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



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

 2d Session                                                     104-873
_______________________________________________________________________


 
                         SUMMARY OF ACTIVITIES

                                _______


                                A REPORT

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED FOURTH CONGRESS




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


                      COMMITTEE ON SMALL BUSINESS

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


                         STANDING SUBCOMMITTEES

                              ----------                              

                  Subcommittee on Government Programs

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

                                 ------                                

    Subcommittee on Procurement, Exports, and Business Opportunities

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

                                 ------                                

                Subcommittee on Regulation and Paperwork

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

                                 ------                                

                  Subcommittee on Taxation and Finance

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

                                 ------                                

                         LETTER OF TRANSMITTAL

                              ----------                              


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

    Dear Ms. Carle:

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

    Sincerely,

                                                 Jan Meyers
                                                      Chair



                            C O N T E N T S

                              ----------                              
                                                                   Page

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                Appendix

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



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     104-873
_______________________________________________________________________


                         SUMMARY OF ACTIVITIES

                                _______
                                

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

_______________________________________________________________________


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

                              R E P O R T

                         SUMMARY OF ACTIVITIES

                              CHAPTER ONE

                              INTRODUCTION

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

1.1 Historical Background

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

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

                          EXTRACT FROM RULE X,

                  RULES OF THE HOUSE OF REPRESENTATIVES

                                ------                                


                                 RULE X

         ESTABLISHMENT AND JURISDICTION OF STANDING COMMITTEES

                 The Committees and Their Jurisdiction

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

                                *  *  *

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

                   GENERAL OVERSIGHT RESPONSIBILITIES

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

                      SPECIAL OVERSIGHT FUNCTIONS

                                *  *  *

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

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

                          government programs

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

            procurement, exports and business opportunities

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

                        regulation and paperwork

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

                          taxation and finance

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

1.4 Disposition of Legislation Referred to the Committee

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

                   THE SMALL BUSINESS ADMINISTRATION

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

2.1 SBA Programs in General

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

2.2 SBA Business Loans

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

2.3 Disaster Assistance Loans

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

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

2.5 The 8(a) Program

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

2.6 Surety Bond Guarantees

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

2.7 Small Business Development Programs

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

2.8 Small Business Innovation Research

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

2.9 Small Business Technology Transfer

    The pilot Small Business Technology Transfer (STTR) Program 
was established by Title II of Public Law 102-564, the Small 
Business Research and Development Enhancement Act of 1992, and 
authorized for an initial three-year demonstration, beginning 
in fiscal year 1994. Building upon the established model of the 
SBIR Program, the pilot STTR Program provides the statutory 
basis for structured collaborations between small technology 
entrepreneurs and non-profit research institutions, such as 
universities or Federally-funded Research and Development 
Centers (FFRDCs) to foster commercialization of the results of 
Federally-sponsored research.
    Like the SBIR Program, and pilot STTR Program seeks to 
stimulate technological innovation and increase private-sector 
commercialization of innovations derived from basic research as 
well as more mission-oriented advanced research and development 
undertaken by Federal agencies. The program assures that small 
business is not excluded from the extramural research and 
development (R&D) activities conducted by Federal agencies, 
those undertaken through private-sector sources, and often 
dominated by Federally-supported research institutions such as 
universities and FFRDCs.
    To assure a baseline of small business participation and to 
maintain stable funding for technology commercialization, like 
the SBIR Program, the pilot STTR Program requires a 
participating Federal agency to reserve a small percentage of 
its external R&D budget for the program. The pilot STTR Program 
also uses the highly competitive three-stage process that is 
designed to identify and nurture only the most promising 
technology innovations, seeking to move them to full 
commercialization under the technical and entrepreneurial 
leadership of small business owners. Unlike the SBIR Program, 
however, the pilot STTR Program requires a small business to 
collaborate with a non-profit research institution, such as a 
university or FFRDC. In fiscal year 1995, 238 Phase I awards 
for $22.9 million and 22 Phase II awards for $10.7 million were 
approved. For fiscal year 1996, an estimated 275 Phase I awards 
for approximately $30 million and an estimated 40 Phase II 
awards for approximately $15 million will be approved.

2.10 Export Assistance

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

2.11 Office of Advocacy

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

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

3.1 Full Committee

                                                                                                                
----------------------------------------------------------------------------------------------------------------
              Date                                              Subject & Location                              
----------------------------------------------------------------------------------------------------------------
January 11, 1995................  Organizational Meeting; Washington, D.C.                                      
January 18, 1995................  Hearing: Overview of Small Business Tax Proposals in the ``Contract with      
                                   America''; Washington, D.C.                                                  
January 19, 1995................  Hearing: Home Office Deduction; Washington, D.C.                              
January 19, 1995................  Hearing: Independent Contractor Status; Washington, D.C.                      
January 20, 1995................  Hearing: Health Insurance Deductibility for Self-Employed Individuals;        
                                   Washington, D.C.                                                             
January 23, 1995................  Hearing: Strengthening the Regulatory Flexibility Act; Washington, D.C.       
January 25, 1995................  Hearing: Oversight--SBA 7(a) Lending Program; Washington, D.C.                
January 26, 1995................  Hearing: Capital Gains Tax Reform and Investment in Small Business;           
                                   Washington, D.C.                                                             
January 27, 1995................  Hearing: Paperwork Reduction Act; Washington, D.C.                            
January 31, 1995................  Hearing: Estate Tax Reform and the Family Business; Washington, D.C.          
February 10, 1995...............  Hearing: Amending the Regulatory Flexibility Act--Past Performance and the    
                                   Need for Meaningful Reform; Washington, D.C.                                 
February 13, 1995...............  Meeting: Oversight Agenda; Washington, D.C.                                   
February 14, 1995...............  Markup: H.R. 937, to amend Title V, United States Code, to clarify procedures 
                                   for judicial review of Federal agency compliance with regulatory flexibility 
                                   analysis requirements, and for other purposes; Washington, D.C.              
February 22, 1995...............  Hearing: Capital Gains Tax Reform; Washington, D.C.                           
February 28, 1995...............  Hearing: Overall Review of SBA; Washington, D.C.                              
March 2, 1995...................  Hearing: Review of the SBA Procurement Assistance Programs; Washington, D.C.  
March 6, 1995...................  Hearing: Review of SBA Business Development Programs; Washington, D.C.        
March 9, 1995...................  Hearing: Review of SBA 504 Program; Washington, D.C.                          
March 14, 1995..................  Hearing: SBA's Pilot Microloan Program; Washington, D.C.                      
March 16, 1995..................  Hearing: U.S. Small Business Administration's Business Development Programs;  
                                   Washington, D.C.                                                             
March 28, 1995..................  Hearing: Review of the SBIC and SSBIC Programs; Washington, D.C.              
March 30, 1995..................  Hearing: The Small Business Administration of the Future; Washington, D.C.    
April 4, 1995...................  Hearing: SBA Office of Advocacy; Washington, D.C.                             
April 27, 1995..................  Hearing: Small Business Administration Programs and Tax and Regulatory Issues 
                                   Impacting Small Business; Overland Park, Kansas.                             
June 29, 1995...................  Hearing: Small Business Participation in Federal Contracting: Assessing H.R.  
                                   1670, the ``Federal Acquisition Reform Act of 1995''--Part I; Washington,    
                                   D.C.                                                                         
July 12, 1995...................  Hearing: Reduction of Airline Ticket Sales Commission and Its Impact on Small 
                                   Travel Agencies; Washington, D.C.                                            
July 18, 1995...................  Hearing: The Administration's Initiatives to Reduce Regulatory Burdens on     
                                   Small Business; Washington, D.C.                                             
July 20, 1995...................  Hearing: Assessing the Implementation of Public Law 103-355, the ``Federal    
                                   Acquisition Streamlining Act of 1994''; Washington, D.C.                     
July 26, 1995...................  Hearing: The Administration and Congressional Initiatives to Reform OSHA, and 
                                   their Impact on Small Businesses; Washington, D.C.                           
August 3, 1995..................  Hearing: Small Business Participation in Federal Contracting: Assessing H.R.  
                                   1670, the ``Federal Acquisition Reform Act of 1995''--Part II; Washington,   
                                   D.C.                                                                         
August 4, 1995..................  Markup: H.R. 2150, Small Business Credit Efficiency Act of 1995, to amend the 
                                   Small Business Act and the Small Business Investment Act of 1958 to reduce   
                                   the cost to the Federal Government of guaranteeing certain loans and         
                                   debentures, and for other purposes; Washington, D.C.                         
September 8, 1995...............  Hearing: Pension Reform and Simplification: A Small Business Perspective;     
                                   Washington, D.C.                                                             
September 13, 1995..............  Hearing: The Impact of Solid Waste Flow Control on Small Businesses and       
                                   Consumers; Washington, D.C.                                                  
September 28, 1995..............  Hearing: SBA's Venture Capital Programs; Washington, D.C.                     
October 11, 1995................  Hearing: Federal Contract Bundling: How Can Small Business Compete?;          
                                   Washington, D.C.                                                             
October 19, 1995................  Hearing: The Effects of Superfund Liability on Small Business; Washington,    
                                   D.C.                                                                         
October 25, 1995................  Hearing: The Internal Revenue Service's Initiatives to Reduce Regulatory and  
                                   Paperwork Burdens on Small Business; Washington, D.C.                        
October 31, 1995................  Hearing: The Cost of Federal Regulations on Small Business; Washington,       
                                   D.C.\1\                                                                      
November 8, 1995................  Hearing: Railroad Consolidation: Small Business Concerns; Washington, D.C.\1\ 
December 13, 1995...............  Hearing: The Abuses in the SBA's 8(a) Procurement Program; Washington, D.C.   
                                                                                                                
February 28, 1996...............  Hearing: Small Business' Access to Capital: Impediments and Options;          
                                   Washington, D.C.                                                             
                                                                                                                
March 6, 1996...................  Hearing: Pilot Small Business Technology Transfer (STTR) Program and Small    
                                   Business Innovation Research (SBIR) Program: Assessing the results of Public 
                                   Law 102-654, the ``small Business Research and Development Enhancement Act of
                                   1992''; Washington, D.C.                                                     
                                                                                                                
March 7, 1996...................  Hearing: The EPA's Progress in Reducing Unnecessary Regulatory and Paperwork  
                                   Burdens upon Small Business; Washington, D.C.                                
                                                                                                                
March 14, 1996..................  Meeting: Budget Views and Estimates; Washington, D.C.                         
                                                                                                                
March 21, 1996..................  Hearing: SBA FY 1997 Budget; Washington, D.C.                                 
                                                                                                                
March 29, 1996..................  Markup: H.R. 2715, Paperwork Elimination Act of 1995, to amend chapter 35 of  
                                   title 44, United States Code, popularly known as the Paperwork Reduction Act,
                                   to minimize the burden of Federal paperwork demands upon small businesses,   
                                   educational and nonprofit institutions, Federal contractors, State and local 
                                   governments, and other persons through the sponsorship and use of alternative
                                   information technologies; H.R. 3158, Pilot Small Business Technology Transfer
                                   Program Extension Act of 1996, to amend the Small Business Act to extend the 
                                   pilot Small Business Technology Transfer program, and for other purposes;    
                                   Washington, D.C.                                                             
April 12, 1996..................  Hearing: The Practice of ``Salting'' and Its Impact on Small Business;        
                                   Overland Park, Kansas\2\                                                     
April 17, 1996..................  Hearing: The Kemp Commission Recommendations: A Small Business Perspective;   
                                   Washington, D.C.                                                             
April 25, 1996..................  Hearing: Patent Term and Patent Disclosure Legislation; Washington, D.C.      
May 1, 1996.....................  Hearing: Small Business' Access to Capital: The Role of Banks in Small        
                                   Business Financing; Washington, D.C.                                         
May 8, 1996.....................  Hearing: Music Licensing and Small Business; Washington, D.C.                 
May 15, 1996....................  Hearing: Small Business and Entry-level Employees: How to Increase Take-home  
                                   Pay and Keep America Working; Washington, D.C.                               
June 6, 1996....................  Hearing: Proposed Reforms of the Small Business Investment Company Program;   
                                   Washington, D.C.                                                             
June 27, 1996...................  Hearing: Small Business Competition for Federal Contracts: The Impact of      
                                   Federal Prison Industries; Washington, D.C.                                  
July 16, 1996...................  Hearing: Unfair Competition with Small Business from Government and Not-For-  
                                   Profits: Assessing the Current State of the Problem and the Recommendations  
                                   of the 1995 White House Conference on Small Business; Washington, D.C.       
July 18, 1996...................  Hearing: Unfair Competition with Small Business from Government and Not-For-  
                                   Profits: Assessing the Current State of the Problem and the Recommendations  
                                   of the 1995 White House Conference on Small Business; Washington, D.C.       
July 18, 1996...................  Markup: H.R. 3719, Small Business Programs Improvement Act of 1996, to amend  
                                   the Small Business Act and the Small Business Investment Act of 1958;        
                                   Washington, D.C.                                                             
July 31, 1996...................  Markup (continued): H.R. 3719, Small Business Programs Improvement Act of     
                                   1996, to amend the Small Business Act and the Small Business Investment Act  
                                   of 1958; Washington, D.C.                                                    
September 18, 1996..............  Hearing: Proposed Reform of the 8(a) Program Through H.R. 3994, the           
                                   Entrepreneur Development Program Act of 1996; Washington, D.C.               
September 25, 1996..............  Hearing: OSHA Reform and Relief for Small Business: What Needs to be Done?;   
                                   Washington, D.C.                                                             
                                                                                                                
----------------------------------------------------------------------------------------------------------------

3.2 Subcommittee on Government Programs

                                                                                                                
----------------------------------------------------------------------------------------------------------------
              Date                                              Subject & Location                              
----------------------------------------------------------------------------------------------------------------
February 13, 1995...............  Hearing: The Impact of Hanscom Air Force Base upon Small Business in the New  
                                   England Region; Bedford, Massachusetts.                                      
April 6, 1995...................  Hearing: Small Business Administration's Small Business Innovation Research   
                                   (SBIR) Program; Washington, D.C.                                             
April 10, 1995..................  Hearing: Small Business Administration Programs to Assist the New England     
                                   Fishing Industry; Gloucester, Massachusetts.                                 
May 25, 1995....................  Hearing: Small Business Administration's Disaster Loan Program; Washington,   
                                   D.C.                                                                         
June 28, 1995...................  Hearing: U.S. Small Business Administration Low Documentation Loan Program;   
                                   Washington, D.C.                                                             
July 19, 1995...................  Hearing: SBA's LowDoc Loan Program; Washington, D.C.                          
August 2, 1995..................  Hearing: Professional Certification as a Sole Source Bid Requirement in       
                                   Federal Contracting; Washington, D.C.                                        
September 7, 1995...............  Hearing: The Export Working Capital Program; Washington, D.C.\3\              
October 12, 1995................  Hearing: Loan Packaging; Washington, D.C.                                     
March 4, 1996...................  Hearing: The Effects of Bank Consolidation on Small Business Lending; Boston, 
                                   Massachusetts.\4\                                                            
March 27, 1996..................  Hearing: H.R. 2715: Paperwork Elimination Act; Washington, D.C.               
April 18, 1996..................  Hearing: Venture Capital Marketing Association Charter Act; Washington, D.C.  
May 6, 1996.....................  Hearing: H.R. 2579: The Travel and Tourism Partnership Act of 1995;           
                                   Newburyport, Massachusetts.                                                  
May 30, 1996....................  Hearing: Oversight of the Environmental Protection Agency's Progress on       
                                   Reducing Unnecessary Paperwork Burdens Upon Small Business; Washington, D.C. 
June 26, 1996...................  Hearing: Oversight of the Department of Labor's Progress on Reducing          
                                   Unnecessary Paperwork Burdens upon Small Business; Washington, D.C.          
July 10, 1996...................  Hearing: Massachusetts' Request for Disaster Funds from the SBA; Washington,  
                                   D.C.                                                                         
July 15, 1996...................  Hearing: The Government's Solicitation Process and Whether or Not It is       
                                   Discriminatory to Small Business; Danvers, Massachusetts.                    
July 17, 1996...................  Hearing: H.R. 1863: The Employment Non-Discrimination Act; Washington, D.C.   
July 24, 1996...................  Hearing: Oversight of the Food and Drug Administration's Progress on Reducing 
                                   Unnecessary Paperwork Burdens upon Small Business; Washington, D.C.          
July 31, 1996...................  Hearing: SBA Programs to Assist Veterans in Readjusting to Civilian Life;     
                                   Washington, D.C.\5\                                                          
September 25, 1996..............  Hearing: FDIC's Handling of Small Business Asset Foreclosures; Washington,    
                                   D.C.                                                                         
                                                                                                                
----------------------------------------------------------------------------------------------------------------

3.3  Subcommittee on Procurement, Exports and Business 
            Opportunities

                                                                                                                
----------------------------------------------------------------------------------------------------------------
              Date                                              Subject & Location                              
----------------------------------------------------------------------------------------------------------------
March 29, 1995..................  Hearing: Export Promotion Programs: How is Small Business Helped?; Washington,
                                   D.C.                                                                         
April 5, 1995...................  Hearing: Small Business Administration's Surety Bond Guarantee Program;       
                                   Washington, D.C.                                                             
May 17, 1995....................  Hearing: Agriculture Export Promotion Programs: How are the Small Farmer and  
                                   Rancher Helped?; Washington, D.C.                                            
May 23, 1995....................  Hearing: Federal Export Promotion Programs: An Academic Perspective;          
                                   Washington, D.C.                                                             
June 22, 1995...................  Hearing: Export Promotion: A Business Perspective; Washington, D.C.           
September 7, 1995...............  Hearing: The Export Working Capital Program; Washington, D.C.\3\              
October 11, 1995................  Hearing: Technologies for Accessing Foreign Markets; Washington, D.C.         
February 13, 1996...............  Hearing: Resources for Export Assistance; Rockford, Illinois.                 
May 2, 1996.....................  Hearing: The Impact of ``Short Supply'' on Small Manufacturers; Washington,   
                                   D.C.                                                                         
July 25, 1996...................  Hearing: The Effectiveness of U.S. Export Assistance Centers; Washington, D.C.
                                                                                                                
----------------------------------------------------------------------------------------------------------------


3.4 Subcommittee on Regulation and Paperwork

                                                                                                                
----------------------------------------------------------------------------------------------------------------
              Date                                              Subject & Location                              
----------------------------------------------------------------------------------------------------------------
February 2, 1995................  Hearing: Joint Hearing on the Impact of Workplace and Employment Regulation on
                                   Business; Washington, D.C.\6\                                                
June 7, 1995....................  Hearing: Regulatory Barriers to Minority Entrepreneurs; Washington, D.C.      
June 15, 1995...................  Hearing: OSHA Fall Protection Standard; Washington, D.C.                      
August 23, 1995.................  Hearing: Candidates for the Regulatory Corrections Calendar; Despares,        
                                   Missouri.                                                                    
March 7, 1996...................  Hearing: Examining the Issues Surrounding the National Labor Relations Board's
                                   Rulemaking Concerning Single Location Bargaining Units in Representation     
                                   Cases; Washington, D.C.                                                      
                                                                                                                
----------------------------------------------------------------------------------------------------------------


3.5 Subcommittee on Taxation and Finance

                                                                                                                
----------------------------------------------------------------------------------------------------------------
              Date                                              Subject & Location                              
----------------------------------------------------------------------------------------------------------------
May 18, 1995....................  Hearing: The Flat Tax and Small Business; Washington, D.C.                    
June 28, 1995...................  Hearing: The Burden of Payroll Taxes on Small Business; Washington, D.C.      
July 26, 1995...................  Hearing: Clarifying the Status of Independent Contractors--Part I; Washington,
                                   D.C.                                                                         
August 2, 1995..................  Hearing: Clarifying the Status of Independent Contractors--Part II;           
                                   Washington, D.C.                                                             
February 9, 1996................  Hearing: Fundamental Tax Changes Needed to Unleash America's Small Businesses--
                                   Part I; Indianapolis; Indiana.                                               
March 4, 1996...................  Hearing: The Effects of Bank Consolidation on Small Business Lending; Boston, 
                                   Massachusetts.\4\                                                            
March 25, 1996..................  Hearing: Fundamental Tax Changes Needed to Unleash America's Small Businesses--
                                   Part II; Mentor, Ohio.                                                       
April 3, 1996...................  Hearing: Fundamental Tax Changes Needed to Unleash America's Small Businesses--
                                   Part III; Seattle, Washington.                                               
                                                                                                                
----------------------------------------------------------------------------------------------------------------
\1\ Joint hearing with the Senate Committee on Small Business.                                                  
\2\ Joint hearing with the Committee on Economic and Educational Opportunities.                                 
\3\ Joint hearing by the Subcommittee on Government Programs and the Subcommittee on Procurement, Exports and   
  Business Opportunities.                                                                                       
\4\ Joint hearing by the Subcommittee on Government Programs and the Subcommittee on Taxation and Finance.      
\5\ Joint hearing with the Subcommittee on Education Training Employment and Housing of the Committee on        
  Veterans' Affairs.                                                                                            
\6\ Joint hearing with the Subcommittee on Oversight and Investigations of the Committee on Economic and        
  Educational Opportunities.                                                                                    

                              CHAPTER FOUR

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

4.1 Reports

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


4.2 Hearing Records

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

                              CHAPTER FIVE

  SUMMARY OF LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL BUSINESS

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

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

                           Legislative History                          
------------------------------------------------------------------------
               Date                                Action               
------------------------------------------------------------------------
H.R. 937:                                                               
February 14, 1995.................  Referred to the House Committee on  
                                     the Judiciary.                     
February 14, 1995.................  Referred to House Committee on Small
                                     Business.                          
February 15, 1995.................  Committee Consideration and Mark-up 
                                     Session Held.                      
February 15, 1995.................  Ordered to be Reported (Amended) by 
                                     Voice Vote.                        
February 23, 1995.................  Reported to House (Amended) by House
                                     Committee on Small Business Report 
                                     No. 104-49 (Part I).               
February 23, 1995.................  For Further Action See H.R. 926     
                                     (H.R. 937 was subsumed into H.R.   
                                     926).                              
                                                                        
H.R. 926:                                                               
February 14, 1995.................  Referred to House Committee on the  
                                     Judiciary.                         
February 16, 1995.................  Committee Consideration and Mark-up 
                                     Session Held.                      
February 16, 1995.................  Ordered to be Reported (Amended) by 
                                     Voice Vote.                        
February 23, 1995.................  Reported to House (Amended) by House
                                     Committee on the Judiciary Report  
                                     No. 104-48.                        
February 23, 1995.................  Placed on Union Calendar No. 25.    
February 27, 1995.................  Committee on Rules, by Voice Vote,  
                                     Granted an Open Rule Providing 90  
                                     Minutes of Debate; Making in Order 
                                     the Committee on the Judiciary     
                                     Amendment in the Nature of a       
                                     Substitute as an Original Bill;    
                                     Giving Priority Recognition to     
                                     Members who have Pre-Printed their 
                                     Amendments in the Congressional    
                                     Record Prior to their              
                                     Consideration; Providing One Motion
                                     to Recommit With or Without        
                                     Instructions.                      
February 27, 1995.................  Rules Committee Resolution H. Res.  
                                     100 Reported to House.             
February 28, 1995.................  Rule Passed House.                  
March 1, 1995.....................  Called up by House by Rule.         
March 1, 1995.....................  Committee Amendment in the Nature of
                                     a Substitute Considered as an      
                                     Original Bill for the Purpose of   
                                     Amendment.                         
March 1, 1995.....................  House Agreed to Amendments Adopted  
                                     by the Committee of the Whole.     
March 1, 1995.....................  Passed House (Amended) by Yea-Nay   
                                     Vote: 415-15 (Record Vote No. 187).
March 3, 1995.....................  Received in the Senate.             
March 3, 1995.....................  Referred to Senate Committee on     
                                     Governmental Affairs.              
March 3, 1995.....................  Pursuant to the Provisions of H.    
                                     Res. 101 the House Incorporated the
                                     Text of this Measure, as Passed by 
                                     the House, into H.R. 9.            
                                                                        
H.R. 9:                                                                 
January 4, 1995...................  Referred to Committee on Ways and   
                                     Means                              
January 24, 1995..................  Committee on Ways and Means Hearings
                                     Held.                              
January 25, 1995..................  Committee on Ways and Means Hearings
                                     Held.                              
January 26, 1995..................  Committee on Ways and Means Hearings
                                     Held.                              
February 1, 1995..................  Committee on Ways and Means Hearings
                                     Held.                              
January 4, 1995...................  Referred to House Committee on      
                                     Commerce.                          
January 13, 1995..................  Referred to Subcommittee on Energy  
                                     and Power.                         
January 13, 1995..................  Referred to Subcommittee on Health  
                                     and Environment.                   
January 13, 1995..................  Referred to Subcommittee on         
                                     Commerce, Trade, and Hazardous     
                                     Materials.                         
February 1, 1995..................  Joint Hearings Held by the          
                                     Subcommittee on Health and         
                                     Environment and by the Subcommittee
                                     on Commerce, Trade and Hazardous   
                                     Materials.                         
February 2, 1995..................  Joint Hearings Held by the          
                                     Subcommittee on Health and         
                                     Environment and by the Subcommittee
                                     on Commerce, Trade and Hazardous   
                                     Materials.                         
February 2, 1995..................  Subcommittee on Commerce, Trade, and
                                     Hazardous Materials Discharged.    
February 3, 1995..................  Subcommittee on Energy and Power    
                                     Discharged.                        
February 3, 1995..................  Subcommittee on Health and          
                                     Environment Discharged.            
February 7, 1995..................  Committee on Commerce Consideration 
                                     and Mark-up Session Held.          
February 8, 1995..................  Committee Consideration and Mark-up 
                                     Session Held.                      
February 8, 1995..................  Ordered to be Reported (Amended) by 
                                     the Yeas and Nays: 27-16.          
February 15, 1995.................  Reported to House (Amended) by House
                                     Committee on Commerce Report No.   
                                     104-33 (Part I).                   
January 4, 1995...................  Referred to House Committee on      
                                     Government Reform and Oversight.   
January 11, 1995..................  Referred to Subcommittee on National
                                     Economic Growth, Natural Resources 
                                     and Regulatory Affairs.            
January 4, 1995...................  Referred to House Committee on the  
                                     Budget.                            
January 4, 1995...................  Referred to House Committee on      
                                     Rules.                             
January 4, 1995...................  Referred to House Committee on the  
                                     Judiciary.                         
January 4, 1995...................  Referred to House Committee on      
                                     Science.                           
January 31, 1995..................  Committee Hearings Held on Title    
                                     III, Risk Assessment and Cost/     
                                     Benefit Analysis for New           
                                     Regulations.                       
February 2, 1995..................  Committee Hearings Held on Title    
                                     III, Risk Assessment and Cost/     
                                     Benefit Analysis for New           
                                     Regulations.                       
February 8, 1995..................  Committee Consideration and Mark-up 
                                     Session Held.                      
February 8, 1995..................  Ordered to be Reported (Amended) by 
                                     Voice Vote.                        
February 15, 1995.................  Reported to House (Amended) by House
                                     Committee on Science Report No. 104-
                                     33 (Part II).                      
February 9, 1995..................  Rereferred to the House Committee on
                                     Small Business for Titles V, VI and
                                     Section 4003.                      
March 3, 1995.....................  Called up by House by Rule.         
March 3, 1995.....................  The House struck all after Section 1
                                     and inserted in lieu thereof the   
                                     provisions of a text composed of 4 
                                     divisions: (1) H.R. 830; (2) H.R.  
                                     925; (3) H.R. 926; and (4) H.R.    
                                     1022, as each bill was passed by   
                                     the House.                         
March 3, 1995.....................  Motion to Recommit with Instructions
                                     Failed in House by Yea-Nay Vote:   
                                     180-239 (Record Vote No. 198).     
March 3, 1995.....................  Passed House (Amended) by Yea-Nay   
                                     Vote: 277-141 (Record Vote No.     
                                     199).                              
March 9, 1995.....................  Received in the Senate.             
March 9, 1995.....................  Referred to Senate Committee on     
                                     Governmental Affairs.              
                                                                        
S. 942:                                                                 
June 16, 1995.....................  Referred to Senate Committee on     
                                     Small Business.                    
February 28, 1996.................  Committee on Small Business Hearings
                                     Held.                              
March 6, 1996.....................  Committee Consideration and Mark-up 
                                     Session Held.                      
March 6, 1996.....................  Ordered to be Reported (Amended).   
March 6, 1996.....................  Reported to Senate (Amended) by     
                                     Senate Committee on Small Business.
March 6, 1996.....................  Placed on Senate Legislative        
                                     Calendar under General Orders.     
                                     Calendar No. 342.                  
March 15, 1996....................  Measure laid before Senate.         
March 15, 1996....................  Considered by Senate.               
March 19, 1996....................  Passed Senate (Amended) by Yea-Nay  
                                     Vote: 100-0 (Record Vote No. 43).  
March 22, 1996....................  Referred to House Committee on the  
                                     Judiciary.                         
March 22, 1996....................  Referred to House Committee on Small
                                     Business.                          
March 22, 1996....................  Referred to House Committee on      
                                     Rules.                             
March 28, 1996....................  For Further Action See H.R. 3136.   
                                                                        
H.R. 3136:                                                              
March 21, 1996....................  Referred to Committee on Ways and   
                                     Means.                             
March 21, 1996....................  Referred to House Committee on the  
                                     Budget.                            
March 21, 1996....................  Referred to House Committee on      
                                     Rules.                             
March 21, 1996....................  Referred to House Committee on the  
                                     Judiciary.                         
March 21, 1996....................  Referred to House Committee on Small
                                     Business.                          
March 21, 1996....................  Referred to House Committee on      
                                     Government Reform and Oversight.   
March 25, 1996....................  Referred to Subcommittee on         
                                     Government Management, Information 
                                     and Technology of the Committee on 
                                     Government Reform and Oversight.   
March 27, 1996....................  Rules Committee Resolution H. Res.  
                                     391 Reported to House.             
March 27, 1996....................  Committee on Rules Granted, by Voice
                                     Vote, a Closed Rule Providing for  
                                     the Consideration in the House of  
                                     the Bill as Modified by the        
                                     Amendment Designated in the Report 
                                     of the Committee on Rules on the   
                                     Resolution; Waiving All Points of  
                                     Order Against Consideration of the 
                                     Bill Except Section 425(a) of the  
                                     Budget Act (Unfunded Mandate Point 
                                     of Order); Providing that if the   
                                     Clerk has, Before March 30, 1996,  
                                     Received a Message From the Senate 
                                     that the Senate has Adopted the    
                                     Conference Report on S. 4, the Line
                                     Item Veto Act, then the Clerk Shall
                                     Delete Title II (the Line Item Veto
                                     Act) From the Engrossment of the   
                                     Bill (Unless Amended), and the     
                                     House Shall be Considered to Have  
                                     Adopted the Conference Report.     
March 28, 1996....................  Rule Passed House.                  
March 28, 1996....................  Called up by House by Rule.         
March 28, 1996....................  On motion to table the motion to    
                                     appeal the ruling of the chair     
                                     agreed to by recorded vote: 232-185
                                     (Roll no. 99).                     
March 28, 1996....................  Motion to Recommit with Instructions
                                     Failed in House by Yea-Nay Vote:   
                                     159-256 (Record Vote No. 101).     
March 28, 1996....................  Passed House (Amended) by Recorded  
                                     Vote: 328-91 (Record Vote No. 102).
March 28, 1996....................  Received in the Senate.             
March 28, 1996....................  Passed Senate by Unanimous Consent. 
March 28, 1996....................  Cleared for White House.            
March 29, 1996....................  Presented to President.             
March 29, 1996....................  Signed by President.                
March 29, 1996....................  Became Public Law No. 104-121.      
------------------------------------------------------------------------

                         Reason for Legislation

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

                                Hearings

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

                         Summary of Legislation

Judicial Review

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

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

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

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

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

                           Final Legislation

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

Regulatory Compliance Simplification.

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

Regulatory Enforcement Reforms.

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

Equal Access to Justice Act Amendments.

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

Regulatory Flexibility Act Amendments.

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

Congressional Review of Agency Rulemaking.

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

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

                           Legislative History                          
------------------------------------------------------------------------
               Date                                Action               
------------------------------------------------------------------------
H.R. 2150:                                                              
August 1, 1995....................  Referred to House Committee on Small
                                     Business.                          
August 4, 1995....................  Committee Consideration and Mark-up 
                                     Session Held.                      
August 4, 1995....................  Ordered to be Reported (Amended) by 
                                     Voice Vote.                        
September 6, 1995.................  Reported to House (Amended) by House
                                     Committee on Small Business Report 
                                     No. 104-239.                       
September 6, 1995.................  Placed on Union Calendar No. 130.   
September 12, 1995................  Called up by House Under Suspension 
                                     of Rules.                          
September 12, 1995................  Passed House (Amended) by Yea-Nay   
                                     Vote: 405-0 (Record Vote No. 653). 
September 12, 1995................  Laid on the table.                  
                                                                        
S. 895:                                                                 
June 8, 1995......................  Referred to Senate Committee on     
                                     Small Business.                    
July 13, 1995.....................  Committee Consideration and Mark-up 
                                     Session Held.                      
July 13, 1995.....................  Ordered to be Reported (Amended).   
August 5, 1995....................  Reported to Senate (Amended) by     
                                     Senate Committee on Small Business 
                                     Report No. 104-129.                
August 5, 1995....................  Placed on Senate Legislative        
                                     Calendar under General Orders.     
                                     Calendar No. 166.                  
August 11, 1995...................  Measure laid before Senate.         
August 11, 1995...................  Passed Senate (Amended) by Voice    
                                     Vote.                              
September 12, 1995................  Considered by Unanimous Consent.    
September 12, 1995................  House Struck All After the Enacting 
                                     Clause and Substituted the Language
                                     of H.R. 2150. Agreed to Without    
                                     Objection.                         
September 12, 1995................  Passed House (Amended) by Voice     
                                     Vote.                              
September 12, 1995................  A similar measure H.R. 2150 was laid
                                     on the table without objection.    
September 12, 1995................  House Insisted upon its Amendments. 
September 12, 1995................  House Requested a Conference.       
September 12, 1995................  The Speaker appointed conferees:    
                                     Mrs. Meyers, Mr. Torkildsen, Mr.   
                                     Longley, Mr. LaFalce, and Mr.      
                                     Poshard.                           
September 26, 1995................  Senate disagreed to the House       
                                     amendments by Voice Vote.          
September 26, 1995................  Senate agreed to request for        
                                     Conference.                        
September 26, 1995................  The Senate appointed conferees: Sen.
                                     Bond, Sen. Burns, Sen. Coverdell,  
                                     Sen. Bumpers, and Sen. Nunn.       
September 27, 1995................  Conference Held.                    
September 27, 1995................  Conferees agreed to file conference 
                                     report.                            
September 28, 1995................  Conference report H. Rept. 104-269  
                                     filed.                             
September 28, 1995................  Senate agreed to the conference     
                                     report by Voice Vote.              
September 29, 1995................  House Agreed to Conference Report by
                                     Unanimous Consent.                 
September 29, 1995................  Cleared for White House.            
October 3, 1995...................  Presented to President.             
October 12, 1995..................  Signed by President.                
October 12, 1995..................  Became Public Law No. 104-36.       
------------------------------------------------------------------------

                         Reason for Legislation

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

                                Hearings

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

                         Summary of Legislation

Fee for Loans Sold on Secondary Market.

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

General Business Loans.

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

Modifications to Development Company Debenture Program.

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

                          Conference Agreement

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

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

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

                         Reason for Legislation

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

                                Hearings

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

                         Summary of Legislation

Purposes.

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

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

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

OMB Report.

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

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

Public Information Collection Activities.

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

Responsiveness to Congress.

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

Effective Date.

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

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

                           Legislative History                          
------------------------------------------------------------------------
               Date                                Action               
------------------------------------------------------------------------
H.R. 3158:                                                              
March 6, 1996.....................  Committee Hearings Held.            
March 25, 1996....................  Referred to House Committee on Small
                                     Business.                          
March 29, 1996....................  Committee Consideration and Mark-up 
                                     Session Held.                      
March 29, 1996....................  Ordered to be Reported (Amended) by 
                                     Voice Vote.                        
September 26, 1996................  Reported to House (Amended) by House
                                     Committee on Small Business Report 
                                     No. 104-850 (Part I).              
September 26, 1996................  Placed on Union Calendar No. 462.   
September 27, 1996................  Discharged from Union Calendar.     
September 27, 1996................  Referred Sequentially to House      
                                     Committee on Science for a Period  
                                     Ending not Later Than October 11,  
                                     1996.                              
September 28, 1996................  For Further Action See H.R. 4278    
                                     (reauthorization provisions of H.R.
                                     3158 were subsumed into H.R. 4278).
                                                                        
H.R. 4278:                                                              
September 28, 1996................  Passed House pursuant to Unanimous  
                                     Consent Agreement Following the    
                                     Passage of H.R. 3610.              
September 30, 1996................  Measure laid before Senate by       
                                     Unanimous Consent.                 
September 30, 1996................  Received in the Senate, read twice. 
September 30, 1996................  Passed Senate by Yea-Nay Vote: 84-15
                                     (Record Vote No. 302).             
September 30, 1996................  Cleared for White House (together   
                                     with H.R. 3610).                   
September 30, 1996................  Presented to President.             
September 30, 1996................  Signed by President.                
September 30, 1996................  Became Public Law No. 104-208.      
------------------------------------------------------------------------

                         Reason for Legislation

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

                                Hearings

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

                         Summary of Legislation

Program Extension.

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

Assessment by the Comptroller General.

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

Interagency Task Force on Commercialization.

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

Technical Correction.

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

                           Final Legislation

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

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

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

                         Reason for Legislation

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

                                Hearings

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

                         Summary of Legislation

Comprehensive database.

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

Section 7(a) Loan Program Reforms.

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

Disaster Loan Program.

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

Microloan Program.

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

Small Business Development Centers.

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

Miscellaneous authorities to Provide Loans and Other Financial 
        Assistance.

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

Small Business Competitiveness Program.

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

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

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

1998 Authorizations.

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

Level of Participation for Export Working Capital Loans

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

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

Required Actions Upon Default.

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

Loan Liquidation Pilot Program.

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

Registration of Certificates.

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

Preferred Surety Bond Guarantee Program.

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

                           Final Legislation

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

Comprehensive database.

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

Section 7(a) Loan Program Reforms.

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

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

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

Disaster Loan Program.

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

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

Small Business Development Centers.

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

Miscellaneous authorities to Provide Loans and Other Financial 
        Assistance.

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

Small Business Competitiveness Program.

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

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

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

Small Business Technology Transfer Program.

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

Level of Participation for Export Working Capital Loans

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

Modifications to the 504 program.

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

Required Actions Upon Default.

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

Loan Liquidation Pilot Program.

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

Registration of Certificates.

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

Preferred Surety Bond Guarantee Program.

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

Sense of Congress.

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

Small Business Investment Company Program.

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

Specialized Small Business Investment Company Program.

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

   SUMMARY OF OTHER LEGISLATIVE ACTIVITIES OF THE COMMITTEE ON SMALL 
                                BUSINESS

6.1 Committee Meetings

    6.1.1 organizational meeting

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

    6.1.2 oversight agenda for the 104th congress

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

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

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

             OVERSIGHT OF THE SMALL BUSINESS ADMINISTRATION

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

                           FINANCIAL PROGRAMS

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

                   (a) General Business Loan Program

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

                 Certified Development Company Program

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

               Small Business Investment Company Program

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

         Specialized Small Business Investment Company Program

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

                           Microloan Program

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

                     Surety Bond Guarantee Program

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

                  Debenture Prepayment Penalty Relief

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

                         PROCUREMENT ASSISTANCE

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

                                ADVOCACY

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

                   TECHNOLOGY AND RESEARCH ASSISTANCE
                 Small Business Innovation and Research

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

                   Small Business Technology Transfer

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

                    MINORITY ENTERPRISE DEVELOPMENT

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

                         WOMEN-OWNED BUSINESSES

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

                      OFFICE OF INSPECTOR GENERAL

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

                     OFFICE OF DISASTER ASSISTANCE

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

                      OFFICE OF ECONOMIC RESEARCH

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

                     OFFICE OF INTERNATIONAL TRADE

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

              OFFICE OF BUSINESS INITIATIVES AND TRAINING

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

                          FEDERAL PROCUREMENT

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

                  GOVERNMENT & NON-PROFIT COMPETITION

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

              REGULATORY FLEXIBILITY & PAPERWORK REDUCTION

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

                         GOVERNMENT REGULATION

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

                                TAXATION

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

                              MINIMUM WAGE

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

                            HEALTH INSURANCE

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

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

    6.2.1 fiscal year 1996 budget

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

    6.2.2 fiscal year 1997 budget

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

Assistance Programs.

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

Financial Assistance Programs.

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

Disaster Loan Program.

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

Office of the Inspector General.

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

Minority Views.

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

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

7.1 Summary of Committee Oversight Plan and Implementation

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

    7.1.1 oversight of the small business administration

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

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

    7.1.2 financial programs

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

7(a) General Business Loan Program.

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

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

Certified Development Company Program.

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

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

Small Business Investment Company Program.

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

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

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

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

Microloan Program.

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

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

Surety Bond Guarantee Program.

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

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

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

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

    7.1.3 procurement assistance

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

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

    7.1.4 advocacy

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

                                *  *  *

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

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

    7.1.5 technology and research assistance

Small Business Innovation and Research.

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

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

Small Business Technology Transfer.

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

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

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

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

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

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

    7.1.6 minority enterprise development

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

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

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

    7.1.7 women-owned businesses

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

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

    7.1.8 office of inspector general

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

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

    7.1.9 office of disaster assistance

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

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

    7.1.10 office of international trade

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

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

    7.1.11 office of business initiatives and training

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

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

    7.1.12 federal procurement

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

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

    7.1.13 government & non-profit competition

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

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

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

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

    7.1.15 government regulation

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

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

    7.1.16 taxation

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

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

    7.1.17 minimum wage

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

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

    7.1.18 health insurance

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

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

    7.1.19 other committee oversight activities

Current Developments.

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

Intellectual Property.

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

Access to Capital.

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

Proposed Legislation.

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

Committee Investigations.

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

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

                               Background

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

                                Summary

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

    7.2.2 home office deduction

                               Background

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

                                Summary

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

    7.2.3 independent contractor status

                               Background

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

                                Summary

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

    7.2.4 health insurance deductibility for self-employed
                        individuals

                               Background

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

                                Summary

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

    7.2.5 strengthening the regulatory flexibility act

                               Background

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

                                Summary

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

    7.2.6 oversight--sba 7(a) lending program

                               Background

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

                                Summary

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

    7.2.7 capital gains tax reform and investment in small
                        business

                               Background

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

                                Summary

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

    7.2.8 paperwork reduction act

                               Background

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

                                Summary

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

    7.2.9 estate tax reform and the family business

                               Background

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

                                Summary

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

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

                               Background

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

                                Summary

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

    7.2.11 capital gains tax reform

                               Background

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

                                Summary

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

    7.2.12 overall review of the sba

                               Background

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

                                Summary

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

    7.2.13 review of the sba procurement assistance pro-
                        grams

                               Background

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

                                Summary

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

    7.2.14 review of sba business development programs

                               Background

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

                                Summary

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

    7.2.15 review of sba 504 program

                               Background

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

                                Summary

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

    7.2.16 sba's pilot microloan program

                               Background

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

                                Summary

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

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

                               Background

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

                                Summary

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

    7.2.18 review of the sbic and ssbic programs

                               Background

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

                                Summary

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

    7.2.19 the small business administration of the future

                               Background

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

                                Summary

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

                               Background

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

                                Summary

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

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

                               Background

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

                                Summary

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

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

                               Background

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

                                Summary

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

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

                               Background

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

                                Summary

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

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

                               Background

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

                                Summary

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

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

                               Background

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

                                Summary

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

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

                               Background

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

                                Summary

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

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

                               Background

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

                                Summary

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

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

                               Background

    On September 13, 1995, the Committee on Small Business held 
a hearing to examine the impact of solid waste flow control on 
small businesses and consumers. Flow control is the legal 
authority given to States and local governments to designate 
specifically where municipal solid waste may be taken for 
treatment or disposal. Without flow control, small business 
consumers and others who must pay to remove their waste usually 
have choices about where to take the trash.
    In May 1994, the Supreme Court decision in C&A Carbone v. 
The Town of Clarkstown declared that a flow control ordinance 
violated the Interstate Commerce clause of the U.S. 
Constitution. In effect, the Court ruled that solid waste 
constitutes an article of interstate commerce and its movement 
cannot be restricted without explicit congressional authority. 
Small business owners have approached the Committee on Small 
Business expressing the concern that the congressional debate 
on flow control was dominated by the local government and big 
waste company perspectives to the detriment of small 
businesses.

                                Summary

    The hearing was comprised of four panels, the first of 
which included: John Broadway, Virginia State Director, 
National Federation of Independent Businesses; John McKeon, GZK 
Inc., representing the National Restaurant Association; Cheryl 
L. Dunson, Legislative Affairs Director, Santek Environmental, 
Inc., and Friends of Locally Owned Government Waste (FLOW); and 
David Muchnick, President, South Bronx 2000 Local Development 
Corporation. The consensus of this panel was that flow control 
ordinances negatively affect small business owners. These 
ordinances force waste disposal customers to use government 
mandated facilities and, in effect, create monopolies. The most 
obvious impact of flow control, one witness testified, is on 
price. In communities where there are no flow control 
ordinances, processors and recyclers compete for market price. 
One small business owner testified that flow control allows a 
political jurisdiction to determine which disposal method and 
which facility will be used.
    One small business advocate testified that the issue of who 
controls waste streams and their destinations is about the 
livelihoods of small independent haulers who do not own 
landfills and thus produces negative repercussions for the 
Nation's small business owners. The witness testified that flow 
control makes the small business owner captive to a single 
public or private-sector waste hauler or waste disposal 
facility, which in turn denies small business the opportunity 
to reduce their cost by source-separating and marketing, 
donating, or otherwise distributing their recyclable materials 
on their own.
    The second panel included: Jere Glover, Chief Counsel for 
Advocacy, Small Business Administration (SBA); and Michael H. 
Shapiro, Director, Office of Solid Waste, Environmental 
Protection Agency (EPA). The EPA's testimony regarding the 
report that it submitted to Congress in September 1992 
indicated that flow controls provide an administratively 
effective tool for local governments to plan and fund solid 
waste management systems. However, they found no data showing 
that jurisdictions having flow control authority provide more 
protection in terms of human health and the environment than 
jurisdictions without such authority. The SBA testified that 
full and open competition is always better for small business. 
According to one study, flow control imposes between 20 and 30 
percent monopoly surcharges on small business for their solid 
waste disposal. SBA stated that economic regulations, which 
impose regulatory cost on taxpayers and small business without 
at least having some significant environmental benefit, should 
not exist.
    The third panel included: Sharpe James, Mayor, Newark, New 
Jersey; and Randy Johnson, County Commissioner, Hennepin 
County, Minnesota. The Mayor of Newark testified that when flow 
control came into existence in 1987 in the Newark area, the 
immediate effect of the mandated flow control was a dramatic 
increase in disposal cost to $103 per ton for municipal solid 
waste and $109 per ton for bulk debris. Prior to the mandate, 
Newark had been disposing of its waste at a nearby facility for 
approximately $25 per ton. Flow control brought about a four-
fold increase in Newark's waste disposal costs. The Mayor also 
stated that two of the negative effects that flow control has 
on small businesses are an increase in the cost of doing 
business in a non-competitive marketplace and it bars entry to 
the market for companies that wish to recycle and dispose of 
waste.
    Commissioner Johnson testified that flow control has 
allowed Hennepin County to manage solid waste over the long 
term with stable prices and in an environmentally sound manner. 
He stated that flow control is not a debate between public 
versus private facilities but that flow control systems enable 
many small trash haulers to survive, compete, and flourish. 
Entering into long-term contracts for disposal and paying the 
same price at the designated facility as every other hauler 
enables small haulers to compete against the large, 
multinational waste companies that own their own mega-
landfills, transfer stations, and large numbers of trucks.
    The fourth panel included: Paul M. Felix, President, 
Container Corporation of Carolina; Mel Kelly, President, K&K 
Trash Removal, Inc.; Richard A. Perry, Executive Director, 
California Refuse Removal Council; Brian W. Clements, 
President, Clements Waste Services, Inc.; and Kenneth Bell, 
Vice President for Development, ReComp of Washington. The 
general consensus of the panelists was that flow control was 
detrimental to small business. The small business owners felt 
that flow control takes away the choice of each small business 
owner to make the right economic decision for his or her 
business. For example, if flow control were implemented in one 
small business owner's company, it would have a net impact of 
increasing the cost of disposal to the 10,000 customers who are 
small businesses by over $15 million.
    One small business owner on the panel testified that often 
the debate about flow control revolves around what is merely 
governmental intervention that stifles competition and makes 
things tough for small businesses. This witness indicated that 
his small business supports a competitive model of flow 
control. Previously when flow control was believed to be a 
basic local governmental power, his company was committed to 
providing long-term solid waste processing service to the 
community. Now, the witness maintained, flow control is being 
undermined. He testified that it should be reinstated in the 
name of fairness and in the name of allowing local governments 
to do their job as they see fit without having their hands tied 
by the Federal government.
    For further information on this hearing, refer to Committee 
publication number 104-50.

    7.2.29 sba's venture capital programs

                               Background

    On September 28, 1995, the Committee on Small Business held 
a hearing to examine the Small Business Investment Company 
(SBIC) and the Specialized Small Business Investment (SSBIC) 
Programs. The SBIC and SSBIC Programs have provided early stage 
funding for what are now some of America's largest publicly 
held companies. The programs arrange for private investment 
companies to raise a pool of capital to invest in or lend to 
SBICs that are licensed by the Small Business Administration 
(SBA). The SBICs agree to abide by the SBA's rules and 
regulations regarding transactions with small businesses. In 
exchange, the SBA provides matching funds either through 
debentures or through participating securities. Ultimately, the 
SBA-provided funds are supposed to be paid back to the 
government.
    The SBIC Program fills a gap in the small business 
financing marketplace. As a result, small business owners have 
a place to turn for investment capital, especially in the 
startup phase when there is a great need for ``risk capital.'' 
The SSBIC Program provides the same kind of assistance targeted 
at the minority community, which has traditionally had an even 
more difficult time finding risk capital. The role of the SBA 
is to make sure that the SBIC or SSBIC adheres to the 
regulations, manages its deals appropriately, and does not 
expose the Federal government and the taxpayer to undue risk. 
The Committee has learned, however, that there are many 
problems with both programs and that the potential risks to the 
government are great.

                                Summary

    The hearing was comprised of one panel, which included: 
Judy England-Joseph, Office of Housing and Community 
Development Issues, U.S. General Accounting Office (GAO); 
Patricia Forbes, Office of Economic Development, SBA, 
accompanied by Don A. Christensen, Associate Administrator for 
Investments, SBA; and Donald J. Wheeler, Deputy Director, 
Office of Special Investigations, GAO.
    The GAO witnesses testified that weaknesses in SBA's 
oversight and management continue to place Federal funds at 
risk. Although recent SBA actions and legislative changes are 
steps in the right direction, these oversight and management 
weaknesses continue to plague the SBIC and SSBIC Programs. GAO 
testified that corrective actions on examination findings are 
not pursued rigorously, financially troubled firms are not 
transferred to liquidation quickly, and overstated asset 
valuations are not detected in a timely manner. GAO believes 
that these weaknesses result in losses to the Federal 
government that could have been avoided.
    The GAO witnesses testified that the organizational 
placement of the Office of Examinations in the same division 
that is responsible for promoting the SBIC and SSBIC Programs 
leaves it vulnerable to questions about its independence. They 
recommend that Congress consider directing the Administrator of 
the SBA to move the Office of Examinations out of the 
investment division and have it report directly to the 
Associate Deputy Administrator for Economic Development. GAO 
further recommended that the SBA develop an overall strategy to 
better target oversight resources to SBICs and SSBICs that 
commit repeated or egregious violations and on those 
investments that pose the greatest risk of loss to the Federal 
government.
    The SBA witnesses referred to the March 28, 1995, hearing 
in which the rejuvenation of the SBIC Program through the Small 
Business Equity Enhancement Act of 1992 was discussed. 
According to the SBA the result of the Act on the SBIC Program 
has incorporated the best practices of the private venture 
capital industry as well as the lessons learned from past 
experience with the program. The agency believes that, although 
more remains to be done, the result has been an enormous 
strengthening of the program and correction of the weaknesses 
that had led to the well-publicized problems of the past.
    For further information on this hearing, refer to Committee 
publication number 104-51.

    7.2.30 federal contract bundling: how can small busi-
                        ness compete?

                               Background

    On October 11, 1995, the Committee on Small Business held a 
hearing to assess the impact of Federal contract bundling on 
small business. Contract bundling is the practice of 
consolidating government contracts and limiting access to open 
competition in the procurement process. The Committee focused 
on two industries that rely on government contracts and that 
were being threatened by proposals that would have effectively 
excluded small businesses from openly competing for government 
business. The two industries were air-freight forwarding, which 
was threatened by a proposal from the General Services 
Administration (GSA) and household-goods moving, which was 
being threatened by a proposal from the Military Traffic 
Management Command (MTMC).
    In 1995, GSA issued a solicitation for air-freight 
contracts that would have raised the minimum requirements that 
private air-freight carriers must meet in order to qualify for 
government-contracted business. These minimum requirements had 
been set at a level so high that there was little chance that 
small businesses competing in the government procurement 
process could have complied. Historically, government agencies 
have generally contracted directly with air-freight forwarders 
to ship heavy items. The proposed solicitation, however, would 
have transferred all contract authority for heavy air-freight 
to GSA, making GSA the sole negotiator and contractor for 67 
government agencies and departments (including all of the 
Department of Defense (DOD), which is the largest shipper of 
heavy air freight). The solicitation would have covered almost 
all of the U.S. government's heavy air-freight business.
    In early 1995, MTMC issued a contract proposal for its $1.1 
billion per year personal property program that would have 
abolished, rather than modified and improved, the existing 
procurement procedures specifically developed for that 
industry. Household-goods movers and forwarders are hired to 
move military families who have been transferred from one 
military installation to another. MTMC's goal was to substitute 
the general Federal Acquisition Regulations (FAR) procurement 
procedures for the system that had been in place for over forty 
years. Under the traditional system, carriers bid on routes out 
of military installations at specific rates. In addition, 
carriers were allowed to bid a second time to reduce their 
initial bid in response to the lowest bidder (which is 
sometimes referred to as ``me-too'' bidding). This permitted 
the me-too carriers to share with the low cost carrier in the 
residual traffic on all channels at the established low rate. 
This system also ensured a low rate for the government.
    MTMC's proposal was a ``winner take all'' system. In other 
words, any company could bid on specific routes between 
military bases. Unlike the traditional system that ensured that 
many carriers serviced each route, however, only one carrier 
would have been able to service each route under MTMC's 
proposal. This, in effect, would have bundled what had 
historically been multiple contracts into one contract per 
route.

                                Summary

    The hearing was comprised of four panels, the first of 
which included a single witness: Jack Quinn (R-NY), Member of 
Congress. Congressman Quinn expressed his opposition to GSA's 
contract solicitation for air-freight services, which would 
have a significant effect on one of his constituents.
    The second panel consisted of representatives from the air-
forwarding industry and GSA: Chris Alf, President, National Air 
Cargo; Jim Foster, President, Airforwarders Association; and 
Allan Beres, Assistant Commissioner of the Office of 
Transportation and Property Management, GSA. The small business 
witnesses presented testimony regarding GSA's contract 
solicitation for air-freight services. Both witnesses were 
strongly against GSA's proposal and claimed that the sole 
purpose of GSA's proposal was to eliminate small companies from 
the system in order to award a contract to a few very large 
companies. Mr. Alf explained that if GSA's proposal was 
adopted, his company would go out of business. Mr. Foster 
similarly explained that this proposal would shut hundreds of 
other companies out of the business of government air-freight 
services, thereby forcing them out of business altogether. Mr. 
Beres maintained that GSA was not bundling contracts, but 
rather ``aggregating demand.'' He testified that any company 
could bid on GSA's contract solicitation and that multiple 
awards would be issued. He did not address the industry's 
contention that there were essentially two companies in the 
country that could meet GSA's impossibly high requirements.
    The third panel consisted of representatives from the 
household-goods moving industry and MTMC: Robert Moore, Deputy 
Chief of Staff for Operations, MTMC; Bill Gremmels President, 
AALCO Forwarding, Inc.; Donald H. Mensch, President, Household 
Goods Forwarders Association of America, Inc.; and Joseph 
Harrison, President, American Movers Conference.
    The panel presented testimony regarding MTMC's contract 
solicitation for the moving of household goods for U.S. 
military members. Mr. Moore maintained that the system that had 
been in place for over forty years was so badly broken that 
nothing short of completely re-engineering the program could 
possibly fix it. The industry representatives unanimously 
agreed that while there were problems with the system, a 
mutually beneficial compromise could be worked out so as to 
ensure small business participation and improved service. In 
addition, they claimed that, like the GSA solicitation, the 
sole purpose of the MTMC proposal was to eliminate small 
companies from the system in order to award a contract to a few 
very large companies.
    The fourth panel consisted of Jere W. Glover, Chief Counsel 
for Advocacy, Office of Advocacy, U.S. Small Business 
Administration. Mr. Glover testified against the practice of 
contract bundling and, more specifically, against the contract 
solicitations that had been issued by GSA and MTMC. He stated 
that contract bundling was a trend that was rapidly advancing 
in Federal procurement under the auspices of contract 
simplicity, but with devastating results manifested in less 
competition, higher government costs in the long run, and 
reduced small business participation.
    For further information on this hearing, refer to Committee 
publication number 104-52.

    7.2.31 the effects of superfund liability on small busi-
                        ness

                               Background

    On October 19, 1995, the Committee on Small Business held a 
hearing to examine the effects of Superfund liability on small 
businesses. Superfund was created with the enactment of the 
Comprehensive Environmental Response, Compensation and 
Liability Act (CERCLA) in 1980. It has long been considered a 
program in need of major reforms--to some, the program appears 
to be more of a cash cow for environmental lawyers than an 
efficient mechanism for cleaning up hazardous waste sites. In 
addition, meaningful reform of Superfund, particularly the 
liability system, ranked as the number five recommendation at 
the 1995 White House Conference on Small Business.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Lois J. Schiffer, Assistant Attorney General, 
Environmental and Natural Resources Division, U.S. Department 
of Justice; Susan M. Eckerly, Director of Regulatory Policy, 
Citizens for a Sound Economy; Raymond J. Keating, Chief 
Economist, Small Business Survival Committee; and John C. 
Shanahan, Policy Analyst, Environmental Affairs and Energy 
Studies, The Heritage Foundation.
    Ms. Schiffer began the panel and testified that the 
problems with Superfund range from insensitive bureaucrats 
writing letters that no one wants to receive; to people 
bringing small businesses into a liability system in which 
there is really no reason for their participation; to private 
companies going after small businesses even when the government 
has determined not to prosecute. Ms. Schiffer stated that the 
Administration has recognized these problems and has been 
working diligently to solve them. She went on to state that the 
Department of Justice is using six approaches to the problems 
with Superfund. One of the proposals relates to small business 
generators that contribute very small amounts of waste--a few 
barrels--and would exempt these small businesses. Another 
proposal is for small business owners who operate hazardous 
waste sites or transporters who cannot afford to pay the high 
cleanup costs for which they may be responsible. The 
Department's proposal would review what the business and its 
owner have, and determine what they can pay, while leaving the 
owner and business in tact.
    Other witnesses on this panel spoke as to the failure of 
Superfund to cleanup hazardous waste sites. One aspect of the 
program that is believed to be in need of elimination is the 
system of retroactive liability. The witnesses stated that this 
system is very detrimental to small business, and one 
complication is the lack of records that are available for 
small business as opposed to larger businesses to prove their 
innocence. It was also stated that the delays and costs of 
litigation hinder Superfund's effectiveness. Reforms should 
address the core elements of the Superfund structure that fuel 
litigation, slow cleanups, and raise costs. One of the most 
publicized criticisms of Superfund is that instead of monies 
being spent on cleanup, it has been spent on lawyers.
    The second panel included: John De Vinck, De Vinck, Inc., 
representing the National Automobile Dealers Association; Kevin 
R. Herstad, United Truck Body Company, representing the 
National Federation of Independent Business; Edward L. Quinn, 
Sr., Chairman of the Board, K.J. Quinn & Company; and David 
Norwine, Haward Corporation, representing the National 
Association of Metal Finishers.
    The panel consisted of small business owners whose 
businesses have suffered because of Superfund. All of the 
witnesses stated that Superfund's system of retroactive 
liability is unduly harsh on small businesses. Under this 
system, any contributor to a site is potentially responsible 
for the entire cost of cleanup, even if the amount they 
contributed to the site is minimal. Small businesses can be 
held liable for cleanups that resulted from alleged waste 
management activities occurring years and even decades in the 
past. In addition, the law does not require a demonstration 
that the small business was negligent or at fault to establish 
liability.
    As an example, one small business owner referred to a site 
that was in the process of being ``cleaned up.'' He stated that 
after the cleanup began, the plant blew up and a three-alarm 
fire broke out. It is believed that there was more 
contamination from the cleanup, with the explosion of the 
plant, than there had been over the last 30 years of the site's 
mere existence.
    For further information on this hearing, refer to Committee 
publication number 104-55.

    7.2.32 the internal revenue service's initiatives to re-
                        duce regulatory and paperwork burdens 
                        on small business

                               Background

    On October 25, 1995, the Committee on Small Business held a 
hearing to examine the initiatives undertaken by the Internal 
Revenue Service (IRS) to reduce regulatory and paperwork 
burdens on small business. The IRS estimates that the American 
public expends over 5 billion hours responding to regulatory 
forms, reports, and record keeping requirements of the tax 
system, and small business carries a disproportionate share of 
that burden. The Paperwork Reduction Act of 1995 established a 
goal of reducing the government's overall paperwork burden on 
the public by 10 percent in each of the following two years. In 
addition, at the White House Conference on Small Business held 
in June 1995, the President committed his Administration to 
reducing regulatory and paperwork burdens on small business 
significantly.

                                Summary

    The hearing was comprised of one panel, which included: 
Margaret Milner Richardson, Commissioner, IRS; Jack Faris, 
President, National Federation of Independent Business; William 
P. Fisher, Executive Vice President, National Restaurant 
Association; Jeff Joseph, Vice President, Domestic Policy, U.S. 
Chamber of Commerce; Bennie L. Thayer, President and Chief 
Executive Officer, National Association for the Self-Employed; 
and Ken Wolfe, Kohlhepp, Wolfe & Associates, representing the 
U.S. Chamber of Commerce.
    The Commissioner testified that the IRS has established an 
Office of Small Business Affairs that will focus on the 
concerns of small business. In this regard, the IRS has 
conducted town meetings across the country to hear concerns 
from small business owners. The Commissioner also explained 
some of the programs that the IRS had been developing to 
streamline procedures for the small business owner. In 
addition, she testified that the IRS is anxious to keep 
building on the progress already made but that the current 
budget environment and the significant proposed reductions in 
appropriations will hinder the agency's ability to deliver 
these kinds of services.
    The witnesses testifying on behalf of small business owners 
stated that the Internal Revenue Code has endured over 4,000 
changes since 1986. The witnesses maintained that the Code is 
so convoluted and difficult to understand that it needs to be 
thrown out and totally rewritten from scratch. Several 
witnesses provided the Committee with stories of how they had 
been involved in a small business in the past and were still 
receiving letters from the IRS asking them to be responsible 
for something they had not participated in for many years. One 
witness stated that he simply paid the fine for which the IRS 
said he was responsible because the time and energy it would 
have taken to get through to the IRS and straighten the matter 
out would amount to much more money than the IRS claimed he 
owed.
    Witnesses also testified that reforms in the Regulatory 
Flexibility Act, the Taxpayer Bill of Rights, and the final 
rule on the Paperwork Reduction Act, which involves compliance 
by the IRS, must be passed to further enhance the process. The 
Committee was given as an example the business that is suddenly 
told by the IRS that is should have been treating its 
independent contractors as employees. Such a change in worker 
status can involves back taxes, interest, penalties, and even 
if the IRS determines that no amount is due, the business and/
or independent contractor often must expend considerable sums 
defending against the IR's allegations of misclassification.
    For further information on this hearing, refer to Committee 
publication number 104-56.

    7.2.33 the cost of federal regulations on small business

                               Background

    On October 31, 1995, the House and Senate Committees on 
Small Business held a joint hearing to examine the costs of 
Federal regulations on small business. It is believed that the 
regulatory cost of regulations for small companies is some 50 
percent more than the cost to large firms. This finding 
establishes an appropriate perspective for prompt action on 
eliminating unnecessary regulatory compliance costs to 
encourage rather than discourage new small businesses. The 
hearing was designed to examine the report to Congress by the 
Chief Counsel for Advocacy of U.S. Small Business 
Administration (SBA) requested under section 613 of Public Law 
103-403 on ``the impact of all Federal regulatory, paperwork, 
and tax requirements upon small business.''

                                Summary

    The hearing was comprised of a single witness: Jere Glover, 
Chief Counsel for Advocacy, SBA. Mr. Glover initially stated 
that the one thing small businesses fear the most is government 
regulations and that since 1980, the SBA's Office of Advocacy 
has undertaken over 30 different studies on the regulatory 
burdens of various sectors of the small business community.
    Mr. Glover reviewed the recent study that the SBA undertook 
pursuant to Public Law 103-403, which focused on the regulatory 
costs for all businesses and a general analysis of these costs. 
He maintained that the regulatory burden has leveled off as a 
percentage of the gross domestic product. He also stated that 
two regulatory costs have actually gone down over the last two 
decades: the economic efficiency cost and the economic transfer 
cost. The biggest increase in burden, however, has been in 
environmental regulations. The next largest increase is in 
process regulation, which is basically paperwork and involves 
the Internal Revenue Service and the payroll and Social 
Security records. Social regulation costs such as Occupational 
Safety and Health Administration (OSHA) and worker safety rules 
have not increased significantly, according to Mr. Glover.
    Mr. Glover also testified that the study split the 
regulatory burden between consumers and business with 60 
percent of the regulatory burden falling on business. After 
looking at all business, the study was then directed to the 
small business sector. In examining the average cost of 
regulations per employee, small businesses were much harder hit 
than large businesses. In looking at the cost per dollar of 
sales, there is a disparate burden on small businesses as well. 
The conclusion of the study was that there is a very clear 
disproportionate burden on small business, which continues 
despite the passage of the Regulatory Flexibility Act.
    Mr. Glover mentioned the Paperwork Reduction Act, recently 
passed by Congress, which will require that the agencies reduce 
their paperwork burden by 10 percent each year for each of the 
next 2 years and 5 percent thereafter. He stated that while 
these efforts are significant, more should be done to decrease 
the disparate burden on small businesses.
    For further information on this hearing, refer to Committee 
publication number 104-57.

    7.2.34 railroad consolidation: small business concerns

                               Background

    On November 8, 1995, the House and Senate Committees on 
Small Business held a joint hearing to examine railroad mergers 
and their impact on small business and, in particular, small 
shippers. A recent trend had been developing toward mega-
mergers among previously competing Class I railroads. The 
primary concern of this hearing was to see how these mega-
mergers would affect small business shippers, particularly 
shippers of bulk commodities such as agricultural goods.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Dan Glickman, Secretary, U.S. Department of 
Agriculture (USDA), accompanied by Paul Kepler, Deputy Director 
of Transportation and Marketing Division, Agricultural 
Marketing Service, USDA. Secretary Glickman testified that in 
1989 the USDA's Economic Research Service issued a report that 
concluded that competition among railroads had a strong effect 
on rates for agricultural shippers. The Secretary added that 
when there is more competition, the rates are lower. An 
increase in concentration reduces competition, and agricultural 
shippers will incur higher rates, particularly those shippers 
who are long distances from barge transportation.
    Secretary Glickman stated that small shippers and railroads 
have a number of concerns with the increased consolidation of 
the major railroads, including a growing potential for captive 
shippers who are only served by one railroad; reduced or 
inadequate service; and non-competitive rates. The Secretary 
stated that reliable, cost-effective transportation of 
agricultural products enables U.S. agricultural producers and 
shippers to be competitive in both domestic and export markets. 
In closing, Secretary Glickman stated that the government must 
ensure the continued availability of an adequately and 
competitively priced railroad system in order to maintain 
continued growth in U.S. export markets.
    The second panel included: Richard J. Barber, Barber & 
Associates; Ed Emmett, President, National Industrial 
Transportation League; Duane ``Butch'' Fischer, President, 
Scoular Grain Company; Curtis Grimm, Professor, College of 
Business and Management, University of Maryland; Phil Hoffman, 
Secretary, Hoffman & Reed; James F. Jundzilo, Transportation 
Manager, Tetra Chemical Company; Ned Leonard, Manager, 
Communications and Government Affairs, Western Fuels 
Association, Inc.; and William F. York, Manager, Lange Company, 
LLC.
    Small business owners and shippers testifying at the 
hearing were concerned about antitrust oversight of the 
railroad industry. The owners stated that deregulation can only 
work as long as competition is maintained. Current government 
standards allow mega-mergers and concentration in the 
marketplace with very little consideration of competition. For 
some small business owners, transportation is 50 percent of 
their costs. Limiting competition threatens their ability to 
compete.
    Several small business owners testified about their 
concerns with the proposed Union Pacific and Southern Pacific 
(UP-SP) merger. These witnesses believe that it is possible 
that this mega-merger will result in rail-service dislocation 
and will put some small business owners at a disadvantage since 
they will not have access to railroad transportation. A 
professor from the University of Maryland's College of Business 
and Management advocated deregulation of the U.S. railroad 
industry but maintained that deregulation does not authorize 
the government to abdicate its antitrust responsibility. 
Professor Grimm testified that the UP-SP merger would eliminate 
rail competition to an unprecedented degree and that the 
Interstate Commerce Commission should deny such a merger.
    Advocates for consolidation in the railroad industry 
testified that with the decline in the number of Class I 
railroads over the past two decades, the remaining railroads 
are more efficient, more productive, and better able to serve 
grain shippers, both large and small, than they were 15 years 
ago. The witnesses also stated that consolidations have created 
opportunities for producers and merchandisers to find new 
markets for their products. One advocate testified that the 
transportation infrastructure to haul grain was devastated by 
the effect of reduced production and reduced exports. If 
expansion of grain production were permanent, the capital in-
flow would improve infrastructure.
    For further information on this hearing, refer to Committee 
publication number 104-58.

    7.2.35 the abuses in the sba's 8(a) procurement program

                               Background

    On December 13, 1995, the Committee on Small Business held 
an oversight hearing to examine the Small Business 
Administration's (SBA) Minority Enterprise Development Program, 
also known as the 8(a) Program. The 8(a) Program began as a way 
to help develop small businesses owned by socially and 
economically disadvantaged individuals. For some time prior to 
the hearing, the Committee has received reports concerning 
abuses and fraud in the 8(a) Program from entities such as the 
General Accounting Office (GAO) and the SBA Inspector General.
    For example, the SBA Inspector General looked at 50 larger 
size firms in the 8(a) Program and found that 35 of the 50 
participant owners were millionaires but maintained their 
classification as economically disadvantaged. Congressional 
efforts to fix the program in 1988 failed. Given all of the 
abuses surrounding the sole-source authority in the 8(a) 
Program, the Chair of the Committee called upon the SBA 
Administrator to place an immediate moratorium on all sole-
source contracting through the 8(a) Program.

                                Summary

    The hearing was comprised of a single panel, which 
included: William Campbell, Chief Financial Officer, U.S. Coast 
Guard; Nicholas R. Innerbichler, President, Technical and 
Management Services Corporation (TAMSCO); Calvin Jenkins, 
Associate Administrator, Minority Small Business and Capital 
Ownership Development, SBA; Karen S. Lee, Deputy Inspector 
General, SBA; and Donald J. Wheeler, Director, Office of 
Special Investigations, GAO.
    The witnesses from the GAO and SBA Inspector General's 
Office testified about abuses in the 8(a) Program. 
Specifically, the SBA Inspector General had discovered major 
systemic problems during audits and investigations into the 
8(a) Program. The three major problems involve eligibility, 
competition, and brokering. Over the past 3 years, the SBA 
Inspector General's Office has obtained 26 indictments, 25 
convictions, and approximately $60 million in financial 
recoveries. In some cases of participant fraud, the SBA 
Inspector General found that diligence on the part of SBA 
employees would have prevented the fraud or contributed to 
discovery sooner. The GAO testified that one firm 
misrepresented to the SBA its qualifications to enter and 
remain in the program and, upon learning of the 
misrepresentations, the SBA's 8(a) Program office did not act 
to suspend the firm's contracts or remove it from the program.
    In reviewing larger companies, the SBA Inspector General's 
Office found that participants remained in the program even 
though they had overcome impediments to obtain access to 
financial markets or had accumulated substantial wealth. 
Prosperous individuals remained eligible because equity in 
their businesses, primary residences, and spousal assets are 
not considered in determining net worth under current rules.
    The witness from the SBA Inspector General's Office 
testified that in order to minimize abuse, simplify program 
administration and reduce concentration, a ceiling on the 
dollar amount of contracts that a participating company could 
receive should be established. They also noted that a 
requirement in the 1988 amendments for companies to obtain 
certain levels of non-8(a) business, known as a competitive 
mix, has not been effectively enforced by the SBA.
    A witness from one company alleged to have misrepresented 
itself in applying to the 8(a) Program refuted the allegations 
by testifying that he had abided by all requirements in the 
application process and throughout his company's program term. 
The company maintained that GAO had not been fair or accurate 
in suggesting that SBA failed to properly address his 8(a) 
Program eligibility.
    For further information on this hearing, refer to Committee 
publication number 104-59.

    7.2.36 small business' access to capital: impediments and
                        options

                               Background

    On February 28, 1996, the Committee on Small Business held 
the first, introductory hearing in a series on small business' 
access to capital. The delegates at the 1995 White House 
Conference on Small Business ranked a number of recommendations 
concerning capital formation at the top of their list of 
critical issues for small business. The goal of the Committee's 
series of hearings was to address certain of these 
recommendations with an emphasis on how the private sector, 
rather than the government, can meet the capital needs of small 
business as the Congress reduces the burdensome role that 
government has historically played in the lives of small 
businessmen and women. This first hearing focused on 
introducing and defining the problems surrounding small 
business' access to capital. The witnesses were asked to 
provide the Committee with their views on the current 
conditions and availability of capital for small businesses.

                                Summary

    The hearing was comprised of one panel, which included the 
following witnesses: William J. Dennis, Senior Research Fellow, 
National Federation of Independent Businesses; Murray A. 
Gerber, President and CEO, Prototype and Plastic Mold Company, 
representing the National Association of Manufacturers; 
Virginia C. Kirkpatrick, President, CVK Personnel Management & 
Training Specialists, representing the National Association of 
Women Business Owners; John Satagaj, President, Small Business 
Legislative Council; and Robert Smith, President, Spero-Smith 
Investment Advisors, Inc., representing National Small Business 
United.
    The majority of the witness' testimony focused on the role 
that banks play in lending to small business. In general, the 
witnesses pointed to the difficulties of securing small 
business bank loans, and the demise of community bankers, which 
has led to weakening relationships between bankers and 
borrowers, as well as a decline in so called ``character 
loans.'' The witnesses also noted that the high collateral and 
paperwork requirements banks demand from borrowers, as well as 
various other regulatory barriers, present significant 
obstacles for small businesses seeking bank loans. In addition, 
the witnesses testified that capital for start-up businesses is 
almost non-existent.
    According to the witnesses, unlike banks, venture capital, 
securities offerings, and institutional investors (such as 
insurance companies, pension funds, and mutual funds) provide 
relatively little capital to small businesses. The witnesses 
also stated that the diminishing role of banks in small 
business financing, coupled with the relative lack of capital 
from the above mentioned sources has led to increasing reliance 
on SBA guaranteed loans, as well as a rise in non-bank lender 
participation.
    For further information on this hearing, refer to Committee 
publication number 104-62.

    7.2.37 pilot small business technology transfer (sttr)
                        program and small business innovation 
                        research (sbir) program: assessing the 
                        results of public law 102-654, the 
                        ``small business research and 
                        development enhancement act of 1992''

                               Background

    On March 6, 1996, the Committee on Small Business held a 
hearing to evaluate the results of two Small Business 
Administration (SBA) programs: the pilot Small Business 
Technology Transfer Program (STTR) and the Small Business 
Innovation Research (SBIR) Program. Under both the STTR and 
SBIR programs, Federal agencies reserve a small portion of 
their extramural, or contracted, research and development (R&D) 
budget for competition among small businesses. Both programs 
share a common three-stage process designed to enable small 
firms to identify and nurture promising innovations toward the 
marketplace. They differ in one aspect: an STTR award recipient 
must collaborate with a non-profit research institution, such 
as a university or Federally funded research and development 
center. These programs were created to harness the 
technological innovations of small business--the source of 55 
percent of the nation's innovations and new technologies--and 
promote commercialization of innovations derived from Federal 
research and development. Without these programs, small 
business would have little opportunity to compete for Federal 
technology R&D. The three-year pilot STTR Program will 
terminate on September 30, 1996 unless reauthorized by 
Congress.
    Witnesses from the small business and non-profit research 
community were asked to provide the Committee with examples of 
their experiences with both the SBIR and STTR programs, 
including success in moving research to commercialization. They 
were also asked whether the pilot STTR program should be 
reauthorized and to provide any recommendations for making the 
STTR and SBIR programs more effective in attaining their 
objectives. The Committee also requested the General Accounting 
Office (GAO) to review the findings from its January 1996 
report on the STTR program and the March 1995 and previous 
reports on the SBIR program. The SBA was asked to present its 
assessment of the SBIR and STTR programs, recommendation 
regarding extension of the STTR program, and any other changes 
recommended for the two programs.

                                Summary

    The hearing was comprised of a single panel of witnesses 
representing individual small firms who participated in both 
the pilot STTR Program and the expanded SBIR Program, small 
business organizations, the GAO, and the SBA. The witnesses 
included: Richard W. Carroll, President, Digital System 
Resources, Inc.; Brian Clevinger, President, MEGAN Health Inc.; 
John B. Phillips, Department of Chemistry and Biochemistry, 
Southern Illinois University at Carbondale; Robin F. Risser, 
Chief Executive Officer, Picometrix, Inc., representing 
National Small Business United; Steven Zylstra, Director of 
Business Development, Simula Government Products, representing 
the U.S. Chamber of Commerce; Victor S. Rezendes, Director of 
Energy, Resources and Science Issues Resources, Community and 
Economic Development Division, GAO; Daniel O. Hill, Assistant 
Administrator, Technology Programs, SBA.
    All of the witnesses advocated maintaining a separate STTR 
Program and recommended its reauthorization. In addition, the 
witnesses generally supported the SBIR Program and its 
continuation. Mr. Rezendes noted that quality research 
proposals characterized both the SBIR and the pilot STTR 
Programs. The March 1995 GAO review of the SBIR Program found 
that the high level of competition, large numbers of worthy but 
unfunded projects and views expressed by agency officials 
indicated that the quality of research proposals has kept pace 
with the Program's initial increase in funding. GAO found that 
it was too early (after reviewing only one-year's experience in 
the SBIR Program), however, to make a conclusive judgment about 
the long-term quality of research proposals. The January 1996 
GAO report on the pilot STTR Program determined that 
participating agencies rated highly both the quality and 
commercial potential of the proposals and have not found any 
evidence that the pilot STTR Program was competing for quality 
proposals with SBIR. Mr. Rezendes advised the Committee that 
more time will be needed to determine the full impact of the 
STTR Program.
    Mr. Hill conveyed the SBA's strong recommendation to 
continue both the SBIR and Pilot STTR Programs at their current 
funding levels. He cited the vital role that both programs play 
in the high-technology sector of the small business community 
and in the nation's research agenda, ensuring a flow of 
innovative new products and services to the American 
marketplace. Commercial successes associated with the SBIR 
program, for example, have come from a wide range of 
technologies and industries from laser manufacturer to medical 
research to robotics to military decision making. Twenty-four 
percent of completed projects achieved commercialization within 
four years. The percentage rises to 40 percent for products 
that are the result of more than one contributory SBIR Project. 
The SBA also noted the success of the STTR Program to date and 
anticipates a success rate for STTR similar to that achieved by 
the SBIR Program.
    Witnesses from the small business community provided 
numerous examples of success stories from both the SBIR and 
pilot STTR Programs and the critical role that the programs 
play in fostering the transfer of technology to the 
marketplace. They expressed concern that the contribution to 
the nation's economy and defense from the resulting 
technologies and products would not have been possible without 
small business participation in the SBIR and STTR Programs. 
There are no other opportunities for small firms to participate 
in high-tech Federal research and development, and small 
businesses continue to be the source of the majority of the 
nation's innovations and new technologies.
    For further information on this hearing, refer to Committee 
publication number 104-63.

    7.2.38 the epa's progress in reducing unnecessary regu-
                        latory and paperwork burdens upon small 
                        business

                               Background

    On March 7, 1996, the Committee on Small Business held a 
hearing on the progress of the Environmental Protection Agency 
(EPA) in reducing regulatory and paperwork burdens on small 
businesses during the Clinton Administration. This was the 
fourth in a series of such oversight hearings on congressional 
and Administration initiatives to reduce the burdens of 
regulatory actions upon small businesses. The hearing was 
designed to continue the Committee's evaluation of the actions 
that various agencies were taking to (1) fulfill the 
President's March 4, 1995, directive to agency heads, which 
required them to read every page of their agency's regulations 
and make regulatory reform a priority; (2) fulfill the 
recommendations of the 1995 White House Conference on Small 
Business; and (3) accomplish the burden-reduction goals of the 
Paperwork Reduction Act of 1995.

                                Summary

    The hearing was comprised of a single panel, which 
included: Fred Hansen, Deputy Administrator, EPA; Dennis 
Murphey, Director, Center for Environmental Education and 
Training, University of Kansas; Carol Andress, Project Manager; 
Great Lakes Printers Project, and Economic Development 
Specialist, Environmental Defense Fund (ED); Andy Hines, Vice 
President, Emerald Green Lawncare, representing the Small 
Business Council of the U.S. Chamber of Commerce; Harold 
Igdaloff, President, Sungro Chemicals Inc., representing 
National Small Business United; and Sal Risalvato, Owner, 
Riverdale Texaco, representing the National Federation of 
Independent Business.
    Mr. Hansen testified that the EPA had made substantial 
progress in reinventing regulations over the past year. He 
acknowledged that small businesses have a particularly 
difficult time understanding and complying with environmental 
responsibilities despite their overwhelming desire to live and 
work in safe, clean communities. Mr. Hansen testified that the 
EPA was half way toward the reduction of its paperwork burden 
by 20 million hours, which EPA Administrator Carol Browner 
promised in March of 1995, with the implication being that the 
EPA would satisfy the 10 percent reduction goal established by 
the 1995 Paperwork Reduction Act. He also noted the EPA's 
implementation of a new, streamlined, universal waste rule, 
less cumbersome Toxic Release Inventory reporting for small 
businesses, plans for cutting the frequency of Clean Air Act 
reports, and plans for phasing in an electronic reporting 
system for discharge monitoring reports. Administrator Browner 
also announced at the White House Conference a new compliance 
policy that will waive penalties for non-criminal, first-time 
violations. Mr. Hanson described the activities of EPA's Small 
Business Ombudsman, Karen Brown, and discussed the Common Sense 
Initiative, a project to bring together stakeholders in six 
specific industries (such as metal finishing and printing, 
which are two industries dominated by small businesses) to look 
for cleaner, cheaper, and smarter ways to protect public health 
and the environment. Mr. Hansen maintained that EPA was 
deliberately changing the culture within its organization to be 
less adversarial with small business, with the anticipated 
result being fewer regulatory and paperwork burdens and an 
improved environment.
    The small business witnesses on the panel provided the 
Committee with the industry's perceptions of the initiatives 
undertaken by the EPA. The witnesses overwhelmingly stressed 
that small businesses fear environmental regulatory agencies. 
The biggest problem in providing any kind of compliance 
assistance is to establish credibility and overcome the fear. 
Offers of free seminars did not work, for example, unless 
potential small business participants were assured that 
attendance would not result in being visited by a regulatory 
agency or being put on a list that would target them for 
enforcement action. The perception of environmental agencies as 
enforcement-minded rather than assistance-minded also undermine 
any initiative that depends on small business participation in 
voluntary or other assistance oriented programs designed to 
reduce regulatory or paperwork burdens. Witnesses noted that 
these perceptions will not change simply as a result of policy 
pronouncements or shifts in attitude--concrete actions over 
time will be necessary to convince small business that the EPA 
is serious about changing its enforcement mentality.
    Several witnesses also provided the Committee with 
anecdotal evidence of their experiences with the EPA. One 
witness described the success of the Great Lakes Printers 
Project in which small business, environmental advocates, and 
State and Federal regulatory agencies have successfully worked 
together to reduce the paperwork and costs of regulations while 
increasing environmental compliance. Other witnesses stressed 
that EPA regulations often prevent small businesses from being 
innovative and creating more environmentally conscious and 
economically efficient business practices. Small business 
owners also experience frustration in dealing with ever 
changing regulations in many industries imposed on them by the 
EPA and State counterparts. Mr. Murphey noted that a survey of 
small businesses undertaken by the Institute for Public Policy 
and Business Research at the University of Kansas concluded 
that the cost of regulations are a major factor in the degree 
of regulatory compliance--the less expensive the cost of 
complying, the more likely there would be compliance. Other 
witnesses agreed and stressed the importance of minimizing cost 
and avoiding duplication and complexity of regulatory 
compliance.
    The General Accounting Office (GAO) provided written 
testimony for the hearing in response to the Chair's request 
that GAO review the EPA's progress in meeting Administrator 
Browner's promise to reduce the burden of the EPA's paperwork 
on the public by 25 percent within a year. The GAO reported in 
``Assessing EPA's Progress in Paperwork Reduction'' that while 
EPA claimed to have identified 18 million of the 20 million 
hours of its promised reduction, it was not likely to meet its 
actual reduction goals because of double counting and 
overstating of accomplishments. GAO predicted an increase in 
the EPA paperwork burdens for fiscal year 1996 as opposed to a 
decrease.
    For further information on this hearing, refer to Committee 
publication number 104-64.

    7.2.39 sba fy 1997 budget

                               Background

    On March 21, 1996, the Committee on Small Business held a 
hearing on the fiscal year 1997 budget for the Small Business 
Administration (SBA). The Administration's budget proposal for 
the SBA requested a budget authority of $808 million in fiscal 
year 1997, as compared to an estimated funding level of $590 
million in fiscal year 1996, not counting supplemental 
appropriations that may be needed for disasters in the spring 
of 1996. The funding increase proposed by the President for SBA 
includes continuation of the 7(a) and 504 programs without 
proposing legislative changes to reduce the newly projected 
subsidy rate for each program.

                                Summary

    The hearing was comprised of one panel, which included: 
Philip Lader, Administrator, SBA; Greg Walter, Acting Chief 
Financial Officer, SBA; Patricia Forbes, Acting Associate 
Deputy Administrator for Economic Development, SBA; Anthony 
Wilkinson, President and Chief Executive Officer, National 
Association of Government Guaranteed Lenders; Ken Leuckenotte, 
Executive Director, Rural Missouri, Inc., and Past President, 
National Association of Development Companies; Roland Cook, 
Financial Consultant, Development Company Funding Corporation; 
and Raymond Rafferty, General Partner, Meridian Venture 
Partners, representing the National Association of Small 
Business Investment Companies.
    Mr. Lader opened by stating that the Small Business 
Administration supports small business through four principal 
portfolios: access to capital; the education/training mission; 
advocacy and contract opportunities; and the Disaster 
Assistance Program. He noted that the SBA's current business 
portfolio has about 170,000 financings, in the form of $26 
billion, which has been made available to aid small businesses. 
Mr. Lader also stated that 7(a) loans, the cornerstone program 
of the SBA, more than doubled in the past two years.
    In response to questions about the effectiveness of the 
LowDoc program, Mr. Lader concluded that LowDoc loans were 
performing better than the loans under $100,000 that are not in 
the LowDoc program. The Chair also inquired about which loans 
may not be performing well, and Mr. Lader responded that the 
principal indicator of the health of the portfolio is the 
currency rate, that is, that the percentage of the loans whose 
monthly payments are being made on time. Mr. Lader stated that 
the improvement in the currency rate was substantiated by the 
fact that the SBA has gone from a low of 70 percent in the 
1980s to more than 90 percent of the loans being current today.
    Mr. Lueckenotte testified about why the subsidy rates were 
so high for the 504 loan program. He noted that based on his 
assessment of the 504 loan portfolio and on comparison of that 
loan portfolio with commercial industrial loans, 504 loan 
accelerations are very much consistent with market expectations 
and with commercial lending of a similar nature. He concluded 
that the exceedingly high loss rate is due either to inadequate 
collateral or to poor or inattentive handling of liquidation 
once the loan goes into default.
    In response to questions regarding the SBA's comprehensive 
study of facts and figures in relation to both the 7(a) and the 
LowDoc programs, Mr. Lader stated that the SBA has now 
established a base from which data can continue to be collected 
and maintained in order to evaluate specific categories of 
loans. In addition, he recommended that a two-year 
recertification process be instituted for preferred lenders, 
and as a criteria for being recertified, their loan portfolios 
be examined.
    Several members of the Committee expressed concern about 
the SBA's proposal for converting the 504 program into a direct 
lending program. One member noted that there does appear to be 
a reduction immediately in the subsidy rate, however, he would 
like to see what the mathematical model says about long-term 
repayment rates. The hearing concluded with a promise from the 
SBA to provide the Committee with specific data on this 
proposal as well as a complete explanation of the reasons for 
the surprising increase in the subsidy rates for both the 7(a) 
and 504 programs.
    For further information on this hearing, refer to Committee 
publication number 104-67.

    7.2.40 the practice of ``salting'' and its impact on small
                        business

                               Background

    On April 12, 1996, the Committee on Small Business together 
with the Subcommittee on Employer-Employee Relations of the 
Committee on Economic and Educational Opportunities held a 
field hearing in Overland Park, Kansas, to examine a union-
organizing practice known as ``salting'' and its effect on 
small business. The purpose of salting is to recruit union 
members from the ground up on a worker-to-worker level. 
Significant concern has been raised by small business and their 
employees that salting has a more sinister goal, putting small 
businesses out of business if they fail to sign collective 
bargaining agreements with the union.
    The hearing was also designed to focus on H.R. 3211, The 
Truth in Employment Act of 1996, sponsored by Congressman 
Harris Fawell (R-IL), Chairman of the Subcommittee on Employer-
Employee Relations, who co-chaired the field hearing. The Act 
would amend Section 8 of the National Labor Relations Act 
(NLRA) ``to provide that nothing in specified prohibitions 
against unfair labor practices shall be construed as requiring 
an employer to employ any person who seeks or has sought 
employment with the employer in furtherance of other employment 
or agency status.''

                                Summary

    The hearing was comprised of a single panel, which 
included: William Creeden, Director of Organizing, 
International Brotherhood of Boilermakers, Iron Ship Builders, 
Blacksmiths, Forgers and Helpers; Gregory Hoberock, Vice 
President of HTH Companies, Inc.; Robert Janowitz, Chair, Labor 
and Employment Practice Group, Shook Hardy & Bacon; Lindell 
Lee, Business Manager, Local 124, International Brotherhood of 
Electrical Workers; Bill Love, President, SKC Electric, Inc.; 
David R. Meyer, Vice President, Secretary, Meyer Brothers 
Building Co.; Richard Oberlechner, employee, SKC Electric, 
Inc.; and James K. Pease, Jr., Esq., Melli, Walker, Pease & 
Ruhly.
    The general consensus among small business owners on the 
panel was that employees were free to join the union and have 
elected not to. The small business witnesses maintain that the 
union is targeting employers of non-union shops with the main 
purpose of putting them out of business. The shop owners must 
incur exorbitant legal fees and spend many hours of their time 
proving their innocence to the National Labor Relations Board 
(NLRB). Regardless of the outcome of the charges, small 
business owners are on the losing side of the battle. Even if 
they are found ``not guilty'' of the charges, the time and 
money spent to defend themselves can put their small firms out 
of business.
    The small business witnesses stressed that the NLRA is a 
good Act and should not be repealed. They do, however, believe 
that clarifications need to be made to the Act because unions 
are misusing the NLRB. The small business owners also believe 
that unions are sending people to their businesses to apply for 
jobs that they have no intention of fulfilling. All the while, 
the union is subsidizing their salaries and giving them 
benefits to ``invade'' the small businesses and begin the 
process of union organizing as well as creating mishaps that 
would allow them to file charges with the NLRB.
    The small business owners testified that H.R. 3211 would 
put them back on a level playing field with the unions. It 
would give them the ability to hire someone whom they consider 
to be a good employee whether the individual is a union member 
or not. Union members certainly have the right to approach 
employees on their own time whether at a lunch break or after 
working hours. During the work day, however, the employee is 
hired to do a job for the employer. An employer should not have 
to worry about hiring someone who will spend his or her working 
hours trying to organize the other employees.
    Several members of organized unions testified at the 
hearing on behalf of unions. The view of the union is that 
construction industry workers are tied to an industry or craft 
rather than to a specific employer. They believe that the NLRA 
fails to address adequately the need for organizing in this 
industry. The unions maintain that the majority of their 
contacts with non-union workers are initiated by members who 
voluntarily obtain employment with non-union contractors in 
order to assist in the organizing efforts. These members do not 
receive compensation, wage subsidy or any other fringe benefit 
from the union for their efforts. All organizers, paid or 
unpaid, must devote working hours to working for the employer 
and organize only on their own time--before work, after work or 
on breaks. The union representatives testified that to do 
otherwise would subject them to discharge for cause.
    The union representatives also testified that their goal is 
very simply: to organize the unorganized employees in a 
specific industry. One union representative stated that several 
current and former employees of one of the small business 
owners testifying at the hearing have become members of his 
union. He also testified that these employees had never been 
afforded the right to vote on whether they want representation 
by the union. Instead, the employees had been threatened and 
coerced and were fearful of being punished or fired if they 
openly expressed an interest in union involvement. The unions 
believe that H.R. 3211 would remove all the protection for 
employees and allow employers to discipline them for exercising 
their freedom of choice. The union representatives also 
maintain that the same NLRB that investigates union complaints 
also protects owners in the event that the union violates the 
law.
    Chairman Fawell concluded the hearing by noting that he is 
cognizant of the fact that there are views on both sides of 
this subject. H.R. 3211 is designed to provide language that 
would be fair to employers as well as prospective employees. 
The bill would not affect voluntary salters who are not paid by 
the union. Its goal is to promote fairness for employers and 
allow these businesses to hire individuals who want the job for 
which they are applying without the threat of ulterior motives.
    For further information on this hearing, refer to Committee 
publication number 104-71.

    7.2.41 the kemp commission recommendations: a small
                        business perspective

                               Background

    On April 17, 1996, the Committee on Small Business held a 
hearing to examine the small business implications of the 
recommendations of the National Commission on Economic Growth 
and Tax Reform, also known as the ``Kemp Commission.'' The 
Commission was appointed by House Speaker Newt Gingrich and 
Senate Majority Leader Robert Dole in May 1995 and was composed 
of 18 members from the private sector, Federal and State 
governments, and non-profit organizations, and was headed by 
Jack Kemp, former Member of Congress and Secretary of Housing 
and Urban Development. The Commission's mission was to make 
recommendations for a tax code that would encourage economic 
growth to benefit all Americans. The Kemp Commission held 
multiple hearings across the country at which a broad cross-
section of taxpayers testified. On January 17, 1996, the 
Commission released its report entitled, ``Unleashing America's 
Potential.''
    The witnesses were asked to review the Commission's report 
and focus specifically on the issues and concerns particular to 
small business, such as how the new system will reduce the 
regulatory and paperwork burdens on small business. In 
addition, the witnesses were asked to address ways in which 
Congress can make the transition to a new tax system without 
creating devastating financial consequences in the near term 
for small business.

                                Summary

    The hearing was comprised of a single panel, which included 
three commissioners from the Kemp Commission: Jack Kemp, 
Chairman of the Commission, Co-Director, Empower America, and 
former Member of Congress and former Secretary of Housing and 
Urban Development; Jack Faris, President, National Federation 
of Independent Business; and Shirley D. Peterson, President, 
Hood College, and former Commissioner of the Internal Revenue 
Service.
    The panel began by reviewing the final recommendations 
contained in the Commission's report, which were based on the 
finding that the current tax system is too broken to be fixed 
and should be completely repealed. Specifically, the Commission 
recommended that a new tax system should be adopted based on a 
single low tax rate that will lower the tax burden on working 
Americans with a generous exemption that would exempt persons 
least able to pay taxes. The new system should end the bias 
against work, savings, and investment, primarily through the 
elimination of double taxation. The new tax system should allow 
for the full deductibility of payroll taxes. And finally, once 
the new tax system is in place, it should be protected against 
frequent changes and special-interest provisions by requiring 
that any changes in the rate be passed by a two-thirds vote in 
both houses of Congress.
    The panel also reviewed the Commission's ``tax test,'' 
which is a six-part evaluation that each proposals for a new 
tax system must pass. The six criteria are: (1) the tax system 
must promote economic growth; (2) it must be fair and treat all 
persons equally; (3) the system must be simple enough for 
anyone to understand; (4) it must be neutral (tax consequences 
should not be the prime factor in an individual's or business' 
economic decision making); (5) it must be visible (special 
loopholes and benefits should not be hidden from view in a tax 
system); and (6) the tax system must be stable (taxpayers 
should be able to plan their lives without the rules changing 
every year).
    In the context of the small business consequences of tax 
reform, the witnesses testified that the Commission's 
recommendations would have positive, far-reaching effects. 
First and foremost, a reduced tax rate would leave greater 
after-tax dollars in the hands of small business owners to 
reinvest in their businesses. The elimination of double 
taxation, namely the capital-gains tax, would also free up 
considerable amount of capital that could then be made 
available for small business growth and development. The 
witnesses also noted that a simple tax system would 
dramatically reduce the time that small businessmen and women 
now spend learning about and complying with the tax laws and 
regulations and would ease the paperwork burdens since the tax 
reporting requirements would consequently be reduced. In 
addition, the panel noted that the Commission's recommendation 
to allow individuals to deduct their payroll taxes would put 
them on the same footing as businesses, which can currently 
deduct the employer's portion of payroll taxes.
    The panel stressed that the Commission's recommendations 
are not intended to be a complete blueprint for a new tax 
system. Rather, the recommendations are meant to provide a 
broad framework for a tax system that will benefit individual 
taxpayers as well as small and large businesses. The witnesses 
also noted that the issue of transition is a key feature of the 
tax-system replacement debate that is beginning in Congress and 
across the country. Particular attention needs to be paid to 
transition issues such as the treatment of existing debt, net 
operating losses, fringe benefits, and mortgage interest, in 
order to reduce the negative effect on businesses, especially 
small enterprises.
    For further information on this hearing, refer to Committee 
publication number 104-72.
    7.2.42 patent term and patent disclosure legislation

                               Background

    On April 25, 1996, the Committee held a hearing on the 
importance of patent term and patent disclosure issues to small 
business. The discussion was based on two different legislative 
proposals. H.R. 359, introduced by Congressman Dana Rohrabacher 
(R-CA), would allow an exclusive patent term to the inventor 
for 20 years from the date of filing the patent application or 
17 years from the date of issuance of the patent, whichever is 
greater. The bill would also allow pending patents to be 
published after five years. The second bill, H.R. 1733, 
introduced by Congressman Carlos Moorhead (R-CA), would conform 
the U.S. patent term to the current international requirements 
as promulgated in conjunction with the GATT Uruguay Round. The 
bill would also permit publication of patent information after 
18 months. The hearing was designed to examine the issues and 
impediments that small businesses face with regard to obtaining 
and enforcing patent rights. The witnesses were asked to assess 
the strengths and weaknesses of both bills pending before 
Congress on these issues.

                                Summary

    The hearing was comprised of one panel, which included: 
Donald Banner, Esq., Banner & Allegretti, Ltd.; Donald R. 
Dunner, Esq., Finnegan, Henderson, Farabow, Garrett & Dunner 
and Chair, Section of Intellectual Property Law, American Bar 
Association; Orville ``Nip'' Litzsinger, Vice President, The 
Alliance for American Innovation, Inc.; Charles E. Ludlam, Vice 
President, Bio-Technology Industry Organization; Diane L. 
Gardner, Molecular Biosystems, Inc.; Michael Kirk, Executive 
Director, American Intellectual Property Law Association; and 
Ginny Beauchamp, Vice President, National Association of the 
Self-Employed.
    The witnesses supporting H.R. 359 expressed general 
agreement that the current system of 17 years of patent 
protection from the date of grant is more conducive to 
promoting American innovation and protecting the rights of 
small business inventors. The bill would restore the patent 
term by offering a dual term, giving equal protection to all 
inventors of all technologies. Several panelists contended that 
H.R. 1733 was contrary to the purpose of the patent system, and 
it hurt small inventors, because the earlier there is 
disclosure for a small inventor, the earlier they may be 
attacked by large entities with more resources. Witnesses also 
noted that premature disclosure of intellectual property can be 
extremely detrimental to small businesses that worked hard to 
develop new innovations, only to lose the means of marketing 
these products due to the premature release of technical 
information.
    The advocates of H.R. 1733 argued that the implementation 
of H.R. 1733 would be one of the best ways to regulate and 
eventually end the delays that now exist in the patenting 
process, which in turn strengthens small business. In 
particular, witnesses noted that the United States should 
change to an 18-month publication system because one of the 
purposes that a patent serves is to induce people to invest in 
a particular innovation before it is brought to market.
    For further information on this hearing, refer to Committee 
publication number 104-74.

    7.2.43 small business' access to capital: the role of
                        banks in small business financing

                               Background

    On May 1, 1996, the Committee on Small Business held the 
second in a series of hearings on small businesses' access to 
capital. The topic for the hearing was the role of banks in 
small business financing. On February 28, 1996, the Committee 
held the introductory hearing for this series, the purpose of 
which was to identify the various problems small businesses 
face with respect to meeting their capital needs. The present 
hearing was designed to examine in greater detail the banking 
issues raised at the first hearing.
    The witnesses were asked to provide the Committee with 
their views on the impediments to small business bank lending. 
In addition, the banking and consulting-industry witnesses were 
asked to address whether there are legitimate regulatory 
impediments or disincentives that banks face in lending to 
small business, and, if so, the witnesses were asked to 
identify them and offer any suggestions to eliminate these 
obstacles. The banking witnesses were also asked to inform the 
Committee about efforts that their institutions were making to 
lend successfully to small business. The witnesses representing 
the Federal regulatory bodies were asked to address the 
regulatory impediments or disincentives that banks face in 
lending to small business and ways to eliminate them either 
legislatively or at the administrative level. Finally, the 
witnesses were asked for their comments on the rise of non-bank 
lending institutions and, in particular, the affect that they 
have on credit availability for small business.

                                Summary

    The hearing was comprised of one panel of witnesses from 
the banking, regulatory, and consulting fields. The witnesses 
included: Andrew C. Hove, Jr., Vice-Chairman, Federal Deposit 
Insurance Corporation; Janet L. Yellen, Governor, Federal 
Reserve System; Sandy Maltby, Senior Vice President for Small 
Business Services, KeyCorp, and Member, Small Business Council, 
U.S. Chamber of Commerce; Cynthia A. Glassman, Ph.D., Managing 
Director, Furash & Company; Frank A. Suellentrop, President, 
State Bank of Colwich, representing the Independent Bankers 
Association of America; and James Dowe, President, Bangor 
Savings Bank, representing America's Community Bankers.
    The witnesses representing the banking and consulting 
industries testified that the current environment for bank 
lending to small business is excellent because banks are 
healthy, their capital positions are strong, and earnings have 
hit record highs for the last four years. Furthermore, the 
economy is growing, technological advances have reduced the 
cost of small business lending, and regulators are now 
encouraging banks to lend to small businesses. With respect to 
bank regulation, the witnesses generally agreed that while the 
costs of regulatory compliance is too high, the current 
regulatory environment is much better than in the early 1990s, 
as regulators have generally stopped evaluating individual 
loans and instead begun concentrating on the risk level of a 
bank's overall loan portfolio.
    With respect to character loans, the witnesses were 
somewhat divided. While the banking witnesses testified that 
they are generally more willing to loan money to someone from 
the community with whom they have a relationship, the 
consulting witness stated that banks are in the business of 
making money and, hence, are less concerned with an 
individual's intention to pay back a loan than they are with a 
business' ability to pay back a loan. In addition, the 
consulting witnesses noted that small businesses generally need 
more equity capital rather than debt capital. All witnesses 
agreed that banks are currently facing more and more 
competition from non-bank lenders that are not subject to 
regulatory restrictions, which has forced them to be more 
competitive.
    The Federal regulators on the panel were generally 
enthusiastic about the current climate for small business bank 
lending, especially when compared to the period in the early 
1990s known as the ``credit crunch.'' The regulatory witnesses 
testified that bank lending to small businesses declined in 
every quarter during the period of 1990 to 1992, as banks 
focused their resources on eliminating leftover problem loans 
and improving troubled balance sheets rather than taking on new 
credit risks. In addition, as a result of legislation and 
regulations enacted after the savings and loan crisis, 
regulators were forced to monitor bank lending activities more 
strictly. As a consequence, banks made fewer loans during that 
period.
    The witnesses also testified that out of concern that 
exaggerated lending restraints might have been fostered by 
legislative and regulatory reactions to the numerous problems 
in the banking industry, the regulatory agencies undertook an 
extensive review of their policies and practices. The result of 
this review has been a concerted effort to reduce the burden of 
regulation and to ensure that examiners evaluate bank lending 
in a consistent, prudent, and balanced manner. Both witnesses 
testified that the financial environment today is markedly 
improved from that of the early 1990s, and as a result, banks' 
business loans have expanded rapidly. In addition, the 
witnesses stated that according to data collected from banks in 
the June Call Reports, small businesses loans (defined as 
commercial loans of $1 million or less) increased 7 percent 
between June 1994 and June 1995. With respect to the issue of 
bank consolidation, the witnesses testified that there is no 
evidence to suggest that it has led to a decline in small 
business lending.
    For further information on this hearing, refer to Committee 
publication number 104-78.
    7.2.44 music licensing and small business

                               Background

    On May 8, 1996, the Committee on Small Business held a 
hearing on music licensing and small business, which was the 
second in a series of hearings examining intellectual property 
issues of importance to small business. The issues surrounding 
music licensing practices of the performing rights societies, 
which are primarily the American Society of Composers, Authors 
and Publishers (ASCAP) and Broadcast Music Incorporated (BMI), 
has long been a major concern for small businesses in the 
entertainment and retailing industry. The hearing was designed 
to examine these issues in light of pending legislation, H.R. 
789, which would exempt certain smaller businesses from 
licensing fees for music that is aired on radio or television, 
which the business uses for background only without separate 
charge to the customers.

                                Summary

    The hearing was comprised of one panel, which included: 
Charles F. Rule, Esq., a former Assistant Attorney General in 
charge of the Antitrust Division of the Department of Justice 
and currently with the law firm of Covington & Burling; Stephen 
P. Barba, President and Managing Partner, The Balsams Grand 
Resort Hotel; Pat Alger representing ASCAP; Stuart Epperson, 
Vice-Chairman, National Religious Broadcasters; Marvin L. 
Berenson, Esq., Senior Vice President and General Counsel, BMI; 
and Tommy Taverna, President, Silo Inn.
    The panel generally agreed that the issue of music 
licensing remains critical to many small businesses. Several 
witnesses testified that H.R. 789 would stop licensing groups 
from charging fees more than once. Currently, ASCAP and BMI can 
charge a hotel or restaurant licensing fees on background music 
on television and the radio, which witnesses noted is patently 
unfair because the rights to use that music have already been 
paid for by television and radio stations.
    One witness noted that H.R. 789 addresses two problems 
critical to small business. The first is a requirement that the 
music monopolies offer a per program license to radio 
broadcasters that is a real economic alternative to the blanket 
license favored by ASCAP and BMI. The second is the requirement 
that each music licensing organization provide online access to 
the repertoire of works for which it is authorized to collect 
license fees. The opponents of the bill argued that the 
inherent property right of a musical composition is no 
different than that of any sort of tangible property and merits 
the same degree of property protection.
    For further information on this hearing, refer to Committee 
publication number 104-76.
    7.2.45 small business and entry-level employees: how to
                        increase take-home pay and keep america 
                        working

                               Background

    On May 15, 1996, the Committee on Small Business held a 
hearing to examine, from an economic and small-business owner 
point of view, how a proposed increase in the Federal minimum 
wage would affect small businesses' ability to provide jobs. 
Alternatives to an increase in the minimum wage that would 
boost take-home pay and encourage employers to offer more job 
opportunities were also discussed. In addition, the hearing 
focused on the Small Business Job Protection Act since it 
includes several provisions that were designed to help increase 
the productivity of small businesses and promote opportunities 
for expansion.

                                Summary

    The hearing was comprised of one panel, and the witnesses 
included: Dr. Martin Regalia, Vice President and Chief 
Economist, U.S. Chamber of Commerce; Taalib-Din Uqdah, Co-
Owner, Cornrows & Co., representing the Small Business Survival 
Committee; Bruce Bartlett, Senior Fellow, National Center for 
Policy Analysis; Audrey Tayse Haynes, Executive Director, 
Business and Professional Women USA and Owner, Kelly's Garden 
Cafe; and Duncan Thomas, President, Q-Markets, Inc., 
representing the National Association of Convenience Stores.
    There was a general consensus among the panelists that an 
increase in the minimum wage would be detrimental to small 
business and would lead to a loss of jobs. The small business 
owners maintain that the typical minimum-wage worker is 
generally a single, young person who is unskilled and looking 
for a job to gain experience and move up the ladder. The 
increase in the minimum wage would force employers to look for 
skilled instead of non-skilled employees since they will be 
able to hire fewer employees. The negative effects will fall on 
the lowest-skilled workers and not allow them to gain the 
experience needed to succeed.
    A small business owner from Washington, D.C. testified that 
the impact of a mandated wage increase would have far greater 
effects on his business because under existing law, businesses 
operating in the District of Columbia are forced to pay a 
minimum wage $1 above the Federal rate. The small business 
owner believed that the increase in the minimum wage would not 
provide an incentive to employers to hire unskilled employees 
who require extensive and intensive training and at the same 
time do not generate revenue during the training period.
    An alternative offered to the increase in minimum wage was 
targeted tax policies--either an earned income tax credit or a 
payroll tax credit--which the small business owners believe 
would target the demographic groups in need of assistance. The 
costs of achieving a targeted income redistribution through the 
tax code would be born by the society as a whole rather than 
levied on a particular segment of the industry, namely, small 
businesses. Witnesses testified that it is believed that in the 
long run, if an increase in the minimum wage takes away jobs, 
many unskilled workers will not be able to increase their 
skills through education, training, and on-the-job experience.
    A small business owner and proponent of the minimum wage 
increase testified that more than three out of every five 
workers earning the minimum wage are women. The small business 
owner testified that these women are struggling to support 
their families and that the free market does not work the same 
way for women and minorities as it does for men. The owner 
maintained that if the fast-food chain that resides next to her 
cafe had to raise its minimum wage rate, it would be more 
competitive with her business. At the time of the hearing, the 
witness was paying hirer wages and therefore had to charge 
higher rates while this fast-food chain owner could purchase 
food in much larger quantities and pay employees at the current 
lower minimum wage. The witness testified that she would like 
to raise the salaries of her employees based on merit but 
cannot because of the fast-food competitor.
    For further information on this hearing, refer to Committee 
publication number 104-79.

    7.2.46 proposed reforms of the small business invest-
                        ment company program

                               Background

    On June 6, 1996 the Committee on Small Business met to 
consider testimony regarding legislative proposals for the 
reform of the Small Business Investment Company (SBIC) Program 
administered by the Small Business Administration (SBA). 
Authorized through the Small Business Investment Act of 1958, 
the SBIC program provides for the licensing and financing of 
small business investment companies, firms that provide equity 
and specially structured venture capital to small businesses. 
SBICs are eligible to obtain financing, also known as leverage, 
from the SBA through either the issuance of SBA guaranteed 
debentures or SBA guaranteed participating securities. The 
program also provides for the licensing of Specialized Small 
Business Investment Companies (SSBICs), which are restricted to 
financing small businesses owned by socially or economically 
disadvantaged persons. SSBICs may obtain financing under the 
same vehicles as SBICs or through more heavily subsidized 
debentures and the direct sale of preferred stock to the SBA. 
The witnesses were asked to comment on the current health of 
the SBIC and SSBIC program, provide suggestions for reform, and 
evaluate the reform legislation pending in the Senate (S. 
1784).

                                Summary

    The hearing was comprised of a single panel, which 
included: Keith Fox, Chairman, National Association of Small 
Business Investment Companies, and Partner, Exeter Venture 
Lenders; Terry Jones, Chairman, National Association of 
Investment Companies, and Partner, Syncom Venture, Inc.; and 
Patricia Forbes, Deputy Administrator for Finance and Economic 
Development, SBA, accompanied by Don Christensen, Associate 
Administrator for Investment, SBA.
    The SBA witnesses testified about the agency's efforts to 
improve the SBIC program's stability. Ms. Forbes emphasized the 
strong capitalization of the 65 new licensees who have over 
$827 million in private capital and the decline in defaults and 
liquidations. The witnesses reviewed the new valuation criteria 
and the tighter requirements for obtaining leverage that the 
SBA has implemented as part of its program improvements. In 
addition, the SBA was generally supportive of S. 1784, 
underscoring the need for the 1-percent fee on SBIC financing 
and the need for a $21.7 million dollar appropriation, which 
would enable the SBA to provide a total of $400 million in 
debenture leverage and $225 million in participating securities 
leverage. The SBA was concerned, however, that the Senate's 
legislation could be construed to require the removal of some 
of the smaller licensees from the program. The witnesses 
suggested changes in the capital-standards language that would 
broaden the exemption to the increased capital standards and 
allow smaller, profitable licensees to remain in the program.
    The industry witnesses also testified about the enhanced 
safety and soundness of the SBIC program, particularly the 
improved valuation standards and reviews of SBIC financial 
strength. They emphasized the need for the SBIC program in 
light of continued consolidation in the banking industry, which 
has led to reduced investment in smaller firms. Mr. Jones also 
sought to correct the impression that the smaller SBIC 
licensees are inherently more risky. He contended that the size 
of an SBIC should not necessarily be used to determine its 
chances of success.
    The industry witnesses generally supported the Senate 
legislation, including the increased fees and the efforts to 
expand the availability of debenture funding. In addition, the 
witnesses agreed with the Committee's desire to ensure the 
stability of the program. Support was also given to the 
legislation's proposal for the merging of the SSBIC licensees 
into the SBIC program. One witness cautioned, however, that an 
alternative source of financing needs to be available for 
smaller SBICs as well as certain other protections for existing 
SSBICs.
    The industry witnesses also addressed the SSBIC's 3-percent 
preferred stock repurchase program. The witnesses responded to 
concerns that the program permitted significant forgiveness of 
SSBIC debt to the SBA by allowing SSBIC to repay only about 35 
percent of their stock value. The witnesses noted that the 
SSBICs were paying what was agreed to be a fair market price, 
and pointed out that the stock had no mandatory repayment term.
    For further information on this hearing, refer to Committee 
publication number 104-81.

    7.2.47 small business competition for federal contracts:
                        the impact of federal prison industries

                               Background

    On June 27, 1996, the Committee on Small Business began a 
series of hearings on unfair government competition, with the 
first hearing designed to examine the effect of the Federal 
Prison Industries on the ability of small business to compete 
for Federal procurement contracts. Federal agencies spend 
approximately $200 billion a year for goods and services, 
including everything from paper clips, clothing, and furniture 
to major weapon systems such as the B-2 bomber. One of the 
primary responsibilities of the Committee has historically been 
to insure that small businesses have a fair opportunity to 
participate in the Federal procurement system.
    Federal Prison Industries (FPI), also known by its trade 
name, UNICOR, is a government-owned corporation sponsored by 
the Bureau of Prisons of the Department of Justice. FPI manages 
a chain of manufacturing facilities located within Federal 
correctional institutions operated by the Bureau of Prisons. 
Established in 1934, FPI produced $392 million worth of goods 
and services in 1994. By law, FPI may sell only to Federal 
agencies, and under the government-wide Federal Acquisition 
Regulation, FPI has been designated as a ``required source of 
supply'' and ``a mandatory source'' for Federal government 
purchasing. In practice, this ``super preference'' puts a 
Federal agency in the position of having to buy from FPI if FPI 
determines it can meet the agency's need, or be granted a 
waiver by FPI in order to buy from the commercial market place. 
When FPI determines that it can supply the product, the normal 
procurement system is circumvented, and private-sector firms 
are deprived of an opportunity to compete for the government's 
business. While FPI's mission is to provide work for prisoners, 
in the face of a growing prison population, small businesses, 
affected by what they deem to be FPI's predatory business 
practices, have become increasingly concerned about unfair 
competition.

                                Summary

    The hearing was comprised of a single panel, which 
included: Steve Schwalb, Chief Operating Officer, Federal 
Prison Industries, and Assistant Director for Industries, 
Education and Vocational Training, Federal Bureau of Prisons, 
Department of Justice; Rick Francis, Vice President of 
Administration, Tennessee Apparel, representing the American 
Apparel Manufacturers Association; Sharon Krell, Owner, Access 
Products; James L. Riley, President, Omni International Inc., 
representing the Quarters Furniture Manufacturers Association 
(QFMA) and the Business and Institutional Furniture 
Manufacturers Association (BIFMA); Tim Graves, Co-owner, 
General Engineering Services Inc.; and Roger English, Sales 
Manager, ADM International.
    Mr. Schwalb indicated the Clinton Administration was 
reviewing legislative proposals to eliminate FPI's mandatory 
source and had not yet announced a position on such proposals. 
As a result, he testified only to the Justice Department's 
position. He made the positive case for FPI's operations and 
explained that FPI could not fulfill its mission as a 
correctional program without the mandatory source status. He 
asserted that the status was needed to maintain a continuous, 
steady work flow without engaging massive sales and marketing 
activities to ensure customer contact with the agencies, and to 
provide an incentive for private-sector companies to become 
partners with FPI in manufacturing products through prison 
labor.
    The small business witnesses testified that FPI unfairly 
took business away from them and prevented private-sector 
companies from continuing business with the government. For 
many small businesses, the lost of government business could 
mean the very existence of the company and threaten the jobs 
associated with that enterprise so that convicts could be put 
to work. The witnesses noted that FPI's prices have not been 
competitive with industry prices, and none of the witnesses 
agreed with Mr. Schwalb's assertion that FPI's quality of 
products and contract performance in delivering products 
matched that of the private sector.
    All the small business witnesses agreed that requiring FPI 
to compete as any other commercial firm would create a more 
level playing field and be more fair than the current system. 
They maintained that permitting agency contract officers to 
choose among suppliers and enforce the government's rights as 
spelled out in Federal procurement regulations would end most 
of the perceived abuses. It would also enable dispute 
mechanisms to be made available for disappointed bidders, which 
do not exist currently.
    Three Members of Congress also joined the Committee as 
guest participants during the panel discussion. Congressman 
Peter Hoekstra (R-MI) elicited testimony from Mr. Schwalb that 
focused on FPI's concentration on the furniture industry, 
despite the legal constraint that FPI limit itself to a 
``reasonable share'' of any particular market. Congressman Mac 
Collins (R-GA) raised the specialized missile-container market 
to make a similar point. Congressman Thomas Petri (R-WI) 
pointed out that FPI's partnering with Krueger International, a 
furniture manufacturer, provided jobs in his district. He also 
noted the concerns of prison guards, who view the activity of 
Federal Prison Industries in the Federal correctional 
institutions as vital to their job safety.
    For further information on this hearing, refer to Committee 
publication number 104-83.

    7.2.48 unfair competition with small business from gov-
                        ernment and not-for-profits: assessing 
                        the current state of the problem and 
                        the recommendations of the 1995 white 
                        house conference on small business

                               Background

    On July 16 and 18, 1996, the Committee held hearings on the 
problem of unfair competition with small business from 
commercial activities undertaken by government and not-for-
profit organizations. The witnesses were asked to provide 
current examples of the scope and breadth of this fundamental 
problem, discuss the recommendations adopted by the delegates 
to the 1995 White House Conference on Small Business, and 
specify actions that could be taken to implement those 
recommendations effectively.
    The delegates to the 1980 and 1986 White House Conferences 
on Small Business ranked recommendations regarding unfair 
competition among their top 10 recommendations. Despite this 
long-term attention from the small business community, the 
problem of unfair competition by governments and from the not-
for-profit community has steadily grown throughout the 1990s. 
As traditional funding sources have been curtailed, both 
governments and not-for-profit entities have expanded their 
commercial-type activities to generate the funding to sustain 
themselves. With the renewed attention generated by the 
recommendations from the 1995 White House Conference on Small 
Business and the 104th Congress, the small business community 
has re-energized its efforts to formulate effective remedies to 
unfair government competition with small business, giving 
practical substance to the national policy of reliance on the 
private sector to meet the government's needs for supplies, 
services, and construction.

                                Summary

    The hearing on July 16th focused on unfair competition from 
governments, especially the Federal government, and was 
comprised of a single panel, which included: David Gorin, 
Chairman, Business Coalition for Fair Competition (BCFC) and 
President, National Association of RV Parks and Campgrounds 
(ARVC); Rich Hoffmann, President, Sundex Corporation, 
representing the Management Association for Private 
Photogrammetric Surveyors (MAPPS); Molly F. Greene, President, 
General Engineering Laboratories, representing ACIL--The 
Association of Independent Scientific, Engineering and Testing 
Firms and the International Association of Environmental 
Testing Laboratories (IAETL); Elaine Boissevain, Owner, 
Highland Orchard Park Resort and Chair, ARVC; Katherine 
DePuydt, Board Member, National Child Care Association; and 
Frank L. Jensen, Jr., President, Helicopter Association 
International (HIA).
    The panelists provided a comprehensive review of the 
current status of unfair government competition with small 
business, the ineffectiveness of existing administrative 
restraints, and the current status of various legislative 
proposals being advanced in the 104th Congress. Witnesses also 
gave anecdotal evidence of commercial activities being 
undertaken by an array of Federal agencies to the detriment of 
small firms.
    Mr. Gorin identified a number of governmental and private-
sector assessments that demonstrated the benefits of 
contracting-out. He also emphasized the ineffectiveness of the 
processes specified by Office of Management and Budget (OMB) 
Circular A-76 for determining whether a commercial activity 
currently performed by Federal employees should be contracted-
out. He argued that the ``Revised Supplemental Handbook on the 
Performance of Commercial Activities,'' issued by the OMB in 
March 1996 to provide detailed guidance to the Executive 
agencies, was likely to inhibit rather than encourage 
contracting-out to the private sector. Mr. Gorin reviewed some 
of BCFC's efforts to block additional statutory impediments to 
contracting-out and advance legislation that will foster the 
contracting-out of existing commercial activities being 
undertaken by the various Executive agencies and to discourage 
the increasing tendency of many agencies to furnish commercial 
activities to other Federal agencies, State and local 
governments and even the private sector.
    All of the witnesses expressed strong support for H.R. 28, 
the ``Freedom from Government Competition Act,'' and its Senate 
companion S. 1724, both of which attracted substantial 
bipartisan support. The witnesses also highlighted provisions 
that were included in the National Defense Authorization Act 
for Fiscal Year 1996 that require the Secretary of Defense to 
identify the various commercial activities of the Department of 
Defense (DOD); highlight those that are suitable for conversion 
to performance by the private sector; and justify those 
proposed to be maintained for performance by DOD employees. The 
provision also calls upon the Secretary to identify all 
legislative and regulatory impediments to converting commercial 
activities to performance by the private sector. These 
provisions represented a victory for accelerating the 
contracting-out of commercial activities currently performed by 
Federal agencies.
    The hearings continued on July 18, 1996, with another 
single panel of witnesses, which included: Thomas J. Scanlon, 
Vice Chairman, BCFC; Michael Lieberman, President, Valley Forge 
Flag Company; Philip C. Hanson, Vice President, C.H. Hanson 
Company; Evan J. Keep, Jr., Evan Keep and Associates; Robert P. 
Stack, President, Community Options; Gene Meier, Owner, 
Lewistown Propane and Fertilizer, representing the National 
Federation of Independent Business (NFIB); Roger S. Ralph, 
President, Bel Air Health Club, representing the International 
Health, Racquet and Sportsclub Association; Dr. Charles A. 
Garber, President, Structure Probe; Michael K. McGee, National 
Environmental Testing, Inc., representing the International 
Association of Environmental Testing Laboratories; and Lou 
O'Brien, Chairman, Model-Star Services, representing the 
Textile Rental Services Association of America.
    The witnesses provided the Committee with anecdotal 
evidence of the devastating effect of unfair competition by 
government-sponsored entities on small business. Mr. Lieberman 
particularly emphasized the effects when he testified that 
Valley Forge Flag Company, a 114 year-old small business, 
family-owned for four generations, was now facing an 
essentially insurmountable competitive challenge for business 
by the National Industries for the Severely Handicapped (NISH), 
a government-sponsored, not-for-profit enterprise and a 
companion organization to the National Industries for the Blind 
(NIB).
    Under the Javits-Wagner-O'Day (JWOD) Act, NISH and NIB are 
given a preferential status with respect to selling certain 
designated products or services to Federal agencies. Once a 
product or service has been designated, Federal agencies are 
required to solicit offers from NISH or NIB before offering the 
contracting opportunities to the private sector. Products or 
services, however, are not to be designated under the JWOD if 
it is determined that the ``proposed addition to the 
procurement list would have a severe adverse impact on the 
current or most recent contractor for the specific commodity or 
service.'' As Mr. Lieberman testified, a very high threshold 
has been adopted for determining what constitutes doing adverse 
economic harm to a small business--essentially not taking more 
than 20 percent of a small firm's total annual revenue. After 
taking 20 percent of Valley Forge Flag Company's largest 
contract in 1993, which involved furnishing interment flags to 
the Department of Veterans Affairs (DVA), on May 17, 1996, NISH 
informed the company that it intended to take another 20 
percent of the same contract.
    Mr. Hanson testified about similar experiences with regard 
to another family-owned small business that had furnished the 
government since the Civil War with brass stencils for 
labeling. When this work was completely taken for the JWOD 
program, the C.H. Hanson Company sought to diversify to related 
products, like identification tags and surveyors' markers, only 
to have these products taken by the JWOD Program. Mr. Hanson 
and Mr. Lieberman also raised concerns about whether pricing by 
NISH and NIB represented fair market prices to the buying 
Federal agencies; the underutilization of persons with 
disabilities in the actual performance of JWOD contracts; and 
excessive subcontracting by NISH and NIB to selected for-
profits companies in order to be able to meet their contractual 
performance obligations to the government.
    Two advocates for persons with disabilities provided the 
Committee with a perspective on the issue from the view point 
of the disabled community. Mr. Kemp suggested that the 
workshops operated by NISH and NIB tended to perpetuate the 
segregation of persons with disabilities rather than 
emphasizing their mainstreaming in keeping with the landmark 
Americans with Disabilities Act of 1990. Mr. Stack provided 
specific examples of how organizations like his worked to 
integrate persons with disabilities into the employment 
mainstream. Mr. Lieberman also emphasized that Valley Forge 
Flag Company currently employs persons with disabilities, and 
he testified that his company was willing to employ more 
individuals with disabilities than would be employed if the 
contract were performed by a NISH-affiliated organization.
    For further information on this hearing, refer to Committee 
publication number 104-86.

    7.2.49 proposed reform of the 8(a) program through h.r.
                        3994, the entrepreneur development 
                        program act of 1996

                               Background

    On September 18, 1996, the Committee on Small Business held 
an oversight hearing to examine the proposed reform of the 
Small Business Administration's (SBA) Minority Enterprise 
Development Program (also known as the 8(a) Program) through 
H.R. 3994, ``The Entrepreneur Development Program Act of 
1996.'' Congress intended that the 8(a) Program would utilize 
Federal procurement to promote development of small businesses 
owned by socially and economically disadvantaged individuals. 
The program put in motion a contracting mechanism within the 
SBA through which purchases by the Federal government, now 
worth about $6 billion, are made, for the most part, on a non-
competitive basis through set-asides.
    The intent of the 8(a) Program was to allow eligible 
companies an opportunity to get on their feet, gain practical 
business experience, and at the end of a maximum nine years, to 
graduate from the program and be prepared for the competitive 
marketplace. It has been found, however, that opportunity has 
been minimal for most of the approximately 6,000 firms that 
have been certified in the program and that a select few 
companies, though financially able, remain in the program long 
after achieving a success level of which most struggling 
entrepreneurs only dream.
    Congress has attempted to clean up the longstanding 
problems with this program through three major legislative 
overhauls in 1978, 1980 and 1988. Each time, the SBA has been 
directed to increase oversight of the program and to ensure 
that the benefits are distributed fairly and to guard against 
fraud and abuse. However, studies by independent investigators 
such as the General Accounting Office (GAO) have given the 
program poor and, in many cases, failing grades. General 
findings of these studies have concluded that the 8(a) 
Program's success in helping disadvantaged firms to become 
self-sufficient and competitive was minimal.

                                Summary

    The hearing was comprised of two panels. The first panel 
included: Philip Lader, Administrator, SBA, accompanied by 
Calvin Jenkins, Associate Administrator of Minority Enterprise 
Development, SBA, John Spotila, General Counsel, SBA, and Hugh 
Wright, Assistant District Director for Minority Enterprise 
Development, SBA Washington District Office; and Judy England-
Joseph, Director of Housing and Community Development Issues, 
GAO. Mr. Lader testified that significant improvements have 
been made to the 8(a) Program. He stated that a new 
comprehensive management information system was in place, 
annual reviews of program participants had been done, and that 
they had reduced the application processing time. The 
Administrator also testified that, although their efforts had 
not been perfect, they could demonstrate that the 8(a) Program 
is currently being mended. One example of improvement, the 
Administrator stated, was that 84 percent of all portfolio 
firms were reviewed last year as compared to only 57 percent 
the previous year. Mr. Lader stated that the Administration 
strongly opposes H.R. 3994 and that the SBA would recommend 
that the President veto any legislation that passes Congress 
that would not allow the continued ``mending'' of the program. 
The SBA believes that the 8(a) Program is necessary, but it 
does not condone any past abuses that may have occurred.
    GAO testified that its reports and testimony over the years 
have chronicled the difficulties that the SBA has had in 
implementing many of the changes to the 8(a) Program, which 
were mandated by Congress in the Business Opportunity 
Development Reform Act of 1988. The latest information that the 
GAO has obtained directly from the SBA's automated system shows 
that while the dollar amount of 8(a) contracts awarded 
competitively during fiscal year 1995 increased over fiscal 
year 1994, the percentage of contract dollars awarded 
competitively remained at about 19 percent.
    According to GAO testimony, during fiscal year 1995, three 
firms, among some 6,000 firms, were graduated from the program 
according to the SBA--the first graduations in the Program's 
history. The SBA determined that the firms had met their 
developmental goals and were able to compete in the marketplace 
without further assistance from the 8(a) Program. The GAO also 
stated that in May of 1995, the SBA established requirements 
for its field staff to evaluate the financial condition of 8(a) 
firms and to determine whether firms were ready to graduate 
from the program. An evaluation done by the SBA of their field 
staff in February of 1996 found that the staff's financial 
analysis was poor and an understanding of concepts of economic 
disadvantage, financial conditions of the firms, access to 
capital, and comparisons to non-8(a) firms in similar 
businesses was limited.
    GAO testified that while the 8(a) program has not yet 
achieved key changes mandated by Congress, the SBA has taken 
actions during the past year that indicate steps in the right 
direction. GAO was concerned, however, about the need to 
collect data to measure better the overall effect of the 8(a) 
Program and the need to improve the skills and abilities of the 
SBA staff who are responsible for assessing the financial 
condition and competitiveness of the 8(a) firms.
    The second panel included: Shirley A. Stewart-Veal, 
President and Founder, SAS, General Construction Contractor; 
Brenda Ford, President, Ford & Associates; Jim Offord, Retired 
Contract Specialist; George R. La Noue, Director, Policy 
Sciences, Policy Sciences Graduate Program, University of 
Maryland-Baltimore County; Jeffrey Rosen, Associate Professor, 
George Washington University School of Law and Legal Affairs 
and Editor, The New Republic; Tapan Banerjee, President, Tapan 
& Associates; and Steven Farinha, President, Farinha, Inc.
    Several small business owners who are designated as 8(a) 
firms or previously sought such certification testified that 
the SBA program officers have not been helpful to them. One 
such owner testified that even though she has utilized all of 
the counseling programs available, she found the SBA and the 
contracting officers to be determined not to help her. Another 
owner stated that she had documented cases of wrongdoing by the 
SBA, facilities services managers, and contracting officers. 
After 15 years of being an 8(a) firm, the contracts on which 
she bid were always awarded to the larger firm. Testimony was 
received from a retired Federal contract specialist whose job 
it was to be an advocate for minority set-asides. This witness 
stated that among other abuses, the Federal program managers 
frequently found ways to avoid letting contracts be awarded to 
minority firms by sometimes using unique specifications that 
only the majority vendor possessed.
    The Committee also received testimony from witnesses who 
were considered experts in the field of affirmative action and 
discrimination. Classification of an individual as socially and 
economically disadvantaged has recently been questioned and 
brought to the U.S. Supreme Court. The witnesses testifying 
questioned how the SBA decides who fits its ``list'' of 
socially and economically disadvantaged individuals. Some of 
the groups included in this list are at the socioeconomic 
bottom of society, while others, measured by education, income, 
and business formation rates, are at the top. Facts about 
individual group characteristics were apparently irrelevant to 
the SBA's decision.
    Testimony was also received from several 8(a) firms who 
have had good experiences with the program. These owners 
testified that the Program has given them the opportunity to 
stabilize their businesses and to create a good track record 
for clients. Two 8(a) firms stated that 65 percent of their 
current contracts are non-8(a) contracts. These owners 
testified that they believed H.R. 3994 would not reform the 
8(a) Program but would eliminate it altogether.
    For further information on this hearing, refer to Committee 
publication number 104-92.

    7.2.50 osha reform and relief for small business: what
                        needs to be done?
                               Background

    On September 25, 1996, the Committee on Small Business held 
a hearing on reform efforts undertaken by the Occupational 
Safety and Health Administration (OSHA) from the small business 
perspective. The Committee previously held a total of five 
hearings on the issue of OSHA reform and the regulatory burdens 
imposed on small business generally. This hearing was designed 
to further the process of OSHA reform by reviewing OSHA's 
efforts to date and to evaluate the merits of H.R. 3234, the 
``Small Business OSHA Relief Act of 1996.''
    OSHA was created in 1970 as a result of Public Law 91-596, 
and the statute has not been amended since its enactment. 
Furthermore, the 1995 White House Conference on Small Business 
ranked the issue of regulatory reform 28th out of 60 final 
recommendations, underscoring the critical need for reform in 
this area. The primary thrust of the OSHA reform legislation 
introduced in the 104th Congress has been to reduce the number 
of penalties and citations issued by OSHA and to reduce OSHA's 
role as a rule enforcer in favor of a consultation resource for 
employers. Witnesses were asked to comment on H.R. 3234, the 
status of OSHA reform, and specifically on the proposals for 
cost-benefit analysis for new regulations.
                                Summary

    The hearing was comprised of a single panel, which 
included: Joseph Dear, Assistant Secretary for Occupational 
Safety and Health, U.S. Department of Labor; F.M. ``Pete'' 
Lunnie, Jr., Executive Director, Coalition on Occupational 
Safety and Health; Ed Hayden, Safety and Health Director, 
Associated General Contractors of Greater Milwaukee; Kent 
Swanson, Owner, Nurses Available Staffing, Inc., representing 
the National Federation of Independent Business; and Larry 
Larsen, President, Larsen Holmes, representing the National 
Association of Home Builders.
    The panel began with Mr. Dear who reviewed the 
Administration's progress to reform OSHA and provide relief for 
small businesses. He testified that OSHA now emphasizes 
cooperative partnerships with employers and workers, with 
small-business employers being involved whenever a new OSHA 
rule would have a significant economic effect upon small 
businesses. The agency was also implementing common sense 
regulations written in plain language and a new agency culture 
focusing on the reduction of injuries and illnesses rather than 
the number of inspections and penalties. He maintained that 
performance measures, such as inspectors being evaluated on the 
number of inspections, citations, and fines that they have 
issued, had been eliminated. Mr. Dear advised the Committee 
that before his tenure at OSHA is completed, the agency will 
eliminate more than 1,000 pages of regulations and will 
simplify hundreds more.
    Mr. Dear also commented on H.R. 3234 and asserted that the 
bill would substantially compromise worker protection. He 
claimed that the ``New OSHA'' has begun reducing or eliminating 
penalties for technical paperwork violations while directing 
its enforcement activities to the most dangerous work sites. 
Mr. Dear concluded his testimony by stating that he has changed 
OSHA forever by offering employers a choice between cooperation 
and enforcement and by using common sense in developing and 
enforcing regulations.
    The small business representatives on the panel shared Mr. 
Dear's call for cooperation and expressed their equal 
commitment to work constructively with their employees, OSHA, 
and other interested parties for continued improvement in 
worker safety and health. The witnesses noted, however, that 
OSHA is one of the least-liked regulatory agencies in 
Washington due to a disjointed approach to enforcement and 
confusing, burdensome standards among other agency practices. 
OSHA in many ways treats small business as an adversary, which 
was evidenced by the 1995 White House Conference on Small 
Business. When the delegates to this conference were asked what 
concerned them most about the Federal government, the 
overwhelming response was not the IRS, health-care reform, or 
the minimum wage--it was the OSHA inspector. Mr. Lunnie noted 
as an example that of the top twenty most frequently cited OSHA 
violations in 1994, eleven of them were for paperwork and of 
those, the majority involved OSHA's hazard communication 
standard.
    The small-business witnesses generally favored the reforms 
proposed in H.R. 3234. As one witness pointed out, there can be 
no guarantees that the next OSHA Administrator will maintain 
the policies set forth in the ``Reinventing OSHA'' initiative. 
H.R. 3234 will ensure that these policy changes will be 
continued. Witnesses noted that OSHA reform legislation must 
ensure that OSHA's primary concern will be safety and not the 
punishment of small business for minor mistakes. With regard to 
specific provisions of H.R. 3234, several witnesses were 
supportive of the requirement that OSHA and other Federal 
agencies perform a cost/benefit analysis on regulations prior 
to their promulgation to ensure that the regulations do not 
impose an unnecessary or duplicative burden on the small 
business community.
    A number of small business witnesses also testified about 
the effects of OSHA's proposed ergonomics regulations. The 
witnesses maintained that under this proposal small businesses 
would be required to implement comprehensive medical-management 
programs for jobs with high signal risk factors for employees 
including lifting 25 pounds, repetition (such as using a 
computer keyboard or clicking a mouse), pushing or pulling, and 
using an awkward position. The proposed regulations would 
require small businesses to retrain employees and radically re-
engineer their businesses. Mr. Swanson commented that the new 
regulations do not reflect the effort to reform OSHA that Mr. 
Dear had previously pledged to implement.
    For further information on this hearing, refer to Committee 
publication number 104-93.
7.3 Summaries of the Hearings Held by the Subcommittee on 
            Government Programs

    7.3.1  the impact of hanscom air force base upon small
                        business in the new england region

                               Background

    On February 13, 1995, the Subcommittee on Government 
Programs held a field hearing in Bedford, Massachusetts, to 
examine the impact of Hanscom Air Force Base upon small 
business. The Federal government selected Hanscom as a possible 
target for shut-down and/or movement of sections of the base to 
other locations. A number of small businesses in the area 
depend on the base for much of their business. Hanscom is the 
fourth largest employer in Massachusetts, directly employing 
11,500 persons on the base and indirectly providing for another 
19,800 jobs in the surrounding region. The total effect on the 
New England economy is $3.2 billion per year, of which $120 
million a year goes to the regional small business community.

                                Summary

    The hearing was comprised of three panels, the first of 
which included: Colonel Ken Collins, Director of Quality 
Initiatives and Strategic Planning, Electronic Systems Center, 
Hanscom Air Force Base; Captain Shannon Sullivan, member of 
Team 21, which supports the BRAC process by providing 
installation data through the Department of Defense structure; 
and Al Hart, Director, Small Business Office, Electronic 
Systems Center, Hanscom Air Force Base.
    This panel described the relationship between the business 
community and Hanscom Air Force Base. The base produces the 
world's finest command, control, communications, computing, and 
intelligence systems, known as C4I, which would not be possible 
without the many small businesses that contract with Hanscom. 
Hanscom's contractors fall under one of several major 
categories: engineering services, intelligence systems, C4I 
systems integrations, research and development, construction, 
small purchases, physical security systems, travel services, 
and base maintenance. The total small business obligations for 
Hanscom over the past four years made up 10 to 15 percent of 
the obligations to profit-seeking companies. Small businesses 
provide backbone support to keep the base and its facilities 
running smoothly and are able to provide technical expertise 
quickly and accurately. The witnesses also testified to the 
synergy of the small businesses and Hanscom and the importance 
of this relationship to the economy as a whole.
    The second panel consisted of Sanford Weiner, Research 
Associate, Center for International Studies, Massachusetts 
Institute of Technology; and William F. Weld, Governor, 
Commonwealth of Massachusetts. Mr. Weiner discussed the 
system's integration and how it was accomplished, and he 
testified that Hanscom has been a true partner with small 
engineering firms, major contractors, and the Federal contract 
centers to have successful systems integration. Governor Weld 
reiterated the importance of Hanscom to economy and said that 
relocating the base would weaken the quality of the C4I 
systems, force the Air Force to spend time and money 
reconstructing an existing technical base, and harm the 
commercial high tech cluster that has developed in that area. 
Hanscom is also involved with universities in the area and 
provides invaluable opportunities and knowledge. Governor Weld 
further discussed the $100 million bond bill he had signed the 
previous week that would aid in expanding Hanscom Air Force 
Base and two other bases in Massachusetts. This bond bill was 
seen as a major commitment from the State.
    The third panel consisted of James Henderson, CEO and 
President, Analytical Systems Corporation; David Vining, Vining 
Disposal Services; Peng Siu Mei, President, Mei Technology 
Corporation; Samir Desai, President and Founder, Systems 
Resources Corporation; and Victoria Bondoc, President and CEO, 
Gemini Industries.
    The witnesses on the panel all represented small businesses 
directly affected by Hanscom Air Force Base. The witnesses 
described specifically how their companies were involved with 
Hanscom and the potential impact on their business if the base 
were to be shut down. For instance, Mr. Vining testified that 
if the base were shut down, it would result in a direct loss of 
4.6 percent, and a potential indirect loss of 34 percent, to 
his company. This would equal a total dollar value loss of 
$4,632,000 and the elimination of 40 jobs. All witnesses 
predicted the elimination of jobs if the base were to close.
    For further information on this hearing, refer to Committee 
publication number 104-12.

    7.3.2 small business administration's small business in-
                        novation research (sbir) program

                               Background

    On April 6, 1995, the Subcommittee on Government Programs 
held a hearing to discuss the Small Business Innovation and 
Research (SBIR) program, which is administered by the Small 
Business Administration (SBA) and assists small, technology-
oriented businesses. Because of their creativity and 
flexibility, small businesses are often fertile ground for 
innovation. These businesses, however, must overcome a number 
of obstacles, including little access to capital and the lack 
of a forum in which to supply their innovations to the Federal 
government and commercial interests. In an effort to alleviate 
these obstacles, the SBIR program requires Federal departments 
and agencies with extramural research budgets in excess of $100 
million to take a nominal percentage of those funds and set 
them aside for small businesses that compete for research 
projects.

                                Summary

    The hearing was comprised of a single panel, which 
included: Samuel J. Barish, SBIR/STTR Program Manager, Office 
of Energy Research, U.S. Department of Energy; Constantine A. 
Bassilakis, Grey Fox Technologies, Inc.; Jere W. Glover, Chief 
Counsel for Advocacy, SBA; Robert L. Norwood, Director, 
Commercial Development and Technology Transfer Division, Office 
of Space Access and Technology, National Aeronautics and Space 
Administration (NASA); Victor S. Rezendes, Director, Energy and 
Science Issues, Resources, Community, and Economic Development 
Division, U.S. General Accounting Office (GAO); Robert Neal, 
Associate Deputy Administrator for Government Contracting and 
Minority Enterprise Development, SBA; and Roger Little, 
President, Spire Corporation.
    Representatives from the small business community, 
including Mr. Bassilakis and Mr. Little, rated their experience 
with the SBIR program as favorable. Mr. Bassilakis lauded the 
impact of the SBIR program on his company, Grey Wolf 
Technologies, citing that it had provided an excellent 
foundation for launching a new business and led to the award of 
two non-SBIR contracts from General Electric in the second half 
of 1994. According to Mr. Little, the SBIR program has 
contributed to Spire Corporation's technology base and products 
in a number of ways. For instance, it has allowed his 
corporation to export to Europe and Japan, as well as various 
third-world countries. Although these two small business 
representatives generally praised the SBIR program, they also 
expressed some concerns. Mr. Bassilakis called the 
documentation requirements and the accounting system 
requirements overly burdensome for small businesses. He 
suggested simplifying these requirements and offering 
alternatives to ``cost-plus fixed fee'' contracts. Mr. Little 
criticized the lack of time between program phases, citing as 
an example a five to ten year time frame from the point of 
initial funding to commercialization.
    Representatives from the SBA, including Mr. Glover and Mr. 
Neal, generally praised the SBIR program. Mr. Glover testified 
that the SBIR program contributes one of the highest returns to 
taxpayers and redirects money to small businesses that might 
otherwise have gone to large firms, universities, and Federal 
government labs that are far less efficient, far less 
innovative, and less able to commercialize their technologies. 
Mr. Glover found the technology commercialization rate to be 
between 30 and 40 percent for small businesses involved in the 
SBIR program. According to Mr. Neal, since the program began, 
the 11 Federal agencies in the program have made over 37,000 
competitive awards worth more than $5.3 billion. Mr. Neal 
concluded that the unqualified success of the SBIR program 
attests to the strength of small business entrepreneurs and 
their creativity.
    Representatives from Federal agencies, including Dr. Barish 
of the Department of Energy and Dr. Norwood of NASA, attested 
to the success of the SBIR program, but also made some 
suggestions regarding set-aside funds. Both witnesses 
recommended using a small fraction of SBIR set-aside funds to 
provide commercialization assistance to SBIR awardees and to 
support administrative costs of the program's operation.
    Mr. Rezendes testified about the GAO's report evaluating 
the interim status of the SBIR program. The three basic 
objectives of this report were to assess whether: (1) the 
quality of research has kept pace with the increase in the 
percentage of awards; (2) implementation of the technical 
assistance program has occurred at the various agencies; and 
(3) there is any duplicate funding of research. The report 
identified only one problem area--duplicate funding. According 
to the Department of Justice, one company received $1.4 million 
in duplicate funding from NASA and various Department of 
Defense agencies. In addition, 11 research ideas were recycled 
40 times by this company. Most agencies agree, however, that 
only a small percentage of these companies are responsible for 
the majority of offenses.
    For further information on this hearing, refer to Committee 
publication number 104-25.

    7.3.3 small business administration programs to assist
                        the new england fishing industry

                               Background

    On April 10, 1995, the Subcommittee on Government Programs 
held a field hearing in Gloucester, Massachusetts, to examine 
the plight of the fishing industry in New England and to 
discuss options for Federal government assistance from the 
Small Business Administration (SBA).
    The breeding stocks of several types of groundfish, most 
notably cod, haddock, and yellow-tailed flounder, have been 
depleted in the New England coastal area. Under Amendment 7 to 
the Multi-species Plan and Amendment 5 to the Lobster Plan, 
harvesting was temporarily restricted pending the stocks' 
return to sustainable levels. Once the stocks are replenished, 
licenses will allow harvesting at levels near what they had 
previously been. The combination of natural and man-made 
circumstances has had a negative effect on the fishing industry 
in the area, which is predominantly comprised of small 
businesses. The economic downturn has not only affected 
fisherman and fish processors, but also the towns that depend 
upon the constant economic input of the fishing industry.

                                Summary

    The hearing was comprised of three panels, the first of 
which included: Bruce Tobey, Mayor, City of Gloucester; Bruce 
Tarr, Senator, Massachusetts State Senate; and Dr. Andy 
Rosenberg, Deputy Regional Director, Northeast Regional Office, 
National Marine Fisheries Service, National Oceanic and 
Atmospheric Administration.
    The first panel gave an overview of the situation in the 
New England region with regards to the fishing industry. Mayor 
Tobey and Senator Tarr explained the plight of fishermen who 
have struggled with the depletion of fishing stocks and will 
continue to struggle as harvesting restrictions are imposed. 
Both stressed that more loans are not the answer, as the 
region's fleet is already overcapitalized. Mayor Tobey 
suggested financial grants to assist fishermen in modernizing 
and refitting their vessels, thus enabling them to harvest 
alternative fish stocks, and to assist in marketing these fish 
domestically. Other suggestions included balancing the Magnuson 
Act to reflect the views of fishermen, easing waste-water 
regulations and, as a last resort, expanding a boat buy-back 
program to encourage a reduction in the fishing fleet. Senator 
Tarr concurred with these suggestions and also stressed the 
need for extended loan terms, thus reducing monthly payments, 
and helping to create new business opportunities for boat-
owners and their crews. Dr. Rosenberg gave a brief overview on 
the status of groundfish stocks in the region, which he 
contends have been severely depleted by over-fishing. According 
to Dr. Rosenberg, restrictions on harvesting should continue 
for approximately five to six years to allow stocks to grow to 
sustainable levels.
    The second panel included: Angela Sanfilippo, President, 
Fishermen's Wives Association; Jose Testaverde, President, CGN 
Corporation; Edward Lima, Director, Cape Ann Fishermen's 
Cooperative of Gloucester; Scott Memhard, President and General 
Manager, Cape Pond Ice Company; Pasquale Frontierro, Owner, 
Frontierro Brothers, Inc.; and Edward MacLeod, consultant to 
the fishing industry.
    The second panel was comprised of area citizens who, like 
many in New England's coastal towns, have been adversely 
affected by fishing conditions. They complained about the 
difficulty in obtaining loans to modernize their industry and 
expand into new markets. According to the witnesses, banks will 
not extend capital to small businesses in the fishing industry 
because of the current depletion of groundfish stocks. All of 
the witnesses noted the dependence on the fishing industry of 
Gloucester and towns like it in New England. Mr. MacLeod 
stressed the importance of maintaining an experienced corp of 
fisherman and fish processors to jump start the fishing economy 
once groundfish stocks return to sustainable levels. He 
suggested assistance from the SBA in obtaining loans to start 
new small businesses, expand into alternative fish markets, and 
improve and modernize equipment for both fishermen and fish 
processors.
    The third panel included: Patrick McGowan, Regional 
Administrator, SBA; Patricia Hanratty, Senior Vice President, 
Fleet Bank; and David L. Marsh, President, Gloucester Bank & 
Trust Company. This panel responded to the previous panels' 
requests for financial assistance. While declaring their 
willingness to assist whenever possible, each stressed the fact 
that making loans to those who would be unable to repay them 
was not feasible. Each committed themselves to keeping a 
healthy and efficient fishing industry while concurrently 
providing opportunities for those who are displaced as the 
industry downsizes. All of the panelists expressed a need for 
government assistance in providing any capitalization. Also 
discussed was the possibility of declaring the region a 
disaster area, thus making it eligible for low-interest loans.
    For further information on this hearing, refer to Committee 
publication number 104-26.

    7.3.4 small business administration's disaster loan pro-
                        gram

                               Background

    On May 25, 1995, the Subcommittee on Government Programs 
held a hearing to examine the disaster assistance loan program 
administered by the Small Business Administration (SBA) and how 
it aids small businesses and individuals after a disaster. 
Disaster loans are the primary form of Federal assistance for 
non-agricultural and private-sector disaster losses.

                                Summary

    The hearing was comprised of a single panel, and the 
witnesses included: Jim Hammersley, Acting Deputy Associate 
Administrator, Office of Disaster Assistance, SBA; Quirino 
``Bud'' Iannazzo, Administrative Program Manager, Massachusetts 
Emergency Management Policy; and Karen Lee, Deputy Inspector 
General, SBA.
    The panel began by providing the Subcommittee with 
background on the two basic types of disaster loans, namely 
physical disaster loans and economic injury disaster loan. 
Witnesses also summarized the procedural precautions that SBA 
applies to loan applications to ensure claims awarded are 
legitimate.
    The panel also provided the Subcommittee with anecdotal 
evidence as to the efficacy of the SBA's Disaster Loan Program 
as well as some areas for improvement. Overall, witnesses 
testified that the Disaster Loan Program is a quality program 
that should continue with a few adjustments. Suggested changes 
included making the program more ``user-friendly,'' increasing 
the process time from a month to 15 calendar days, expanding 
the use of ``loan packagers,'' and reducing SBA's threshold 
amount for determining when a disaster victim can qualify for 
benefits under the loan program.
    For more information on this hearing, refer to Committee 
publication number 104-31.

    7.3.5 u.s. small business administration low documenta-
                        tion loan program

                               Background

    On June 28, 1995, the Subcommittee on Government Programs 
held the first in a series of hearings to review the Small 
Business Administration (SBA) and its specific loan programs 
and, for this hearing, the SBA's Low Documentation (LowDoc) 
Program. The LowDoc Program began as a pilot program in 
December of 1993 and expanded nationally in the summer of 1994. 
The program was created to respond specifically to a critical 
funding need, that is, small business unable to find lenders 
who are willing and able to provide loans in amounts under 
$100,000. What makes a LowDoc loan unique is that the 
application form for this type of loan is only one page in 
length; therefore, it is easier on the borrower to apply for 
the loan. Between December 1, 1993 and March 31, 1995, the SBA 
approved 21,520 LowDoc loans, totaling approximately $1.8 
billion.
    The hearing was designed to evaluate two aspects of the 
LowDoc Program. First, the witnesses were asked to discuss the 
expected default rate on all loans as they enter their second 
and third years of repayment. Secondly, the witnesses were 
asked to discuss the scoring of the subsidy rate for the LowDoc 
Program as it relates to the 7(a) Loan Program. Currently, it 
is understood that the LowDoc Program has not been scored 
separately, but that the Office of Management and Budget (OMB) 
is considering a separate score in the future.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Patricia R. Forbes, Acting Associate Deputy 
Administrator for Economic Development, SBA, accompanied by 
John Cox, Associate Administrator for Financial Assistance, 
SBA. Ms. Forbes discussed the internal workings of the LowDoc 
Program, stressing the differences between the LowDoc Program 
and the 7(a) Loan Program. The LowDoc Program was established 
in direct response to the concern of small business owners 
regarding their lack of access to capital. Small businesses 
were unable to find lenders that were willing to provide loans 
under $100,000. The loan application was also a concern, and as 
part of this program, the application was reduced to one page. 
Ms. Forbes noted that the single page form is both the 
applicant's loan application and the lender's request for a 
guaranty.
    The witnesses also discussed the statistics available for 
the LowDoc program, noting that LowDoc loans are high in 
numbers compared to all 7(a) loans, but not in overall dollars. 
LowDoc loans, both by dollars and numbers, however, are 
performing slightly better than non-LowDoc loans of any size 
approved during the same period. The witnesses emphasized that 
the LowDoc program has been extremely well received by both 
borrowers and lenders, and is serving many small financing 
needs of the small business community.
    The second panel included: Anthony R. Wilkinson, President 
and Chief Executive Officer, National Association of Government 
Guaranteed Lenders; Deryl Schuster, President for the Central 
Division of Emergent Business Capital and Vice President of 
Government Relations, National Association of Government 
Guaranteed Lenders; and Blain Marchand, Vice President and SBA 
Loan Specialist, Flagship Bank. All witnesses on this panel 
were asked to discuss their experience with the loans, and 
their recommendations for and concerns about the LowDoc 
Program.
    The second panel recommended that the SBA develop 
procedures to place more reliance on the private sector since 
the SBA can no longer handle the rapidly growing loan programs 
with staff resources that have continued to shrink. If LowDoc 
or any other SBA loan program is to pass the test of time and 
survive, it must be operated efficiently and managed 
effectively. These programs are vital to the small business 
community and are the primary source of long-term capital for 
many small businesses. The panelists stressed that the SBA's 
loan programs have improved considerably since the 1970s, with 
the 7(a) Loan Program now described as the ``flagship program'' 
of the SBA.
    Mr. Marchand testified regarding the future of SBA loan 
programs and how effective LowDoc has been for banks. A few 
years ago, community banks were very eager to lend to small 
businesses but were worried about the risks that go into 
lending to new and/or small businesses. Smaller banks with 
limited capital need a partner like the SBA as a way to reduce 
the risks. While the guaranteed-loan option is attractive, 
banks found the process of dealing with the SBA to be 
frustrating for both banks and businesses, because it was too 
lengthy, too costly, and too confusing. It was recommended that 
the SBA continue to consolidate and streamline the process to 
reduce overhead and reduce the number of programs.
    Mr. Marchand also stressed that the SBA should focus on the 
7(a) and 504 loan programs, concentrating on term lending 
rather than asset-based lending, with which the SBA has 
historically not been very successful. Bank lenders have also 
advocated that the SBA reduce the guaranty percentages rather 
than increase fees. If a bank is not going to approve a loan 
because it has 70 percent guaranty versus 80 percent rate, it 
probably should not be written in the first place. Mr. Marchand 
specifically recommended that LowDoc loans have a lower 
guaranty percentage. He noted that there should be some 
correlation between the reduced work on each loan and a reduced 
guarantee rate.
    For further information on this hearing, refer to Committee 
publication number 104-37.

    7.3.6 sba's lowdoc loan program

                               Background

    On July 19, 1995, the Subcommittee on Government Programs 
held a hearing on the Low Documentation, or ``LowDoc,'' loan-
guarantee program administered by the Small Business 
Administration (SBA). The first day of hearings on this issue 
was held on June 28, 1995, and at that time, the Office of 
Management and Budget (OMB) declined to testify before the 
Subcommittee on the LowDoc program and OMB's scoring of the 
subsidy rate for the program.
    Because OMB refused to provide a witness for the hearing, 
the Subcommittee moved to subpoena Alice Rivlin, Director of 
OMB, to testify. A formal vote was held and the motion passed 
the Subcommittee by a vote of 7-0. Chairman Torkildsen and Ms. 
Rivlin spoke several times thereafter, agreeing on July 19 for 
continuation of the hearing. Due to scheduling conflicts, Ms. 
Rivlin could not attend the July 19 hearing, and instead the 
Deputy Director for Management, attended the hearing on her 
behalf to discuss the SBA's LowDoc loan program.

                                Summary

    The hearing was comprised of a single witness, John 
Koskinen, Deputy Director for Management, OMB. Mr. Koskinen 
covered a number of issues in his testimony, beginning with a 
summary of credit reform and OMB's role in establishing credit 
subsidy rates for loan programs. The Federal Credit Reform Act 
of 1990 made fundamental changes in the budgetary treatment of 
direct loans and loan guarantees. These reforms became 
effective in FY 1992 and shifted the basis for Federally 
guaranteed credit from a cash basis to a net-present-value 
basis. This new approach, Mr. Koskinen explained, is far 
superior to the previous budgeting system in many ways. Under 
credit reform, the Executive Branch must predict how loan 
programs will perform and request budgetary resources up-front 
based on the forecast. While this change has been complex, Mr. 
Koskinen noted that it has greatly improved the budgetary 
treatment of credit programs.
    Mr. Koskinen also explained the process of estimating 
subsidy rates. The Executive Branch is now required to follow a 
specific process in developing and implementing subsidy rates. 
During the development of the President's budget proposal, OMB 
and other agencies with credit programs jointly establish 
projections about how the loans that are expected to be made 
during that year are likely to perform. Numerous assumptions 
are made about the projected loans, such as expected defaults, 
delinquencies, prepayments, loan maturity, and interest rates. 
For loan programs already in existence, the Federal Credit 
Reform Act requires subsidy estimates to be based on historic 
loan performance data. Once OMB and an agency agree on the 
assumptions, those assumptions are then reflected in the 
President's budget.
    The SBA initiated the LowDoc program as a pilot in December 
of 1993. In the beginning, it was a very small program within 
the Section 7(a) general business loan guarantee program, the 
SBA's largest loan program. The LowDoc program allows lenders 
to submit a one-page application for a Federal guarantee, 
without most of the previously required attachments, and is 
available for loans under $100,000. The SBA also established a 
procedure for faster and more efficient turn-around on LowDoc 
loan application reviews. When the LowDoc program began, OMB 
and SBA discussed the options for establishing a separate 
subsidy rate for the program. It was decided, for several 
reasons, that a separate subsidy rate would not be calculated. 
Primarily, it was not clear that LowDoc loans would perform 
differently from regular 7(a) loans, the key difference between 
LowDoc and regular 7(a) loans being that the lender is allowed 
to submit less documentation to SBA. At the time LowDoc was 
proposed, SBA was not prepared to budget and account for loans 
by risk category, and the SBA was still working to implement 
the Federal Credit Reform Act. OMB did not believe SBA's 
financial systems could accurately handle this level of 
sophistication. Given SBA's limited resources, OMB contended 
that SBA should focus on accurately meeting the core credit-
reform requirements.
    Mr. Koskinen testified that the lack of reliable loan 
performance data is directly linked to the system constraints. 
Agencies had little incentive to develop the capacity to 
analyze loan performance across categories of loans, even 
though this would have provided the important data that was 
needed. Most agencies have made great strides in implementing 
automated systems designed to provide detailed loan performance 
information quickly and easily. By Winter 1996, OMB anticipates 
that the SBA will have useful and accessible loan performance 
data for use in developing the FY 1997 budget. Given the lack 
of useful alternatives, OMB determined that a single subsidy 
rate was the best option and that the existing subsidy rate 
modeling procedure, which generates a blended subsidy rate, 
could address many of the issues raised by LowDoc. The subsidy 
model allows OMB to incorporate different loan characteristics 
into the subsidy rate, so the effects of the LowDoc program 
could be reflected in the overall 7(a) subsidy rate.
    LowDoc offers an innovative way to reduce the paperwork 
burden on private lenders and applicants for loan guarantees. 
Mr. Koskinen testified that the LowDoc program has been 
successful in increasing the portion of smaller loans in the 
SBA's portfolio. There is reason to believe that these smaller 
loans more often go to smaller businesses, and to businesses 
owned by women and minorities, groups that frequently have the 
least access to capital.
    For further information on this hearing, refer to Committee 
publication number 104-40.

    7.3.7 professional certification as a sole source bid re-
                        quirement in federal contracting

                               Background

    On August 2, 1995, the Subcommittee on Government Programs 
held a hearing on professional certification as a sole-source 
bid requirement in Federal contracts. In recent years, serious 
questions have been raised relating to the fairness, 
particularly to small business, of requiring one particular 
version of professional certification over any alternatives as 
a precondition to bidding on or being awarded a Federal 
contract. Witnesses were asked to comment on the qualification 
of certain Federal agencies to differentiate between competing 
professional certification programs and the standards that 
should be used to evaluate these programs.
    The hearing was also designed to focus on the pricing of 
certification programs. Witnesses were asked to provide 
testimony about the cost of these certification programs and if 
the taxpayers will bear the cost of their development and 
maintenance. Finally, the hearing was intended to examine the 
disturbing charges relating to deliberate attempts by certain 
organizations to use professional certifications simply as a 
revenue-producing product, rather than recognizing the serious 
responsibilities assumed by these organizations.

                                Summary

    The hearing was comprised of a single panel, which 
included: Pete Geren (D-TX), Member of Congress; John Antrim, 
General Manager of Certification Programs, National Society of 
Professional Engineers; Gary Clark, President, Z-Scan, Inc.; 
Steven Halsey, Immediate Past President, International Air 
Filtration Certifiers Association; Dave Prevar, Manager of 
Safety and Health, Beltsville Agricultural Research Center, 
U.S. Department of Agriculture; and Frank Simione, Vice 
President of Operations, American Type Culture Collection.
    The hearing began with anecdotal evidence of the problems 
faced by small businesses that are affected by the sole-source 
bid requirements in government contracting. Congressman Geren 
and Mr. Clark both provided the Subcommittee with testimony 
concerning Z-Scan, Inc., a small business, that has been trying 
to attain certification for testing biohazard cabinets through 
the National Sanitation Foundation (NSF). The owners of Z-Scan 
spent over 600 hours complying with the requirements of the 
program to attain certification and submitted an application 
and check to the NSF for both organizational certification and 
individual certification. Both the check and application were 
later returned with an explanation that the certification 
program was not yet in place. During the investigation by 
Congressman Geren's office, it was learned that the NSF's 
organizational certification program was still under 
development. Congressman Geren was also informed by the NSF 
that participation in the program was voluntary, and if 
government agencies require the NSF certification as a 
requirement for a contract bid, many small businesses in the 
biohazard industry would not qualify. The witnesses noted that 
to date the NSF has not completed its organizational 
certification program, which the NSF had previously indicated 
would be in place by 1992.
    Other witnesses on the panel testified that certification 
requirements have become very pervasive either as a condition 
of employment, directly or indirectly, or as a condition of 
doing business. Additionally, even though certification is for 
individuals, it is often the case that a company cannot do 
business unless it has certified individuals on its payroll. 
Dr. Antrim noted that the National Commission for Certifying 
Agencies has published criteria for the accreditation of 
certifying bodies based on a consensus of the certification 
industry as to the requirements for a credible certification 
program.
    Other witnesses alerted the Subcommittee that some 
companies have discovered that the government-contract bidding 
process can be used to establish a monopoly. For example, a 
company will seek out an industry that is considering the need 
for professional certification, and then the company creates a 
steering committee to assist the industry in establishing the 
process and requirements for certification. Finally, the 
certification program is instituted, and the sponsoring company 
enjoys a monopoly in the field. Mr. Halsey stated that due to 
the nature of professional certification and an increasing 
reliance upon such programs throughout both the public and 
private sectors, organizations that manage to inject their 
certification programs into government contract-bidding 
specifications are often in a unique position of power over an 
industry. Mr. Halsey also called into question the quality of 
the NSF certification program based on feedback he had received 
from industry representatives.
    The consensus of the panel was that it is inappropriate for 
any government agency or private firm to choose a competent 
contractor by limiting the bidding process only to vendors that 
possess a specific certification. Mr. Simione noted that his 
company, American Type Culture Collection (ATCC), competes for 
government grants and contracts as part of its business, but 
does not rely solely on the qualification of the vendor. ATCC's 
solicitations carry specific requirements, which are intended 
to ensure that the vendor's products and services meet the 
company's particular needs. Mr. Simione testified that in 
contrast to ATCC's practices, many firms use certification, 
citing the government standards as a means of leveraging their 
products or services. In essence, a company will assert that 
its product or services meet the relevant government standard, 
and imply that if the customer does not buy the product or 
service, the customer may not be in compliance with government 
standards.
    One panelist presented the government's perspective on the 
issue and testified about his experience at the U.S. Department 
of Agriculture (USDA) with certification of contractors to 
inspect biological safety cabinets. Mr. Prevar testified that 
the need for competency in this area is no less important at 
the USDA than it is in any other entity that works with 
pathogens. Mr. Prevar pointed out that USDA utilizes small 
businesses in their contract activities, and while he regarded 
the NSF certification programs as the consensus standard, he 
assured the Subcommittee that he will not specify the NSF 
standard as a sole-source requirement for USDA procurement 
contracts.
    For further information on this hearing, refer to Committee 
publication number 104-44.

    7.3.8 the export working capital program

                               Background

    On September 7, 1995, the Subcommittee on Government 
Programs and the Subcommittee on Procurement, Exports and 
Business Opportunities held a joint hearing on the Export 
Working Capital Program administered by the Small Business 
Administration (SBA). The hearing examined the SBA's 
partnership with the Export-Import Bank (Eximbank) through the 
pilot Export Working Capital Program. The program was a product 
of the 1993 Trade Promotion Coordinating Committee 
recommendations that prompted the harmonization of the SBA and 
Eximbank in terms of their respective pre-export working 
capital programs. Under these programs, the SBA processes loans 
of under $750,000 and Eximbank processes loans above $750,000.
    The hearing was also held to explore a proposal made by 
Congressman John LaFalce (D-NY) during the markup of the Small 
Business Credit Efficiency Act of 1995 (H.R. 2150) that would 
allow the SBA to retain a 90-percent guarantee for a revolving 
line of credit for export purposes. The credit line would 
include a maximum of three years for repayment, regardless of 
the loan amount. The Small Business Credit Efficiency Act of 
1995 lowered the guarantee rate on SBA 7(a) loans, including 
those for exporting, to 80 percent for all loans below $100,000 
and 75 percent for all loans above $100,000.

                                Summary

    The hearing was comprised of a single panel, which 
included: JayEtta Hecker, Director, Office of International 
Trade, Finance, and Competitiveness, General Accounting Office; 
Cassandra Pulley, Deputy Administrator, SBA; Martin A. Kamarck, 
Vice Chairman and Chief Operating Officer, Eximbank; and 
William C. Cummins, Group Vice President, South Trust Bank of 
Alabama, Co-Chairman, Small Business Export Finance Committee, 
Banker's Association for Foreign Trade (BAFT).
    The four witnesses were in agreement that the Export 
Working Capital Program, although in its early stages, is a 
successful program committed to aiding small firms in securing 
the capital that they need to enter the international 
marketplace. In addition, the number of secured export loans 
has increased due to the SBA's new outreach efforts. The 
program focuses on getting the capital to small businesses by 
using the guaranteed loan process. The witnesses believed that 
the new partnership between SBA and Eximbank was very 
beneficial to the small business community.
    The witnesses from Eximbank, SBA, and BAFT agreed that 
lowering the guarantee rate from 90 percent to 75 or 80 percent 
would limit access to capital for many small businesses. The 
GAO, however, did not necessarily concur with that conclusion. 
According to the Eximbank, SBA, and BAFT witnesses, the lower 
rate would not give lenders the security in making a loan, much 
of the collateral for which is in transit overseas. Moreover, 
Eximbank has a guarantee level of 90 percent on the loans that 
it processes. With the Export Working Capital Program guarantee 
level lowered to 75 or 80 percent, Eximbank is at a competitive 
advantage, and it discourages new banks from lending to small 
firms. The witnesses maintained that the lower rate would also 
lead to discrimination against businesses seeking the smaller 
loans under $750,000.
    For further information on this hearing, refer to Committee 
publication number 104-49.

    7.3.9 loan packaging

                               Background

    On October 12, 1995, the Subcommittee on Government 
Programs held a hearing on the issue of ``loan packaging.'' The 
Small Business Administration (SBA) manages two general types 
of loans that assist small businesses: normal business loans, 
which are issued by local banks and guaranteed by the SBA 
through such programs as the 7(a) and 504 lending programs, and 
disaster assistance loans, which are direct loans from the SBA. 
Loan packagers serve as an intermediary between the borrower 
and lender and assist the borrower in finding the best rate and 
with necessary paperwork. In return for these services, the 
loan packager receives a fee.
    In recent years, the activities of loan packagers have come 
under increased scrutiny given the dramatic increase in claims 
of fraudulent activity. As a result, a number of proposals have 
been made to reduce the incidents of fraud and better regulate 
the loan-packaging industry. The hearing was designed to review 
these suggested reforms, including proposals for a registration 
or licensing system for loan packagers, in an effort to improve 
the system and protect the interests of the small business 
borrower.

                                Summary

    The hearing was comprised of a single panel, which 
included: Charles Tomlinson, Owner, Tomlinson Funeral Home; 
Karen Lee, Deputy Inspector General, SBA; Patricia Forbes, 
Acting Associate Deputy Administrator for Economic Development, 
SBA; Steve Stultz, Stultz Financial; and Anthony R. Wilkenson, 
President and CEO, National Association of Government 
Guaranteed Lenders.
    The hearing began with anecdotal evidence of the problems 
that many small businesses have encountered with loan 
packaging. Mr. Tomlinson testified that he had attempted to 
utilize a loan packager to obtain an SBA loan and was told that 
before any application could be submitted, payments of more 
than $3,700 would be required. Despite the packager's guarantee 
that Mr. Tomlinson would receive a loan, no loan materialized, 
and the packager later disappeared. Subsequently, the packager 
was prosecuted and sentenced to five years in jail. The 
packager was also required to repay Mr. Tomlinson's fees, 
although no reparations have been forthcoming. Mr. Tomlinson 
recommended that the Committee require that SBA have more 
control over loan packagers and supervise their activities in 
order to prevent future fraud.
    The witnesses representing the SBA described the agency's 
efforts to investigate improper activities by loan packagers as 
well as prevent fraud in the industry. During the last five 
years, 323 criminal investigations have been initiated with 
respect to 7(a) loans prepared by 19 different packagers. 
Similarly, 110 investigations were undertaken concerning 
disaster assistance loans involving more than $44 million. So 
far these investigations have resulted in 42 indictments and 38 
convictions. Ms. Forbes noted, however, that the large number 
of investigations must be taken in context of the overall level 
of SBA's lending activities. During the five year period, the 
SBA received more than 250,000 applications, and as a result, 
the criminal investigation represented less that \1/10\ of 1 
percent of that total.
    The SBA witnesses reviewed some of the bases for the 
investigations including discrepancies in the fee payment 
schedule charged by loan packagers from that permitted by SBA 
regulations. The witnesses informed the Committee that the SBA 
is currently pursuing four strategies to help prevent future 
fraud by loan packagers. The strategies include a registration 
system for packagers, certification for packagers, criminal 
background checks of packagers, and a requirement that 
packagers provide full disclosure to applicants about the 
responsibilities of the packager and the scope of the 
packager's services. The SBA is also implementing a conflicts 
of interest policy under which a packager would not be 
permitted to receive compensation from both the borrower and 
the lender.
    The witnesses from the lending industry acknowledged that 
the incidents of fraud have increased, although they, too, 
noted that as a percentage of total SBA lending, the level was 
relatively low. While witnesses generally agreed with the SBA's 
proposals for improving the system, they stressed that the need 
for additional supervision of loan packagers should be balanced 
against the fact that market competition is a very effective 
regulator. The lenders that are committed to the industry will 
provide fair services and treat borrowers appropriately or be 
faced with a loss of customers that ultimately could result in 
termination of their businesses.
    For further information on this hearing, refer to Committee 
publication number 104-54.

    7.3.10 the effects of bank consolidation on small busi-
                        ness lending

    On March 4, 1996, the Subcommittee on Taxation and Finance 
and the Subcommittee on Government Programs held a joint 
hearing in Boston, Massachusetts, to examine how consolidation 
affects banks' lending practices toward small businesses in New 
England and across the country. For a complete summary of this 
hearing, see section 7.6.5 of this report.

    7.3.11 h.r. 2715: the paperwork elimination act

                               Background

    On March 27, 1996, the Subcommittee on Government Programs 
held a hearing to discuss H.R. 2715, the Paperwork Elimination 
Act. The bill, introduced by Chairman Torkildsen (R-MA), would 
minimize the burden of Federal paperwork demands upon small 
businesses, educational and non-profit institutions, Federal 
contractors, State and local governments, and other persons 
through the use of alternative information technologies, 
including electronic maintenance, submission, or disclosure of 
information as a substitute for paper. The goals of this 
legislation have been recommended by many, including President 
Clinton who, at the signing of the Paperwork Reduction Act of 
1995, stated that he wanted all agencies to provide for the 
electronic submission of every new government form.
    The Paperwork Elimination Act would amend Chapter 35, Title 
44, the Paperwork Reduction Act of 1995, by requiring all 
Federal agencies to provide the option of electronic submission 
of information, electronic compliance with regulations, and 
electronic disclosure of information to all who must comply 
with Federal regulations. Furthermore, Federal agencies would 
be prohibited from collecting information until they have first 
published a notice in the Federal Register detailing how the 
information may be maintained, submitted, or disclosed 
electronically. The Director of the Office of Management and 
Budget (OMB) would be required to oversee the implementation of 
electronic submission, compliance, and disclosure and to 
monitor and report on the progress of Federal agencies and how 
regulatory burdens on small businesses have been reduced.

                                Summary

    The hearing was comprised of a single panel of six 
witnesses, including: Pedro Alfonso, President, Dynamic 
Concepts, Inc., representing the National Small Business 
United; Marvin Beriss, President, MB Associates, Inc.; Melvin 
Gerald, M.D., representing the American Academy of Family 
Physicians; Jere Glover, Chief Counsel, U.S. Small Business 
Administration (SBA); Monika Harrison, Associate Administrator, 
Office of Business Initiatives, SBA; and Sally Katzen, 
Administrator, Office of Information and Regulatory Affairs, 
OMB.
    Ms. Katzen provided the Committee with the Administration's 
position on H.R. 2715. While supporting the intent of the 
legislation as an effort to reduce paperwork burdens and 
modernize government, the Administration had some reservations 
about its necessity and requirements. Ms. Katzen claimed that 
the Administration was already doing its part to reduce 
paperwork burdens by complying with the Paperwork Reduction Act 
of 1995, and she questioned the timing of the Paperwork 
Elimination Act, citing that too many departments and agencies 
do not at this time have the technological capability to comply 
with its requirements.
    Two witnesses representing small businesses testified about 
the benefit that the small business community would receive 
from the passage of the Paperwork Reduction Act. Dr. Gerald, a 
physician, testified that the field of medicine has been 
significantly burdened by Federal paperwork demands, citing a 
recent study finding that physicians spend 20 percent of a 60-
hour work week on administrative tasks. He believed that this 
burden could be significantly reduced if regulators allowed 
compliance by alternative technological means. Mr. Beriss, 
owner of a small company that focuses on electronic forms and 
electronic mail messaging, testified that the technology needed 
to comply with this legislation exists and using it could save 
at least $22 billion in mailing, receiving, rekeying, and 
routing costs. Mr. Alphonso agreed and called upon the Federal 
government to use electronic alternatives for retrieving, 
storing and disseminating information.
    The two SBA witnesses testified about the agency's efforts 
to bring itself into the computer age. The witnesses 
acknowledged that small businesses face tremendous burdens in 
terms of paperwork mandated by the Federal government, and 
noted that the SBA was making efforts to disseminate 
information electronically via the Internet. In addition, the 
SBA is conducting outreach and training activities to inform 
small businesses about the Federal government's transition from 
a paper-based procurement program to an electronic-based 
system.
    For more information on this hearing, refer to Committee 
publication number 104-68.

    7.3.12 venture capital marketing association charter act

                               Background

    On April 18, 1996, the Subcommittee on Government Programs 
held a hearing to discuss H.R. 2806, ``The Venture Capital 
Marketing Association Act,'' which was introduced by Chairman 
Peter Torkildsen (R-MA). The bill is designed to privatize the 
Small Business Investment Company (SBIC) program, which is 
administered by the Small Business Administration (SBA).
    The current SBIC program is a partnership between the 
Federal government and the private sector, by which privately-
funded SBICs provide loans and equity capital to small growth 
companies. These SBICs are managed by skilled venture 
capitalists who make investment decisions without intervention 
from the government. They are licensed by the SBA based upon 
their size, expertise, and investing history. Once licensed, an 
SBIC may obtain guarantees from the SBA on its securities, 
which it sells in the capital markets. Capital is then 
typically invested in companies that may have low cash flows 
but also the potential for fast growth after a short start-up 
period (e.g., high-tech companies). In 35 years, SBICs licensed 
by the SBA have invested more than $11 billion in more than 
100,000 small growth companies at a net positive return on the 
government's investment.
    The Venture Capital Marketing Association (Vickie Mae) 
would be a Government Sponsored Enterprise (GSE) that is able 
to make its own investment decisions under careful watch of the 
Federal government. Its initial capitalization would come from 
a $20 million stock purchase made by existing and newly formed 
SBICs that met standards set by the legislation. Additional 
investments could come later from outside sources. The newly 
formed Board of Directors, consisting of shareholder-elected 
individuals and Presidential appointees, would develop the 
corporation's charter in accordance with parameters set by 
Congress. Additional capital could come from fees charged to 
SBICs.

                                Summary

    The hearing was comprised of a single panel, which 
included: Michael Clare, Department Head for Asset-backed and 
Government-backed Securities, Chase Securities, Inc.; William 
F. Dunbar, President, Allied Capital Corporation II; Jim 
Murray, Counsel, Brown and Wood; Raymond R. Rafferty, Jr., 
General Partner, Meridian Venture Partners; and Joel Zegart, 
President, JBS & Associates.
    The witnesses were generally very supportive of the Vickie 
Mae legislation and testified to its different aspects, 
depending upon their expertise. Mr. Dunbar and Mr. Rafferty, 
both owners of SBICs, testified on the need for privatization 
of the SBIC program. From their perspective, the main problem 
with the current system is its ties to the Federal budget. 
Because the amount that the SBA can legally guarantee is 
limited and can change from year to year, the capital provided 
to SBICs is not as consistent as is needed to ensure the most 
efficient allocation of capital. In addition, the government 
must pay for the costs of administering the program and its 
liquidation portfolio. They contended that establishing Vickie 
Mae would lower the costs to the government of administering 
the program, enhance the safety and soundness of SBICs by 
ensuring a stable flow of capital, and increase the capital 
available to small businesses by releasing funds currently 
restricted by government appropriations.
    The other witnesses concurred with the assessment of Mr. 
Dunbar and Mr. Rafferty and gave their own statements outlining 
the feasibility of the proposal. Mr. Clare, an expert in 
securities markets, assured the Subcommittee that the 
securities market would be able to absorb any increase in 
volume due to the privatization of the program. He did note 
that there may some additional cost involved initially as the 
guarantees switched from having an explicit guarantee from the 
government to having an implicit one. Mr. Murray, a lawyer, 
stated that Vickie Mae's ability to borrow from the Treasury 
and provisions allowing investment by financial institutions 
made it a full-fledged GSE, which status would allow the 
corporation to borrow at low interest rates. Finally, Mr. 
Zegart testified on the provisions of H.R. 2806 that allow 
Vickie Mae to charge SBA a fee to liquidate the portfolio of 
SBICs that have gone into default. He testified that Vickie Mae 
would be able to liquidate these investments in an orderly and 
efficient manner. Overall, the entire panel was enthusiastic 
about H.R. 2806 and urged its passage.
    For more information on this hearing, refer to Committee 
publication number 104-73.
    7.3.13 h.r. 2579: the travel and tourism partnership act
                        of 1995

                               Background

    On May 6, 1996, the Subcommittee on Government Programs 
held a field hearing in Newburyport, Massachusetts to discuss 
how the Travel and Tourism Partnership Act of 1995 (H.R. 2579) 
would affect the small business community in the Sixth 
Congressional District of Massachusetts and the United States 
in general. Early in 1996, Federal funding for the United 
States Travel and Tourism Administration (USTTA) was 
eliminated. While most people, including many in the travel and 
tourism industry, agree that this was a positive move toward 
decreasing needless government bureaucracy, the fact remains 
that some of the USTTA's marketing and promotional activities 
were valuable to the U.S. economy. Without an active USTTA, the 
marketing of the United States as a popular travel destination 
for foreign and domestic travelers is significantly diminished, 
threatening a greater loss in the country's market share of the 
worldwide travel and tourism industry, which directly or 
indirectly employs 14.3 million Americans and contributes more 
than $400 billion annually to the U.S. economy. Unfortunately, 
the U.S. share of international tourism has already shrunk by 
17 percent in the past two years.
    H.R. 2579, legislation introduced by Congressman Toby Roth 
(R-WI), would charter a private, non-profit organization to 
fill the marketing void left when the USTTA lost its funding. 
The organization would be a partnership between public and 
private sectors, unifying the travel and tourism industry and 
allowing it to work directly with Federal agencies to promote 
travel to and within the United States. As a Federally 
chartered organization, it would have authority to work with 
foreign governments as an arm of the U.S. government, thus 
greatly reducing the burdens of foreign regulations.

                                Summary

    The hearing was comprised of three panels, the first of 
which included: Lisa Mead, Mayor, Newburyport, Massachusetts; 
James Jajuga, State Senator, Newburyport, Massachusetts; and 
Frank Cousins, State Representative, Newburyport, 
Massachusetts. This panel of area public officials expressed 
support for the passage of H.R. 2759, emphasizing that it would 
allow the Federal government to join with the tourism industry 
in promoting U.S. travel destinations. Currently, businesses 
must advertise their travel destinations independently, or with 
small regional groups of businesses. Because many of these 
regional groups are in small, rural areas, they find it 
difficult to attract visitors, particularly visitors from 
outside of the United States. These foreign visitors are often 
preferred because they typically stay longer and can spend more 
money. Witnesses noted that State and local governments were 
already working to ease transportation concerns and enable 
businesses to construct accommodations for visitors.
    The second panel included: Shirley Magnanti, Greater 
Newburyport Chamber of Commerce; Bill MacDougall, Massachusetts 
Office of Travel and Tourism; Michelle Hatem Meehan, North of 
Boston Convention and Visitors Bureau; and Maria Miles, 
Salisbury Chamber of Commerce. This panel, comprised of 
representatives of State and local businesses, testified about 
the importance of tourism to local economies. They emphasized 
that the beneficiaries of tourism are not only the hotels, 
restaurants, and other tourist attractions that directly 
receive dollars from travelers, but also the manufacturing, 
retail, and service industries that support the tourism 
industry. The witnesses also pointed out that many of the 
beneficiaries, both direct and indirect, are small businesses. 
Ms. Meehan and Mr. MacDougall noted that the United States' 
budget of $16 million placed 33rd in the world in advertising 
money spent annually to attract foreign travelers. The panelist 
contended that State and local governments do not have the 
resources to compete successfully for foreign travelers and 
strongly urged the passage of H.R. 2579.
    The third panel included: Mary Ann Abbott, Abigail's 
Fashions; Kathy Aiello, Custom House Maritime Museum; Ann 
Lagasse, Piper Properties; and Phyllis TeSelle, New England 
Holidays. The final panel, composed of local small 
businesspeople, reiterated many of the ideas and suggestions of 
the previous two panels. They noted that their region had been 
hit particularly hard by economic downturns and had been 
struggling to recover. According to the panelists, tourism 
provides a great stimulus because it infuses new money into the 
area, enabling businesses to grow and create job opportunities. 
Like the previous panels, the third panel also supported the 
passage of H.R. 2579.
    For further information on this hearing, refer to Committee 
publication number 104-77.

    7.3.14 oversight of the environmental protection agen-
                        cy's progress in reducing unnecessary 
                        paperwork burdens upon small business

                               Background

    On May 30, 1996, the Subcommittee on Government Programs 
held a hearing to examine the progress of the Environmental 
Protection Agency (EPA) in reducing unnecessary paperwork 
burdens upon small business, as well as compliance with the 
President's recent order to review all regulations and to 
comply with the Paperwork Reduction Act of 1995.

                                Summary

    The hearing was comprised of one panel, which included a 
single witness: Thomas E. Kelly, Director, Office of Regulation 
Management and Information, EPA. Mr. Kelly had been asked to 
comment on three general areas: President Clinton's March 4, 
1995 directive on regulation reform; the burden-reduction goals 
of the newly enacted Paperwork Reduction Act of 1995, 
especially EPA's pledge to reduce the burden by 25 percent; and 
EPA's response to the recommendations adopted by the delegates 
to the 1995 White House Conference on Small Business regarding 
regulatory and paperwork burdens.
    Mr. Kelly began his testimony by noting that `small 
business' is an aggregate term that stands for hundreds of 
thousands of diverse, diffuse activities throughout the country 
in which people are making money by providing goods and 
services. The only way to stay in touch with this segment of 
the economy is to spend time with those who participate in 
small business. Despite the difficulties that the agency has 
had over the past year in terms of budget resources, EPA 
continued to be on the road meeting with small business 
representatives.
    Mr. Kelly testified that, in an effort to reduce burdens on 
small business, the EPA Administrator targeted a 25-percent 
burden reduction. This percentage was translated into 25 
million hours, from which 23 million hours have either already 
been eliminated or will be eliminated in the very near future. 
This is not simply a one-time exercise dedicated to reducing 
burden on the public as measured by the Information Collection 
Request's on a certain date--it is the Administration's 
commitment to minimize the paperwork burden on the public going 
forward.
    Mr. Kelly emphasized that the EPA is committed to the use 
of electronic information and has been working for the last few 
years to develop prototypes for Electronic Data Interchange as 
a mainstream method of collecting environmental information. In 
fact, the EPA has one program that is functioning, the 
Reformulated Gasoline Program, and will shortly be implementing 
the Discharge Monitoring Report, which will serve to accept 
data electronically in the Safe Drinking Water Data Collection 
and the Hazardous Waste Manifest, both of which will soon be 
subject to Electronic Data Interchange.
    Mr. Kelly told the Subcommittee that the EPA, in reaching 
out to small business, is requiring every regulatory working 
group that is focusing on a regulation, which might affect 
small business, to hold focus groups, hearings and meetings 
specifically designed to integrate the views of small business. 
He also stated that the EPA would continue its commitment to 
the needs of small business and will continue to provide 
flexible compliance opportunities for small business as well as 
an implementation of the Small Business Regulatory Enforcement 
Fairness Act.
    For further information on this hearing, refer to Committee 
publication number 104-80.

    7.3.15 oversight of the department of labor's progress
                        on reducing unnecessary paperwork 
                        burdens on small business

                               Background

    On June 26, 1996, the Subcommittee on Government Programs 
held a hearing to examine the compliance by the Department of 
Labor (DOL) with the Paperwork Reduction Act of 1995 as it 
relates directly to reducing unnecessary paperwork burdens on 
small business. The Paperwork Reduction Act, which was passed 
unanimously by the 104th Congress, amends the original 
Paperwork Reduction Act of 1980, making it more effective in 
reducing and preventing needless paperwork. The Act requires 
the Office of Information and Regulatory Affairs to set a goal 
of at least a 10 percent for reducing government-wide paperwork 
burdens for fiscal year 1996. It also sets certain procedures 
for regulatory agencies in developing information collection 
plans, such as a 60-day notice and comment period.

                                Summary

    The hearing was comprised of a single panel, which 
consisted of one witness: Patricia Watkins Lattimore, Deputy 
Assistant Secretary for Administration and Management, DOL.
    Ms. Lattimore opened by stating that DOL implemented the 
1995 changes quickly, coordinating with key regulatory 
officials in each DOL agency, by briefing executive staff and 
administrative officers and training more than 250 Department 
officials. In addition, each DOL agency has a clearance officer 
to provide hands-on assistance, working with agency regulatory 
and enforcement officials to minimize the paperwork burden from 
the planning stages to the actual preparation of paperwork-
clearance packages for submission to the Office of Management 
and Budget.
    Ms. Lattimore projected a three percent reduction in total 
DOL burden hours when the fiscal 1996 statistics are compared 
to those for fiscal year 1995, which was better than originally 
anticipated since the primary Information Collection Budget 
projected no change. She also testified that there is a very 
strong possibility of reaching the 10 percent reduction goal by 
the end of the fiscal year if OSHA is able to finalize 
revisions now under way to reduce the burden estimates for two 
existing standards, Process Safety Management and Hazardous 
Waste Operations, and eliminate certification-recordkeeping 
requirements in several existing rules.
    The Chairman questioned Ms. Lattimore's statement 
concerning whether or not the Pension Welfare Benefits 
Administration could electronically implement the streamlined 
reporting and disclosure of the Form 5500 series. Ms. Lattimore 
stated that DOL is exploring the use of electronic application 
support via the Internet for all regulatory reporting. This use 
of the Internet would have to be examined in terms of DOL being 
able to receive authentic documents with the technology 
available in the business community.
    Ms. Lattimore was also asked to describe for the 
Subcommittee the process that DOL employs in examining new 
regulations to ensure that they meet the paperwork 
requirements. Ms. Lattimore described that, within the 
Department, each agency has a clearance officer who works in 
conjunction with the Office of Policy, the Solicitor's Office 
and program staff to examine all aspects of a regulation. The 
process is formulated to ensure that all aspects, including 
paperwork concerns are addressed, in order to avoid creating 
unnecessary additional burden. Ms. Lattimore emphasized that 
DOL wants to ensure that it is creating regulations that are 
not unduly burdensome to the industry. DOL's Paperwork 
Reduction Act Staff will continue to work in tandem with the 
Office of Policy and technical staffs as DOL develops 
regulations, taking all considerations into account.
    For further information on this hearing, refer to Committee 
publication number 104-82.
    7.3.16 massachusetts' request for disaster funds from
                        the sba

                               Background

    On July 10, 1996, the Subcommittee on Government Programs 
held an oversight hearing on the request for disaster funds 
from the Small Business Administration (SBA) by the 
Commonwealth of Massachusetts. In March 1995, Governor William 
Weld made a request to the Federal Emergency Management Agency 
for a Presidential declaration of a major disaster for the 
Massachusetts fishing industry. The request was made on behalf 
of the fishermen of Essex, Bristol, and Barnstable Counties, 
all of whom have suffered severe economic losses because of the 
sudden collapse of cod, yellowtail flounder, and haddock 
fisheries in the region. The request was declined in July 1995 
and again, on appeal, in December 1995. By letter dated April 
30, 1996, Governor Weld requested an Economic Injury Disaster 
Declaration on behalf of the fishermen in three Massachusetts 
counties pursuant to Section 7(b)(2)(D) of the Small Business 
Act. SBA Administrator Philip Lader declined to issue the 
declaration and Governor Weld was notified of this decision by 
letter dated June 3, 1996.
    The initial denial of Governor Weld's request was based on 
the argument that ``over fishing'' was not a ``sudden'' event 
as defined under the statute governing the SBA's disaster 
assistance program. Chairman Peter Torkildsen (R-MA) amended 
this language at a later markup to include ``federal or 
governmental action'' as the cause of a disaster. Once enacted 
this amendment would eventually enable the Secretary of 
Commerce to make the final decision as to whether or not 
Federal or governmental action would be the cause of a 
disaster. At this hearing, witnesses were asked to comment on 
the Governor's request and also on the SBA's ruling.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Bernard Kulik, Associate Administrator for Disaster 
Assistance, SBA; Trudy Coxe, Environmental Affairs Secretary, 
Commonwealth of Massachusetts; Bruce Tarr, Senator, 
Commonwealth of Massachusetts; Bruce Tobey, Mayor, Gloucester, 
Massachusetts; and Christine Heanue, Massachusetts Emergency 
Management Agency. The panel agreed that the Massachusetts 
fishing industry was damaged by the closure of the fishing 
grounds, but Mr. Kulik reiterated that the disaster-assistance 
request was denied based on the definition of a disaster. In 
the context of this situation, Mr. Kulik explained that a 
disaster as defined in Section 3(k) of the Small Business Act 
means a sudden event that causes severe damage including ocean 
conditions resulting in the closure of customary fishing 
waters. Again, Mr. Kulik stated that overfishing is not 
considered a sudden event. Mr. Kulik also noted that this 
disaster request was in large part the result of the issuance 
of emergency rules by the Secretary of Commerce as recommended 
by the New England Fishery Management Council, through the 
National Marine Fisheries Service.
    The other panelists explained that the emergency rules 
placed on the fishermen by the New England Fishery Management 
Council were too extreme. Two amendments called Amendments 5 
and 7 to the Northeast Fishery Management Plan have mandated a 
50 percent reduction in total fishing effort for the fishermen 
in this region. The witnesses agreed that the Department of 
Commerce failed to abide by the Regulatory Flexibility Act in 
producing a Final Regulatory Analysis, and they maintained that 
with the implementation of Amendment 7, New England's off-shore 
fleet will not be able to break even within two years of its 
enactment. The panelist pointed out that Canada has exploited 
the newly imposed regulatory scheme by increasing quotas for 
Canadian fishing vessels on George's Bank. As a result of all 
of the events in the New England region, many of the small 
businesses making up the fishing industry would likely go 
bankrupt without financial backing from the Federal government.
    The second panel consisted of representatives of the 
fishing industry: Vito Calomo, Executive Director, Gloucester 
Fisheries Commission; Jim Kendall, Executive Director, New 
Bedford Seafood Coalition; and Corrado Bucceri, BNN Fishing 
Gear. The second panel reiterated many of the concerns raised 
by the first panel and elaborated on the emergency rules and 
how these regulations affect not only fishermen but small 
businesses that serve the fishing industry. The panel agreed 
that the emergency rules implemented by the Department of 
Commerce would eventually bankrupt many of these businesses and 
that the Federal government should provide affected fishermen 
with disaster-loan assistance through the SBA.
    For further information on this hearing, refer to Committee 
publication number 104-84.

    7.3.17 the government's solicitation process and wheth-
                        er or not it is discriminatory to small 
                        business

                               Background

    On July 15, 1996, the Subcommittee on Government Programs 
held a field hearing in Danvers, Massachusetts, to examine the 
Federal government's solicitation process. Specifically, the 
hearing focused on the government's method of soliciting 
requests for proposals (RFPs), and whether or not the process 
discriminates against small business. RFPs are the method by 
which Federal departments and agencies request bids on specific 
projects to be awarded to private-sector companies. The 
department or agency making the request may specify the 
contract as either open to set-asides or ``unrestricted,'' 
meaning any company or individual may apply. Although this 
practice should apply to the small business community, some 
contend that unrestricted RFPs are often used as a means to 
exclude small business from competing for contracts.

                                Summary

    The hearing was comprised of one panel, which included: 
Robert Kern, Owner, Kernco, Inc.; and Karl Thidemann, Director 
of Marketing, Solectria Corporation. Mr. Thidemann, whose 
company is the largest independent maker of electronic vehicles 
in the United States, expressed his concern that in a recent 
public unrestricted bid to the General Services Administration, 
Solectria and other smaller companies making electric vehicles 
were restricted from meeting the qualifications not based on 
competitiveness, but rather because they were not a large 
automaker. Specifically, the RFP did not seek the best 
vehicles--range, performance, experience and other relevant 
factors were not part of the bid at all, except as footnotes. 
The key criteria for eligibility to participate in this RFP was 
that, ``vehicles shall be supplied by'' a bidder that first, is 
an Original Equipment Manufacturer (OEM), defined as ``a motor 
vehicle manufacturer who is responsible for the vehicle fuel 
economy of the gasoline version of the model supplied,'' which 
restricts the qualifier to only very large companies that also 
produce gasoline vehicles. The RFP also required that an 
offeror ``must have an agreement with OEM,'' one of the large 
automakers for warranty purposes.
    Mr. Thidemann testified that Solectria spent considerable 
time and effort to put together its bid for these vehicles. If 
his company is screened out as the language of the RFP implies, 
the government will not get the best vehicle and his small 
business will have been excluded from the competition for 
clearly inappropriate reasons. An additional concern is the 
precedent-setting nature of this RFP. If small companies like 
Solectria are eliminated from eligibility at this stage, it 
could put them and other small motor vehicle suppliers at a 
competitive disadvantage in future bids.
    Mr. Kern described the experience of Kernco, Inc., a 
hardware supplier for the Department of Defense and National 
Aeronautics and Space Administration (NASA), in early 1990. At 
that time, Kernco submitted a bid to supply atomic clocks as 
part of a major contract (the GPS Program) and won the bid. 
While Kernco competitively out bid several of the large 
aerospace companies, before the contract award could be 
completed, Kernco was told to obtain a ``big brother,'' 
indicating that the company was considered to be too small. 
Kernco was then forced to enter a joint enterprise agreement 
with a large manufacturing company under which Kernco would do 
the development and the design, and its ``big brother'' would 
do the production, of only 20 units.
    Mr. Kern noted that while the GPS Program was being 
completed, the customer put out an additional RFP for an item 
to replace a concept that did not work. Kernco subsequently won 
this bid, and consequently was given six months to complete the 
project, with the entire satellite system depending upon the 
results. The company has completed 50 percent of the shipments 
to date, and have thus defied the belief that small companies 
cannot respond. Mr. Kern emphasized that his company has 
consistently demonstrated technical excellence as well as the 
ability to successfully manufacture, only to have this proven 
performance be pushed aside in the government-contracting 
process. The costs to the government are continually 
increasing, and the cost factors, the performance factors and 
some of the delivery difficulties now experienced by the GPS 
Program could be resolved very simply by a realistic look at 
actual small business performance.
    For further information on this hearing, refer to Committee 
publication number 104-85.
    7.3.18 h.r. 1863: the employment non-discrimination act

                               Background

    On July 17, 1996, the Subcommittee on Government Programs 
held a hearing to examine H.R. 1863, the Employment Non-
Discrimination Act (ENDA), and its impact on the small business 
community. This legislation, introduced by Congressman Gerry 
Studds (D-MA) and co-sponsored by 118 other Members of 
Congress, was designed to aid businesses by providing a 
healthy, stable and productive work environment for all 
employees. The bill would also remove potential barriers that 
might impede our nation's progress in the diverse, global 
marketplace.

                                Summary

    The hearing was comprised of four panels, the first of 
which included: Constance A. Morella (R-MD), Member of 
Congress; Gerry E. Studds (D-MA), Member of Congress; Tom 
Campbell (R-CA), Member of Congress; and Barney Frank (D-MA), 
Member of Congress. The consensus of this panel, which 
consisted of sponsors or co-sponsors of H.R. 1863, was that 
ENDA needs to be passed. The witnesses testified that the 
legislation simply prohibits employment discrimination based on 
sexual orientation without creating special rights. The 
witnesses maintained that American businesses would broaden the 
talent pool and diversity of their businesses by hiring without 
prejudice.
    One member of the Subcommittee raised the controversial 
part of this legislation by questioning whether the government 
would be condoning a lifestyle if it condemns discrimination 
against those that practice that lifestyle. The witnesses 
agreed that there are not always only two choices in a 
situation, and that it is unfair to assume that ending 
discrimination leads to more acceptance of the practice being 
legally protected. For example, laws prohibit discrimination 
against individuals for their religious beliefs. A public 
school teacher is hired for his or her abilities to teach, and 
no one should assume that that person will impose his or her 
religious viewpoints on the children in the class. The 
witnesses emphasized the need for a level playing field in the 
workplace without regard to sexual orientation.
    The second panel included: Michael Morley, Senior Vice 
President and Director of Human Resources, Eastman Kodak; Paula 
Alexander, Director of Human Resources, Eastman Gelatine 
Corporation; Patrick McVeigh, Senior Vice President, Franklin 
Research & Development Corporation; and Brenda Cole, Member of 
the Board of Directors, Wainwright Bank & Trust Company. The 
witnesses on this panel represented businesses that have 
voluntarily implemented policies similar to ENDA, and they 
provided the Subcommittee with their perspective on how such 
policies have affected their firms. The consensus of the panel 
was that policies like ENDA are good for businesses because 
they keep companies competitive in a diverse world by 
reflecting the marketplace. As a result, these companies can 
hire and retain the most qualified workers regardless of 
personal lifestyles. The businesses witnesses maintained that 
with non-discrimination policies in place, they significantly 
improve employee morale, loyalty and productivity. The 
witnesses on this panel supported passage of H.R. 1863.
    The third panel included: Michael Proto, U.S. Department of 
Justice; Nan Miguel, Seranga General Hospital; Todd Dobson, 
Management Information Systems Director, Creative Office 
Interiors; Ernest Dillon, U.S. Postal Service; and Karen Solon, 
Child Development Center. These witnesses came forward to 
testify as to discrimination they had faced due to being 
homosexual or supporting individuals that were (or allegedly 
were) gay or lesbian. The witnesses had lost job opportunities 
or were fired from positions due to their alleged sexual 
orientation or for standing up for gay/lesbian rights. All of 
the witnesses on this panel were concerned that there were no 
Federal laws protecting them or their jobs against this type of 
discrimination, and they supported passage of ENDA.
    The fourth panel included: Elizabeth Birch, Human Rights 
Campaign; Michael Duffy, Massachusetts Commission Against 
Discrimination; and Chai Feldblum, Director, Federal 
Legislation Clinic and Associate Professor of Law, Georgetown 
University Law Center. The witnesses on the fourth panel were 
experts in the field of anti-discrimination policy. The 
consensus was that legislation such as ENDA is necessary and 
beneficial to businesses and society as a whole. Anti-
discrimination policies allow businesses to value employees for 
their talents, work ethics and loyalty, while employees are 
more motivated, committed and aware of equal rights. ENDA gives 
gays and lesbians recourse against discrimination, and also 
protects people who associate with individuals who are leading 
alternative lifestyles.
    For further information on this hearing, refer to Committee 
publication number 104-87.

    7.3.19 oversight of the food and drug administration's
                        progress in reducing unnecessary 
                        paperwork burdens upon small business

                               Background

    On July 24, 1996, the Subcommittee on Government Programs 
held a hearing on the Food and Drug Administration's (FDA) 
progress in complying with the Paperwork Reduction Act. This 
was the third in a series of hearings examining Federal 
agencies' efforts to reduce the burdens of paperwork. Experts 
currently estimate that paperwork compliance occupies six and a 
half billion hours of America's time annually. On March 4, 
1995, the President directed all Federal agency heads to read 
each of their regulations, page by page, and to make regulatory 
reform a priority. The 1995 White House Conference on Small 
Business also recommended addressing the burden reduction goals 
of the 1995 Paperwork Reduction Act.
    The FDA, which regulates the safety and effectiveness of 
cosmetics, food, drugs, and medical devices, has been accused 
of requiring excessive paperwork burdens during approval 
processes. Although, many of these requirements are necessary 
to ensure safe and effective foods and products, with each 
additional rule the burden of paperwork and other regulations 
comes closer to outweighing any benefits of the approval 
process. Concerning drugs and medical devices, The Los Angeles 
Times reported on April 17, 1995, that it typically takes 12 
years, including six years of clinical trials, before a major 
drug or medical device wins approval.

                                Summary

    The hearing was comprised of a single panel, which 
included: Robert J. Byrd, Acting Deputy Commissioner for 
Management and Systems, FDA; and Jeffrey J. Kimbell, Executive 
Director, Medical Device Manufacturers Association.
    Mr. Byrd described for the Committee the FDA's efforts 
currently in progress for meeting the statutory requirements of 
the Paperwork Reduction Act. He noted that small businesses are 
extremely valuable to the FDA and to the consumer market in 
general for their many contributions and innovations. He 
described the efforts undertaken by the FDA in response to a 
department-wide review at the Department of Health and Human 
Services, Vice President Gore's regulatory reinvention task 
force, and the directive from President Clinton to reduce 
unnecessary rules and regulations. Examples of these efforts 
include: a page-by-page review of existing regulations to 
eliminate or update outdated regulations; changing the way 
performance is measured to focus on results instead of process 
and punishment and allowing waivers for minor violations that 
are quickly corrected; outreach with stakeholders through 
grass-roots partnerships; and increased efforts to promote 
consensual rulemaking. According to Mr. Byrd, the FDA has 
maintained a constant level of burden hours for its information 
collection and has proposed the deletion or reform of 74 
percent of its rules that have a regulatory impact.
    Mr. Kimbell testified about the burdens that FDA paperwork 
and regulations create, particularly for the small 
entrepreneurs who make up 98 percent of the medical-device 
industry. For instance, a new medical-device reporting 
regulation has resulted in over 100,000 reports received 
annually by the FDA. The agency also has a plan pending to 
regulate further the manufacturing practices of medical-device 
companies. The effect of these burdens has been three-fold. 
First, many new life-saving devices are kept from the patients 
who need them for many years while they await FDA approval. 
Second, because regulatory and paperwork rules are eased for 
innovations based upon older technology, the focus of 
researchers has shifted from the search for breakthrough 
technologies to less significant changes in existing devices. 
Finally, many medical-device companies are taking their 
innovations outside of the United States where they can more 
easily gain approval and move into the marketplace. This 
deprives the United States not only of qualified health-care 
professionals, scientists, and researchers, but also domestic 
companies and jobs.
    Mr. Kimbell praised new efforts by Congress and the FDA in 
streamlining the approval process and urged continuing action 
to ensure that new life-saving devices become available to the 
public as quickly and safely as possible. Among other things, 
Mr. Kimbell recommended continued efforts to hold FDA 
inspectors accountable for their actions and establishing a 
third-party review system by which an FDA-approved independent 
research group would determine the safety and effectiveness of 
new products.
    For further information on this hearing, refer to Committee 
publication number 104-88.

    7.3.20 sba programs to assist veterans in readjusting to
                        civilian life

                               Background

    On July 31, 1996, the Subcommittee on Government Programs 
held a joint hearing together with the Veterans' Affairs 
Subcommittee on Education, Training, and Employment, on Small 
Business Administration (SBA) programs to assist veterans in 
readjusting to civilian life. This hearing explored the SBA's 
efforts to assist veterans in procuring their own small 
businesses. In the past, many veterans have expressed concern 
that Federal agencies were ignoring the entrepreneurial 
interest of veterans starting their own small business. 
According to many U.S. veterans, programs to assist veterans in 
small business procurement have been passed around among 
various Federal agencies. Witnesses at the hearing were asked 
to comment on the past and present role of the SBA and its 
effectiveness in helping veterans access capital. Witnesses 
were also asked to comment on cooperation efforts between the 
SBA and the Department of Veterans Affairs in helping veterans 
readjust to civilian life.

                                Summary

    The hearing was comprised of three panels, the first of 
which included: John Lopez, Chairman, Association for Service 
Disabled Veterans; Emil Nascinski, Representative, American 
Legion; Michael Hladky, U.S. Army; and Dr. Paul Camacho, 
University of Massachusetts. The first panel generally agreed 
that the Office of Veterans Affairs at the SBA has been 
bureaucratically strangled by initiative as well as funding. 
They also agreed that veterans have been discriminated against 
by not allowing certain privileges in affirmative-action 
procurement contracts and that Federal agencies such as the 
Department of Defense and the Department of Veterans Affairs 
have been delinquent in their handling of veterans 
entrepreneurial abilities. The panel maintained that these two 
Departments should have taken a more direct approach in helping 
veterans with this task, especially since these two Departments 
had considerably more funding for this task than the SBA.

    This panel also agreed on a legislative platform designed 
to address veterans' needs. The agenda contained three specific 
recommendations: (1) legislation should provide that action and 
results, not consideration and efforts, are the required 
objective of legislation to assist veterans; (2) legislation 
should contain detail in its language that those who sacrificed 
their well being for the benefit of all the free world's 
economic benefit are the primary priority in business 
assistance programs of the Federal government; and (3) 
legislation should be introduced that amends the Small Business 
Act to add the directive that ``for purposes of this Act, 
service disabled and prisoner of war veterans are considered a 
socially and economically disadvantaged population and/or group 
and/or individuals.''
    The second panel included: Cecil Byrd, Executive Director, 
National Association of Concerned Veterans; Robert Sniffen, 
Chairman, San Diego Veterans Services; and James Stephan, 
President, Veterans Small Business Association. This panel had 
many of the same concerns as the first panel, and the witnesses 
agreed with the first panel that veterans are the very group 
that have been denied full access to the free enterprise system 
that they fought to protect and that there needs to be 
legislation to implement procurement set-aside contracts for 
U.S. veterans.
    The panel agreed that partisan bickering during the past 
two decades has resulted in congressional ignorance of veteran 
issues. In addition, the witnesses noted that the background of 
veterans is especially well suited to starting and operating 
small businesses. The discipline that veterans have accrued 
over the years would make veterans excellent entrepreneurs. The 
witnesses also suggested setting up veterans business networks 
to enable veterans to be more productive in their business 
ventures, and, like the first panel, they agreed that 
legislation needs to be enacted that provides veterans with 
special privileges in terms of government contracts and 
business procurement.
    The final panel consisted of a single witness: Leon Bechet, 
Assistant Administrator for Veterans Affairs, SBA. Mr. Bechet 
testified about the general goals of the SBA with respect to 
veterans assistance, and he provided the Subcommittees with 
background on the SBA's Office of Veteran Affairs. He asserted 
that there has been a dramatic increase in the number of SBA 
guaranteed loans to veterans, and he noted that the SBA has 
piloted the Veteran Entrepreneurial Training Program, which 
provides long-term, in-depth training to veterans and their 
spouses. Mr. Bechet also testified about the Defense Loan and 
Technical Assistance (DELTA) program, which provides both 
financial and technical assistance to help defense-dependent 
small firms adversely affected by defense cutbacks diversify 
into the commercial market. He maintained that both of these 
programs have been highly successful for veterans seeking small 
business assistance and training. He also pointed out that the 
Administration's FY 1996 budget for the SBA contained a request 
for $485,000 for veterans outreach efforts, but no funds were 
appropriated for that year. Mr. Bechet concluded his testimony 
by stating that the Office of Veteran Affairs needs more 
resources to be able to produce the financial assistance that 
veterans demand.
    For further information on this hearing, refer to Committee 
publication number 104-91.

    7.3.21 fdic's handling of small business asset foreclos-
                        ures

                               Background

    On September 25, 1996, the Subcommittee on Government 
Programs held a hearing on the management of small business 
asset foreclosures by the Federal Deposit Insurance Corporation 
(FDIC) and specifically the handling of such foreclosures in 
Massachusetts. The hearing focused on two situations in which 
small business projects were not completed due to the failure 
of one bank, ComFed Savings, and the alleged actions of the 
Resolution Trust Corporation (RTC), which was appointed as the 
conservator for the bank in December of 1990.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Rhetta Sweeney, a small business owner in Hamilton, 
Massachusetts; Betty Scott, a small business owner in Concord, 
Massachusetts; and Peter Britton, Hamilton Planning Board, 
Hamilton, Massachusetts. Mrs. Sweeney and Mrs. Scott testified 
about their businesses and relationship with ComFed Savings. 
They also testified about the Hamilton Rock Maple Flexible 
Subdivision plan and the difficulty they had surrounding the 
unfair and deceptive trade business practices with ComFed 
Savings, which resulted in litigation in the Middlesex Superior 
Court of Massachusetts. In addition, they maintained that the 
RTC and its agent had taken extraordinary actions designed to 
cover up the State court judgment. Mr. Britton, a member of the 
planning board that approved Mrs. Sweeney's subdivision plan, 
asserted that the subdivision plan, which permitted Mrs. 
Sweeney to develop her property, had been illegally obstructed 
for eight years.
    The second panel included a single witness: John Bovenzi, 
Director, Depositor and Asset Services, FDIC. Mr. Bovenzi 
testified that the past 10 years have posed tremendous 
challenges to the banking industry and the FDIC. During that 
time nearly 1,250 commercial banks have failed, with combined 
assets of over $225 billion and deposits of almost $190 
billion. The FDIC has resolved these failures without taxpayer 
assistance. Over the same period of time, almost 1,100 savings 
associations failed and were resolved by the former Federal 
Savings and Loan Insurance Corporation and the RTC. These 
savings associations had combined assets of over $540 billion 
and deposits of almost $445 billion. According to the General 
Accounting Office, the estimated direct cost to taxpayers of 
these failures was almost $125 billion.
    Mr. Bovenzi noted that the FDIC prefers to work with 
borrowers to achieve a mutually agreeable repayment plan for 
unpaid loans. After the FDIC succeeded the RTC as receiver of 
ComFed Savings in January of 1996, it undertook a thorough 
review of the Sweeney matter. To avoid further costs to 
taxpayers, the FDIC subsequently provided the Sweeneys with 
three settlement alternatives by letter of July 29, 1996. All 
of these alternatives would allow the Sweeneys to continue 
living on the property, yet the Sweeneys did not accept any of 
the alternatives. According to the FDIC, through their failure 
to repay money that they borrowed and their subsequent actions, 
the Sweeneys have caused a loss to the taxpayers, which the 
FDIC estimates at over $3 million. Unless the FDIC is able to 
reach a settlement with the Sweeneys, the FDIC unfortunately 
must obtain possession of the property that it legally owns.
    For further information on this hearing, refer to Committee 
publication number 104-94.
7.4 Summaries of the Hearings Held by the Subcommittee on 
            Procurement, Exports and Business Opportunities

    7.4.1 export promotion programs: how is small business
                        helped?

                               Background

    On March 29, 1995, the Subcommittee on Procurement, 
Exports, and Business Opportunities held a hearing to examine 
how small business is helped by the various export promotion 
programs administered by the Federal government. The 104th 
Congress had a series of proposals before it that would 
eliminate trade-promotion programs, transfer them over to the 
State Department, or combine all trade functions into a 
Department of Trade. The goal of these proposals was to 
streamline the existing export-promotion programs that have 
similar or duplicate functions in order to focus and serve 
small businesses, which in turn will generate new jobs in the 
United States.

                                Summary

    The hearing was comprised of one panel, which included: 
Lauri Fitz-Pegado, Director General, U.S. Foreign Commercial 
Service, Department of Commerce; Raymond Vickery, Jr., 
Assistant Secretary for Trade Development, Department of 
Commerce; Charles Meissner, Assistant Secretary for 
International Economic Policy, Department of Commerce; Mary 
Jean Ryan, Associate Deputy Administrator for Economic 
Development, Small Business Administration (SBA); Maria Louisa 
Haley, Member, Board of Directors, Export-Import Bank of the 
United States (Eximbank); Joseph Grandmaison, Director, U.S. 
Trade and Development Agency; and Christopher Finn, Executive 
Vice-President, Overseas Private Investment Corporation.
    The panelists estimated that over the last year, the 
International Trade Administration (ITA) facilitated over $9 
billion in sales for small companies, which supported 
approximately 180,000 jobs. In addition, there have been 
dramatic increases in both the number of small businesses 
exporting and the value of these exports. They generated an 
estimated $134 billion in merchandise exports in 1993, an 
increase of 84 percent from 1987. Moreover, about 22 percent 
more small businesses exported in 1992 than in 1987.
    Ms. Pegado also testified that by the end of fiscal year 
1996 plans would be in place for all of the Commerce 
Department's domestic offices to operate as part of a customer 
focused hub-and-spoke system composed of export assistance 
centers and district export assistance centers that deliver 
integrated trade finance and export marketing assistance. The 
hubs of U.S. export assistance centers will coordinate the 
commercial services vital to international marketing services 
with the crucial trade finance services provided by SBA, 
Eximbank, State Department trade finance programs, and private 
banks. Mr. Vickery also emphasized that the Commerce 
Department's advocacy program is not just for large businesses, 
it is for small business as well. He estimated that over the 
past year, in terms of small businesses alone, there were about 
$2 billion worth of successful transactions in which advocacy 
was provided in order to enable Americans to remain employed.
    The Commerce Department witnesses testified that to assist 
small business better the ITA has brought together all of the 
Department of Commerce programs related to economic development 
in the United States border region. There are approximately 
eight parts of the Department of Commerce, outside of ITA, that 
are working on economic development in the border region.
    Witnesses emphasized that one of the most significant 
obstacles for small business exporters has been the lack of 
export financing. Many banks think that small trade loans are 
too risky and time consuming, and it is precisely those types 
of deals with which small exports need help.
    For further information on this hearing, refer to Committee 
publication number 104-22.

    7.4.2 small business administration's surety bond guaran-
                        tee program

                               Background

    On April 5, 1995, the Subcommittee on Procurement, Exports, 
and Business Opportunities held a hearing to evaluate the role 
and effectiveness of the Surety Bond Program, which is 
administered by the Small Business Administration (SBA). Surety 
bonds are designed to ensure that if a bonded contractor 
defaults, the terms of the contract will be completed and the 
subcontractor and its employees will be paid. On Federal 
contracts, surety bonds protect the American taxpayers if a 
bonded private-sector contractor defaults on the contract.
    As part of the Small Business Credit and Business 
Opportunity Enhancement Act of 1992, Congress mandated that the 
General Accounting Office (GAO) conduct a comprehensive survey 
of business firms to determine their experience in obtaining 
surety bonds. The GAO released the preliminary findings of this 
survey on the day of the hearing. In addition, prior to the 
hearing, the Administration proposed increasing a variety of 
fees imposed on participants in the Surety Bond Program. The 
witnesses were asked to comment on the proposals and discuss 
whether higher fees would increase or decrease participation of 
small businesses in Federal government procurement contracts, 
which frequently require the contract recipient to post a 
surety bond.

                                Summary

    The hearing was comprised of a single panel, which 
included: John Curtin, President, Curtin International 
Insurance and Bonding Agency, Inc., representing the National 
Association of Surety Bond Producers; Dorothy Kleeschulte, 
Associate Administrator, SBA; Denise Norberg, Gust A. Norberg & 
Son, Inc., representing the American Subcontractors' 
Association; and Jim Wells, Associate Director, Housing and 
Community Development Issues, Resources, Community, and 
Economic Development Division, GAO.
    Mr. Wells reviewed for the Subcommittee the basis for and 
results of the GAO's study on surety bonds. GAO surveyed 
approximately 12,000 randomly selected construction firms and 
received about 5,000 responses to the questionnaires. Special 
trade contractors, such as plumbers, painters, electrical 
contractors, and concrete masons make up about 80 percent of 
the population of small construction firms. From the survey 
results, GAO estimated that at least 23 percent of the small 
construction firms had obtained surety bonds. Roughly 
projected, 520,000 small business firms had never obtained a 
bond in the years between 1990 and 1993. Overall, GAO found 
that one in five small construction firms that had obtained a 
surety bond between 1990 to 1993 had at least one bond 
application denied during that period. The reasons for denial 
were generally two-fold: the firm's financial status was not 
strong enough or the particular firm had never been involved in 
the kind of work for which the surety bond was requested.
    The SBA witness noted that the Surety Bond Guarantee 
program exists because the Miller Act requires prime 
contractors performing Federal construction contracts to post 
surety bonds. Since the program began in 1971, more than 
218,000 final bonds have been guaranteed by the SBA for more 
than $21 billion in contracts for small businesses. The SBA 
guarantees to a qualified surety up to 90 percent of losses 
incurred under bid, payment, performance, or ancillary bonds if 
the contractor breaches the contract terms. Bonds for minority 
contractors receive a 90 percent guarantee on a maximum 
contract size of $1,250,000. Under the pilot Preferred Surety 
Bond Guarantee Program, the SBA provides a 70 percent guarantee 
to participating sureties, and in exchange the sureties have 
authority to issue, monitor and service bonds without SBA's 
prior approval. Ms. Kleeschulte emphasized that the pilot 
program enables the SBA to provide more contractors with more 
guarantee authority but with less direct SBA resources. She 
also defended the Administration's proposal for increased fees 
for surety bonds, noting that with the fee revenues, the SBA 
would be able to request less in appropriations for the surety 
bond program.
    The industry witnesses stressed the importance of the SBA's 
Surety Bond Program and offered the Subcommittee several 
recommendations for improving the program. Mr. Curtin noted the 
strong partnership between the SBA and the surety bond 
underwriters but was critical of the Administration's proposal 
to increase fees. He warned the Subcommittee that an increase 
in fees levied on a contractor for a surety bond would put the 
contractor at a serious competitive disadvantage in the highly 
competitive construction environment that exists today.
    The witnesses' recommendations for improving the surety 
bond program included an increase in the maximum bond size 
allowable under the program in order to serve an expanding pool 
of businesses without increased cost to government. The pilot 
Preferred Surety Bond Guarantee Program should be extended 
since it has proven useful in expanding access to surety bonds 
for small businesses. It was also recommended that bond 
producers be required to disclose fully the basis for denying a 
surety bond and the actions that the applicant must take in 
order for the bond to be approved. Finally, the Miller Act 
should be amended to improve the payment rights for 
subcontractors and suppliers through payment bonds.
    For further information on this hearing, refer to Committee 
publication number 104-24.

    7.4.3 agriculture export promotion programs: how are
                        the small farmer and rancher helped?

                               Background

    On May 17, 1995, the Subcommittee on Procurement, Exports 
and Business Opportunities held a hearing on agriculture export 
promotion programs and the effects that they have on small 
farmers and ranchers. The subcommittee considered it 
appropriate to devote an entire budget hearing on this subject 
given that the Department of Agriculture receives the majority 
of funding for promotion programs and agriculture accounts for 
10 percent of the country's exports. The hearing was designed 
to evaluate efforts to streamline the Federal government with 
respect to agricultural export promotion programs.

                                Summary

    The hearing was comprised of one panel, which included: 
August Schumacher Jr., Administrator of Foreign Agricultural 
Service, U.S. Department of Agriculture; Linda Reinhardt, 
Chair, Women's Committee, American Farm Bureau; Richard 
McGuire, Commissioner, New York Department of Agriculture and 
Markets; and John Frydenlund, Director, Agriculture Policy 
Project, Heritage Foundation.
    The panel noted that the agriculture industry was at an all 
time high, with a $20 billion trade surplus, coming from almost 
every State, and consisting of many small companies. Growth 
targets were projected to be $80 billion by the year 2000 with 
a surplus of $25 to $30 billion, which will require nearly one 
quarter of the Federal government's promotional efforts to be 
devoted to agriculture. Such a large amount will be necessary 
given the competitive effects resulting from NAFTA and GATT. 
The European Union has also increased its spending by $10 
billion in 1995, and its subsidies for wine alone is larger 
than the entire Market Promotion Program in the United States.
    The supporters of U.S. agricultural export promotion 
programs argued that they should be maintained given their 
record of success and ability to keep rural America and small 
business growing. One witness noted that for every dollar 
invested into the program, a return of $16 is netted. Witnesses 
also commented that with current efforts to reduce Federal 
government involvement in the private sector, efforts must be 
made to insure that the United States maintains a foothold in 
the agriculture business, which necessitates agricultural 
export assistance programs. One witness suggests that for every 
dollar saved in the reduced government involvement, at least 25 
cents should be devoted to these programs to help farmers. 
Without these programs in place, agricultural production will 
increase, due to the removal of acreage restrictions, but small 
farmers will not have adequate access to the world markets to 
realize the benefits of higher production levels.
    The panelists also addressed the pending farm legislation 
and stressed that the new farm bill needs to provide a path for 
U.S. farmers to reestablish their dominance in the world 
market. The opponent of agricultural export promotion programs 
offered a number of suggested reforms to help U.S. farmers, 
including: elimination of all acreage reduction and set aside 
programs; phaseout of the subsidy and support programs, and 
phaseout of the conservation reserve program and the farmer 
owned reserve. Ending these programs would suggest to the world 
that the United States is promoting an aggressive agriculture 
policy, and would lead to an additional net farm income over $2 
billion in 1996, with growth expected to reach $4 billion by 
2001, and $10 billion by 2005. As a result, during these years, 
at least $21 billion would be channeled into the rural economy, 
which offers the potential for tremendous revitalization of 
rural areas.
    For further information on this hearing, refer to Committee 
publication number 104-28.

    7.4.4 federal export promotion programs: an academic
                        perspective

                               Background

    On May 23, 1995, the Subcommittee on Procurement, Exports 
and Business Opportunities held the third in a series of 
hearings on the appropriate role and effectiveness of various 
Federal export-promotion programs, especially as they effect 
small business. The hearing was designed to focus on a 
government-wide trade strategy, a one-stop shop that could 
bring some common sense to the process of export promotion for 
small businesses.

                                Summary

    The hearing was comprised of a single panel, which 
included: Jennifer Bremmer, Deputy Director, International 
Business Education Center, Kenan Institute of Private 
Enterprise of the University of North Carolina at Chapel Hill; 
Allan I. Mendelowitz, Ph.D., Managing Director, International 
Trade, Finance and Competitiveness Issues, U.S. General 
Accounting Office; and Dean Stansel, Fiscal Policy Analyst, The 
CATO Institute.
    According to one witness, with respect to trade policy 
objectives, there are three justifications for export 
promotion: helping U.S. firms overcome trade barriers; leveling 
the playing field so that U.S. exporters competing with 
subsidized foreign exporters can compete in world markets on an 
equal basis; and trying to take the profit out of subsidies on 
the part of the United States' competitors and bring them to 
the table in order to negotiate reductions in and elimination 
of trade-distorting subsidies.
    It was also stated that export assistance programs have 
come under particular attack as unnecessary and ineffective, a 
form of corporate welfare. One witness commented that the 
impact of U.S. export assistance could be increased by closer 
cooperation between Federal and non-Federal programs at home. 
Further, it was suggested that an important strategy for 
improving Federal trade-program performance with reduced funds 
is to work more closely with the private and non-profit sector, 
such as trade associations, and with State and local 
governments.
    Conversely, Mr. Stansel testified that American businesses 
do not need a government program to survive or to compete with 
those in other countries. Any business that feels they would 
benefit from these goods would be willing to pay a certain 
price. Those who benefit from it should pay for it, and he 
testified that taxpayer dollars should not be used to support 
the bottom line of private businesses artificially, regardless 
of the size of those businesses. Mr. Stansel maintained that 
the government should not be in the business of spending 
taxpayer dollars to promote exports. He stated that nowhere in 
the Constitution is the Federal government granted the power to 
spend general taxpayer dollars to promote the specific interest 
of specific businesses or specific industries. In addition, the 
programs are too expensive. According to Mr. Stansel, if the 
goal is to promote economic growth, the money used in these 
programs would be put to much better use if left in the hands 
of its original owners, that is, the American taxpayers.
    For further information on this hearing, refer to Committee 
publication number 104-30.

    7.4.5 export promotion: a business perspective

                               Background

    On June 22, 1995, the Subcommittee on Procurement, Exports 
and Business Opportunities held a hearing to continue its 
examination of Federal export-promotion programs. The hearing 
was designed to provide the Subcommittee with an overview from 
businesses that have participated in these programs.
    With the future of the Department of Commerce uncertain, it 
was appropriate for the Subcommittee to continue its review of 
the trade-promotion programs. The witnesses were asked to 
provide testimony that will set the stage for how export-
promotion programs fit into the country's overall competitive 
picture and if they make economic sense. The witnesses were 
also asked to provide testimony on how trade-promotion programs 
have effected companies.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: John L. Mica (R-FL), Member of Congress. Congressman 
Mica testified that currently the country's trade-promotion and 
assistance programs are disorganized. He noted that the Federal 
government has 19 agencies with separate missions and that 
billions of taxpayer dollars are spent often in an 
uncoordinated and inefficient manner. He advocated that an 
ideal solution would be to combine most of the 19 agencies and 
their functions that deal with trade and export promotions, 
negotiations, finance and assistance. Congressman Mica also 
stated that at the very least Congress should dismantle and 
reorganize trade and export functions from the Department of 
Commerce, Department of State, and other agencies and establish 
a coherent basis for an Office of Trade with cabinet-level 
status. He went on to say that U.S. businesses--small, medium, 
and large--should have instantaneous and updated information on 
trade, business and service opportunities around the globe.
    The second panel included: Tajiv Arora, Vice President, 
Virginia Transformer Corporation; Burt Norbert Beyer, Vice 
President/Chief Financial Officer, Procedyne Corporation; Peter 
A. Bowe, President, Ellicott Machine Corporation; Stephen D. 
Cohen, Ph.D., Professor of International Relations, American 
University; Peter Rogers, Director of Marketing, Micros 
Systems; Howard F. Rosen, Executive Director, Competitiveness 
Policy Council; and William Trueheart, Ph.D., President, Bryant 
College.
    The witnesses provided the Subcommittee with anecdotal 
evidence of how export-promotion programs have helped their 
businesses. One witness suggested that export-promotion efforts 
need to be kept limited in scope and expense but that their 
importance should not be underrated. If there is an increase in 
U.S. exports, the trend would generate both jobs and corporate 
profits, and increased exports would eventually generate more 
tax revenue and improve the nation's saving rate.
    The panelists also testified about their positive 
association with Federal government agencies. One witness 
stated that the Advocacy Center of the Commerce Department was 
very responsive in coordinating the proper support from the 
right governmental officials. The witness noted that when the 
customer is a foreign government, the customer is generally 
more receptive to official communication from American 
government officials. Another witness stated that without the 
Export-Import Bank of the United States, companies that export 
construction equipment and heavy capital goods could not stay 
in the export markets. The proposed budget cuts would seriously 
hurt small exporters and would be devastating. The witnesses 
maintained that export-promotion programs help small business 
become more vigorous, more competitive, and more engaged in the 
process in order to develop market opportunities abroad.
    For further information on this hearing, refer to Committee 
publication number 104-34.

    7.4.6 the export working capital program

    On September 7, 1995, the Subcommittee on Government 
Programs and the Subcommittee on Procurement, Exports and 
Business Opportunities held a joint hearing on the Export 
Working Capital Program administered by the Small Business 
Administration (SBA). For a complete summary of this hearing, 
see section 7.3.8 of this report.

    7.4.7 technologies for accessing foreign markets and re-
                        sources for export assistance

                               Background

    On October 11, 1995 and February 13, 1996, the Subcommittee 
on Procurement, Exports, and Business Opportunities held 
hearings to examine various technologies available to help 
small businesses establish and expand their export activities. 
While many small businesses are often intimidated when faced 
with the prospect of entering the export market, it is clear 
that as the economy becomes more globally oriented, more small 
businesses need to begin exporting their products and services 
in order to maintain and advance American's competitiveness. 
The hearing was designed to enable the Subcommittee to not only 
learn about technologies available to help small businesses 
export, but also to see actual demonstrations of those 
technologies.

                                Summary

    The hearing on October 11, 1995 was held in Washington, 
D.C. and was comprised of a single panel, which included: Carl 
Anderson, Director, ITDN, accompanied by Raymond Fogarty, 
Director, Rhode Island Export Assistance Center; Joseph J. 
Douress, Director, Global Trade Services, Dun & Bradstreet, 
Information Services; C. Harvey Monk, Jr., Chief, Foreign Trade 
Division, Bureau of the Census; Richard Preuss, Foreign Trade 
Division, Bureau of the Census; James Segovis, Ph.D., Director, 
CIBED; William Trueheart, Ph.D., President, Bryant College; and 
Forrest Williams, Director of Operations, Economics and 
Statistics Administration, U.S. Department of Commerce.
    The Commerce Department witnesses demonstrated the trade 
resource information that is available from the Federal 
government. Mr. Monk presented an overview of the Census 
Bureau's foreign trade statistics program, which has the 
primary responsibility for the collection, compilation, and 
dissemination of official export, import, and trade balance 
data of the United States. The program also generates 
statistics on foreign trade shipping. The witnesses 
demonstrated the various products that the Commerce Department 
makes available to small businesses that export goods or 
services. In addition, Mr. Williams reviewed the information 
available through the National Trade Data Bank to help 
businesses make contacts in existing markets.
    A second group of witnesses testified about the 
International Trade Data Network (ITDN), which was developed by 
Bryant College and is essentially a public-private sector 
partnership that streamlines, consolidates, and makes much of 
the information already available from the Federal government 
into a more user-friendly package that could be easily 
understood by small business owners. ITDN involves a Windows-
based computer software program that permits users to pinpoint 
information effortlessly and with little or no training. The 
information available helps small-and mid-sized businesses 
export their products on a global basis. Dr. Trueheart provided 
the Subcommittee with an example of a local small business 
owner who used the ITDN service, with a resulting increase to 
his export sales from $1.2 to $5 million annually in the last 
two years.
    Mr. Anderson demonstrated for the Subcommittee the ease of 
using the ITDN system. With trade leads gathered from the U.S. 
Department of Commerce and other government agencies, a user 
can access the system by individual categories of products for 
export such as computers. During the hearing, Mr. Anderson went 
through 50 different databases and through over 200,000 files 
to match a sample request in a relatively short period of time. 
Dr. Segovis testified that one of the key issues facing 
businesses is the cost of information and is especially 
critical for a small business with limited resources. The ITDN 
system is designed to address this issue and provides daily 
access to the 60,000 businesses in its network at about $3 for 
each business per year.
    Mr. Douress testified about the export services available 
through Dun & Bradstreet. As the publisher of the Exporters 
Encyclopedia for Dun & Bradstreet's Information Services, Dun & 
Bradstreet gathers export information spanning over 200 
countries and has more than 3,000 information consultants in 
300 locations who collect and analyze information used daily by 
hundreds of firms around the world. Mr. Douress provided a 
demonstration on Dun & Bradstreet products designed to assist 
the small business owner through most of the steps of the 
exporting cycle, from identifying the best overseas markets at 
the commodity-specific level to ensuring payment. The Dun & 
Bradstreet database has 39 million businesses worldwide, which 
helps small businesses decide where to look for export 
opportunities.
    The hearing on February 13, 1996, was held at Northern 
Illinois University in Rockford, Illinois, and was designed to 
examine further the issue of accessing foreign markets. The 
hearing was comprised of three panels, the first of which 
included: Michael P. Donnelly, Vice President, Marketing, W.A. 
Whitney Company; Maria Perr, Marketing Manager, International 
Sales, Pierce Chemical; and Derek Sherman, Purchasing and 
Sales, S. Franke & Company, Inc.
    The first panel was comprised of representatives of 
companies based in Rockford, Illinois, and the witnesses 
testified about problems that their companies have had in 
obtaining timely, accurate, and cost effective information 
about export opportunities. In particular, Ms. Perr explained 
both the difficulties and successes that Pierce Chemical had 
experienced in utilizing the information from the Federal 
government. Although the company was able to obtain 
information, the company experienced problems due to the fact 
that when a niche market is being serviced, the use of a 
Standard Industrial Classification (SIC) code may not be 
feasible. Since the market being targeted is so small, it may 
prove impossible to determine what types of products are 
exported or imported under a particular SIC code.
    The second panel included: Mary Ann Boukalis, Vice 
President, Global Trade Information Services, Inc.; Joseph J. 
Douress, Director, Global Trade Services, Dun & Bradstreet, 
Information Services; Raymond Fogarty, Director, Rhode Island 
Export Assistance Center; Craig Leonard, Account Consultant, 
AT&T, representing The Export Hotline; Richard Preuss, Foreign 
Trade Division, Bureau of the Census; and Forrest Williams, 
Director of Operations, Economics and Statistics 
Administration, U.S. Department of Commerce.
    Several witnesses on the second panel also attended the 
hearing on October 11, 1995, and they presented similar 
testimony about the technology available for small businesses 
seeking to enter the export market. In addition, the new 
presenters, Mr. Leonard and Ms. Boukalis, discussed their 
respective information services, and how each aids businesses 
in exporting to foreign markets. Mr. Leonard explained that The 
Export Hotline provides information by fax to those businesses 
that are expanding to foreign markets by providing, as a free 
service, information on such areas as trade barriers, 
financing, distribution, business etiquette, key contacts, and 
direct marketing. This service provides a wide range of 
information to businesses seeking to enter the export market. 
Ms. Boukalis testified that the Global Trade Information 
Service, a South Carolina-based market research and economic 
consulting firm, designs and markets international trade 
software called the World Trade Atlas CD-ROM. This service was 
designed to take merchandise trade data from the Bureau of the 
Census and make it into a more useful research and marketing 
tool for businesses.
    The third panel was comprised of representatives of the 
U.S. Export Assistance Center (USEAC) in Chicago, Illinois, 
including: Stanley Bakota, Director, U.S. and Foreign 
Commercial Service, Department of Commerce; Mary Joyce, Senior 
International Trade and Finance Specialist, Small Business 
Administration (SBA); and Robert J. Kaiser, Vice President, 
Communications, Export-Import Bank of the United States 
(Eximbank). Mr. Bakota testified about the structure and 
operation of the USEACs, which are a unique partnership among 
three Federal agencies: Eximbank, the SBA and the Foreign 
Commercial Service. There are currently 12 USEACs in the United 
States, and they have connections to commercial service 
officers in approximately 70 foreign countries, with 
approximately 125 total different locations. The USEACs aid 
small business by assessing the export readiness of a 
particular company and providing assistance in developing a 
marketing strategy for entry into foreign countries as well as 
disseminating information.
    Ms. Joyce noted that the SBA works closely with the 
Commerce Department, the Foreign Commercial Service, and the 
International Trade Centers. She explained that the success of 
the SBA and its partners in these centers is mainly based upon 
their ability to provide joint counseling. Based on the 
particular needs of the small business looking to access a 
foreign market, they have a range of resources to provide 
answers as well as financial assistance.
    Mr. Kaiser testified that since 1983, Eximbank has placed a 
major emphasis on supporting the smaller exporter community. 
This goal has been achieved through two programs: the working 
capital guarantee program and the insurance program. The 
capital guarantee program induces commercial banks to extend 
credit to exporters who may be considered to be high risk 
borrowers. They provide a 90 percent guarantee because of the 
type of risk that the banks associate with this type of 
transaction. By providing insurance to small businesses, 
Eximbank enables them to sell more to existing customers as 
well as allow them to enter markets that otherwise would be too 
risky.
    For further information on these hearings, refer to 
Committee publication numbers 104-53 and 104-61.
    7.4.8 the impact of ``short supply'' on small manufactur-
                        ters

                               Background

    On May 2, 1996, the Subcommittee on Procurement, Exports 
and Business Opportunities held a hearing on the impact of 
``short supply'' on small manufacturers, focusing on those 
companies that use steel in their final product. Short-supply 
situations exist when U.S. manufacturers need certain raw 
materials, which may be subject to anti-dumping orders, to stay 
in business, but they cannot obtain such materials from U.S. 
producers. These manufacturers require the raw materials in 
order to integrate them in the United States into products with 
higher value added, destined either for export or U.S. 
consumption. This hearing was designed to examine the role that 
H.R. 2822, the Temporary Duty Suspension Act, may have in 
remedying short supply for small manufacturers.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Phillip Crane (R-IL), Member of Congress and 
Chairman, Subcommittee on Trade, Committee on Ways and Means; 
and Sander Levin (D-MI), Member of Congress. The panelist 
presented differing views on H.R. 2822 and the short-supply 
issue. Congressman Crane, testified that he introduced H.R. 
2822 to give the U.S. Department of Commerce authority to 
suspend temporarily the imposition of anti-dumping or 
countervailing duties on a limited quantity of a particular 
product needed by the American industry when users are 
effectively unable to obtain that product from U.S. producers. 
He also maintained that this legislation would be extremely 
important to small business, which very often are the victims 
of trade protections extended to help large industries such as 
the integrated steel industry and the semiconductor industry.
    Congressman Crane noted that while the government should 
have anti-dumping laws, the focus needs to be more on the 
effect that anti-dumping orders may have on downstream 
industries--U.S. companies that purchase imported materials 
when such products are not available domestically. It is often 
extremely difficult for such companies, especially small 
businesses, to compete if the U.S. industry does not produce 
the product they need. Current U.S. trade laws simply do not 
provide adequate redress for American firms that need products 
that are subject to anti-dumping orders and that cannot be 
obtained from U.S. producers. Congressman Crane testified that 
his legislation will only address situations in which a product 
is temporarily unavailable, and this temporary relief will 
encourage the domestic industry to develop new products since 
it will enable U.S. downstream users to stay in business in the 
United States until the U.S. industry begins to manufacture the 
needed input product.
    Congressman Levin, also a member of the Committee on Ways 
and Means, presented an opposing point of view. He noted that 
short supply proposals were thoroughly reviewed two years ago 
during consideration of the implementing legislation for the 
GATT Uruguay Round Agreements and were rejected by bipartisan 
majorities in both the Ways and Means Committee and the Senate 
Finance Committee. Congressman Levin maintained that anti-
dumping laws are the first, and in many cases the last, line of 
defense against foreign unfair trade practices. The purpose of 
the trade laws is to provide a remedy against foreign unfair 
trade practices equal to the amount of the foreign subsidy or 
dumping margin.
    According to Congressman Levin, current law already 
provides regulatory flexibility to administer the anti-dumping 
and countervailing duty laws to address situations in which no 
supply of a particular product exists. He noted that the bill 
would allow duty suspension whenever ``prevailing market 
conditions related to the availability of the product in the 
United States make imposition of duties inappropriate.'' He 
also pointed out that the previous statement is an impossibly 
vague set of standards that would surely be invoked and 
litigated in every single anti-dumping suit, needlessly raising 
litigation costs. As a result, Congress would ultimately be 
lured into reviewing each interpretation of the language made 
by the Department of Commerce, which would hopelessly 
politicize the process and add lobbying expenses on top of 
litigation expenses.
    The second panel included: Paul Joffe, Deputy Assistant 
Secretary for Import Administration, Department of Commerce; 
Richard Harcke, CEO, Branford Wire Manufacturing; John 
Phillips, Vice President (Sales), Berg Steel Pipe Corporation; 
Gary Green, Secretary/Treasurer, Gary Drilling Company; and Ray 
Hopp, President, H.K. Metalcraft. Other than Mr. Joffe, this 
panel agreed that H.R. 2822 would solve the short-supply 
problem of many small businesses. The small business witnesses 
all agreed that a temporary duty suspension provision would 
allow small firms to be competitive at a time when such 
competition is extremely difficult if achievable at all. The 
panelists also agreed that small businesses do not have the 
leverage to pass on increased product costs to their customers, 
nor do they have the reserves to stay in business for prolonged 
periods when their costs are arbitrarily increased as a result 
of short supply.
    While emphasizing that the country must maintain a level 
playing field to ensure that trade brings growth and an economy 
that generates jobs at home, Mr. Joffe generally restated the 
arguments that Congressman Levin made in opposition to the 
legislation. He noted that the Commerce Department has been 
given enough regulatory flexibility to make sure that the 
short-supply situation would be remedied without amending the 
existing trade laws. He also stressed that with the demise of 
the Cold War, international rivalry has turned more and more to 
economics, and it is not an appropriate time to be dismantling 
defenses in the face of unfair foreign competition.
    For further information on this hearing, refer to Committee 
publication number 104-75.

    7.4.9 the effectiveness of u.s. export assistance centers

                               Background

    On July 25, 1996, the Subcommittee on Procurement, Exports, 
and Business Opportunities held a hearing to examine the 
effectiveness of the relatively new U.S. Export Centers 
(USEAC), which were created as part of the 1992 Export 
Enhancement Act. USEACs are centers in various sites around the 
nation where small businesses can obtain export assistance from 
the Department of Commerce, the Export-Import Bank of the 
United States (Eximbank), and the Small Business Administration 
(SBA) in a single location. The hearing was designed to examine 
the comprehensive reviews of the USEAC system, which the 
General Accounting Office (GAO) and the Inspector General of 
the Commerce Department had recently completed to evaluate the 
effectiveness of having three independent agencies working 
together in a single location.

                                Summary

    The hearing was comprised of one panel, which included: 
JayEtta Hecker, Director, International Trade, Finance and 
Competitiveness Division, GAO; Johnnie Frazier, Assistant 
Inspector General for Inspections and Program Evaluations, 
Department of Commerce; Lauri Fitz-Pegado, Assistant Secretary 
and Director General, U.S. Commercial Service, Department of 
Commerce; Mary N. Joyce, International Trade Specialist, SBA, 
Chicago, Illinois; James P. Morris, Director, Miami, Florida, 
Regional Office, Eximbank.
    Ms. Hecker began her testimony by reviewing the methodology 
that GAO employed in evaluating the USEACs and to assess 
whether the Department of Commerce, Eximbank, and the SBA are 
able to coordinate their export assistance activities in a 
single location to the benefit of small businesses. She stated 
that the main operational problem that GAO identified was a 
lack of appropriate incentives in place to promote a good 
working relationship among the staff of the three different 
agencies. Basically, no common client tracking system existed, 
which reinforced a tendency for the agency officials to operate 
more independently. In addition, no information was available 
on the cost of the centers.
    The Commerce Department witnesses testified that they had 
found that the USEACs did in fact offer a greater opportunity 
for a more coordinated Federal effort. This finding was 
significant since for more than a decade there has frequently 
been a major void in the levels of cooperation and coordination 
among the agencies in the trade-finance area. As a result, the 
correction of this problem was a major step in the right 
direction. The witnesses also noted that the Department of 
Commerce has not only achieved the goals first set by Congress 
and the Trade Promotion Coordinating Committee, but it has also 
expanded on this original concept in order to benefit American 
exporters. This has been achieved by fostering strong 
partnerships with Federal, State, and local trade promotion 
organizations, working to modernize their communications and 
client management systems, taking advantage of technological 
innovations, and strategically placing resources in order to 
serve clients most effectively. Ultimately, the goal is to 
create a truly integrated national export assistance delivery 
network. The Subcommittee was also informed that recently the 
agencies involved had signed a Memorandum of Understanding to 
begin to resolve the three main problems highlighted by the GAO 
and the Inspector General audits.
    Mr. Morris testified that Eximbank views the USEAC as a way 
to more efficiently use taxpayer resources. The USEACs have 
proven to be extremely successful for the Eximbank, which 
firmly supports both the National Export strategy and the USEAC 
concept. Frequently, the critical missing element for many 
small businesses is financing, and the USEACs provide another 
outlet through which Eximbank can make its programs available 
to small businesses.
    Ms. Joyce testified that the success of SBA and its 
partners is their ability to provide joint counseling and 
training to their customers. The SBA has worked closely with 
both the Foreign Commercial Service at the Department of 
Commerce and the Eximbank to make sure that companies are 
provided with the export marketing and trade-finance assistance 
that they may require when venturing into new international 
markets.
    For further information on this hearing, refer to Committee 
publication number 104-90.
7.5 Summaries of the Hearings Held by the Subcommittee on 
            Regulation and Paperwork

    7.5.1 joint hearing on the impact of workplace and em-
                        ployment regulation on business

                               Background

    On February 2, 1995, the Subcommittee on Regulation and 
Paperwork held a joint hearing with the Subcommittee on 
Oversight and Investigations of the Committee on Economic and 
Educational Opportunities. The purpose of the hearing was 
threefold. First, the subcommittees wanted to examine jointly 
current Federal rules and regulations to determine their impact 
on businesses in the United States. The hearing further focused 
on the results, such as safe, productive, and cost-effective 
workplaces, which regulations and rules are attempting to 
achieve. Finally, the hearing was intended to identify 
modifications to the current statutes to achieve the intended 
results.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Lowell Gallaway, Professor of Economics, Ohio 
University; Robert Hahn, American Enterprise Institute; Thomas 
Hopkins, Professor of Economics, Rochester Institute of 
Technology; and Brenda Enfinger, Hamlet Response Coalition.
    The witnesses on the first panel outlined the different 
ways in which employment by American businesses is regulated 
and how those regulations affect business behavior. First, the 
Federal government enforces rules, such as the minimum wage, 
which dictate to American businesses how much to pay their 
workers. Secondly, the government imposes direct taxes, which 
decrease the amount that businesses may spend on, among other 
things, labor. Finally, through mandates, the government forces 
business owners to expend time and money complying with rules 
and regulations. According to one expert, those who are 
regulated spend $600 billion annually to comply with Federal 
regulations. In one way or another, all of these taxes and 
regulations increase the cost of hiring additional workers. In 
doing so, the demand for labor is lowered, leading to increased 
unemployment.
    The witnesses offered several solutions, including 
reviewing all current regulations using cost-benefit analysis; 
providing information on regulations in ``plain English''; 
reporting the cost of regulations; providing sunset 
requirements that would require regulations to be reviewed 
periodically before they are extended; placing the burden of 
proof on those who want to pass new regulations; and 
individualized regulatory requirements for businesses. One 
witness, Brenda Enfinger, a homemaker who had lost one son and 
had another disfigured as a result of accidents in the 
workplace, provided the Subcommittees with dissenting views.
    The second panel consisted of David Sebright, Sebright 
Products, Inc.; John Lattauzio, Chief Executive Officer, J&J 
Investments, Ltd.; Linda Benso, Accounting Manager, Baird, 
Kurtz, and Dobson; and Ruth Ruttenberg, Ruth Ruttenberg and 
Associates.
    The second panel included two small businessmen and one 
consultant to small businesses, each of whom had personal 
experience with the burdens of Federal regulations and taxes. 
Their testimony highlighted the fact that small businesses are 
disproportionately affected by regulations and taxes because 
they do not have the resources needed to understand, much less 
comply with, everything that the Federal government demands of 
them. The witnesses asked for relief from Federal regulatory 
and tax burdens through simplification of statutes, rewriting 
of costly regulations, restructuring of the tax code, and 
decreasing the Federal paperwork requirements. Ms. Ruttenberg, 
an economist specializing in Occupational Safety and Health 
Administration (OSHA) regulations, contended that OSHA 
regulations actually increase productivity and provide small 
businesses with opportunities in marketing compliance 
techniques.
    For further information on this hearing, refer to Committee 
publication number 104-16.

    7.5.2 regulatory barriers to minority entrepreneurs

                               Background

    On June 7, 1995, the Subcommittee on Regulation and 
Paperwork held a hearing to discuss the impact of Federal 
regulation on minority entrepreneurship. Evidence exists that 
sets the annual cost of Federal regulation to the United 
States' economy at $500 billion. Many experts contend that the 
burden of Federal regulation and taxation falls 
disproportionately on small businesses, in part because they 
must comply with regulations and taxes intended more for larger 
companies. Because small businesses are owned by and employ a 
large percentage of minorities, Federal regulations and taxes 
are said to fall disproportionately on minorities as well.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Jack Kemp, Co-Director, Empower America; Floyd Flake 
(D-NY), Member of Congress; Clint Bolick, Vice President and 
Director of Litigation, The Institute for Justice; and Peter 
Kirsanow, Labor Counsel, Leaseway Transportation.
    The first panel consisted of experts in the field of 
regulation and small business whose testimony described the 
detrimental effects of Federal taxes and regulations on small 
businesses. They emphasized the great importance of small 
business to the American economy and the many opportunities 
that small business provides for minorities, not only in 
ownership, but also in the many jobs that are created. The 
panel emphasized that government programs such as welfare and 
minority set-asides are solutions for the symptoms of poverty 
among minorities, but do not go to the root of the problem, 
which is a lack of economic opportunities provided to 
minorities because small businesses are stifled with high taxes 
and oppressive regulations. Among other things, members of the 
panel recommended a moratorium on Federal regulations, 
broadening the Civil Rights Act to apply to the rights of 
``economic liberty,'' expanding enterprise zones, whose lower 
tax rates and exemption from regulations encourage business 
formation in poor communities, and repealing the Davis-Bacon 
Act, a Depression-era law that has allegedly prevented 
minorities from bidding successfully for and working on Federal 
projects.
    The second panel included: Leroy Jones, President and 
Founder, Freedom Cabs, Inc.; Talib-Din Abdul, co-owner, 
Cornrows and Company; and Art Pearson, Sole-Proprietor, Art 
Pearson Electrical and General Contracting Company. The second 
panel consisted of minority entrepreneurs who recounted their 
personal experiences of starting businesses in the face of 
oppressive regulations. The panelists implored that regulations 
at the Federal, State and local levels have a negative effect 
on small business start-ups and job opportunities and on the 
very freedom of enterprise in America. Mr. Pearson singled out 
the Davis-Bacon Act as a piece of legislation whose efforts to 
provide training and raise wages were admirable, but whose 
effects in practice created a web of regulations preventing 
minority entrepreneurs from starting and growing their 
businesses.
    For further information on this hearing, refer to Committee 
publication number 104-32.

    7.5.3 osha fall protection standard

                               Background

    On June 15, 1995, the Subcommittee on Regulation and 
Paperwork held a hearing on the new fall-protection standard 
promulgated by the Occupational Safety and Health 
Administration (OSHA) and its effect on small businesses. The 
new standard lowered the fall protection threshold from 16 feet 
to 6 feet. An OSHA study conducted between 1985 and 1989 found 
that falls from elevations of 6 to 10 feet caused 8 percent of 
fall fatalities and 60 percent of lost workday fall injuries. 
OSHA estimated the cost of complying with the new regulation to 
be $40 million, or about $250 per worker. Industry 
representatives and employers dispute this estimate, finding 
the cost to be closer to $500 per worker. The savings from wage 
and productivity losses, medical expenses, administrative 
expenses, and other costs due to accidents were estimated by 
OSHA to be about $200 million. Witnesses were asked to discuss 
the effects of this new standard on small business.

                                Summary

    The hearing was comprised of three panels, the first of 
which consisted of a single witness: Joseph Dear, Assistant 
Secretary and Director, Occupational Safety and Health 
Administration, U.S. Department of Labor. Mr. Dear began his 
testimony with a description of OSHA's reinvention efforts to 
make the agency more efficient and productive. He testified 
that the fall protection threshold was lowered to prevent more 
injuries to workers and reduce workers' compensation payments. 
He also noted that OSHA is looking for ways to reduce the 
paperwork burden of the new regulation and at alternative plans 
for businesses adversely effected by the new standard. 
Questions arose regarding OSHA's ability to control compliance, 
lost productivity, and the danger to homeowners attempting to 
do their own roof-work instead of hiring professionals. 
Overall, Mr. Dear testified that the new standard would not 
have a disproportionately adverse impact on small businesses.
    The second panel consisted of representatives of 
associations whose members have been affected by the new fall 
protection standard: William Good, Executive Vice-President, 
National Roofing Contractors Association; Patty Burgio, 
Director of Government Affairs, National Association of the 
Remodeling Industry; Dan Gilligan, Vice-President, Manufactured 
Housing Institute; and Howard Saslow, member of the National 
Homebuilders Association. This panel raised many concerns 
regarding the high cost of implementing this standard, the 
additional accidents caused by the fall prevention devices, and 
the lack of information from OSHA. Overall, this panel was 
strongly opposed to the new standard.
    The third panel consisted of employers affected by the 
regulation: Douglas Jones, Vice-President and Chief Operating 
Office, South Side Roofing Company; Robert Therrien, Vice-
President, Al Melanson Company; Reid Ribble, President, 
Security Roofing and Siding Company; and William Brown, 
Production Superintendent, Security Roofing and Siding Company. 
All of the witnesses on the third panel were in agreement that 
this new standard had not only cost more money than 
anticipated, but had also resulted in more accidents. The panel 
also expressed concern over losing work to companies not 
complying with OSHA regulations. Since these companies began 
complying with the new fall protection standard, their 
production has decreased by 27 percent. Although the panel was 
opposed to the new standard, they admitted that steps were 
needed to ensure the safety of roofing workers. They asked for 
a compromise to be made by taking the roof angles, type of 
frame, and a higher height threshold into account.
    For further information on the hearing, refer to Committee 
publication number 104-33.

    7.5.4 candidates for the regulatory corrections cal-
                        endar

                               Background

    On August 23, 1995, the Subcommittee on Regulation and 
Paperwork held a field hearing in Des Peres, Missouri. The 
purpose of the hearing was to explore a number of regulations 
that are particularly onerous and should be repealed through 
the use of the Corrections Calendar. The Corrections Calendar 
is the product of a new rule initiated by the 104th Congress, 
which sets aside one morning every month to discuss regulations 
that face non-partisan opposition. The purpose of the Calendar 
is to allow for the elimination of regulations that are 
outdated or otherwise fail to achieve their purpose without 
having to go through the normal, laborious procedures required 
in passing legislation in the House of Representatives.

                                Summary

    The hearing was comprised of six panels, the first of which 
included a single witness: Melinda Warren, Associate Director, 
Center for the Study of American Business, Washington 
University in St. Louis, Missouri. Ms. Warren testified on the 
proliferation of regulations and funding for regulatory 
agencies in recent years. She stated that, while many 
regulations are necessary for the public good, they should also 
be cost-effective. Ms. Warren estimated the cost to consumers 
of complying with regulations to be $400 billion per year, or 
$4,000 per family.
    The second panel included a single witness: Leo Whiteside, 
M.D., Director, Biomedical Research Laboratory. Dr. Whiteside 
testified about the difficulties presented by the Food and Drug 
Administration in acquiring approval for new medical devices 
that are implanted within the human body. A newly developed 
implant must either complete a clinical study proving its 
safety and effectiveness or demonstrate that it uses technology 
available before 1976. Because a clinical study can take from 
four to eight years and cost between $3-8 million, many 
medical-device developers, particularly individual inventors, 
try to use 1976 technology to develop new products. The 
negative effects of this regulation have been twofold. First, 
many potentially beneficial and lifesaving innovations are not 
developed or marketed because they cannot be linked to pre-1976 
technology. Second, many companies that develop and produce 
such devices are moving overseas, where regulations are not so 
strict. Dr. Whiteside recommended reforming the approval 
process by eliminating the need for clinical studies, extending 
something like the 1976-technology mechanism to simplify the 
process, and placing more trust in the hands of the 
professionals and doctors who develop new life-saving devices.
    The third panel included: Richard Redington, on behalf of 
the J.E. Redington Company; Lee Kent, President, Missouri 
Chapter of the National Association of Plumbing, Heating, and 
Cooling Contractors; and Richard Church, President, Plumbing 
Manufacturers Institute. This panel was comprised of experts in 
plumbing who testified on a new Federal regulation passed in 
the 1992 Energy Policy Act that attempted to increase water 
conservation by requires new toilets in residential homes to 
limit the amount of water expelled per flush to 1.6 gallons, 
down from the industry standard of 3.5 gallons per flush. Many 
owners of the new toilets have complained that their lack of 
power in expelling waste makes them unsanitary and that they 
actually waste more water because multiple flushes are needed 
to accomplish what one flush would do in the old 3.5-gallon 
toilets. The experts noted that the regulation passed because 
legislators relied upon faulty studies that did not adequately 
simulate real conditions during their experiments. Mr. Church 
defended the statute, claiming that a single, Federal standard 
was needed for toilet manufacturers who could not continue to 
produce different size toilets to meet the varying standards 
set by different State and local governments.
    The fourth panel included: Dennis Hayden, on behalf of the 
Hayden Company; Scott Harding, on behalf of Sci Engineering and 
Materials Testing; and Brad Goss, on behalf of Whittaker 
Construction. This panel provided the Subcommittee with 
testimony concerning the need for relief from regulations 
imposed by wetlands-protection legislation. They maintained 
that the definition of protected areas was inadequate, defining 
a wetland as any piece of land sustaining standing water for 
seven days out of the year. Complex regulations were said to 
make government decisions subjective and confuse the authority 
of the various agencies that enforce the laws. Mr. Hayden 
recounted a personal experience in which he was forced to 
underwrite a six-month archaeological excavation on his 
development site at a personal expense of $130,000, excluding 
the costs of delaying the project and the $10,000 charge for a 
permit to work in a wetlands area. Witnesses also noted that 
the costs of complying with wetlands regulations are routinely 
passed on to consumers who pay more for food, housing, and 
other basic products. The panel recommended establishing a 
better standard for what constitutes a wetlands area, including 
definitions of what is not protected; simplifying regulations 
and making them more objective; and creating an administrative-
appeals process for land-owners whose property is suddenly made 
subject to wetlands protection laws.
    The fifth panel included: John Eber, on behalf of 
Interstate Brands; Pat Strader, on behalf of Union Electric; 
Wayne McKinnon, on behalf of Land Management, Incorporated; and 
John Stratton, also on behalf of Union Electric. The fifth 
panel outlined problems with Federal motor-carrier-safety 
regulations, which regulate all commercial vehicles weighing 
over 10,000 pounds. These regulations, which treat delivery 
vans in the same manner as eighteen-wheel trucks, require a 
great deal of paperwork, are confusing, and make compliance 
costly. One witness noted that it cost about $500 per driver to 
comply with all the regulations that, among other things, 
require owners to perform uniform maintenance practices; 
document maintenance and daily vehicle condition reports; and 
maintain driver files, hours of service, vehicle maintenance 
files, additional vehicle markings, on-board safety equipment, 
and documentation of authorized passengers. Drivers are 
required to pass a written exam and road test, meet physical 
requirements, be at least 21 years of age, speak English, and 
complete special training. Witnesses testified that regulations 
should be specialized to account for the differences between 
heavy-duty and light- to medium-duty commercial vehicles.
    The sixth panel included: Mary Gillespie, CPA and attorney 
at law; Mike Meara, Certified Financial Planner, on behalf of 
Renaissance Financial; and Eileen Dorsey, President, Money 
Consultants, Incorporated. This panel provided the Subcommittee 
with a general view of the effect that regulations have on 
small businesses and noted that the many regulations that are 
imposed upon the self-employed result in lost opportunity and 
wasted resources. They stressed that with the increase in 
corporate downsizing and lay-offs, self-employment and small 
business provide excellent opportunities for job creation. The 
government, however, has not made this transition easy, 
imposing regulations on the self-employed the complexity of 
which prevents any business from being in complete compliance. 
In particular, witnesses testified about the unfair treatment 
that small businesses face with regards to tax deductions for 
health care, archaic financial planning laws, oppressive 
social-security requirements, and excessive taxation on savings 
and investment. Panelists recommended streamlining the 
regulatory process for individuals, providing ``plain-English'' 
versions of regulations, strengthening the Paperwork Reduction 
Act and Regulatory Flexibility Act, introducing judicial review 
for the Regulatory Flexibility Act, increasing health-care 
deductions, lowering estate and capital-gains taxes, and 
reforming Social Security.
    For further information on the hearing, refer to Committee 
publication number 104-47.

    7.5.5 examining the issues surrounding the national la-
                        bor relations board's rulemaking 
                        concerning single location bargaining 
                        units in representation cases

                               Background

    On March 7, 1996, the Subcommittee on Regulation and 
Paperwork held a hearing to discuss the ramifications of the 
Nation Labor Relation Board's (NLRB) proposed rule concerning 
single location bargaining units in labor representation cases. 
Current law gives employees at any single location the right to 
form a bargaining unit, but allows a hearing for the employer 
at which he or she may show that a multi-unit facility unit is 
more appropriate. It is imperative that the size of a 
bargaining unit be determined prior to a vote by employees to 
unionize so that those involved know which employees are 
entitled to vote and who the union will represent if it wins.
    Owners of businesses that operate more than one location 
can prove that the single location union proposed by their 
employees is an inappropriate bargaining unit by citing: 
evidence of central control of operations and labor relations; 
similarity of skills, functions, and working conditions of 
employees at all locations; the degree of employee interchange; 
distance between locations; and bargaining history, if any. 
Hearings are decided by the NLRB on a case-by-case basis. The 
new rule proposed by the NLRB changes that system to allow 
employees to form a bargaining unit at any single location, 
without a hearing for the employer, if the following conditions 
are met: fifteen or more employees work at the unrepresented 
location; no other location of the employer is within one mile 
of the requested site; at least one supervisor is present on 
the site for a regular and substantial period; and less that 10 
percent of the employees at the facility have been temporarily 
transferred less than 10 percent of the time.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: William Gould, Chairman, NLRB. Chairman Gould 
defended the proposed rule as necessary to reduce litigation 
and make decision-making at the NLRB more efficient. He claimed 
that the ambiguity of the current system necessitated a new 
rule to make it more precise, thus ensuring that all concerned 
were aware of their rights and responsibilities. He also 
refuted allegations that the NLRB was attempting to change 
existing labor law, claiming that this was merely a rule 
change, perfectly within the bounds of the Board's jurisdiction 
and powers. In response to the claim that this rule is aimed at 
encouraging union organizing, he stated that no empirical 
evidence exists to prove that fact, and he maintained that the 
sole intent of the rule was to make decision making more 
precise and efficient.
    Chairman Gould pointed out that the Board considers many 
other factors such as common skills functions and working 
conditions when deciding on the appropriate size of a 
bargaining unit and has ruled in favor of a single-unit 
presumption for thirty years. Therefore, he did not foresee any 
instances when a decision rendered by the new rule would differ 
from a decision reached from litigation of the case and 
asserted that the rule was merely a codification of existing 
policy. In fact, he maintained that this rule would benefit 
small businesses that often cannot afford the counsel needed to 
arbitrate a case before the NLRB under the current system.
    The second panel included: James Coleman, General Counsel, 
National Council of Chain Restaurants; Sue Lin Kekuna, K & I 
Management/The Coffee Beanery; Rock Magnan, Vice President - 
Operation, Con-Way Transportation Service; Harold P. Coxson, 
American Bankers Association; Joann Shaw, University of Chicago 
Hospitals; Curtis Mack, Esq., Mack, Williams, Haygood, & 
McLean; and Peter J. Ford, United Food & Commercial Workers 
International Union, AFL-CIO.
    The second panel consisted of representatives of small 
businesses, small business owners and a union representative 
who gave their estimation of the proposed rule's effect on 
small businesses. All members of the panel except the union 
representative, Mr. Ford, agreed that NLRB's proposed rule 
would do more harm than good to business in general and small 
business in particular. They argued that the proposed rule 
would facilitate unions' ability to organize bargaining units 
by allowing them to organize more easily small groups of 
workers one unit at a time. They claimed that the new rule 
would allow for single-unit organizing without regard for 
circumstances such as common tasks and employee transfers. 
Furthermore, the situation could become so difficult, with 
employers hampered by multiple contract negotiations with 
various unions, under differing rules and terms, that 
businesses would be rendered non-competitive in the market. 
Faced with the new rule, business owners indicated that they 
would probably choose not to expand their businesses or hire 
new workers.
    Several witnesses claimed that the rule would come down 
particularly hard on businesses in the restaurant and retail 
industry, composed significantly of franchised small 
businesses. Employees in franchised businesses work with a 
single set of policies and procedures and under close 
centralized control. They are transferred from location to 
location more frequently and typically work with the company 
for a shorter period of time. According to the panelists, the 
rule would allow each location of a franchise to organize 
independently, thus adding another regulatory burden to the 
duties of business owners, particularly small business owners 
who do not have the same resources as a larger business to ease 
compliance. The panel maintained that the current system works 
because it provides a means for businesses with legitimate 
reasons to have their employees organized as multi-location 
bargaining units.
    Business owners and representatives claimed that the new 
rule would deny them a fundamental right in the bargaining 
process. This fact has been substantiated by court rulings 
against the single location presumption. In response to 
Chairman Gould's argument that litigation has become a 
significant burden, Mr. Coleman cited evidence that litigation 
cases concerning the appropriateness of a single location unit 
have declined tremendously over the past 35 years.
    Mr. Ford argued in support for the proposed rule. He called 
the rulemaking procedure perfectly within the NLRB's power 
according to the National Labor Relations Act. He declared that 
the extraordinary exceptions clause, which other witnesses 
claimed did little to abate the negative effects of the 
proposed rule, allowed for the appropriate amount of 
litigation. Mr. Ford noted that a change from the current rule 
was necessary to protect and facilitate employees' opportunity 
to organize unions, to reduce costs to the NLRB in light of 
recent budget cuts, and to shorten delays in union organizing. 
He concluded his testimony by alluding to situations in which 
multiple collective bargaining agreements have been 
successfully negotiated by a single employer.
    For more information on this hearing, refer to Committee 
publication number 104-65.
7.6 Summaries of the Hearings Held by the Subcommittee on 
            Taxation and Finance


    7.6.1 the flat tax and small business

                               Background

    On May 18, 1995, the Subcommittee on Taxation and Finance 
held a hearing to discuss how a flat tax might affect small 
businesses. The flat tax is a proposal that would completely 
overhaul the current tax code with a simplified tax on 
consumption. Instead of filing multiple forms with the Internal 
Revenue Service for deductions, depreciations, and the like, 
businesses would submit a single form containing income, minus 
amounts expended on purchases, wages, salaries, and retirement 
benefits during the year, which would then be taxed at a single 
low rate. Individuals would be taxed at the same single rate on 
their wages and salaries less personal and dependent 
allowances. Among other things, a pure flat tax would eliminate 
multiple taxation, marginal tax rates, and most deductions, 
credits, exemptions, and depreciation schedules.

                                Summary

    The hearing was comprised of three panels, the first of 
which included the following economists: Alvin Rabushka, Senior 
Fellow, Hoover Institution, Stanford University; Daniel 
Mitchell, McKenna Senior Fellow in Political Economy, The 
Heritage Foundation; Raymond J. Keating, Chief Economist, Small 
Business Survival Committee (SBSC); and Richard W. Kahn, 
Business Leadership Council.
    The first panel stressed that the single greatest burden on 
small businesses today is the tax code. Witnesses testified 
that it hurts entrepreneurs by discouraging investment, thus 
stifling the economy. They maintained that more capital would 
become accessible to small, growing companies if investment 
were encouraged through lower interest rates and the 
elimination of estate and capital gains taxes. The complexity 
of the current tax code was noted as being especially hard on 
small businesses which, unlike larger businesses, cannot easily 
hire experts to handle their taxes. According to Dr. Mitchell, 
$150 to $200 billion is spent annually complying with the 
current tax law. By eliminating itemized deductions, 
depreciation schedules and multiple taxation, much of this 
burden would be greatly reduced. The panel admitted that some 
ambiguities in the tax code would still exist, such as the 
distinction between business and personal expenses, and that 
there may be some transition pains as people adapted to a new 
system. Despite this, Dr. Keating released a SBSC report to the 
Subcommittee revealing that in a poll of 500 small businesses 
on the flat tax proposed by House Majority Leader Armey, 56 
percent favored the proposal to 36 percent against. Dr. Rahn 
stressed that, in comparison to a flat tax, no national sales 
tax should be considered without first repealing the 16th 
Amendment. And he expressed concern that, while a flat tax 
would simplify the system for most small businesses, it would 
be unlikely to do so for small service businesses such as 
restaurants.
    The Congressional panel included the following witnesses: 
Richard K. Armey (R-TX), Member of Congress and House Majority 
Leader; and Arlen Specter (R-PA), United States Senator. Both 
witnesses favored replacing the current tax code with some form 
of the flat tax and had proposals before Congress. Majority 
Leader Armey stressed the simplicity and fairness of the flat 
tax and praised its neutrality with respect to savings, 
investment and consumption. Senator Specter reiterated 
Congressman Armey's claim of the flat tax's simplicity and also 
praised it for its pro-growth incentives, claiming that 
interest rates would fall by 2 percent. His proposal would 
retain mortgage interest and charitable contribution deductions 
up to a certain limit. The panel stressed that high taxes and 
compliance costs are strangling the economy--and hurting small 
businesses most--with Americans spending 5.4 billion man-hours 
doing their taxes each year. The panel believed that a flat tax 
would lower marginal tax rates, improve incentives to work, 
save and invest, raise living standards, and spur capital 
investment in small businesses and economic growth. During 
Committee questioning, the panelists acknowledged that people 
fear such a drastic change and rebutted accusations that the 
flat tax was regressive, showing that the generous family 
allowance provided under the system actually makes the tax 
progressive.
    The third panel consisted of representatives of small 
business, including: Jere W. Glover, Chief Counsel, Office of 
Advocacy, U.S. Small Business Administration; Paul Hense, Tax 
Committee, National Small Business United; James P. Lucier, 
Jr., Director of Economic Research, Americans for Tax Reform; 
Jeffrey Lear, Chairman, Ad Hoc Committee on Alternate Tax 
Systems, Small Business Legislative Council; and Bennie Thayer, 
President and Chief Executive Officer, National Association for 
the Self-Employed.
    While those on the small business panel were in favor of 
simplifying the current tax code, they feared a shift in the 
tax burden from larger to smaller businesses, which might be 
caused by a flat tax. Mr. Hense stressed that the key elements 
of any new tax system should be simplicity, fairness, and 
consistency. The panel was in general agreement that the 
deductions and graduated corporate tax rates in the current 
system favored small businesses. They also acknowledged that 
small businesses are greatly burdened by compliance costs and 
would be helped greatly by lower interest rates. While Mr. 
Lucier strongly favored the flat tax proposal, the panel 
overall was not prepared to take a final position in favor of 
or against a flat tax. They did identify benefits of a flat tax 
to small businesses, including: simplicity; elimination of 
capital gains and estate taxes; deductions for land, 
structures, and capital equipment (i.e., 100-percent 
expensing); and ending the double taxation of business profits. 
Detriments were also identified, including: the loss of 
interest deductions, which would favor equity over debt and 
hurt start-ups; possible increase in the tax burden of small 
businesses; and the favoring of physical over human capital. In 
addition, this panel stressed the need for other reforms such 
as reductions in government spending, reductions in the 
combined Federal tax rates, including payroll and social 
security taxes, and increasing access to capital.
    For more information on this hearing, refer to Committee 
publication number 104-29.

    7.6.2 the burden of payroll taxes on small business

                               Background

    On June 28, 1995, the Subcommittee on Taxation and Finance 
held a hearing to discuss the impact of payroll taxes on small 
businesses. Payroll taxes include any government revenue 
collected by employers through withholding of employees' wages. 
For certain withholdings, such as those for Social Security and 
Medicare, the tax must be paid equally by employer and 
employee. Because of substantial increases over the years, 
payroll taxes now represent 37 percent of all Federal revenue 
collected, and an astonishing 7 percent of Gross Domestic 
Product. Accordingly, small businesses have urged that the 
payroll tax burden is excessive not only because of the high 
rate of taxation, but also because of its high cost of 
compliance. The Federal government has countered that, because 
payroll taxes make up 37 percent of its revenues, they are 
necessary for adequate funding.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Mark Isakowitz, Director of House Lobbyists, National 
Federation of Independent Businesses; and Ronald B. Cohen, 
Owner, Cohen and Company, representing the National Small 
Business United. This panel represented small businesses and 
made the case that the burden of payroll taxes falls 
excessively on small businesses. The disproportionate burden 
exists because most small businesses are characteristically 
labor intensive, heavily reliant on cash flow, unable to deduct 
as much as large companies, and employers of lower-paid 
employees. Mr. Isakowitz concluded that payroll taxes are the 
greatest inhibitors to increased expansion and job creation 
because employers who are faced with payroll taxes must either 
raise prices, lower wages, or lay off workers. He stressed that 
almost $1 out of every $3 tax dollars collected by the Federal 
government is from a payroll tax. Mr. Cohen acknowledged that, 
while a lack of pensions and minimal withholdings made payroll 
taxes a good idea at the time of their inception, subsequent 
rate increases due to excessive cost of living adjustments and 
a higher life expectancy have made them an increasing burden on 
small businesses and the economy.
    The second panel included: Mark J. Iwry, Benefits Tax 
Counsel, Office of Tax Policy, U.S. Department of the Treasury; 
and Peter J. Ferrara, Senior Fellow, National Center for Policy 
Analysis. The second panel consisted of two experts whose views 
contrasted as to the burden of payroll taxes on small 
businesses and the economy. Mr. Iwry acknowledged small 
business' contribution to the economy, but concluded that the 
impact of payroll taxes falls mainly on employees and that 
employment is affected more by the strength of the economy than 
by the burden of payroll taxes. He also stated that payroll 
taxes are necessary to fund trusts to provide social insurance 
and recommended tax credits to prevent the working poor from 
being hurt disproportionately. Mr. Ferrara agreed that workers 
pay most of the cost of payroll taxes, but maintained that any 
tax on employment such as the payroll tax creates an impact on 
job availability. He also stated that large businesses can bear 
the burden with greater ease because they are more able to lay 
off workers and still maintain productivity. He warned that the 
cost of payroll taxes would continue to escalate because of 
higher wages and increased life expectancy. His suggestion was 
to begin to invest social insurance contributions in a private 
fund, similar to the Chilean government, to achieve greater 
gains with less withholdings.
    For further information on this hearing, refer to Committee 
publication number 104-35.

    7.6.3 clarifying the status of independent contractors

                               Background

    On July 26 and August 2, 1995, the Subcommittee on Taxation 
and Finance held hearings to discuss the policy of the Internal 
Revenue Service (IRS) regarding the classification of workers 
as employees or independent contractors. The classification of 
workers is extremely important because it determines who is 
responsible for making withholding payments for Federal income 
taxes, Social Security and Medicare. Some workers are 
classified as independent contractors by law and some by the 
safe-harbors set forth in Section 530 of the Revenue Act of 
1978. Any workers who do not meet the requirements of a safe-
harbor must pass a 20-factor test derived by the IRS from the 
common law in order to be classified as independent 
contractors. Otherwise, under current IRS practice, workers are 
classified as employees.
    The 20-factor test has been declared by many to be unclear 
and subject to varying interpretations by IRS auditors. If the 
IRS deems a previously classified independent contractor to be 
an employee, the employer is then responsible for all back 
taxes and penalties retroactive to that date when the working 
relationship began. A reclassification of this sort can be 
particularly devastating to small businesses that often cannot 
afford such payments. As evidence of the importance of this 
issue to small business, clarification of independent-
contractor status was voted the top recommendation by the 1995 
White House Conference on Small Business.

                                Summary

    The hearings were comprised of five panels. The first 
panel, which began on July 26, included: Jon Christensen (R-
NE), Member of Congress; and Jay Kim (R-CA), Member of 
Congress. The first panel consisted of two Congressmen who have 
introduced legislation aimed at clarifying the status of 
independent contractors. Both agreed that the question of a 
worker's status as an independent contractor or employee is a 
very important one, especially to small businesses, and that 
efforts must be made to answer the question adequately and in a 
clear and objective way. The Independent Contractor Tax 
Simplification Act of 1995, introduced by Congressman 
Christensen, would create an alternative to the 20-factor test 
whereby an individual would be given independent-contractor 
status by adequately exhibiting personal investment in the 
contractor's business, independence from the employer, and a 
written contract between the business and the contractor. 
Congressman Kim's legislation would grant independent-
contractor status to any individual who could meet one of four 
criteria including: ability to realize a profit and loss; 
having a separate physical place of business; a personal 
investment in the business; or payment on a commission basis. 
Congressman Kim's proposal would also require contractors to 
itemize the services they render on their tax returns or face 
increased penalties.
    The second panel included: Fern Denholm, Owner, Flowers and 
Ferns, representing the Society of American Florists; Debbi-Jo 
Horton, Accountant and New England Taxation Chair for the 1995 
White House Conference on Small Business Implementation Team; 
Paul Johnson, Owner, P.J. Nice Construction, representing the 
Associated Builders and Contractors, Inc.; Raymond Peter Kane, 
Owner, Pisa Brothers, Inc., representing the American Society 
of Travel Agents; and Lockwood Phillips, Publisher, The 
Carteret County News-Times, representing the National Newspaper 
Association.
    This panel was comprised of small business people with 
personal experience in dealing with the independent-contractor 
issue. Each witness considered the existing guidelines for 
determining independent-contractor status to be complicated, 
contradictory, subjective, and unrealistic for small 
businesses. They stressed that small businesses, because of 
their size, are often forced to hire contractors to complete 
tasks for which they cannot afford to hire additional employees 
to complete. The panelists were particularly critical that two 
IRS agents might see a situation differently and may reverse a 
classification retroactively. The costs of such a reversal, 
including payment of back taxes and penalties, additional 
paperwork, and employment benefits to the previously classified 
contractor, can be devastating to a small business. Members of 
the panel recommended a repeal of the IRS's 20-factor test in 
favor of the legislation offered by Congressmen Christensen and 
Kim.
    The third panel included: Abraham L. Schneier, Counsel, 
McKevitt & Schneier, representing the National Federation of 
Independent Business; John S. Satagaj, President, Small 
Business Legislative Council; and Benson S. Goldstein, 
Legislative and Tax Counsel, National Association for the Self-
Employed.
    The third panel consisted of experts on the taxation of 
small businesses who presented testimony on behalf of 
organizations who represent small businesses. This panel 
acknowledged that there are two sides to this issue--the small 
businesses, which need the ability to hire independent 
contractors, and the IRS, which needs to ensure that all income 
and payments to the government are being accurately reported. 
The witnesses noted that examples of unfair behavior by the IRS 
stemmed from the fact that the agency is attempting to solve 
the problem of non-compliance on the part of independent 
contractors by classifying them as employees and requiring 
their employers to handle the problem. They asserted that, if a 
self-employed individual is not reporting his or her income or 
making the correct withholdings, then the IRS should go after 
the individual, not the small business person who hired that 
person. Members of the panel stressed the need to reform the 
system of classification and recommended the pending 
legislation.
    The fourth panel, which began the continuation of the 
hearings on August 2, included: Marshall V. Washburn, National 
Director of Specialty Taxes, IRS; and Natwar M. Gandhi, 
Associate Director for Tax Policy and Administration, U.S. 
General Accounting Office. This panel agreed that the 
guidelines for determining the status of independent 
contractors must be clarified and made consistent for the good 
of the businesses that hire independent contractors as well as 
the IRS agents who must make decisions as to the status of 
business relationships. Mr. Washburn testified that the 20-
factor test had originated from the need to clarify common-law 
guidelines that defined an employer-employee relationship only 
as an individual having direction and control over the means 
and details of a worker's activities.
    For the benefit of their own agents, as well as businesses, 
the IRS announced that it had initiated programs requiring all 
local offices to obtain National Office approval for any 
compliance projects involving worker classification and 
providing additional training for agents to promote consistency 
in decision-making. Mr. Gandhi suggested requiring businesses 
to withhold taxes from contractors as if they were employees 
and improving business reporting requirements to reflect the 
specific amount of payment made to independent contractors. He 
also stressed the need to broaden the laws that provide a 
safety net for workers to apply to the relationships between 
businesses and independent contractors.
    The fifth panel included: James C. Pyles, Counsel, Powers, 
Pyles, Sutter & Verville, representing the Coalition for Fair 
Worker Classification; Harvey J. Shulman, General Counsel, 
National Association of Computer Consultant Businesses; and 
Michael A. Wolyn, Executive Director, Bureau of Wholesale Sales 
Representatives. The final panel was comprised of experts in 
the laws that define independent contractors. Members of this 
panel provided contrasting views as to the benefits of the 
legislation proposed by Congressmen Christensen and Kim. Mr. 
Pyles was opposed to the practice by which businesses try to 
gain an advantage over their competitors by classifying workers 
as independent contractors in order to avoid making withholding 
payments and complying with Federal and State labor laws. He 
maintained that these proposals would legitimize this behavior 
by making the definition of an independent contractor more 
vague and would cost the government billions of dollars. The 
other members of the panel supported the legislative proposals 
and particularly favored the provisions that provide safe 
harbors to businesses who hire independent contractors. Mr. 
Shulman provided specific examples of IRS abuse on worker 
classification.
    For further information on these hearings, refer to 
Committee publication numbers 104-43 and 104-45.
    7.6.4 fundamental tax changes needed to unleash ameri-
                        ca's small businesses

                               Background

    Early in 1996, the Subcommittee on Taxation and Finance 
held a series of three field hearings to evaluate the current 
Federal tax code and its effect on small businesses in several 
regions of the country. Many economists agree that the Federal 
tax system inhibits economic growth. It taxes income at high 
marginal rates, influences behavior through deductions and 
credits, and taxes capital gains and inheritance at high rates. 
Experts consider these practices to be multiple taxation of the 
same income, and accuse the tax code of stifling economic 
growth by encouraging debt and discouraging investment. Owners 
of small businesses have echoed these sentiments, disapproving 
of the complexity of the current system and the harsh 
enforcement practices undertaken by the Internal Revenue 
Service (IRS).
    The hearings focused on the reforms proposed by the 
National Commission on Economic Growth and Tax Reform, also 
referred to as the Kemp Commission after its Chairman, Jack 
Kemp. The Kemp Commission was charged by Congress with 
examining the current tax code and developing recommendations 
on how to reform it. The Commission proposed six core 
recommendations to Congress: (1) adopt a single, low tax rate; 
(2) provide a generous personal exemption; (3) lower the tax 
burden on America's working families and remove it on those 
least able to pay; (4) end the bias against work, savings, and 
investment; (5) allow full deductibility of the payroll tax for 
working men and women; and (6) require a two-thirds vote in 
Congress to raise taxes. In implementing these changes to the 
tax code the Commission stressed the need to encourage economic 
growth, and to make the tax code fair, simple, neutral, 
visible, and stable. These six principles are included in the 
Commission's ``Tax Test.''

                                Summary

    The first hearing was held on February 9, 1996, in 
Indianapolis, Indiana and was comprised of two panels. Members 
of the first panel included: Peter Pitts, on behalf of Alan 
Reynolds, Senior Fellow and Director of Research, The Hudson 
Institute, and Director of Research, The National Commission on 
Economic Growth and Tax Reform; William Styring, III, Director, 
Benjamin Rogge Chair for Public Policy, Indiana Policy Review 
Foundation; and Sandra J. Brothers, GRI, Coldwell Banker Graber 
Realtors.
    This panel gave expert testimony on the downfall of the 
current tax system and what should be done to correct it. Mr. 
Reynold stressed that capital gains and estate taxes are unfair 
to small businesses that depend disproportionately more on 
equity investment and on the ability to pass their business 
from one generation to the next. He testified that the strength 
and growth of small businesses, along with the rest of the 
economy, depends on the quantity and quality of labor and 
capital, yet the current system of heavily taxing money 
acquired by selling an asset or through an inheritance is 
hostile to work, savings, and investment.
    Mr. Styring, an economist, gave expert testimony on 
taxation in the State of Indiana and how residents of the State 
might benefit from a flat tax. He stressed that the current 
system violates Adam Smith's four principles of good taxation: 
economy of collection; convenience; certainty; and equality. 
Indiana, through its corporate gross income tax, taxes all 
corporate business transactions. Small businesses are hit 
particularly hard by this tax because they often operate on 
little or no profit. To offset this, many Indiana small 
businesses form S corporations, allowing them to avoid the 
corporate income tax, but forcing them to pay more in capital 
gains and estate taxes. He recommended a flat tax, a form of 
which is used in Indiana for personal income taxes, as a better 
alternative to the current Federal tax system. The final 
witness, Ms. Brothers, emphasized the need to continue allowing 
the interest on home mortgages to be deductible, particularly 
for first-time buyers. She cited specific examples of how the 
mortgage interest deduction encourages and facilitates home 
buying in a community, and listed two dozen professions related 
to real estate that could be affected by the elimination of the 
mortgage interest deduction.
    The second panel in Indianapolis included: Craig S. 
Hartman, President, Preferred Industrial Services; Alfred 
Stovall, Jr., President, The Cellular Shoppe; Steven M. Souers, 
MST, CPA, Manager, George S. Olive & Company, LLC; and Don 
Villwock, Owner, Villwock Farms. The second panel consisted of 
owners of small businesses who testified on what changes in the 
tax code would be best for the citizens of Indiana. All agreed 
that the current system keeps small businesses from attaining 
their full potential.
    Mr. Hartman, a delegate to the 1995 White House Conference 
on Small Business, suggested that small businesses in Indiana 
need: (1) the restoration of the 100-percent deduction for 
meals and entertainment; (2) clarification of the status of 
independent contractors; (3) simplification of the tax system; 
and (4) uniform application of tax laws. Mr. Souers agreed with 
the principles of the Kemp Commission, but was wary of 
eliminating taxation on investment income for individuals with 
inherited wealth. He maintained that the emphasis should be put 
on working for one's money. Mr. Villwock, a small farmer, 
concluded by providing his perspective of the current tax 
system. He testified that the two tax laws that most negatively 
affect farmers are the capital-gains tax, which inhibits the 
movement of assets and sound economic decisions, and the estate 
tax, which endangers family farms. The members of the panel 
made several additional suggestions for reforming the tax code: 
(1) expand the 50-percent capital-gains exclusion; (2) 
accelerate the depreciation for leasehold improvements; (3) 
increase small businesses' expensing allowance; (4) expand the 
home-office deduction; (5) repeal the alternative minimum tax; 
(6) increase the health-insurance deduction for the self-
employed; and (7) simplify pensions for small businesses.
    The second hearing was held on March 25, 1996, in Mentor, 
Ohio and was also comprised of two panels, the first of which 
included: J. Kenneth Blackwell, Treasurer, State of Ohio; 
Robert C. Smith, President and Chief Investment Officer, Spero-
Smith Investment Advisers, Inc., representing the Council of 
Smaller Enterprises of the Growth Association; and Katherine E. 
Tatman, CPA, CPC, Ciuni and Panichi, Inc. Dean Kleckner, 
President of the American Farm Bureau Federation, was unable to 
attend the hearing, but submitted a written statement for the 
record.
    The first panel in Mentor included experts in the field of 
taxation and how taxes affect small businesses in Ohio. Mr. 
Blackwell, who served on the Kemp Commission, testified that 
the current system should be changed fundamentally according to 
the six principles listed in the Commission's ``Tax Test.'' He 
assured the Subcommittee that any initial loss in government 
revenue caused by a new tax system would be offset by increased 
revenues due to economic growth and prosperity. Mr. Smith 
stated that to achieve his organization's strategic plan for 
economic growth and job creation, more small and mid-sized 
business would have to form in the Cleveland area. He noted 
that the current system of taxation hampers this growth by:(1) 
encouraging debt and thereby raising the cost of borrowing; (2) 
reducing profitability;(3) increasing compliance costs; (4) 
lowering the valuation of businesses; (5) making the hiring 
process complex and costly; and (6) reducing the chance that a 
business may be passed from one generation to another without 
having to sell a large portion of the business.
    Ms. Tatman provided the Subcommittee with expert advise on 
pension issues and policy. She advised that the current system 
discourages small businesses from providing pension plans for 
their employees because the cost of administration and 
compliance with complex regulations is too high. She expressed 
concern that a flat tax with no deductions for pension benefits 
would merely shift the burden from employers to employees, and 
she proposed simplifying the existing pension regulations. Mr. 
Kleckner, also a member of the Kemp Commission, submitted a 
written statement on taxation from the perspective of farmers 
and ranchers across the nation. He maintained that the current 
tax code is costly to administer, takes money away that could 
be reinvested in business, and leaves taxpayers in fear. He 
endorsed the final report of the Kemp Commission and outlined 
the main issues of the American Farm Bureau Federation, which 
include: clearly defined definitions of income and business 
deductions; simplifying the tax code; addressing tax penalties 
on savings and investment; and reforming estate tax laws.
    The second panel in Mentor included: Robert L. Anderson, 
Chief Executive Officer, Wiseco Piston, Inc.; Nancy Brown, 
Owner, Ladies and Gentlemen; Donald E. Pendleton, Owner, Don's 
Used Cars; Larry Reber, General Manager, Stamco Industries, 
Inc.; and Richard Selip, President, Grand River Rubber and 
Plastics. The second panel included a group of area small 
businessmen and women. Each witness resounded the view that 
many of the provisions of the current tax code are too complex 
for small businesses and create disincentives for growth and 
job creation.
    Ms. Brown cautioned, however, that the advantages of a flat 
tax--including tax simplification and reducing the power of the 
IRS--may be offset by disadvantages such as the potential loss 
of deductions, the uncertainty of any new system, and its 
disparate impact on the accounting and legal professions. Mr. 
Reber highlighted that small businesses must compete not only 
with the pitfalls of taxation when hiring new employees, but 
also with the welfare state, which discourages employment. 
Specific recommendations from the panel included: (1) reforming 
laws concerning the depreciation of capital improvements; (2) 
allowing the deductibility of more business expenses; (3) 
eliminating the marriage penalty; (4) allowing senior citizens 
to continue working while receiving Social Security; (5) 
stabilizing the tax laws; (6) easing restrictive regulations 
concerning pensions; (7) expanding the deductibility of health-
care costs to shareholder-employees of S corporations; (8) 
instituting an investment tax credit; and (9) eliminating the 
alternative minimum tax.
    The third hearing was held on April 3, 1996, in Seattle, 
Washington and was comprised of two panels. The first panel 
included: Edwin J. Feulner, Jr., Ph.D., President, The Heritage 
Foundation and Vice Chairman, The National Commission on 
Economic Growth and Tax Reform; Loretta Adams, President, 
Market Development, Inc.; Bob Williams, President, Evergreen 
Freedom Foundation; Kriss Sjoblom, Economist, Washington 
Research Council; and Meade Emory, Professor of Law and 
Director, Graduate Program in Taxation, University of 
Washington School of Law. The first panel, consisting of 
economists and experts, was almost unanimous in its support for 
the core recommendations and principles of the Kemp 
Commission's ``Tax Test.'' They applauded a single-rate tax as 
a legitimate reform of the current tax system, praising its 
simplicity, fairness, and potential for creating economic 
growth for all Americans.
    Dr. Feulner outlined the benefits of a flat tax to 
businesses, which include: (1) a single, low rate of taxation 
to increase profits; (2) simplicity in compliance; (3) lower 
interest rates fostered by the freeing of capital for 
investment; (4) immediate write-offs for all investment 
spending; (5) easier access to capital; (6) the elimination of 
capital-gains taxes; and (7) the elimination of estate taxes. 
He cautioned, nonetheless, that businesses would be hurt by the 
elimination of deductions for payroll taxes, health-care 
benefits, and interest payments. Dr. Feulner stressed that, to 
predict the full potential of a flat tax in its deliberation of 
the proposal, Congress must study the tax in a dynamic economy 
taking into account individuals' behavior in response to the 
tax. Ms. Adams noted that if a flat tax does increase the rate 
of economic growth, this increased growth will in turn increase 
the ability of individuals and small businesses to participate 
in the American model of success.
    Mr. Williams reiterated that while tax policy alone cannot 
create a booming economy, it can create the right climate for a 
booming economy to exist. Professor Emory, on the other hand, 
defended the current Federal tax system. He praised its ability 
to raise revenue and attempted to refute that estate taxes are 
hurting small businesses. Professor Emory also stressed that a 
government agency must exist to enforce and administer the 
nation's tax laws, even if it is called something other than 
the IRS.
    The second panel in Seattle included: Ann Anderson, State 
Senator, Washington State Legislature; Craig Morrison, 
President and Chief Executive Officer, CMI Incorporated; 
Patricia Wilkerson, Proprietor, Enchanted Eagle Gallery; 
William A. Sherman, Jr., President, William Sherman & Company, 
representing the Building Industry Association of Washington; 
Carolyn Logue, State Director, National Federation of 
Independent Businesses (NFIB); and Priscilla S. Terry, Partner 
and Managing Broker, Prime Locations, Inc., and President, 
Lacey/Thurston County Chamber of Commerce.
    The second panel consisted of small business owners and 
representatives. Each witness supported an extensive overhaul 
of the current tax system. Ms. Logue testified that Washington 
State NFIB members, who face a gross-receipts tax in addition 
to other State, local, and Federal taxes, rank taxes as the 
third most adverse cost for their businesses, right below 
regulatory and health-care costs. Regarding a single-rate tax, 
she stressed that its impact is still unknown because of the 
diversity of the small business population, which might pay 
more or less under a single-rate tax depending upon the 
individual situation of each small business owner.
    Mr. Morrison, who favored several modifications to the 
current system, stressed that Congress cannot address taxation 
policies without curbing government growth. Mr. Sherman 
approved of a flat tax provided that it retains the mortgage 
interest deduction and requires a two-thirds vote in Congress 
to raise taxes. Finally, Ms. Terry, while favoring a flat-rate 
tax, nevertheless cautioned against a major reform similar to 
the 1986 tax reform. She strongly advocated paying attention to 
``the big picture'' and transition issues, including 
grandfather provisions. Other recommendations by the panel 
included: decreasing or eliminating the burden of capital-gains 
taxes; instituting investment tax credits; clarifying the 
status of independent contractors; and eliminating corporate 
taxes.
    For more information on these hearings, refer to Committee 
publication number 104-60.

    7.6.5 the effects of bank consolidation on small busi-
                        ness lending

                               Background

    On March 4, 1996, the Subcommittee on Taxation and Finance 
and the Subcommittee on Government Programs held a joint 
hearing in Boston, Massachusetts, to examine how consolidation 
affects banks' lending practices toward small businesses in New 
England and across the country. In recent years, smaller banks 
in New England have experienced considerable difficulties. 
Falling asset values, due in large part to the failing real 
estate market, have led to unstable capital positions. Shaky 
capital positions preceded defaults, which in turn lead to 
increased regulatory scrutiny. As a result, troubled banks were 
required to increase their loan loss requirements and decrease 
their leverage to capital ratio, which translated into fewer 
loans for the small banks' customers. New England has been 
particularly distressed by this situation because the 
devaluation of the region's real estate market has been 
particularly severe. Some believe that the troubles of small 
banks, and consequently small businesses, have been compounded 
by the recent bank consolidation trend.
    The move toward fewer but larger banks can be attributed to 
several factors. Competition from non-bank firms has forced 
banks to grow and become more efficient in order to compete in 
the modern financial market. Additionally, technological 
innovations have transformed the way banks conduct business 
and, thus, have given big banks the advantage in providing 
advanced products and service. Most important, however, is the 
regulatory reform outlined in the Riegle-Neal Interstate 
Banking and Branching Efficiency Act of 1994, which allows bank 
holding companies to acquire or merge with other banks in any 
State without authorization from the host State. Beginning in 
June of 1997, holding companies may consolidate their banks 
into a branch network, able to open branches across State 
lines, unless the host State opts out of this reform by passing 
its own legislation.

                                Summary

    The hearing was comprised of two panels, the first of which 
included: Christopher C. Gallagher, Esquire, Gallagher, 
Callahan, and Gartrell; John P. Hamill, President and CEO, 
Fleet Bank of Massachusetts; David A. Aloise, New England 
Director of Small Business Banking, Bank of Boston; T. Lincoln 
Morison, Jr., President, First National Savings Bank of 
Ipswich; and James G. Zafris, Jr., President, Danvers Savings 
Bank.
    Mr. Gallagher started the panel by providing the 
Subcommittees with background information on the subject of 
bank consolidation and how it affects banks' lending practices 
to small businesses. He noted that the needs of small 
businesses when seeking capital include close proximity to the 
financial institution, sophistication of services, flexibility, 
and reasonable cost of borrowing. Efficiency is the key to 
enabling banks to attain these attributes and, to the extent 
that consolidation of banks increases their efficiency, it is 
beneficial to small business. He stressed that consolidation 
leading to uncompetitive market power could be detrimental, but 
that the current consolidations seem to be increasing 
competition and efficiency, thus strengthening the banks and 
benefitting small businesses. Mr. Gallagher emphasized that 
easing excessive regulatory pressures on banks and a healthy 
economy were more important to small businesses and their 
access to capital than a trend toward bank consolidation.
    The remainder of the panel consisted of representatives of 
area banks, both large and small, who testified about how bank 
consolidations affect small businesses. The entire panel 
praised the small business sector for its contribution to the 
economy and assured the Subcommittees that as long as small 
businesses continued to be a healthy and growing part of the 
economy, they would not have trouble acquiring loans from banks 
of any size. In fact, they cited evidence that showed the 
amount of loan capital available to small businesses to be 
quite substantial and growing. Many of the witnesses, from 
large and small banks, emphasized the efforts of their banks to 
attract more small business customers. Like Mr. Gallagher, they 
agreed that enabling banks to be more efficient and competitive 
through deregulation and consolidation was good for the entire 
economy, including small businesses. Mr. Aloise cited a report 
from the Federal Reserve Bank of New York, which concluded that 
the current merger activity among banks has had no ill effect 
on small business lending. He also pointed out that small 
businesses today also have a great deal more options in 
acquiring capital from thrifts, savings banks, and non-bank 
financial institutions, many times at a cost lower than a bank 
can provide.
    Mr. Zafris provided only modest dissent, stating that small 
and mid-sized banks are better prepared to invest in small 
businesses because they can form more personal relationships 
with their customers. This enables them to make judgments on 
loans based on the character of the borrower as opposed to 
relying on a financial statement or some sort of credit scoring 
procedure, which may not be a good indicator of a small 
business' ability to repay a loan. He went on to praise the 
Small Business Administration (SBA) and its loan guarantees for 
opening the doors of capital to more small businesses.
    The second panel included: Julie Scofield, Executive 
Director, Smaller Business Association of New England; Virginia 
Allen, President, North Suburban Chamber of Commerce; John 
Gould, President and CEO, Associated Industries of 
Massachusetts; Frank C. Romano, Jr., President and CEO, Elder 
Living Concepts, Inc.; and Joyce Plotkin, Executive Director, 
Massachusetts Software Council, on behalf of David A. Blohm, 
President, Virtual Entertainment, Inc.
    The second panel included representatives of small business 
and small business owners who expressed some wariness over how 
recent bank mergers might affect their ability to access 
capital. While the panel acknowledged that consolidation opened 
beneficial new avenues of financing to small businesses, they 
expressed concern over the loss of continuity among loan 
officers and banks' decreasing involvement in the community. 
The witnesses maintained that a small business' ability to 
acquire loans was highly influenced by the relationship its 
owners had with a bank and a bank's reliance upon the community 
it serves for success. Many on the panel stressed that a loan 
officer who did not personally know them or their business 
would be more likely to refuse a loan application. A major 
concern was the decline of the ``character'' loan, one which is 
made based on the personal relationship between the bank and 
the borrower, in favor of ``credit scoring,'' a system used in 
the loan approval process in which banks make loan decisions 
using a calculated formula looking primarily at an applicant's 
credit history and his or her income-to-debt ratio.
    In addition, Mr. Romano cited an article by Peggy Gilligan, 
which concluded that if lending trends continue, loans to small 
businesses will be made increasingly by smaller banks; and if 
consolidation persists in absorbing smaller banks, small 
businesses will be faced with a diminishing amount of available 
capital. Mr. Romano presented this as evidence that bank 
consolidation is an issue that needs to be closely monitored on 
behalf of small businesses. He and other witnesses also 
expressed a strong desire to continue the Federal government's 
practice of requiring banks to disclose the number and amount 
of small loans currently on their financial statement. Mr. 
Romano also recommended amending the Community Reinvestment Act 
to require banks not to reduce the amount of small business 
lending; encouraging larger banks to establish small lending 
groups or departments; expanding SBA loan guarantees beyond the 
current $750,000 threshold; and increasing the number of 
bankers approved by the SBA to be direct lenders.
    For more information on this hearing, refer to Committee 
publication number 104-66.