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Statements on Introduced Bills and Joint Resolutions S. 1375

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Location: Washington, DC

S. 1375. A bill to provide for the reauthorization of programs administered by the Small Business Administration, and for other purposes; to the Committee on Small business and Entrepreneurship.

(At the request of Mr. DASCHLE, the following statement was ordered to be printed in the RECORD.)

Mr. KERRY. Mr. President, today, as Ranking Democrat on the Committee on Small Business and Entrepreneurship, I join the Committee's Chair, Senator OLYMPIA SNOWE in introducing a three-year reauthorization bill for the Small Business Administration's programs. These programs help small businesses, often called the engine of the American economy, with access to capital, business advice and training and Federal procurement opportunities. But before I speak more specifically about the provisions of the bill, I would like to thank Chair SNOWE for working hand-in-hand with me on this, my third, reauthorization of the Small Business Administration. Having worked closely on two previous reauthorizations, and as a member of the Small Business and Entrepreneurship Committee for over 18 years, I can tell you that the SBA reauthorization process takes diligence and a strong attention to detail. I want to commend Senator SNOWE for taking the initiative to draft legislation that makes such important and necessary changes to the SBA during this reauthorization process and for showing great leadership in her first seven months as Chair of the Committee on Small Business and Entrepreneurship.

Our bill will strengthen the SBA and dramatically improve the agency's ability to deliver services to small businesses in every state. It is based on a sound Committee record. In addition to holding two hearings and three roundtables to specifically address SBA's programs and related reauthorization issues, our Committee met and spoke with numerous constituents, program directors and small business advocates. It is through this correspondence, research and input that our Committee has been able to prepare a comprehensive piece of legislation that will likely serve the Small Business Administration and the entire small-business community well past even the next reauthorization period.

Over the past three years, as Chairman and Ranking Member of this Committee, I have seen this administration reduce government funding and transfer that money to the wealthy with tax cut after tax cut, resulting in a significant loss of revenue for essential programs aimed at fostering small businesses and the economic activity they bring about. While many of us like to note that small businesses are the engine of economic growth and should be bolstered by our government, this administration has given small businesses more words than action.

The need for small business programs—for access to capital, for training and counseling, for assistance in gaining access to the Federal marketplace—runs counter cyclical to the economy. When the economy is slumping, as it now is, small businesses and entrepreneurs need the SBA even more. Our Committee has heard from the small-business community that demand for training and assistance and access to capital is up, yet this administration has proposed freezing funding for virtually all SBA programs for six years. Their proposal includes no adjustment for inflation or demand, despite SBA's own numbers that show demand is up for its programs.

It is carrying out our legislative and oversight responsibilities that Chair SNOWE and I raised a number of concerns regarding the SBA's reauthorization proposal and the overall management and direction of many of the agency's programs through hearings, and roundtables and in letters and phone calls to the administration. And after hearing from the community and working with small business experts in the field, Senator SNOWE and I came to the conclusion that many of the proposals put forth by the Small Business Administration would not help the agency's programs but ultimately hinder them.

This administration and small businesses across this Nation will find, however, that our prescription for small businesses in a flailing economy is quite different. Our reauthorization legislation embraces the programs that have worked for years, redirects those that have struggled and sets the SBA and up for continued success.

Although banks have plenty of cash to lend, small businesses are still having a problem getting access to credit. For the past few years as the economy has fizzled, the Federal Reserve has reported that banks have cut back on lending to small businesses, making it harder and more expensive to get loans. And who has been there to pick up the slack? The Small Business Administration and its lending partners.

Lending is up in SBA's largest lending program for working capital. Lending is up in SBA's microloan program, which serves those with the least access to capital through the private sector. And SBA's venture capital programs account for a significant role—more than 50 percent—in this country's investment in our fastest-growing small businesses. Last year these loans pumped about $20 billion into the economy, leveraged millions more from the private sector, fed the local tax base as the Federal government cut back, and created at least 400,000 jobs.

As the Committee reviewed SBA's programs for reauthorization, these facts figured largely into establishing the program levels. I thank our Chair, Senator SNOWE, for working with me to set the levels for SBA's lending and venture capital programs at increasing levels for the next three years. I am particularly pleased with the increased funding levels for the microloan programs.

I disagree with the administration's proposals over the past few years to cut back its investment in microloans and training assistance to micro-entrepreneurs. And I disagree with the Adminstration's contention that these borrowers are being served through the 7(a) loan program. The small borrower in the microloan program is different than the small borrower being served through the 7(a) loan program. Both are important, but they are
different, and one is not a substitute for the other.

And who are these borrowers being served through the microloan program? Thirty percent are African American. Eleven percent are Hispanic. Thirty-seven percent are women. And anywhere from 30 to 40 percent go to small businesses in rural areas. Banks turn these borrowers away, and yet the administration proposed cutting the microloan program by 36 percent in its most recent budget. SBA needs to fully fund these programs and put more resources into the office that manages the program. Four people is not enough to manage 1,400 loans and 180 grants.

Aside from setting the levels for each small business financial assistance program, we made important program changes and started new initiatives. In the 7(a) loan program, SBA's largest loan program, which provides working capital to small businesses with long terms of up to 25 years, we made permanent the reduction in the fees borrowers and lenders pay. We are testing a proposal that allows the most proficient 7(a) lenders in good standing to lend in every state. Lenders have complained that applying for lending autonomy in each of the 70 district office and branches is administratively burdensome, both for them and for the Agency staff, and that some district offices have taken advantage of the power to approve or disapprove lenders when they apply for this special lending status.

I want to make clear while I want to avoid unnecessary paperwork and eliminate reported abuses, I do not want the lenders to take this as authority to quit working with the district directors. It is important to have a local connection and for the SBA and the lenders to work together to maximize service to the small businesses. For this purpose I have included a provision which directs the SBA to consider the recommendations and comments of any district directors and regional administrators when reviewing a lender for national lending authority.

To increase the value of 7(a) loans sold in the secondary market, the Committee has included a provision to allow
SBA to pool and sell the guaranteed portion of loans with varied rates. Currently SBA has the authority to only sell those loans with identical rates. This should create efficiencies in market and bring down borrowing costs for the small business borrower. At Senator SNOWE's request, in order to reach more under-served small businesses, we have enhanced the Low-Doc program, allowing lenders to use the simplified application form for loans up to $250,000 from $100,000, making it the same as the SBA Express program. We have also expanded the incentives for lenders to provide financing to export small businesses, and proposed letting 7(a) borrowers use a simplified size standard when determining if an applicant is a small business.

To improve the 504 loan program, which makes long-term loans of up to 20 years to small, growing businesses to buy equipment and buildings, we have also raised the debenture size to keep pace with the rising cost of commercial real estate and equipment. We have brought the job requirement standard up from $35,000 to $50,000 after ten or twelve years. We have directed SBA to simplify the application and documentation process of applying for and closing 504 loans, long a goal of this Committee and made a priority based on the testimony of one of our witnesses during the reauthorization process. We have created two alternatives for 504 lenders to use when establishing a loan loss reserve to cover potential losses.

I am particularly pleased that we have included S. 822, the Child Care Lending Pilot Act in the reauthorization bill. It allows small, non-profit childcare businesses access to 504 loans. I thank Senator SNOWE and my colleagues for agreeing to try this for three years, similar to what we have done with the microloan program. And I thank the trade association of 504 lenders, the National Association of Certified Development Companies, and other 504 lenders for their endorsement of an input on the pilot.

The more research I've done, the more I've come to realize how vitally important it is that we give non-profit day care providers the same opportunities as for-profits to expand their businesses. Non-profit day care centers are often the only child care suppliers available in needy areas, from the most urban to the most rural. Giving these businesses access to 504 loans for three years will allow us to gauge whether this valuable loan program is the best way to aid these valuable providers of care to our Nation's children. I have taken note of states like Oregon, where 79 percent of day care providers are non-profit, Michigan, where that number jumps to 86 percent, Iowa with 77 percent, my own State of Massachusetts with 90 percent, Ohio with 62 percent, and the list goes on and on. I've learned that in State after State families are waiting for affordable day care; from more than one thousand families on the waiting list in Nevada and Maine to more than thirty thousand on the list in Texas. These parents are waiting for quality day care they can afford, and making available affordable loans to all licensed child care providers may increase access to care and cut down those waiting lists.

I understand the concerns of those who are concerned about the precedent of SBA lending to non-profits. And I agree it should not be expanded to all industries. However, this is a very unique industry that in many States is delivered mostly through non-profits, and the only way to penetrate the market is to reach both for-profit and non-profit. Further, non-profits are usually the providers that care for the neediest kids. I have added provisions to ensure the underwriting standards are just as tough, if not more so, as those applied to for-profit centers. The loans must be personally guaranteed, the collateral must be owned outright by the child care provider, and it must be able to make its loan payments and cover normal operating expenses from the revenue generated from its clients. With these protections, the loans to non-profits should perform just as well as those made to for-profits, and if there is a problem, the loans should be collateralized sufficiently to cover the losses.

The bill defines a small, non-profit child care business to mean an entity organized as a 501©(3), but not just any organization. It must be a licensed child care provider; it must meet the size standard for a small business; and it must provide care to infants, toddlers and pre-kindergarten and older children after school. At Senator SNOWE's request, the pilot is limited to 7 percent allowed for pilots under SBA's 7(a) guaranteed business loan program. I feel that the agreed upon cap should allow for sufficient lending under the pilot to adequately test whether lending to non-profit childcare providers is effective in increasing access to affordable childcare, and whether it protects the general 504 program, which is vital to the financing of small businesses in this country.

The bill also includes a comprehensive study by the GAO to track and monitor the impact of this program both on the industry and the program. Last, I want to remind my colleagues that the 504 program is funded entirely through fees and does not require appropriations.

Also included in this bill is S. 318, the Small Business Drought Relief Act. This simply reinforces in legislation something which SBA should already be doing. You see, the SBA doesn't treat all drought victims the same. The Agency only helps those small businesses whose income is tied to farming and agriculture. However, farmers and ranchers are not the only small business owners whose livelihoods are at risk when drought hits their communities. The impact can be just as devastating to the owners of rafting businesses, marinas, and bait and tackle shops. Sadly, at present these small businesses cannot get help through the SBA's disaster loan program because of something taxpayers hate about government—bureaucracy.

The SBA denies these businesses access to disaster loans because its lawyers say drought is not a sudden event and therefore it is not a disaster by definition. However, contrary to the Agency's position that drought is not a disaster, as of July 16, 2002, the day this legislation was introduced last year, the SBA had in effect drought disaster declarations in 36 states. That number had grown to 48 the beginning of this year, demonstrating that problem had gotten worse and even more small businesses were in need.

As I have said time and again, the SBA has the authority to help all small businesses hurt by drought in declared disaster areas, but the Agency won't do it. For years the Agency has been applying the law unfairly, helping some and not others, and it is out of compliance with the law. The Small Business Drought Relief Act of 2003 would force SBA to comply with existing law, restoring fairness to an unfair system, and get help to small business drought victims that need it. I thank Senator BOND for working with me on this when he was the Ranking Member of the Committee on Small Business & Entrepreneurship, and I thank Senator SNOWE and her staff for all their help and support. While we might have had a lot of rain recently in the Northeast, there are areas like Lake Mead in Arizona where it is so dry that the water level is down and small businesses are losing business and making expensive changes to extend docks to reach the water.

In this bill are also provisions to shore up SBA's venture capital programs—the Small Business Investment Company Debenture and Participating Securities programs, and the New Markets Venture Capital Program. We have balanced investment incentives with soundness issues and allowed small businesses to receive more SBIC financing than currently permissible if they also have a 504 or 7(a) loan. We have improved the arrangement for distributing payments from successful SBICs so that SBA and the investors are treated more fairly and the taxpayers has more protection for realizing repayment on the investments. We have put in place conforming amendments to make the New Markets Venture Capital program work with the New Markets Tax Credit, as Congress intended. We have clarified that new markets venture capital companies have two years to raise their matching capital, as Congress intended. The Committee has been troubled by the Agency's interpretation of the NMVC statute which they viewed as permitting SBA to choose how much time it can give conditionally approved NMVCs to raise the private-sector matching money. The chosen time frames were unreasonable and not what Congress intended.

We have also included many measures to strengthen SBA's oversight of lenders, responding to findings by the General Accounting Office and the Office of Inspector General. And we have reauthorized and clarified the law for surety bond guarantees to help small businesses get government contracts.

While no one would deny the importance access to capital plays in the success of small businesses, as SBA Administration Hector Barreto and past SBA Administrators have acknowledged time and again, debt is not always the answer. In the SBA's FY 2004 budget request, there is reference to information from the Ewing Marion Kauffman Foundation and Dun & Bradstreet that indicates "80 percent of new businesses discontinue operation within five years because of lack of 'knowledge' of key business skills." Despite the recognized importance of such assistance, the SBA's funding request for FY 2004 and its legislative proposal to implement that request would freeze funding levels for virtually all Agency programs, without even accounting for inflation, for a six-year period. If enacted, that would severely hamstring this nation's small businesses and their ability to effectively compete and prosper in the national economy.

Cuts to or inadequate funding of the SBA's entrepreneurial development programs are often attributed to vague and unfounded claims of duplication. Such claims mistake a common mission of training and counseling for duplication, ignoring the reality that small businesses vary greatly, are often at very different stages of development, and have many different needs. Just as it would be ineffective to only have one type of loan or venture capital financing structure for the 25 million small businesses in this country, it would be futile to water down specialized management and training programs to impose a one-size-fits-all approach.

I want to commend Chair SNOWE for giving women entrepreneurs such a prominent place in the reauthoziation process. Rarely do women entrepreneurs get the recognition and attention they deserve for their contributions to our economy: 18 million Americans would be without jobs today if it weren't for these entrepreneurs who had the courage and the vision to strike out of their own. During my tenure as a member, Chair, and lead Democrat of the Senate Committee on Small Business and Entrepreneurship, I have worked to increase and improve the opportunities for enterprising entrepreneurial women in a variety of ways, leading to greater earning power, financial independence and asset accumulation—and I am glad that Senator SNOWE is joining me in this endeavor.

As Chair SNOWE expressed when she introduced the Women's Small Business Programs Improvement Act—and when Senator SNOWE and I passed the Women's Business Center's Preservation Act—protecting the extremely effective and well-established Women's Business Center network was a high priority in this reauthorization. For that reason, we make permanent the Women's Business Center Sustainability Pilot Program by creating three-year "renewal" grants for those centers with sustainability grants and four-year "initial" grants for new centers; increase the program's authorization levels; and direct the Office of Women's Business Ownership, OWBO, to make all Women's Business Center grants at $150K and to consult with the associations of Women's Business Centers when making improvements to the program. Other changes to the Women's Business Center Program include streamlining the data collection and the grant application and selection criteria, protecting the privacy of Women's Business Council, WBC, clients, and providing for a smooth transition from sustainability to the newly established WBC program. Our legislation will not only secure the future of the Women's Business Center Program, but it will connect all SBA-related women's initiatives with a unified mission, similar guidance and training. These changes were coupled with minor, yet significant, changes to the National Women's Business Council, NWBC, and the Interagency Committee on Women's Business Enterprise. Senator SNOWE and I included provisions to give the NWBC cosponsorship authority, to allow more flexibility in the way the Council uses funds, and to direct the Council to serve as a clearinghouse for historical data. Each of these things will enable the Council to become a better resource for the Administration, Congress and the entire small-business community. To bolster the representation of women business owners in the federal government, our bill re-establishes the Interagency Committee on Women's Business Enterprise, directs the Deputy Administrator of the SBA to serve as acting chairperson of the Interagency Committee until a chairperson is appointed, establishes a Policy Advisory Group to assist the Committee's chairperson in developing policies and programs under this Act and creates three subcommittees similar to those created under the National Women Business Council.

This bill also supports and protects the Small Business Development Center network, which has served 9 million small-business owners since its inception more than 20 years ago. It should also be noted that in 2001, SBDCs helped small businesses create or retain over 80,000 jobs, generate $3.9 billion in sales and obtain $2.7 billion in financing. For every dollar spent on an SBDC, $2.09 in tax revenue was returned to the Federal Government.
Numbers aside, the nationwide network of SBDCs provide important counseling services to small-business owners that are unable to afford private consulting, many of whom are women and minority clients. The SBDC program has grown to serve 1.25 million small-business owners and entrepreneurs each year, and there are nearly 1,000 centers serving every State in Nation.

While this bill rejects the potentially detrimental changes proposed by the SBA to the SBDC network, it does address concerns expressed by the centers and small businesses. Included in our bill are increased authorization levels to keep up with increased demand and a provision to protect the privacy of the program's clients and a provision to help SBDCs that have been adversely affected by poor economic conditions or government downsizing.

Also, included in the entrepreneurial development section of our bill is a provision to increase to $7 million annually the authorization level for the Service Corps of Retired Executives, SCORE, which has nearly 11,000 volunteers, and a technical change to allow SCORE to keep its modest staff of fourteen employees.

I want to thank Senator SNOWE for working with me to include, as introduced, the Native American Small Business Development Act, which I reintroduced earlier this year together with Senator JOHNSON and Senator SMITH to address the SBA's growing lack of commitment to the Native American community. According to a report released by the U.S. Census Bureau, the "three year average poverty rate for American Indians and Alaska Natives [from 1998-2000] was 25.9 percent; higher than for any other race groups." With an unemployment rate well above the national average and household income at just three-quarters of the national average, Native American communities need a commitment from the Federal government that we will help them, particularly during these difficult economic times. To reaffirm this commitment, the Johnson-Kerry-Smith bill provides Native Americans the resources they need to take advantage of the opportunities of entrepreneurship.

The Native American Small Business Development Act, as included in our reauthorization bill, will ensure that the SBA's programs to assist Native American communities cannot be dissolved by making the SBA's Office of Native American Affairs, ONAA, and its Assistant Administrator permanent. Our legislation would also create a statutory grant program, known as the Native American Development grant program, to assist Native Americans. It would also establish two pilot programs to try new means of assisting Native American communities and require Native American communities to be consulted regarding the future of SBA programs designed to assist them. In short, this legislation will ensure that our Native American communities receive the adequate assistance they need to help start and grow small businesses.

To address the growing business development needs of veterans, Senator SNOWE and I reauthorized the Advisory Committee on Veterans Affairs, expanded veterans outreach grants from just service-disable veterans, to veterans, reservists and service-disable veterans. Further, we increase the funding for the Office of Veterans Business Development to enable that office to better deal with the demand by veterans for outreach and development services.

We continue to receive reports of the detrimental effects of the Administration's policy of reduced staffing and resources for essential programs aimed at allowing small businesses to thrive. Week after week, the Federal Times reports on the decline in contracts being allocated to small businesses, small businesses losing ground in the federal marketplace, and most recently, on the awarding of more big contracts with less oversight from Federal agencies.
With agencies awarding larger, more complex and more costly contracts with less staff performing oversight, this nation's small businesses and its tax payers are the ones shouldering the burden when small business goals continue to be unmet. In addition to helping small businesses obtain access to procurement opportunities, these goals are meant to help the government benefit from the cost-savings and innovations small business contractors can often provide.

Significant improvements to the on-going problem of contract bundling, also called contract consolidation, are included in this bill. The first provision creates a two-tiered approach to preventing unnecessary contract consolidation. Civilian agencies will be required to meet specific standards if they attempt to consolidate contracts above $2 million and additional requirements for those contracts above $5 million. The Department of Defense is required to meet two types of similar requirements for contracts above $5 million and $7 million. The bill also eliminates the use of the term "contract bundling" and expands the definition of "contract consolidation," closing a loophole that has been widely used and has detrimentally affected small businesses.

The second provision increases in the number of Procurement Center Representatives (PCRs) stationed throughout the country. These representatives advocate on behalf of small businesses in cases directly affecting contracting, such as the bundling or consolidation of contracts. In the bill, we have increased the number of PCRs to ensure that every state and every major procurement center is allocated at least one PCR. Meanwhile, we have also ensured that these PCRs are not burdened with responsibilities that were previously the duties of Breakout PCRs and Commercial Marketing Representatives. These two improvements will dramatically increase the efficacy and efficiency of all three positions and allow proper review of the approximately 40 percent of Federal contracts, nearly $90 billion, that are currently not being reviewed by PCRs. This should increase small business's access to Federal contract opportunities.

The bill would also create a reporting requirement for the BusinessLINC program, which has been showing promise in creating real teaming opportunities for small businesses in the private sector. Although the Administration recommended elimination of the program, the reports this Committee received regarding the overwhelming success of the existing nine programs made it clear that the SBA did not have sufficient information about BusinessLINC to make an informed decision on its effectiveness. The Committee's bill would ensure that the SBA offers the proper level of oversight and would foster the continued success of the program. I would like to thank Senator SNOWE for working with me to find a compromise to preserve this successful program.

At each of this Committee's three Roundtables on Reauthorization and the hearing on contract bundling, the small business community reiterated the need for accountability for small business contracting at the agency level. I applaud Senator SNOWE on her efforts to ensure that Federal agencies be held accountable for fully utilizing small businesses and to allow a greater amount of Congressional oversight of the implementation of agency procurement strategies. Provisions within this bill will ensure that the heads of Federal agencies identify a specific portion of their budget request that will be awarded to small businesses in their strategic plan and their annual budget submission to Congress; will hold senior executives and senior program managers accountable in their annual performance evaluations for small business utilization in Federal contract awards.

In addition to increasing opportunities for prime contracts, this bill addresses another serious problem: small businesses have been severely hamstrung by dishonest practices by some businesses that have prime contracts with the Federal Government and receive preference over other prime contractors due to their superior subcontracting plans. Senator SNOWE and I have worked closely to address the concerns of small businesses regarding delays in payment, false reporting and the use of "bait and switch" tactics by prime contractors.

This bill holds prime contractors responsible for the validity of subcontracting data, requiring the CEO to certify to the accuracy of the subcontracting report under penalty of law. It also expands the penalties for falsifying data included in subcontracting reports to match the $500,000 penalty for businesses that falsify their status as a small and disadvantaged business. If one intentionally falsifies data as a part of a subcontracting report to a Federal agency, he is defrauding the United States government and will be punished to the full extent of the law. I commend Senator SNOWE for her diligence in creating these strict penalties and her efforts to create a bipartisan response to protect small businesses.

I want to thank Chairwoman SNOWE and her able staff for all of their hard work over the past several months. I also want to express my gratitude to all members of the Committee and urge them and my other Senate colleagues to support the Small Business Administration 50th Anniversary Reauthorization Act of 2003.

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