Wholesale Trade Sector do not apply to Federal 
procurement programs. Rather, for Federal procurement purposes the size 
standard is 500 employees for all industries in Wholesale Trade (NAICS 
Sector 42), and for all industries in Retail Trade (NAICS Sector 44-45) 
under the SBA's nonmanufacturer rule (13 CFR 121.406(b)).
    These long-standing anchor size standards have stood the test of 
time and gained legitimacy through practice and general public 
acceptance. An anchor size standard is neither a minimum nor a maximum. 
It is a common size standard for a large number of industries that have 
similar economic characteristics and serves as a reference point in 
evaluating size standards for individual industries. SBA uses the 
anchor in lieu of trying to establish precise small business size 
standards for each industry. Otherwise, theoretically, the number of 
size standards might be as high as the number of industries for which 
SBA establishes size standards (1,141). Furthermore, the data SBA 
analyzes are static, but the U.S. economy is not. Hence, absolute 
precision is impossible. Therefore, SBA presumes an anchor size 
standard is appropriate for a particular industry unless that industry 
displays economic characteristics that are considerably different from 
others with the same anchor size standard.
    When evaluating a size standard, SBA compares the economic 
characteristics of the specific industry under review to the average 
characteristics of industries with one of the three anchor size 
standards (referred to as the ``anchor comparison group''). This allows 
SBA to assess the industry structure and to determine whether the 
industry is appreciably different from the other industries in the 
anchor comparison group. If the characteristics of a specific industry 
under review are similar to the average characteristics of the anchor 
comparison group, the anchor size standard is considered appropriate 
for that industry. SBA may consider adopting a size standard below the 
anchor when: (1) All or most of the industry characteristics are 
significantly smaller than the average characteristics of the anchor 
comparison group; or (2) other industry considerations strongly suggest 
that the anchor size standard would be an unreasonably high size 
standard for the industry.
    If the specific industry's characteristics are significantly higher 
than those of the anchor comparison group, a size standard higher than 
the anchor size standard may be appropriate. The larger the differences 
are between the characteristics of the industry under review and those 
of the anchor comparison group, the larger will be the difference 
between the appropriate industry size standard and the anchor size 
standard. To determine a size standard above the anchor size standard, 
SBA analyzes the characteristics of a second comparison group. For 
industries with receipts based size standards, including those in NAICS 
Sector 71 that are reviewed in this proposed rule, SBA has developed a 
second comparison group consisting of industries with the highest 
levels of receipts based size standards. To determine the level of a 
size standard above the anchor size standard, SBA analyzes the 
characteristics of this second comparison group. The size standards for 
this group of industries range from $23 million to $35.5 million in 
average annual receipts, with the weighted average size standard for 
the group being $29 million. SBA refers to this comparison group as the 
``higher level receipts based size standard group.''
    The primary factors that SBA evaluates when analyzing the 
structural characteristics of an industry include average firm size, 
startup costs and entry barriers, industry competition, and 
distribution of firms by size. SBA also evaluates, as an additional 
primary factor, the possible impact that revising size standards might 
have on Federal contracting assistance to small businesses. These are, 
generally, the five most important factors SBA examines when 
establishing or revising a size standard for an industry. However, SBA 
will also consider and evaluate other information that it believes is 
relevant to a particular industry (such as technological changes, 
growth trends, SBA's financial assistance, other program factors, 
etc.). SBA also considers possible impacts of size standard revisions 
on eligibility for Federal small business assistance, current economic 
conditions, the Administration's policies, and suggestions from 
industry groups and Federal agencies. Public comments on a proposed 
rule also provide important additional information. SBA thoroughly 
reviews all public comments before making a final decision on its 
proposed size standard. Below are brief descriptions of each of the 
five primary

[[Page 42214]]

factors that SBA has evaluated in each industry in NAICS Sector 71 
being reviewed in this proposed rule. A more detailed description of 
this analysis is provided in the SBA's ``Size Standards Methodology,'' 
available at http://www.sba.gov/size.
    1. Average firm size. SBA computes two measures of average firm 
size: Simple average and weighted average. For industries with receipts 
based size standards, the simple average is the total receipts of the 
industry divided by the total number of firms in the industry. The 
weighted average firm size is the sum of weighted simple averages in 
different receipts size classes, where weights are the shares of total 
industry receipts for respective size classes. The simple average 
weighs all firms within an industry equally, regardless of their size. 
The weighted average overcomes that limitation by giving more weight to 
larger firms.
    If the average firm size of an industry under review is 
significantly higher than the average firm size of industries in the 
anchor comparison industry group, this will generally support a size 
standard higher than the anchor size standard. Conversely, if the 
industry's average firm size is similar to or significantly lower than 
that of the anchor comparison industry group, it will be a basis to 
adopt the anchor size standard, or, in rare cases, a standard lower 
than the anchor.
    2. Startup costs and entry barriers. Startup costs reflect a firm's 
initial size in an industry. New entrants to an industry must have 
sufficient capital and other assets to start and maintain a viable 
business. If new firms entering a particular industry have greater 
capital requirements than firms in industries in the anchor comparison 
group, this can be a basis for establishing a size standard higher than 
the anchor standard. In lieu of data on actual startup costs, SBA uses 
average assets as a proxy measure to assess the levels of capital 
requirements for new entrants to an industry.
    To calculate average assets, SBA begins with the sales to total 
assets ratio for an industry from the Risk Management Association's 
Annual Statement Studies. The SBA then applies these ratios to the 
average receipts of firms in that industry. An industry with a 
significantly higher level of average assets than that of the anchor 
comparison group is likely to have higher startup costs; this in turn 
will support a size standard higher than the anchor. Conversely, if the 
industry has a significantly smaller average assets compared to the 
anchor comparison group, the anchor size standard, or, in rare cases, 
one lower than the anchor, may be appropriate.
    3. Industry competition. Industry competition is generally measured 
by the share of total industry receipts generated by the largest firms 
in an industry. SBA generally evaluates the share of industry receipts 
generated by the four largest firms in each industry. This is referred 
to as the ``four-firm concentration ratio,'' a commonly used economic 
measure of market competition. SBA compares the four-firm concentration 
ratio for an industry under review to the average four-firm 
concentration ratio for industries in the anchor comparison group. If a 
significant share of economic activity within the industry is 
concentrated among a few relatively large companies, all else being 
equal, SBA will establish a size standard higher than the anchor size 
standard. SBA does not consider the four-firm concentration ratio as an 
important factor in assessing a size standard if its value for an 
industry under review is less than 40 percent. For industries in which 
the four-firm concentration ratio is 40 percent or more, SBA examines 
the average size of the four largest firms in determining a size 
standard.
    4. Distribution of firms by size. SBA examines the shares of 
industry total receipts accounted for by firms of different receipts 
and employment size classes in an industry. This is an additional 
factor that SBA evaluates in assessing competition within an industry. 
If most of an industry's economic activity is attributable to smaller 
firms, this would indicate that small businesses are competitive in 
that industry. This supports adopting the anchor size standard. If most 
of an industry's economic activity is attributable to larger firms, 
this would indicate that small businesses are not competitive in that 
industry. This would support adopting a size standard above the anchor.
    Concentration among firms is a measure of inequality of 
distribution. To evaluate the degree of inequality of distribution 
within an industry, SBA computes the Gini coefficient by constructing 
the Lorenz curve. The Lorenz curve presents the cumulative percentages 
of units (firms) along the horizontal axis and the cumulative 
percentages of receipts (or other measures of size) along the vertical 
axis. (For further detail, please refer to SBA's ``Size Standards 
Methodology'' on its Web site at www.sba.gov/size.) Gini coefficient 
values vary from zero to one. If an industry's total receipts reflect 
equal distribution among the industries, the Gini coefficient will 
equal zero. If a single firm accounts for an industry's total receipts, 
the Gini coefficient will equal one.
    SBA compares the Gini coefficient value for an industry under 
review with that for industries in the anchor comparison group. If an 
industry shows a higher Gini coefficient value than industries in the 
anchor comparison industry group this may, all else being equal, 
warrant a higher size standard than the anchor. Conversely, if an 
industry shows a similar or lower Gini coefficient than industries in 
the anchor group, the anchor standard, or, in some cases, a standard 
lower than the anchor, may be adopted.
    5. Impact on Federal contracting and SBA's loan programs. SBA 
examines the possible impact a size standard change may have on Federal 
small business assistance. This most often focuses on the share of 
Federal contracting dollars awarded to small businesses in the industry 
in question. In general, if the small business share of Federal 
contracting in an industry with significant Federal contracting is 
appreciably less than the small business share of the industry's total 
receipts, there is justification for considering a size standard higher 
than the existing size standard. The disparity between the small 
business Federal market share and industry-wide small business share 
may be due to various factors, such as extensive administrative and 
compliance requirements associated with Federal contracts, different 
skill sets required for Federal contracts as compared to typical 
commercial contracting work, and the size of Federal contracts. These, 
and other factors, will likely influence the type of firms that compete 
for Federal contracts. By comparing the Federal contracting small 
business share with the industry-wide small business share, SBA 
includes in its size standards analysis the latest Federal contracting 
trends. This analysis may support a size standard larger than the 
current size standard.
    SBA considers Federal contracting trends in the size standards 
analysis only if: (1) The small business share of Federal contracting 
dollars is at least 10 percent lower than the small business share of 
total industry receipts; and (2) the amount of total Federal 
contracting averages $100 million or more during the latest three 
fiscal years. These thresholds reflect a significant level of 
contracting where a revision to a size standard may have an impact on 
contracting opportunities to small businesses.
    Besides the impact on small business Federal contracting, SBA also 
evaluates

[[Page 42215]]

the influence of a proposed size standard on SBA's loan programs. For 
this, SBA examines the volume and number of SBA's guaranteed loans 
within an industry and the size of firms obtaining those loans. This 
allows SBA to assess whether the existing or proposed size standard for 
a particular industry may restrict the level of financial assistance to 
small firms. If the analysis shows that current size standards have 
impeded financial assistance to small businesses, this can support 
higher size standards. However, if small businesses under current size 
standards have been receiving significant amounts of financial 
assistance through SBA's loan programs, or if the businesses receiving 
SBA's financial assistance are much smaller than the existing size 
standards, this factor may not be considered in determining the size 
standards.

Sources of Industry and Program Data

    The SBA's primary source of industry data used in this proposed 
rule is a special tabulation of the data from 2007 Economic Census (see 
www.census.gov/econ/census07/) prepared by the U.S. Bureau of the 
Census (Census Bureau) for the Agency. The special tabulation provides 
SBA with data on the number of firms, number of establishments, number 
of employees, annual payroll, and annual receipts of companies by NAICS 
Sector (2-digit level), Subsector (3-digit level), Industry Group (4-
digit level), Industry (6-digit level). These data are arrayed by 
various classes of firms' size based on the overall number of employees 
and receipts of the entire enterprise (all establishments and 
affiliated firms) from all industries. The special tabulation enables 
SBA to evaluate average firm size, the four-firm concentration ratio, 
and distribution of firms by various receipts and employment size 
classes.
    In some cases, where data were not available due to disclosure 
prohibitions in the Census Bureau's tabulation, SBA either estimated 
missing values using available relevant data or examined data at a 
higher level of industry aggregation, such as at the NAICS 2-digit 
(Sector), 3-digit (Subsector) or 4-digit (Industry Group) level. In 
some instances, SBA had to base its analysis only on those factors for 
which data were available or estimates of missing values were possible.
    To calculate average assets, SBA used sales to total assets ratios 
from the Risk Management Association's Annual Statement Studies, 2008-
2010.
    To evaluate Federal contracting trends, SBA examined data on 
Federal contract awards for fiscal years 2008-2010. The data are 
available from the U.S. General Service Administration's Federal 
Procurement Data System--Next Generation (FPDS-NG).
    To assess the impact on financial assistance to small businesses, 
SBA examined data on its own guaranteed loan programs for fiscal years 
2008-2010.
    Data sources and estimation procedures SBA uses in its size 
standards analysis are documented in detail in the SBA's ``Size 
Standards Methodology'' White Paper, which is available at www.sba.gov/size.

Dominance in Field of Operation

    Section 3(a) of the Small Business Act (15 U.S.C. Sec.  632(a)) 
defines a small business concern as one that is: (1) Independently 
owned and operated; (2) not dominant in its field of operation; and (3) 
within a specific small business definition or size standard 
established by the SBA's Administrator. SBA considers as part of its 
evaluation whether a business concern at a proposed size standard would 
be dominant in its field of operation. For this, SBA generally examines 
the industry's market share of firms at the proposed size standard. 
Market share and other factors may indicate whether a firm can exercise 
a major controlling influence on a national basis in an industry where 
a significant number of business concerns are engaged. If a 
contemplated size standard would include a dominant firm, SBA would 
consider a lower size standard to exclude the dominant firm from being 
defined as small.

Selection of Size Standards

    To simplify size standards for the ongoing comprehensive review of 
receipts based size standards, SBA has proposed to select size 
standards from a limited number of levels. For many years, SBA has been 
concerned about the complexity of determining small business status 
caused by a large number of varying receipts based size standards (see 
69 FR 13130 (March 4, 2004) and 57 FR 62515 (December 31, 1992)). At 
the start of current comprehensive size standards review, there were 31 
different levels of receipts based size standards. They ranged from 
$0.75 million to $35.5 million, and many of them applied to one or only 
a few industries. SBA believes that to have so many different size 
standards with small variations among them is unnecessary and difficult 
to justify analytically. To simplify managing and using size standards, 
SBA proposes that there be fewer size standard levels. This will 
produce more common size standards for businesses operating in related 
industries. This will also result in greater consistency among the size 
standards for industries that have similar economic characteristics.
    SBA proposes, therefore, to apply one of eight receipts based size 
standards to each industry in NAICS Sector 71. The eight ``fixed'' 
receipts based size standard levels are $5 million, $7 million, $10 
million, $14 million, $19 million, $25.5 million, $30 million, and 
$35.5 million. To establish these eight receipts based size standard 
levels, SBA considered the current minimum, the current maximum, and 
the most commonly used current receipts based size standards. At the 
start of the current comprehensive size standards review, the most 
commonly used receipts based size standards clustered around the 
following: $2.5 million to $4.5 million, $7 million, $9 million to $10 
million, $12.5 million to $14.0 million, $25.0 million to $25.5 
million, and $33.5 million to $35.5 million. SBA selected $7 million as 
one of eight fixed levels of receipts based size standards because it 
is also an anchor standard for receipts based standards. The lowest or 
minimum receipts based size level will be $5 million. Other than the 
size standards for agriculture and those based on commissions (such as 
real estate brokers and travel agents), $5 million include those 
industries with the lowest receipts based standards, which ranged from 
$2 million to $4.5 million. Among the higher level size clusters, SBA 
has set four fixed levels: $10 million, $14 million, $25.5 million, and 
$35.5 million. Because there are large intervals between some of the 
fixed levels, SBA also established two intermediate levels: Namely, $19 
million between $14 million and $25.5 million, and $30 million between 
$25.5 million and $35.5 million. These two intermediate levels reflect 
roughly the same proportional differences as between the other two 
successive levels.
    To simplify size standards further, SBA may propose a common size 
standard for closely related industries. Although the size standard 
analysis may support a separate size standard for each industry, SBA 
believes that establishing different size standards for closely related 
industries may not always be appropriate. For example, in cases where 
many of the same businesses operate in the same multiple industries, a 
common size standard for those industries might better reflect the 
Federal marketplace. This might also make size standards among related 
industries more consistent than separate size standards for each of 
those industries. All industries in NAICS

[[Page 42216]]

Sector 71 currently have the common $7 million size standard. However, 
the latest industry data neither supported the current common $7 
million nor a different common size standard for all industries within 
the Sector. Furthermore, the industry specific results showed too much 
variation to support common size standards for industries even at the 
4-Digit NAICS Industry Group level.

Evaluation of Industry Structure

    SBA evaluated the structure of all 25 industries in NAICS Sector 
71, Arts, Entertainment and Recreation, to assess the appropriateness 
of the current size standards. As described above, SBA compared data on 
the economic characteristics of each industry in NAICS Sector 71 to the 
average characteristics of industries in two comparison groups. The 
first comparison group consists of all industries with $7.0 million 
size standards and is referred to as the ``receipts based anchor 
comparison group.'' Because the goal of SBA's size standards review is 
to assess whether a specific industry's size standard should be the 
same as or different from the anchor size standard, this is the most 
logical group of industries to analyze. In addition, this group 
includes a sufficient number of firms to provide a meaningful 
assessment and comparison of industry characteristics.
    If the characteristics of an industry under review are similar to 
the average characteristics of industries in the anchor comparison 
group, the anchor size standard is generally considered appropriate for 
that industry. If an industry's structure is significantly different 
from industries in the anchor group, a size standard lower or higher 
than the anchor size standard might be appropriate. The level of the 
new size standard is based on the difference between the 
characteristics of the anchor comparison group and a second industry 
comparison group. As described above, the second comparison group for 
receipts based size standards consists of industries with the highest 
receipts based size standards, ranging from $23 million to $35.5 
million. The average size standard for this group is $29 million. SBA 
refers to this group of industries as the ``higher level receipts based 
size standard comparison group.'' SBA determines differences in 
industry structure between an industry under review and the industries 
in the two comparison groups by comparing data on each of the industry 
factors, including average firm size, average assets size, the four-
firm concentration ratio, and the Gini coefficient of distribution of 
firms by size. Table 1, Average Characteristics of Receipts Based 
Comparison Groups, below, shows two measures of the average firm size 
(simple and weighted), the average assets size, the four-firm 
concentration ratio, the average receipts of the four largest firms, 
and the Gini coefficient for both anchor level and higher level 
comparison groups for receipts based size standards.

                                          Table 1--Average Characteristics of Receipts Based Comparison Groups
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Avg. firm size  ($ million)                                    Avg. receipts
                                                         --------------------------------   Avg. assets      Four-firm        of four          Gini
             Receipts based comparison group                  Simple         Weighted        size  ($      concentration   largest firms    coefficient
                                                              average         average        million)       ratio  (%)     ($ million) *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Anchor Level............................................            1.32           19.63            0.84            16.6           196.4           0.693
Higher Level............................................            5.07          116.84            3.20            32.1         1,376.0           0.830
--------------------------------------------------------------------------------------------------------------------------------------------------------
* To be used for industries with a four-firm concentration ratio of 40% or greater.

Derivation of Size Standards Based on Industry Factors

    For each industry factor in Table 1, Average Characteristics of 
Receipts Based Comparison Groups, above, SBA derives a separate size 
standard based on the differences between the values for the industry 
under review and the values for the two comparison groups. If the 
industry value for a particular factor is near the corresponding factor 
for the anchor comparison group, SBA will consider the $7.0 million 
anchor size standard appropriate for that factor.
    An industry factor with a value significantly above or below the 
anchor comparison group will generally warrant a size standard above or 
below the $7.0 million anchor. The new size standard in these cases is 
based on the proportional difference between the industry value and the 
values for the two comparison groups.
    For example, if an industry's simple average receipts are $3.3 
million, that would support a $19 million size standard. The $3.3 
million level is 52.8 percent between the average firm size of $1.32 
million for the anchor comparison group and $5.07 million for the 
higher level comparison group (($3.30 million-$1.32 million) / ($5.07 
million-$1.32 million) = 0.528 or 52.8%). This proportional difference 
is applied to the difference between the $7.0 million anchor size 
standard and average size standard of $29 million for the higher level 
size standard group and then added to $7.0 million to estimate a size 
standard of $18.616 million ([{$29.0 million-$7.0 million{time}  * 
0.528] + $7.0 million = $18.616 million). The final step is to round 
the estimated $18.616 million size standard to the nearest fixed size 
standard level, which in this example is $19 million.
    SBA applies the above calculation to derive a size standard for 
each industry factor. Detailed formulas involved in these calculations 
are presented in the SBA's ``Size Standards Methodology,'' available on 
SBA's Web site at www.sba.gov/size. (However, note that figures in the 
``Size Standards Methodology'' White Paper are based on 2002 Economic 
Census data and are different from those presented in this proposed 
rule. That is because when SBA prepared its ``Size Standards 
Methodology,'' the 2007 Economic Census data were not yet available.) 
Table 2, Values of Industry Factors and Support Size Standards, below, 
shows ranges of values for each industry factor and the levels of size 
standards supported by those values.

[[Page 42217]]



                        Table 2--Values of Industry Factors and Supported Size Standards
----------------------------------------------------------------------------------------------------------------
                                                                  Or if  avg.
                              Or if  weighted    Or if  avg.      receipts of                       Then  size
  If  simple avg.  receipts    avg.  receipts  assets size  ($    largest four     Or if  Gini      standard is
      size  ($ million)           size  ($         million)        firms  ($       coefficient      ($ million)
                                  million)                          million)
----------------------------------------------------------------------------------------------------------------
<1.15.......................  <15.22.........  <0.73..........  <142.8.........  <0.686.........             5.0
1.15 to 1.57................  15.22 to 26.26.  0.73 to 1.00...  142.8 to 276.9.  0.686 to 0.702.             7.0
1.58 to 2.17................  26.27 to 41.73.  1.01 to 1.37...  277.0 to 464.5.  0.703 to 0.724.            10.0
2.18 to 2.94................  41.74 to 61.61.  1.38 to 1.86...  464.6 to 705.8.  0.725 to 0.752.            14.0
2.95 to 3.92................  61.62 to 87.02.  1.87 to 2.48...  705.9 to         0.753 to 0.788.            19.0
                                                                 1,014.1.
3.93 to 4.86................  87.03 to 111.32  2.49 to 3.07...  1,014.2 to       0.789 to 0.822.            25.5
                                                                 1,309.0.
4.87 to 5.71................  111.33 to        3.08 to 3.61...  1,309.1 to       0.823 to 0.853.            30.0
                               133.41.                           1,577.1.
>5.71.......................  >133.41........  >3.61..........  >1,577.1.......  >0.853.........            35.5
----------------------------------------------------------------------------------------------------------------

Derivation of Size Standards Based on Federal Contracting Factor

    Besides industry structure, SBA also evaluates Federal contracting 
data to assess how successful small businesses are at obtaining Federal 
contracts under current size standards. For the current comprehensive 
size standards review, SBA has decided to designate a size standard at 
one level higher than the current size standard for industries where 
the small business share of total Federal contracting dollars is 10 to 
30 percentage points lower than the small business share of total 
industry receipts and at two levels higher than the current size 
standard where the difference is more than 30 percentage points.
    Because of the complex relationships among several variables 
affecting small business participation in the Federal marketplace, SBA 
has chosen not to designate a size standard for the Federal contracting 
factor alone that is higher than two levels above the current size 
standard. SBA believes that a larger adjustment to size standards based 
on Federal contracting activity should be based on a more detailed 
analysis of the impact of any subsequent revision to the current size 
standard. In limited situations, however, SBA may conduct a more 
extensive examination of Federal contracting experience. This may 
enable SBA to support a different size standard than indicated by this 
general rule and take into consideration significant and unique aspects 
of small business competitiveness in the Federal contract market. SBA 
welcomes comments on its methodology of incorporating the Federal 
contracting factor in the size standard analysis and suggestions for 
alternative methods and other relevant information on small business 
experience in the Federal contract market.
    None of the 25 industries in NAICS Sector 71 averaged $100 million 
or more annually in Federal contracting during fiscal years 2008-2010, 
suggesting that Federal contracting activity is insignificant in that 
Sector. In fact, based on data for fiscal years 2008-2010, Federal 
contracting for the entire Sector was less than $90 million. 
Accordingly, the Federal contracting factor is not factored in to 
calculate the new size standards for all industries in NAICS Sector 71.

New Size Standards Based on Industry Factors

    Table 3, Size Standards Supported by Each Factor for Each Industry 
(millions of dollars), below, shows the results of analyses of industry 
factors for each industry in NAICS Sector 71. Many of the NAICS 
industries in columns 2, 3, 4, 6, and 7 show two numbers. The upper 
number is the value for the industry factor shown on the top of the 
column and the lower number is the size standard supported by that 
factor. For the four-firm concentration ratio, SBA estimates a size 
standard if its value is 40 percent or more. If the four-firm 
concentration ratio for an industry is less than 40 percent, there is 
no estimated size standard for that factor. If the four-firm 
concentration ratio is more than 40 percent, SBA indicates in column 6 
the average size of the industry's top four firms together with a size 
standard based on that average. As mentioned earlier, since the Federal 
contracting factor was significant in none of the industries in NAICS 
Sector 71, no size standard was estimated for that factor. Column 8 
shows a calculated new size standard for each industry. This is the 
average of the size standards supported by each industry factor and 
rounded to the nearest fixed size level. Analytical details involved in 
the averaging procedure are described in the SBA's ``Size Standard 
Methodology.'' For comparison with the new standards, the current size 
standards are in column 9 of Table 3, Size Standards Supported by Each 
Factor for Each Industry (millions of dollars), below.

[[Page 42218]]



                                                               Table 3--Size Standards Supported by Each Factor for Each Industry
                                                                                      [Millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Weighted
                                                                  Simple average   average firm   Average assets     Four-firm       Four-firm         Gini       Calculated new   Current size
                    NAICS Code/industry title                      firm size  ($     size  ($        size  ($       ratio  (%)     average size     coefficient    size standard   standard  ($
                                                                     million)        million)        million)                       ($ million)                     ($ million)      million)
(1)                                                                          (2)             (3)             (4)             (5)             (6)             (7)             (8)             (9)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
711110 Theater Companies and Dinner Theaters....................            $2.1           $28.0            $1.6            14.7          $252.7           0.793  ..............  ..............
                                                                            10.0            10.0            14.0                                           $25.5           $19.0            $7.0
711120 Dance Companies..........................................             1.1            15.1  ..............            23.1            34.5           0.738  ..............  ..............
                                                                             7.0             5.0                                                           $14.0            10.0             7.0
711130 Musical Groups and Artists...............................             1.1            16.0             1.3             6.8            87.6           0.728  ..............  ..............
                                                                             5.0             7.0            10.0                                           $14.0            10.0             7.0
711190 Other Performing Arts Companies..........................             2.5           227.4  ..............            64.6           156.4           0.867  ..............  ..............
                                                                            14.0            35.5                                             7.0           $35.5            25.5             7.0
711211 Sports Teams and Clubs...................................            25.1           152.4            26.8             7.5           353.2           0.833  ..............  ..............
                                                                            35.5            35.5            35.5                                           $30.0            35.5             7.0
711212 Race Tracks..............................................            13.4           162.3            11.8            30.5           624.5           0.886  ..............  ..............
                                                                            35.5            35.5            35.5                                           $35.5            35.5             7.0
711219 Other Spectator Sports...................................             1.3            20.1  ..............            14.5           124.1           0.727  ..............  ..............
                                                                             7.0             7.0                                                           $14.0            10.0             7.0
711310 Promoters of Performing Arts, Sports and Similar Events               4.2            69.7             5.7            37.6           920.7           0.852  ..............  ..............
 with Facilities................................................            25.5            19.0            35.5                                           $30.0            30.0             7.0
711320 Promoters of Performing Arts, Sports and Similar Events               1.6            32.5  ..............            24.8           393.5           0.756  ..............  ..............
 without Facilities.............................................            10.0            10.0                                                           $19.0            14.0             7.0
711410 Agents and Managers for Artists, Athletes, Entertainers               1.4            25.2  ..............            16.8           207.1           0.736  ..............  ..............
 and Other Public Figures.......................................             7.0             7.0                                                           $14.0            10.0             7.0
711510 Independent Artists, Writers, and Performers.............             0.6             7.5  ..............             3.1           100.4           0.581  ..............  ..............
                                                                             5.0             5.0                                                            $5.0             5.0             7.0
712110 Museums..................................................             2.0            39.8             6.8            11.8           270.7           0.823  ..............  ..............
                                                                            10.0            10.0            35.5                                           $30.0            25.5             7.0
712120 Historical Sites.........................................             0.7             6.8  ..............            18.7            34.1           0.634  ..............  ..............
                                                                             5.0             5.0                                                            $5.0             5.0             7.0
712130 Zoos and Botanical Gardens...............................             5.1            42.8            12.7            19.1           133.0           0.804  ..............  ..............
                                                                            30.0            14.0            35.5                                           $25.5            25.5             7.0
712190 Nature Parks and Other Similar Institutions..............             1.1             7.9  ..............            29.5            43.9           0.654  ..............  ..............
                                                                             5.0             5.0                                                            $5.0             5.0             7.0
713110 Amusement and Theme Parks................................            30.5           633.7            36.6            70.7         2,101.3           0.926  ..............  ..............
                                                                            35.5            35.5            35.5                            35.5           $35.5            35.5             7.0
713120 Amusement Arcades........................................             0.7             9.1             0.6            16.5            68.3           0.598  ..............  ..............
                                                                             5.0             5.0             5.0                                            $5.0             5.0             7.0
713210 Casinos (except Casino Hotels)...........................            67.0           189.2            54.4            15.9           660.0           0.638  ..............  ..............
                                                                            35.5            35.5            35.5                                            $5.0            25.5             7.0
713290 Other Gambling Industries................................             5.6            74.6  ..............            18.4           395.0           0.850  ..............  ..............
                                                                            30.0            19.0                                                           $30.0            30.0             7.0
713910 Golf Courses and Country Clubs...........................             1.9             8.3             3.1             6.6           347.7           0.640  ..............  ..............
                                                                            10.0             5.0            30.0                                            $5.0            14.0             7.0
713920 Skiing Facilities........................................             6.6            64.0             8.2            41.9           236.5           0.817  ..............  ..............
                                                                            35.5            19.0            35.5                             7.0           $25.5            25.5             7.0

[[Page 42219]]

 
713930 Marinas..................................................             1.0             3.3             1.4             3.0            30.7           0.538  ..............  ..............
                                                                             5.0             5.0            14.0                                            $5.0             7.0             7.0
713940 Fitness and Recreational Sports Centers..................             0.8            18.2             0.8            15.5           831.8           0.711  ..............  ..............
                                                                             5.0             7.0             7.0                                           $10.0             7.0             7.0
713950 Bowling Centers..........................................             0.9            22.8             0.8            22.1           188.0           0.543  ..............  ..............
                                                                             5.0             7.0             7.0                                            $5.0             7.0             7.0
713990 All Other Amusement and Recreation Industries............             0.5             3.0             0.4             5.7           105.0           0.499  ..............  ..............
                                                                             5.0             5.0             5.0                                            $5.0             5.0             7.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 42220]]

Evaluation of SBA Loan Data

    Before deciding on an industry's size standard, SBA also considers 
the impact of new or revised standards on SBA's loan programs. 
Accordingly, SBA examined its 7(a) and 504 Loan Program data for fiscal 
years 2008-2010 to assess whether the existing or proposed size 
standards need further adjustments to ensure credit opportunities for 
small businesses through those programs. For the industries reviewed in 
this rule, the data show that it is mostly small businesses much 
smaller than the current size standards that use the SBA's 7(a) and 504 
loans. Therefore, no size standard in NAICS Sector 71, Arts, 
Entertainment, and Recreation, needs an adjustment based on this 
factor.

Proposed Changes to Size Standards

    Table 4, Summary of Size Standards Analysis, below, summarizes the 
results of SBA analyses of size standards from Table 3, Size Standards 
Supported by Each Factor for Each Industry (millions of dollars), 
above. The results support increases in size standards in 17 
industries, decreases in five industries, and no change in three 
industries.

               Table 4--Summary of Size Standards Analysis
------------------------------------------------------------------------
                                           Current size   Calculated new
  NAICS Industry code    NAICS Industry    standard  ($    size standard
                              title          million)       ($ million)
------------------------------------------------------------------------
711110................  Theater                     $7.0           $19.0
                         Companies and
                         Dinner Theaters.
711120................  Dance Companies.             7.0            10.0
711130................  Musical Groups               7.0            10.0
                         and Artists.
711190................  Other Performing             7.0            25.5
                         Arts Companies.
711211................  Sports Teams and             7.0            35.5
                         Clubs.
711212................  Race Tracks.....             7.0            35.5
711219................  Other Spectator              7.0            10.0
                         Sports.
711310................  Promoters of                 7.0            30.0
                         Performing
                         Arts, Sports
                         and Similar
                         Events with
                         Facilities.
711320................  Promoters of                 7.0            14.0
                         Performing
                         Arts, Sports
                         and Similar
                         Events without
                         Facilities.
711410................  Agents and                   7.0            10.0
                         Managers for
                         Artists,
                         Athletes,
                         Entertainers
                         and Other
                         Public Figures.
711510................  Independent                  7.0             5.0
                         Artists,
                         Writers, and
                         Performers.
712110................  Museums.........             7.0            25.5
712120................  Historical Sites             7.0             5.0
712130................  Zoos and                     7.0            25.5
                         Botanical
                         Gardens.
712190................  Nature Parks and             7.0             5.0
                         Other Similar
                         Institutions.
713110................  Amusement and                7.0            35.5
                         Theme Parks.
713120................  Amusement                    7.0             5.0
                         Arcades.
713210................  Casinos (except              7.0            25.5
                         Casino Hotels).
713290................  Other Gambling               7.0            30.0
                         Industries.
713910................  Golf Courses and             7.0            14.0
                         Country Clubs.
713920................  Skiing                       7.0            25.5
                         Facilities.
713930................  Marinas.........             7.0             7.0
713940................  Fitness and                  7.0             7.0
                         Recreational
                         Sports Centers.
713950................  Bowling Centers.             7.0             7.0
713990................  All Other                    7.0             5.0
                         Amusement and
                         Recreation
                         Industries.
------------------------------------------------------------------------

    However, lowering small business size standards is not in the best 
interest of small businesses in the current economic environment. The 
U.S. economy was in recession from December 2007 to June 2009, the 
longest and deepest of any recessions since World War II. The economy 
lost more than eight million non-farm jobs during 2008-2009. In 
response, Congress passed and the President signed into law the 
American Recovery and Reinvestment Act of 2009 (Recovery Act) to 
promote economic recovery and to preserve and create jobs. Although the 
recession officially ended in June 2009, the unemployment rate is still 
high at 8.2 percent in June 2012 and is forecast to remain around this 
level at least through the end of 2012. More recently, Congress passed 
and the President signed the Small Business Jobs Act of 2010 (Jobs Act) 
to promote small business job creation. The Jobs Act puts more capital 
into the hands of entrepreneurs and small business owners; strengthens 
small businesses' ability to compete for contracts; includes 
recommendations from the President's Task Force on Federal Contracting 
Opportunities for Small Business; creates a better playing field for 
small businesses; promotes small business exporting, building on the 
President's National Export Initiative; expands training and 
counseling; and provides $12 billion in tax relief to help small 
businesses invest in their firms and create jobs.
    Reducing size standards based solely on analytical results would 
decrease the number of firms that could participate in Federal 
financial and procurement assistance for small businesses. That would 
run counter to what SBA and the Federal government are doing to help 
small businesses. Reducing size eligibility for Federal procurement 
opportunities, especially under current economic conditions, would not 
preserve or create more jobs; rather, it would have the opposite 
effect. Therefore, in this proposed rule, SBA has decided not to 
propose reducing the size standards for any industries. For industries 
where analyses might seem to support lowering size standards, SBA 
proposes to retain the current size standards. As stated previously, 
the Small Business Act requires the Administrator to ``* * * consider 
other factors deemed to be relevant * * *'' to establishing small 
business size standards. The current economic conditions and the impact 
on job creation are quite relevant to establishing small business size 
standards. SBA, nevertheless, invites comments and suggestions on 
whether it should lower size standards as suggested by analyses of 
industry and program data or retain the current standards for those 
industries in view of current economic conditions.
    As discussed above, SBA has decided that lowering small business 
size standards would be inconsistent with what the Federal government 
is doing to

[[Page 42221]]

stimulate the economy and encourage job growth through the Recovery Act 
and the Jobs Act. Therefore, for those five industries for which 
analyses suggested decreasing their size standards, SBA proposes to 
retain the current size standards. Thus, of the 25 industries in NAICS 
Sector 71 that were reviewed in this proposed rule, SBA proposes to 
increase size standards for 17 industries and retain the current size 
standards for eight industries. Industries for which SBA has proposed 
to increase their size standards and proposed size standards are in 
Table 5, Summary of Proposed Size Standard Revisions, below.
    In addition, not lowering size standards in NAICS Sector 71 is 
consistent with SBA's prior actions for NAICS Sector 44-45 (Retail 
Trade), NAICS Sector 72 (Accommodation and Food Services), and NAICS 
Sector 81 (Other Services) that the Agency proposed (74 FR 53924, 74 FR 
53913, and 74 FR 53941, (October 21, 2009)) and adopted in its final 
rules (75 FR 61597, 75 FR 61604, and 75 FR 61591, (October 6, 2010)). 
It is also consistent with the Agency's recently issued proposed rule 
(76 FR 14323 (March 16, 2011)) and final rule (77 FR 7490 (February 10, 
2012)) for NAICS Sector 54, Professional, Scientific and Technical 
Services, and proposed rules for NAICS Sector 54, Professional, 
Technical, and Scientific Services (76 FR 14323 (March 16, 2011)), 
NAICS Sector 48-49, Transportation and Warehousing (76 FR 27935 (May 
13, 2011)), NAICS Sector 51, Information (76 FR 63216 (October 12, 
2011)), NAICS Sector 56, Administrative and Support, Waste Management 
and Remediation Services (76 FR 63510 (October 12, 2011)), NAICS Sector 
61, Educational Services (76 FR 70667 (November 15, 2011)), and NAICS 
Sector 53, Real Estate and Rental and Leasing (76 FR 70680 (November 
15, 2011)). In each of those final and proposed rules, SBA opted not to 
reduce small business size standards, for the same reasons it has 
provided above in this proposed rule. On those proposed rules, SBA 
received very few comments stating that the lower size standard should 
be adopted rather than retaining the current size standard. In those 
cases, SBA carefully evaluated those comments along with others 
received on that industry's size standard before making a final 
decision.

          Table 5--Summary of Proposed Size Standard Revisions
------------------------------------------------------------------------
                                           Current size    Proposed size
      NAICS Code         NAICS Industry    standard  ($    standard  ($
                              title          million)        million)
------------------------------------------------------------------------
711110................  Theater                     $7.0           $19.0
                         Companies and
                         Dinner Theaters.
711120................  Dance Companies.             7.0            10.0
711130................  Musical Groups               7.0            10.0
                         and Artists.
711190................  Other Performing             7.0            25.5
                         Arts Companies.
711211................  Sports Teams and             7.0            35.5
                         Clubs.
711212................  Race Tracks.....             7.0            35.5
711219................  Other Spectator              7.0            10.0
                         Sports.
711310................  Promoters of                 7.0            30.0
                         Performing
                         Arts, Sports
                         and Similar
                         Events with
                         Facilities.
711320................  Promoters of                 7.0            14.0
                         Performing
                         Arts, Sports
                         and Similar
                         Events without
                         Facilities.
711410................  Agents and                   7.0            10.0
                         Managers for
                         Artists,
                         Athletes,
                         Entertainers
                         and Other
                         Public Figures.
712110................  Museums.........             7.0            25.5
712130................  Zoos and                     7.0            25.5
                         Botanical
                         Gardens.
713110................  Amusement and                7.0            35.5
                         Theme Parks.
713210................  Casinos (except              7.0            25.5
                         Casino Hotels).
713290................  Other Gambling               7.0            30.0
                         Industries.
713910................  Golf Courses and             7.0            14.0
                         Country Clubs.
713920................  Skiing                       7.0            25.5
                         Facilities.
------------------------------------------------------------------------

Evaluation of Dominance in Field of Operation

    SBA has determined that for the industries in NAICS Sector 71, 
Arts, Entertainment, and Recreation, for which it has proposed to 
increase size standards, no firm at or below the proposed size standard 
is large enough to dominate its field of operation. At the proposed 
size standards, if adopted, the small business shares of total industry 
receipts among those industries vary from less than 0.1 percent to 2.4 
percent, with an average of 0.5 percent. These levels of market share 
effectively preclude a firm at or below the proposed size standards 
from exerting control on its industry.

Request for Comments

    SBA invites public comments on the proposed rule, especially on the 
following issues.
    1. To simplify size standards, SBA proposes eight fixed size levels 
for receipts based size standards: $5 million, $7 million, $10 million, 
$14 million, $19 million, $25.5 million, $30 million, and $35.5 
million. SBA invites comments on whether simplification of size 
standards in this way is necessary and if these proposed fixed size 
levels are appropriate. SBA welcomes suggestions on alternative 
approaches to simplifying small business size standards.
    2. SBA seeks feedback on whether the proposed levels of size 
standards are appropriate given the economic characteristics of each 
industry. SBA also seeks feedback and suggestions on alternative size 
standards, if they would be more appropriate, including whether an 
employee based size standard for certain industries or exceptions is a 
more suitable measure of size, and if so, what that employee level 
should be.
    3. The SBA's proposed size standards are based on its evaluation of 
five primary factors: Average firm size, average assets size (a proxy 
for startup costs and entry barriers), four-firm concentration ratio, 
distribution of firms by size, and the level and small business share 
of Federal contracting dollars. SBA welcomes comments on these factors 
and/or suggestions on other factors that it should consider in 
assessing industry characteristics when evaluating or revising size 
standards. SBA also seeks information on relevant data sources, if 
available, that it should consider.
    4. SBA gives equal weight to each of the five primary factors for 
all industries. SBA seeks feedback on whether it should continue to 
give equal weight to each factor or whether it

[[Page 42222]]

should give more weight to one or more factors for certain industries. 
Recommendations to weigh some factors more than others should include 
suggestions on specific weights for each factor for those industries 
along with supporting information.
    5. For some industries, based on evaluation of industry data, SBA 
proposes to increase the existing size standards by a large amount 
(such as NAICS 711211, 711212, 711310, 713110, and 713290), while for 
others the proposed increases are modest. SBA seeks feedback on whether 
it should, as a policy, limit the increase to a size standard and/or 
whether it should, as a policy, establish minimum or maximum values for 
its size standards. SBA seeks suggestions on appropriate levels of 
changes to size standards and on their minimum or maximum levels.
    6. For industries for which the analytical results would support 
lowering their current size standards, SBA has proposed to retain the 
current size standards. SBA invites comments and suggestions on whether 
it should lower size standards as suggested by analyses of industry and 
program data or retain the current size standards for those industries 
in view of current economic conditions and other relevant factors.
    7. To simplify size standards, SBA has established or proposed 
common size standards for closely related industries in other NAICS 
Sectors. Based on SBA's analysis of the industry data, too much 
variation exists among the industries in NAICS Sector 71 to propose a 
common size standard for most industries. Therefore, for industries 
reviewed in this proposed rule, SBA has proposed size standards based 
on an analysis of each specific industry. SBA welcomes comments on 
whether it should adopt common size standards for certain industries in 
NAICS Sector 71, and if so, how those industries are related in a way 
to require a common size standard.
    8. For analytical simplicity and efficiency, in this proposed rule, 
SBA has refined its size standard methodology to obtain a single value 
as a proposed size standard instead of a range of values, as seen in 
its past size regulations. SBA welcomes any comments on this procedure 
and suggestions on alternative methods.
    Public comments on the above issues are very valuable to SBA for 
validating its size standards methodology and its proposed revisions to 
size standards in this proposed rule. This will help SBA to move 
forward with its review of size standards for other NAICS Sectors. 
Commenters addressing size standards for a specific industry or a group 
of industries should include relevant data and/or other information 
supporting their comments. If comments relate to using size standards 
for Federal procurement programs, SBA suggests that commenters provide 
information on the size of contracts awarded, the size of businesses 
that can undertake the contracts, start-up costs, equipment and other 
asset requirements, the amount of subcontracting, other direct and 
indirect costs associated with the contracts, the use of mandatory 
sources of supply for products and services, and the degree to which 
contractors can mark up those costs.

Compliance With Executive Orders 12866, 13563, 12988 and 13132, the 
Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory 
Flexibility Act (5 U.S.C. 601-612)

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
proposed rule is a ``significant'' regulatory action for purposes of 
Executive Order 12866. Accordingly, the next section contains SBA's 
Regulatory Impact Analysis. This is not a ``major rule,'' however, 
under the Congressional Review Act, (5 U.S.C. 800).

Regulatory Impact Analysis

1. Is there a need for the regulatory action?

    SBA believes that the proposed size standards revisions for a 
number of industries in NAICS Sector 71, Arts, Entertainment, and 
Recreation, will better reflect the economic characteristics of small 
businesses and the Federal government marketplace. The SBA's mission is 
to aid and assist small businesses through a variety of financial, 
procurement, business development, and advocacy programs. To assist the 
intended beneficiaries of these programs, SBA must establish distinct 
definitions of which businesses are deemed small businesses. The Small 
Business Act (15 U.S.C. 632(a)) delegates to SBA's Administrator the 
responsibility for establishing small business definitions. The Act 
also requires that small business definitions vary to reflect industry 
differences. The recently enacted Small Business Jobs Act also requires 
SBA to review all size standards and make necessary adjustments to 
reflect market conditions. The supplementary information section of 
this proposed rule explains SBA's methodology for analyzing a size 
standard for a particular industry.

2. What are the potential benefits and costs of this regulatory action?

    The most significant benefit to businesses obtaining small business 
status because of this rule is gaining eligibility for Federal small 
business assistance programs. These include SBA's financial assistance 
programs, economic injury disaster loans, and Federal procurement 
programs intended for small businesses. Federal procurement programs 
provide targeted opportunities for small businesses under SBA's 
business development programs, such as 8(a), Small Disadvantaged 
Businesses (SDB), small businesses located in Historically 
Underutilized Business Zones (HUBZone), women-owned small businesses 
(WOSB), and service-disabled veteran-owned small business concerns 
(SDVO SBC). Federal agencies may also use SBA's size standards for a 
variety of other regulatory and program purposes. These programs assist 
small businesses to become more knowledgeable, stable, and competitive. 
In the 17 industries for which SBA has proposed increasing size 
standards, SBA estimates that about 1,450 additional firms will obtain 
small business status and become eligible for these programs. That 
number is 1.3 percent of the total number of firms that are classified 
as small under the current standards in all 25 industries in NAICS 
Sector 71 covered by this proposed rule. If adopted as proposed, this 
would increase the small business share of total industry receipts in 
those industries from about 35 percent under the current size standards 
to 43 percent.
    Three groups will benefit from these proposed size standards, if 
they are adopted as proposed: (1) Some businesses that are above the 
current size standards will gain small business status under the higher 
size standards, thereby enabling them to participate in Federal small 
business assistance programs; (2) growing small businesses that are 
close to exceeding the current size standards will be able to retain 
their small business status under the higher size standards, thereby 
enabling them to continue their participation in the programs; and (3) 
Federal agencies will have a larger pool of small businesses from which 
to draw for their small business procurement programs.
    During fiscal years 2008-2010, 45 percent of Federal contracting 
dollars spent in all industries in NAICS Sector 71 were accounted for 
by the 17 industries for which SBA has proposed to increase size 
standards. Given the limited Federal contracting activity in that 
Sector, proposed revisions would

[[Page 42223]]

have minimal impacts on small business contracting opportunities. SBA 
estimates that additional firms gaining small business status under the 
proposed size standards could potentially obtain Federal contracts 
totaling up to $5 million annually under SBA's small business, 8(a), 
SDB, HUBZone, WOSB and SDVO SBC Programs, and other unrestricted 
procurements. The added competition for many of these procurements 
could also result in lower prices to the Government for procurements 
reserved for small businesses, although SBA cannot quantify this 
benefit.
    Under SBA's 7(a) Business and 504 Loan Programs, based on the 2008-
2010 data, SBA estimates that about 15 to 20 additional loans totaling 
about $4 million to $6 million in Federal loan guarantees could be made 
to these newly defined small businesses under the proposed size 
standards. Increasing the size standards will likely result in more 
small business guaranteed loans to businesses in these industries, but 
it would be impractical to try to estimate their exact number and total 
amount loaned. Under the Jobs Act, SBA can now guarantee substantially 
larger loans than in the past. In addition, the Jobs Act established an 
alternative size standard ($15 million in tangible net worth and $5 
million in net income after income taxes) for business concerns that do 
not meet the size standards for their industry. Therefore, SBA finds it 
similarly difficult to quantify the exact impact of these proposed size 
standards on its 7(a) and 504 Loan Programs.
    Newly defined small businesses will also benefit from SBA's 
Economic Injury Disaster Loan (EIDL) Program. Since this program is 
contingent on the occurrence and severity of a disaster, SBA cannot 
make a meaningful estimate of benefits for future disasters.
    To the extent that those 1,450 newly defined additional small firms 
could become active in Federal procurement programs, the proposed 
changes, if adopted, may entail some additional administrative costs to 
the Federal Government associated with additional bidders for Federal 
small business procurement opportunities; additional firms seeking SBA 
guaranteed lending programs; additional firms eligible for enrollment 
in the Central Contractor Registration's (CCR) Dynamic Small Business 
Search database; and additional firms seeking certification as 8(a) or 
HUBZone firms or qualifying for small business, WOSB, SDVO SBC, or SDB 
status. Among those newly defined small businesses seeking SBA 
assistance, there could be some additional costs associated with 
compliance and verification of small business status and protests of 
small business status. These added costs will be minimal because 
mechanisms are already in place to handle these administrative 
requirements.
    Additionally, the costs to the Federal Government may be higher on 
some Federal contracts. With a greater number of businesses defined as 
small, Federal agencies may choose to set aside more contracts for 
competition among small businesses rather than using full and open 
competition. The movement from unrestricted to small business set-aside 
contracting might result in competition among fewer total bidders, 
although there will be more small businesses eligible to submit offers. 
However, the additional costs associated with fewer bidders are 
expected to be minor since, as a matter of law, procurements may be set 
aside for small businesses or reserved for the 8(a), HUBZone, WOSB, or 
SDVO SBC Programs only if awards are expected to be made at fair and 
reasonable prices. In addition, higher costs may result when more full 
and open contracts are awarded to HUBZone businesses that receive price 
evaluation preferences.
    The proposed size standards may have distributional effects among 
large and small businesses. Although SBA cannot estimate with certainty 
the actual outcome of the gains and losses among small and large 
businesses, it can identify several probable impacts. There may be a 
transfer of some Federal contracts to small businesses from large 
businesses. Large businesses may have fewer Federal contract 
opportunities as Federal agencies decide to set aside more Federal 
contracts for small businesses. In addition, some Federal contracts may 
be awarded to HUBZone concerns instead of large businesses since those 
firms may be eligible for a price evaluation preference for contracts 
when they compete on a full and open basis. Similarly, currently 
defined small businesses may obtain fewer Federal contracts due to the 
increased competition from more businesses defined as small. This 
transfer may be offset by a greater number of Federal procurements set 
aside for all small businesses. The number of newly defined and 
expanding small businesses that are willing and able to sell to the 
Federal Government will limit the number of contracts transferred from 
large and from currently defined small businesses. SBA cannot estimate 
the potential distributional impacts of these transfers with any degree 
of precision.
    The proposed revisions to the existing size standards for 
Industries in NAICS Sector 71, Arts, Entertainment, and Recreation, are 
consistent with SBA's statutory mandate to assist small business. This 
regulatory action promotes the Administration's objectives. One of 
SBA's goals in support of the Administration's objectives is to help 
individual small businesses succeed through fair and equitable access 
to capital and credit, Government contracts, and management and 
technical assistance. Reviewing and modifying size standards, when 
appropriate, ensures that intended beneficiaries have access to the 
small business programs designed to assist them.

Executive Order 13563

    A description of the need for this regulatory action and benefits 
and costs associated with this action, including possible distributions 
impacts that relate to Executive Order 13563 is included above in the 
Regulatory Impact Analysis under Executive Order 12866.
    In an effort to engage interested parties in this action, SBA 
presented its size standards methodology (discussed above under 
Supplementary Information) to various industry associations and trade 
groups. SBA also met with representatives from various industry groups 
and individual businesses to obtain their feedback on its methodology 
and other size standards issues. SBA also presented its size standards 
methodology to businesses in 13 cities in the U.S. and sought their 
input as part of the Jobs Act tours. The presentation also included 
information on latest status of the comprehensive size standards review 
and on how interested parties can provide SBA with input and feedback 
on size standards review.
    Additionally, SBA sent letters to the Directors of the Offices of 
Small and Disadvantaged Business Utilization (OSDBU) at several Federal 
agencies with considerable procurement responsibilities requesting 
their feedback on how the agencies use SBA size standards and whether 
current standards meet their programmatic needs (both procurement and 
non-procurement). SBA gave appropriate consideration to all input, 
suggestions, recommendations, and relevant information obtained from 
industry groups, individual businesses, and Federal agencies in 
preparing this proposed rule.
    The review of size standards in NAICS Sector 71, Arts, 
Entertainment, and Recreation, is consistent with EO 13563, Section 6 
calling for retrospective analyses of existing rules. As discussed 
previously, the last overall

[[Page 42224]]

review of size standards occurred during the late 1970s and early 
1980s. Since then, except for periodic adjustments for monetary based 
size standards, most reviews of size standards were limited to a few 
specific industries in response to requests from the public and Federal 
agencies. SBA recognizes that changes in industry structure and the 
Federal marketplace over time have rendered existing size standards for 
some industries no longer supportable by current data. Accordingly, in 
2007, SBA began a comprehensive review of its size standards to ensure 
that existing size standards have supportable bases and to revise them 
when necessary. In addition, on September 27, 2010, the President of 
the United States signed the Small Business Jobs Act of 2010 (Jobs 
Act). The Jobs Act directs SBA to conduct a detailed review of all size 
standards and to make appropriate adjustments to reflect market 
conditions. Specifically, the Jobs Act requires SBA to conduct a 
detailed review of at least one-third of all size standards during 
every 18-month period from the date of its enactment and do a complete 
review of all size standards not less frequently than once every 5 
years thereafter.

Executive Order 12988

    This action meets applicable standards set forth in Sections 3(a) 
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden. The action does not 
have retroactive or preemptive effect.

Executive Order 13132

    For purposes of Executive Order 13132, SBA has determined that this 
proposed rule will not have substantial, direct effects on the States, 
on the relationship between the national government and the States, or 
on the distribution of power and responsibilities among the various 
levels of government. Therefore, SBA has determined that this proposed 
rule has no federalism implications warranting preparation of a 
federalism assessment.

Paperwork Reduction Act

    For the purpose of the Paperwork Reduction Act, 44 U.S.C. chapter 
35, SBA has determined that this rule will not impose any new reporting 
or recordkeeping requirements.

Initial Regulatory Flexibility Analysis

    Under the Regulatory Flexibility Act (RFA), this proposed rule, if 
adopted, may have a significant impact on a substantial number of small 
businesses in NAICS Sector 71, Arts, Entertainment, and Recreation. As 
described above, this rule may affect small businesses seeking Federal 
contracts, loans under SBA's 7(a), 504 and Economic Injury Disaster 
Loan Programs, as well as assistance under other Federal small business 
programs.
    Immediately below, SBA sets forth an initial regulatory flexibility 
analysis (IRFA) of this proposed rule addressing the following 
questions: (1) What are the need for and objective of the rule?; (2) 
What are SBA's description and estimate of the number of small entities 
to which the rule will apply?; (3) What are the projected reporting, 
recordkeeping, and other compliance requirements of the rule?; (4) What 
are the relevant Federal rules that may duplicate, overlap, or conflict 
with the rule?; and (5) What alternatives will allow the Agency to 
accomplish its regulatory objectives while minimizing the impact on 
small entities?

1. What are the need for and objective of the rule?

    Most of the size standards in NAICS Sector 71, Arts, Entertainment, 
and Recreation, have not been reviewed since the early 1980s. 
Technology, productivity growth, international competition, mergers and 
acquisitions, and updated industry definitions may have changed the 
structure of many industries in that Sector. Such changes can be 
sufficient to support revisions to current size standards for some 
industries. Based on its analysis of the latest data available, SBA 
believes that the revised size standards in this proposed rule more 
appropriately reflect the size of businesses in those industries that 
need Federal assistance. The recently enacted Small Business Jobs Act 
also requires SBA to review all size standards and make necessary 
adjustments to reflect market conditions.

2. What are SBA's description and estimate of the number of small 
entities to which the rule will apply?

    If the proposed rule is adopted in its present form, SBA estimates 
that about 1,450 additional firms will become small because of 
increases in size standards in 17 industries. That represents 1.3 
percent of the total number of firms that are classified as small under 
the current size standards in all 25 industries in NAICS Sector 71 
covered by this proposed rule. This will result in an increase in the 
small business share of total industry receipts for this Sector from 
about 35 percent under the current size standards to about 43 percent 
under the proposed size standards. The proposed size standards, if 
adopted, will enable more small businesses to retain their small 
business status for a longer period. Many firms have lost their small 
business eligibility and find it difficult to compete with companies 
that are significantly larger than they are. SBA believes the 
competitive impact will be positive for existing small businesses and 
for those that exceed the current size standards but are on the very 
low end of those that are not small. They might otherwise be called or 
referred to as mid sized businesses, although SBA only defines what is 
small; other entities are other than small.

3. What are the projected reporting, recordkeeping and other compliance 
requirements of the rule?

    Proposed size standards changes do not impose any additional 
reporting or record keeping requirements on small entities. However, 
qualifying for Federal procurement and a number of other Federal 
programs requires that entities register in the Central Contractor 
Registration (CCR) database and certify at least annually that they are 
small in the Online Representations and Certifications Application 
(ORCA). Therefore, businesses opting to participate in those programs 
must comply with CCR and ORCA requirements. There are no costs 
associated with either CCR registration or ORCA certification. Changing 
size standards alters the access to SBA programs that assist small 
businesses but does not impose a regulatory burden as they neither 
regulate nor control business behavior.

4. What are the relevant Federal rules which may duplicate, overlap, or 
conflict with the rule?

    Under Sec.  3(a)(2)(C) of the Small Business Act, 15 U.S.C. 
632(a)(2)(c), Federal agencies must use SBA's size standards to define 
a small business, unless specifically authorized by statute to do 
otherwise. In 1995, SBA published in the Federal Register a list of 
statutory and regulatory size standards that identified the application 
of SBA's size standards as well as other size standards used by Federal 
agencies (60 FR 57988, (November 24, 1995)). SBA is not aware of any 
Federal rule that would duplicate or conflict with establishing size 
standards.
    However, the Small Business Act and SBA's regulations allow Federal 
agencies to develop different size standards if they believe that SBA's 
size standards are not appropriate for their programs, with the 
approval of SBA's

[[Page 42225]]

Administrator (13 CFR 121.903). The Regulatory Flexibility Act 
authorizes an agency to establish an alternative small business 
definition after consultation with the Office of Advocacy of the U.S. 
Small Business Administration (5 U.S.C. 601(3)).

5. What alternatives will allow the Agency to accomplish its regulatory 
objectives while minimizing the impact on small entities?

    By law, SBA is required to develop numerical size standards for 
establishing eligibility for Federal small business assistance 
programs. Other than varying size standards by industry and changing 
the size measures, no practical alternative exists to the systems of 
numerical size standards.

List of Subjects in 13 CFR Part 121

    Administrative practice and procedure, Government procurement, 
Government property, Grant programs--business, Individuals with 
disabilities, Loan programs--business, Reporting and recordkeeping 
requirements, Small businesses.

    For the reasons set forth in the preamble, SBA proposes to amend 
part 13 CFR part 121 as follows:

PART 121--SMALL BUSINESS SIZE REGULATIONS

    1. The authority citation for part 121 continues to read as 
follows:

    Authority: 15 U.S.C. 632, 634(b)(6), 636(b), 662, and 694a(9).

    2. In Sec.  121.201, in the table, revise the entries for 
``711110'', ``711120'', ``711130'', ``711190'', ``711211'', ``711212'', 
``711219'', ``711310'', ``711320'', ``711410'', ``712110'', ``712130'', 
``713110'', ``713210'', ``713290'', ``713910'', and ``713920'' to read 
as follows:


Sec.  121.201  What size standards has SBA identified by North American 
Industry Classification System codes?

* * * * *

Small Business Size Standards by NAICS Industry

----------------------------------------------------------------------------------------------------------------
                                                              Size standards in
           NAICS Codes             NAICS U.S. Industry title     millions of       Size standards in number of
                                                                   dollars                  employees
----------------------------------------------------------------------------------------------------------------
 
                                                  * * * * * * *
711110..........................  Theater Companies and                   $19.0  ...............................
                                   Dinner Theaters.
711120..........................  Dance Companies...........               10.0  ...............................
711130..........................  Musical Groups and Artists               10.0  ...............................
711190..........................  Other Performing Arts                    25.5  ...............................
                                   Companies.
711211..........................  Sports Teams and Clubs....               35.5  ...............................
711212..........................  Race Tracks...............               35.5  ...............................
711219..........................  Other Spectator Sports....               10.0  ...............................
711310..........................  Promoters of Performing                  30.0  ...............................
                                   Arts, Sports and Similar
                                   Events with Facilities.
711320..........................  Promoters of Performing                  14.0  ...............................
                                   Arts, Sports and Similar
                                   Events without Facilities.
711410..........................  Agents and Managers for                  10.0  ...............................
                                   Artists, Athletes,
                                   Entertainers and Other
                                   Public Figures.
 
                                                  * * * * * * *
712110..........................  Museums...................               25.5  ...............................
 
                                                  * * * * * * *
712130..........................  Zoos and Botanical Gardens               25.5  ...............................
 
                                                  * * * * * * *
713110..........................  Amusement and Theme Parks.               35.5  ...............................
 
                                                  * * * * * * *
713210..........................  Casinos (except Casino                   25.5  ...............................
                                   Hotels).
713290..........................  Other Gambling Industries.               30.0  ...............................
713910..........................  Golf Courses and Country                 14.0  ...............................
                                   Clubs.
713920..........................  Skiing Facilities.........               25.5  ...............................
 
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------


    Dated: February 28, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012-17442 Filed 7-17-12; 8:45 am]
BILLING CODE 8025-01-P