[Senate Report 109-361]
[From the U.S. Government Publishing Office]
Calendar No. 577
109th Congress Report
SENATE
2d Session 109-361
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SMALL BUSINESS REAUTHORIZATION AND IMPROVEMENTS ACT OF 2006
_______
November 16, 2006.--Ordered to be printed
_______
Ms. Snowe, from the Committee on Small Business and Entrepreneurship,
submitted the following
R E P O R T
[To accompany S. 3778]
On July 27, 2006, the Senate Committee on Small Business
and Entrepreneurship unanimously reported the ``Small Business
Reauthorization and Improvements Act of 2006'' (S. 3778), an
original bill to provide for the reauthorization of programs
administered by the Small Business Administration (SBA), and
for other purposes. Having considered S. 3778, the Committee
reports favorably thereon and recommends that the bill do pass.
I. INTRODUCTION
The Small Business Reauthorization and Improvements Act of
2006 (S. 3778) is a bill to reauthorize most programs at the
Small Business Administration (SBA) for Fiscal Years 2007,
2008, and 2009. In addition to making significant improvements
to the SBA's lending, procurement, and business development
programs, the bill also authorizes several new pilot program
initiatives.
This bipartisan bill was reported out of the Committee
unanimously, by a vote of 18-0, and was introduced as an
original bill by Chair Olympia J. Snowe on August 2, 2006. In
accordance with Senate procedure, original bills reported from
a Committee may only be introduced by one Senator. Members of
the Committee wishing to cosponsor the bill include: Senators
Kerry, Vitter, Landrieu, Cantwell, and Lieberman.
During markup of the bill, the Committee adopted by voice
vote an amendment by Senator Bond and an amendment by Senator
Coleman. The bill was subsequently adopted as amended by an
unanimous vote of 18-0.
The Small Business Reauthorization and Improvements Act of
2006 provides the opportunity to revitalize and renew the SBA
in order to better reach out to the small business community,
and meet the changing needs of the 21st century entrepreneur.
Since the last reauthorization, the Committee has held a series
of hearings, meetings and roundtables to analyze the SBA's
programs and services in preparation to introduce new
legislation that would reauthorize the SBA and build on the
agency's success of helping small businesses to create jobs and
drive America's economy.
Beginning in 2005, following Hurricanes Katrina and Rita,
the Committee convened two hearings on SBA's disaster response.
The first hearing, ``The Impact of Hurricane Katrina on Small
Businesses,'' held on September 22, 2005, focused on the
impacts of the hurricanes on small businesses, and provided the
Committee with the opportunity to: (1) receive a briefing on
how the SBA had responded to the Hurricane; (2) analyze SBA's
immediate and long-term response plans; (3) receive feed-back
on Hurricane Katrina-related small business legislation, and
(4) investigate how Congress and the SBA could better assist
victims of the Gulf Coast hurricanes and displaced small
businesses.
The Committee held a second disaster hearing,
``Strengthening Hurricane Recovery Efforts for Small
Businesses,'' on November 8, 2005. The Committee received an
update on the SBA's response to the 2005 hurricanes, analyzed
SBA's disaster response in the two months following the initial
disaster hearing, investigated the SBA's long-term disaster
response plans, and examined the Administration's policy
regarding prime and subcontracting opportunities for small
businesses. Witnesses at this hearing included representatives
from the SBA, the U.S. Army Corps of Engineers, the U.S.
Department of Homeland Security, the Government Accountability
Office, and the Office of the Governor of Louisiana. These
hearings provided insight into the immediate needs of affected
small businesses. In addition, it also laid a foundation for
the Committee's reauthorization efforts that pertain to the
SBA's disaster response and preparedness.
On March 9, 2006, the Committee held a hearing to examine
the SBA's budget and begin to analyze the SBA's proposed
legislative package for reauthorization. SBA Administrator
Hector Barreto provided testimony on the SBA's achievements and
its budgetary and programmatic proposals for Fiscal Year 2007.
The administration proposed a funding level of $624 million for
the SBA, of which only $425 million will go to the SBA's core
programs. This proposal continues an alarming trend of a
decreasing SBA budget. Since 2001, the SBA's overall budget has
been reduced by 37 percent. During the hearing, the Committee
inspected the SBA's diminishing budget and funding proposals
for essential programs, such as the Microloan, Small Business
Development Center (SBDC), and Women's Business Center
programs, as well as the Administration's proposal to impose
administrative fees on the small business participants of
programs authorized in Section 7(a) and Section 504 of the
Small Business Act and Title III, regarding Small Business
Investment Companies (SBIC), of the Small Business Investment
Act.
On April 26, 2006, the Committee held a hearing on the
``Reauthorization of SBA Financing and Economic Development
Programs.'' The Committee addressed issues regarding the SBA's
finance programs, which guaranteed over $24 billion in loans
and venture capital for small businesses in 2005, the highest
level of capital ever provided by the SBA. The Committee heard
from lenders, small business stakeholders, and SBA
representatives on the benefits of SBA's credit programs and
evaluated reauthorization proposals to improve the broad range
of finance programs that play a vital role in assisting
America's entrepreneurs in obtaining operating and equity
capital.
Additionally, the Committee solicited post hearing
questions regarding the SBA's economic development programs,
and non-credit programs including the SBDC, Women's Business
Ownership and Veterans Business Development programs, the
National Women's Business Council, and other entrepreneurial
development programs administered by the SBA.
At another hearing, ``Strengthening Participation of Small
Businesses in Federal Contracting and Innovation Research
Programs,'' on July 12, 2006, the Committee focused on
procurement and government contracting issues, and the often
insurmountable obstacles small businesses face when seeking to
compete in the Federal marketplace for a share of the more than
$200 billion in Federal contracts. The hearing examined the
enforcement of the SBA's small business size and status
standards, the President's Initiative Against Contract
Bundling, the Small Business Innovation Research (SBIR) and
Small Business Technology Transfer (STTR) programs, as well as
the SBIR Rural Outreach Program and Federal & State Technology
Partnership program (FAST). The Committee heard from a broad
cross-section of small business stakeholders, as well as from
SBA representatives who oversee these programs.
The Committee also reviewed the SBA's government
contracting and business development programs, which include
the SBA's Prime Contracting and Subcontracting Programs, the
HUBZone Program, and the Small Disadvantaged Business Program.
Stakeholders of these programs provided important insight and
recommendations to the Committee.
The Committee also held a staff-led Regulatory Reform
Roundtable on July 21, 2005, which served as a forum for small
businesses, key stakeholders, and agency staff to address
regulatory reform issues. Committee staff led a discussion of a
number of targeted regulatory reform bills that have been
introduced in the 109th Congress, including the Small Business
Compliance Assistance Enhancement Act (S. 769), which would
clarify the existing requirement under the Small Business
Regulatory Enforcement Fairness Act (SBREFA) that Federal
agencies produce small business compliance guides when they
promulgate rules that would have a significant impact on a
substantial number of small businesses. The Roundtable also
addressed the National Small Business Regulatory Assistance Act
(S. 1411), which would direct the SBA to establish a
competitive, pilot program to provide regulatory compliance
assistance to small businesses, through SBDCs. Taking into
account many of the concerns raised at the staff-led Regulatory
Reform Roundtable, the Committee included versions of these
measures in the Small Business Reauthorization and Improvements
Act of 2006.
On April 20, 2005, the Committee held a hearing, ``Solving
the Small Business Health Care Crisis: Alternatives for
Lowering Costs and Covering the Uninsured.'' The Committee
heard from several panels of distinguished witnesses, including
Elaine L. Chao, Secretary, U.S. Department of Labor; and Hector
V. Barreto, then the Administrator of the SBA. The hearing
focused on finding solutions to the small business health
insurance crisis, and providing small businesses with relief
from escalating health care costs and few coverage options. The
number one issue facing small business today is the
affordability and accessibility of health insurance. There are
now 46.6 million uninsured Americans, approximately 60 percent
of whom work for a small business or are dependent on someone
who does. In addition, fewer and fewer of our nation's smallest
businesses are now offering health insurance as a workplace
benefit. In 2005, the Kaiser Family Foundation reported that
only 47 percent of our nation's smallest businesses, with less
than 10 employees were able to offer health insurance as a
workplace benefit. In stark contrast, health insurance is
nearly universally provided by larger businesses with over 200
employees.
Based on the testimony presented at the hearing, the
Committee has included a Health Insurance Title to the Small
Business Reauthorization and Improvements Act of 2006, with
provisions that would increase small business education and
awareness to all health insurance coverage options in their
geographic areas--with the intention of encouraging more of our
nation's smallestbusinesses to offer health insurance to their
employees.
Throughout the hearings and roundtables, the Committee's
objectives have been to single out the SBA programs that are
working well, identify the reasons for their superior
performance, and then apply those principles to programs that
are in need of improvement. The voluminous amount of
information that the Committee has collected through the
hearings and roundtable discussions held this year and in
previous Congresses, as well as information received directly
from small business stakeholders, has contributed greatly to
achieving that goal and the results are reflected in the bill.
The bill also reflects information obtained from numerous
reviews undertaken at the Committee's request by the GAO and
the SBA Inspector General.
The Committee believes that by providing reasonable
authorization levels of appropriations, improving specific SBA
programs, and introducing several new initiatives, the ``Small
Business Reauthorization and Improvements Act of 2006''
provides a sound foundation for the agency to provide improved
service to the nation's small businesses and entrepreneurs.
II. DESCRIPTION OF BILL
Title I--Reauthorization of Programs
The bill reauthorizes the Small Business Administration
(SBA) programs for Fiscal Years 2007, 2008, and 2009, and
establishes maximum financing levels for those programs
involving loans or investments.
The 7(a) loan program, the SBA's largest financing program,
is reauthorized at levels of $18 billion for FY 2007, $19.5
billion for FY 2008, and $21 billion for FY 2009. This will
allow the program to grow at a measured pace, and will be
particularly necessary when the larger $3 million individual
loans authorized by this bill are initiated.
The Microloan program is reauthorized at the level of $50
million in intermediary loans for each of FY 2007, FY 2008, and
FY 2009. Microloan technical assistance grants are authorized
at the level of $80 million for each of FY 2007, FY 2008, and
FY 2009. Microloan direct loans are authorized at the level of
$110 million for each of FY 2007, FY 2008, and FY 2009.
The Small Business Investment Companies (SBIC)
participating security program is reauthorized at program
levels of $500 million for FY 2007, $600 million for FY 2008,
and $700 million for FY 2009. The SBIC debenture program is
reauthorized at program levels of $4 billion for FY 2007, $4
billion for FY 2008, and $4 billion for FY 2009. The Local
Development Business Loan program, formerly known as the 504
Loan Program and re-named in this bill, is reauthorized at
levels of $8.5 billion for FY 2007, $9.5 billion for FY 2008,
and $10.5 billion for FY 2009.
The New Markets Venture Capital (NMVC) program is
reauthorized for Fiscal Years 2007, 2008, and 2009.
In addition, the bill includes an extension of the
authorization for the assistance offered through Small Business
Development Centers, which has been essential in the delivery
of management and technical counseling and educational programs
to prospective and existing small business owners. The bill
also extends the current $5 million authorization for the Paul
D. Coverdell Drug-Free Workplace Program through Fiscal Year
2009. The program has significantly assisted small businesses
in removing drugs from the workplace.
Microloan program
The SBA's Microloan program offers loans of up to $35,000
and technical assistance to small businesses. Under the
program, the SBA makes loans and grants to intermediaries, who
then re-loan their loan funds to small businesses. The lending
intermediaries also receive grants from the SBA to provide both
pre-loan and post-loan technical assistance to the small
businesses and entrepreneurs they serve.
The bill includes a reauthorization of the loan and
technical assistance components of the SBA's Microloan program
over the next three Fiscal Years to meet the demand for small
loans and to continue serving populations with the least access
to capital. The Committee expects that the Microloan program
will demonstrate a continued contribution to business owners
and employees who seek to establish or grow a small business,
particularly in areas that have suffered from severe economic
distress.
The bill includes several provisions that seek to expand
access or reduce costs in the program. The bill amends the
Small Business Act to provide Microloan intermediaries that
have a microloan portfolio with an average loan size of not
more than $10,000 the ability to receive a lower interest rate,
compared to the normal rate extended by the SBA to
intermediaries. Previously, the statute provided that an
intermediary had to have an average loan size of not more than
$7,500 to receive a reduced interest rate.
The bill also requires the SBA to develop a subsidy model
for the Microloan program, to be used in the Fiscal Year 2008
budget, that accurately accounts for subsidy costs.
Participants in the Microloan program have reported to the
Committee that the current model is subject to unnecessary and
unpredictable fluctuations and results in inaccurate subsidy
rates for the program. For example, from FY 2002 to FY 2003 the
rate jumped from 6.78 percent to 13.05 percent, and from FY
2005 to FY 2006 the rate dropped from 10.25 percent to 7.17
percent.
Loss rates, recoveries and fees are three of the most
significant factors considered in the calculation of subsidy
rates for most of the SBA's credit programs. Lower loss rates
and higher recoveries should result in a low subsidy rate
because the government is not covering losses from defaults.
The SBA's microloan program has one of the best track records
of all the agency's credit programs, with only two losses since
the program made its first loan in 1992. It also has a loan-
loss reserve component built into the program requiring each
intermediary to set aside a certain percentage of its
outstanding portfolio to cover losses should there be any. Yet,
even with the low default rate and the loan loss reserve, the
Microloan program has one of the highest subsidy rates when
compared against other SBA credit programs.
However, unlike most SBA credit programs, Microloan
intermediaries pay no fees to offset credit subsidy costs and
they benefit from borrowing at a reduced interest rate. This
interest subsidy is the single largest subsidy component of the
Microloan program and is built into SBA's direct loans to the
microloan intermediaries. Intermediaries pay an interest rate
that is below SBA's cost of funds. For example, in 2006, a
Microloan intermediary would borrow from SBA at 3.3 percent.
However, SBA's cost of funds is 4.7 percent. Moreover, this gap
exists for the life of the loan. In addition, intermediaries
often request disbursement over several years which can add to
subsidy costs in times of rising interest rates. SBA is
mandated to lend to intermediaries at a reduced rate, but when
interest rates are rising and borrowers delay disbursement the
interest rate spread increases, thereby increasing subsidy
costs.
The Committee expects that SBA will develop a model that
reflects both the costs inherent in the program and the strong
performance record of the Microloan program participants.
The bill also adds persons with disabilities as part of the
target population being served by federal microenterprise
programs. The Committee has received concerns from participants
that although people with disabilities are not being excluded
from microenterprise programs, neither are they being
specifically targeted or explicitly mentioned as being eligible
for receiving assistance. To date, there is no Microloan
intermediary, PRIME grantee, or Women's Business Center which
specifically includes individuals with disabilities. This
situation is the result of an unintentional oversight, and not
one of purposeful exclusion. This section would raise awareness
among microenterprise programs and increase accessibility to
such entrepreneurs, while not creating any new programs.
The provisions in this Title originated in the SBA
Microenterprise Improvements Act (S. 138), introduced by
Senator Kerry on January 24, 2005, and co-sponsored by Senators
Bingaman and Lieberman. These provisions were also introduced
by Senator Kerry in the 107th Congress as part of the Microloan
Program Improvement Act of 2001, cosponsored by Chair Snowe and
Senators Bond, Wellstone, Cleland, Landrieu, Harkin, Levin,
Lieberman, Bingaman, Enzi, Kohl, and Johnson. The provisions of
this Act were later passed unanimously out of the Committee and
the full Senate as part of the Small Business Administration
50th Anniversary Reauthorization Act of 2003, S. 1375, in the
108th Congress, but they were not adopted in a final SBA
reauthorization bill.
Title II--National Preferred Lenders Program
The bill allows qualifying lenders to participate in the
PLP Program on a nationwide basis after just one licensing
process. Under current law, the most prolific lenders in the
SBA's 7(a) loan program can participate in the ``Preferred
Lender Program'' (PLP Program), which allows them to use their
own processing facilities, therefore both increasing lenders'
efficiency and reducing costs for the SBA. However, PLP lenders
are required to apply for PLP status in each of the 71 SBA
districts nationwide to obtain PLP status in that district.
Moreover, they must re-apply each year in each district. This
is extremely inefficient and wasteful, and creates enormous
unnecessary administrative costs.
This provision would drastically reduce administrative
costs and standardize the operation of the PLP program,
eliminating the inefficiencies and cost of applying for PLP
status in each district,and improving small businesses' access
to capital. In addition, lender oversight can be accomplished more
efficiently and effectively on a national basis. This provision was in
S. 1375, the ``Small Business Administration 50th Anniversary
Reauthorization Act of 2003'', introduced in the 108th Congress by
Chair Snowe and Senator Kerry and was approved unanimously by the
Senate in 2003.
The bill increases the maximum size of a 7(a) loan to $3
million from the current $2 million, and increases the maximum
size of the accompanying guarantee to $2.25 million from the
current $1.5 million. This would maintain the maximum current
guarantee rate of 75 percent. With the escalating costs of real
estate and new equipment, the Committee believes it is
appropriate to respond to small businesses' financing needs by
offering larger loans.
In the SBA's 504 Loan Program, loans may now be as large as
$10 million (with $4 million guaranteed) for manufacturing
projects, $5 million (with $2 million guaranteed) for loans
that serve an enumerated public policy goal (such as rural
development), and $3.75 million (with $1.5 million guaranteed)
for all other ``regular'' 504 Program loans. Thus, the
Committee believes that this increase in 7(a) Program loans to
$3 million would make 7(a) loans closer in size to 504 Program
loans, while still leaving 7(a) loans smaller than 504 Program
loans.
The bill requires the SBA to implement an ``alternative
size standard,'' for the 7(a) program, in addition to the
program's current standard. The alternative size standard for
the 7(a) program would be similar to the standard for the 504
program, which considers a business's net worth and income.
The 7(a) program currently determines a small business's
eligibility to receive a loan by reference to a complex multi-
page chart that includes different size standards for every
industry and focuses on the number of employees. The Committee
believes this is cumbersome, especially for small lenders that
do not make many 7(a) loans. In the 504 Program, however,
lenders can use either the industry-specific standards or an
``alternative size standard'' that the SBA created, which
simply says a small business is eligible for a loan if it has
gross income of less than $7 million or net worth of less than
$2 million.
The Committee believes that allowing 7(a) lenders to use
this alternative standard, as an option to the industry-
specific size standard, would both simplify the 7(a) lending
process and provide small businesses with a streamlined
procedure for determining loan eligibility. Therefore, this
would conform the standards used by the 7(a) and 504 programs
and would make the program far more accessible to small
businesses and small lenders. This provision was included in S.
1375 during the 108th Congress, which was approved by the
Senate in 2003.
The bill also creates an Office of Minority Small Business
Development to increase the proportion of small business loans
to minorities. The Committee is concerned that African
Americans, Hispanics, Asians and women have received far fewer
small business loans relative to their share of the population,
and that there has been no statistically significant
improvement since FY 2001. The Office of Minority Small
Business Development at the SBA will be similar to offices
devoted to business development of veterans and women and rural
areas. In charge of the office will be the Associate
Administrator for Minority Small Business and Capital Ownership
Development, under a new title with expanded authority and an
annual budget to carry out its mission. Currently, this
position is limited to carrying out the policies and programs
of the SBA's contracting programs under 7(j) and 8(a).
To ensure that minorities receive a greater share of loan
dollars, venture capital investments, counseling, and
contracting, this bill expands the Office's authority and
duties to work with and monitor the outcomes for programs under
Capital Access, Entrepreneurial Development, and Government
Contracting. It also requires the head of the Office to work
with SBA's partners, trade associations and business groups to
identify more effective ways to market to minority business
owners, and to work with the head of SBA's Field Operations to
ensure that the SBA's district offices have the requisite staff
and resources to market to minorities.
Section 205 includes an authorizing amendment to reduce
participation fees for the 7(a) Loan Guarantee program when
borrowers and lenders pay excessive fees or Congress
appropriates funding. The Committee continues to hear concerns
about the Administration shifting the cost to lenders, by
imposing higher fees on them. The bill addresses these fee
payments by requiring the SBA to lower fees if borrowers and
lenders pay more than is necessary to cover the program costs
or if the Congress appropriates money for the program and
combined with fees there is excess funding to cover the cost of
the program.
Under current law, as adopted through the small business
reauthorization bill included in the FY 2005 Omnibus
Appropriations Act, the Administrator was provided
discretionary authority to adjust the ongoing fees paid by
lenders and offset the cost of the program to zero, i.e., not
need an appropriation. The Administrator was also given the
authority to lower fees charged to borrowers if the subsidy
cost becomes negative, i.e., the fees will actually take in
more money to the government than it costs to operate the SBA's
7(a) loan program. Congress adopted an approach that the
Administration, should the program undertake a fee reduction,
should first consider reducing the fees paid by small business
borrowers set forth in clauses (i)-(iii) of subsection
7(a)(18)(A). This bill rewrites the language to reduce the fees
for both borrowers and lenders. In addition, if Congress were
to appropriate funds to the 7(a) loan program, this provision
would allow those funds to be applied towards reducing the
fees. Currently, if the SBA received appropriations for the
program, the money could not be used to reduce fees.
The provisions in this Title originated in the Small
Business Lending Improvement Act (S. 1603), introduced by Chair
Snowe in July 2005 and cosponsored by Senator Stevens and in
the 7(a) Loan Program Reauthorization Act of 2006 (S. 2594),
introduced by Senator Kerry in April 2006, and cosponsored by
Senators Landrieu and Pryor.
Title III--Small Business Investment Act of 1958
SUBTITLE A--DEBENTURES AND SECURITIES
The bill reforms and enhances the Small Business Investment
Companies (SBIC) program. This section creates a new SBIC
program that would be a ``zero-subsidy'' program--with no
Federal appropriations necessary--that would provide financing
to small businesses. Additionally, the new program would
prevent financial losses to the government by increasing its
share of SBICs' profits.
The bill provides procedures for the continuation of
existing SBICs affected by the current suspension in issuances
of new financing by the SBA, including financing that had
previously been promised to SBICs by the SBA.
The Committee believes there is a need for a program to
facilitate equity capital to small businesses, particularly in
rural areas and in industries passed over by traditional
venture capital investments.
By creating a new type of equity security for the SBIC
program, this provision is designed to guarantee the repayment
of the redemption price (principal) and interest for a new type
of ``participating security'' issued by a SBIC. This type of
guarantee (of principal and interest for a security issued by
an SBIC) currently exists in the two SBIC programs, and for
those other two programs it was explicitly authorized in the
Small Business Investment Act of 1958 (SBIA).
This bill authorizes the SBA to guarantee the repayment to
an ``interim funding provider'' (an ``IFP'') of any funds lost
by the IFP because of the default of an SBIC during the period
after the IFP has advanced monies to the SBIC, and before the
IFP has been repaid for those funds. This type of guarantee
existed in the two other SBIC programs, but was not authorized
by the SBIA. This provision rectifies that problem and brings
the program into compliance with the Federal Credit Reform Act
of 1990 (FCRA).
It authorizes the SBA to guarantee the payment of the
redemption price and interest for a trust certificate issued by
a trustee of a pool of PDs. This type of guarantee existed in
the two prior SBIC programs, but was not authorized by the
SBIA. Similar to the current Participating Securities and
Debenture SBIC programs, the Participating Debenture program
will raise funds by pooling the securities issued by SBICs (the
PDs) into a pool and selling trust certificates that represent
interests in that pool. Thus, this provision rectifies that
problem and brings the new program more into compliance with
the FCRA.
In order to reduce the net cost to zero, the bill permits
the SBA to charge a fee for each of the guarantees authorized.
This fee will be sufficient to reduce the net cost to the SBA
of each guarantee to zero, as that term is defined under the
Federal Credit Reform Act of 1990. For the two current SBIC
programs, the SBIA only explicitly authorizes such a fee for
the redemption price and interest guarantee (and did not
authorize such a fee for the other two types of guarantees).
This provision rectifies that problem and brings the program
into compliance with the FCRA.
The obligations that each SBIC holds to repay the SBA will
be identical, or ``matched'', in both size and timing to the
obligations that the SBA holds to repay to the trust
certificate holders that have purchased trust certificates in
the pool that holds that particular SBICs' PDs.
For advancing funds to an SBIC in accordance with the
SBIC's license agreement with the SBA, an IFP shall have the
right to receive interest from the SBIC. The manner of
calculating andcollecting this interest is specified.
The aggregate unpaid principal balance of the PDs issued by
a SBIC must not exceed 200 percent of that company's private
capital. In other words, the maximum ratio of the SBA's
outstanding investment in the SBIC, when compared to the
private investors' investment, is two to one. This is identical
to the other two SBIC programs.
The SBA may authorize a trust or pool acting on behalf of
the SBA to purchase PDs from an SBIC. This practice occurs in
the other two SBIC programs, but is not explicitly authorized
by the SBIA. Thus, this provision brings this program more into
compliance with the FCRA.
The principal balance of each PD will be payable in full
not later than the tenth anniversary of the date of issuance of
that PD. If a SBIC fails to make this payment they default
immediately and are liquidated. This was not the case in the
other two SBIC programs; thus, this provision brings this new
program more into compliance with the FCRA.
Beginning on the date of issuance, interest on the
principal balance outstanding of a PD shall accrue on a daily
basis, and unpaid accrued interest shall compound every six
months. There are no interest payments during the first five
years of a PD. All unpaid interest on a PD accruing during the
first five years will be due and payable in full out of gross
receipts on the fifth anniversary. Interest accruing on a PD
after the fifth anniversary will be due and payable semi-
annually. Interest payments used to be contingent on a SBIC's
profitability. This bill provides that the payments are due
regardless of a SBIC's financial situation and if a payment is
missed the SBA has the right to liquidate the SBIC. Thus, this
bill brings this new program more into compliance with the
FCRA.
In addition, the SBA is authorized to charge an additional
fee, as necessary to reduce the cost of the program to zero, as
that term is defined in the FCRA, but the fee is capped at 1.5
percent. This type of fee existed in the other two SBIC
programs.
If a SBIC fails to pay any principal or interest on a PD
when due, the SBA, in addition to any other remedies that it
may have, can demand immediate repayment of the principal
balance and all accrued interest on all outstanding PDs of that
SBIC. This was not the case in the other two programs; thus,
this provision brings the new program more into compliance with
the FCRA. If a default occurs, the SBA has the right to charge
a default rate of interest. Again, this is an improvement on
the existing program. Finally, if a default occurs, the SBA may
apply the SBIC's private collateral (its private investments)
to pay any interest or principal that the SBIC owes the SBA.
The Committee believes that this is a crucial improvement to
the existing program.
In the event of a SBIC's liquidation, a PD will be senior
in priority for all purposes to any equity interests (in other
words, the SBA will have first priority to reimbursement).
Also, the SBIC's private collateral may, at the option of the
SBA, be applied to pay accrued interest and principal of
outstanding PDs.
In the event of a default by a SBIC, a PD will be senior in
priority for all purposes to any equity interests (in other
words, the SBA will have first priority to reimbursement).
Also, the SBIC's private collateral may, at the option of the
SBA, be applied to pay accrued interest and principal of
outstanding PDs. A SBIC commits to invest private equity in
small businesses, to match the capital raised by its PDs. A
SBIC in this program shall have no other debt other than
financing obtained pursuant to this program.
Unless otherwise allowed by the SBA, a SBIC may use the
proceeds of a PD issued by the company to pay the principal and
interest due on outstanding PDs issued by that company, if the
SBIC has outstanding private equity capital invested in an
amount equal to that being refinanced.
Unless as otherwise provided, a SBIC's gross receipts shall
be used first for the payment of accrued interest on PDs, and
then for repayment of PD principal and private investments into
the SBIC, and then for profit distributions. Gross Receipts
means all cash received by a SBIC, including proceeds of the
sale of securities, management or other fees, and cash
representing return of invested capital, other than capital
contributed by partners, the proceeds of the issuance of PDs,
and money borrowed from other sources, if any. Marketable
Securities that the company distributes in kind will be
distributed as if they were Gross Receipts.
When a SBIC misses a payment, the SBA may choose not to
liquidate the SBIC and the SBIC may continue to operate. In
such a case, a SBIC must use Gross Receipts within 10 days
after receipt to repay any outstanding past due interest and
past due principal.
If a SBIC has no outstanding past due interest or
principal, it must use Gross Receipts to prepay accrued
interest. Such prepayment will be due not later than the end of
the calendar quarter during which such Gross Receipts were
received. Failure to prepay accrued interest will be deemed a
Payment Default.
At such time as there is no unpaid, accrued interest, or
past due principal outstanding on a SBIC's PDs, the SBIC may
use Gross Receipts to prepay PD principal that is not past due.
If any Gross Receipts remain, they may be paid to private
investors to repay their investments. As long as there are any
outstanding PDs, a SBIC may distribute Gross Receipts to its
limited partners, but only if they distribute at least a pro-
rata share simultaneously to the administration.
If Gross Receipts remain after the payment of all required
payments, remaining funds can be used for profit distributions.
When all PD principal and all private capital has been repaid
in full, post-amortization payments may be made to the
administration as follows: (i) 25 percent of their pro-rata
share until private investors have received 100 percent of
their principal; and (ii) thereafter, 50 percent of their pro-
rata share.
The order of payments are: interest payments, principal
payments, pre-payments, pre-amortization payments, and post-
amortization payments. This provision provides for tax
distributions that are required by law, as necessary.
No distribution may violate liquidity requirements or other
restrictions imposed by the SBA's regulations or any State's
law.
At any time a SBIC is in restricted operation or
liquidation by reason of capital impairment or regulatory
violation, the maturity date of the SBIC's PDs, including
principal and accrued interest, is subject to acceleration at
the option of the administration, and whether or not there has
been such an acceleration, up to 100 percent of all Gross
Receipts and unfunded private investor commitments may, at the
option of the administration, be required to be distributed to
the administration until all accrued interest and principal on
the SBIC's PDs have been paid in full. No distributions will be
made to limited partners when a SBIC is in restricted
operations or liquidation due to capital impairment or
regulatory violation.
The bill details the procedures and requirements that would
apply if an SBIC provided a partial repayment to the SBA in the
form of securities, rather than cash. It also details the
schedule under which payments will be made to the SBA by a
SBIC. Subject to SBA regulations and the permission of private
investors, a SBIC may reinvest Gross Receipts back into small
businesses. This section does not create any ownership interest
for the SBA in any SBICs. Rather, the relationship is one of
lender-borrower.
The bill provides that the SBIA will apply to participating
securities obligated in Fiscal Years 2002, 2003, and 2004 by
commitments issued by the Administrator but not as yet
disbursed within 60 days prior to the expiration date of said
commitments. Within the 60-day period immediately preceding the
expiration date of any such commitment, the Administrator shall
allow any small business investment company holding such a
commitment to draw up to 100 percent of the remaining balance
of the commitment.
The SBIC must be in compliance with existing regulation as
of the date the funds are drawn, and must pay 0.5 percent of
any such funds not reasonably required for investment purposes
within 90 days of the draw to the Administrator in addition to
all other fees that may be due and payable with respect to such
draw.
The SBIC shall place all funds so drawn that are not
reasonably required for use by the SBIC within 90 days of the
date of the draw in an interest bearing account approved by the
Administrator. The prior approval of the Administrator shall be
required for any withdrawal from such account, which approval
shall be granted or withheld in accordance with the same
criteria as would normally apply to draws against commitments.
The Administrator's rights with respect to a SBIC that
establishes an account hereunder and is subsequently found by
the Administrator to no longer be in compliance with the
regulations shall be governed by regulations existing at the
time of such finding.
The provisions in this subtitle originated in the Small
Business Investment and Growth Act (S. 1923), introduced by
Chair Snowe in October 2005, and cosponsored by Senators
Talent, Bond, Cochran, Coleman, Isakson, Thune, and Vitter.
SUBTITLE B--DEVELOPMENT COMPANIES
To more accurately reflect the purposes of the SBA's 504
Loan Program, the bill changes the program name to Local
Development Business Loan Program (LDB Program). Materials
alreadyprepared using the name ``504 Program'' can continue to
be used, so as to save money for the SBA and program participants.
The bill authorizes an $8 billion authority level for
Fiscal Year 2007, and an $8.5 billion authority level for
Fiscal Year 2008.
The bill provides that a CDC can elect to not foreclose or
liquidate its own defaulted loans, and can instead contract
with a third party for that third party to carry out the
foreclosures and liquidations. CDCs can receive reimbursement
from the SBA for foreclosure expenses that the SBA authorizes.
By allowing certain borrowers to contribute more equity
(down-payments) if they choose, start-ups or those businesses
using the proceeds for single purpose buildings could provide
more than the required minimum amount of equity and could use
their excess investment to reduce the amount of the private
bank loan.
Businesses in communities that would qualify for a New
Markets Tax Credit can qualify as ``public policy goal'' loans
in LDB Program, and therefore can be made for larger sizes than
``regular'' LDB loans.
For the purposes of qualifying as public policy goal loan,
this bill allows businesses to qualify as ``minority owned'' if
a majority of the business's ownership interests belong to one
or more individuals who are minorities. Currently, the SBA
interprets this rule such that two or more minorities cannot
aggregate their interests (for example, two out of three
owners) to qualify the business as minority owned.
The maximum 504 and 7(a) loan eligibility provision permits
a small business to obtain financing in the maximum amount
permitted under the 504 program and also to obtain a 7(a) loan
in the maximum amount permitted under that program.
The bill permits a borrower to refinance a limited amount,
based upon a formula, of the business's pre-existing debt, if
that debt is already secured by a mortgage on the property
being expanded by the new loan.
Currently, banks participate in the 504 program by
providing the first-lien mortgage to each borrower. These banks
pay a one-time fee equal to 0.50 percent of the first lien
mortgage. Banks currently pass all of this fee on to the
Certified Development Companies (CDCs) and the borrowers. This
bill specifies that the fee is paid directly to the SBA by the
CDCs and the borrowers. The bill should not change the total
amount paid in fees by the CDCs, borrowers, and banks,
respectively. The purpose of the bill is to provide more
clarity as to which entities pay which fees, rather than
allowing banks to claim that they are responsible for a higher
percentage of the fees than is actually the case (because
currently banks pass this fee on to CDCs and borrowers).
The bill corrects a technical drafting error made in
legislation enacted in 2004. That drafting error had
inadvertently changed the meaning of the pre-existing Small
Business Investment Act of 1958, which governs the 504 loan
program. Additionally, the bill provides definitions of a
``development company'' and a ``certified development
company.''
The repeal of the sunset on reserve requirements for
Premier Certified Lenders would make permanent a temporary
statute that would otherwise expire in the summer of 2006. This
statute, enacted by Congress on a trial basis in 2004, allows
CDCs qualified by the SBA as ``Premier Certified Lenders'' to
amortize their reserve requirements and withdraw from the
reserves the amount attributable to debentures as the
debentures are re-paid. CDCs that choose to employ this new
ability are thus able to make a greater number of loans in the
program, rather than having needlessly large reserve accounts.
The current SBIA, which provides the legislative authority
for the program, does not define a CDC; it is defined only in
the SBA's regulations. This bill provides a number of criteria
to identify the types of entities that can qualify as Certified
Development Companies (CDCs) and thus participate in the LDB
Program. The standards in this Act are consistent with current
regulations. In addition, the bill also imposes ethical
requirements on CDCs, their employees, and banks participating
in the program. It provides minimum requirements for CDCs
regarding members, boards of directors, staffing and management
expertise, and use of proceeds. The bill details requirements
CDC loan review committees must meet in order to ensure that
CDCs pursue local development goals, and allows CDCs operating
in multiple states to elect to maintain their accounting on an
aggregate basis.
There has been a growing demand for 504 loans and many CDC
operations have been expanding in response to this growth.
Responding to concerns that the changes which have allowed CDCs
to expand operations into multiple states have had a
significant impact on the 504 program, the Committee included
provisions to preserve the local economic development intent
and mission of the program and to provide increased
accountability.
The Committee deliberated approaches that would allow CDCs
to meet the growing demand for 504 loans and also maintain the
program's mission of local development. The discussion focused
on keeping local representation on CDC boards and ensuring
reinvestment in local projects to create jobs, a statutory
mandate tied to each loan. This provision would give CDCs the
ability to expand to nearby, underserved areas and contiguous
states, thus addressing the increased need for 504 loans.
In order to further CDC expansion, program growth, and
increased access to capital for small business, while requiring
that local communities continue to be the main focus of the
program, the bill requires that the 25 members of the CDC board
be residents of the area of operations. It also allows an
individual to serve on the Board of Directors of two or more
CDCs (but not serve as an officer of multiple CDCs), and
removes regulatory barriers that some CDCs have argued
constrained their multi-state expansion.
The bill allows borrowers the option to include loan and
debenture closing costs in their loans.
For the purposes of making the eligibility for a larger
loan supporting a ``public policy'' goal, the SBA's definition
of a ``rural area'' in the 504 program is amended to match the
definition used by the Department of Agriculture. An area other
than a city or town with a population greater than 50,000
inhabitants, or the urbanized area contiguous and adjacent to
such a city or town, would qualify.
As part of implementing the changes contained in this
subtitle, the SBA is authorized and directed to publish
proposed regulations within 120 days of the date of enactment
and to publish final regulations within an additional 120 days.
The provisions in this subtitle originated in the Local
Development Loan Program Act (S. 2162), introduced by Chair
Snowe in December 2005 and in the 504 Loan Program
Modernization Act of 2006 (S. 2595), introduced by Senator
Kerry in April 2006, and cosponsored by Senator Pryor.
New Markets Venture Capital
The bill reauthorizes the New Markets Venture Capital
(NMVC) program for three years, through FY 2009 and makes
several important technical changes designed to increase the
effectiveness and efficiency. To this end, the definition of
``low-income geographic area'' used in the NMVC program (Small
Business Investment Act Section 351 (2)) is amended to conform
with the definition of a ``low-income community'' as defined by
the New Markets Tax Credit program (NMTC), (Section 45D of the
Internal Revenue Code of 1986). Many investors participate in
both the NMVC and NMTC programs, and a uniform definition
between the two programs will improve coordination between the
two programs, where applicable. This change will allow NMVC
companies to invest in businesses that benefit a low-income
``targeted population,'' as provided by the NMTC statute, as
well as businesses located in low-income census tracts. This
flexibility to serve low income ``targeted populations'' is
particularly important for NMVC companies operating in rural
areas with dispersed populations and census tract data that
does not reflect the pockets of poverty that exist.
The bill ensures that all existing NMVC companies can take
advantage of the amended targeting for investments made with
the capital they have already raised. The Committee encourages
the SBA to work with the Community Development Financial
Institutions Fund at the US Treasury Department to develop
regulations in a timely manner to put these statutory changes
in place and to ensure that the NMVC and the NMTC can work
together to the greatest extent possible.
The bill also provides clarity regarding the amount of time
that NMVC companies have to raise capital. The current statute
provides NMVC companies up to two years to raise the matching
private capital to participate in the program. In the past, the
SBA has interpreted this to mean that it has the discretion to
allow NMVC companies up to two years and has set the time limit
for raising private capital at shorter lengths which some of
the companies have found unreasonable. The bill clarifies the
statutory language and sets a standard time of two years for
conditionally approved NMVC companies to satisfy their
requirements for final approval. Establishing the time standard
at a full two years will provide NMVC companies more certainty
in meeting their private-capital obligations as well as
granting potential investors in aspiring NMVC companies a
longer time-frame in which to evaluate the NMVC companies and
assess the merits of an investment.
Finally, the bill calls upon the SBA to conduct a study and
subsequent report on the availability of equity capital in low-
income geographic areas. The Committee expects that such a
study will look to both urban and rural communities and examine
a range of business sectors in these communities that may lack
access to equity and venture capital resources.
As of March 31, 2006, the six NMVC Companies currently
licensed by the SBA had invested more than $26 million in 75
financings to over 39 small businesses to low income areas
across the nation; leveraged $136 million in additional
investments from other sources; provided more than $6 million
in operational assistance to 163 companies; and created or
maintained 1,626 jobs in low income communities.
By extending the NMVC program, SBA has the authority to
establish additional NMVC Companies to expand the benefits of
community development venture capital to low-income communities
that need investments
The provisions in this Title originated in the 108th
Congress when Senator Kerry proposed them for inclusion in S.
1375, the last SBA reauthorization bill adopted by the Senate.
They were deliberated and adopted but not included in the final
version that became law. In this Congress, Senator Kerry re-
introduced the measures in July 2006 as the Securing Equity for
the Economic Development of Low Income Areas Act of 2006 (S.
3680), cosponsored by Senators Bayh, Landrieu and Lieberman.
Title IV--Disaster Response
The SBA faced enormous challenges in responding to
Hurricanes Katrina and Rita in 2005. In some instances,
disaster victims waited three months or more for loans to be
processed. In an effort to aid the SBA, the Committee held two
hearings, introduced legislation and made many non-legislative
recommendations. Unfortunately, the SBA languished two months
before taking action. In response, this bill arms the SBA with
the essential tools to respond efficiently and effectively to
disasters of all sizes, and remedy the problems that prevented
or delayed the agency's front-line employees from working in
the disaster zones during the 2005 Hurricane season.
In 2005 and 2006, Chair Snowe and Senator Kerry worked with
Senators Vitter, Landrieu and Cornyn to draft legislation which
provided the SBA with additional tools to respond to these
unprecedented disasters. Additionally, the Committee worked
with Leadership, and consulted closely with Senators Lott and
Cochran, to develop a comprehensive package that would assist
small businesses in rebuilding the entire Gulf region.
Immediately after Hurricane Katrina hit, Senators Kerry and
Landrieu offered an amendment to the FY 2006 Commerce, Justice
and Science appropriations bill to address the needs of Gulf
Region small business and home owners. This amendment was
adapted and a subsequent bipartisan amendment was offered by
Chair Snowe which passed the Senate with a vote of 96-0.
Although the entire Senate supported the amendment, it was
stripped out of the bill in Conference. Consequently, on
September 19, 2005, Chair Snowe introduced a stand alone bill,
the Small Business, Homeowners, and Renters Disaster Relief Act
of 2005 (S. 1724), which was identical to the amendment.
On September 30, 2005, Chair Snowe, and Senators Kerry,
Landrieu and Vitter introduced the Small Business Hurricane
Relief and Reconstruction Act of 2006 (S. 1807). Although this
bill presented a bipartisan, comprehensive approach to
hurricane relief, it stalled due to the Administration's
opposition. Many of the tools offered in S. 1807 are reflected
in the Committee reported bill. In addition, several provisions
included in this subtitle to address problems faced by small
businesses, originated from Chair Snowe and Senator Vitter's
bill, the Small Business Partners in Reconstruction Act of
2006, (S. 2608), Senator Kerry's bill, the Small Business
Disaster Loan Reauthorization and Improvements Act of 2006 (S.
3487), and Senator Landrieu's bill, the Small Business Disaster
Recovery Assistance Improvements Act of 2006 (S. 3664).
SUBTITLE A--PRIVATE DISASTER LOANS
The bill creates a private disaster loan (PDL) program in
which loans are made by private lenders who have applied for
eligibility. Under the program, eligible businesses must be
located in an area that was declared a disaster anytime in the
last 24 months. The business will not have to show a nexus
between its need for a loan, and the disaster that occurred.
The maximum loan size is set at $3 million. For businesses
applying for PDLs of more than $250,000, collateral is
required. Loans of less than $250,000 can be made without
collateral, so long as the borrower otherwise qualifies and is
approved by the bank. The maximum term of the loan is set at 25
years if collateral is involved and 15 years for
uncollateralized loans.
The maximum guaranty of a PDL will be 85 percent, no matter
the size of the loan. In addition, the SBA guaranty fee, which
is 2 to 3.5 percent for regular 7(a) loans, will be zero. There
will be a loan origination fee of 15 basis points per loan paid
to lenders by the SBA using appropriated funds. The bill also
provides that the size standard used to determine a PDL
borrower's eligibility will be that which is currently used in
the 7(a) program or that which is used in the 504 loan program.
The acceptable uses of the loan proceeds are the same as
those applicable to current 7(a) and 7(b) loans. In addition,
borrowers can also use the loan proceeds to acquire or develop
real estate for the purpose of selling or renting it to someone
else.
The bill authorizes the program to receive Federal
appropriations, and such appropriations will be used to reduce
the interest rate in the program by up to 3 percent. If
sufficient appropriations are provided, the interest rates
charged by banks will be subsidized so that they are reduced by
3 percent. If less appropriations are provided, the rates may
only be reduced by 2 percent, 1.5 percent, zero, etc.
For documenting each loan, lenders would be allowed to use
their own documents, subject to SBA approval, and applicants
would be permitted to use an internet or electronic application
process.
SUBTITLE B--DISASTER RELIEF AND RECONSTRUCTION
Under regulations normally in place, only homeowners,
renters, and for-profit businesses can apply for Disaster
Loans. The bill extends the eligibility to issue Disaster Loans
to non-profit institutions which was provided after the
terrorist attacks of September 11, 2001.
The bill increases the maximum size of an SBA disaster loan
from $1.5 million per loan to $5 million per loan. This
provision was also included by the Administration in its
proposal to rebuild the Gulf Coast region.
Currently, when providing a disaster loan for uninsured
damage suffered by a disaster victim, the SBA can increase the
loan amount by up to 20 percent of the uninsured portion of the
borrower's losses, so the borrower can invest in disaster
mitigation technologies such as sea walls and storm shutters.
The bill increases the amount that a borrower can borrow to
spend on disaster mitigation. It would allow the SBA to
increase the loan amount by 20 percent of the borrower's total
losses, rather than just 20 percent of the uninsured portion.
This provision was suggested by the Administration in its
proposal to rebuild the Gulf Coast region.
After a disaster, the SBA usually provides additional staff
and funding to assist only the SBA's Disaster Loans program.
However, the SBDCs, a resource partner of the SBA, have played
a critical role in providing additional assistance and
counseling to the victims of a disaster area. To assist the
SBDCs disaster recovery efforts, the bill authorizes the
Administrator to waive the $100,000 maximum size for SBDC
portability grants used for disaster response. In addition,
SBDCs will be authorized to provide services to small
businesses located outside the SBDC's own home state if the
small business concerns are located in a disaster area. The
Committee also believes that SBDCs should be allowed to operate
at disaster recovery sites if permissible.
This bill also directs the SBA to create a contracting
outreach program for small businesses located in--or having a
significant presence in--designated disaster areas. Federal
contracts and subcontracts can provide critical assistance to
small businesses located in areas devastated by natural
disasters in the form of solid business opportunities and
prompt, steady pay. In addition, government procurement would
open doors for many local small businesses to participate in
the long-term reconstruction work necessary in these areas.
While many small businesses would benefit from other forms of
disaster assistance, many of them want to get back to work and
into business as soon as possible. Technical assistance and
outreach through the SBA, the Procurement Technical Assistance
Centers, the Federal Offices of Small and Disadvantaged
Business Utilizations, and other organizations could prove
invaluable to these firms.
In its proposal to rebuild the Gulf Coast region, the
Administration proposed to increase the maximum size of SBA
surety bonds to $5 million, and provide the SBA with authority
to increase the maximum size to $10 million. Small businesses
vying for government contracts need an increase in bonds to
handle larger projects for disaster relief.
Outreach alone will not ensure fair participation of small
businesses in post-disaster reconstruction contracts. To
promote jobs creation and development in a disaster region, the
Federal government must set and follow definitive goals for
small business participation. Small businesses, particularly
those located in the disaster area and those that employ
individuals in the affected areas, should receive their fair
share of Federal contracting and subcontracting dollars.The
bill establishes a 30 percent prime contracting goal and a 40 percent
subcontracting goal on each agency's disaster-related reconstruction
contracts. These goals are compatible with the Department of Homeland
Security's and the Army Corps of Engineers' history of small business
achievements.
Moreover, the bill protects the Small Business Reservation
(SBR) for disaster-related contracts below the Simplified
Acquisition Threshold (SAT). The SAT and the SBR are normally
set at $100,000. The Federal Acquisition Streamlining Act
allowed Federal agencies to use simplified procedures for all
contracts below the SAT, but only if they attempt to place, or
``reserve,'' these contracts to qualified small businesses.
Many small businesses qualify for contracts under expedited
procedures under the Small Business Act, which would help to
move the reconstruction process forward. The SBR does not delay
relief contracting. If no qualified small business is available
to do the job, agencies can place the contract with any
qualified supplier. This provision restores the parity between
the SBR and the SAT any time the SAT is increased for disaster-
related contracts. In addition, the legislation preserves
requirements for small business subcontracting plans on large
disaster contracts, while providing a grace period to conclude
them.
In recent disaster reconstruction efforts, small
contractors have been denied access to reconstruction dollars
by paperwork and bureaucracy. Many of these contractors have
been certified to do business under the federally-funded,
Congressionally-established Disadvantaged Business Enterprise
Program (DBE). In the Federal procurement system, a parallel
Small Disadvantaged Business (SDB) Program exists. The bill
ensures that capable small contractors enjoy full reciprocity
between Federal and federally-funded contracting programs for
small business concerns owned and controlled by socially and
economically disadvantaged individuals.
The bill also directs the Administrators of the OFPP and
the SBA to work with other Federal agencies to ensure creation
of multiple-award contracts for disaster recovery which are set
aside for small business concerns. In response to the Gulf
Coast hurricanes, the GAO testified before the Committee last
year that Federal agencies lacked adequate acquisition planning
for disaster relief. In response, the bill ensures that the
Federal Government establishes and maintains advance multiple
award contracts with small business concerns of all categories
on a nationwide and regional basis for the purpose of
conducting and supporting Federal disaster recovery efforts.
Additionally, the Administrator of the SBA would be required to
submit to the respective Committees on Small Business and
Entrepreneurship of the Senate and the House of Representatives
a report describing the terms, conditions, and status of the
contracts awarded during the preceding fiscal year.
The Committee believes it is necessary to strengthen the
Small Business Act's existing priority for local small
businesses which perform a substantial proportion of the
production on those contracts and subcontracts within areas of
concentrated unemployment or underemployment or within labor
surplus areas. The bill designates disaster areas as areas
eligible for this priority and authorizes Federal agencies to
use contractual set-asides, incentives, and penalties to
enhance participation of local small business concerns in
disaster recovery contracts and subcontracts. Additionally, the
bill authorizes set-asides to be performed in a targeted labor
surplus area or substantial unemployment area.
The bill also terminates the application of the Small
Business Competitiveness Demonstration (Comp Demo) program. The
Comp Demo Program denies the protections of the Small Business
Act like set-asides to small businesses involved in
construction and specialty trade contracting, refuse systems
and related services, landscaping, pest control, non-nuclear
ship repair, and architectural and engineering services,
including surveying and mapping. Historically, small businesses
have been the backbone of these industries, and these
industries are in heavy demand for disaster recovery efforts.
The Comp Demo Program, ostensibly a test program, denies
Federal agencies like the Department of Defense and nine other
agencies the ability to do small business set-asides.
Essentially, the Comp Demo Program reserves whole industries
for big business.
Last year, at the request of the Department of Defense,
Chair Snowe supported an amendment to the National Defense
Authorization Act to terminate the Comp Demo Program. The
Senate agreed that small businesses in all industries should
receive the full protections of the Small Business Act, and
unanimously voted to repeal this Program, but the House
rejected it in conference. Chair Snowe again sponsored the same
amendment earlier this year, and Senator Kerry co-sponsored it.
Again, the Senate approved it unanimously as part of the
National Defense Authorization Act, but the House rejected it
in conference. In addition, earlier this year the Senate
unanimously approved an amendment to the Emergency Supplemental
Appropriations Act for the Global War on Terror and Hurricane
Relief, sponsored by Senator Vitter and co-sponsored by Chair
Snowe, Senator Kerry, Senator Landrieu, and Senator Lott to
suspend the program for Hurricane Katrina and Rita
reconstruction projects. Again, the House rejected this
amendment in conference. Terminating this Program would go a
long way towards restoring fair treatment for small businesses
affected by disasters.
SUBTITLE C--DISASTER RESPONSE
The Federal response to the 2005 Gulf Coast hurricanes
demonstrated on a national stage the need for a reformed system
of disaster response. Victims were unable to access the capital
necessary to keep their businesses open in the aftermath, and
homeowners found the SBA's disaster loan application process
burdensome and slow. Six months after Katrina touched down in
New Orleans, 48 percent of all disaster loans remained
unprocessed. A GAO Report 06-860, ``Actions Needed to Provide
More Timely Disaster Assistance,'' reported that as of May 27,
2006, the average length of time for the SBA to process a
disaster loan had reached 74 days, well above the Agency's
stated goal of 21 days. By all accounts, the SBA failed in its
mission to respond quickly and effectively to victims' needs in
the weeks and months following the hurricanes.
Title IV, Subtitle C, includes several provisions that
originate in the Small Business Disaster Loan Reauthorization
and Improvements Act of 2006, S. 3487 introduced by Senator
Kerry, as well as S. 3664, the Small Business Disaster Recovery
Assistance Improvements Act of 2006, introduced by Senator
Landrieu.
The Committee recognizes the need to provide impacted
businesses with immediate access to capital and technical
assistance within the first 30 days following a disaster to
ensure their full recovery.
The Committee is also concerned that SBA's Gulf Opportunity
(GO) Loan program, which was initiated in November 2005 to
expedite small business financing to impacted small businesses,
only provided 222 GO Loans totaling $19 million in May 2006.
For major disasters, State-administered bridge loan
programs can serve as an effective means of providing immediate
capital to allow impacted businesses to make repairs, make
payroll, and continue operations. The Committee is aware of the
success of these state-administered programs, the problems the
SBA faced in providing timely assistance to businesses impacted
by the 2005 Hurricanes, as well as the necessity for SBA to
have the ability to provide short-term assistance. As a result,
the bill includes a provision from S. 3664 which requires that
the SBA Administrator issue, within 90 days of passage of the
bill, guidelines on an SBA-approved State bridge loan program
for future disasters. Once the guidelines are issued, states
may then submit their bridge loan programs for approval to
receive the SBA guarantee assistance on bridge loans in the
event of a disaster. This program encourages state
preparedness, provides SBA with needed flexibility for major
disasters, and would fast track immediate capital to businesses
impacted by a major disaster.
The Committee also acknowledges that certain disasters
impact businesses beyond the geographic reach of a declared
disaster area. Businesses across the nation can be affected by
a large-scale disaster that disrupts a region's economy. This
was evident in the aftermath of the terrorist attacks of
September 11, 2001, and was again an issue following the 2005
Gulf Coast hurricanes. As a result, Senator Kerry included a
provision in S. 3487 to create a new presidential declaration
of disaster--a Catastrophic National Disaster--which would be
available to provide nationwide economic injury disaster loans
to businesses outside of a disaster's geographic boundaries.
This initiative was included in the Committee's reported bill.
Following the Gulf Coast Hurricanes, the SBA staff and
volunteers found limited resources in terms of lodging in or
around the disaster areas. The difficulty in sharing records
between the IRS and SBA resulted in extended delays in the loan
application process. Disaster assistance application periods
differed from agency to agency, making the process of accessing
assistance confusing and burdensome for victims.
This bill incorporates several proposals from S. 3487 that
enable FEMA, SBA, and other responding agencies to coordinate
efforts in the aftermath of a disaster. This bill establishes
that FEMA and SBA application periods should be consistent
whenever possible. SBA and FEMA should notify Congress ten days
prior to the date of a deadline for assistance as to whether or
not the deadline will be extended. The bill directs the
Administrator to utilize radio, television, print and web-based
outlets to communicate information regarding available
assistance under declared disasters. FEMA and SBA are directed
to enter into an agreement that ensures adequate lodging and
transportation for SBA employees, contractors and volunteers
during disaster response. The bill also directs SBA to develop
a proactive marketing plan to make the public aware of
potential disaster scenarios and what assistance is available
through FEMA and SBA.
Effective disaster response requires a clear set of
procedures to be followed. Inconsistencies in procedures can
lead to ineffective governance and breakdowns in response. In
the interest of ensuring that the SBA's regulations and
procedures are consistent, the Committee directs
theAdministrator to conduct a study to determine whether the SBA's
standard operating procedures are consistent with the agency's Federal
regulations for administering the disaster loan program.
The Committee also recognizes that in the event of a large
scale disaster, the SBA needs resources in order to effectively
manage the volume of loan applications. The bill provides for
the SBA to contract with private contractors to process
disaster loans in the event of a large scale disaster. The SBA
is also authorized to contract with loss verification
professionals to conduct loss verification services. The
Administrator is directed to work to the maximum extent
practicable with the Commissioner of the Internal Revenue
Service to ensure that all relevant tax records for disaster
loan applicants are shared in an expedited manner. In addition,
the SBA is directed to conduct a study of how the loan
application process can be improved, including the viability of
using alternative methods for assessing ability to repay a loan
beyond a victim's credit rating. Too often, victims who
otherwise would be eligible for an SBA loan are denied as a
result of poor credit, however the process does not take into
account the extraordinary circumstances under which the credit
rating has gone down. The SBA's methods for assessing ability
to repay should take these circumstances into account.
The Committee is concerned that the SBA did not have a
proactive, comprehensive disaster response plan in place in
August 2005. The Committee is aware that GAO will be issuing a
report in the coming months that will assess the extent to
which SBA has developed a comprehensive disaster response plan
and how this could impact the SBA's ability to provide timely
assistance to Gulf Coast hurricane victims. The Committee was
pleased to learn that since May 2006, SBA has been developing a
comprehensive disaster response plan and that the SBA provided
a status report to the Committee on this plan on July 15, 2006.
The Committee expects the SBA to build upon the lessons learned
from responding to numerous hurricanes during the 2005 season
to ensure that the agency is better prepared for future
disasters.
The bill directs the SBA, no later than January 31, 2007,
to submit to the Committee, along with the House Small Business
Committee, the comprehensive disaster response plan of the
Administration, along with a report detailing any updates or
modifications made to the disaster response plan submitted July
14, 2006. This plan shall include a description of how the
Administrator intends to utilize district office personnel, a
description of the disaster scalability model, a description of
how the agency-wide Disaster Oversight Council is structured, a
description of how the Administrator plans to coordinate
disaster response with state and local officials,
recommendations on how the Administrator can better coordinate
response efforts with the Departments of Commerce and
Agriculture, any surge plans with respect to loan processing
and loss verification, the Administrator's findings and
recommendations based on a review of the SBA response to the
2005 Gulf Coast hurricanes, and a plan for how the
Administration will provide accommodations and necessary
resources for disaster assistance personnel.
In this report, the Committee also expects the SBA to
provide information on how it plans to integrate and coordinate
the response to a disaster with the technical assistance
programs of the Administration, including the small business
development centers. Furthermore, in light of the GAO's report
titled Actions Needed to Provide More Timely Disaster
Assistance (GAO-06-860), which details why the SBA struggled to
provide timely assistance to homeowners affected by the Gulf
Coast hurricanes, the Committee directs the SBA to detail how
it plans to coordinate its efforts with the staff and resources
of the Federal Housing Administration in the U.S. Department of
Housing & Urban Development.
Also included in this bill are provisions that direct the
SBA to provide monthly reports to the House and Senate
Committees on Small Business detailing disaster loan activity
for the previous month, as well as weekly accounting reports
during times of Presidentially declared disasters. Twice during
the Gulf Coast response efforts, the SBA nearly ran out of
funding for loans, and twice Congress had to step in and ensure
that disaster loans could continue to be processed and approved
with sufficient funding. The SBA has a responsibility to inform
its oversight committees in a timely manner of any
circumstances that may prevent the agency from providing
assistance to victims.
SUBTITLE D--ENERGY EMERGENCIES
This bill includes provisions which provide the SBA
Administrator to make economic injury disaster loans of up to
$1.5 million to small businesses that experience or are likely
to experience economic injury as a result of a significant
increase in the price of heating oil, natural gas, gasoline,
propane, or kerosene. The bill defines a significant increase
as an increase of more than 40 percent of the average price
from the previous two years, taken over a period of ten days.
The bill also authorizes the Secretary of Agriculture to make
similar loans to small farms that are suffering similar
economic injury. Both the Administrator and the Secretary are
required to report to Congress on the effectiveness of the
program.
The Energy Emergency Relief Act is a four-year pilot
program that will allow small businesses and small farms to
access the critical capital necessary to sustain abnormally
high energy prices. In addition, loans may be used by borrowers
to convert from the use of heating fuel to a reusable or
renewable energy source. The Committee believes that energy
economic injury disaster loans are necessary for the
sustainability of small, energy dependent businesses and farms
during periods of increased cost, and that this program will
not only allow small businesses to remain open, but will
encourage them to seek alternative energy sources and to reduce
their dependence on conventional ones.
These provisions are from the Small Business and Farm
Energy Emergency Relief Act S. 269, introduced by Senator Kerry
in February of 2005. The bill has passed the Senate on two
separate occasions, As S. 295 in the 107th Congress and as an
amendment to the Energy Policy Act of 2005, although it was
later dropped in conference. The proposal has received
bipartisan support on both occasions.
Title V--Veterans and Members of the Guard and Reserve
SUBTITLE A--VETERANS
Currently, the SBA's Office of Veteran's Business
Development (OVBD), only receives approximately $750,000 per
year. To address the unprecedented call ups, the bill increases
funding to the SBA's OVBD in the amounts of $2 million for FY
2007, $2.1 million for FY 2008 and $2.2 million for FY 2009.
These funds can be directed toward offering assistance to
individual veteran entrepreneurs in need. Meeting veterans'
need will benefit the economy in general, and the military's
ability to retain quality military personnel. Additionally,
veterans and service-disabled veterans will be able to extend
any time limitation for any qualification, certification, or
period of participation for the time in which the veteran was
on active duty.
The bill extends the authority of the SBA's Advisory
Committee for Veterans Business Affairs until FY 2009.
SUBTITLE B--GUARD AND RESERVE
Over the last five years, 550,000 military reserve troops
have been called to serve on active duty by the Department of
Defense. As a result of larger and more frequent call-ups, many
small businesses have been forced to go without their owners
and key personnel for months, and sometimes years. The impact
has been devastating to these small firms, as the majority of
non-government employed Guard and Reserve members are either
self-employed or work for a small business. As a result,
Senators Snowe and Craig introduced legislation to improve the
Military Reservist Economic Injury Disaster Loan (MREIDL)
program.
The bill raises the maximum military reservist loan amount
to $2 million and allows the Administrator to offer loans up to
$25,000 without requiring collateral from the Guard or Reserve
Member. The bill requires the SBA and the DoD to develop a
joint website and printed materials providing information
regarding this program and also requires banks and other
lending institutions to refer the loan applicant to appropriate
technical assistance programs offered by the SBA.
To address the needs of Guard and Reservists whose
businesses are affected by call up, death, or significant
injury, the SBA and Department of Defense are directed to
conduct a study of the feasibility of creating a business
mobilization and interruption insurance program.
In light of the unprecedented military reserve call-ups,
Senator Kerry introduced a provision in the Strengthening
America's Armed Forces and Military Families Bill of Rights (S.
460), that would award grants to military reservist small
businesses that had suffered economically as a result of a
reservist having been called to active duty. This provision,
included in S. 3487 and now in this bipartisan bill, provides
grants of up to $25,000 to businesses affected by the call-up
to duty of employees who are reservists, provided the small
business concern provides a business plan demonstrating
viability for not less than three future years. The bill
authorizes $3 million for the program for each of FY 2007-2009.
SUBTITLE C--VETERANS CORPORATION
In 1999, Congress passed P.L. 106-50, which created the
National Veterans Business Development Corporation (``The
Veterans Corporation'' or ``TVC'') to provide assistance to
veteran-owned small businesses to enable them to start-up and
grow their businesses. The bill placed a specific emphasis on
small businesses owned and controlled by service-disabled
veterans. The TVC was chartered as a non-profit organization to
provide small business training and entrepreneurial services to
the nation's veterans, including service-disabled veterans
througha national network of newly created community-based
Veterans Business Resource Centers (VBRCs). Currently, only one of the
TVC's four VBRCs is operating as envisioned by the legislation.
Since its creation, the TVC failed to accomplish the
purposes for which it was created. While the TVC's purpose and
mission are well-intentioned in practice, the Committee
believes that the structure and purpose of the TVC needed a
complete overhaul. As a result, Senators Kerry, Snowe, Talent,
and Akaka crafted legislation to significantly alter TVC, and
move it towards privatization.
The first step to improving the function of the TVC is to
reaffirm and focus its purpose and mission on establishing a
national network of information and assistance centers for use
by veterans and the public and modifies the TVC Board to make
Board members more accountable.
The appropriations for the TVC are authorized at $2 million
for each fiscal year, 2007-2009. However, this section requires
the TVC to collect matching funds equal to the amount of any
grant issued by the SBA.
The ultimate goal is the privatization of the TVC. This
bill moves the TVC toward this goal by reinforcing current law
requiring TVC to develop a plan to become self-sustaining
within six months from the date of enactment. To monitor its
progress toward privatization, this bill requires a GAO report
to ensure review and compliance.
Title VI--Energy Loans for Small Business Concerns
To address adverse effects of the rising costs of energy
have on small business, the bill makes SBA Express Loans
available to small businesses who wish to use this expedited
loan program. With qualified SBA lenders using their own forms
and 36 hour decision time, this program will allow small
businesses to access the much needed capital necessary for
making energy efficiency improvements or purchasing a renewable
energy system for their existing enterprise.
Title VII--Health Insurance
The most pressing issue facing small business today is the
rising cost of health insurance. Small businesses face a crisis
when it comes to securing quality, affordable health insurance
for their employees. Health insurance costs are skyrocketing,
and small businesses are trapped in stagnant, dysfunctional
state insurance markets that have little, if any, competition.
In October 2005, the Government Accountability Office (GAO)
released a report requested by Senators Snowe, Talent and Bond.
This report highlighted a frightening consolidation in the
state small group markets. Across the country, the five largest
carriers in the small group market, when combined, represented
three-quarters or more of the market in 26 of the 34 states
surveyed, and they represented 90 percent or more in 12 of
these states. In addition, the median market share of the
largest small group carrier is now 43 percent as compared to 33
percent reported in 2002.
Further compounding matters, many small businesses do not
possess the resources or personnel to navigate the complex
health care landscape. The Committee supports efforts to
increase small business awareness of health insurance options
in their geographic areas. The bill establishes a four-year,
pilot grant program to provide information, counseling, and
educational materials to small businesses, through the well-
established national framework of the SBDCs. The Committee
believes that SBDCs provide an appropriate mechanism to
disseminate information about health insurance options to small
businesses. Recent research conducted by the non-partisan
Healthcare Leadership Council found that with a short
educational and counseling session, small businesses were up to
33 percent more likely to offer health insurance to their
employees.
Specifically, the bill requires the SBA Administrator to
establish the pilot, competitive grant program within 30 days
of enactment. The program will make grants to SBDCs to provide
information and educational materials regarding small business
health insurance options. The grant amounts authorized under
the program shall be not less than $150,000 per fiscal year,
and not more than $300,000 per fiscal year.
The bill also requires each participating SBDC to submit a
quarterly report to the Administrator and Chief Counsel for the
SBA Office of Advocacy. Finally, the bill authorizes $5 million
in appropriations for the first fiscal year beginning after the
date of enactment, and $5 million in appropriations for each of
the three subsequent fiscal years.
Title VIII--Women's Small Business Ownership Programs
During the Committee's reauthorization in 2003, the
Committee identified that the SBA's programs had not evolved to
meet the changing needs of women owned small businesses.
Specifically, women business leaders expressed their
frustration with the agency, the lack of results from agency
programs and services for existing women business owners, the
inactivity of the National Women's Business Council and
Interagency Committee on Women's Business Enterprise, the
limited opportunities for Federal government contracts for
women, and the lack of connection with the ``real world
problems'' facing women entrepreneurs on a day-to-day basis.
In response, Chair Snowe introduced the Women's Small
Business Programs Improvement Act (S. 1154) and the Women's
Business Centers Preservation Act of 2003 (S. 1247),
cosponsored by Senator Kerry. Provisions from these bills were
then incorporated into S. 1375, the Small Business
Administration 50th Anniversary Reauthorization Act of 2003.
However, in Fiscal Year 2005, a revised version of SBA's
reauthorization was inserted into Division K of H.R. 4818, the
Consolidated Appropriations Act for 2005. While this version
included the reauthorization of the regular women's business
center program, it excluded the authorization for the women's
business center sustainability pilot program. The pilot program
was created in bipartisan legislation, the Women's Business
Center Sustainability Act of 1999, sponsored by Senator Kerry
and cosponsored by Chair Snowe. Since 2005, the pilot program
has only been reauthorized on an annual basis through the
Appropriations process, leaving the most experienced centers,
in years five through ten, operating with the uncertainty of
whether they would have an opportunity to continue to
participate in the program.
To address these concerns and to meet the increasing demand
for the program's services, in 2006, Chair Snowe along with
Senator Kerry introduced the Women's Small Business Ownership
Programs Act of 2006 (S. 3659). The provisions included in S.
3659 were incorporated and updated during the reauthorization
process.
Small Business Administration Office of Women's Business Ownership
The bill provides authority for the SBA's Office of Women's
Business Ownership to develop and make available new programs
and services for established women owned businesses addressing
issues in the areas of women in manufacturing, technology,
professional services, retail and product sales, travel and
tourism, international trade and Federal government
procurement. The Committee expects that these new programs and
services will be developed in consultation with the National
Women's Business Council, the Interagency Committee on Women's
Business Enterprise, and representatives of the women's
business centers associations.
The bill also directs the SBA to conduct training for
District Office Women Business Ownership Representatives
(existing personnel who are responsible for marketing and
outreach activities) and District Office Technical
Representatives (existing personnel who are responsible for
grant programmatic and financial oversight duties) as well as
providing resources for the District Offices to carry out their
responsibilities.
Women's Business Center Program
The Women's Business Center Program, established in 1988,
provides long-term training and counseling to encourage small
business ownership through more than 100 non-profit
organizations. The Women's Business Center Program has been
well received by recipient users and has become a unique
resource for women entrepreneurs--proving to be of great
benefit to the SBA in its quest to serve greater numbers of
entrepreneurs. Therefore, the Committee has questioned the
agency actions in support of opening new centers in new
locations before stabilizing established centers through
continued funding opportunities. The SBA has stated that after
initial funding, the centers should be able to provide services
independent of the grant program. However, since a requirement
of the Women's Business Center program is to conduct outreach
and long-term assistance to the under-served markets on a ``no-
fee'' basis, it would be difficult for a center to become self-
sufficient. The Committee supports the agency's positioning
itself to first meet the obligations of renewal grant funding
for productive centers before creating new centers.
Under the bill, beginning in Fiscal Year 2007, the Women's
Business Centers program will operate on a permanent basis,
replacing the Pilot Sustainability Grants Program. Existing
Women's Business Centers will be eligible to submit proposals
every three years as they graduate from existing grant awards.
To avoid a repetition of unexpected and unannounced actions by
the SBA in the future that may create a detrimental impact on
the delivery of programs and services, the bill clearly sets
forth the process and criteria that the agency must follow in
administering the women's business center grant program. This
process should include a review of SBA's evaluation criteria
that centers must produce an annual 10 percent increase in
client growth and SBA guaranty loans.
To improve this process, the bill directs the agency to
streamline and reduce the reporting requirements and costs of
the centers, recognizing the limited grant award and limited
human resources within the centers. All of the eligible
associations that represent Women's Business Centers (WBCs)
will also have an opportunity to consult with the SBA Office of
Women's Business Ownership for the purpose of developing
training programs for centers and recommendations to improve
the policies and procedures governing the operations and
administration of the program.
National Women's Business Council
The National Women's Business Council was created by the
Women's Business Ownership Act of 1988 to serve as an advisory
body to the President, the Congress and the SBA. Its members
came from the public and private sectors, and it was
constituted to respond to criticism of the Interagency
Committee's inactivity. By separating from the Interagency
Committee, the Council was better able to focus on its advisory
mission. The 1997 Small Business Reauthorization Act provided
for improved reporting duties and Council appointments. The
2000 Small Business Reauthorization Act increased the annual
authorized appropriation from $600,000 to $1 million to allow
the Council to broaden its scope in research and reports,
establish advisory councils, conduct conferences, and establish
an interstate communication network.
To build upon the foundation previously established for the
Council, the Committee incorporated the Council's requests to
change its research formula and establishes a 30 percent
allocation of appropriated funds for specific research. In
addition, the bill provides the Council with the authority to
create a clearinghouse on women's business ownership. At the
Council's request, the bill enables the Council to establish
working groups. The bill also provides the Council with the
same cosponsorship authority as the SBA in order for it to
expand research and program activities for women-owned small
businesses.
To ensure the Council's continuity and independence, the
bill clarifies membership representation. The Council has 15
members representing small businesses and small business
organizations, with the Chairperson appointed by the President,
six members representing women's business organizations, and
the remaining eight members appointed by the SBA Administrator
based upon recommendations of the Chair and Ranking Members of
the Senate Committee on Small Business and Entrepreneurship and
the House Committee on Small Business. Of these eight ``party-
affiliated'' members, four are to come from the same political
party as the President and four are not to be of the
President's party.
In 2003, Senator Landrieu proposed an amendment, which was
adopted by the Committee, to establish fairness in the
appointment of Council members as a result of an imbalance in
membership representation between the two political parties.
This amendment calls for equal representation of the two
political parties in the process of appointing members to fill
vacant seats on the Council and requires the Administrator to
report to Congress on vacancies that remain unfilled for more
than 30 days. In 2006, as part of this bill, the Committee
clarified the amendment to recognize a party balance for the
eight ``party-affiliated'' members. The report must cite in
detail the status of all vacancies, identifying the type of
vacancies, the process the Council will follow, and the notice
of any anticipated delays in filling the vacancies.
Interagency Committee on Women's Business Enterprise
In 1977, an interagency task force was formed and was
subsequently renamed the Interagency Council in May 1979 by
Executive Order 11213. In 1988, the Women's Business Ownership
Act (Public Law 100-533) replaced the Interagency Council with
a joint public-private sector National Women's Business
Council. The SBA Reauthorization and Amendment Act of 1994
(Public Law 103-403) revised the Interagency Council's
structure, returning all public-sector participants to comprise
an expanded Interagency Committee on Women's Business
Enterprise.
In 1994, by separating the private-sector Council from the
public-sector Interagency Committee, it was intended that the
Council would be the pro-active force to inspire action by the
Interagency Committee. The 1997 Reauthorization Act
incorporated a requirement that representatives on the
Interagency Committee report directly to the head of their
agency on the Interagency Committee's activities. There is no
funding authorization provided under current law to support the
activities on the Interagency Committee. Nor are there clear
directives on the operations and interaction of the Federal
agency and department representatives.
Currently, the Interagency Committee includes
representatives from the U.S. Departments of Commerce, Defense,
Education, Energy, Health & Human Services, Labor,
Transportation, and Treasury, the SBA, General Services
Administration, Office of Federal Procurement Policy, National
Aeronautics and Science Administration, Environmental
Protection Agency, the Federal Reserve, and the Executive
Office of the President.
The Federal agencies and departments represented on the
Interagency Committee allocate existing personnel and resources
to support participation on the Interagency Committee. The
Interagency Committee is required to submit an annual report to
the President and Congress, through the SBA, but there is no
record of the annual reports being prepared or forwarded to the
President and Congress for the past three years. In addition,
the President has not appointed a Chairperson to carry out the
mission of the Interagency Committee, and therefore, the
Interagency Committee is inactive.
To reactivate the Interagency Committee so that it can
accomplish its intended mission, the bill directs the SBA
Deputy Administrator to assume temporarily the responsibilities
of the Interagency Committee Chair, if vacant, until the
President makes an appointment. This action provides for the
continuity of activities and avoid periods of inactivity. The
bill also provides operational direction for the Interagency
Committee by requiring that the Interagency Committee conduct
three official meetings each year to plan upcoming Fiscal Year
activities; track year-to-date agency contracting goals; and
evaluate Fiscal Year progress and begin the report process.
The bill also establishes, as a subcommittee to the
Interagency Committee, a policy advisory group consisting of
representatives from the SBA, the Department of Commerce, the
Department of Labor, the Department of Defense, the Department
of the Treasury, two individuals and two organizations that are
members of the National Women's Business Council. The Committee
believes that the policy advisory group will return the
Interagency Committee to a mix of public/private members to
provide the support and direction so badly needed to revive the
intent of the Interagency Committee.
Title IX--International Trade
Exporters support over 12 million jobs and pay wages 18
percent higher than average. Ninety-seven percent of exporters
are small businesses and account for almost $300 billion of
yearly export sales--nearly one-third of total U.S. exports.
Over the last decade the number of small businesses that export
has increased by more than 250 percent. Exporting offers the
opportunity for small businesses to retain and create jobs,
position themselves for growth, enter new markets, expand their
customer base, and add product and service lines.
The SBA plays an important role in this growth through
United States Export Assistance Centers (USEACs), which provide
small or medium sized businesses with local export assistance.
In particular, USEACs provide lending and technical assistance
and help small businesses in obtaining adequate export
financing. The Committee is aware that, at a cost of less than
$2 million per year, the current group of SBA International
Finance Specialists has obtained bank financing for more than
$10 billion in U.S. exports since 1999. The $10 billion in
export sales financed by these specialists has helped to create
over 140,000 new, high-paying U.S. jobs.
However, despite these figures, the Committee is concerned
that this program is experiencing a record staffing low of 15
specialists nationwide as of July 10, 2006--down from a peak of
22 specialists in January 2000. These vacancies force the
current group of finance specialists to cover more extensive
territories, often with limited travel budgets, which
negatively impacts U.S. export potential in high export
markets. In order to expand and assist small businesses
exporters, the bill expands the trade distribution network by
ensuring SBA maintains a sufficient level of USEAC employees.
The bill ensures that in filling USEAC positions, the SBA must
first address existing positions that have been vacant since
January 2003 before filling new positions.
The Committee believes it is essential that small exporters
nationwide have access to export financing. The bill would
improve the current statute that inadvertently has the maximum
loan guaranty amount and maximum loan amount working at cross
purposes. The FY04 Omnibus legislation raised the maximum SBA
guarantee for International Trade Loans (ITLs) to $1.75
million; but kept the maximum gross loan amount limited to $2
million. As a result of these changes, and given that these
loans receive a 75 percent SBA guarantee, lenders are currently
limited to a single loan of $2 million which uses $1.5 million
in guarantee. Also, to make full use of the maximum guarantee,
the SBA must currently make a second loan to the borrower.
In order to update current legislation, the bill expands
financing to small business exporters by increasing the maximum
loan guarantee amount to $2.75 million and specifies that the
loan cap is $3.67 million. The Committee expects that working
capital to also be allowed as an eligible use for loan
proceeds. The bill also makes International Trade Loan
consistent with regular SBA 7(a) loans by allowing the same
collateral and refinancing terms as with regular 7(a) loans.
This provision originated from S. 3663, the ``Small
Business International Trade Enhancements Act of 2006,''
introduced by Senator Landrieu on July 14, 2006 and co-
sponsored by Senators Bayh, Kerry, and Pryor.
Finally, to improve the overall administration of the SBA's
international trade loan programs, the bill designates one
individual within the SBA as a trade financial specialist to
oversee the ITL programs.
Title X--Contract Bundling
Contract bundling is the consolidation of contracts in a
manner that unduly restricts competition, and was originally
prohibited under the Competition in Contracting Act (CICA) of
1984. The Small Business Reauthorization Act of 1997
supplemented CICA by defining the bundling of contract
requirements as the consolidation of two or more procurement
requirements for goods or services previously provided or
performed (or suitable for performance) under separate, smaller
contracts into a solicitation of offers for a single contract
that is likely to be unsuitable for award to a small business
concern. The requirement that at least a portion of the
contract be ``previously performed'' by small firms allows
Federal agencies to avoid bundling review by declaring large
consolidations to be ``new work.'' The statute allows the
agency to bundle its requirements if the agency has performed
sufficient market research and has justified the bundled
action.
Generally, a bundled procurement will be found necessary
and justified if the agency will derive measurably substantial
benefits as a result of consolidating the requirements into one
large contract. If the requirement involves ``substantial
bundling,'' where contract value exceeds specified thresholds
($2 million for most agencies, $5 million for the GSA, NASA,
and DOE, and $7 million for the DoD), a contracting agency must
conduct an internal analysis of the contract, submit a contract
to the SBA Procurement Center Representatives for review, and
take actions to maximize small business participation as
subcontractors at various tiers under the contract.
Bundling or consolidation of Federal contracts tends to
deprive small firms of business opportunities with the Federal
government. The size of a contract, geographic spread of
performance, or multiplicity of requirements can prevent small
firms from capitalizing on their competitive advantages,
including greater attention to customer service, superior rate
of innovation, and lower general and administrative costs. In
2002, the White House Office of Federal Procurement Policy
cited an estimate that small businesses lose over $30 for every
$100 of bundled contracts. In addition, contract bundling
drastically reduces the Federal government's supplier base,
and, especially, the defense industrial base. According to the
SBA Office of Advocacy, during the time period that contract
bundling began to increase, the number of small business
contractors receiving new contract awards dropped by over 50
percent, from 26,506 in FY 1991 to 11,651 in FY 2000.
In Report No. 105-62 on the 1997 SBA Reauthorization Act,
this Committee stated, ``often bundling results in contracts of
a size or geographic dispersion that small businesses cannot
compete for or obtain. As a result, the government can
experience a dramatic reduction in the number of offerors. This
practice, intended to reduce short term administrative costs,
can result in a monopolistic environment with a few large
businesses controlling the market supply.'' The fiscal case for
reduction in consolidated contracts is strong. For instance,
the SBA program to break up large contracts for competition
(the Breakout Procurement Center Representatives Program),
currently staffed by less than 10 people, saved the Federal
government over $2.5 billion since 1985.
On March 19, 2002, the President directed Federal agencies
to break up bundled contracts, which he defined simply as
``huge contracts with massive requirements'' that ``tend to go
to the same group of large, corporate bidders.'' The President
further stated that the Contract Bundling Initiative serves the
following goals: to ``encourage competition as opposed to
exclude competition; to make sure that the process is open; to
make sure the process helps achieve a noble objective, which is
more ownership in our country. And wherever possible, we're
going to insist that we break down large federal contracts so
that small business owners have got a fair shot at federal
contracting.''
In October 2002, the OMB Office of Federal Procurement
Policy announced a 9-point initiative to implement the
President's directive and reduce contract bundling by: (1)
ensuring accountability of senior agency management for
improving contracting opportunities for small business; (2)
ensuring timely and accurate reporting of contract bundling
information through the President's Management Council; (3)
requiring contract bundling reviews for task and delivery
orders under multiple award contract vehicles; (4) requiring
agency review of proposed acquisitions above specified
``substantial bundling'' thresholds for unnecessary and
unjustified contract bundling; (5) requiring identification of
alternative acquisition strategies for the proposed bundling of
contracts above specified thresholds and written justification
when alternatives involving less bundling are not used; (6)
mitigating the effects of contract bundling by strengthening
compliance with subcontracting plans; (7) mitigating the
effects of contract bundling by facilitating the development of
small business teams and joint ventures; (8) identifying best
practices for maximizing small business opportunities; and (9)
dedicating agency OSDBUs to the President's Small Business
Agenda.
Four years after the President's Anti-Bundling Initiative
was announced, the SBA continues to fail to provide leadership,
consistent execution, or accountability to the Initiative. For
instance, to date, the SBA has not published a ``best
practices'' guide on bundling as directed by the OMB in 2002.
Reviews by the GAO and the SBA Inspector General found that
many Federal agencies are confused about the statutory
definition of bundling. According to a GAO report GAO-04-454,
Impact of Strategy to Mitigate Effects of Contract Bundling on
Small Business is Uncertain, agencies claim to be confused by
the legal definition of bundling, and officials at two of four
agencies contacted did not know they were mandated to report
all potential bundlings. The SBA Inspector General's Audit of
the Contract Bundling Program, No. 5-20, found that agencies
and the SBA disagree on the definition of bundling, but that
the SBA failed to review over 80 percent of contracts
designated as bundled. This resulted in almost $400 million of
potential lost opportunities for small businesses. Testimony
during a recent hearing before the Committee indicated that
Federal agencies do not practice unbundling of government
contracts.
The Committee believes there is an urgent need for Federal
agencies to follow SBA's guidance on bundling and to close the
loopholes in the Federal agencies' interpretation of contract
bundling. The Committee believes that the definition of
bundling must be simplified in line with the President's
definition and in line with the original meaning of the term as
consolidation that is restrictive of competition. The
requirement that the work must have been previously performed
by small firms to be considered bundled is being removed.
The bill provides that agencies shall presumptively treat
as bundled any contract which is at least three times the
amount of the relevant substantial bundling threshold. Among
other things, this presumption will trigger all related
obligations to mitigate damage to small business concerns
through other prime contracting or subcontracting
opportunities.
The Committee believes that the recommendations of the GAO
and the SBA Inspector General on contract bundling must be
fully implemented. Specifically, the SBA must publish its best
practices guide on reducing contract bundling, and better data
on incidents and impact of bundling must be collected. The
Committee also directs the SBA to conduct government-wide
review of contract bundling policies and interpretations. The
Committee expects that the review will be conducted in such a
manner as to preserve the independence of the SBA Offices of
Advocacy and Inspector General. To ensure such independence,
the Administrator shall consult with the Offices of Advocacy
and Inspector General The Committee also expects that a policy
will be issued by the SBA tying performance evaluations and
compensation of Federal managers to the Federal agencies'
compliance with small business contracting and subcontracting
obligations.
The SBA Procurement Center Representatives (PCRs) monitor
Federal agency procurement activity to ensure that (1)
appropriate steps are taken to provide contract awards to small
businesses, (2) agencies meet their small business contracting
goals, and (3) proposed contracts that could involve
consolidated procurement requirements are identified and
resolved. PCR responsibilities include: reviewing proposed
acquisitions and recommending alternative procurement
strategies; identifying qualified small business sources;
conducting reviews of small business programs at Federal
contracting activities to ensure compliance with small business
policies; counseling small businesses; and sponsoring and
participating in small business conferences and training.
The number of PCRs, however, has shrunk dramatically in the
last 10 years. The Committee believes that the failure to
maintain sufficient levels of PCRs diminishes the SBA's ability
to carry out its statutory mandate. Reports prepared by the GAO
disclose that the SBA is struggling to accomplish its mission
and lacks the assurances that PCRs were reviewing proposed
acquisition strategies to identify barriers to small business
participation. The GAO also concluded the number of PCR-
recommended small business set-asides has declined by more than
half in the last ten years.
More importantly, the Committee recognizes that acquisition
is a technical discipline that requires knowledge and
experience to manage effectively; therefore, tasking these
responsibilities to other SBA employees as a part-time function
will not address insufficient staffing levels. The Committee
believes that locating a PCR in the small business community
and at buying activities across the country improves the
ability of these individuals to advocate and effectively assist
in the procurement of contracts for small business. The bill
requires that the SBA allocate sufficient resources to provide
for at least one PCR in each state, in addition to at least one
PCR at each major procurement center. In determining the extent
of program expansion, the Committee reviewed the current PCR
staffing levels by state.
The bill further clarifies that these individuals shall be
independent of, and have responsibilities distinct from,
Breakout Procurement Center Representatives and Commercial
Market Representatives. Many small businesses that still are
not able to sell to the Federal government rely on these
individuals to help them navigate through the complicated
procurement processes.
The Committee believes that accurate data collection is
essential in getting a handle on contract bundling by Federal
agencies. However, the SBA in the past objected to implementing
the bundling database required by law. Specifically, the SBA
argued that the database could not be created because the law
required it to contain existing information, and Federal
agencies do not collect information on bundling. The bill
provides an enhanced authority for the SBA to overcome any
impediments it may have and proceed with the construction of
the database.
Title XI--Subcontracting Integrity
Small businesses receive over $45 billion in Federal
subcontracts each year. Unfortunately, Committee oversight
revealed that subcontracting practices have been plagued with
overstatements. According to GAO Report 05-459, numerous large
contractors have overstated their small business subcontracting
achievements (some up to $30 million per contract per year) at
one Federal agency alone. The Committee strongly believes that
greater compliance and oversight must be implemented
government-wide to the fullest extent possible.
In order to prevent misrepresentations in subcontracting,
the bill provides that compliance of Federal prime contractors
with small business subcontracting plans shall be evaluated as
a percentage of obligated prime contract dollars, as well as a
percentage of subcontracts awarded, as recommended by the GAO.
In addition to implementing GAO recommendations, the
Committee largely readopted small business subcontracting
provisions which were passed unanimously by the Senate in the
108th Congress. Small businesses previously testified before
the Committee that prime contractors baited them by using them
to create competitive subcontracting plans, helping the prime
contractor win a contract, only to have the prime contractor
switch and not follow through with its subcontracting plan
commitments once the contract was awarded. If prime contractors
are able to continue to submit data on their subcontracting
efforts but are not held accountable for the accuracy of that
data, they will be tempted to submit incomplete or misleading
information.
As a result, the Committee believes more aggressive action
is needed to increase the small business subcontracting share
of Federal prime contracts. Therefore, the bill makes several
changes to the Small Business Act that hold prime contractors
responsible for the validity of subcontracting data and impose
penalties for false certifications of past compliance with
small business subcontracting.
The bill imposes penalties on prime contractors that
falsify data in reports they file with Federal agencies. These
penalties mirror current penalties for entities that
misrepresent their status as a small business concern, a
qualified HUBZone small business concern, a small business
concern owned and controlled by socially and economically
disadvantaged individuals, or a small business concern owned
and controlled by women in order to obtain Federal contracts
and subcontracts included in Section 8(d) of the Small Business
Act, which are fines of not more than $500,000, imprisonment
for not more than ten years, or both. The bill also authorizes
contracting officers to withhold payment from a prime
contractor until the prime contractor provides the agency with
complete and accurate subcontracting reports.
To prevent prime contractors from taking advantage of small
business subcontractors through bait-and-switch fraud, the bill
requires large prime contractors to certify that they will use
small business subcontractors in the amount and quality used in
preparing their winning bid or proposal unless such firms no
longer are in business or can no longer meet the quality,
quantity or delivery date. The Committee expects that Federal
agencies will use all appropriate legal and contractual
remedies to deter, punish, and recover the proceeds of such
fraud.
The bill also requires the SBA to share subcontracting
compliance review data with Federal contracting officers and to
update a national centralized government-wide database with
prime contractor past performance specifically related to
subcontracting plan compliance. The Committee intends for
Federal contracting officers to use this data to provide prime
contractors with an incentive to increase small business
subcontracting opportunities. The bill includes amendments to
Section 8(d), which provide for the consideration of proposed
small business participation as subcontractors and suppliers as
part of the process of selecting among competing offerors for
any contract award that includes significant opportunity for
subcontracting. In addition, the bill calls for recognition of
a prime contractor's past performance in supporting small
business subcontracting participation in other Federal
contracts.
The bill also includes a provision that directs the SBA to
develop and implement a pilot initiative to test the
feasibility of allowing direct payments to subcontractors.
Finally, in an effort to incentivize greater compliance
with small business subcontracting obligations, the bill
authorizes a compliance pilot program to permit contractual
incentives for companies that exceed their goals and also
provide for assessments of funds from large contractors that
fail to meet their subcontracting obligations. These
assessments will be used to fund mentor-protege assistance to
small business subcontractors, and may be counted for purposes
of subcontracting credit.
Title XII--Small Business Procurement Programs Improvement
Since its inception, the HUBZone program has facilitated
over half a billion dollars in private-sector investment by
small businesses into economically distressed areas and HUBZone
firms employ over 124,000 HUBZone residents. The bill
reauthorizes up to $10 million a year for the next six years
for the SBA HUBZone Office to conduct HUBZone certifications.
The Committee is concerned that the HUBZone program still
fails to reach all the needy areas. In general, areas can
qualify for the HUBZone program either as rural or urban
HUBZones. To qualify as an urban HUBZone, an area must be a
low-income census tract in a metropolitan statistical area--
basically, a large town where over 20 percent of the county
resides. Also, an entire rural county can qualify if certain
income or unemployment requirements (income less than 80
percent of statewide income or unemployment higher than 140
percent of state or national unemployment rate, whichever is
less) are met. Under existing rules, some rural areas in a
county may be excluded from qualification even though their
unemployment was high or income was low. To correct this
inequity, the bill expands the classification of HUBZone
eligibility to include any village, city, town, and economic
development area governed by a public authority, district, or
other unit of local government that is located in a suburban
county and that meets income or unemployment qualifications.
The Federal government continues to fall short on its goals
for contracting with service-disabled veterans. Testimony
before the Committee established that contracting officers
continue to refuse to exercise the sole-source authority for
service-disabled veterans. The bill strengthens this authority
by making sole-source awards to service-disabled veteran-owned
small firms mandatory instead of permissive. This puts disabled
veterans on par with other small business programs that have
sole-source authority. In addition, the Committee provided for
a temporary waiver of the ban on sole-source awards to service-
disabled veterans if two or more small firms owned by disabled
veterans may be available to compete. This so-called ``rule of
two'' does not apply to the 8(a) program, and this
inapplicability proved to be a useful tool in promoting
contracts with small disadvantaged businesses.
The 8(a) contracting program exists to aid socially and
economically disadvantaged businesses achieve competitiveness.
One of the methods of evaluating whether a business is
economically disadvantaged is through a net worth threshold,
which places a ceiling on the net worth of a participating
business owner. Currently, if a business owner's personal net
worth exceeds $250,000, the business is denied 8(a)
certification. Further, if a business owner's net worth exceeds
$750,000 while certified as an 8(a) business, the business is
graduated from the program. The Committee believes that a net
worth threshold is a valuable factor in the process of
evaluating a disadvantaged business. However, the threshold
should not unduly prejudice successful business owners. The
current levels of $250,000 and $750,000 were established more
than seventeen years ago and are restricting access to
legitimately disadvantaged businesses as a result of not being
adjusted for inflation. This bill instructs the SBA to make
annual inflationary adjustments to the net worth threshold so
that legitimately disadvantaged businesses are not wrongfully
denied access to the 8(a) program.
Both the Congress and the Administration have expressed
concern about the continued disparity between the number of
women-owned small businesses in the economy and the extent of
the Federal government's contracting with women-owned firms.
The Federal Acquisition Streamlining Act of 1994 established a
government-wide goal for participation by women-owned small
businesses in procurement contracts of not less than five
percent of the total value of all prime and subcontract awards
for each year. Federal agency progress towards increasing
contracting for women-owned small businesses has been slow, and
the goal has never been reached.
In 2000, Congress passed legislation to allow for certain
small business procurement set-asides for women-owned
businesses. The legislation required the promulgation of
regulations to help implement these new set-asides. The
legislation, however, conditioned the regulations on a study to
be conducted by the SBA to identify the disparate treatment of
women in various procurement industries. This study would then
serve as the basis for the regulations governing set-asides
forwomen-owned small businesses. The Committee understands that a
Federal court recently found that the SBA delayed the implementation of
this program. In order to achieve the original goal of improving
contracting opportunities for women-owned small businesses, the bill
directs the SBA to implement the program within 90 days.
The bill also reauthorizes the BusinessLINC program, which
awards grants to businesses that enter into agreements to
expand business-to-business relationships between small
businesses and government agencies or large businesses. Grants
are also available for entities that provide a database of
companies interested in mentor-protege programs or community-
based, statewide or local business development programs.
Title XIII--Acquisition Process
The bill improves collection of acquisition-related data on
contract bundling, and provides for government-wide training on
small business matters. The bill also implements the
recommendation of the White House Acquisition Advisory Panel to
authorize small business set-asides in multiple award, multi-
agency contracting vehicles in order to correct the very mixed
record of small business participation in such contracts. These
contract types were intended to reduce administrative costs of
contracting by reducing both the number of businesses and the
types of terms and conditions which had to be competed for each
task or delivery order. Under such a contract, the government
negotiates an up-front agreement on future price discounts and
delivery terms, but no actual work is performed or paid for
until task and delivery orders are issued. Small business have
been having trouble securing business through the multiple-
award contracts. For example, within the General Services
Administration (``GSA'') Federal Supply Schedules (``FSS'' or
``Schedules''), small businesses represented about 80 percent
of Schedule holders, but only 36.8 percent of Schedule sales
dollars in FY 2004.
The Small Business Act and the Federal Acquisition
Regulation require Federal agencies to set contracts aside for
small businesses if there is a reasonable expectation that two
or more small businesses would submit bids at reasonable
prices, but these general set-aside requirements have been
interpreted not to apply to multiple-award contracts.
Authorizing small business set-asides in multiple-award
contracts provides unambiguous direction to contracting
officers.
For many years, the Federal government has failed its
procurement goals with regards to women, service-disabled
veterans, and HUBZone firms. The bill implements a
recommendation of the White House Acquisition Advisory Panel to
give priority in small business set-asides to those groups for
which the relevant agency failed its small business contracting
goals.
In addition, the bill requires advance plans on small
business spending in the agencies' budgets and directs the SBA
Administrator to report to Congress annually on small business
participation in overseas government contracts.
Title XIV--Small Business Size and Status Integrity
In June 2006, the SBA announced that the Federal government
met or exceeded its statutory 23 percent small business prime
contracting goal for the third year in a row. Specifically, the
SBA claimed that small firms received $79.6 billion in Federal
contracts. However, reports from the GAO and the SBA Office of
Advocacy, and testimony by the SBA Inspector General before the
Committee, indicate that these numbers are misleading because
many large corporations have been classified as small
businesses for contracting purposes. Since FY 2003, billions of
dollars of contracts have been improperly coded as awarded to
small companies. Hearings before the Committee established that
fraud, regulatory loopholes and delays, and poor training in
small business laws and regulations contribute to the problem.
Recently, the SBA IG and the Department of Justice achieved
a $1 million settlement with a large corporation that
advertised itself as a small business for 10 years. However,
the SBA Inspector General testified that prosecutions of
companies that misrepresent their small business size and
status have been rare. Under current law, the government has
difficulty proving loss when the fraud was in the inducement to
receive a contract and not in performance of the contract. The
Inspector General testified that such cases still involve both
the societal loss and the programmatic loss to the Federal
government. To solve this problem, the bill creates an
irrebuttable statutory presumption that small business size or
status fraud constitutes a loss to the government of
contracting dollars diverted to large firms on a dollar-for-
dollar basis. The Committee intends that this presumption shall
be applied in all manner of criminal, civil, administrative,
contractual, common law, or other actions which the United
States government may take to redress such fraud and
misrepresentation.
In CMS Information Services, Inc. (2002), the GAO confirmed
that Federal agencies may properly require certification of
small business size at the time of submission of quotations on
procurements reserved for small business concerns. With regard
to task orders on interagency or government-wide multiple award
contracts like Federal Supplies Schedules at issue in that
case, this legislation codifies the CMS decision by requiring
certification on task orders. The SBA reached a similar
conclusion in Size Appeal of SETA Corporation and Federal
Emergency Management Agency, SBA No. SIZ-4477 (2002). The
Committee realizes that unforeseen situations may arise, and
intends for the SBA to fully exercise its discretion. With
regard to task orders on interagency multiple-award contracts,
the Committee intends that the SBA, in consultation with
relevant Federal agencies, would develop policies on
appropriate certification requirements which would take into
account and balance the varying features of such contracts, the
impact of potential ``ramp-offs'' on small business contracting
opportunities at the affected agencies, and the need for
integrity and adequate disclosure of the actual small business
participation. With regard to multiple-award contracts used for
intra-agency purposes only, the Committee similarly expects the
SBA to exercise its discretion. The Committee expects that the
SBA's discretion will be consistent with the existing legal
principle that company size is determined at the time of award
based on the company's initial offer, while ensuring that
reporting on small business participation shall accurately
reflect all cases where a contract previously awarded to a
small business concern or a small business concern itself have
been novated to an other than small business concern through
merger, acquisition, divestiture, or otherwise.
Further building on the CMS decision, the bill provides
that submissions of bids on small business set-asides,
registration as a small business on a procurement database, or
inducements to Federal agencies to take small business credit
for award of a contract, grant, or another funding instrument
shall be deemed certifications of small business size and
status. In addition, the bill requires paper-based
certifications by signature of responsible officials. The SBA
is given authority to promulgate ``safe harbor'' regulations to
provide protections from liability in cases where the relevant
business concern did not intentionally misrepresent its size or
status.
The SBA Inspector General testified before the Committee
that annual certification of small business size or status is
the most effective measure of ensuring integrity of small
business contracts. The Committee agrees with this view. The
Committee notes that the SBA has made its own proposal for an
annual small business certification, but has failed to
implement the regulation. The bill provides for annual
certifications of small business size and status and that small
business size or status shall be determined, as part of a
company's responsibility, at the time of the award of a
contract.
The SBA Inspector General testified before the Committee
that the SBA should be given the authority to suspend or debar
large contracts which claim to be small businesses. The bill
enacts the Inspector General's recommendation.
To root out waste, fraud, and non-compliance with
procurement laws, the Federal procurement system relies on
private bidders to bring bid protests against the improper
awards of government contracts. Protests brought at the GAO or
the U.S. Court of Federal Claims usually result in stays of
contracts awarded or to be awarded. Committee oversight
indicates that large businesses often receive small business
contracts because Federal agencies simply do not respect SBA
decisions on whether a company is large or small. For instance,
in Planned Systems International, Inc. (2004), the GAO found
that Federal agencies do not have to wait longer than 10 days
for the SBA to rule on protests that contracts reserved for
small business concerns are given to large businesses. As a
result, a Federal agency awarded a small business contract to a
large business notwithstanding the SBA's determination that the
business was not a qualified small business. Under current law,
protests to the GAO on any grounds may be stayed for 100 days,
but protests challenging small business size misrepresentations
may not be delayed beyond 10 days. The bill would remedy this
problem. The Committee believes that the SBA must be able to
decide small business size or status challenges to contracts in
the same manner and on the same terms that protests are decided
by the GAO under the Competition in Contracting Act.
The SBA Inspector General testified before the Committee
that Federal officials often lack training in small business
laws and regulations. The bill directs development of such
training courses, and also mandates a policy on prosecutions of
small business size and status fraud.
Reports and testimony from the SBA Inspector General and
the GAO indicate that small business sole-source contracting
authorities are vulnerable to ``fronting'' or the exploitation
of small businesses by large subcontractors, which can rob
small business prime contractors of the work to which small
businesses are entitled and required to perform as prime
contractors under the Small Business Act and applicable
regulations. The bill authorizes challenges of small business
size and status in sole-source contracting awards.
To ensure that Federal contracting officials are aware of
the small business size and status of companies which hold
multiple-awards contracts, the bill requires holders of such
contracts tosubmit an annual certification statement to the
government. The Committee is troubled to learn that a multi-billion
dollar corporation and its large business predecessor were able to pass
themselves off as small businesses on a GSA schedule for approximately
10 years.
Under current procurement rules, a contracting officer
designates a primary industry category for each contract, and
the bidding firm must qualify as small under the size standard
for that industry category to be given the contract as a small
business. Examples of SBA general size standards include the
following:
(1) Manufacturing: maximum number of employees may
range from 500 to 1500, depending on the type of
product manufactured;
(2) Wholesaling: maximum number of employees may
range from 100 to 500 depending on the particular
product being provided;
(3) Services: annual receipts may not exceed $2.5 to
$21.5 million, depending on the particular service
being provided;
(4) Retailing: annual receipts may not exceed $5.0 to
$21.0 million, depending on the particular product
being provided;
(5) General and heavy construction: general
construction annual receipts may not exceed $13.5 to
$17 million, depending on the type of construction;
(6) Special trade construction: annual receipts may
not exceed $7 million;
(7) Agriculture: annual receipts may not exceed $0.5
to $9.0 million, depending on the agricultural product;
and
(8) Small innovative companies participating in the
Small Business Innovation Research and the Small
Business Technology Transfer Programs: maximum number
of employees may not exceed 500.
Over the last several years, the SBA has considered
reforming and simplifying its size standards, including the
creation of tier-based standards. Under the tier-based
approach, the SBA would establish an overall cap of employees
or revenues per industry category, as appropriate, and then
establish caps at lower tiers. Contracting officers would set-
aside smaller contracts for lower-tier small firms, so that the
very small firms can grow and become ``bigger small
businesses'' that can better compete against its peers and
large corporations. Precedent for this approach exists with the
Very Small Business Program, operated by the SBA on a limited,
pilot basis. Lower-tier small firms could bid on contracts
suitable for upper-tier small firms, but not vice versa. The
bill authorizes development of tiered size standards. The
Committee recognizes that a great deal of time and effort has
been spent exploring the feasability of this proposal as well
as alternative proposals for addressing size standards. For
this reason, the Committee is authorizing the development of
tier-based size standards and leaving to the SBA's discretion
the decision on whether to develop or implement them.
Currently, the SBA does not calculate the employee size of
a small firm based on full-time equivalents (FTEs). As a
result, companies are penalized for hiring part-time help
because they may be in danger of exceeding their small business
size. The bill directs the SBA to use full-time employee
equivalents in computing size standards.
Title XV--Small Business Innovation Research (SBIR) and Small Business
Technology Transfer (STTR) Programs
Under the SBIR program, federal agencies having annual
external research and development budgets of more than $100
million must reserve 2.5 percent of the agency's research and
development funds for award to small businesses. The SBA has
encouraged innovation by overseeing government-wide policy for
the SBIR program since the program was enacted by Congress in
1982. In the 24-year history of the program, small hi-tech
firms have submitted more than 250,000 proposals, which have
resulted in over 60,000 awards worth more than $21 billion.
Approximately one-third of initial Phase I SBIR projects (which
explore the technical merits of an innovation) convert to Phase
II (which develop commercialization and manufacturing of the
innovation).
Annual SBIR Phase I and II spending amounts to about $1.8
billion a year. The SBIR program cycle is divided into three
phases. Under Phase I, small firms receive competitive grants
or contracts to develop new technologies. Competitive Phase II
grants or contracts are awarded to develop the commercial
potential of the new technology or product. These awards help
small firms to establish a successful reputation for their
technologies and to survive the so-called ``Valley of Death''
in their business cycle when the private investors alone are
unwilling to assume all the risk. In Phase III, SBIR firms are
expected to commercialize the resulting product or process, but
with no further SBIR funding.
Under the companion STTR program, agencies with an annual
external research and development budget of more than $1
billion must reserve 0.3 percent of their funds for award to
collaborative efforts between small businesses and non-profit
research institutions, generally universities or state
technology programs. The STTR Program awards about $92 million
annually to small business-research institution partnerships.
The goal of the STTR program is to take research and move it
from the lab or a university to the market through the help of
small businesses. The program is structured similarly to the
SBIR program.
SBA Office of Technology; National Advisory Board; Annual National
Small Business Innovation and Technology Transfer Plan.
Efforts to strengthen American competitiveness through
small businesses begin with the SBA's Office of Technology,
which administers and monitors the implementation of both the
SBIR and the STTR programs government-wide. As these programs
have grown, the responsibilities of the Office have increased,
such as to monitor government-wide compliance with the SBA's
SBIR and STTR Policy Directives, to carry out the Federal and
State Assistance program and the Rural Outreach program, and to
carry out the President's Executive Order 13329, Encouraging
Innovation in Manufacturing. At the same time, the budget and
staff for this Office have decreased. More specifically, since
FY 1991, the programs have more than doubled, growing from $500
million to about $2 billion a year, yet, the budget for the
Office of Technology has been cut by more than half. According
to the SBA's ``Historical Summary, Office of Technology,'' in
1991, the Office of Technology had a budget of $907,000 and 10
positions. In 2003, the Office of Technology had a budget of
$280,520 and 5 positions. This is the most recent information
available from the SBA.
The Committee has raised this issue with the agency on
numerous occasions over the years, in budget and confirmation
hearings and in letters, yet there has been no improvement in
the resources or stature for this office. Consequently, there
has been inadequate oversight of participating agencies to meet
their 2.5 percent requirement and other compliance violations
that have put at risk significant SBIR dollars. For example, at
the Missile Defense Agency, at risk was $75 million in FY 2002
and $93 million in FY 2003, and at the Air Force in FY 2005, at
risk was $175 million. Congress intervened and made sure the
agencies awarded all the funds for SBIR awards instead of
diverting the funds to other programs. The Committee urges the
agency to request that OMB and the Administration support
requests which are reasonable for the Office of Technology to
successfully operate. As another example, the SBA's FY 2003
annual reports on both programs reported two different
Department of Defense extramural budgets for research and
development (one budget in one report exceeding the same budget
in another report by about $3 billion), and despite that
significant discrepancy the SBA found that the Department of
Defense and other agencies complied with the programs'
requirements. To address this, the bill directs the GAO to
conduct periodic fiscal and management audits of the program.
The bill requires the Assistant Administrator for
Technology to be a Presidential appointee. Without a mandate
from the President, the Assistant Administrator's ability to
provide oversight and enforcement of the SBIR and STTR Policy
Directives across the Federal acquisition community would be
impaired. Since the passage of the Services Acquisition Reform
Act of 2003, the Chief Acquisition Officers in Federal agencies
are required to be senior Presidential appointees. This bill
restores the parity between the stature of the Chief
Acquisition Officers and the Assistant Administrator for
Technology who is responsible for oversight of their compliance
with the SBIR and the STTR program requirements.
The Committee believes that Congressional small business
committees must be consulted concerning appointments to head
that Office, in the same manner that relevant Congressional
committees have been consulted regarding appointments to the
White House Acquisition Advisory Panel, and that the SBA must
provide Congress with a budget for that office. To provide
continuous improvements in the administration of these
programs, the Committee believes that a National Small Business
Innovation and Technology Transfer Advisory Board must be
appointed from individuals with relevant experience to advise
the Office.
The Committee also directs the SBA to prepare and submit to
the Congress a national plan on small business innovation
research and technology transfer. The SBA is already required
to publish annual government-wide reports on SBIR and STTR, but
only at the end of each fiscal year. The SBA's report is based
on the annual statutory reports of participating agencies.
However, advance planning and technology road-mapping is needed
by Federal agencies to ensure better planning and utilization
of small hi-tech firms in Federal innovation development. Many
SBIR/STTR technologies can have applications across multiple
agencies, especially at commercialization. According to the SBA
data, in FY 2004, two out of 11 SBIR agencies (NASA and the
Department of Homeland Security) underfunded SBIR technologies.
In FY 2004, the Federal government shortchanged small business-
university partnerships in the STTR Program by $20 million. The
Committee expects the plan to be composed of annual SBIR/STTR
plans and forecasts of SBIR and STTR topics and acquisition
opportunities by each participating Federal agency and an
overall plan by the SBA. The plan will address participation of
small hi-tech firms and small business-university partnerships
in Federal R&D, as well as commercialization of SBIR and STTR
innovations.
Data from the National Science Foundation's annual Science
& Engineering Indicators reveal that small businesses
consistently receive less than five percent of Federal R&D
dollars. This exclusion of small businesses has wasted valuable
Federal R&D dollars. To unleash American innovation, Congress
must support the innovative potential of small firms as
evidenced by the following facts:
small firms represent 40 percent of highly
innovative firms (with 15 or more patents);
small firms produce 13 to 14 times more
patents per employee than large firms;
small firms' share of U.S. patents equals
small firms' share of U.S. manufacturing employment, 41
percent;
small firms' patents are on average twice as
technically important as large firm patents (2 to 1
ratio of the top one percent of the most cited
patents);
small firm innovation is twice as closely
linked to scientific research as large firm innovation
on average, and so substantially more high-tech or
leading edge;
small firm innovation is more extensively
linked to outside technology while large firms build
more of their own technology;
small firm innovators are more dependent on
local technology.
Source: SBA Office of Advocacy
To stimulate America's most innovative sector of the
economy and to remedy the problem of exclusion of small
businesses from Federal R&D, the bill permanently reauthorizes
these worthy programs. The Committee also believes that it is
time to double both the SBIR and the STTR programs, as
reflected in the bill and originated in S. 2111, the Small
Business Growth Initiative Act of 2005, introduced on December
15, 2005, by Senator Evan Bayh. Before this Committee on June
21, 2006, Senator David Vitter also called for an increase of
the SBIR program to five percent (doubling the program). Such
an increase will also benefit the universities, the
laboratories, and the research institutions which partner with
small businesses. To ensure smooth administration, the SBIR and
STTR increases are spread over five years.
Small business innovators must not only receive a greater
share of Federal funds, but also SBIR and STTR awards they
receive must reflect economic and programmatic realities.
Current law directs the SBA to adjust the size of SBIR and STTR
awards for inflation every five years, but the SBA has not done
so. For instance, the SBIR Phase II awards size has not been
increased since 1992. Phase II awards size for the STTR
program, which was created after the SBIR program, has not been
increased since 2001. The Committee is attempting to correct
this deficiency by raising the award sizes for inflation from
$100,000 to $150,000 in Phase I and $750,000 to $1,250,000 for
Phase II in both programs. The bill also addresses the problem
of ``jumbo'' awards which routinely exceed legislative
guidelines. For example, the GAO conducted a review of the
program, (GAO-06-565, ``Small Business Innovation Research:
Information on Awards Made by NIH and DoD in Fiscal Years 2001
through 2004''), and found that NIH had made a Phase I award of
$1.7 million and a Phase II award of $6.5 million. Small
businesses, particularly those in rural states, have complained
to the Committee for years that jumbo awardshurt them because
they reduce the number of grants and awards that can be given out. In
the case of a Phase I for $1.7 million, that eliminates the possibility
of 16 awards of $100,000. In the case of Phase II for $6.5 million,
that eliminates the possibility of almost seven awards of $750,000. To
address this issue, the bill prohibits Federal agencies from making an
award more than 50 percent higher than the guidelines established in
this Act, which is a cap of $225,000 for Phase I awards and $1,875,000
for Phase II awards.
The bill also provides for portability of awards between
different Federal agencies and between the two SBIR and STTR
programs by permitting eligible small business concerns to
qualify for post-Phase I awards at another agency or through
the other program. These measures ensure that small innovative
businesses receive the full opportunities for participation in
Federal R&D and the nation receives the full benefits of small
business innovations. Today, R&D efforts to meet national
priorities are conducted across Federal agencies: for instance,
the Departments of Energy and Agriculture work together on
renewable energy research, and biodefense research is pursued
by the Departments of Defense, Homeland Security, and Health
and Human Services. At the same time, research project needs
may require changes in relationships between the small business
and its research institution partner. This legislation
introduces much-needed flexibility into the SBIR and the STTR
programs.
The Federal government spends over $50 billion a year of
R&D contracts, and billions more on contracts for goods and
services which utilize innovative technologies. As a result,
Federal procurement spending can act as a strong force in
stimulating small business innovation. Public authorities and
officials in the European Union, the United Kingdom, Sweden,
and other countries have proposed a three percent pro-
innovation set-aside for their small and medium enterprises
(SMEs). To retain global competitive leadership, the Committee
believes that the United States must adopt its own three
percent pro-innovation technology insertion goal for Phase III
SBIR and STTR awards in all Federal contracts for research,
development, testing, and evaluation. This goal, as created in
the bill, could amount to approximately $1.5 billion a year in
Phase III awards, to be met either through prime contracts or
subcontracts. Because this is a technology insertion goal, a
contract or subcontract with any eligible Phase III awardee
would qualify towards this goal.
The bill addresses relevant SBIR and STTR intellectual
property protections. To attract small businesses for
participation in Federal R&D, the SBIR and the STTR programs
guarantee data rights protections to small business innovators.
Unfortunately, the scope of these protections has been
misconstrued by the U.S. Court of Federal Claims in the case of
Night Vision v. United States. The Court mistakenly relied on
the Federal Acquisition Regulation to exclude prototypes from
statutory data rights protections, even though the Small
Business Act clearly and unambiguously provides that prototypes
are within the scope of research and development activities
which are part of SBIR and STTR. The bill overrules the Night
Vision case and reasserts protections for prototypes as
consistent with current law under the Small Business Act,
providing that SBIR and STTR research and development
activities include improvement, development and design of
prototypes. In addition, this section also ensures that SBIR
and STTR data rights are protected from disclosure and reverse
engineering as trade secrets under applicable laws such as the
Federal Trade Secrets Act, that data rights protections extend
to the technical data developed at private expense but used in
the development, testing, or evaluation of SBIR or STTR
technologies, and that data rights protections apply to all
Federal contracts, subcontracts, and mentor-protege agreements.
The Committee further believes that the Court of Federal
Claims disregarded the special acquisition preference intended
by the Congress for Phase III awards by effectively placing
upon the small businesses the burden of proof that a Phase III
award would be practicable. The Committee believes that any
questions of capacity of small business concerns to perform as
Phase III awardees should be established by the relevant agency
on the record through the SBA's Certificate of Competency
determination process. The bill codifies and clarifies the
existing special acquisition preference. In addition, this
provision contains requirements for advance review of contract
solicitations on topics which duplicate SBIR or STTR awards so
that taxpayer money invested in SBIR and STTR projects is not
wasted and time, particularly on sensitive projects of health,
defense and energy, is not lost duplicating the work. To avoid
and reduce duplication, relevant Federal officials shall
consult the SBA's Tech-Net database prior to issuing the
solicitation.
Mentor-protege programs have been considered by the
industry to be an effective mechanism of promoting
participation in Federal contracts by SBIR and STTR firms.
However, the Committee is concerned that poor oversight of
mentor-protege agreements may compromise data rights
protections. The bill clarifies the applicability of SBIR and
STTR data rights protections to mentor-protege agreements with
SBIR and STTR firms.
In 2002, the SBA proposed and subsequently implemented a
requirement that SBIR firms seeking to subcontract with Federal
laboratories and research and development centers obtain a
waiver from the SBA to enter into such subcontracts. Such
subcontracts are typically concluded through cooperative
research and development agreements (CRADAs). As a result,
small firms which plan to utilize world-class technical
facilities or research capabilities of Federal labs may be
denied a waiver even after receiving their SBIR awards. The
Committee believes that greater cooperation between small
businesses and Federal labs is a worthy goal, though agencies
and departments cannot demand that a small business work with a
Federal lab in order to win the project. For that reason, the
bill permits small businesses to subcontract portions of the
work on SBIR and STTR awards to Federal labs and R&D centers
without having to seek a waiver from the SBA, as the SBA
currently requires. Small businesses receiving SBIR and STTR
awards where a portion of the work is subcontracted to Federal
labs and R&D centers shall not perform a smaller percentage of
work than is required by the SBIR and the STTR Policy
Directives. At the same time, the Committee acknowledges that
the SBA waiver process was instituted in response to attempts
by Federal agencies to recapture SBIR funds through the CRADA
subcontracting process regardless of scientific merit.
Consequently, Federal agencies shall not require small
businesses to subcontract with Federal labs and R&D centers as
a condition of receiving SBIR or STTR awards, and the SBA shall
ensure that no such requirements whatsoever are imposed. SBIR
and STTR awards shall be based strictly on merit, and
participation of Federal labs and R&D centers in SBIR and STTR
research shall be considered only to the extent that it
strengthens the merits of the proposals.
During the 108th Congress, Chair Snowe sponsored and
Senator Kerry cosponsored Senate Amendment 2531, creating the
SBIR Commercialization Pilot Program (CPP) at the Department of
Defense, which incorporated relevant amendments offered by both
Senators to S. 1042, the FY 2006 Defense Authorization bill.
Chair Snowe offered Senate Amendments 1536 and 1537, and
Senator Kerry offered Senate Amendments 1594 and 1504. The CPP
authorized incentives for prime contractors and provided
assistance to SBIR firms in order to facilitate Phase III
awards at the prime contract and the subcontract level.
Examples of appropriate incentives are provided in the May 17,
2006 guidance letter from Chair Snowe, Senator Kerry, and House
Small Business Chairman Donald Manzullo to the Undersecretary
of Defense Kenneth Krieg and in the White Paper of the Small
Business Technology Council, Incentives and Technology
Transition: Improving Commercialization of SBIR Technologies in
Major Defense Acquisition Program (Robert-Allen Baker, May
2006). This bill extends this program to other top contracting
agencies.
To promote effective enforcement of the SBIR and STTR
Policy Directives, Section 1537 requires the SBA to notify
Congress of its appeals or other actions to enforce the Policy
Directives. Likewise, the Committee expects that the SBA
Administrator will be promptly informed concerning any case or
controversy surrounding the SBIR or the STTR program. The
Committee believes that SBA must always be presented an
opportunity to defend its programs in legal proceedings.
Unfortunately, in the Night Vision case, the position of an Air
Force contracting officer on the application of the SBIR Policy
Directive was advanced as position of the United States.
In the 2000 SBIR Reauthorization Act, Congress created the
FAST program to strengthen the technological competitiveness of
small business concerns in all 50 states. At that time,
Congress also extended the SBIR Rural Outreach Grant Program
(``ROP''), which provides certain states, with relatively low
participation in the SBIR and STTR programs, an opportunity to
receive grants to support statewide efforts to increase their
participation levels in the programs. The Administration did
not request funding for the SBIR FAST and Rural Outreach
programs in the President's budget requests for fiscal years
2005, 2006, and 2007. In FY 2004, the Administration requested
funding of $3 million for the FAST program and $500,000 for the
Rural Outreach Grant Program; the FY 2004 appropriations
provided $2 million for FAST and $250,000 for the Rural
Outreach Grant program. Although the Administration made the
same funding request the previous year (FY 2003), the programs
were unfunded in FY 2003 appropriations. Instead, the SBA was
given authority to fund the program but, according to the SBA
Inspector General's Office, chose not to do so. During FY 2002
and FY 2001, the FAST program was funded at $2.7 million and $3
million, respectively.
The FAST and the ROP programs serve an important purpose,
specifically, to bring into the SBIR and the STTR programs
small businesses and state technology research organizations
from states with historically low participation in federal
small business R&D and technology contracting. In fact, the SBA
testified before the House Small Business Committee in May 2003
that ``[p]articipating agencies in the SBIR and STTR Programs
have reported a significant increase in the number of proposals
received for their current solicitations, which we believe is
attributable to outreach and training provided by FAST and
Rural Outreach grant recipients.'' While the SBA's stated
desire to consolidate FAST and ROP development services into
its District Offices to increase effectiveness and efficiency
is legitimate, the SBA simply has not made the case that its
District Offices are better suited to provide FAST and ROP
developmentservices with the focus on the needs of individual
states to the exclusion of other states in their districts. Section
1541 reauthorizes these two important programs and increases authorized
funding for the FAST program from $2 million to $5 million.
Since 2000, the SBIR program has been subject to a
Congressionally-mandated evaluation by the National Academies
of Sciences (NAS). To date, the Academies have published
several books on the subject of SBIR and submitted extensive
testimony to the Committee on July 12, 2006. The testimony and
publications from the Academies confirm the value of the SBIR
program and the need to continue it. This section extends the
authorization for the Academies' study for one year and
provides additional subjects which the Academies should
research and address. There were concerns raised that extending
the NAS's authority for one year would delay the release of the
current study, which is expected in early 2007 and which is
important to reauthorization deliberations of the program, as
well as concerns that the extension and expansion would be
construed as a mandate from Congress on the participating
agencies to pay more money for the study. This provision is not
intended to create a mandate on Federal agencies which fund
SBIR and STTR studies to provide more funding to the NAS beyond
the $5 million they have already disbursed. The provision
requires good faith negotiation between the Academies and the
agencies and gives the NAS authority to explore complementary
issues. Consequently, additional research shall be subject to
availability of funds.
In response to questions during a Committee hearing on July
12, 2006, Dr. Charles Wessner of the National Academies
testified that efforts to promote greater funding of Phase II
technologies would be valuable. Section 1543 of the bill
authorizes a pilot program to address this issue.
Additionally, the Committee believes that the innovative
potential of small businesses must be harnessed to address the
energy challenges faced by our country. The bill includes
provisions modeled after the President's Executive Order 13329,
Encouraging Innovation in Manufacturing, to give priority in
SBIR and STTR awards to energy efficiency and renewable energy
topics.
This bill addresses participation in the SBIR program of
companies majority owned by venture capital firms. Firms with
venture capital investment have always been allowed to
participate in the program, as long as they met the regulatory
size standard and affiliation rules for a small business.
However, a case brought before the SBA's Office of Hearings and
Appeals (OHA) in 2001 highlighted that there is, or has been,
some ambiguity about these standards, mostly over what it means
to be owned by an ``individual,'' and whether small businesses
owned and controlled by venture capital firms can participate.
Before that time, the SBA had never formally ruled on the
meaning of the term ``individual,'' but when the question was
brought before it, the SBA OHA ruled in 2001, 2002, and 2003,
that ``individual'' means humans and not corporations or
entities.
Since the SBIR program's creation in 1982, small business
regulatory size and affiliation rules for the SBIR program have
required firms to be for-profit and at least 51 percent owned
and controlled by ``individuals'' who are U.S. citizens or
resident aliens, and the company must have fewer than 500
employees, including affiliates as a protection against parent
companies using smaller subsidiaries to participate in the
program. In January 2005, the SBA expanded eligibility by
changing the rule regarding subsidiaries so that a subsidiary
could be owned up to 100 percent by a parent company, including
a venture capital firm, as long as the parent company itself
was owned and controlled by individuals. While that change
helped some small firms that were majority owned by venture
capital firms to meet eligibility and participate in the
program, the Committee received complaints that the definition
still excluded many small biotechnology firms that had
attracted venture capital investments. Consequently, there was
an effort to change the definition so that a company with
multiple venture capital investors with more than 51 percent
ownership and control of a company could participate in the
SBIR program.
Proponents of changing the regulations and rules as
interpreted by the SBA argued that these standards were
particularly harmful to biotechnology firms that needed
hundreds of millions of dollars and as many as 15 years to
commercialize a therapy or treatment, requiring them to seek
venture funding and relinquish ownership and control of the
firm. Even with significant venture capital investments, if
these firms had other promising research they wanted to conduct
that was too early stage to attract new venture funding, the
venture funding they had could not be used for a new project.
Thus, they needed SBIR grants to conduct new research. The
proponents also argued that firms majority owned by venture
firms had always participated in the program, that the SBA
suddenly changed the definition and rules which have been in
effect for 20 years, that funding to venture firms had
diminished since the SBA made its ruling, and that excluding
them was hurting the biotechnology industry and the development
of important therapies.
Opponents argued that the SBIR grants and awards of
$100,000 and $750,000, or even ``jumbo awards,'' were created
to serve as seed funding for firms that had not yet attracted
venture capital, not firms that had tens or even hundreds of
millions in venture capital. They argued that such firms should
not be eligible to compete for the 2.5 percent of Federal funds
designated for small businesses and instead should compete for
the other 97 percent of Federal research and development funds.
Nevertheless, the opponents were in support of creating a
separate funding source at the NIH for these mid-sized biotech
firms. They argued that the SBIR regulatory size standards and
affiliation rules as interpreted by the SBA had always existed,
but that firms self-certified and the SBA and departments and
agencies with SBIR programs were not aware that ineligible
firms were participating until a company was challenged in
2001. They argued that SBA's ruling had not led to a decrease
in SBIR grants to companies with venture capital funding, and
they disagreed that the ruling that excluded some biotech firms
was hurting the development of important therapies since the
research had not stopped, (it was simply going to other biotech
firms) ones deemed to be a small business, and the quality of
research was the same or better after the SBA's OHA rulings.
Opponents point to a GAO SBIR Report: ``Small Business
Innovation Research: Innovation on Awards Made by NIH and DoD
in Fiscal Years 2001 through 2004,'' GAO-06-565 discussed
below, to support their views.
Because no data existed on the impact of SBA's ruling, or
the extent to which firms with venture capital participated and
commercialized SBIR projects, Senators Kerry and Kennedy along
with Senators Snowe and Enzi requested that the GAO undertake a
review of awards at the NIH and DoD, the agencies that account
for the largest share of SBIR awards out of the 11 that
participate, and try to identify the extent to which venture
capital plays in the program and the impact of the ruling on
firms with venture capital and the SBIR program. Since the GAO
could not determine which firms were majority owned by venture
capital firms, the report results were inconclusive on the
questions of participation by such firms in the SBIR program.
However, the GAO could determine which ones had venture
investment, and the results showed, that the SBIR grants to
firms with venture investment actually increased, from 14
percent to 21 percent, rather than decreased, after the ruling.
The bill includes an amendment proposed by Senator Bond to
allow concerning the participation of small firms which are
majority-owned by venture capital in the SBIR program. It
authorizes any participating agency, upon submitting a written
determination to the Congressional small business committees,
to permit Venture Capital SBIR Investment Companies (small
businesses which are majority-owned by venture capital firms
and qualify under the terms of this program) to compete for
SBIR awards at such agency. The determination must demonstrate
that using the authority will lead to additional venture
funding of small business innovations, substantially contribute
to the mission of the funding agency, or otherwise fulfill the
capital needs of small business concerns for additional
funding. The provision limits majority venture-owned firms to a
maximum 25 percent of SBIR funds at the relevant agency. This
figure represents a cap on the amount that can be awarded and
is not an authorization for a set-aside for Venture Capital
SBIR Investment Companies. Although the legislation says that
the head of each participating agency may ``direct'' not more
than that amount toward this purpose, the use of the word
``direct'' should not be interpreted as a set-aside. This
distinction is important because, as Senator Kerry noted at the
markup, the legislation says that the head of each
participating agency may ``direct'' not more than that amount
toward this purpose, and there was concern that the use of the
word ``direct'' would be wrongly interpreted as a set-aside,
reducing to 75 percent the Federal research and development
funds for the other small technology firms, including firms
with venture capital funding that are not majority owned.
The Bond amendment derives its 25 percentage cap on SBIR
awards to qualified majority venture-owned small U.S. firms
from the 21 percent participation rate by venture-backed firms
in the NIH SBIR Program during 2003 and 2004, as found by the
GAO. As noted above, the GAO was unable to determine the extent
of SBIR participation by majority venture-owned firms. However,
opponents contend that the percentages do not correspond
because the 25 percent cap is for companies majority owned by
venture firms and the 21 percent should have excluded majority
owned firms, because it was derived from data captured after
the SBA's rulings and it is assumed the agencies were following
SBA's OHA rulings.
Another void identified during this process was data. The
participating agencies are not required to, and therefore do
not have, information about the extent to which firms are owned
and controlled by venture capital firms. To try and address
this, the bill requires that SBIR venture capital portfolio
companies register with the SBA. This requirement is similar to
the Small Business Investment Company (SBIC) registration
requirement.
Finally, the amendment requires that both the venture
companies which own the small firms and the small firms which
are venture portfolio companies be United States companies. The
bill also requires that the SBA small business affiliation
rules are satisfied, which means that the SBIR applicant
together with its venture capital company parent and all
affiliated companies must have less than 500 employees.
It is the Committee's intent that the increase in the
program level and the Venture Capital SBIR Investment Company
program be adopted and enacted together as contained in the
bill. The doubling of the SBIR and the STTR programs phased in
over five years, would provide more than $1.5 billion in new
funding opportunities to non-venture-backed small businesses,
which proponents contend will hold harmless the firms that are
not majority owned by venture capital firms.
Further, the bill includes an amendment proposed by Senator
Coleman during mark-up which creates new program that provides
for up to $10,000 a year in grants to SBIR firms in order to
encourage them to hire science, technology, engineering, and
mathematics students.
Title XVI--Natuve American Small Business Development
Created by Executive Order, the SBA's Office of Native
American Affairs began operations in FY 2003 to implement the
agency outreach program for Native American communities on or
near Tribal lands. The bill codifies the Office of Native
American Affairs, and outlines the qualifications and
responsibilities of the Office and its head. Additionally, the
section establishes a program that provides financial
assistance (grants, without a matching requirement, contracts,
or cooperative agreements) to tribal governments, tribal
colleges, Native Hawaiian organizations, and Alaska Native
corporations to create Native American business centers. These
centers shall conduct five year projects that offer culturally
tailored business development assistance. A Native American
business center may enter into a contract or cooperative
agreement with a Federal department or agency to provide
specific assistance to Native American and other under-served
small business concerns located on or near tribal lands, to the
extent that such contract or cooperative agreement is
consistent with the terms of any federal assistance received by
the Native American business center. This program would be
authorized at $5 million per year for Fiscal Years 2006 through
2010.
The bill establishes two Native American small business
development pilot programs. First, the Native American
Development Grant Pilot Program awards Native American
development grants to provide culturally tailored business
development training and related services to Native Americans
and Native American small business concerns. The grants may be
awarded to (i) any small business development center, or (ii)
any private, nonprofit organization that has members of an
Indian tribe comprising a majority of its board of directors,
is a Native Hawaiian organization; or an Alaska Native
corporation. The program would be authorized at $1 million per
year for Fiscal Years 2006 through 2009.
Second, the American Indian Tribal Assistance Center Grant
Pilot Program awards not less than three American Indian Tribal
Assistance Center grants to establish joint projects to provide
culturally tailored business development assistance to
prospective and current owners of small business concerns
located on or near tribal lands. The program would be
authorized at $1,000,000 per year for Fiscal Years 2006 through
2009.
The Native American small business development programs
contained in S. 3778, incorporate language from the Native
American Small Business Development Act (S. 1907), introduced
by Senator Johnson and cosponsored by Senators Kerry, Pryor,
Cantwell, Akaka, Stabenow, Boxer, Dorgan, Inouye, Murray, Smith
and Enzi, and an amendment sponsored by Senators Thune and
Enzi.
Title XVII--Small Business Regulatory Assistance
The Committee continues to strongly advocate for a targeted
regulatory reform agenda that would reduce the burdens that
Federal regulations bear on small businesses. Small businesses
are absolutely essential to the health of the U.S. economy and
any future growth, especially in a globally competitive world,
will be dependent on the success of the small business and
entrepreneurial sector of the economy. We need to assist the
nation's 25 million small businesses by stimulating innovation
and creativity, lowering the costs of starting and operating a
business, and providing the tools and resources that small
businesses need to grow and expand, create new jobs, and drive
America's economy. Small business entrepreneurs are risk takers
who persevere through good times and tough times and are
currently producing over 50 percent of our Gross Domestic
Product and creating approximately three-quarters of all new
jobs.
Unfortunately, over the past twenty years, the number and
complexity of Federal regulations have multiplied at an
alarming rate. These regulations present a much greater burden
on small businesses than larger businesses. A recent report
prepared for the SBA's Office of Advocacy found that in 2004,
the per-employee cost of federal regulations for firms with
fewer than 20 employees was $7,647. That number is 44.8 percent
higher than the $5,282 per-employee cost faced by businesses
with 500 or more workers.
At the same time, small business owners have found it
increasingly difficult to meet their regulatory obligations
while trying to successfully operate their businesses. In many
cases, small business owners do not learn about their failure
to comply with a regulation until it is too late and an
inspector or auditor walks through the door. The Committee
believes that small business owners need additional compliance
assistance tools and resources to both understand and comply
with complex regulatory actions. To that end, Senator Kerry
also introduced the National Small Business Regulatory
Assistance Act, S. 1411, cosponsored by Chair Snowe.
The bill establishes a pilot project for SBDCs to expand
their small business regulatory compliance assistance programs.
The title capitalizes on the current SBDC structure, which
provides management and technical assistance counseling and
educational programs to small business owners across the
country. Currently, there are over 1,100 SBDC service locations
in every state and territory.
The bill also establishes a four-year pilot program to
provide resources to SBDCs so they may provide free regulatory
compliance assistance and counseling to small business owners.
Section 1703 would require the SBA to provide matching grants
to SBDC programs in two states in each of the SBA's 10 regions.
The grants would be more than $150,000, but less than $300,000
and shall be consistent with the matching requirement under
current law. The bill also authorizes $5 million in
appropriations for the first fiscal year beginning after the
date of enactment, and $5 million in appropriations for each of
the three subsequent fiscal years.
The bill also requires the SBDCs to use the grants to
provide: access to information and resources, including current
Federal and State non-punitive compliance and technical
assistance programs; conduct training and educational
activities; and offer confidential, free-of-charge, one-on-one,
in-depth counseling to small business owners regarding
compliance with Federal regulations.
SBDCs participating in the pilot program would be required
to submit a quarterly report, and the SBA would have
responsibility for evaluating the pilot program and making
recommendations on the extension of the program to other SBDCs.
Finally, the SBA would promulgate final regulations to carry
out the pilot program within 180 days of passage.
Small businesses and entrepreneurs are some of the world's
greatest innovators and visionaries. They transform our lives
at lightning speed and are a critical component of our nation's
economic health and stability. It is critical to think forward
and equip America's small businesses with the knowledge and
tools to confront the challenges of tomorrow so that they can
create jobs and continue to strengthen our economy. The Small
Business Regulatory Assistance Title of the Small Business
Reauthorization and Improvements Act of 2006 will significantly
help to reduce the regulatory burdens on small businesses.
Title XVIII--Small Business Intermediary Lending Pilot Program
This bill authorizes a new three-year pilot program in
which the SBA may make loans to local non-profit lending
intermediaries, and the intermediaries can then re-loan the
funds to small businesses. The program seeks to address the
capital needs of start-up and expanding small businesses that
require flexible capital but may not be eligible for private or
public venture capital. The pilot program is aimed at
businesses that desire larger loans than can be provided under
the SBA's Microloan program and that, for a variety of reasons,
including lack of sufficient collateral, are unable to secure
the credit with practicable terms through conventional lenders,
even with the assistance of the 7(a) or 504 loan programs.
Through this pilot program, the SBA is authorized to make
one percent, 20-year loans, on a competitive basis, to up to 20
non-profit lending intermediaries around the country, with a
maximum amount of $1 million per loan. Intermediaries will not
pay any fees or provide any collateral for their loans. Each
20-year loan will capitalize a revolving loan fund through
which the intermediary will make loans of between $35,000 and
$200,000 to small businesses. These subordinated-debt loans
will be more flexible in collateral and general underwriting
requirements than the SBA's other lending programs. In
addition, intermediaries will assist their borrowers in
leveraging the SBA funds to obtain additional capital from
other sources. The pilot will test the impact of this program
on job creation in rural and urban areas, especially among
under-employed individuals.
Unlike the SBA Microloan Program, the intermediaries will
receive no technical assistance grants. All administrative
costs or technical support provided to small business borrowers
will be covered by the interest-rate spread between the lending
intermediary's one percent loan from the SBA and the interest
rate on loans made to the small business borrowers, the rate
for which will be set by the intermediary.
This program design has been utilized successfully in a
similar program at the U.S. Department of Agriculture (USDA)
that has provided loans to non-profit lending intermediaries
since 1985. Under that program, no intermediaries have
defaulted on their loans from the USDA, which are made at one
percent and have terms of 30 years, and only two percent of
intermediaries are currently delinquent on their loans. Unlike
the USDA's program, which is limited to rural areas, the pilot
will serve both urban and rural regions.
This pilot is designed to reach small businesses that 7(a)
lenders will not reach due to the perceived higher risk of
these businesses. Many states are fortunate to have a healthy
network of community based, non-profit intermediary lenders
that are experienced and successful in meeting the needs of
small businesses. This pilot program will give them additional
tools to stimulate the economy by creating jobs, including jobs
for low income individuals--and by facilitating new lending and
investing in businesses.
This section incorporates Senator Levin's bill, The Small
Business Intermediary Lending Pilot Program Act of 2005, S.
416. This pilot was also included as part of the Small Business
Administration 50th Anniversary Reauthorization Act of 2003, S.
1375, but was not included in the final reauthorization bill
signed into law.
Title XIX--Other Provisions
Compliance assistance
Over the past twenty years, the Federal Register, which
chronicles administrative actions--including proposed and final
agency rulemakings--has almost doubled in size. According to
the SBA's Office of Advocacy, individuals and businesses spend
more than $840 billion a year to comply with Federal
regulations. The impact of Federal regulations is far more
onerous and expensive on small businesses than larger
businesses. If the Federal government promulgates a rulemaking,
it must take precautions to ensure that the impact to small
businesses by the rulemaking is properly assessed. Federal
agencies should fully comply with the letter and intent of the
Small Business Regulatory Enforcement Fairness Act (SBREFA),
which the Senate unanimously passed in 1996. We must never
forget the consequences of all potential governmental actions
on the small businesses and entrepreneurs who are America's job
creators and innovators.
To ensure that Federal agencies fully comply with existing
SBREFA requirements and to provide small businesses with
additional regulatory compliance tools, in April 2005, Chair
Snowe introduced the Small Business Compliance Assistance
Enhancement Act (S. 769). This bipartisan bill, which has been
cosponsored by Senator Kerry would clarify existing
requirements under Federal law so that agencies publish useful
regulatory compliance guides for small businesses. Enacted in
1996, SBREFA purported to make the Regulatory Flexibility Act
(RFA) more effective in curtailing the impact of regulations on
small businesses. One of the most important provisions of
SBREFA compels agencies to produce compliance assistance
materials to help small businesses satisfy the requirements of
agency regulations.
Unfortunately, Federal agencies have failed to achieve this
requirement. In December 2001, the GAO issued a report (GAO-02-
172) on federal agency compliance with Section 212 of SBREFA.
Section 212 directs agencies to publish small entity compliance
guides for those rules that require a Final Regulatory
Flexibility Analysis (FRFA) under the Regulatory Flexibility
Act (RFA). The intent is for small businesses to have easy
access to detailed instructions that assist them in complying
with complicated regulations. The GAO report concluded that
agencies do a poor job of complying with the requirements of
Section 212 of SBREFA, or ignore it entirely. The GAO found,
among other things, that Section 212 does not appear to have
had much of an impact in the agencies and years that we
examined, and its implementation has varied across the
agencies. The GAO also found that SBREFA's language is unclear
in some places about what is actually required under Section
212.
Consequently, small businesses have been forced to figure
out on their own how to comply with these regulations. This
makes compliance that much more difficult to achieve, and
therefore reduces the effectiveness of the regulations. That is
why the Committee included in this bill, to close those
loopholes, and to make it clear that Congress was serious when
it instructed Federal agencies to produce quality compliance
assistance materials to help small businesses understand how to
deal with regulations.
Clarifying the requirements of Section 212 of SBREFA will
provide targeted, significant, and immediate relief to small
businesses across the country. The Committee has included a
version of the Small Business Compliance Assistance Enhancement
Act as Title XIX of the Small Business Reauthorization and
Improvements Act of 2006.
The bill is drawn directly from existing GAO
recommendations and is intended only to clarify an already
existing requirement under SBREFA. It is not intended to impose
any new rules and regulations on small businesses. Similarly,
the compliance guides produced by the agencies will produce
will be suggestions about how to satisfy a regulation's
requirements, and will not impose further requirements or
additional enforcement measures. Nor does this bill, in any
way, interfere or undercut agencies' ability to enforce their
regulations to the full extent they currently enjoy. Bad actors
must be brought to justice, but if the only trigger for
compliance is the mere threat of enforcement, then agencies
will never achieve the goals at which their regulations are
directed.
The bill clarifies existing requirements under SBREFA that
agencies publish small business compliance guides to help small
businesses understand how to comply with complicated Federal
regulations. This section would ensure that Federal agencies
produce these small business compliance guides when the
agencies promulgate rules that would have a significant impact
on a substantial number of small businesses.
Closely tracking the GAO's recommendations, the Committee
has included in reforms to SBREFA that would achieve the
following:
First, clarification of how a small business compliance
guide shall be designated. Section 212 currently requires that
agencies must ``designate'' the publications prepared under the
section as small entity compliance guides. However, the form in
which those designations should occur is not clear. Consistent
use of the phrase ``Small Entity Compliance Guide'' in the
title could make it easier for small entities to locate the
guides that the agencies develop, particularly when using on-
line searching methods--a technology that was not in wide use
when SBREFA was passed in 1996. Thus, agencies would be
directed to publish guides entitled ``Small Entity Compliance
Guide.''
Second, clarification of how a guide shall be published.
Section 212 currently states that agencies ``shall publish''
the guides, but does not indicate where or how they should be
published. At least one agency has published the guides as part
of the preamble to the subject rule, thereby requiring affected
small entities to read the complex Federal Register to obtain
the guides. The bill directs agencies at a minimum, to make
their compliance guides available through their websites in an
easily accessible way. In addition, agencies would be directed
to forward their compliance guides to known industry contacts
such as small businesses or associations with small business
members that will be affected by the regulation. Section 212
already allows agencies to work with industry representatives
such as associations in developing these guides, which should
give agencies solid contacts for distribution of the guides.
Third, clarification of when a guide shall be published.
Section 212 also does not indicate by when the compliance
guides are to be published. Therefore, even if an agency is
required to produce a compliance guide, it can claim that it
has not violated the publishing requirement because there is no
clear deadline. The bill would instruct them to publish the
compliance guides simultaneously with, or as soon as possible
after, the final rule is published, provided that the guides
must be published no later than the effective date of the
rule's compliance requirements.
Finally, clarification of the term ``compliance
requirements.'' The term ``compliance requirements'' also needs
to be clarified. At a minimum, compliance requirements must
identify what small businesses must do to satisfy the
requirements and how they will know that they have met those
requirements. This could include a description of the
procedures a small business might use to meet the requirements.
For example, if, as is the case with many OSHA and EPA
regulations, testing is required, the agency should explain how
that testing might be conducted. The section clarifies that
this procedural description would be merely suggestive--an
agency would not be able to enforce this procedure if a small
business was able to satisfy the requirements through a
different approach. Also, these procedures should not be
additional requirements related to the rule.
The Committee believes that the bill addresses a
longstanding problem small businesses have faced in their
attempts to comply with agency regulations. It would be a
``good government'' type of measure that would ultimately yield
more compliance from small businesses who are oftentimes too
small to be subject to enforcement. If an agency cannot explain
to a small business how to comply with their regulation, the
agency should reconsider how that regulation is written. The
bill should have virtually no Federal budget impact other than
agency staff time to produce these guides.
Appointment of officials
This provision requires the SBA to appoint the following
officials of the Administration with the advice and consent of
the Senate: the General Counsel; the Associate Deputy
Administrator forCapital Access; the Associate Deputy
Administrator for Management and Administration; the Associate Deputy
Administrator for Entrepreneurial Development; the Associate Deputy
Administrator for Government Contracting and Business Development; and,
the Associate Administrator for Disaster Assistance.
Second-stage pilot program
At the request of Senator Allen on behalf of Senator
Santorum, this amendment establishes a three-year pilot program
to: (1) identify second-stage small business concerns that have
the capacity for significant business growth and job creation;
(2) facilitate business growth and job creation through the
development of peer learning opportunities; (3) utilize the
network of SBDCs to expand access to peer learning
opportunities; and (4) assist businesses owned by minority
individuals, service-disabled veterans, and women.
The bill requires that no later than 60 days after
regulations are established, the Administrator will select two
eligible entities from 10 regions around the country. A grant
given to an eligible entity will not be less than $50,000 and
the money is to be used for identifying second-stage small
business concerns in the service delivery areas of the entity
and for establishing peer learning opportunities. The grant
will also be matched from sources other than the Federal
Government that is equal to the grant, or (1) in the case of a
community college, historically Black college, Hispanic serving
institution, or other minority institution, 50 percent of the
grant; (2) not less than 50 percent cash; (3) not more than 50
percent comprised of indirect costs and in-kind contributions;
and (4) does not include indirect costs or contributions from
any Federal program.
The bill requires that each entity receiving a grant shall
submit to the Administrator, in electronic form, a quarterly
report on the program. The Administrator will submit to the
President and Congress, no later than November 1st of each
year, a report evaluating the pilot program for the previous
year. No later than three years after the establishment of the
pilot program, the Comptroller General of the U.S. shall
evaluate the program and transmit to Congress and the
Administrator a report containing the results. The bill
authorizes $1.5 million per Fiscal Year 2007 through 2009.
PRIME reauthorization
The Program for Investment in Microentrepreneurs (PRIME)
was created in 1999 when the PRIME Act was incorporated and
amended in the Gramm-Leach-Bliley Act as part of the U.S.
Department of the Treasury's Community Development Financial
Institutions Program. At that time, the conferees chose to have
the program administered by the SBA. However, the statutory
provisions were never moved to the Small Business Act.
The bill reauthorizes PRIME and transfers the statutory
language for PRIME to the Small Business Act. PRIME is a
program to provide grants to intermediaries that use the funds
to: (1) train other intermediaries to develop microenterprise
training and services programs; (2) research microenterprise
practices; or (3) provide training and technical assistance to
disadvantaged entrepreneurs. This section adds a data
collection provision and reauthorizes the program at $15
million for Fiscal Years 2007, 2008 and 2009.
The provisions in this bill originated in the SBA
Microenterprise Improvements Act (S. 138), introduced by
Senator Kerry in January 2005 and cosponsored by Senators
Bingaman and Lieberman. They were included in S. 1375 as passed
by the Senate but were not included in the final small business
reauthorization bill signed into law.
Child care lending
Recognizing the critical need for child care in the United
States, the bill includes a pilot program to allow small non-
profit child-care providers to participate in the 504 program.
This three-year pilot program is the product of work on
this issue in both the 107th and 108th Congress. During a
Committee roundtable on May 1, 2003, the Committee heard from
participants in the child-care industry regarding the shortage
of affordable child care in the United States. This shortage
continues to be an issue with an estimated six million children
left at home on a regular basis, according to the Census
Bureau. This three-year pilot program responds to that shortage
by enabling lenders to make 504 loans to qualifying non-profit
child-care providers. Currently, 504 loans can be made to for-
profit child-care providers. The pilot program will be
available through Fiscal Year 2009.
While neither the SBA nor its specific loan programs are
designed to serve non-profit entities, the Committee believes
that non-profit child-care providers warrant special
consideration because the industry is unique and the shortage
is so severe in many states. In addition, in order to qualify
for certain types of Federal assistance for low income
families, such as meal assistance, a child-care provider may be
required to organize as a non-profit, rather than a for-profit,
entity, which can have a negative impact on the entity's
ability to obtain necessary capital. Whereas most service
industries are made up of for-profit businesses, in many states
a significant portion of child care is delivered through non-
profits, and in the neediest communities non-profits are often
the only child-care providers. The Committee recognizes that
entrepreneurs and employees, particularly women, cite a lack of
child care for their children as a substantial obstacle to
their ability to be more actively involved in the small
business sector of the economy.
The Committee notes that permitting non-profit child-care
providers to participate in the 504 program is not completely
unprecedented. The SBA's microloan program has permitted loans
to be made to non-profit child-care providers since 1997, and
the SBA's disaster loan program makes loans to non-profits,
such as religious entities.
The Committee stresses, however, that it does not intend to
expand the SBA's loan programs to other types of non-profit
entities in the future. The fundamental purpose of the SBA is
to foster profitable small businesses and the entrepreneurs who
start them. In order to ensure that this pilot program does not
impede the ability of for-profit businesses to access capital
through the 504 loan program, the bill limits the pilot program
to seven percent of the number of 504 loans guaranteed in any
year. Currently, less than 2 percent of 504 loans are made to
for-profit child-care providers.
Moreover, the Committee recognizes that in some
circumstances, 504 loans to certain non-profit child-care
providers could be based on collateral that may be difficult
for the lender to access. In light of that potential, the bill
requires that the collateral provided for a loan be owned
directly by the child-care provider. The loan also must be
personally guaranteed, and the borrower must have sufficient
cash flow from its normal operations to both make its loan
payments and pay for customary operating expenses. Furthermore,
the bill directs the GAO to provide to Congress a comprehensive
report analyzing the pilot program, as the program nears the
end of its three-year pilot period.
The section incorporates the provisions of the Child Care
Lending Pilot Act of 2006 (S. 2646), which Senator Kerry
introduced on April 25, 2006 and was included in the Small
Business Administration 50th Anniversary Reauthorization Act of
2003, S. 1375 but was not included in the final small business
reauthorization bill signed into law.
Study on the impact of Low-Doc program
Requested by Senator Coleman, this section provides that
not later than three months after the date of enactment of this
Act, the Administrator shall undertake a study on the
elimination of the Low Doc Program. The study shall examine:
(1) the effectiveness of the Low Doc program on rural
communities; (2) the effect of the program's elimination on
rural lending; and (3) the overall accessible and effectiveness
of rural lending for rural communities.
The Administrator must submit to the Senate Committee on
Small Business and Entrepreneurship and the House Committee on
Small Business a report containing the results of the study and
recommendations for program improvement.
Enforcement Ombudsman
At the request of Senator Burns, this section assists small
businesses with bringing cases or complaints, formal or
informal, before federal regulatory boards and agencies,
including, but not limited to, the Surface Transportation
Board, the Environmental Protection Agency, the Occupational
Health and Safety Administration, and the Federal
Communications Commission.
Minority Entrepreneurship and Innovation Pilot Program of 2006
This section was based on legislation introduced by Senator
Kerry, the Minority Entrepreneurship and Innovation Pilot
Program of 2006, (S. 2586), in April 2006, and cosponsored by
Senator Lieberman. Modeled after a program launched by the
Kauffman Foundation, the goal of this section is to target
minority students who are pursuing careers in highly skilled
fields such as engineering, manufacturing, science and
technology, and guide them towards entrepreneurship as a career
option. Minority-owned businesses already participate in a wide
variety of industries, but are disproportionately represented
in traditionally low-growth and low-opportunity service
sectors. Promoting entrepreneurial education to undergraduate
students at colleges and universities expands the pool of
potential business owners to technology, financial services,
legal services, and other ``non-traditional'' areas in which
the overall development of minority firms has been slow.
Growing the size and capacity of existingminority firms and
promoting entrepreneurship among minority students already committed to
higher education will have a direct relationship on the employment
rate, income levels and wealth creation of minorities throughout the
nation.
Beyond offering business courses, this program is intended
to transform the way colleges and universities prepare students
for success by making entrepreneurship education available
across campuses that serve large minority populations. The goal
is to enable any student, regardless of field of study, to
access entrepreneurial training and to involve faculty and
students from a variety of academic disciplines.
Specifically, the bill directs the Administrator of the SBA
to make grants to Historically Black Colleges and Universities,
Tribal Colleges, and Hispanic serving institutions, or to any
entity formed by a combination of such institutions: (1) to
assist in establishing a campus-wide entrepreneurship
curriculum for undergraduate or graduate studies; and (2) for
the placement of SBDCs on the physical campus of the
institution. The bill requires an institution of higher
education receiving a grant to: (1) develop a curriculum that
includes training in various skill sets needed by successful
entrepreneurs, including business management and marketing,
financial management and accounting, market analysis and
competitive analysis and innovation and strategic planning; and
(2) open a SBDC to provide business counseling, training and
referrals to small businesses in the local community
surrounding the campus. The SBDC is intended to foster a
culture of entrepreneurship on the campus by bringing together
the local small business community and the academic community,
the faculty and students. Recognizing the economic challenges
faced by many of these campuses serving minority communities,
the institutions are not required to provide matching funds for
the establishment of the SBDC.
The bill authorizes the pilot program for two fiscal years,
to provide grants of $500,000 per fiscal year for institutions
of higher education, and it authorizes appropriations of $10
million for each of FY 2007 and 2008.
The bill also includes protections to ensure that the funds
are not diverted to other campus expenses or budgets not
directly related to implementation of the Minority
Entrepreneurship and Innovation program.
Office of Native American Affairs pilot program
To identify and implement Native American economic
development opportunities available from the Federal Government
and private enterprise, the SBA's Office of Native American
Affairs is directed to develop and publish a self-assessment
tool for Indian tribes that will allow such tribes to evaluate
and implement best practices for economic development, and
provide assistance to Indian tribes, through the Inter-Agency
Working Group.
Institutions of higher education
The bill requires SBDC grantees that are institutions of
higher education to be accredited and grandfathers any SBDC
grantee institution of higher education that is not yet
accredited but is seeking accreditation.
III. COMMITTEE VOTE
In compliance with rule XXVI(7)(b) of the Standing Rules of
the Senate, the following votes were recorded on July 27, 2006.
A motion by Senator Snowe to adopt the following two
amendments which each passed by voice vote:
(1) Senator Coleman's amendment to establish a five-
year SBIR-STEM workforce development grant pilot
program to encourage small businesses to provide short-
term opportunities for those college students who major
in the fields of science, technology, engineering and
math. Specifically, the proposal would provide SBIR
grantees with a 10 percent bonus grant (i.e. 10 percent
of either Phase I or Phase II grant) with a total award
maximum of up to $10,000 per year that provide
opportunities such as internships for STEM students.
(2) Senator Bond's amendment caps awards to majority
venture-owned companies at 25 percent of SBIR funds at
participating agencies. The amendment also preserves
the 500 employee cap and preserves U.S. ownership of
SBIR applicant firms.
A motion by the Chair to adopt the Small Business
Reauthorization and Improvements Act of 2006 as amended, to
reauthorize the programs of the Small Business Administration
and for other purposes, was approved by a unanimous 18-0
recorded vote with the following Senators voting in the
affirmative: Snowe, Kerry, Bond, Burns, Allen, Coleman, Thune,
Isakson, Vitter, Enzi, Cornyn, Levin, Harkin, Lieberman,
Landrieu, Cantwell, Bayh, Pryor.
IV. COST ESTIMATE
In compliance with rule XXVI(11)(a)(1) of the Standing
Rules of the Senate, the Committee estimates the cost of the
legislation will be equal to the amounts discussed in the
following letter from the Congressional Budget Office.
November 15, 2006.
Hon. Olympia J. Snowe,
Chair, Committee on Small Business and Entrepreneurship
U.S. Senate, Washington, DC.
Dear Madam Chair: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 3778, the Small
Business Reauthorization and Improvements Act of 2006.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Donald B. Marron,
Acting Director.
Enclosure.
Summary: S. 3778 would authorize funding over the 2007-2009
period for operations of the Small Business Administration
(SBA) and would make a number of amendments to SBA loan
programs, programs that support entrepreneurship, and programs
that support preferences for small business in government
contracting.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing S. 3778 would cost about $5.1
billion over the 2007-2011 period. About $2.8 billion of this
amount is the estimated subsidy and administrative cost of
continuing SBA credit programs, and about $2.1 billion would be
for SBA's noncredit programs and activities. The remaining
amount, about $0.2 billion, is the estimated cost of
governmentwide efforts to provide small business contracts with
the federal government and amendments to an emergency loan
program administered by the Department of Agriculture (USDA).
By making certain expiring funds available to be spent, CBO
estimates that enacting this bill would increase direct
spending by $915 million over the 2007-2016 period. Enacting
the bill would have no significant effect on revenues.
S. 3778 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no costs on state, local, or tribal
governments.
Major Provisions: Major provisions of S. 3778 include:
2. Title I would set the maximum amounts of small business
loans that could be guaranteed by SBA for fiscal years 2007
through 2009, authorize appropriation of funds for the Service
Corps of Retired Executives (SCORE) program, the Paul Coverdell
drug-free workplace program, the Office of Veterans Business
Development, the small business development center program, and
grants under the New Markets Venture Capital program and the
microloan program. This title also would authorize the
appropriation of such sums as may be necessary for fiscal years
2007 through 2009 for salaries and expenses of the SBA, the
disaster loan program, and expenses related to the Small
Business Investment Act.
4. Title III would establish a new Small Business
Investment Company (SBIC) program, the participating debentures
program, to replace the participating securities program. Title
III also would amend the terms of participation for loans made
in prior years under the participatingsecurities program, and
would amend the loss-reserve requirement under the Premier Certified
Lenders Program.
6. Title IV would authorize five new loan and loan
guarantee programs that would benefit small businesses,
agricultural producers, and states adversely affected by
disasters. In addition, the bill would broaden the existing
disaster loan program by extending economic injury loans to
nonprofits, increasing some loan limits, and changing the
formula for calculating mitigation loans. The bill also would
authorize grants of up to $25,000 to businesses adversely
affected by the call-up of employees who are reservists.
8. Titles V, VII, VIII, XVI, and XVII would authorize the
appropriation of funds for various programs to support
entrepreneurship including the Office of Veterans Business
Development, the Women's Small Business Development Program and
the Women's National Small Business Council, and the
BusinessLINC program. This title also would authorize the
appropriation of funds for pilot programs to distribute health
insurance information to small businesses, support Native
American small business development, and help small businesses
comply with federal regulations.
10. Titles X, XI, XII, XIII, and XIV would make changes to
programs that give preference to small businesses in government
contracting.
12. Titles XVII and XIX would create a pilot program to
make mid-sized loans through intermediaries and another pilot
program that would allow certified development companies to
make loans to nonprofit child care centers.
The remaining titles of the bill would have no significant
effect on the budget.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 3778 is shown in Table 1. The costs of
this legislation fall primarily within budget function 350
(agriculture), 450 (community and regional development) and 370
(commerce and housing credit).
TABLE 1.--CHANGES IN SPENDING SUBJECT TO APPROPRIATION AND DIRECT SPENDING
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------
2007 2008 2009 2010 2011
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Changes to SBA Spending:
Estimated Authorization Level............................. 1,304 1,354 1,391 643 666
Estimated Outlays......................................... 648 1,048 1,273 1,101 871
Changes to Federal Procurement Spending:
Estimated Authorization Level............................. 32 32 32 30 30
Estimated Outlays......................................... 22 29 31 31 31
Changes to USDA Emergency Loans:
Estimated Authorization Level............................. 3 3 3 3 0
Estimated Outlays......................................... 2 3 3 3 1
Total Changes to Spending Under S. 3778:
Estimated Authorization Level............................. 1,339 1,389 1,426 676 696
Estimated Outlays......................................... 672 1,080 1,307 1,135 903
CHANGES IN DIRECT SPENDING
Estimated Budget Authority.................................... 90 825 0 0 0
Estimated Outlays............................................. 80 750 85 0 0
----------------------------------------------------------------------------------------------------------------
NOTE: SBA = Small Business Administration; USDA = Department of Agriculture.
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted early in 2007 and that the necessary
amounts will be appropriated near the start of each year.
Outlay estimates are based on historical spending patterns for
existing or similar programs. CBO estimates that implementing
S. 3778 would result in discretionary outlays of $5.1 billion
over the 2007-2011 period, assuming appropriation of the
necessary amounts. CBO estimates that enacting the bill also
would increase direct spending by $915 million over the 2007-
2016 period. Enacting the bill would have no significant effect
on revenues.
Spending subject to appropriation
S. 3778 would authorize SBA to continue its direct loan and
loan guarantee programs as well as grants to small businesses
for fiscal years 2007 through 2009. Based on information from
SBAand historical spending patterns for the agency's programs,
CBO estimates that implementing those provisions would cost $4.9
billion (including about $2.8 billion for loan program subsidies and
administrative costs) over the 2007-2011 period, assuming appropriation
of the necessary amounts (see table 2). The bill also would authorize
changes in programs outside of SBA; CBO estimates that those provisions
would cost about $0.2 billion over the 2007-2011 period.
Almost three-quarters of the discretionary spending
authorized by this bill for credit programs would be for
disaster-related loan programs. In 2006, the Congress
appropriated about $1.7 billion to SBA to make disaster loans
following the 2005 Gulf Coast hurricanes. CBO expects that the
future demand for disaster loans will be lower than that
experienced following the Gulf Coast hurricanes, and instead
will likely be similar to the historical demand for those loans
over the 2001-2005 period. Thus, the estimated annual cost of
implementing S. 3778 is less than what SBA spent in 2006.
For nondisaster programs, the bill would authorize SBA to
guarantee loans and to make direct loans to businesses with a
total loan value up to $32 billion in 2007, $34 billion in
2008, and $37 billion in 2009. By comparison, the authorized
loan level for 2006 is about $28 billion and the agency funded
direct and guaranteed loans worth about $20 billion in that
year. S. 3778 also would authorize the agency to offer new
types of direct loans and loan guarantees to small businesses,
agricultural producers, and states that have been adversely
affected by disasters. Table 3 shows the loan levels that would
be authorized by the bill, the estimated subsidy and
administrative costs for those loans, as well as the cost of
amendments to SBA grant programs and other activities
authorized by the bill.
TABLE 2.--CHANGES IN SBA SPENDING SUBJECT TO APPROPRIATION UNDER S. 3778
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------
2006 2007 2008 2009 2010 2011
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
SBA Spending Under Current Law:
Budget Authority \1\............................ 1,628 0 0 0 0 0
Estimated Outlays............................... 929 1,114 543 119 7 0
Proposed Changes:
SBA Loan Programs:
Estimated Authorization Level............... 0 721 751 785 353 376
Estimated Outlays........................... 0 440 678 757 562 403
Noncredit Programs:
Estimated Authorization Level............... 0 583 603 606 290 290
Estimated Outlays........................... 0 208 370 516 539 468
Total, Changes to SBA Spending:
Estimated Authorization Level........... 0 1,304 1,354 1,391 643 666
Estimated Outlays....................... 0 648 1,048 1,273 1,101 871
SBA Spending Under S. 3778:
Estimated Authorization Level................... 1,628 1,304 1,354 1,391 643 666
Estimated Outlays............................... 929 1,762 1,591 1,392 1,108 871
----------------------------------------------------------------------------------------------------------------
\1\ The 2006 level is the amount appropriated for that year; a full year appropriation for SBA has not yet been
provided.
The Federal Credit Reform Act (FCRA) of 1990 requires an
appropriation of subsidy costs and administrative costs
associated with loan guarantees and direct loan program
operations. The subsidy cost is the estimated long-term cost to
the government of a direct loan or a loan guarantee, calculated
on a net-present-value basis, excluding administrative costs.
Administrative costs, recorded on a cash basis, include
activities related to making, servicing, and liquidating loans,
as well as overseeing the performance of lenders.
The bill does not specify an explicit authorization for
either the subsidy or the administrative costs for SBA's
guaranteed, direct, or disaster loans; CBO estimated these
amounts using historical information about the operation of
those programs. We assume that administrative activities
related to existing loans would continue to be authorized
beyond the 2007-2009 period for which new loans would be
authorized.
TABLE 3.--ESTIMATED LOAN LEVELS, SUBSIDY, ADMINISTRATIVE, AND OTHER NONCREDIT COSTS UNDER S. 3778
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------
2007 2008 2009 2010 2011
----------------------------------------------------------------------------------------------------------------
Authorized Loan Levels
Disaster Loans \1\............................................ 1,578 1,648 1,708 28 0
Guaranteed and Direct Business Loans.......................... 31,817 34,417 37,017 0 0
Loan Subsidy Costs
Disaster Loans: \1\
Estimated Authorization Level............................. 366 386 410 3 0
Estimated Outlays......................................... 185 340 396 204 40
Guaranteed and Direct Business Loans:
Estimated Authorization Level............................. 44 44 44 0 0
Estimated Outlays......................................... 23 42 42 20 1
Loan Administration Costs
Disaster Loans:
Estimated Authorization Level............................. 186 194 202 218 239
Estimated Outlays......................................... 143 179 194 210 229
Guaranteed and Direct Business Loans:
Estimated Authorization Level............................. 128 130 132 135 137
Estimated Outlays......................................... 91 120 128 131 134
SBA Noncredit Programs
Estimated Authorization Level................................. 583 603 606 290 290
Estimated Outlays............................................. 208 370 516 539 468
Procurement and Contracting Preferences
Estimated Authorization Level................................. 32 32 32 30 30
Estimated Outlays............................................. 22 29 31 31 31
----------------------------------------------------------------------------------------------------------------
\1\ Includes USDA emergency producer loans.
Disaster Loan and Grant Programs. S. 3778 would authorize
five new direct loan or loan guarantee programs that would
benefit small businesses, agricultural producers, and states
adversely affected by disasters. It also would reauthorize and
modify the current disaster loan program for businesses and
homeowners. Assuming appropriation of the necessary funds, CBO
estimates that implementing these provisions would cost about
$2.1 billion over the 2007-2011 period.
Reauthorization of and Amendments to the Disaster Loan
Program. S. 3778 would reauthorize the disaster loan program
through 2009. In addition, the bill would broaden the disaster
loan program by making economic injury loans available to
nonprofit organizations, increasing some loan limits, and
changing the formula for calculating loan amounts for loans to
mitigate damages from natural disasters.
For this estimate, CBO expects that demand for SBA's
disaster loans would be similar to the average historical rate
of demand over the 2001-2005 period--excluding the large volume
of loans (in 2006) following the unusually severe 2005 Gulf
Coast hurricanes. We estimate that demand for disaster loans
would increase from the historical average by about 10 percent
because of the provisions in the bill that broaden the scope of
the existing disaster loan program. CBO estimates that SBA
would make disaster loans worth $875 million a year over the
2007-2009 period. Over the 2001-2005 period, annual loan volume
for the disaster loan program has ranged from about $650
million to over $1 billion.
The Administration estimates that the subsidy rate for
disaster loans is about 15 percent, based on the historical
performance of those loans. CBO has adopted that rate for
estimating subsidy costs under the regular disaster loan
program. Assuming appropriation of the necessary amounts, CBO
estimates that reauthorizing this program would cost about $395
million over the 2007-2011 period for loan subsidy costs. In
addition, CBO estimates that it would cost about $510 million
over the 2007-2011 period to administer the disaster loan
program and service the loans.
New Disaster Loan Guarantee Program. Section 401 would
establish a new loan guarantee program for small businesses
located in an area impacted by a disaster. Under the proposal,
a small business could apply directly to a private lender for a
disaster loan instead of applying to the SBA, as under current
law. Loan proceeds could be used for any authorized use under
SBA's 7(a) program or the existing disaster loan program as
well as to acquire and develop real estate for the purpose of
selling or renting it. The loan limit on individual loans would
be $3 million and the federal government would guarantee up to
85 percent of the loan. In addition, the federal government
would pay a fee to the lenders for each loan originated under
this program and could reduce the interest rate offered by
private lenders by up to 3 percent.
Due to the uncertainty of when or where a disaster might
strike, it is difficult to estimate demandfor this new program.
The terms of this new disaster loan guarantee program would be more
favorable than those of the current 7(a) program, making it attractive
to 7(a) borrowers who suffer a disaster. This new program would not
have borrower-lender fees, and the interest rate would likely be lower
than the 7(a) program due to the interest subsidy from SBA. Based on
information from SBA, CBO estimates that the subsidy rate for this new
loan guarantee could range from 12 percent to 36 percent depending on
the level of interest rate subsidy provided to the lenders. For this
estimate, we assume that most of the demand for this private disaster
loan program would come from current 7(a) borrowers who wish to
refinance their current debt into this new program.
CBO expects that approximately 1 percent of the balance of
outstanding 7(a) loan guarantees would reside within a declared
disaster area and would refinance their loans under this new
loan guarantee program each year. Depending on the location and
severity of future disasters, the number of 7(a) borrowers that
use the new program to refinance loans could vary significantly
from year to year. Based on information from SBA, CBO estimates
that the cumulative loan balance for the 7(a) program was about
$55 billion at the end of 2006. CBO expects that the cumulative
loan balance would continue to increase about 10 percent
annually. We estimate that under this new loan program, lenders
would make approximately $600 million in new loans in 2007 and
$2.0 billion over the 2007-2011 period. CBO assumes that the
SBA would guarantee 85 percent (the maximum guarantee level
authorized) of those loans and would subsidize the interest
rate at the maximum allowable level under the bill. Assuming
appropriation of the necessary funds, CBO estimates that
implementing this new loan guarantee program would cost about
$110 million in 2007 and about $715 million over the 2007-2011
period. Also, CBO estimates that additional discretionary
outlays for administrative costs would cost about $405 million
over the 2007-2011 period.
New Disaster Loan Program for States. Section 452 would
authorize the SBA to guarantee loans to states that have been
adversely affected by a disaster. The legislation would
authorize the SBA to develop regulations for this new loan
program including appropriate uses of funds, loan terms, and
loan processing fees. Currently, local governments may apply to
the Federal Emergency Management Agency (FEMA) for loans if
they have suffered a substantial loss of tax and other revenue
following a disaster. Prior to the Gulf Coast hurricanes of
2005, demand for this program was very low. Following the
catastrophic effects of the 2005 Gulf Coast hurricanes, the
Congress authorized FEMA to provide up to $1 billion in loans
to local governments.
For this estimate, CBO assumes that demand for this new
loan guarantee program would occur following rare catastrophic
events. Although CBO cannot predict the timing and severity of
future disasters, we expect that this program would have a
negligible cost over the next five years.
Catastrophe Loan Program. Under this bill, if a major
disaster causes a significant amount of damage, the President
could deem the event to be a catastrophe. If that designation
were invoked, the SBA would be able to offer economic injury
loans to small businesses nationwide that were adversely
impacted by the catastrophe. The terms of this loan program
would be identical to the terms of the economic injury loan
program under current law. CBO cannot estimate the additional
cost of this new loan program because CBO cannot predict the
timing and severity of future disasters, nor whether the
President might declare them to be catastrophic disasters. Over
the next five years, however, we expect that program would have
a negligible cost.
Energy Emergency Loan Program to Nonfarm Businesses.
Section 472 would authorize the SBA to provide loans up to $1.5
million to small businesses that have suffered substantial
economic injury as the result of a significant increase in the
price of heating fuel since October 2004. Small businesses
could use loan proceeds to convert heating systems from heating
fuel to renewable or alternative energy sources.
The average size of an economic injury loan in the existing
disaster loan program over the 2003-2005 period was about
$75,000. The SBA has distributed an average of 1,300 economic
injury loans over the 2003-2005 period. CBO estimates that
demand for the energy emergency loan program would increase the
number of economic injury loans by 40 percent. In addition, CBO
assumes that loans made to cover operating costs associated
with higher energy costs would be more risky than economic
injury loans made under the regular disaster loan program.
Therefore, CBO expects that subsidy costs associated with this
program would be higher. The existing disaster loan program has
a subsidy rate of 15 percent. Based on information from SBA,
CBO estimates that such loans would have a subsidy rate of 20
percent. CBO estimates that implementing this loan program
would cost $45 million in subsidy costs over the 2007-2011
period and about $40 million over the same period to service
and administer those new loans.
Agricultural Producer Emergency Loans. Section 473 would
amend a credit program administered by the Farm Service Agency
of the USDA. The bill would expand eligibility for the
emergency loan program to allow loans to producers with losses
resulting from increased energy costs. The provisions expanding
loan eligibility would expire four years after enactment. CBO
estimates the proposed legislation would increase the volume of
loans under the USDA program by about 40 percent and cost about
$12 million over the 2007-2011 period, assuming appropriation
of the necessary amounts.
Grants to Small Businesses. Section 453 would authorize SBA
to provide up to $25,000 to small businesses with 10 or fewer
employees that are adversely affected by the call-up of
employees who are military reservists. The SBA currently
provides economic injury loans to businesses with military
reservists on the payroll. Over the 2002-2006 period, the SBA
approved an average of about 50 such loans a year. CBO expects
that demand for this grant program would also be low. For this
estimate, CBO assumes that approximately 50 small businesses a
year would receive grants under this new program. Assuming
appropriation of the necessary funds, CBO estimates that
implementing this provision would cost about $1 million a year.
Development and Implementation of Major Disaster Response
Plan. Section 457 would authorize the SBA to amend and update
its disaster response plan to include major and catastrophic
disasters. Based on information from SBA, CBO estimates that
implementing this provision would cost $1 million in 2007.
Guaranteed and Direct Business Loan Programs. S. 3778 would
authorize direct loans and loan guarantees under SBA's business
loan programs known as the 7(a), microloan, certified
development company, and New Markets Venture Capital (NMVC)
programs.
14. Under the 7(a) program, SBA provides limited guarantees
on loans made by certain lending institutions to small
businesses.
16. Under the certified development company program (also
known as section 504 loans), SBA provides guarantees on
debentures issued by certified development companies to provide
funding to small businesses for major fixed assets such as
land, structures, machinery, and equipment.
18. The microloan program provides direct loans to
nonprofit lenders which then offer loans to small businesses
just starting up, whose capital needs are too small to qualify
for the 7(a) program.
20. The NMVC program provides guarantees on debentures
issued by companies authorized by SBA to invest in small
businesses located in low income areas.
The estimated subsidy rates for the different types of
business loans and loan guarantees offered by SBA currently
range from zero for 7(a) and section 504 programs to about 17
percent for the NMVC program. Incorporating program amendments
in the bill and using historical demand and default rates for
those loan programs, CBO estimates that the subsidy costs for
the authorized levels of guaranteed and direct business loans
would be $23 million in 2007 and about $128 million over the
2007-2011 period.
As specified in FCRA, subsidy rates do not reflect the
administrative costs to service loan programs. CBO estimates
that the administrative costs for the business loan programs
authorized in the bill would be $91 million in fiscal year 2007
and $604 million over the 2007-2011 period, adjusted annually
for anticipated inflation.
SBIC Participating Debenture Program. Through two
programs--participating securities and debentures--SBA has
provided funding to privately owned companies that provide
venture capital to small businesses, known as small business
investment companies (SBICs). SBICs are licensed by SBA and use
a combination of financing from SBA and the private sector to
provide capital to qualified small businesses.
Section 301 would establish a new SBIC program \1\--the
participating debentures program--to replace the participating
securities program, which ceased providing financing to SBICs
in 2004. Under the new program, SBICs would issue participating
debentures to SBA representing a pledge of interest payments
and a balloon payment of principal at the end of the 10-year
term of the debenture. Unlike the existing participating
securities program, an SBIC would be considered to be in
default under the new program if it failed to make required
payments of principal and interest on participating debentures.
The bill would authorize SBA to impose various fees on
borrowers to reduce the program's subsidy cost to zero.
---------------------------------------------------------------------------
\1\ Congressional Budget Office, letter to the Honorable Judd Gregg
(October 17, 2005).
---------------------------------------------------------------------------
The participating debentures program would include a profit
component similar to that of the participating securities
program. Before an SBIC would be able to make profit
distributions, it would be required to fully repay all
principal and interest due on its participating debentures.
After full repayment of the participating debentures, SBICs
would be required to use gross receipts received to make profit
distributions to both SBA and private investors.
CBO recognizes the risk associated with these investments
and assumes that profit distributions received would be similar
to returns on a federally owned investment portfolio. In
estimating such returns on risky investments, CBO's practice is
to adjust the rate of return to account for that risk. CBO used
the Treasury interest rate (the standard proxy for the return
on a risk-free investment) to estimate the cash flow from
profits that would be available for distribution.
Before incorporating fees, CBO estimates that the subsidy
rate for loans under this program would be between 15 percent
and 20 percent. That means, for example, if SBA were to make
$100 million in participating debenture loans, it would need to
collect fees over the loan term with a total net present value
of between $15 million and $20 million to fully offset the
estimated cost of loans under the program. The estimated
subsidy rate results from costs to SBA for net losses of
principal and interest due to defaults. The estimate
incorporates a 40 percent rate of default and a 35 percent rate
of recoveries on those defaults as well as a risk-adjusted
profit component. Those assumptions are based on SBA's
experience with the participating securities program, which is
similar to the new participating debentures program.
Historically, SBA has charged fees to SBICs at various
points in the financing process: one-time fees are levied at
the time SBA makes a funding commitment to an SBIC and again
when the SBIC draws down committed funds; an annual fee is
charged on outstanding loan balances as well. S. 3778 would
authorize SBA to charge guarantee fees to institutions that
provide financing to SBA for the program. CBO expects that SBA
will develop a fee schedule that will meet the bill's
requirement that the participating debenture program operate at
a zero subsidy rate. Accordingly, CBO estimates that
implementing the participating debenture program would have no
net cost.
Small Business Intermediary Lending Pilot Program. Section
1803 would authorize a three-year program to provide up to $20
million in direct loans ranging in size from $35,000 to
$200,000 to nonprofit lenders over the 2007-2009 period. The
Small Business Intermediary Lending Pilot Program would be
established to make direct loans to nonprofit intermediaries
which would, in turn, make loans to eligible small businesses.
The program, modeled after the microloan program, would feature
a 20-year loan term, an interest rate of 1 percent, and a two-
year grace period. Based on information from SBA, CBO estimates
that the subsidy rate for the program would be around 37
percent, largely due to the difference between the rate that
SBA would borrow funds and the rate SBA would charge the
borrowers. We estimate that the subsidy cost for the authorized
loan amounts would be about $7 million over the 2007-2011
period.
SBA's Noncredit Programs. S. 3778 would authorize
appropriations for several SBA programs that provide technical
support and training to qualified small businesses, the
salaries and expenses of the SBA and the disaster loan program,
as well as expenses related to the Small Business Investment
Act. Based on information from SBA, implementing these
noncredit provisions of S. 3778 would cost $208 million in 2007
and about $2.1 billion over the 2007-2011 period, assuming
appropriation of the necessary amounts.
CBO estimates that $775 million of that cost over the 2007-
2011 period would be for programs including the SCORE program,
the small business development company program, the Paul
Coverdell drug-free workplace program, women's small business
programs as well as veterans and Native American business
development programs. Technical assistance grants under the
microloan program and the New Markets Venture Capital program
would also be included in this cost.
The bill also would create several new pilot programs
including initiatives to provide health insurance information
to small businesses, help small businesses comply with federal
regulations, and promote entrepreneurship in minority
communities. CBO estimates costs for those programs would total
$87 million over the 2007-2011 period.
Salaries and expenses for SBA employees, other than those
involved in the administration of direct loans and loan
guarantees, make up the balance of the cost. CBO estimates the
cost for grant administration, advocacy, and entrepreneurial
programs--as well as programs to support preferences for small
businesses in government contracting--would be about $1.2
billion over the 2007-2011 period. We assume that these costs
will continue beyond the period in which loans would be
authorized under this bill, adjusted annually for inflation.
Procurement and Contracting Preferences for Small
Businesses. S. 3778 would make changes to a number of programs
designed to increase the participation of small businesses in
government procurement and contracting activities. Assuming
appropriation of the necessary amounts, CBO estimates these
provisions would cost about $22 million in 2007 and $144
million over the 2007-2011 period.
Specifically, section 1002 would require additional staff
to be placed in each major federal procurement center and in
certain states to help small businesses obtain federal
contracts. This provision would cost $9 million in 2007 and $60
million over the 2007-2011 period. Section 1201 would authorize
appropriations for the HUBZone program which provides
preferences in federal government contracts for small
businesses operating in economically distressed communities.
The bill specifically authorizes the appropriation of $10
million annually for this program. And finally, the bill would
require SBA and the Office of Management and Budget to expand
administrative oversight and reporting requirements related to
contract bundling, the practice of combining two or more
contracts into a single agreement. CBO estimates these new
oversight and reporting requirements would cost about $6
million annually over the 2007-2011 period.
Direct spending
Section 302 of the bill would require SBA to disburse
certain funds committed to SBICs under the participating
securities program under new terms and conditions. Under this
provision, SBICs would have 60 days prior to the expiration
date of the commitment to request the funds to be paid out by
SBA. This new authority to request funds would apply to
commitments made by SBA in 2002, 2003, and 2004; therefore,
disbursements would occur through fiscal year 2009.
Through the participating securities program, SBA provided
funding to privately owned and operated SBICs to make venture
capital investments in qualified small businesses. SBICs would
be required to share any profits earned from those investments
with SBA.
Under the program, SBA issued a commitment to provide
federal funds to an SBIC after analyzing the fiscal stability
of the SBIC, including its ability to repay any funds received
from SBA. The commitments were limited to a term of five years.
During that time, an SBIC, after demonstrating an appropriate
business need approved by SBA, could draw against the
commitment, using the funds to invest in small business
ventures or for operating liquidity. At the end of the five-
year period, the funding commitments under this program expire
and any unused amounts cease to be available to the SBICs.
Section 302 would allow SBICs, in the 60-day period before the
commitment would expire, to request payment of all committed
funds without demonstrating a business need. Based on
information from SBA, we estimate that about $1 billion in
committed funds would be available to SBICs under this
provision; we expect about 90 percent of the funds available
would be requested by SBICs.
Prior to March 2005, the Administration treated the
participating securities program as a credit program under
FCRA, so costs for the loan guarantees were recorded on a net-
present-value basis. The Administration no longer treats the
participating securities program as a credit program, however,
and now considers the program to be an equity investment in the
operation of an SBIC. Because S. 3778 would authorize
disbursement of committed-but-undrawn funds after the
participating securities program was determined to be an equity
investment rather than a loan guarantee, the full amount of the
funds drawn (rather than the present value) would be charged to
the program as direct spending on a cash basis. Based on
information from SBA, CBO estimates the cost of this measure
would be $80 million in 2007 and $915 million over the 2007-
2011 period.
Intergovernmental and private-sector impact: S. 3778
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no costs on state, local, or
tribal governments.
Estimate prepared by: Federal costs: Susan Willie, Julie
Middleton, Matthew Pickford, and Greg Hitz. Impact on State,
local, and tribal governments: Sarah Puro. Impact on the
private sector: Craig Cammarata.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
V. EVALUATION OF REGULATORY IMPACT
In compliance with rule XXVI(11)(b) of the Standing Rules
of the Senate, it is the opinion of the Committee that no
significant additional regulatory impact will be incurred in
carrying out the provisions of this legislation. There will be
no additional impact on the personal privacy of companies or
individuals who utilize the services provided.
In fact, the Committee believes that the Small Business
Reauthorization and Improvements Act of 2006 will significantly
reduce the economic impacts of regulations on individuals,
consumers, and small businesses across the country. For
example, the Compliance Assistance Title improves a landmark
small business law, the Small Business Regulatory Enforcement
Fairness Act (SBREFA)--which originally intended to aid small
businesses in understanding and complying with federal
regulations. SBREFA requires that Federal agencies publish a
small business compliance assistance guide when the agencies
promulgate rules that will have a significant impact on a
substantial number of small businesses. Unfortunately, Federal
agencies have done a poor job of meeting a basic requirement of
SBREFA over the years. The end result is small businesses have
been forced to figure out how to comply with these regulations
on their own, wasting time and creating confusion that SBREFA
was supposed to help prevent. In many instances, small business
owners do not learn about their failure to comply with a
regulation until it is too late and an inspector or auditor
walks through the door. Small business owners need additional
compliance assistance tools and resources to both understand
and comply with complex regulatory actions. The Committee
believes that the Compliance Assistance Title would close
loopholes in the original law that the Government
Accountability Office (GAO) has identified as allowing federal
agencies to either ignore or poorly fulfill their duties to
provide small businesses compliance assistance. This Title
would clarifies existing requirements under SBREFA, which
passed the Senate unanimously in 1996--providing much-needed,
targeted regulatory relief for small businesses.
Title XVII, entitled ``National Small Business Regulatory
Assistance,'' establishes a four-year pilot program to provide
resources to SBDCs so they may provide free regulatory
compliance assistance and counseling to small business owners.
The bill capitalizes on the current SBDCstructure, which
provides management and technical assistance counseling and educational
programs to small business owners. The Committee believes that this
Title helps small businesses comply with complex Federal regulations
that have multiplied at an alarming rate over the past 20 years. These
regulations have a much more significant impact on small businesses
than larger businesses.
The bill includes several other provisions that would ease
the economic and regulatory burden on small businesses. Section
601 makes 7(a) express loans available to qualifying small
businesses that wish to purchase renewable energy systems or
make energy efficiency improvements to their existing
businesses. As opposed to having to participate in the
traditional 7(a) program, this provision enables small business
to use the SBA Express program. Under this program, qualified
lenders use their own forms and procedures and they are not
required to take collateral for loans up to $25,000. Lenders
may use their existing collateral policy for loans over $25,000
up to $150,000. In addition, Section 331 removes regulatory
barriers that have constrained multi-state expansion for
Certified Development Companies (CDCs).
Finally, Section 430 provides paperwork relief for small
businesses by promoting reciprocity between the Disadvantaged
Business Enterprise Program and the Small Disadvantaged
Business Program.
VI. SECTION-BY-SECTION ANALYSIS
TITLE I--REAUTHORIZATION OF PROGRAMS
Sec. 101. Reauthorization of programs in the Small Business Act
Sec. 102. Other reauthorizations
Sec. 103. Change in average smaller loan size in Microloan program
Microloan intermediaries can receive additional technical
assistance grants from the SBA for making microloans with
smaller average loan sizes. To conform to past statutory
changes, this section increases the micro qualifying average
loan size for these grants from $7,500 to $10,000.
Sec. 104. Subsidy rate model in Microloan program
Requires the SBA to develop an improved subsidy rate model
to determine the cost of microloans.
Sec. 105. Inclusion of individuals with disabilities in ``purposes'' of
Microloan program
Requires making loans to individuals with disabilities as
one of the statutorily enumerated ``purposes'' of the microloan
program. It does not change the implementation of the program.
TITLE II--NATIONAL PREFERRED LENDERS PROGRAM
Sec. 201. National Preferred Lenders Program
Requires the SBA to issue regulations regarding a National
Preferred Lenders Program under which lenders could participate
in the SBA's Preferred Lenders Program on a nationwide basis
after satisfying just one licensing process.
Sec. 202. Maximum loan amount
Increases the maximum size of a 7(a) loan to $3 million
(from the current $2 million), and increases the maximum size
of the accompanying guarantee to $2.25 million (from the
current $1.5 million). This would maintain the maximum current
guarantee rate of 75 percent.
Sec. 203. Alternative size standard
Requires the SBA to implement an alternative size standard
for the 7(a) program that considers a small business's net
worth and income, and brings the 7(a) program into conformity
with the 504 Program.
Sec. 204. Minority small business development
Creates an Office of Minority Business Development at the
SBA, headed by the Associate Administrator for Minority Small
Business and Capital Ownership Development, under a new title
with expanded authority and an annual budget to carry out its
mission. This provision expands the Office's authority and
duties to work with and monitor the outcomes for programs under
the SBA's Capital Access, Entrepreneurial Development, and
Government Contracting programs. It also requires the head of
the Office to work with SBA's partners, trade associations and
business groups to identify more effective ways to market to
minority business owners, and to work with the head of Field
Operations to ensure that district offices have staff and
resources to market to minorities. This provision authorizes $5
million for each Fiscal Years 2007, 2008, and 2009.
Sec. 205. Lowering of fees
Revises current statute so that, if the SBA receives
appropriations for the 7(a) program, or more fee revenue in the
program than anticipated, those funds can be used to reduce
fees on program participants, both borrower and lenders.
TITLE III--SMALL BUSINESS INVESTMENT ACT OF 1958
SUBTITLE A--DEBENTURES AND SECURITIES
Sec. 301. Participating Debenture Companies
The provision reforms and enhances the Small Business
Investment Companies (SBIC) program. This section creates a new
SBIC program that would be a ``zero-subsidy'' program with no
Federal appropriations necessary that would provide financing
to small businesses. Additionally, the new program would
mitigate financial losses to the government by increasing its
share of SBIC's profits.
Sec. 302. Participating securities
This section provides procedures for the continuation of
existing SBICs affected by the current suspension in issuances
of new financing by the SBA, including financing that had
previously been promised to SBICs by the SBA.
SUBTITLE B--DEVELOPMENT COMPANIES
Sec. 321. Development company loan programs
Provides that the 504 Loan Program will be known as the
Local Development Business Loan Program (LDB Program).
Sec. 322. Loan liquidations
Provides that a Certified Development Company (CDC) can
elect to not foreclose or liquidate its own defaulted loans,
and can instead contract with a third party for that third
party to carry out the foreclosures and liquidations. CDCs can
receive reimbursement from the SBA for foreclosure expenses
that the SBA authorizes.
Sec. 323. Additional equity injections
Allows certain borrowers to contribute more equity (down-
payments) if they choose.
Sec. 324. Businesses in low-income areas
Provides that loans to businesses in communities that would
qualify for a New Markets Tax Credit can qualify as ``public
policy goal'' loans in LDB Program, and therefore can be made
for larger sizes than ``regular'' LDB loans.
Sec. 325. Combination of certain goals
Allows businesses to qualify as ``minority owned'' for
purposes of qualifying as a public policy goal loan if a
majority of the business's ownership interests belong to one or
more individuals who are minorities.
Sec. 326. Maximum 504 and 7(a) loan eligibility
Permits a small business to obtain financing in the maximum
amount permitted under the 504 program and also to obtain a
7(a) loan in the maximum amount permitted under that program.
Sec. 327. Refinancing under the Local Development Business Loan Program
Permits a borrower to refinance a limited amount, based on
a formula, of the business's pre-existing debt, if that debt is
already secured by a mortgage on the property being expanded by
the new loan.
Sec. 328. Technical correction
Corrects a technical drafting error made in legislation
enacted in 2004.
Sec. 329. Definitions for the Small Business Act of 1958
Provides definitions of a ``development company'' and a
``certified development company.''
Sec. 330. Repeal of sunset on reserve requirements for premier
certified lenders
This provision would make permanent a temporary statute,
otherwise set to expire in the summer of 2006, that allows CDCs
qualified by the SBA as ``Premier Certified Lenders'' to
amortize their reserve requirements and withdraw from the
reserves the amount attributable to debentures as the
debentures are repaid.
Sec. 331. Certified Development Companies
This section provides criteria to identify the types of
entities that can qualify as certified development companies
(CDCs) and thus participate in the LDB Program, and removes
regulatory barriers that have constrained CDC multi-state
expansion.
The provision also imposes ethical requirements on CDCs,
their employees, and banks participating in the program. This
section also provides minimum requirements for CDCs regarding
members, boards of directors, staffing and management
expertise, and use of proceeds. The section details
requirements CDC loan review committees must meet in order to
ensure that CDCs pursue local development goals, and allows
CDCs operating in multiple states to elect to maintain their
accounting on an aggregate basis. This section also allows CDC
Board Members to assist other CDCs by serving on another CDC
Board.
Sec. 332. Conforming amendments
Sec. 333. Closing costs
Provides borrowers with the option to include loan and
debenture closing costs in their loans.
Sec. 334. Definition of rural
Conforms the SBA's definition of a ``rural area'' in the
504 program, for the purposes of eligibility for a larger loan
supporting a ``public policy'' goal, to the definition used by
the Department of Agriculture.
Sec. 335. Regulations and effective date
Authorizes and directs the SBA to publish proposed
regulations to implement this Act within 120 days of the date
of enactment and to publish final regulations within an
additional 120 days.
Sec. 336. Low-income geographic areas in New Markets Venture Capital
(NMVC) program
Replaces the New Markets Venture Capital (NMVC) program's
statutory definition of ``Low-Income Geographic Area'' with the
definition of ``Low-Income Community'' as provided in the New
Markets Tax Credit statute, to conform the two programs.
Sec. 337. Limitation on time for final approval of NMVC companies
Establishes a limitation of two years for final approval of
companies.
title iv--disaster response
SUBTITLE A--PRIVATE DISASTER LOANS
Sec. 401. Private Disaster Loans
This section establishes a Private Disaster Loan (PDL)
program that allows for PDLs to be made to disaster victims by
private banks, which would have to apply to the SBA for
eligibility. The SBA will provide an 85 percent guarantee for
the loans.
Sec. 402. Technical and conforming amendments
SUBTITLE B--DISASTER RELIEF AND RECONSTRUCTION
Sec. 421. Definition of disaster area
Defines ``disaster area,'' and other terms.
Sec. 422. Disaster loans to non-profits
Allows non-profit institutions to apply for Disaster Loans
under Section 7(b). Under existing regulations, only
homeowners, renters, and for-profit businesses can normally
apply for Disaster Loans.
Sec. 423. Disaster loan amounts
Increases the maximum size of an SBA disaster loan from
$1.5 million per loan to $5 million per loan. Sets the maximum
amount to $450,000 for home loans and $90,000 for personal
property loans. It allows disaster victims to borrow additional
amounts (20 percent of the uninsured portion) to be spent on
mitigation projects to reduce the damage caused by future
disasters.
Sec. 424. Small Business Development Center (SBDC) portability grants
Authorizes the Administrator to waive the $100,000 maximum
size for SBDC portability grants for disaster areas. All grants
provided to SBDCs require a one-to-one match except for $1
million which is available for non-matching portability grants
for special projects up to $100,000.
Sec. 425. Assistance to out-of-state businesses
Authorizes an SBDC to provide services to small businesses
located outside the SBDC's own home state if the small business
concerns are located in a disaster area. In addition, this
section permits SBDCs to operate in disaster recovery sites if
permissible.
Sec. 426. Outreach programs
Directs the SBA and the Directors of Small and
Disadvantaged Business Utilization to create a contracting
outreach program for small businesses located in a disaster
area.
Sec. 427. Small business bonding threshold
Increases the maximum size of SBA surety bonds to $5
million for bonds issued for disaster recovery, and provides
the SBA with authority to increase the maximum size to $10
million.
Sec. 428. Small business participation
Promotes job creation and development through small
business set-asides on reconstruction contracts.
Sec. 429. Emergency procurement authority
Protects the Small Business Reservation (SBR) for disaster-
related contracts below the Simplified Acquisition Threshold
(SAT) and restores the parity between the SBR and the SAT any
time the SAT is increased for disaster-related contracts.
Sec. 430. Paperwork reciprocity for small disaster contractors
Reduces paperwork by promoting reciprocity between the
Disadvantaged Business Enterprise Program and the Small
Disadvantaged Business Program.
Sec. 431. Small business multiple-award disaster contracts
This provision directs the Administrators of the Office of
Federal Procurement Policy (OFPP) and the SBA to work with
other Federal agencies to ensure creation of multiple-award
contractsfor disaster recovery which are set aside for small
business concerns.
Sec. 432. Contracting priority for local small businesses in high-
unemployment areas
Strengthens the Small Business Act's existing priority for
local small businesses ``which shall perform a substantial
proportion of the production on those contracts and
subcontracts within areas of concentrated unemployment or
underemployment or within labor surplus areas.'' The provision
designates disaster areas as areas eligible for this priority
and authorizes Federal agencies to use contractual set-asides,
incentives, and penalties to enhance participation of local
small business concerns in disaster recovery contracts and
subcontracts. In addition, this provision authorizes set-asides
to be performed in a targeted labor surplus area or substantial
unemployment area. This provision ensures that disaster
contracts which meet the dollar thresholds for small business
subcontracting plans actually contain small business
subcontracting plans, and allows a grace period of 30 days to
conclude an acceptable plan.
Sec. 433. Termination of program
This provides for the termination of the Small Business
Competitiveness Demonstration program.
Sec. 434. Increasing collateral requirements
Under current law, the SBA may not disburse disaster loans
of more than $10,000 without requiring collateral. The
provision increases that level to $12,000.
SUBTITLE C--DISASTER RESPONSE
Sec. 451. Definitions
Sec. 452. State bridge loan guarantee
Requires the SBA to issue guidelines for an SBA-approved
state bridge loan program for future disasters. Once the
guidelines are issued, states may then submit their bridge loan
programs for approval to receive SBA guarantee assistance on
bridge loans in the event of a disaster.
Sec. 453. Catastrophic national disaster declaration for nationwide
Economic Injury Disaster Loans (EIDLs)
Creates a presidential declaration of ``Catastrophic
National Disaster,'' to be declared when an event causes
significant adverse economic conditions outside of the
geographic reach of the disaster area. This declaration
triggers nationwide economic injury disaster loans for any
small business that can demonstrate being adversely affected by
the disaster for which the declaration is made.
Sec. 454. Public awareness of disaster declaration and application
periods
Directs Federal Emergency Management Agency (FEMA) and the
SBA to coordinate assistance application period start and end
dates to the maximum extent possible. Also requires the SBA and
FEMA to notify congressional oversight committees as to whether
or not a deadline for assistance will be extended not later
than ten days before the date of the deadline. In addition,
this section directs SBA to create a proactive marketing plan
to make the public aware of disaster response services.
Sec. 455. Consistency between Administration regulations and standard
operating procedures
Directs the SBA to undertake a study to determine whether
Administration standard operating procedures are consistent
with regulations with respect to the disaster loan program.
Sec. 456. Processing disaster loans
Authorizes the SBA to enter into agreements with qualified
private contractors to process disaster loans. It also requires
SBA to provide Congress with a report on how the disaster loan
application process can be improved, including alternative
methods for assessing an applicant's ability to repay that
consider factors other than credit score, as well as methods to
expedite loan processing and verification for sources vital to
the rebuilding effort.
Sec. 457. Development and implementation of Major Disaster Response
Plan
Directs the SBA to update its hurricane response plan to
address all future disasters and to develop simulation
exercises that demonstrate the viability of the plan.
Sec. 458. Congressional oversight
Requires the SBA to provide monthly, and when necessary
daily, reports detailing activity and funding levels for the
disaster loan program, and to report three months in advance of
any funding run-out date for the disaster loan program. Also,
this section requires the SBA to report on the number of small
business contracts awarded during declared disasters.
SUBTITLE D--ENERGY EMERGENCIES
Sec. 471. Findings
Sec. 472. Small business energy emergency disaster loan program
Authorizes the SBA to make disaster loans to assist small
businesses that have suffered or are likely to suffer
substantial economic injury as the result of a significant
increase in the price of heating oil, natural gas, propane, or
kerosene, and prohibits such loans from being made if the total
amount outstanding and committed to the borrower would exceed
$1.5 million, unless the borrower is a major source of
employment in its surrounding area.
Sec. 473. Agricultural producer emergency loans
Authorizes the Secretary of Agriculture to make loans to
farm operations that qualify as a small business and that have
or are likely to suffer substantial economic injury on or after
October 1, 2004, as the result of a significant increase in
energy costs in connection with an energy emergency declared by
the President or the Secretary.
Sec. 474. Guidelines and rulemaking
Must occur within 30 days of enactment.
Sec. 475. Reports
Must be submitted to Congress within 12 months of
enactment.
TITLE V--VETERANS AND MEMBERS OF THE GUARD AND RESERVE
Sec. 501. Definitions
SUBTITLE A--VETERANS
Sec. 521. Findings
Sec. 522. Increased funding for the Office of Veterans Business
Development
Authorizes increased appropriations for the SBA's Office of
Veteran Business Development to $2 million for Fiscal Year
2006, $2.1 million for Fiscal Year 2007 and $2.2 million for
Fiscal Year 2008.
Sec. 523. Extension of Advisory Committee on Veterans Business Affairs
Permanently extends the authority and duties of the SBA's
Advisory Committee on Veterans Business Affairs.
Sec. 524. Relief from time limitations for Veteran-Owned Small
Businesses
Amends the Small Business Act by allowing small businesses
owned by veterans and service-disabled veterans to extend their
SBA program participation time limitations by the duration of
their owners' active duty service after September 11, 2001.
SUBTITLE B--GUARD AND RESERVE
Sec. 541. Guard and reserve loans
Raises the maximum military reservist loan amount to $2
million, and allows the Administrator to offer loans up to
$25,000 without requiring collateral from the Guard or Reserve
Member. The provision requires the SBA and the Department of
Defense (DoD) to develop a joint websiteand printed materials
providing information regarding this program. This section also
requires banks and other lending institutions to refer the loan
applicant to appropriate technical assistance programs offered by the
SBA.
Sec. 542. Study of insurance program for members of the Guard and
Reserve
Provides that within six months of enactment, the SBA and
the DoD shall jointly study the Guard and Reserve loan
programs.
Sec. 543. Grant assistance for Military Reservists' small business
concerns
Provides for grants of up to $25,000 to businesses affected
by the call-up to duty of employees who are reservists. It
authorizes $3 million for the program for each of FY 2007
through FY 2009.
SUBTITLE C--VETERANS CORPORATION
Sec. 561. Purposes of the Corporation
Establishes the purposes of the National Veterans Business
Development Corporation, also know as ``The Veterans
Corporation'' or ``TVC''.
Sec. 562. Management of the Corporation
The VC shall be run by a board consisting of nine members.
These board members shall be appointed by the President based
on recommendations given by the Senate and Senate Committees on
Small Business and Entrepreneurship and Veterans Affairs. Board
members are prohibited from recommending any individual for
another position on the board, and their term is limited to
four years.
Sec. 563. Timing of transfer of Advisory Committee duties
On October 1, 2009, the TVC shall assume the duties,
responsibilities, and authority of the SBA's Advisory Committee
on Veterans Affairs.
Sec. 564. Authorization of appropriations
Authorizes appropriations for TVC of $2 million for each
Fiscal Year 2007 through 2009.
Sec. 565. Privatization
Requires that the TVC must establish a plan to raise
private funds and become self-sustaining within six months from
the date of enactment.
TITLE VI--ENERGY LOANS FOR SMALL BUSINESS CONCERNS
Sec. 601. Express loans for renewable energy and energy efficiency
This title makes 7(a) Program Express Loans available to
qualifying small businesses that wish to purchase renewable
energy systems or make energy efficiency improvements to their
existing businesses.
TITLE VII--HEALTH INSURANCE
Sec. 701. Purpose
Establishes a four-year pilot, competitive grant program to
provide information, counseling, and educational materials,
through Small Business Development Centers (SBDCs), to small
businesses regarding all health insurance options, including
coverage options within local insurance markets.
Sec. 702. Definitions
Sec. 703. Small Business Health Insurance information pilot program
Provides that, within 30 days of enactment, the SBA
Administrator shall establish a pilot, competitive grant
program to make grants to SBDCs to provide information and
educational materials regarding small business health insurance
options. The grant amounts authorized under this section shall
be not less than $150,000 per fiscal year, and not more than
$300,000 per fiscal year.
Sec. 704. Reports
Requires each participating SBDC to submit a quarterly
report to the Administrator and Chief Counsel for the SBA
Office of Advocacy.
Sec. 705. Authorization of appropriation
Authorizes $5 million to be appropriated for the first
fiscal year beginning after the date of enactment and
authorizes $5 million to be appropriated for each of the three
fiscal years following the fiscal year.
TITLE VIII--WOMEN'S SMALL BUSINESS OWNERSHIP PROGRAMS
Sec. 801. Office of Women's Business Ownership
Amends the Small Business Act by directing the SBA Office
of Women's Business Ownership (OWBO) to develop new programs
and services for established women-owned businesses.
In addition, this provision requires the Office of Women's
Business Ownership to consult with the associations
representing the Women's Business Centers, the National Women's
Business Council, and the Interagency Committee on Women's
Business Enterprise. This section also requires that training
be provided for SBA District Office personnel responsible for
carrying out Agency programs. Finally, this provision requires
the Administration to improve the women's business center grant
process and the programmatic and financial oversight process.
Sec. 802. Women's Business Center Program
This section replaces a five-year grant program and pilot
Sustainability Program with a permanent grant program that can
be renewed at three-year intervals. This section requires that
an organization must represent not less than 30 percent of the
women's business centers participating in the SBA's Women's
Business Center Program. This provision also authorizes that
the SBA may grant four-year initial grants and three-year
renewal grants of not more than $150,000 per year. Provides a
one-year extension for sustainability grants scheduled to
expire not later than June 30, 2007.
Authorizes $500,000 for supplemental sustainability grants
to women's business centers with a limitation of $125,000 in
grant funding for the grant period beginning on July 1, 2006
and ending on June 30, 2007. The Fiscal Year authorizations
include: Fiscal Year 2007 ($16.5 million); Fiscal Year 2008
($17 million); Fiscal Year 2009 ($17.5 million). Recognizes the
existence and activities of associations of women's business
centers as defined in Section 312(a).
Sec. 803. National Women's Business Council
Provides the National Women's Business Council
cosponsorship authority. Clarifies membership representation on
the Council. Establishes Committees under the direction of the
chairperson on Manufacturing, Technology, Professional
Services, Travel, Tourism, Product and Retail Sales,
International Trade, and Federal Procurement and Contracting.
Provides authority for the Council to serve as a
clearinghouse for information on small business owned and
controlled by women. Changes the Council's research allocation
from $550,000 to 30 percent of appropriated funds.
Sec. 804. Interagency Committee on Women's Business Enterprise
Provides an acting chairperson for the Interagency
Committee on Women's Business Enterprise.
Establishes a Policy Advisory Group to assist the
chairperson in developing policies and programs, and defines
the composition of the Policy Advisory Group.
Creates subcommittees, establishes duties, and states
activities of the Interagency Committee.
Sec. 805. Preserving the independence of the National Women's Business
Council
Requires an equal number of members appointed to serve on
the Council represent each of the two major political parties.
This also requires that if a vacancy is not filled, or if there
exists animbalance of party-affiliated members on the Council,
in a 30-day period, a report must be submitted to the Senate Committee
on Small Business and Entrepreneurship and House Committees on Small
Business and Entrepreneurship.
TITLE IX--INTERNATIONAL TRADE
Sec. 901. Small Business Administration Associate Administrator for
International Trade
This provision establishes an Associate Administrator for
International Trade.
Sec. 902. Office of International Trade
This section expands the trade distribution network to
include the United States Export Assistance Centers (USEACs).
This section also designates one individual within the
Administration as a trade financial specialist to oversee the
international loan programs. In addition, this section ensures
that all smaller exporters nationwide will continue to have
access to export financing. This provision establishes a floor
of International Finance Specialists at the level the SBA had
in January 2003.
Sec. 903. International Trade Loans (ITL)
This provision increases the maximum loan guarantee amount
to $2.75 million and specifies that the loan cap for ITLs is
$3.67 million, as well as sets out that working capital is an
eligible use for loan proceeds. The bill also makes ITLs
consistent with regular SBA 7(a) loans in terms of allowing the
same collateral and refinancing terms as with regular 7(a)
loans.
TITLE X--CONTRACT BUNDLING
Sec. 1001. Presidential policy
This section states that it is the policy of Congress that
each Federal agency shall endeavor to promote competition and
small business procurement opportunities by unbundling
government contracts in accordance with the Presidential policy
on contract bundling.
The provision also redefines the term ``bundling of
contract requirements,'' to mean a use of solicitation for a
single contract or a multiple award contract to satisfy two or
more requirements of any Federal agency for goods or services
that restricts competition or limits the number of suppliers by
being likely unsuitable for award to a small business concern
due to the diversity, size, or specialized nature of the
elements of the performance specified; the aggregate dollar
value of the anticipated award; the geographical dispersion of
the contract performance sites; unduly restrictive contract
requirements or other procurement strategy or factor which
impedes participation of responsible small businesses as prime
contractors; or any combination of the described factors.
Sec. 1002. Leadership and oversight
In addition to submitting an annual report on all incidents
of bundling to the Administrator as may be required by law,
this provision requires the head of each Federal agency to
submit an annual report on all incidents of bundling to the
Office of Federal procurement Policy. The provision also
requires the Administrator of the Small Business Administration
to promptly review and annually report to Congress information
on any discrepancies between reporting on bundled contracts
from Federal agencies to the Small Business Administration, the
Office of Federal Procurement Policy, and the Federal
Procurement Data System.
In addition, the provision mandates implementation of
recommendations of the GAO Report 04-454 concerning collection
of contract bundling data. The provision also requires the SBA
review of government-wide anti-bundling policies, directs the
SBA to publish a guide on best practices to reduce bundling,
develop Federal personnel policies concerning compliance with
small business contracting laws and the President's Initiative
Against Contract Bundling.
The provision further directs the SBA to implement the
recommendations of the SBA Inspector General's Audit of the
Contract Bundling Program No. 5-20. The provision requires
additional assignments of SBA Procurement Center
Representatives (PCRs) and Commercial Market Representatives
(CMRs), and clarifies PCR authority.
Sec. 1003. Removal of impediments to contract bundling database
implementation
This section removes impediments to completion of the
contract bundling database authorized in existing law by
directing Federal agencies to provide to the SBA any relevant
procurement information as may be required to implement the
provisions of this section, and shall perform at the request of
the Administrator.
TITLE XI--SUBCONTRACTING INTEGRITY
Sec. 1101. GAO Recommendations on subcontracting misrepresentations
This section is designed to prevent misrepresentations in
subcontracting by implementing government-wide the Comptroller
General's recommendations on subcontracting integrity.
Specifically, compliance of Federal prime contractors with
small business subcontracting plans shall be evaluated as a
percentage of obligated prime contract dollars, as well as a
percentage of subcontracts awarded. Further, not later than 180
days from the date of enactment of this Act, the head of each
Federal agency shall issue a policy on small business
subcontracting compliance.
Sec. 1102. Small business subcontracting bait and switch fraud
This section imposes criminal penalties on bidders that
falsely certify to the government that they will acquire
articles, equipment, supplies, services, or materials, or
obtain the performance of construction work, from small
business concerns in the amount and quality used in preparing
the bid or proposal, unless such small business concerns are no
longer in business or can no longer meet the quality, quantity,
or delivery date.
Sec. 1103. Evaluating subcontractor participation
This section states that a report submitted by the prime
contractor to determine the attainment of a subcontract
utilization goal under any subcontracting plan entered into
with a Federal agency under this subsection shall contain the
name and signature of the president or chief executive officer
of the contractor, certifying that the subcontracting data
provided in the report are accurate and complete. Evaluation
results shall be included in a national centralized government
wide database.
Each Federal agency having contracting authority shall
ensure that the terms of each contract for goods and services
includes a provision allowing the contracting officer of an
agency to withhold an appropriate amount of payment with
respect to a contract (depending on the size of the contract)
until the date of receipt of complete, accurate, and timely
subcontracting reports.
Sec. 1104. Pilot program on direct payments to subcontractors
This section states that the failure of a civilian agency
prime contractor to make a timely payment, as determined by the
contract with the subcontractor, to a subcontractor that is a
small business concern shall be a material breach of the
contract with the Federal agency. Before making a determination
the contracting officer shall consider all reasonable issues
regarding the circumstances surrounding the failure to make the
timely payment.
Not later than 30 days after the date on which a material
breach under subparagraph (A) is determined by the contracting
officer, the Federal agency may withhold any amounts due and
owing the subcontractor from payments due to the prime
contractor and pay such amounts directly to the subcontractor.
This pilot shall be in effect until September 30, 2009.
Sec. 1105. Pilot program
This section states that each Federal agency on the
President's Management Council or any successor council is
authorized through September 30, 2009, to operate a pilot
program to assess funds from prime contractors for failure to
comply with small business subcontracting plans and require
these prime contractors to become mentors to small business
concerns and to spend such funds on mentor-protege; assistance
to small business concerns.
The assessment under the terms of this program shall be
determined in relation to the dollar amount by which the prime
contractor failed its small business subcontracting goals. The
prime contractor shall expend the assessments under the terms
of this program on mentor-protege; assistance to small business
concerns, as provided by a mentor-protege; agreement approved
by the relevant Federal agency.
In addition, each Federal agency shall submit an annual
report to the House and Senate Committees on Small Business and
Entrepreneurship containing a detailed description of thepilot
program.
TITLE XII--SMALL BUSINESS PROCUREMENT PROGRAMS IMPROVEMENT
Sec. 1201. Definitions
SUBTITLE A--HUBZONE PROGRAM
Sec. 1211. HUBZone reauthorization
This section reauthorizes the HUBZone program through
Fiscal Year 2012.
Sec. 1212. Equity for suburban HUBZONE
This section creates a qualified suburban HUBZone area to
mean any village, city, town, or other unit of local government
which is located in an urban county, provided that such unit of
local government meets income or unemployment requirements
applicable to rural counties.
SUBTITLE B--SERVICE-DISABLED VETERAN-OWNED SMALL BUSINESS PROGRAM
Sec. 1221. Certification
This section directs the Administrator of the Small
Business Administration to make regulations to provide for
certifications of service-disabled veteran-owned small business
concerns. The SBA Administrator is authorized to accept
Federal, state and local government certifications as well as
certifications from responsible national certifying entities,
provided that the SBA Administrator specifies appropriate
safeguards by regulation.
Sec. 1222. Temporary waiver
This section provides a temporary waiver for ``the rule of
two'' in sole-source contracts awarded to service-disabled
veteran-owned small businesses until September 30, 2009. The
waiver would enable contracting officials to award a sole-
source contract to service-disabled veteran-owned firms even if
there are other service-disabled veteran owned firms available.
This provision would give service-disabled veterans the same
rights currently available to 8(a) firms. The provision is a
temporary waiver to enable the Federal government to improve
its service-disabled veteran goal achievements.
Sec. 1223. Transition period for surviving spouses or permanent
caregivers
This section allows the surviving spouse of a service
disabled veteran to retain the service-disabled veteran-owned
designation for the businesses up to 10 years following the
death of the service-disabled veteran.
Sec. 1224. Contracting authority
This section shall make the sole-source authority for
service-disabled veteran mandatory instead of permissive.
SUBTITLE C--WOMEN-OWNED SMALL BUSINESS PROGRAM
Sec. 1231. Implementation deadline
This section stipulates that no later than 90 days from the
date of enactment of this Act, the Administrator shall
implement the existing Women-Owned Small Business Federal
Contract Assistance Program.
Sec. 1232. Certification
This section directs the Administrator of the SBA to make
regulations to provide for certifications of women-owned small
business concerns. The SBA Administrator is authorized to
accept Federal, state and local government certifications as
well as certifications from responsible national certifying
entities, provided that the SBA Administrator specifies
appropriate safeguards by regulation.
SUBTITLE D--SMALL DISADVANTAGED BUSINESS PROGRAM
Sec. 1241. Certification
This section directs the Administrator of the SBA to make
regulations to provide for certifications of small
disadvantaged business concerns. The SBA Administrator is
authorized to accept Federal, state and local government
certifications as well as certifications from responsible
national certifying entities, provided that the SBA
Administrator specifies appropriate safeguards by regulation.
Sec. 1242. Net worth threshold
This provision directs the SBA to adjust the net worth
thresholds for 8(a) program participants. Currently the
threshold excludes business owners with more than $250,000 in
personal assets, and graduates 8(a) participants with more than
$750,000 in personal assets. These thresholds have not been
adjusted since 1989.
SUBTITLE E--BUSINESSLINC PROGRAM
Sec. 1251. BusinessLINC program
A provision to extend the SBA authority to issue grants to
private, public, and non-profit entities in order to expand
business-to-business relationships between large and small
businesses. Grants are also available for entities that provide
a database of companies interested in mentor-protege programs
or community based, statewide or local business development
programs.
TITLE XIII--ACQUISITION PROCESS
Sec. 1301. Procurement improvements
This provision builds on the recommendations of the White
House Acquisition Advisory Panel Small Business Working Group
and the GAO contained in Report 04-454 by requiring that,
within 7 days of agencies bundling or consolidating contracts
they are required to report in the Federal government
procurement data system: (1) the number of contracts that
displaced small businesses because of bundling or
consolidation; (2) the number of small businesses able to bid
on all or part of the new bundled contracts; and (3) the
estimated cost savings to be achieved as a result of the
bundled contracts.
Further, the provision requires government-wide courses on
small business contracting, subcontracting and the role of the
small business specialist within the acquisition team.
Sec. 1302. Reservation of prime contracts for award to small business
This provision builds on the recommendations of the White
House Acquisition Advisory Panel Small Business Working Group.
Within 180 days of enactment, each agency head will be required
to establish for their agency contracting criteria that: (1)
set aside part of multiple awards contracts for small
businesses; (2) set aside multiple awards contracts for
subcategories of small businesses; and (3) to reserve 1 or more
contracts for small businesses and subcategories of small
businesses for multiple full and open awards.
Sec. 1303. GAO study of reporting systems
Under this provision, the Comptroller of the United States
shall study the availability, accuracy and timeliness of data
in the SBA Pro-Net database or any successor thereof, the
Federal Procurement Data System, and the Subcontracting
Reporting System, as recommended by the White House Acquisition
Advisory Panel's Small Business Working Group.
Sec. 1304. Meeting small business goals
Under this provision, before setting aside contracts for
small businesses, contracting officers should first consider
those small business subcategories for which the agency failed
its goals the most during the preceding year.
Sec. 1305. Micro-purchase guidelines
Within 180 days the SBA shall issue guidelines for the use
of purchase cards to measure the participation of small
business in government micro purchases. These guidelines shall
be consistent with existing national policy on small business
participation in micro purchases credit purchases.
Sec. 1306. Reporting on overseas contracts
This provision requires the SBA to submit an annual report
to Congress concerning the portion of Federal contracts awarded
for performance overseas which have gone to small business.
Sec. 1307. Agency accountability
Each agency is required to identify a percentage of their
procurement budget to be awarded to small businesses, and must
include this information in the agency's strategic plan and
annual budget submission. Each agency will also include if they
fulfill their budget goals and if they do not meet the goals a
justification for the shortfall.
Further, each contracting officer is required to
communicate to their subordinates the importance of meeting
small business goals and employees will be assessed annually on
their help in fulfilling agency small business goals.
TITLE XIV--SMALL BUSINESS SIZE AND STATUS INTEGRITY
Sec. 1401. Policy and presumptions
The provision contains an irrebuttable presumption of a
dollar-for-dollar loss to the United States in any contract,
subcontract, cooperative agreement, cooperative R&D agreement,
or grant reserved for small business concerns which is obtained
by misrepresentation of small business size or status.
The provision also establishes that submissions of bids or
proposals on contracts, agreements, or grants reserved for
small business, or registrations in Federal databases to be
considered as a small business concern, constitutes an
affirmative certification of small business size or status.
Finally, the provision requires that every contract or
grant solicitation contain a place for certification of small
business size or status by a high-level corporate official of
the contractor. The provision allows the SBA Administrator to
issue ``safe harbor'' regulations to protect contractors from
liability for unintentional errors and technical glitches.
Sec. 1402. Annual certification
This provision requires annual certification of small
business size or status on the SBA's Pro-Net database or any
successor database.
The provision also clarified the timing of determination of
small business size and status. Small business size or status
shall be determined at the time of award of a Federal contract,
subcontract, or other funding instrument. For interagency
multiple-award contracts, small business size and status will
be determined at the time of the award of the contract and also
at the time of the award of each task or delivery order
reserved for a small business.
Sec. 1403. SBA suspensions and debarments authority
This provision gives the SBA the authority to suspend or
debar contractors that violate small business laws and
regulations.
Sec. 1404. Meaningful protests of small business size and status
This provision prevents Federal agencies from awarding
small business set-aside contracts to large businesses if
another company protests the award.
This provision gives the SBA the very same authority to
hear and decide protests within 100 days as the GAO currently
possesses. Automatic stays on contract awards will be imposed
in SBA protests. The SBA will be able to recommend appropriate
contractual relief, including termination. Under this
authority, protests may be overridden by the agency of they are
in the best interest of the United States or if urgent and
compelling circumstances require. The provision also authorizes
protective orders, express options for decisions, and
recommendations to reimburse protest costs.
The SBA is required to report to Congress all instances
when Federal agencies have not followed its recommendations
concerning the challenged contract. This section does not in
any way prohibit the SBA to establish or maintain supplementary
protest processes using existing standards and authorities. The
SBA is authorized to use this protest authority in non-
procurement programs as well.
Sec. 1405. Training for contracting and enforcement personnel
This provision directs the SBA, together with other
agencies, to develop training on small business size standards.
The provision also directs the SBA IG and heads of other
agencies to issue a policy on prosecutions of size standards or
status fraud.
Sec. 1406. Protests of sole-source awards
This provision authorizes small business concerns with
standing as an interested party to challenge small business
size or status of companies receiving sole-source awards under
the Small Business Act.
Sec. 1407. Small business size and status for purpose of multiple-award
contracts
This provision requires small businesses holding multiple-
award contracts to annually certify their small business size
or status. This requirement shall be interpreted in concert
with other size and status certification provisions in this
legislation.
Sec. 1408. Size standards development
This provision authorizes the SBA Administrator to
establish two or more tiers within an overall small business
size standard cap for the purpose of facilitating the growth
and development of small business concerns as well as
facilitating peer-based competition among small business
concerns for Federal contracts and subcontracts. In
establishing tier-based size standards, the Administrator shall
take into account national and international industry
conditions, including the size of industry leaders, the trends
in the sizes of Federal government contracts and subcontracts.
The Administrator shall establish dollar-based thresholds
within each industrial category for contracts and subcontract
suitable for reservation solely to small business concerns
within lower tier or tiers in that industrial category.
Sec. 1409. Full-time employee equivalents
This provision requires the SBA to use full-time employee
equivalents in computing the number of employees for purposes
of size determinations.
TITLE XV--SMALL BUSINESS INNOVATION RESEARCH AND SMALL BUSINESS
TECHNOLOGY TRANSFER PROGRAMS (SBIR/STTR)
Sec. 1501. Definitions
This provision restates applicable definitions from the
Small Business Act.
Sec. 1502. Congressional findings and policy
The provision states Congressional findings and policy on
promoting effectiveness in Federal research and development
efforts and removing barriers to participation of small
business concerns, as well as of partnerships between small
business concerns and universities or other research
institutions, in Federal R&D programs.
SUBTITLE A--SMALL BUSINESS INNOVATION LEADERSHIP
Sec. 1511. Status of the SBA Office of Technology; National Advisory
Board; Transfer Plan
This provision requires the SBA to maintain an Office of
Technology (headed by an Assistant Administrator appointed in
consultation with Congressional Small Business Committees) to
administer SBIR and STTR; to submit a separate line-item
budget, staffing, and performance information for this Office
as part of the Administration's annual budget request to
Congress; to appoint a National SBIR/STTR Advisory Board, and
to submit to the Congressional small business committees an
annual national plan containing a forecast of SBIR and STTR
opportunities.
SUBTITLE B--FAIR ACCESS TO FEDERAL INNOVATIONS INVESTMENTS
Sec. 1521. Accuracy in funding base calculations; Comptroller General's
audits
This provision requires the GAO to perform periodic fiscal
and management audits of the SBIR and STTR programs.
Sec. 1522. SBIR cap increase
This provision increases the SBIR set-aside cap from 2.5
percent to not less than 5 percent in Fiscal Year 2011 and
thereafter.
Sec. 1523. STTR cap increase
This provision increases the STTR set-aside cap from 0.3
percent to 0.6 percent for Fiscal Year 2011 and thereafter.
Sec. 1524. Adjustments in SBIR/STTR award levels
This provision adjusts for inflation the size of SBIR and
STTR awards from $100,000 for Phase I and $750,000 for Phase II
to $150,000 and $1,250,000 respectively.
This provision also requires the SBA to make annual
adjustments of the awards size for inflation. The provision
also prohibits any agency from issuing an SBIR or an STTR award
if the size of the award exceeds the award guidelines
established in this Section by more than 50 percent.
This provision also allows SBIR and STTR applicants to
receive awards for subsequent SBIR or STTR phases at another
agency. The provision also allows small business concerns which
received SBIR or STTR awards to receive awards for subsequent
phases at either STTR or SBIR program, respectively.
Sec. 1525. Majority-venture investments in SBIR firms
This provision allows Federal agencies to apply for the
authority to permit Venture Capital SBIR Investment Companies
to compete for not more than 25 percent of the agency's SBIR
funds (as part of the increase in the SBIR set-aside). The
provision also establishes qualification requirements for and
companies.
SUBTITLE C--ACQUISITION OF SMALL BUSINESS INNOVATIONS
Sec. 1531. National SBIR/STTR technology insertion goal; Reporting
requirements
This provision establishes, beginning with 2007, a
established a government-wide goal for insertion of SBIR and
STTR technologies through Phase III awards of not less than 3
percent of total value of Federal prime contracts for research,
development, testing and evaluation, to be met through either
prime contracts or subcontracts. The provision contains
reporting requirements.
Sec. 1532. Intellectual property protections for small business
innovations
This provision reinforces data rights protections for SBIR
and STTR awards. It clarifies that prototypes are subject to
the data rights protections. The provision clarifies that SBIR
data rights have trade secret status, and provides that data
developed by small businesses with private funds qualify for
data rights protections if they are used in SBIR or STTR
awards. The provision also clarifies that SBIR/STTR data rights
protections apply to any contracts or subcontracts developed
with Federal funds or intended for use by the Federal
government, and any mentor-protege agreements.
Sec. 1533. SBIR/STTR special acquisition preference
The provision codifies the language from the SBIR/STTR
Policy Directives confirming the intent of Congress to
establish a special acquisition preference for SBIR and STTR
Phase III awards. The provision clarifies that preference for
contracts concerning research developed with SBIR or STTR funds
should go to developers and holders of SBIR and STTR
technologies to the greatest extent practicable, unless the
agency is able to demonstrate on record that such an award is
impracticable. The provision also requires Federal agencies to
submit any bids or proposals for award of contracts on any
topic duplicating the agency's prior SBIR or STTR awards to the
SBA for review and possible appeal at least 30 days prior to
the solicitation.
Sec. 1534. SBIR/STTR Mentor-Protege Programs
This section authorizes mentor-protege programs for SBIR/
STTR firms in Federal agencies. The terms of mentor-protege;
agreements generally match the terms established at the
Department of Defense. The provision authorizes contractual
incentives for mentor firms, and imposes data rights
protections for the benefit of protege firms.
Sec. 1535. Subcontracting with Federal laboratories and research and
development centers
This provision reduces the burden on cooperation between
SBIR/STTR firms and Federal laboratories. Currently, small
businesses which would like to subcontract a portion of the
work to Federal labs have to seek a waiver from the SBA. This
provision would ensure that such subcontracting is generally
permitted without the requirement for waiver, but subject to
appropriate protections ensuring the Federal agencies are not
requiring SBIR or STTR firms to subcontract work to Federal
labs.
Sec. 1536. Innovation Commercialization Pilot Programs
This provision authorizes Innovation Commercialization
Pilot Programs to encourage Phase III awards at the major
contracting agencies which participate in the SBIR and the STTR
program. The provision includes authorization of incentives to
prime contractors for inserting SBIR technologies. A small
portion of SBIR/STTR funds (not more than 1 percent) will be
made available for administration and outreach efforts related
to the programs.
Sec. 1537. Enforcement
This provision ensures that the SBA is notified any time
the SBIR or STTR policy directives are challenged in court. In
addition, the provision requires the SBA to report to Congress
on actions taken to enforce SBIR and STTR policy directive.
SUBTITLE D--TECHNICAL AND FINANCIAL ASSISTANCE FOR SMALL BUSINESS
INNOVATION
Sec. 1541. Reauthorization and enhancement of state, local, and rural
innovation assistance programs
This provision reauthorizes the Federal and State Program
(FAST) Program and the Rural Outreach Program, and increases
the authorization to $5 million from $2 million.
Sec. 1542. Continued evaluation by the National Academies of Sciences
This provision reauthorizes the current SBIR study by the
National Academies of Sciences until the end of 2009. It also
directs the Academies to study state and international
innovation development policies, as well as desirability and
feasibility of establishing a public, Federally-backed
secondary capital market mechanism to fund securities
representing investments in highly promising small innovative
companies, and barriers to greater commercialization of small
business innovations. The provision does not impose a mandate
on any Federal agency to fund the studies of additional SBIR
topics. Rather, it requires good-faith negotiations between the
Academies and the agencies which fund the Academies' SBIR
review efforts to ensure that such additional SBIR topics would
be studied subject to availability of funds under the existing
agreement.
Sec. 1543. Phase II innovation development challenge pilot program
This provision authorizes a Phase II Challenge Program
suggested by the National Academy of Sciences during the
hearing before the Small Business Committee. This program
authorizes Federal agencies to grant Phase II awards up to 2
times the regular size (up to $2.5 million) to support advanced
development of small business technologies which are facing
high manufacturing or regulatory costs. As a condition of the
awards, matching private or Federal non-SBIR funds are
required.
Sec. 1544. Encouraging innovation in energy efficiency
Under this provision, the Administrator shall consult with
other agencies and departments to ensure that small businesses
that participate in or conduct energy efficiency and renewable
energy research are given high priority under the SBIR and STTR
programs.
Sec. 1545. SBIR-STEM workforce development pilot-program
This provision establishes a five-year workforce
development grant pilot program to match up innovative small
businesses with college students studying science, technology,
engineering and math. The proposal would provide SBIR grantees
with a 10 percent bonus grant, for either Phase I or Phase II
SBIR grants, with a total maximum award of $10,000 per year for
small businesses that provide opportunities to these students.
SUBTITLE E--IMPLEMENTATION
Sec. 1551. Conforming amendments to the SBIR and the STTR policy
directives.
This provision requires conforming amendments to the SBA
SBIR and STTR Policy directives within 180 days to implement
the provisions of this Act.
TITLE XVI--NATIVE AMERICAN SMALL BUSINESS DEVELOPMENT PROGRAM
Sec. 1601. Short title
Sec. 1602. Native American Small Business development program
This section provides financial assistance to tribal
governments, tribal colleges, Native Hawaiian organizations,
and Alaska Native corporations to create Native American
business centers. These centers shall conduct five-year
projects that offer culturally tailored business development
assistance. This program would be authorized at $5 million per
year for Fiscal Years 2006 through 2010.
Sec. 1603. Pilot programs
Native American Development Grant Program This section
awards Native American development grants to provide culturally
tailored business development training and related services to
Native Americans and Native American small business concerns.
The grants may be awarded to (i) any small business development
center; or (ii) any private, nonprofit organization that has
members of an Indian tribe comprising a majority of its board
of directors; is a Native Hawaiian organization; or is an
Alaska Native corporation. The program would be authorized at
$1 million per year for Fiscal Years 2006 through 2009.
American Indian Tribal Assistance Center Grant Pilot
Program This section awards not less than three American Indian
Tribal Assistance Center grants to establish joint projects to
provide culturally tailored business development assistance to
prospective and current owners of small business concerns
located on or near tribal lands. The program would be $1
million per year for Fiscal Years 2006 through 2009.
TITLE XVII--NATIONAL SMALL BUSINESS REGULATORY ASSISTANCE
Sec. 1701. Title
Sec. 1702. Purpose
Establishes a four-year pilot program to provide resources
to Small Business Development Centers (SBDC) so they may
provide free regulatory compliance assistance and counseling to
small business owners.
Sec. 1703. Small business regulatory assistance pilot program.
This section requires the Small Business Administration
(SBA) to provide matching grants to the Small Business
Development Center (SBDC) programs of two states in each of the
SBA's 10 regions. The grants shall be more than $150,000, but
less than $300,000 and shall be consistent with the matching
requirement under current law.
Grant Purpose SBDCs are required to use the grants to
provide: access to information and resources, including current
Federal and State non-punitive compliance and technical
assistance programs; conduct training and educational
activities; and offer confidential, free-of-charge, one-on-one,
in-depth counseling to the owners and operators of small
business concerns regarding compliance with Federal and State
regulations derived from Federal law.
SBDCs participating in the pilot program would be required
to submit a quarterly report, and the SBA would have
responsibility for evaluating the pilot program and making
recommendations on the extension of the program to other SBDCs.
Sec. 1704. Rulemaking
The SBA must promulgate final regulations to carry out the
pilot program within 180 days of passage.
TITLE XVIII--INTERMEDIARY LENDING PILOT PROGRAM
Sec. 1801. Short title
The short title for this subtitle is the ``Small Business
Intermediary Lending Pilot Program Act of 2003.''
Sec. 1802. Findings
This section provides findings for the pilot program
detailed in the following section.
Sec. 1803. Small business intermediary lending pilot program
This section creates a new pilot program for the SBA to
provide long-term loans to intermediaries, which would then re-
loan these funds to small businesses in loan amounts of between
$35,000 and $200,000. This pilot program is intended to assist
small businesses that need loans larger than those available
through the Microloan program but, due to a lack of
conventional collateral, are unable to secure credit through
conventional lenders, even with the assistance of SBA's 7(a)
Loan Guarantee program. The pilot is also intended to create
employment opportunities for low-income individuals. This
section requires the SBA to provide reports about the pilot
program to the Committee and the House Committee on Small
Business.
TITLE XIX--OTHER PROVISIONS
Sec. 1901. Compliance assistance
This provision would facilitate the compliance of small
businesses with Federal regulations that directly impact their
productivity.
This provision would: Clarify the SBREFA requirement that
agencies produce small entity compliance guides. Ensure that
these compliance guides provide adequate and useful compliance
assistance materials to help small businesses meet the
compliance obligations imposed by regulations. Require that
agencies ``designate'' the publications prepared under the
section as ``small entity compliance guides.'' Clarify that
compliance guides should be published simultaneously with, or
as soon as possible after, the final rule is published, or no
later than the rule's effective date. Clarify the phrase
``compliance requirements.'' In addition this provision,
requires that agencies annually report to Congress about their
compliance with the Act's requirements.
Sec. 1902. Appointment of officials
This provision requires the SBA to appoint the following
officials of the Administration with the advice and consent of
the Senate: the General Counsel; the Associate Deputy
Administrator for Capital Access; the Associate Deputy
Administrator for Capital Access; the Associate Deputy
Administrator for Management and Administration; the Associate
Deputy Administrator for Entrepreneurial Development; the
Associate Deputy Administrator for Government Contracting and
Business Development; and, the Associate Administrator for
Disaster Assistance.
Sec. 1903. Second-stage pilot program
This amendment establishes a three-year pilot program to:
(1) identify second stage small business concerns that have the
capacity for significant business growth and job creation; (2)
facilitate business growth and job creation through the
development of peer learning opportunities; (3) utilize the
network of SBDCs to expand access to peer learning
opportunities; and, (4) assist businesses owned by minority
individuals, service-disabled veterans, and women.
No later than 60 days after regulations are established,
the Administrator will select two eligible entities from 10
regions around the country. A grant given to an eligible entity
will not be less than $50,000 and the money is to be used for
identifying second stage small business concerns in the service
delivery areas of the entity and for establishing peer learning
opportunities. The grant will also be matched from sources
other than the Federal Government that is equal to the grant,
or (1) in the case of a community college, historically Black
college, Hispanic serving institution, or other minority
institution, 50 percent of the grant; (2) not less than 50
percent cash; (3) not more than 50 percent comprised of
indirect costs and in-kind contributions; and, (4), does not
include indirect costs or contributions from any Federal
Program.
Each entity that receives a grant shall submit to the
Administrator, in electronic form, a quarterly report on the
program. The Administrator will submit to the President and
Congress, no later than November 1st of each year, a report
evaluating the pilot program for the previous year. Nolater
than three years after the establishment of the pilot program, the
Comptroller General of the U.S. shall evaluate the program and transmit
to Congress and the Administrator a report containing the results. The
pilot program will terminate on September 30, 2009 and authorizes $1.5
million per FY 2007-2009.
Sec. 1904. PRIME reauthorization
This provision reauthorizes the Program for Investment in
Microentrepreneurs (``PRIME''), and transfers the statutory
language for PRIME to the Small Business Act. PRIME is a
program to provide grants to intermediaries that use the funds
to: (1) train other intermediaries to develop microenterprise
training and services programs; (2) research microenterprise
practices; or, (3) provide training and technical assistance to
disadvantaged entrepreneurs. This section adds a data
collection provision and reauthorizes the program at $15
million for Fiscal Years 2007, 2008 and 2009.
Sec. 1905. Child Care lending
This provision allows loans to be made in the SBA's 504
program to assist nonprofit child care businesses. Prohibits
more than seven percent of the total number of 504 program
loans in any fiscal year from being awarded under such program.
Sec. 1906. Study on the impact of Low-Doc program
Not later than three months after the date of enactment of
this Act, the Administrator shall undertake a study on the
elimination of the Low Doc Program. The study shall examine:
the effectiveness of the Low Doc program on rural communities;
the effect of the program's elimination on rural lending; and
the overall accessible and effectiveness of rural lending for
rural communities.
The Administrator must submit to the Senate Committee on
Small Business and Entrepreneurship and the House Committee on
Small Business a report containing the results of the study and
recommendations for program improvement.
Sec. 1907. Enforcement ombudsman
This section assists small businesses with bringing cases
or complaints, formal or informal, before federal regulatory
boards and agencies, including, but not limited to, the Surface
Transportation Board, the Environmental Protection Agency,
Occupational Health and Safety Administration, and the Federal
Communications Commission.
Sec. 1908. Minority entrepreneurship and innovation pilot program of
2006
This provision directs the Administrator of the Small
Business Administration to make grants to Historically Black
Colleges and Universities, Tribal Colleges, and Hispanic
serving institutions, or to any entity formed by a combination
of such institutions: (1) to assist in establishing an
entrepreneurship curriculum for undergraduate or graduate
studies; and (2) for the placement of small business
development centers or a small business incubator on the
physical campus of the institution.
Requires an institution of higher education receiving a
grant to: (1) develop a curriculum that includes training in
various skill sets needed by successful entrepreneurs; and (2)
open a small business development center.
Authorizes this pilot program for two fiscal years, and
authorizes grants of up to $500,000 per fiscal year for any one
institution of higher education. In addition, there is
authorized to be appropriated $10 million each FY 2007 and
2008.
Sec. 1909. Office of Native American Affairs pilot program
This section authorizes a two-year pilot program for the
Office of Native American Affairs to develop and publish a
self-assessment tool for evaluation and implementation of best
practices for economic development for Indian tribes. The
provision includes a reporting requirement on the effectiveness
of the self-assessment tool. It also authorizes assistance in
identifying economic development opportunities to Indian tribes
through the Inter-Agency Working group, which is comprised of
key federal agencies. The provision does not include nor
require authorization of appropriations.
Sec. 1910. Institutions of higher education
This provision requires SBDC grantees that are institutions
of higher education to be accredited and grandfathers any SBDC
grantee institution of higher education that is not yet
accredited but is seeking accreditation.