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Public Statements

Small Business Administration 50th Anniversary Reauthorization Act of 2003

By:
Date:
Location: Washington, DC

CONGRESSIONAL RECORD
SENATE
PAGE S12060
Sept. 26, 2003

Small Business Administration 50th Anniversary Reauthorization Act of 2003

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 bringing to the floor for final Senate consideration, a 3-year reauthorization bill for the Small Business Administration's programs.

These programs help small businesses 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 since becoming ranking member in 1997. Having worked close 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 9 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 the 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 should serve the Small Business Administration and the entire small-business community well past even the next reauthorization period.

Over the past 3 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 initiatives aimed at fostering small businesses and the job creation and economic activity they bring about. While many of 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.

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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 cyclically 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 6 years. Their proposal includes no adjustment for inflation or demand, despite the SBA's own numbers that show demand is up for its programs. The SBA's largest lending programs would have run out of money this year had the SBA not taken the drastic step of capping the size of loans. Both the problem of imminent shutdown and the SBA's solution of a cap would have been bad for struggling small businesses. But for additional funding of more than $3 billion made available by Congress, the SBA's solution would have disrupted many small businesses' access to otherwise unattainable capital. Again, the problem and its solution could have been avoided had the administration properly funded this important program.

It is in 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 rather would 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 initiatives that have worked for years,
redirects those that have struggled, and sets the SBA and our small business sector up for continued success.

Although banks have plenty of cash to lend, many small businesses still have a problem getting access to credit. Either the terms are unreasonable, or they can not get a loan at all. 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 37 percent in the SBA's largest lending program for working capital. Lending is up 22 percent in the SBA's loan program for small businesses that are growing and need money to buy equipment and buildings. Lending is up in the SBA's microloan program, which serves those with the least access to capital through the private sector. And the SBA's venture capital programs play a significant role in this country's investment in our fastest-growing small businesses, accounting for more than 50 percent of all U.S. venture investments. Last year these loans and investments 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 or retained more than 400,000 jobs.

As the committee reviewed the 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 the SBA's lending and venture capital programs at increasing levels for the next 3 years. I am particularly pleased with the increased funding levels for the microloan program.

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 administration'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 lending vehicles 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—fiscal year 2004. The SBA needs to fully fund these programs and put more resources into the office that manages the program. Four people are not enough to manage 1,400 loans and 180 grants.

Not only is the program level for microloans troublesome, but also the level for the agency's largest small business lending program, the 7(a) program. In the report that accompanies S. 1375, the committee notes that our duty as members of this committee, as well as that of the SBA itself, is not simply to maintain these programs but to monitor the demand and adjust the programs accordingly to meet the needs of small businesses. According to SBA's testimony before the committee on April 30, 2003, the agency estimates demand only by looking backwards—what has happened in the past year. However, there are other important factors to consider: changes in loan volume, trends in the economy, and initiatives and program changes that will affect loan volume. For example, the agency often enters into memoranda of understanding with trade and ethnic associations in order to help their members who own small businesses, and recently the SBA opened its lending programs to all credit unions, which number 10,000. Both of these changes are intended to raise awareness of the SBA's services, which ultimately will affect demand. In a press release from the SBA regarding credit unions, the agency stated that delivery of SBA loans through credit unions, "Represents a possible increase of nearly 30 percent in the overall number of institutions where entrepreneurs can seek capital for their businesses." That possibility, if it becomes a reality, will almost certainly increase demand for 7(a) loans. Therefore, it should be factored into the SBA's estimate of programs demand for
fiscal year 2004 and beyond, and aligned in its annual appropriations requests and legislative proposals.

Aside from setting the level for each small business financial assistance program, our SBA reauthorization makes important program changes and starts some important, new initiatives. In the SBA's microloan program, we have adopted many of the provisions we passed last year as part of S. 174, which Senator SNOWE and I introduced and the committee and the full Senate voted to pass by unanimous consent. I thank the Association for Enterprise Opportunity, AEO, as well as the participants of the reauthorization roundtable on April 30, 2003—Mary Mathews of Minnesota's Northeast Entrepreneur Fund, Zach Gast of AEO in Washington, D.C., Alan Corbet of Missouri's Go Connection, and Blake Brown of Maine's Coastal Enterprises—for representing the microloan industry so convincingly and educating the committee on the inextricable correlation between technical assistance, lending and successful businesses that can repay their loans. I thank them for illustrating so vividly how they serve borrowers that would not otherwise have access to capital—because their loans are not profitable enough to appeal to traditional lenders, and because the efficiencies of credit scoring work against these small borrowers, even those with repayment ability. The SBA's microloans represent their only credit option to help
them achieve economic independence and become bankable in the future.

Picking up where we left off last year, and even the year before when we made important changes to the microloan program, S. 1375 will make it possible for lenders to offer small business "short-term" loans. This will benefit small businesses, the lenders and the SBA because it will eliminate repeated paperwork and administrative oversight from those small businesses, such as carpenters, who need revolving loans to finance the jobs as they come in, rather than taking multiple little fixed-term loans. Rather than tying eligibility to the expertise of the entity, we have made it possible for new entities to qualify as the SBA microlending intermediaries if they have staff with this unique lending and technical assistance expertise. We have made a conforming change regarding the average smaller size of microloans, increasing it from $7,500 to $10,000, to make it consistent with similar changes enacted in December 2000.

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Unlike the provisions we considered in 2000 and again last year with S. 174, this bill does not go as far to eliminate the restrictions on lenders contracting out the technical assistance or assistance before a loan is made. Instead, we raise from 25 percent to 30 percent the amount of TA funds an intermediary can contract with an outside expert and the amount of grants a lender can use to counsel prospective borrowers. The latter change does not go as far as I would like, but represents a compromise. Although there is a perception that pre-loan assistance means that TA money is used on microentrepreneurs who never get loans, in actuality the small-business owner in many cases needs help getting the loan more than assistance running the business after he or she gets the loan. Also, unlike the last two microloan bills, instead of including a provision authorizing the SBA to fund peer-to-peer mentoring among microloan lenders and TA providers, the microlenders asked the committee to increase the oversight of an existing statutory provision that requires the SBA to contract out 7 percent of its loan dollars for training of intermediaries.

Now the SBA will have to report annually on this specific provision to highlight what they have done to comply with the law. Last, S. 1375 requires the SBA to develop an improved subsidy rate model to determine the cost of microloans because the one they have used since the program's inception does not reflect the performance of the program. For example, last year, in Fiscal Year 2003, the administration's budget doubled the subsidy rate, which is the Government's cost of the program, from 6.78 percent to 13.05 percent, even though the program had not experienced any loss of Federal funds since the first loan was made in 1992. This broken method of calculating the cost of these loans is a waste of taxpayer money because Congress has to appropriate unnecessary funds to run the program.

In the 7(a) loan program, the SBA's largest loan program, which provides loans to small businesses for working capital 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 offices 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.

Let me be clear—while I want to avoid unnecessary paperwork and eliminate reported abuses, I do not want the lenders to take this as a signal to quit working with the district directors and district staff. 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. We need to maximize resources to reach not only as many small businesses as possible, but also those populations that most need access to affordable capital. It would be unreasonable to continue holding district directors accountable for lending goals in their areas without building in a mechanism to encourage interaction. There are concerns that allowing lenders to make loans on a nationwide basis and bypass the local SBA staff to work only with SBA staff in Washington, DC, could undermine the local infrastructure and the SBA's ability to meet the individual needs of local small businesses. For this purpose I have included a provision that 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 the SBA to pool and sell the guaranteed portion of loans with varied rates. Currently, the SBA has the authority to only sell those loans with identical rates. Proponents argue that this will create efficiencies in the market and strengthen the program by bringing it into line with what the private sector has been doing for years.

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 from 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 raised the debenture size to keep peace with the rising cost of commercial real estate and equipment. We have raised the job requirement standard up from $35,000 to $50,000. This is reasonable given the increase in the Consumer Price Index since the last time the job requirement was changed in 1990. We have directed the 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 compelling testimony of some of our witnesses during the reauthorization process. We have also 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 3 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, and input on, the pilot.

The more research I have done, the more I have 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 childcare suppliers available in needy areas, from the most urban to be most rural. 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 1,000 families on the waiting list in both Nevada and Maine to more than 30,000 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 there is concern about the precedent of the SBA lending to non-profits. Right now it is done in only limited circumstances—microloans, physical disaster loans and economic injury disaster loans in the areas affected by the terrorist attacks of 9/11. And I agree it should not be expanded to all industries. However, this is a very unique industry whose critically important services in many States are delivered mostly through non-profits, and the only way to increase facilities to provide the child care is to reach both for-profit and non-profit child care providers. Further, non-profits are usually the providers that care for the neediest kids. I have added provisions to the pilot program to ensure that 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.

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The bill defines a small, non-profit child care businesses as 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 care to older children after school. This makes assistance available to eligible entities that offer Head Start services. At Senator SNOWE's request, the pilot is limited to seven percent of the number of loans guaranteed by the 504 program overall, which is less than the 10 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.

Before I move on to discuss another important provision in the bill, I want to thank all the members of the Advisory Committee on Child Care and Small Business in Massachusetts who not only identified the need for this policy change but also developed many innovative ideas to coordinate Federal and State business services and child welfare services to expand the availability of quality, affordable child care and strengthen the businesses of child care of child care providers.

The bill also includes a comprehensive study by the GAO to track and monitor the impact of this program both on child care industry and the 504 program. Last, I want to remind my colleagues that the 504 program is funded entirely through fees and does not require appropriations. Further, when the Congressional Budget Office reviewed the reauthorization act and estimated its cost and the impact the provisions would have on the programs, CBO assessed no cost increase to the 504 program, its subsidy rate, or the agency by enacting the child care lending pilot provision.

Also included in this bill is S. 318, the Small Business Drought Relief Act. This simply reinforces in legislation something that the 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. Despite numerous requests, written and verbal, for a copy of this legal opinion, the SBA delayed compliance for 6 months. The delay jeopardized enactment of emergency legislation during the 107th Congress, leaving small business drought victims without assistance. 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 drought disaster declarations in effect in 36 States. That number had grown to 48 by the beginning of this year, demonstrating that the problem had gotten worse and even more small businesses were in need.

As I have said time and again, the SBA already has the authority to help all small businesses hurt by drought in declared disaster areas, but the agency will not 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 the SBA to comply with existing law, restoring fairness to an unfair system, and would get help to small business drought victims that need it. I thank former Governor Jim Hodges of South Carolina, and his staffer Lane Hudson, for bringing this to the committee's attention. They served the needy small businesses of their State extremely well, and I am sorry that politics kept this common sense and much needed provision from being enacted. I thank the other 15 Governors who fought for their constituents, too. And I thank Senator Bond for working with me on this when he was the ranking member of the Committee on Small Business & Entrepreneurship, and 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 and Nevada where it is so dry that the water level is down and small businesses are losing business and having to make expensive changes, such as extending docks to reach the water in order to stay in business.

In this bill are also provisions to strengthen the 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 financial 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 the SBA and the investors are treated more fairly and the taxpayer 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. And we have clarified that New Markets Venture Capital companies have 2 years to raise their matching capital, as Congress intended. The committee has been troubled by the agency's interpretation of the NMVC statute, which SBA viewed as permitting the agency to choose how much time it could give conditionally approved NMVCs to raise the private-sector matching money. The SBA's chosen time frames were unreasonable and not what Congress intended.

I very much regret that the managers' amendment that we are considering today does not include a change to the New Markets Venture Capital Program which would better align allowable investments with repayment obligations. Right now the repayment and profit participation schedules are out of sync. Experts argue that this situation could force NMVCs to liquidate promising small businesses in order to raise repayment money. It would be unfortunate if this were to occur, particularly for the employees of small businesses in these high-unemployment areas who will be hard-pressed in this economy to find another job with sustainable wages and benefits. I do not have an SBA NMVC in my State, but there are about 20 States with NMVCs which would have benefited from this proposed change—Maine, New Hampshire, Vermont, Kentucky, Maryland, West Virginia, Ohio, Delaware, New Jersey, Pennsylvania, Arizona, and Washington, DC. I am sorry that we could not reach a compromise and I hope for the sake of existing NMVCs and the small businesses they assist that the experts are not right.

I thank the many experts who have advised this committee over the years on developing and implementing the new markets venture capital program. My colleagues on the committee and I are grateful for their help. It is a great service to the taxpayers and businesses and the communities that will benefit from this innovative investment. In no particular order, I thank Dr. Julia Rubin who helped us when she was at Harvard, at Brown and now at Rutgers University. I thank Saunders Miller, now himself a small business owner of Peaq Funds in Manhattan, who was a principal developer of this program and may other venture capital initiatives for the many years he worked at the SBA. I thank Don Christensen, the former head of the SBA's investment division, where he served this nation and president Clinton extremely well. And to the many developmental venture capitalists who routinely impart their expertise and wisdom to this committee, such as Elyse Cherry of the Boston Community Venture Fund and Ray Moncrief of Kentucky Highlands.

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Responding to findings by the General Accounting Office and the SBA's Office of Inspector General, this legislation includes many measures to strengthen the SBA's oversight of lenders. 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 that access to capital plays in the success of small businesses, as SBA Administrator 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 5 years because of lack of 'knowledge' of key business skills." Despite the recognized importance of such assistance, the SBA's funding request for fiscal year 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 6-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. For this reason, Senator SNOWE and I took a comprehensive approach to supporting and improving the SBA's entrepreneurial development programs, while rejecting proposals put forth that would undermine their success.

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 reauthorization process. Rarely do women entrepreneurs get the recognition and attention they deserve for their contributions to our economy:
Eighteen million Americans would be without jobs today if it were not for these entrepreneurs who had the courage and the vision to strike out on 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 3-year "renewal" grants for those centers with sustainability grants and 4-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 Center, 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. Since its inception, the NWBC has provided Congress, the Small Business Administration, and the Interagency Committee on Women's Business Enterprise with independent advice and policy recommendations on issues facing women in business.

In recognition of the council's importance to policy making and women in business, Senator LANDRIEU offered and the committee adopted an amendment identical to her National Women's Business Council Independence Preservation Act of 2003, which seeks to maintain the bipartisan balance on the NWBC. The structure of the NWBC helps to maintain its independence. It has 15 members. The chair is appointed by the President and must be a prominent business woman. Six members are representatives of women's business organizations, including representatives of women's business center sites, and the remaining eight are members appointed by the SBA administrator based upon recommendations of the chair and ranking members of the Senate Small Business and Entrepreneurship Committee and the House Small Business Committee.
Of these eight "party-affiliated" members, four come from the same political party as the President and four members who are not from the President's party; all of them must be small business owners. The bipartisan balance in the NWBC's membership helps to ensure that any policy recommendations will reflect the needs of women in business and not the political agenda of one political party over another.

Vacancies on the NWBC are supposed to be filled no later than 30 days after the position becomes open; however, in the past 2 years, the SBA has failed to meet this 30-day statutory deadline. The NWBC Chair was vacant from May 29, 2001, to May 21, 2002, a period of 11 months and 22 days. Of the party-affiliated slots reserved for the President's party, one was vacant for 3 months, two were vacant for a period of 7 months; and one was vacant for 21 months. Two of the seats reserved for members who are not from the President's party were vacant for nearly 2 years, one seat was vacant for 7 months, and the fourth seat remains vacant. At one point during the past 2 years the NWBC had a severe partisan imbalance. There were three Republican members on the NWBC and no Democratic members. The committee is concerned that these vacancies undermine the effectiveness of the NWBC, and that the lack of bipartisan balance will subject any policy positions taken by the NWBC to criticism as being motivated by partisan interests.

Senator LANDRIEU's amendment, which was approved unanimously by the committee, requires that vacancies in the party-affiliated slots will be filled to maintain a bipartisan balance on the NWBC. The provision also ensures accountability by requiring the administration to report to Congress on vacancies that remain unfilled for more than 30 days. The committee expects the report to cite the reasons for the vacancies, what is causing any delays in filling the positions, whether nominees were available for consideration, at what stage in the vetting process nominees are, whether there are any objections to the nominees and what those objections are, an estimate for when the vacancies will be filled, and any other relevant information relating to the vacancies.

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's Business Council.

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This bill also supports and protects the Small Business Development Center network, which has served millions of 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 provides 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 the 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. Our bill increases 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 the SBDCs that have been adversely affected by poor economic conditions or government downsizing. Also included is a portability provision proposed by Senator SNOWE to provide supplemental assistance to State SBDC networks that have been adversely affected by a military base or industrial site closure which has lead to a loss of jobs and severe economic harm. If implemented correctly, portability has the potential to help States, reeling in the aftermath of a sudden economic change, to provide the necessary small business assistance to quell the economic injury to a particular area.

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 10,500 volunteers, and technical change to allow SCORE to keep its modest staff of 14 employees. For more than 38 years, SCORE has been one of the SBA's greatest and most efficient successes. In 2002, SCORE volunteers held over 300,000 counseling sessions and put in nearly 1.4 million volunteer hours. To keep up with an our nonstop national economy, SCORE has dramatically advanced the outreach of its online services to reach clients 24 hours a day, seven days a week. Last year, for $5 million, SCORE volunteers provided small business owners an estimated $170.8 million worth of professional business advice. It is safe to say that in this down economy, SCORE is one investment that will be paying dividends for years to come.

I 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 the 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.

Senator BINGAMAN and I have worked closely to develop a provision for inclusion in a joint managers' amendment to the reported bill, which will expand the Program for Investment in Microentrepreneurs, PRIME, with a separate $2 million authorization to provide direct, in-depth technical assistance and counseling to disadvantaged Native American small business owners. The provision will complement the Native American Business Centers created in the Native American Small Business Development Act by following the PRIME model, which provides technical assistance through microenterprise entities that have extensive experience helping the least experienced entrepreneurs in low-income communities. The rationale for amending the PRIME Act, rather than creating a separate program, is that PRIME is currently operational and simply needs additional funding so it can better address the needs of the Native American entrepreneurial community. The provision follows the existing Small Business Administration's approach and terminology for implementing the PRIME Act to enhance the possibility of economic development through entrepreneurship in Native American communities. The Bingaman provision will strengthen the three-pronged approach the Senator JOHNSON and I designed in the Native American Small Business Development Act to find a solution to the longterm economic handicap existing in Native American communities nationwide. There are a number of microenterprise organizations in states across the country that are willing and prepared to take on the additional challenge of assisting disadvantaged Native American entrepreneurs, and there are a number of Native American communities that are eager to take a different path to economic development. However, there are currently a limited amount of funds to allow that to happen. I commend Senator BINGAMAN for his attention to this matter, for his continued support of my small business legislation, and for his foresight and vision for Native Americans in New Mexico and across the country. The Native American communities across our nation will be better off with the assistance that this provision makes possible. Were it not for the persistence of Senator BINGAMAN, this provision would not be part of SBA's tools to help Native American entrepreneurs. I also want to thank Senator SNOWE for working with Senator BINGAMAN and me to include this provision in the managers' amendment.

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 solely serving disabled veterans, to serving all veterans, reservists and service-disabled 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.
Included in a joint Snowe-Kerry amendment, which was unanimously approved at the Committee markup, is a reauthorization of PRIME at $15 million. SBA Administrator Hector Barreto has stated, "The PRIME program was created to help the smallest of small businesses. These are entrepreneurs at the most basic stage of starting a business and who typically require the greatest amount of committed service and guidance. In order to succeed, they require training and technical assistance that must be accessible."

PRIME is a powerful investment that provides critical assistance to struggling, distressed communities. It's engineered to help low-income and very low-income families, defined as those at 150 percent of the poverty line or below. A very low-income family of four earns about $23,000 a year. The International Labor Organizations estimates that the return on investment in microenterprise development through resources like PRIME ranges from $2.06 to $2.72 for every dollar invested. Microenterprise contributes to our national economy through public tax revenues, private income increases, and reduced dependence on public assistance, such as welfare. Small Business Development Centers define a "client" as someone who has received two hours of training. On average, however, PRIME organizations spend 10 hours with low-income and very low-income entrepreneurs.

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Many often confuse PRIME assistance with the microloan technical assistance. Unlike the microloan program's technical assistance, which is directly tied to helping microentrepreneurs obtain access to capital through microlenders, the PRIME program is designed to help microentrepreneurs who may not be credit-worthy or don't need or want loans, but do need intensive technical assistance.

Currently, there are fewer than 80 organizations with PRIME grants, yet the need for PRIME assistance is now greater than ever. While access to credit is vital for many microentrepreneurs, for low-income individuals, there is a severe gap between being credit-worthy and receiving the technical assistance needed to be successful in business. The PRIME program addresses this gap. for these reason, Senator SNOWE and I reauthorized the program for three years. Our bill also moves PRIME's statutory language to the Small Business Act and includes a data collection provision.

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 fewer 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 contact bundling, also called contract consolidation, are included in this bill. One provision included in this legislation that will make a significant impact on small businesses' ability to compete is the method we have adopted to address the ongoing problem of contract bundling. This language is a prime example of the effectiveness of bipartisanship, diligence and compromise. This approach incorporates language from an amendment to the Department of Defense reauthorization offered by Senator COLLINS and Senator TALENT, language from my contract bundling bill, S. 633 and the President's initiative on contract bundling.

The first provision creates a two-tiered threshold in order to prevent unnecessary contract consolidation. Civilian agencies will be required to meet specific standards if they attempt to consolidate contracts above $2 million and $5 million. The Department of Defense is required to meet similar requirements for contracts above $5 million and $7 million. The bill also further expands the definition of contract bundling to include contract consolidation, closing a loophole in the definition that has been widely used and detrimentally affecting small businesses.

The second provision increases in the number of procurement center representatives, PCRs. These representatives advocate on behalf of small businesses in cases directly affecting contracting, such as the bundling or consolidation of contracts.
Unfortunately, the number of PCRs has been reduced from over 200 at its peak in the late 1980s to the current level of just 47. In addition to reducing the number of traditional PCRs, the administration has also eliminated the Breakout PCRs, specially trained advocates that analyze highly technical large contracts and "unbundle" contracts and break out portions that are appropriate for small businesses. Their responsibilities have been rolled into that of traditional PCRs, even though the number of PCRs continued to decline. Often, the role of commercial marketing representatives, CMRs, was also incorporated into the responsibilities of traditional PCRs. CMRs are responsible for identifying opportunities and developing marketing strategies for small businesses to appeal to large prime contractors. The SBA's attempt to streamline their offices and replace trained individuals with electronic systems has resulted in the disenfranchisement of small businesses and hindered the SBA's ability to maintain a proper level of oversight over Federal contracting.
In the bill, we have increased the number of procurement center representatives to ensure that every State and every major procurement center is allocated a 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 the Committee's roundtable on non-credit programs 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. The bill also gives senior procurement executives and senior program managers additional authority to educate their staff regarding the importance of meeting the government-wide goals for small business utilization and allows for greater accountability in annual performance evaluations. I would like to thank the members of the Senate committee on Government Affairs for working with Senator SNOWE and me on these provisions to ensure that agency officials have the authority, as well as the flexibility, to efficiently and effectively meet the goals we have placed before them.

In addition to increasing opportunities for prime contracts, this bill addresses another serious problem: Small businesses have been severely hampered by dishonest practices by some businesses that have prime contracts with the Federal Government and have received preference over other prime contractors due to their superior small business 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.

The 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 or 10 years in prison 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.

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During the committee's reauthorization roundtables, we heard numerous accounts of subcontractors receiving late payments or partial payments from their prime contractors. Small firms do not have the luxury of waiting for their payments when they have invested time and money to provide their products and services to the prime contractor. To address this concern, the bill directs the SBA to create a three-year pilot program, which tests the feasibility of direct payment to subcontractors from the Federal agencies that are receiving the contracts and or services.

In 2000, Congress passed legislation to implement a limited competition, set-aside program for women-owned businesses, intended to assist agencies to increase contracting to these firms and help to meet the five percent government-wide goal. The original bill amended the Small Business Act in section 8(m)(4) to require the SBA Administrator to complete a study to identify industries in which women-owned businesses are under-represented and report to Congress. The original study has been completed, but has been delayed by a subsequent study of the original study's "methodology," causing the program to be delayed indefinitely rather than be implemented in 2002, as it should have been. This bill expedites the implementation of the already overdue program by reassigning the responsibility of the study from the SBA to the GAO and giving the Comptroller a deadline of December 31, 2003, to report his findings to Congress.

During this time of economic downturn, we must ensure that long-term strategies of reorganization and restructuring do not have immediate negative impacts on our communities. One example of this is the economic impact on surrounding areas when a military base is closed. The loss of contracts to small businesses, jobs and resources can cripple a community's economy. To reduce the impact on these regions, this bill utilizes a contracting program, called the HUBZone program, intended to target under-served areas and maintain the profitability of the firms located within these areas. This bill will allow military installations that are closed after passage of this legislation to receive HUBZone status. Senator SNOWE and
I have included a further provision within the managers' amendment of S. 1375, which would limit this special classification for 5 years after the closure of the base. The intent of the immediate qualification of these areas is to allow for a smoother transition of the base to commercial use by encouraging small businesses to relocate to those facilities, through Federal contracting opportunities, and employing the workers in that area. Additional options for assistance for these areas are available through the SBA if these areas do not receive continued economic stability following the expiration of the 5-year HUBZone status.

I want to thank Chair SNOWE and her able staff for all of their cooperation over the past several months. I would like to thank the members of the Senate Committees on Armed Services and Government Reform for working closely with me and my staff to ensure that this bill meets the needs of the Federal Government's diverse procurement offices as they work to ensure that the government receives the essential goods and services it requires. I also want to express my gratitude to all the members of the committee for their diligent efforts to improve this legislation and urge them and my other Senate colleagues
to support the Small Business Administration 50th Anniversary Reauthorization Act of 2003.

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