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[Senate Report 108-124]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 248
108th Congress                                                   Report
                                 SENATE
 1st Session                                                    108-124
======================================================================

 
 SMALL BUSINESS ADMINISTRATION 50TH ANNIVERSARY REAUTHORIZATION ACT OF 
                                  2003

                                _______
                                

                August 26, 2003.--Ordered to be printed

     Filed, under authority of the order of the Senate of July 29 
                    (legislative day, July 21), 2003

                                _______
                                

 Ms. Snowe, from the Committee on Small Business and Enterpreneurship, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 1375]

    The Committee on Small Business and Entrepreneurship, to 
which was referred the bill (S. 1375) to provide for the 
reauthorization of programs administered by the Small Business 
Administration, and for other purposes, having considered the 
same, reports favorably thereon with amendments and recommends 
that the bill (as amended) do pass.

                            I. Introduction

    The Small Business Administration 50th Anniversary 
Reauthorization Act of 2003, introduced by Senator Snowe, and 
cosponsored by Senator Kerry, on July 8, 2003, is a bill to 
reauthorize most programs at the SBA for Fiscal Years 2004, 
2005, and 2006. Additionally, the bill makes changes to various 
existing programs and authorizes several new pilot initiatives. 
The Committee adopted by unanimous voice vote an amendment by 
Senator Snowe, and cosponsored by Senator Kerry, which includes 
four amendments proposed by Senators Bayh, Crapo, Landrieu, and 
Levin, and the bill was subsequently adopted by a unanimous 
vote of 19-0.
    The Small Business Administration 50th Anniversary 
Reauthorization Act of 2003 is the product of a series of 
hearings and roundtable discussions that the Committee held in 
2003. Beginning with a hearing on March 18, 2003, the Committee 
focused on the issue of contract bundling, which too often 
presents insurmountable obstacles to small businesses seeking 
to compete in the Federal marketplace for a share of the more 
than $200 billion that Federal agencies award in contracts each 
year. The hearing examined the President's nine-point plan for 
minimizing the effects of contract bundling as well as other 
legislation addressing Federal procurement opportunities for 
small businesses, including the Small Business Federal 
Contractor Safeguard Act (S. 633), introduced by Senator Kerry 
on March 17, 2003.
    In April, the Committee began its in-depth examination of 
the entire spectrum of programs and services offered by the 
SBA. In its April 9, 2003, roundtable, the Committee focused on 
the SBA's non-credit programs including the Small Business 
Development Centers (SBDCs) program, the Service Corps of 
Retired Executives (SCORE) program, the SBA's Office of Women's 
Business Ownership Programs, the National Women's Business 
Council, the Veterans Business Development Program, the Native 
American Outreach program, and other entrepreneurial 
development programs administered by the SBA. The Committee 
heard from a broad cross-section of the small business 
stakeholders of these programs as well as from SBA 
representatives who oversee these programs.
    In addition, the April 9, 2003, roundtable also reviewed 
the SBA's government contracting and business development 
programs, which include the Prime Contracting and 
Subcontracting Programs, HUBZone Program, 8(a) Business 
Development Program, and BusinessLINC Program. Stakeholders of 
these programs provided important insight to the Committee, and 
many of their recommendations were incorporated into the bill.
    While the SBA's Small Business Innovation Research (SBIR) 
Program and Small Business Technology Transfer Program (STTR) 
programs are not facing reauthorization in the current cycle, 
the Committee did examine during the April 9, 2003, roundtable 
the Technology Rural Outreach Program and Federal & State 
Technology Partnership Program (FAST), which are related 
programs reauthorized under the bill.
    The Committee turned to the SBA's financing programs on 
April 30, 2003, in the first of two roundtable discussions. The 
Committee heard from lenders, small business stakeholders, and 
SBA representatives about the 7(a) Loan Guarantee Program, 
which continues to play a vital role in helping small 
businesses obtain operating capital. The Committee also heard 
from participants in the Microloan program, which provides 
capital and technical assistance to microenterprises.
    On May 1, 2003, the Committee held the second roundtable on 
the SBA's credit programs, focusing first on the 504 Loan 
Program. Participants noted that the 504 Loan Program, often 
referred to as a ``bricks and mortar'' lending program, has 
become a solid economic development tool and helps small 
enterprises acquire essential real estate and basic machinery 
and equipment. The roundtable also examined the SBA's Small 
Business Investment Company (SBIC) program and the New Markets 
Venture Capital program. These programs represent important 
sources of equity capital for small businesses.
    As part of the May 1, 2003, roundtable, the Committee 
focused on the SBA Disaster Assistance Loan program. Through 
this program, the SBA is the nation's foremost direct lender to 
disaster victims. The roundtable participants offered valuable 
insight into the program's operations and areas for 
improvements.
    The Committee completed its series of hearings and 
roundtables on SBA reauthorization with a hearing on June 4, 
2003, that featured SBA Administrator Hector Barreto. This 
hearing provided an additional opportunity for the agency to 
respond to issues raised during the previous roundtable 
discussions, discuss its legislative package that was submitted 
to the Committee for review, and comment on the President's 
Fiscal Year 2004 budget submission for the SBA. The hearing 
also examined a number of agency management issues including 
the SBA's efforts to obtain a clean audit opinion on the 
agency's financial statements, implementation of a loan 
monitoring system, and workforce transformation plans.
    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 the 
previous Congress 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 Committee believes that by providing reasonable 
authorization levels, improvements to specific SBA programs, 
and several new initiatives, the Small Business Administration 
50th Anniversary Reauthorization Act of 2003 provides a sound 
foundation for the agency to begin its next 50 years of even 
greater service to the nation's small businesses and 
entrepreneurs.

                        II. Description of Bill

                      TITLE I--GENERAL PROVISIONS

Administration accountability

    Since its amendment in 1955, the Small Business Act has 
required the SBA to maintain its essential documents and 
records and make them available for congressional oversight. 
The bill updates Section 10(e) of the Small Business Act to 
emphasize that the Administration shall maintain its documents 
and records for at least two years and to provide a broader 
illustration of the types of documents and records covered by 
the section.
    In recent years, the Committee has been concerned by the 
SBA's failure to make certain documents and records available 
when requested. For instance, in 2002, the Committee requested 
a copy of the SBA General Counsel's opinion that the agency 
identified as the basis for restricting the availability of 
economic injury disaster loans in cases of disasters resulting 
from floods. Despite numerous requests for a copy of this legal 
opinion, the SBA has never made it available for the 
Committee's review. Similarly, this year, the Committee 
requested the documents on which the SBA based its 
determination that the new econometric model, implemented as a 
result of Public Law 108-8, could not be applied to loans made 
under the Supplemental Terrorist Activity Relief (STAR) Loan 
Program. Again, despite a formal and repeated informal follow-
up requests, the documentation was never produced.
    In light of these concerns, the Committee included in the 
bill clarification that SBA documents and records shall be made 
available to the Senate and House Committees for their 
inspection and examination. Specifically, the bill provides 
that upon the written request of either the Senate or House 
Committee, the Administrator or the Inspector General, as 
applicable, shall make any documents or records requested 
available to the requesting Committee or its duly authorized 
representatives within 5 business days of the request.
    To discharge its constitutional oversight obligations, the 
Committee occasionally requires timely access to certain SBA 
documents and records. To the extent that such requests cannot 
be satisfied or will be delayed, the Committee expects a 
reasonable explanation and designation of a time for completing 
the request whenever possible. The Committee does not intend, 
however, that this provision jeopardize any on-going 
investigation by the SBA Inspector General or any individual's 
privacy. Any documents or records requested by the Committee 
pursuant to Section 10(e) of the Small Business Act will 
continue to be subject to the Committee's rules regarding the 
disclosure of confidential information.
    It is the Committee's expectation that the agency will work 
cooperatively with the Committee to ensure that congressional 
oversight of the SBA and its programs can be accomplished in a 
thorough, timely, and efficient manner.

Program authorizations

    Section 111 of the bill authorizes appropriations for the 
SBA's financing programs and certain other programs 
administered by the SBA. The SBA's financing programs 
reauthorized in this bill include Section 7(a) Guaranteed 
Business Loans, Section 504 Certified Development Company 
Loans, Microloans, Disaster Assistance Loans, and the Small 
Business Investment Company Debentures and Participating 
Securities. The New Markets Venture Capital program is already 
authorized through Fiscal Year 2006.
    The following chart details the funding set out in the bill 
for each of the reauthorized SBA programs over the three-year 
time frame of the bill. The Committee carefully considered the 
Administration's funding request for each program, as well as 
recommendations from small business owners, advocacy 
organizations representing small businesses and entrepreneurs, 
the lending and investment community, and members of the 
Committee.

          PROGRAM LEVELS FOR SMALL BUSINESS ADMINISTRATION 50TH ANNIVERSARY REAUTHORIZATION ACT OF 2003
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                   Current   Budget     SBA authorization request       Reauthorization bill
             Program               levels    request -----------------------------------------------------------
                                    FY03      FY04      2004      2005      2006      2004      2005      2006
----------------------------------------------------------------------------------------------------------------
7(a)............................   $10,839    $9,300   $16,000   $16,000   $16,000   $16,000   $16,500   $17,000
504.............................     4,500     4,500     5,000     5,000     5,000     5,000     5,250     5,500
SBIC:
    Debentures..................     3,000     3,000     3,000     3,000     3,000     3,000     3,250     3,500
    Participating Securities....     4,000     4,000     4,000     4,000     4,000     4,000     4,250     4,500
Microloan:
    Technical Assistance........        15        15        70        70        70        70        75        80
    Direct Loans................     31.27        20       100       100       100       100       105       110
    Guaranteed Loans............      1.99         2        50        50        50        50        50        50
Delta...........................     22.99         0       500       500       500       500       500       500
Surety Bond Guarantee:
    General Program.............     1,672     1,672     6,000     6,000     6,000     6,000     6,000     6,000
    Preferred Program...........     (\1\)     (\1\)     (\1\)     (\1\)     (\1\)     (\1\)     (\1\)     (\1\)
SCORE...........................         5         5         7         7         7         7         7         7
SBDC............................        89        88        88        88        88       125       130       135
HUBZone Program.................         0         2        10        10        10        10        10        10
SBIR Rural Outreach Program.....         0     (\2\)         2         2     (\2\)         2         2         2
SBIR FAST Program...............         0         3        10        10     (\2\)        10        10        10
Women's Business Centers........      12.5        12      14.5      14.5      14.5        15        16      17.5
Paul C. Coverdell Drug Free              2         3         3         3         3         5         5         5
 Workplace......................
National Women's Business             0.75      0.75      0.75      0.75      0.75         1         1         1
 Council........................
Veterans Outreach...............      0.75      0.75      0.75      0.75     (\2\)         1       1.5         2
PRIME...........................         5         0     (\2\)     (\2\)     (\2\)        15        15       15
----------------------------------------------------------------------------------------------------------------
\1\ Funded at up to 50% of the total.
\2\ No request specified.

Additional authorizations

    The bill also includes an extension of the authorization 
for the assistance offered through Small Business Development 
Centers (SBDCs) to provide small businesses with information 
and assistance to establish drug-free workplace programs. 
Additionally, the bill extends the current $5 million 
authorization for the Paul C. Coverdell Drug-Free Workplace 
Program through Fiscal Year 2006. Both programs have made 
important contributions in helping small businesses remove 
drugs from the workplace.

                     TITLE II--FINANCIAL ASSISTANCE

7(a) Loan Guarantee Program

    The 7(a) program has had a profound effect on the American 
economy and on the lives of thousands of small business owners 
and employees. During the last 3 years, the SBA 7(a) loan 
program has made financing available to more than 39,000 start-
up small businesses and to approximately 99,000 existing small 
businesses that received financing for operating and expansion 
purposes, all totaling more than $28 billion in the same 3-year 
period. Most significantly, this program has helped small 
businesses create more than one million new jobs in the last 
three years.
    On April 30, 2003, the Committee held a roundtable 
discussion to review the 7(a) loan program and received 
comments and recommendations from small business stakeholders 
and lenders participating in the 7(a) program.
    Based on the roundtable testimony and information received 
directly from program participants, the Committee approved the 
increased authorization levels set forth in the bill for the 
7(a) Guaranteed Business Loan Program over the next three 
fiscal years. This reflects the Committee's recognition that 
the number of loans made in the 7(a) program has grown 
substantially over the last several years, and the Committee's 
belief that the program has a substantial potential for 
continued growth, not just in the number of loans made but in 
the total lending volume of the program.
    The SBA has expressed its interest in continuing to expand 
the number of small loans made under the 7(a) program, 
particularly through the SBA Express sub-program. While the 
Committee agrees that increasing the number of smaller 7(a) 
loans is a valid goal for the SBA, the Committee disagrees that 
this goal must come at the expense of the number of larger 7(a) 
loans. The Committee believes that the 7(a) lenders and the SBA 
must work together to determine the true demand from small 
businesses for the appropriate mixture of large and small 
loans, and allow appropriated funds for the 7(a) program to be 
used as the market of small businesses demands.
    In addition, the Committee is concerned that the SBA bases 
its estimates for the volume of the 7(a) program in future 
years solely by measuring the historical levels of the program. 
The Committee and the SBA are not tasked with simply 
maintaining programs at current levels, but with allowing 
programs to grow when that growth is necessary and helpful to 
small businesses. By reviewing only historical data to set 
future loan levels for the 7(a) program, the SBA provides small 
businesses with only a static resource, in contrast to the 
growth that the SBA should be encouraging. Instead, the 
Committee believes that the SBA should examine the feasability 
of implementing a system for estimating loan demand that would 
give added weight to recent changes in loan volume, trends in 
the economy, and initiatives and program changes that will 
affect loan volume.
    At the Committee's roundtable, lenders participating in the 
7(a) Preferred Lenders Program (PLP) reported frustration at 
having to apply for PLP status separately within each SBA 
district. This concern is an element of a larger issue: the 
difficulties lenders face in complying with varying practices 
in each SBA District Office. Lenders have reported that 
different SBA District Offices at times resolve similar matters 
in different ways, thus adding costs and delays to 
participation in the 7(a) program, even though the SBA has 
Standard Operating Procedures established for personnel in 
District Offices. While the Committee believes that a national 
Preferred Lenders Program will successfully address the 
inefficiencies and cost of applying for special lending status 
in each district and will encourage lending, it is not a 
substitute for action by the SBA to ensure its lending 
personnel follow uniform policies and procedures. The SBA's 
loan programs are complex. To encourage lender participation, 
the agency needs to have uniform standards, because that 
ultimately serves the best interests of small businesses.
    In response to these problems, Section 201 of the bill 
directs the SBA to initiate a three-year pilot program in which 
PLP lenders can receive authorization to operate in every state 
as a National PLP lender if the lender meets criteria 
established by the SBA. The bill lays out the general 
guidelines for establishing the criteria.
    In delineating the types of criteria that would be required 
for applicants to be licensed as National PLP lenders, the 
Committee does not intend that the SBA will require that 
lenders applying to be licensed as a National PLP lender have 
made a certain number of loans in any of the specific sub-
programs or pilot programs that are contained within the 
overall 7(a) loan program, except for the Preferred Lender 
Program. In addition, the Committee does not expect that the 
SBA will require that applying lenders have made a certain 
number of 7(a) loans greater than or less than a particular 
monetary amount, nor that the SBA will set a required average 
loan size for applicants.
    The bill also states that during the SBA's evaluation of a 
lender's application, the SBA may consider comments about the 
lender from any SBA District Director or Regional Administrator 
relating to the applicant's current performance as a PLP 
lender. No such comments are required to be submitted, and when 
evaluating an applicant to be a National PLP lender, the SBA 
should not delay the approval of the applicant because no 
comments, or only a certain number of comments, have been 
received from SBA officials. The option was included in the 
bill to allow District Directors and Regional Administrators an 
opportunity to voice their comments about an applicant, but 
those comments are not a necessary requirement of the 
application process.
    Section 202 of the bill extends the program participation 
fees paid by lenders involved in the 7(a) program. Accordingly, 
new 7(a) loans will continue to be subject to the existing 
fees, which are as follows: for loans that have a total amount 
of $150,000 or less, lenders pay a fee of one percent of the 
SBA's guarantee amount; for loans with a total amount of more 
than $150,000, but equal to or less than $700,000, lenders pay 
a fee of 2.5 percent of the SBA's guarantee amount; and for 
loans that have a total amount of more than $700,000, lenders 
pay a fee of 3.5 percent of the SBA's guarantee amount. In 
addition, lenders pay an annual fee for each 7(a) loan of 0.25 
percent of the outstanding balance of the guarantee amount. In 
effect, this section reauthorizes fees under current law 
relating to 7(a) loans. The fees specified in this section will 
apply only to loans made after the date of enactment of the 
bill.
    The Committee also approved a new initiative that 
authorizes 7(a) lenders to pool, for sale in the secondary 
market for 7(a) loans, loans with varying interest rates. 
During the April 30, 2003, roundtable, lenders raised concerns 
about the difficulty of pooling loans with varying interest 
rates, and the Committee believes that this change will address 
the issue by providing lenders with increased flexibility in 
grouping loans together for re-sale.
    The bill also increases the size of the loans that can be 
made under the SBA's Low Documentation (LowDoc) sub-program of 
the 7(a) program. By increasing the maximum loan amount from 
$100,000 to $250,000, the bill makes the size limit for the 
LowDoc program consistent with the maximum loan size permitted 
for the SBA Express Loan program. The LowDoc program offers 
entrepreneurs a more convenient way to access the 7(a) program, 
and has been helpful to small business owners who have 
traditionally been less involved with the SBA's loan programs.
    For instance, women small business owners have been 
frequent participants in the LowDoc program. The SBA reports 
that in Fiscal Year 2002, 9,100 LowDoc loans were made, and 
3,390 (37 percent) of these were made to women-owned small 
businesses. In contrast, only 18 percent of all 7(a) loans in 
Fiscal Year 2002 were made to women-owned small businesses. As 
a result, the Committee believes that increasing the maximum 
size of LowDoc loans will provide traditionally under-served 
small business borrowers, such as women-owned small businesses, 
a better opportunity to receive the financing they need.
    The bill increases the maximum size of the 7(a) loans that 
are available to small businesses involved in exporting 
products. The Committee believes that increasing the maximum 
loan size from $2 million to $2.6 million, with a maximum 
guaranteed amount of $1.3 million, will assist small businesses 
that are attempting to compete in international markets.
    The Committee also increased the maximum size of loans 
available under the SBA's Defense Loan and Technical Assistance 
(DELTA) program, which is designed to help eligible small 
defense-dependent companies to diversify into commercial 
markets, from $1.25 million to $2 million, to conform the 
maximum size of these loans to the maximum size of general 
loans under the 7(a) program.
    Finally, the bill includes several sections relating to the 
7(a) program that also pertain to other SBA programs (these 
provisions appear in the bill under Subtitle G). The first 
provision (Section 261) allows small businesses to participate 
simultaneously in both the 7(a) and 504 programs by receiving 
loans under both programs. In order to ascertain the extent to 
which this combination of loans is utilized by small 
businesses, the SBA should require that lenders report to the 
SBA's fiscal and transfer agent those 7(a) loans that are made 
to small businesses that also have 504 loans. In addition, the 
fiscal and transfer agent should provide this information to 
the SBA so the agency can include it in its annual budget 
request and performance plan submitted to Congress.
    The second provision (Section 262), conforms the guidance 
provided under both the 7(a) and 504 programs regarding the 
extent to which small businesses may lease property financed 
through SBA programs. The Committee approved this SBA proposal 
in order to reduce ambiguities under the current leasing 
guidance and to eliminate the potential for inconsistent 
results for similar borrowers, one with a 7(a) loan and the 
other with a 504 loan.
    Section 263 increases the ability of small businesses to 
receive investments from an SBIC while also receiving loans 
under either the 7(a) or 504 loan programs. While recognizing 
that increasing the amount of borrowed and equity capital that 
a small business can receive subject to an SBA guarantee may 
increase the agency's exposure to loss, the Committee believes 
that the additional risk will be small and counterbalanced by 
the benefits of expanding available capital for small 
businesses. In addition, the bill limits the exposure by 
permitting a small business with an SBIC investment to obtain 
borrowed capital only from the 7(a) or 504 loan program, but 
not both, and by continuing to count 50 percent of the borrowed 
capital against the maximum SBIC investment.
    Finally, Section 264 directs the SBA to establish an 
alternative size standard for the 7(a) program, as it has done 
for the 504 program. This concern was raised by lenders at the 
Committee's April 30, 2003, roundtable on the 7(a) program, and 
the Committee believes this change will greatly simplify the 
7(a) program for small businesses.

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 and use SBA 
grant funds to provide technical assistance, such as managerial 
or strategic advice, to small businesses. Microloan lenders 
have made over 8,000 loans to existing and start-up small 
businesses during the past four years, and these enterprises 
have created or retained an estimated 34,000 jobs during that 
period.
    The bill includes increases in the authorization levels for 
the loan and technical assistance components of the 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 small businesses, 
particularly in areas that have suffered from severe economic 
distress.
    At the Committee's April 30, 2003, roundtable discussion, 
the Committee heard from several participants in the microloan 
program on the program's successes and areas for improvement. 
These comments and written testimony provide the basis for 
provisions included in the bill to improve the Microloan 
program.
    Specifically, the Committee heard about the need for 
intermediaries in certain parts of the country that are 
currently not served, or are under-served, by the microloan 
program. To increase the reach of microloan intermediaries to 
more areas, the bill includes several provisions that seek to 
expand access to the program.
    First, the bill alters the eligibility requirements for an 
entity to be licensed as a microloan intermediary, and thus 
eligible to receive loans and grants from the SBA. Currently, 
to be licensed as an intermediary an entity must have at least 
one year of institutional experience in providing loans to 
small businesses and at least one year of institutional 
experience in providing technical assistance to small 
businesses. To enable newly established entities to become 
microloan intermediaries, the bill allows an entity to be 
licensed if it has a full-time employee on staff with at least 
three years of experience in making microloans; the entity 
would also have to establish that it has at least one year of 
experience in providing technical assistance to small 
businesses. It is not the Committee's intent to lower the 
standards of quality for entities that are licensed as 
intermediaries, but rather to permit access for entities that 
are new to the program and have employees with demonstrated 
experience and ability.
    The bill also increases, from 25 percent to 30 percent, the 
amount of a technical assistance grant that a microloan 
intermediary can use to contract out technical assistance to a 
third-party. One incentive that intermediaries have to perform 
their technical assistance functions well is that the 
intermediaries must repay their loans to the SBA. The quality 
of the technical assistance the intermediaries provide to small 
businesses correlates to the success of the businesses, and to 
the businesses' ability to repay their loans to the 
intermediary. Third-party technical assistance providers do not 
have this concern, as they do not receive direct loans from the 
SBA.
    The Committee was concerned that removing any ceiling on 
the percent of grant funds that an intermediary could contract 
out to a third-party technical assistance provider would 
increase the occurrence of situations in which the entity 
providing technical assistance to small businesses does not 
have the additional incentive that is provided by the need to 
repay a loan to the SBA. The Committee recognizes, however, 
that there is a need for certain technical assistance, like 
legal, accounting, and tax advice, which intermediaries are not 
able to provide directly. Accordingly, the bill provides 
additional flexibility for intermediaries to contract with 
third parties in such cases.
    As part of an amendment offered by the Chair and Senator 
Kerry, the Committee included in the bill an increase in the 
percentage of technical assistance that an intermediary may 
provide to potential borrowers, rather than actual borrowers, 
from 25 percent to 30 percent. The Committee believes that this 
change will provide more flexibility to intermediaries in 
deciding how to allocate their technical assistance. The 
Committee recognized, however, that completely eliminating the 
limitation on the use of technical assistance for potential 
borrowers could have the negative effect of reducing the amount 
of technical assistance that must be devoted to those small 
businesses that have actually entered the microloan program as 
borrowers, rather than merely explored the possibility of 
receiving a microloan.
    The bill also amended the Small Business Act to allow 
intermediaries to make revolving-term loans or longer fixed-
term loans to small businesses. Currently, intermediaries may 
only make ``short-term'' loans with fixed terms, which 
restricts the ability of microlenders to structure loans that 
meet the needs of certain small enterprises.
    The bill makes a change to the Small Business Act to 
indicate that microloan intermediaries that have a microloan 
portfolio with an average loan size of not more than $10,000 
can receive an interest rate lower than 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 Small Business Act currently requires the SBA to use a 
portion of its annual appropriation for microloans and 
microloan guarantees to provide one or more technical 
assistance grants to microlending organizations and national 
and regional nonprofit organizations to ``procure technical 
assistance for intermediaries participating in the Microloan 
Program to ensure that such intermediaries have the knowledge, 
skills, and understanding of microlending practice necessary to 
operate successful microloan programs.'' The bill adds to the 
Small Business Act a requirement that the SBA report, in its 
annual budget request and performance plan to Congress, on the 
SBA's performance of this requirement.
    Finally, the bill requires the SBA to develop a subsidy 
model for the microloan program, to be used in the Fiscal Year 
2005 budget, that improves on the current subsidy model. 
Participants in the microloan program have reported to the 
Committee that the current model is subject to unnecessary 
fluctuations and results in inaccurate subsidy rates for the 
program.

Lender oversight

    The effectiveness of the SBA's oversight of the lenders 
participating in SBA lending programs, and its oversight of the 
loan guarantees for which the SBA is responsible, is an issue 
of primary importance to this Committee. On multiple occasions, 
the Committee has requested that the General Accounting Office 
(GAO) assist the Committee in its oversight of the SBA by 
conducting analyses that identify issues of concern in the 
SBA's oversight of its lenders, its loan portfolio, and its 
information technology management, as well as other areas. 
These analyses have been valuable to the Committee as it 
developed this bill. For instance, in a December 2002 report 
(Small Business Administration: Progress Made but Improvements 
Needed in Lender Oversight, GAO-03-90, Dec. 9, 2002), the GAO 
identified ways in which the SBA needs to improve its lender 
oversight process to measure adequately the financial risk 
lenders pose to the SBA.
    In roundtables held on April 30, 2003, and May 1, 2003, the 
Committee heard from the GAO and the SBA concerning some of the 
issues the GAO identified regarding the SBA's lender oversight. 
Moreover, the SBA's Office of the Inspector General (OIG) has 
conducted audits of the SBA's lending programs, which have 
resulted in important recommendations for improving these 
programs and the SBA's oversight of them. The Committee is 
confident that the excellent work of the GAO and the OIG will 
continue to assist the Committee as it works with the SBA 
regarding the SBA's lender oversight functions.
    The Committee believes that new provisions in the bill will 
aid the SBA in improving its lender oversight programs. First, 
Section 102 of the bill transfers the operations of the SBA's 
Office of Lender Oversight (OLO) from the Office of Capital 
Access (OCA) to the office of the agency's Chief Operating 
Officer (COO). Since the OCA is tasked with increasing the 
SBA's total number of loans, and promoting the loan programs 
generally, it should not be responsible for operating the OLO, 
which is charged with overseeing the lenders affiliated with 
the SBA and for identifying improper risks in the SBA's loan 
portfolios. The OLO's task, at times, is to restrain lenders or 
lending practices. The Committee believes that this transfer 
will lessen the possibility of a conflict of interest. Outside 
the scope of the OCA, the OLO will be able to concentrate 
exclusively on lender oversight.
    In discharging its responsibilities under the COO, the OLO 
may at times make recommendations with which the OCA does not 
concur. In such circumstances, the Committee expects that the 
COO and the Associate Deputy Administrator for the OCA will 
resolve any disagreements directly, with the Administrator 
being the final arbiter in any such case.
    The bill also allows the SBA to charge fees to 7(a) lenders 
for lender examinations, and use these fees solely to fund 
examinations and review activities. This change, suggested by 
the SBA, will provide the agency with the ability to cover 
costs associated with oversight and review of these lenders' 
portfolios. The SBA will set reasonable fee levels based upon 
the size of the lenders' portfolios being reviewed, and the 
time necessary to review the portfolios. In determining these 
fees, the Committee expects that the SBA will consult with 
lenders and consider comparable fee structures charged by 
financial regulatory agencies. This change is, in part, a 
response to the analysis of the GAO, which identified as 
problematic examination fee structures that, by paying set fees 
per review, appeared to reward examiners for completing their 
lender reviews as quickly as possible. The Committee 
anticipates that this provision will improve the SBA's ability 
to conduct adequate reviews of its lenders' portfolios.
    The bill also provides the SBA with additional oversight 
authority with respect to two types of lenders--Small Business 
Lending Companies (SBLCs) and Non-Federally Regulated SBA 
Lenders (NFRLs). SBLCs are defined as non-depository financial 
institutions that only make loans under Section 7 of the Small 
Business Act. NFRLs are defined as financial institutions that 
make loans under Section 7 of the Small Business Act, are not 
SBLCs, and are not regulated by the Farm Credit Administration, 
the Federal Financial Institutions Examination Council, the 
Board of Governors of the Federal Reserve System, the Office of 
the Comptroller of the Currency, the Federal Deposit Insurance 
Corporation, the Office of Thrift Supervision, or the National 
Credit Union Administration.
    The bill delineates in the Small Business Act the SBA's 
right to assert enforcement and supervisory authority over 
SBLCs and NFRLs. This authority includes the ability to issue 
cease and desist orders, impose civil money penalties, and 
remove officers and directors who are acting in an unsafe and 
unsound manner. The enforcement language gives the SBA various 
mechanisms to address substantive and technical violations that 
do not warrant court action or revocation of an SBLC's or 
NFRL's lending authority. The language also provides notice 
requirements and other due process protection for the lenders. 
Providing the SBA with the authority to regulate SBLCs and 
NFRLs will aid the SBA's lender oversight efforts by allowing 
the SBA some degree of influence over lenders who are not 
otherwise fully regulated by financial regulatory agencies.
    The Committee believes that these provisions, as well as 
continued oversight by the Committee and diligence by the SBA, 
will aid the agency in conducting a more effective lender 
oversight program.

Disaster Assistance Loan Program

    The Disaster Assistance Loan Program is the SBA's largest 
direct lending program. Disaster loans are the primary form of 
Federal assistance for non-farm, private-sector disaster 
losses. The disaster loan program is the only form of SBA 
assistance that is not limited to small businesses.
    The SBA makes two types of disaster loans. Physical 
disaster loans provide funds for the permanent rebuilding and 
replacement of uninsured disaster damages to privately-owned 
property. These loans are available to homeowners, renters, 
non-profit organizations, and non-farm businesses of all sizes. 
Economic injury disaster loans provide working capital to small 
businesses, until normal operations resume, after a disaster. 
Economic injury loans are restricted to small businesses.
    The bill clarifies a note within Section 7(c)(6) of the 
Small Business Act to confirm the existence of a $1.5 million 
maximum amount per loan for disaster loans to entities that are 
identified as major sources of employment for their area. The 
Committee expects that this clarification will not change the 
standard that the SBA employs, but will simply place that 
standard within the statute.
    In addition, the bill includes the substantive provisions 
of the Small Business Drought Relief Act of 2003 (S. 318), 
introduced by Senator Kerry, which was passed by the Senate on 
April 1, 2003. This section of the bill clarifies the SBA's 
authority to provide emergency assistance, through disaster 
loans, to non-farm-related small businesses that have suffered 
substantial economic harm from drought. Currently, in cases of 
drought, the SBA takes the position that it is only authorized 
to provide disaster loans to businesses whose revenue is tied 
to farming and agriculture. The Committee believes that the 
agency's interpretation of current law results in the exclusion 
of a large number of businesses, including businesses in the 
tourist industry, that can be adversely affected by droughts. 
This section includes in its definition of ``disaster'' below-
average water levels in the Great Lakes or any other body of 
water in the country that is used for commercial purposes.
    Finally, the bill reauthorizes and extends the SBA's 
Disaster Mitigation pilot program, which offers pre-disaster 
loans, under the SBA's disaster loan program, to small business 
borrowers. Small businesses may borrow up to $50,000 to protect 
their property by taking specific measures to mitigate against 
potential damage from a future disaster. This pilot program was 
originally authorized in 2000 for a five year period from 
Fiscal Year 2000 through Fiscal Year 2004. Because the pilot 
program was only recently implemented by the SBA and because 
the agency's current authorization only extends through 
September 30, 2003, the Committee reauthorizes this pilot 
program for four years, through Fiscal Year 2006, instead of 
the original five years, to be consistent with the three-year 
reauthorization cycle. By reauthorizing the pilot program, the 
Committee believes that the SBA should implement the program in 
order to provide sufficient time to test the efficacy of this 
pilot and determine if disaster mitigation will decrease the 
need for actual Disaster Assistance Loans, as originally 
envisioned.

504 Loan Program

    The 504 Loan program assists small businesses in financing 
real estate, as well as investments in machinery and equipment. 
In the past three years, the SBA has approved guarantees for 
more than 15,000 new loans through the 504 Loan program--almost 
3,000 for new business start-ups and more than 12,000 for 
existing small businesses. The total number of jobs created and 
retained as a result of these loans was 325,471 during the 
three-year period.
    The bill makes significant changes to the 504 loan program 
to improve its efficiency for existing participants and to 
encourage its usage by more small businesses. The Committee 
believes the changes will simplify the program and render it 
more accessible to small enterprises.
    Of primary importance, the bill extends, through Fiscal 
Year 2006, fees paid by the borrowers, the first mortgage 
lenders, and the Certified Development Companies (CDCs) under 
the 504 program. These fees cover the subsidy rate of the 
program, and therefore the program requires no appropriations. 
The fees are as follows: The first mortgage lender pays a one-
time up-front fee of 0.5 percent of the amount of the first 
mortgage. The CDC pays an annual fee of 0.125 percent of the 
outstanding amount of each debenture authorized after September 
1996. In addition, the borrower pays an annual fee based on the 
outstanding amount of the debenture. The exact amount of this 
fee, which can be up to 0.975 percent per year, is determined 
by SBA in order to maintain a zero subsidy rate for the 
program.
    The bill also amends the Small Business Investment Act of 
1958 (SBIA) to address overcapitalization in the loan loss 
reserve accounts of Premier Certified Lenders (PCLs). 
Overcapitalization in these accounts reduces the funds 
available for PCLs to lend to small businesses. The bill 
adjusts loan loss reserve requirements to allow PCLs to have 
more capital available for loans, while maintaining sufficient 
reserves, as required by law, to cover loan losses.
    Under current law, upon making a loan, a PCL has two years 
to make payments into a loan loss reserve account that equals 
one percent of the loan's initial exposure. For example, if a 
PCL makes a $1 million loan that amortizes over ten years, the 
PCL must have contributed $10,000 into its loan loss reserve 
after two years. Despite the fact that this loan would be 
amortizing over the next eight years, the PCL must maintain 
$10,000 in its loan loss reserve for the duration of the loan. 
The bill allows PCLs to utilize their capital better by 
providing that, after two years, PCLs need only retain in their 
loan loss reserve one percent of a loan's outstanding exposure. 
This result should make more capital available to PCLs and 
thereby enable PCLs to make more loans to small businesses and 
create more jobs.
    Additionally, the bill provides PCLs with an option to 
operate under a newly established loan loss reserve program. 
PCLs that elect to participate would maintain in their loan 
loss reserve accounts at least $100,000, plus additional funds 
necessary to protect the government adequately from risk of 
loss. The calculation of the appropriate levels for lenders' 
respective loan loss reserves will be performed by an 
independent accounting firm approved by the SBA. PCLs that 
elect to participate in this program will be defined as 
``qualified high loss reserve PCLs.''
    The bill also requires the SBA to contract with another 
Federal agency, or with a member of the Federal Financial 
Institutions Examination Council, to study the extent to which 
statutory requirements have caused overcapitalization in PCLs' 
loan loss reserves, and identify alternatives for establishing 
and maintaining loss reserves sufficient to protect the Federal 
government from risk of loss. The Committee believes that 
amending the existing reserve requirement, offering PCLs a new 
reserve option, and studying the causes of overcapitalization 
will help to remedy the problem of overcapitalization in loan 
loss reserves, thus allowing PCLs to make more loans to small 
businesses.
    In light of rising costs of real estate and fixed assets 
since the last reauthorization in 2000, the bill authorizes the 
SBA to increase its maximum 504 loan guarantee from $1 million 
to $1.5 million for general 504 program loans, and from $1.3 
million to $2 million for loans that achieve a ``public policy 
goal.'' The nine public policy goals currently identified by 
the statute are: rural development; expansion of exports; 
expansion of minority business development; business district 
revitalization; enhanced economic competition; restructuring 
because of Federally-mandated standards or policies; changes 
necessitated by Federal budget cutbacks; expansion of small 
businesses owned and controlled by veterans; and expansion of 
small businesses owned and controlled by women. An amendment 
proposed by Senator Bayh to increase the maximum loan guarantee 
size for manufacturing loans, from $2 million as initially 
proposed to $4 million, was also approved by the Committee.
    The Committee believes that these increased loan limits 
will assist qualifying small businesses in obtaining needed 
capital. The manufacturing sector, in particular, should 
benefit from an increase in the SBA's maximum loan guarantee 
amount for manufacturing loans. Manufacturers will have a 
greater opportunity to engage in larger, more expensive 
projects that will help them expand their operations and, 
ultimately, hire more employees. It is also the Committee's 
hope that increasing access to long-term fixed-rate loans to 
manufacturers will improve the competitiveness of U.S. 
manufacturers.
    The bill also updates the SBIA's job creation standards for 
small businesses that receive 504 loans. Since 1990, the SBA 
has required that small businesses receiving 504 loans certify 
that, for each $35,000 that the SBA guarantees, the small 
business is creating one job. The standard is amended by 
requiring non-manufacturing small businesses to create one job 
per $50,000 in SBA guarantees. Pursuant to the amendment 
proposed by Senator Bayh and approved by the Committee, the 
standard for loans made for manufacturing purposes is raised to 
a requirement that such a loan create one job per $100,000 in 
SBA guarantees.
    The Committee believes that the changes in the job creation 
requirements will give lenders more flexibility in making 
loans, allow more small businesses to qualify for loans, and 
enable existing 504 participants additional operating 
flexibility. Quickly escalating costs in the manufacturing 
industry justify granting manufacturing entities less 
restrictive job creation standards. The bill also provides for 
a waiver process, either for CDCs that temporarily do not meet 
the job creation requirements, or for projects that do not meet 
the job creation levels but that achieve an economic 
development goal, as detailed in the statute.
    In addition to expanding the size of 504 loans, the bill 
also addresses the complexities of obtaining such a loan. 
Section 246 of the bill requires the SBA to develop a 
simplified application for the 504 loan program. Participants 
in the Committee's roundtable on May 1, 2003, discussed the 
fact that CDCs spend an inordinate amount of time processing 
SBA application forms for 504 program loan guarantees. The 
amount of paperwork that is required for 504 loans is far 
greater than for comparable loans in other programs or in the 
private sector.
    While a substantial amount of paperwork may always be 
necessary for real estate-based loans, participants in the 504 
program have called for the SBA to develop simplified forms and 
a quicker processing system. Progress toward the latter goal is 
being made, in part, by the SBA's current pilot program to 
centralize loan processing, but improvements for the entire 
program must still be made. Simplifying the application forms 
and process would reduce the time CDCs spend processing loans, 
thus enabling them to provide more loans to small businesses 
and to provide them more quickly.
    Accordingly, the bill requires the SBA to develop and make 
available to CDCs, within 180 days of the enactment of this 
legislation, a shorter, more concise, and simplified 
application for 504 program loan guarantees of not more than 
$400,000. Furthermore, the SBA must develop a similarly 
simplified application that will be available for 504 program 
loan guarantees of all sizes within 270 days of the enactment 
of this legislation.
    The legislation does not specify how the SBA should 
simplify the application and reduce paperwork. However, the 
Committee strongly urges the agency to work with the trade 
association of 504 lenders, the National Association of 
Development Companies (NADCO), to comply with the bill's 
requirements in a meaningful way. The Committee also urges the 
SBA to expedite this process by utilizing the SBA's study on 
streamlining the application process, completed in the late 
1990s, rather than duplicating those efforts and expenses.
    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. 
The section incorporates the provisions of the Child Care 
Lending Pilot Act of 2003 (S. 822), which Senator Kerry 
introduced on April 8, 2003.
    At its May 1, 2003 roundtable, the Committee heard from 
participants in the child-care industry regarding the shortage 
of affordable child care in the United States. This new three-
year pilot program responds to that shortage by enabling CDCs 
to make 504 loans to qualifying non-profit child-care 
providers. The pilot program will be available through Fiscal 
Year 2006.
    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. The Committee recognizes that 
child care can be extremely difficult to obtain. In addition, 
in order to qualify for certain types of Federal assistance for 
low income families, 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. For example, the following states have high 
percentages of non-profit child-care providers: Oregon (79 
percent), Michigan (86 percent), Iowa (77 percent), Ohio (62 
percent), and Massachusetts (90 percent). 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.
    Accordingly, the Committee believes it appropriate to 
authorize a pilot program to determine whether the 504 loan 
program could serve as a useful means to deliver capital to 
child-care providers, without changing the general nature of 
the 504 program. The Committee notes, too, that permitting non-
profit child-care providers to participate in the 504 program 
is not completely unprecedented, as the SBA's microloan program 
has permitted loans to be made to non-profit child-care 
providers since 1997.
    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.
    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 General Accounting Office to provide to 
Congress a comprehensive report analyzing the pilot program, as 
the program nears the end of its three-year pilot period.
    As noted previously, loans that achieve one of nine 
``public policy'' goals enumerated in the statute, can be 
larger in amount than regular 504 loans. One such public policy 
goal is rural development. The SBA currently classifies rural 
areas as those jurisdictions that have less than 20,000 
residents and are not in an urbanized area adjacent to a 
jurisdiction with more than 20,000 residents. In contrast, the 
definition of ``rural'' used by the U.S. Department of 
Agriculture (USDA) is based on jurisdictions with more than 
50,000 residents. As a result, a rural area may qualify for 
benefits under USDA programs, but not under those offered by 
the SBA.
    The bill eliminates this disparity by modifying the SBA's 
definition of ``rural'' to include jurisdictions that have less 
than 50,000 residents. The Committee believes that this change 
will expand the number of small businesses in non-urban areas 
that are eligible for the ``public policy'' 504 loans. 
Additionally, conforming to the USDA's definition of ``rural'' 
will eliminate any potential confusion inhabitants of rural 
areas could encounter when interacting with both the SBA and 
the USDA.
    Finally, the bill includes several sections relating to the 
504 program that also pertain to other SBA programs (these 
provisions appear in the bill under Subtitle G). Section 261 
allows small businesses to participate simultaneously in both 
the 504 and 7(a) programs by receiving loans under both 
programs. In order to ascertain the extent to which this 
combination of loans is utilized by small businesses, the SBA 
should require that lenders report to the SBA's fiscal and 
transfer agent those 7(a) loans that are made to small 
businesses that also have 504 loans. In addition, the fiscal 
and transfer agent should provide this information to the SBA 
so the agency can include it in its annual budget request and 
performance plan submitted to Congress.
    The second provision, Section 262, conforms the guidance 
provided under both the 504 and 7(a) programs regarding the 
extent to which small businesses may lease property financed 
through SBA programs. The Committee approved this SBA proposal 
in order to reduce ambiguities under the current leasing 
guidance and to eliminate the potential for inconsistent 
results for similar borrowers one with a 504 loan and the other 
with a 7(a) loan.
    Section 263 increases the ability of small businesses to 
receive investments from an SBIC while also receiving loans 
under either the 504 or 7(a) loan programs. While recognizing 
that increasing the amount of borrowed and equity capital that 
a small business can receive subject to an SBA guarantee may 
increase the agency's exposure to loss, the Committee believes 
that the additional risk will be small and counterbalanced by 
the benefits of expanding available capital for small 
businesses. In addition, the bill limits the exposure by 
permitting a small business with an SBIC investment to obtain 
borrowed capital only from the 504 or 7(a) loan program, but 
not both, and by continuing to count 50 percent of the borrowed 
capital against the maximum SBIC investment.

Surety Bond Program

    Under the SBA's Surety Bond Guarantee Program, the SBA may 
guarantee bid, payment, and performance bonds for eligible 
small contractors for contracts of up to $2 million. The SBA 
may provide sureties up to a 90 percent guarantee to issue 
bonds on behalf of small businesses.
    Currently, the SBA does not guarantee bonds for any 
contract with a total value greater than $2 million. The bill 
clarifies that the SBA may guarantee bonds for specific 
contracts of $2 million or less when the total range of 
affiliated contracts exceeds $2 million, or has the potential 
to exceed $2 million. The surety's bond liability, however, may 
not exceed $2 million.
    The reason for this modification involves circumstances 
under which a small business seeks bonding for a sub-contract 
award on an Indefinite Delivery Indefinite Quantity (IDIQ) 
contract, or similar contract, when the value of the entire 
contract is larger than $2 million. A small business that 
receives an award on an IDIQ that is $2 million or less, may be 
denied a bonding guarantee by the SBA under the current law 
because the value of the entire contract exceeds the $2 million 
threshold. In these circumstances, the bill makes it clear that 
the SBA may provide a bonding guarantee to the small business. 
Even if the contract's total value exceeds $2 million, the SBA 
may guarantee bonding if a small business's specific award does 
not exceed $2 million, the surety's bond liability does not 
exceed $2 million, and the SBA judges the contract 
satisfactory.
    The Committee is particularly interested in the manner in 
which the SBA promotes, advertises, and manages both the 
Preferred Surety Bond Guarantee Program and the Surety Bond 
Guarantee Program. These programs bear significant potential to 
assist small businesses to compete more effectively in a 
difficult economy, and the Committee is concerned by reports 
that the SBA is not adequately promoting the programs or 
maximizing their usefulness. The Committee believes that the 
SBA should work with contracting officers in all government 
agencies to ensure that they understand the SBA's surety bond 
program and that, when appropriate, contract solicitations 
should be structured in a way that permits small businesses to 
participate fully in the bid process.
    In addition, the Committee believes it is important that 
the SBA ensure that these programs are managed by personnel 
with adequate training and experience to understand the 
circumstances under which small businesses bid for contracts 
and attempt to obtain surety bond guarantees. Finally, the 
Committee is also concerned by reports that the SBA's surety 
bond guarantee approval process has increased from a few days 
to up to 2 weeks; clearly, the SBA must provide small 
businesses with a quick and efficient approval process.

Pilot program for guarantees on pools of non-SBA loans

    Section 265 of the bill authorizes the SBA to develop a 
three-year pilot program for providing a partial guarantee on 
pools of loans that are not otherwise guaranteed by the SBA. 
The SBA's budget request and performance plan for Fiscal Year 
2004, submitted in February 2003, reported that the SBA was 
considering such a proposal. The proposal was also discussed at 
the Committee's roundtable on April 30, 2003. At the 
roundtable, the SBA reported that it had been exploring this 
type of program, but the agency was uncertain if it had the 
authority to develop and implement such a program, absent 
legislative authorization. The Committee has consulted with the 
SBA and with participants in the small business financing 
industry to determine the program's appropriate elements. The 
bill authorizes, but does not require, the SBA to develop the 
program if the SBA determines that it can be practically 
implemented.
    If the program is undertaken, financial firms approved by 
the SBA would pool loans not individually guaranteed by the 
SBA. These pooling entities would then issue securities 
offering returns based upon the returns from the loans in the 
pool. The securities would be rated by a rating agency and sold 
to private investors.
    The pooling entity would also offer a partial ``first-
loss'' guarantee to investors on the securities' returns. If 
the loans had insufficient returns to pay the expected returns 
on the securities, the pooling entity's guarantee would be the 
first guarantee called into performance to pay investors. The 
SBA would issue partial, not complete, ``second loss'' 
guarantees on the return from the securities, but not on 
individual loans within the pool. The pooling entities' 
guarantees would have to be completely exhausted before the 
SBA's guarantees would be called upon. The Committee intends 
that the SBA's guarantees would be funded entirely by fees 
charged to the private investors, with no appropriations to be 
made for the program. The program, if implemented, will sunset 
at the end of Fiscal Year 2006 unless it is reauthorized by 
Congress.
    The rationale for this proposal is to increase effective 
liquidity for small businesses, and for community banks, by 
improving the quality and amount of loans available to small 
businesses. The pooling structure is based on similar 
arrangements for home mortgages, credit card loans, and car 
loans, which have active secondary markets based upon their 
pooling and securitization. The dual guarantee structure, and 
the quality of the loans involved, should allow substantially 
all of the securities issued for each pool to be rated as 
investment grade. The Committee believes that this program 
would allow lenders, including community banks, to benefit from 
the increased liquidity of small business loans and to utilize 
capital that is otherwise locked into existing loans, and 
therefore to provide better terms on loans to small businesses, 
as well as to make more small business loans.
    The Committee has received statements of support for the 
pilot program from representatives of small businesses that 
believe the program could improve access to capital, and could 
improve the terms of obtained capital, for many small 
businesses, particularly those without significant real estate 
property to use as collateral. Financial firms currently 
involved in the pooling and securitization of SBA 7(a) and 504 
loans have also expressed their support for the program, and 
have opined that it will increase small businesses' access to 
effective capital.
    The Committee has addressed many specific comments about 
the program by adding elements to the bill. As noted, the SBA's 
guarantees are intended to be funded entirely by fees paid by 
private investors, and will only be needed if the pooling 
entities' guarantees are fully exhausted. It is the Committee's 
expectation that the types of loans that will be included in 
the pools will be unlike the loans currently made in other SBA 
programs. The Committee realizes that the SBA must craft the 
program's details, and the bill gives the SBA the flexibility 
to develop a program that is feasible and that will produce 
additional lender capital for many small businesses, without 
negatively affecting other small businesses.
    The bill also requires three separate types of reports: (1) 
The SBA must provide to the Committee and to the Committee on 
Small Business of the House of Representatives a report 
detailing the pooling program before it is implemented, and 
wait 50 days after submitting the report before implementing 
the program; (2) the SBA must file with the Congress, in the 
SBA's Budget Request and Performance Plan, an annual report 
about the program's performance; and (3) the GAO is required to 
study the program, if implemented, and report on the program's 
performance, including any effects the program may have on the 
504 or 7(a) programs, before calendar year 2006.
    In light of concerns raised by Senator Pryor, the Committee 
agreed that as the bill moved to consideration by the Senate, 
the Chair would work with Senator Pryor and other Members of 
the Committee to address such issues and ensure that the 
pooling proposal provides the greatest benefit to small 
businesses in need of capital while limiting risk to the 
Federal government.

New Markets Venture Capital Program

    Several participants at the Committee's May 1, 2003, 
roundtable described their experience with the New Markets 
Venture Capital (NMVC) program and offered recommendations for 
improving the program. Based on these recommendations and other 
information received by the Committee, the bill sets a standard 
time of two years for conditionally approved NMVC companies to 
satisfy their requirements for final approval. This change will 
give conditionally approved NMVC companies two years to raise 
$5 million in private capital. By raising $5 million in private 
capital, NMVC companies become eligible for matching funds 
provided by the Federal government.
    The current statute gives the SBA the discretion to allow 
up to two years for NMVC companies to satisfy the private-
capital matching requirement. In the past, the SBA has set the 
time limit for raising private capital at various lengths; 
currently, the SBA has set the limit at two years.
    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.
    Additionally, the bill changes the definition of ``low-
income geographic area'' used in the NMVC program to conform 
the definition more closely to the equivalent term used in the 
New Markets Tax Credit (NMTC) program. Many investors 
participate in both the NMVC and NMTC programs, and a uniform 
definition will improve coordination between the two programs, 
where applicable. The change will increase the flexibility that 
NMVC companies have in choosing small businesses in which to 
invest, by significantly broadening the definition of those 
areas in which investment is permitted under the NMVC program.

Small Business Investment Company Program

    The Small Business Investment Company (SBIC) Program 
provides equity capital, long-term loans, debt-equity 
investments and management assistance to small businesses, 
particularly during their growth stages. SBICs are privately 
owned and managed, profit-motivated companies, investing with 
the prospect of sharing in the success of the funded small 
businesses as they grow and prosper.
    There are now 443 licensed SBICs, and these SBICs have made 
more than 16,000 investments in small businesses since the 
start of Fiscal Year 1999, with a total value of almost $17 
billion. That is critical long-term or ``patient'' capital for 
small businesses that has led to the creation and retention of 
approximately 481,000 jobs during this period.
    At the May 1, 2003 roundtable, the Committee discussed the 
SBIC program and heard from representatives of SBICs as well as 
from the SBA. In preparing this bill, the Committee worked with 
participants in the SBIC industry to develop appropriate 
changes to the current program. The bill contains several 
provisions that are intended to strengthen the program and 
improve the ability of SBICs to provide equity financing to 
small enterprises.
    Specifically, Section 281 provides SBICs with additional 
flexibility for handling funds prior to investments in small 
businesses by allowing SBICs to invest such funds in additional 
types of securities. Currently, SBICs holding cash, prior to 
investing in a small business, are only permitted to invest 
directly in obligations of the United States, obligations 
guaranteed by the United States, or in certificates of deposit 
maturing within one year or savings accounts that are in 
institutions insured by the Federal Deposit Insurance 
Corporation or the Federal Savings and Loan Insurance 
Corporation. The bill modifies this requirement to permit SBICs 
to invest in securities, mutual funds, or instruments, which 
themselves invest solely in the obligations that are currently 
permitted. For instance, under the bill SBICs will be able to 
invest in mutual funds that, in turn, invest in the government-
backed obligations already authorized for SBICs. The Committee 
believes that this modification will provide SBICs with greater 
flexibility and a wider range of short-term investment options.
    Section 282 changes the maximum amount of the fee paid to 
the SBA by SBICs that use participating securities backed by 
the SBA. The Committee recognizes that this fee is necessary to 
maintain a zero subsidy for the SBIC program. The bill provides 
that, for each participating securities SBIC, the SBA may 
charge a fee of up to 1.7 percent of that SBIC's outstanding 
SBA-backed leverage. The annual fee for each SBIC that uses 
debenture-backed financing will remain unchanged.
    Section 283 changes the formula by which a participating 
securities SBIC may distribute its profits, after it has repaid 
accrued prioritized payments and tax distributions, to a 
formula based on the SBIC's ratio of outstanding SBA-backed 
leverage to total private capital as measured at the time of 
distribution (whether or not the private financing has actually 
been paid into the fund). The change will result in the SBA 
receiving a greater percentage of distributions than is now the 
case and result in the outstanding leverage of SBICs making 
distributions under this section being repaid faster than under 
current law.
    The Committee believes that this change will allocate the 
distributions from the SBICs in accordance with the ratio of 
financial risk each party bears at the time of distribution. 
Private capital commitments are binding in favor of the SBA, 
and may be ``called'' by the SBA, until the SBA has been paid 
its outstanding leverage upon completion of the fund. On the 
other hand, the only money at risk for the SBA at the time the 
distributions are made is the amount of SBA-guaranteed leverage 
that is actually outstanding at the time.
    Section 263 of the bill removes some of the restrictions 
that small businesses face if they attempt to secure financing 
that simultaneously involves the SBIC program and either the 
7(a) or 504 loan programs. The SBA's regulations currently 
prohibit an SBIC from having more than 20 percent of its 
privately-raised funds invested in any one small business. The 
SBA counts a small business' 7(a) and 504 loans against this 20 
percent limit for any SBIC that owns more than 20 percent of 
the small business, by requiring a guarantee of all or a 
portion of the 7(a) or 504 loans. This provision will modify 
the restriction so that, for an SBIC with an investment in a 
particular small business, only 50 percent of the SBA loan 
amount will be counted by the SBIC in determining the SBIC's 20 
percent limit for any one portfolio company. A small business 
must elect whether to use the benefit of this calculation for 
either its 7(a) or 504 loan. It cannot use the benefit for both 
a 7(a) and 504 loan. While recognizing that increasing the 
amount of borrowed and equity capital that a small business can 
receive subject to an SBA guarantee may increase the agency's 
exposure to loss, the Committee believes that the additional 
risk will be small and counterbalanced by the benefits of 
expanding available capital for small businesses.

Small Business Intermediary Lending Pilot Program

    The Committee included in the bill an amendment, proposed 
by Senator Levin, to authorize 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.

            TITLE III--ENTREPRENEURIAL DEVELOPMENT PROGRAMS

    The Committee's focus on the SBA's Entrepreneurial 
Development Programs began with a clear objective--to ensure 
that the investments in these programs would create a return to 
the economy through successful business ownership and job 
creation. A priority for the Committee was to review all of the 
SBA's Entrepreneurial Development Programs to assess usage, 
value and cost effectiveness based on data provided in the 
agency's Budget and Performance Report for Fiscal Year 2002. 
The result revealed the programs that work well and identified 
the need for program improvements and the introduction of new 
programs.
    The potential users of entrepreneurial development programs 
and services include not only 25 million small business owners 
across the country, but also the millions of Americans who are 
looking at small business ownership as an alternative to the 
``traditional workplace'' where corporate America once offered 
life-long futures for workers. Each year, there are 3 to 4 
million new small businesses started and one quarter of 
existing small business owners intend to form another small 
business. These numbers, and the individuals behind the 
numbers, generate 32 percent of total business wealth in the 
country today. These statistics set the mark for the SBA to 
provide the best possible programs and services through its 
Regional and District Offices, its internet-based programs, and 
network of resources partners--the Small Business Development 
Centers, the Service Corps of Retired Executives, the Women's 
Business Centers, and the Veterans Outreach Programs.
    The SBA's Office of Entrepreneurial Development performs 
program development, oversight duties, and administers program 
delivery through its District Offices and agency funded 
resource partners. The non-credit program offices include: the 
Office of Business Initiatives (Business Information Centers, 
SCORE, Drug-Free Workplace and e-Business Institute), the 
Office of Small Business Development Centers, the Office of 
Women's Business Ownership, the Office of Native American 
Affairs, and the agency's Business Information Services (Answer 
Desk and Publications). The agency's internet programs and 
services include: the SBA Website, Internet Small Business 
Classroom, Internet U.S. Business Advisor, and Internet 
BusinessLaw.gov. Also included as a non-credit program is the 
Office of Veterans Business Development, which reports to the 
Administrator as prescribed under Public Law 106-50.
    One of the agency's most successful initiatives is the 
Business Information Centers (BICs) Program. The Committee 
emphasizes the significance of the BIC program to encourage the 
agency to continue to support and maintain this valuable 
program and to consider using this model to expand the agency's 
reach to entrepreneurs in urban and rural areas. Individuals 
considering small business ownership, as well as established 
small business owners, find that the BIC's products provide the 
level of self-help reference tools and computer workstations 
necessary to improve the process of making informed business 
decisions.
    Aided by counseling services and workshops provided by the 
Service Corps of Retired Executives or the Small Business 
Development Centers, the BIC is a concept that the SBA should 
make a cornerstone in any transformation plans. The agency has 
placed the BIC product in several off-site locations, not 
within agency District Offices and not supported by Federal 
government facilities, locations that have proven to be more 
accessible to entrepreneurs. The agency must review its present 
policy of not allocating funds to support the off-site 
locations of the BICs to maintain the integrity of the program.
    The SBA is one of the smallest Federal government agencies 
but has the greatest potential customer base. In general, the 
agency's entrepreneurial programs and services are broad and 
diverse, developed to meet the special needs of small 
businesses. The Committee recognizes the tremendous challenge 
of preparing tomorrow's small business owners and the need to 
offer stability to established small businesses facing every 
possible challenge--from lack of financing to the inability to 
handle rapid growth. So, with this three-year reauthorization 
bill, the programs contained in Title III address the needs and 
concerns brought to the Committee's attention by small business 
owners, small business advocates and organizations, and the 
SBA.

Office of Entrepreneurial Development

            Service Corps of Retired Executives
    The Service Corps of Retired Executives (SCORE) has grown 
to more than 800 service delivery locations, providing training 
and free counseling through its 10,500 volunteer members to 
almost a half million entrepreneurs last year. The projected 
costs for providing SCORE services in Fiscal Year 2002 was $30 
per client--the most cost effective of all SBA funded programs. 
In recognition of the increasing need for services provided by 
SCORE, the Committee believes that SCORE should receive the 
full authorized funding level of $7 million for Fiscal Years 
2004, 2005, and 2006.
    In order to clarify that SCORE should continue to have 
office space and paid personnel to support its Headquarters in 
Washington, D.C., Section 8(b)(1)(B) of the Small Business Act 
was amended. SCORE operates as a volunteer organization and 
leverages gifts and contributions to provide its counselors 
with the tools and technology they need to better serve 
entrepreneurs. Therefore, Section 8(b)(1)(B) was amended to 
allow SCORE to manage the gifts and contributions that the 
organization receives.
            Cosponsorship authority
    In the Small Business Reauthorization Act of 2000, at the 
request of the SBA, the Committee provided broader 
cosponsorship authority in order to expand the types of 
assistance that could be provided to small businesses to 
include ``information and education.'' At that time, the agency 
believed that this change would provide the flexibility in the 
types of assistance it could provide to small businesses. Since 
1980, the agency has used the cosponsorship authority to 
leverage its limited resources with public and private partners 
in the delivery of programs and services. Although Congress has 
amended the authority in past reauthorization bills, the agency 
proposed much broader authority for the next six Fiscal Years.
    Based on concerns resulting from a report prepared by the 
SBA Office of Inspector General, issued August 26, 2002, the 
Committee concluded that further review of the agency's 
cosponsorship authority and gift authority is necessary before 
additional provisions are granted. The report was performed at 
the request of the Administrator to review allegations of 
fiscal improprieties involving gift acceptance and 
cosponsorship authority. The review concluded that the 
activities in question were not managed in accordance with the 
SBA and Federal policies and procedures. However, the events 
were not considered ``cosponsorships'' as defined by the Small 
Business Act.
    Since the cosponsorship authority is critical to the 
agency's ability to conduct marketing and outreach activities 
that assist entrepreneurs and promote the agency's programs and 
services, the Committee will continue to work with the agency 
to identify actions necessary to clarify the intent, purpose 
and practice of the cosponsorship and gift authorities so that 
the agency can perform in a manner that is without question and 
does not place participating agency personnel in jeopardy of 
abusing the process unknowingly. In addition, the Committee 
believes that any changes to the cosponsorship authority should 
include adequate protections against abuse in order to protect 
the agency, small businesses, and taxpayers. A major concern 
related to the SBA's request involved the handling of cash 
contributions and disbursements for purchases, the purchase of 
apparel for agency employees, and the payment of expenses 
incurred by agency personnel with donated funds.
    The bill extends the existing authority for the Fiscal 
Years 2004, 2005, and 2006, without additional amendments to 
provide the Committee with the opportunity to work with the 
agency to ensure that the cosponsorship authority and gift 
authority have adequate protections against possible abuse, as 
well as avoid the appearance of abuse.
            Small Business Development Centers Program
    Since 1980, the Small Business Development Centers (SBDCs) 
have been essential in the delivery of counseling assistance 
and educational programs to prospective and existing small 
business owners through their 58 host sites and more than 1,100 
sub-centers, which employ more than 5,000 professional and 
clerical personnel. The SBDC program assists more than half of 
the entrepreneurs that SBA reports serving each year. 
Therefore, its value goes well beyond the actual projected 
``return on investment''--each Federal dollar invested in 
counseling produced a $2.80 return in tax revenue in Fiscal 
Year 2002, and created or retained 132,000 jobs in the United 
States.
    Section 101(c) of the bill provides funding authorization 
for the SBDC program in the amount of: $125 million in Fiscal 
Year 2004, $130 million in Fiscal Year 2005, and $135 million 
in Fiscal Year 2006, which will allow the SBDC network to meet 
the growing demand for its business education programs and 
counseling assistance nationwide. In addition, the SBDCs also 
participate in Federal grants administered by the agency to 
fund: the Drug Free Workplace Program; BusinessLINC Program; 
and the Federal and State Technology Partnership and Rural 
Outreach Programs.
    The Committee elected not to accept the Administration's 
proposal to restructure the SBDC program as a result of concern 
for the communities presently served by the program. The 
Committee does, however, support the need for greater oversight 
of program participants and the need to open the program to 
growth and diversity. The Committee encourages the Association 
of Small Business Development Centers to consult with the 
agency to develop a uniform level of quality and accountability 
for all SBDCs participating in this program. As well, the 
agency's oversight duties must adhere to the highest level of 
programmatic and financial review to ensure that the SBDC 
participants meet the agency's requirements as defined in 
Section 21 of the Small Business Act.
    A privacy requirement, proposed by Senator Crapo, amends 
Section 21(c) of the Small Business Act to protect client 
information by prohibiting the disclosure of client information 
(including the name, address, telephone and facsimile numbers, 
and e-mail address) without the written consent of the client. 
The provision is modeled after a section of the Kerry-Ensign 
Small Business Regulatory Assistance Act, S. 1255. In addition, 
the bill changes the use of the word ``certification'' to 
``accreditation'' for purposes of the SBDC program to 
distinguish the agency's certification programs and the 
Association of SBDCs accreditation program for SBDCs.
    A new program under Section 112(c)(3) of this bill was 
added to provide grants to eligible SBDCs to deliver portable 
small business assistance on a temporary basis in communities 
experiencing severe economic challenge as a result of industry/
military base downsizing or closing or other major events 
(other than natural disasters) that increases job loss or 
causes small business instability. The change would enable the 
SBDC program to be more flexible in creating programs and 
services that provide assistance to small businesses challenged 
by a particular economic crisis, or displaced workers seeking 
to take skills and transform them into a small business.
    While the bill reserves $1 million of the SBDC appropriated 
funds for the portable small business assistance program, it is 
not the intention of the Committee to disrupt the current 
funding formulas of appropriated funds for the SBDC program. 
Based on the need for SBDCs to have the flexibility to respond 
temporarily to communities in distress, the Committee 
encourages the SBA to move forward with this program as 
appropriate.
            PRIME reauthorization and transfer to the Small Business 
                    Act
    PRIME (Program for Investment in Microentrepreneurs) 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, but 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 provisions pertaining to this 
program from the Riegle Community Development and Regulatory 
Improvement Act of 1994 to the Small Business Act.
    Additionally, the bill adds a data collection provision 
that is intended for grantees that provide training and 
technical assistance to disadvantaged entrepreneurs. Under 
PRIME, the SBA provides grants to intermediaries, which use the 
PRIME grants 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.'' For 
continued evaluations and awarding of grants, the 
Administration should continue to evaluate all grantees as it 
has under regulations set forth in 13 CFR Part 119.
    In keeping with Section (e)(4) ``Diversity,'' the Committee 
reminds the SBA that PRIME is intended to serve very low-
income, or otherwise disadvantaged entrepreneurs, wherever they 
may live. Any criterion applied to determine grants made under 
this Act should not discriminate against urban, rural or 
suburban applications, as long as they meet the service 
standards outlined therein. The income status of potential 
clients--not their location--is to serve as the criteria for 
reviewing applications for PRIME funding.
    In Fiscal Years 2001 and 2002, PRIME grants were issued in 
the total amounts of $15 million and $5 million, respectively. 
For Fiscal Year 2003, the estimated level of PRIME grants is 
approximately $5 million. The bill authorizes $15 million to be 
available for PRIME grants for Fiscal Years 2004, 2005, and 
2006.

Women's Small Business Ownership Programs

    During the course of the Committee's hearings, roundtables, 
and discussion groups, witnesses and participants identified 
the following: the lack of SBA programs that meet the needs of 
existing small businesses; great concern for pilot 
sustainability grants program for the Women's Business Center 
Program; the need for specific research to be conducted by the 
National Women's Business Council; and the limited 
opportunities for Federal government contracts for women. In 
general, women business leaders expressed their frustration 
with the agency, the lack of results from all 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, and the lack of 
connection with the ``real world problems'' facing women 
entrepreneurs on a day-to-day basis.
    These concerns led to the introduction of two key pieces of 
legislation by Senator Snowe in 2003, the Women's Small 
Business Programs Improvement Act (S. 1154) and the Women's 
Business Centers Preservation Act of 2003 (S. 1247), the latter 
being cosponsored by Senator Kerry. Measures addressed in these 
bills were incorporated and perfected for reauthorization 
purposes. S. 1154 addressed the need to improve the broad 
spectrum of programs and services for women entrepreneurs, and 
S. 1247 was introduced to offer a stop-gap measure to stabilize 
Women's Business Centers operating under the Pilot 
Sustainability grant program.
            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) and to 
provide 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 80 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 underserved 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 2004, 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 was so 
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 Administration's and 
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. In addition, through the establishment of 
three new subcommittees, the bill enables the Council to share 
common issue areas with the SBA's Office of Women's Business 
Ownership and the Interagency Committee on Women's Business 
Enterprise that include manufacturing, technology, professional 
services, retail and product sales, travel, international 
trade, procurement and Federal contracting. 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 Committee and the Committee on Small Business of the House 
of Representatives. 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 response to the Committee's concern about the 
appointment process for Council members, 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 for almost two years. The 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. 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 by 
Executive Order 11213, in May 1979, the task force was re-named 
the Interagency Council. 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 again, returning to 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 thought 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 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.

Office of Native American Affairs

    The Small Business Administration Office of Native American 
Affairs began operations in Fiscal Year 2003 to implement the 
agency outreach program for Native American communities on or 
near Tribal lands. The initiatives underway will pave the way 
for the programs and services established in the bill, which 
incorporate the Native American Small Business Development Act 
(S. 1126), introduced by Senator Johnson and cosponsored by 
Senators Kerry and Smith. Specifically, the bill establishes 
three small business assistance programs to provide 
entrepreneurial development opportunities for Native Americans.
    Section 322 provides financial assistance (grants, without 
a matching requirement, contracts, or cooperative agreements) 
to Tribal Governments and Tribal Colleges through five-year 
projects to provide financial, management, and marketing 
education, including appropriate training and counseling. The 
bill authorizes funding for training and technical assistance 
to Native-American businesses through the Tribal Governments 
and Tribal Colleges, including Alaska Native Corporations and 
Native Hawaiian Organizations.
    The bill also establishes two pilot programs. The first is 
a four-year program offering two to four-year grants to provide 
culturally tailored business development training and other 
services to Native Americans and small businesses owned small 
businesses. The second is a four-year pilot program for 
American Indian Tribal Assistance Centers to provide assistance 
to prospective and current owners of small business concerns 
located on or near tribal lands. Both pilot programs sunset in 
Fiscal Year 2007.

Office of Veterans Business Development

    Congress established the Office of Veterans Business 
Development through Section 201 of Public Law 106-50. The 
office is responsible for the formulation, execution and 
promotion of policies and programs of the SBA that provide 
assistance to small businesses owned and controlled by veterans 
and service-disabled veterans. The office works closely with 
the local SBA field offices to provide small business support 
and has implemented initiatives designed to increase agency 
outreach targeting veteran entrepreneurs.
    The bill extends the SBA's responsibility for the Office of 
Veterans Business Development through Fiscal Year 2006. The 
bill also increases the authorized funding level for Office of 
Veterans Business Development to carry out the outreach 
programs for veterans to $1 million for Fiscal Year 2004, $1.5 
million for Fiscal Year 2005, and $2 million for Fiscal Year 
2006.
    The Advisory Committee on Veterans Business Affairs was 
also established by Public Law 106-50, to serve as an 
independent source of advice and policy recommendation to the 
SBA Administrator, the SBA Associate Administrator of Veterans 
Business Development, the Congress, the President, and other 
policy makers. The Advisory Committee reviews, coordinates and 
monitors plans and programs developed in the public and private 
sector that affect the ability of small business concerns owned 
and controlled by veterans to secure financing and access to 
markets. The bill extends the SBA's responsibility for the 
activities of the Advisory Committee on Veterans Business 
Affairs through Fiscal Year 2006.
    The Outreach Grants for Veterans Program is based on Public 
Law 105-135, which instructed the SBA to do comprehensive 
outreach to veterans. Public Law 106-50 more clearly defined 
the scope of the outreach activities. The Committee understands 
that the grant program that the SBA has planned for Fiscal 
Years 2004 through 2006 will include the establishment of 
Veteran Outreach Centers (presently in New York, Florida and 
Texas) in each SBA region. The grant program, as funds are 
available, would provide for training programs for veterans 
entrepreneurs for small business start-up and expansion. The 
program would also fund local veteran business councils to work 
with District Offices and SBA resource partners (e.g., Small 
Business Development Centers, Women Business Centers, Service 
Corps of Retired Executives) to develop and conduct programs 
and services to veterans.
    The bill includes a proposal by the Administration to 
clarify previously enacted statutory changes to the Small 
Business Act to reflect that veterans shall have full 
consideration in all SBA programs. Specifically, the provision 
includes in the definition of ``veterans'' the term ``members 
of a reserve component of the Armed Forces.''

           TITLE IV--SMALL BUSINESS PROCUREMENT OPPORTUNITIES

Prime contracting

    The Committee believes that the growth of the small 
business share of Federal procurement continues to be too slow. 
Twenty five years ago small businesses received 22.5 percent of 
the dollars spent by the Federal government for goods and 
services. In Fiscal Year 2002, small firms received 
approximately 22.6 percent.
    The Small Business Act requires small businesses to have 
the maximum practicable opportunity to participate in the 
performance of Federal government contracts. In 1997, the 
Congress directed the President to increase the goal to 23 
percent from 20 percent of the Federal government's prime 
contract dollars to be awarded to small businesses for each 
fiscal year. The SBA is responsible for coordinating goals with 
Federal agencies to ensure that the Federal government achieves 
the 23 percent goal.
    The Committee believes measures that hold agency officials 
more accountable for their performance will result in a larger 
Federal contracting share for small businesses. Accordingly, 
the bill requires the head of an agency, upon request, to 
provide a complete report to the agency's congressional 
appropriators on the agency's small business utilization. In 
addition, the bill directs agency officials to communicate to 
subordinate employees the importance of achieving small 
business goals. It further directs agencies to include in the 
annual performance evaluation for agency officials, a factor 
that measures the success of that official in small business 
utilization.
    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 SBA Administrator testified before this 
Committee on March 18, 2003, that 47 PCRs represent the SBA at 
255 department and agency contracting offices across the 
country. Of the approximately 2,200 Federal contracting 
offices, PCRs are only able to cover 11.6 percent. These 255 
contracting activities award approximately half of the total 
Federal contracts each year.
    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 
Committee also reviewed the total dollar value of contract 
awards by purchase office to determine which procurement 
centers represented a significant portion of the total Federal 
procurement budget. The Committee determined that a minimum of 
25 additional resources would be necessary to ensure that there 
are no less than one PCR at each major procurement center and 
no less than one PCR for each state.
    It 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.
    Small business participation ensures competition. Failure 
to use competition not only results in higher prices but also 
deprives Federal agencies and the general public of the 
benefits of a broader industrial base. The Committee recognizes 
that small businesses offer innovative and creative solutions 
to Federal agencies trying to carry out their governmental 
functions, which then take advantage of these innovations to 
deliver better quality products and services to the general 
public.
    Since the enactment of the Federal Acquisition Streamlining 
Act (FASA) in 1994, Federal agencies are increasingly relying 
on contracts and acquisition services offered by other 
agencies, specifically, the GSA Federal Supply Schedule and 
government-wide acquisition contracts, to purchase goods and 
services. FASA included an amendment to the Small Business Act 
that created an exclusive reservation for small businesses 
consisting of contracts valued at more than $2,500 but not more 
than $100,000.
    Although GAO reports indicate that the level of small 
business participation on multiple award contracts is growing 
and is relatively higher than the share small businesses 
receive on non-multiple award contracts, small businesses have 
testified before the Committee that they invest time and effort 
and incur costs to negotiate multiple award and multi-agency 
contracts successfully with the General Services Administration 
or an executive agent managing a government-wide acquisition 
contract, and they never reap the benefit of an order placed 
against that contract.
    Therefore, to ensure small businesses are provided a fair 
opportunity to be considered for orders on multiple award 
contracts, the bill establishes a government-wide goal for 
participation by small businesses of the dollar value of awards 
placed against multiple award contracts, including Federal 
Supply Schedule, at not less than 23 percent. In addition, to 
protect small businesses further, the bill reserves orders on 
multiple award schedules valued at more than $2,500 but not 
more than $100,000 for small business. The Committee believes 
this amendment emphasizes the Committee's original intent in 
establishing a small business reserve.

Contract bundling

    During the last several years, Congress has focused on 
streamlining procurement processes to improve the Federal 
government's capacity to acquire goods. These procurement 
reforms included provisions to facilitate the increased use of 
certain types of contracts. The Federal Acquisition 
Streamlining Act of 1994 codified the authority of agencies to 
enter into task-or delivery-order contracts with multiple firms 
for the same or similar products and services known as multiple 
award contracts. Information technology acquisition reforms of 
the Clinger-Cohen Act of 1996 provided for the use of multi-
agency contracts and government-wide acquisition contracts.
    In Fiscal Year 2002, more than 40 agencies spent 
approximately $20 billion on the General Services 
Administration's (GSA) schedule contracts, a more than 200 
percent increase since 1997. With new regulations adopting 
rules for ``co-operative'' purchasing use of information 
technology schedules by state and local governments, the GSA 
expects total sales to double over the next several years.
    Reports by the GAO, however, disclose that some 
organizations that represent small businesses are concerned 
that these contract types can diminish the ability of small 
businesses to compete for Federal contracts because they could 
potentially consolidate multiple agencies' requirements or call 
for performance over a wide geographic area.
    The Committee believes stronger action is needed to address 
the problem of contract consolidation. In pursuing operational 
efficiencies, Federal agencies are making decisions, including 
contract consolidation, that block small business access to the 
Federal marketplace and the opportunity to compete.
    As far back as 1983, the GAO determined that consolidated 
procurements have the potential for limiting prime contract 
awards to small business and may not always result in the 
lowest cost to the Government. Contract bundling continues to 
threaten small business. In the last ten years, the number of 
small businesses receiving new contract awards has declined by 
more than 50 percent.
    According to a recent study for the SBA's Office of 
Advocacy, conducted by Eagle Eye Publishers, Fairfax, VA, for 
every 100 bundled contracts awarded, small businesses lose an 
average of 60 contracts; and, for every $100 awarded on a 
``bundled'' contract, there is a $33 decrease to small 
business. At $109 billion in Fiscal year 2001, bundled 
contracts cost small business $13 billion.
    On March 18, 2003, small businesses and SBA officials 
testified before the Committee on the detrimental effects of 
contract bundling, specifically, the lost opportunity cost of 
choosing among fewer firms, with fewer ideas and innovations, 
to deliver goods and services at lower prices. This is a 
defense readiness issue--by forcing agencies to continue to 
look to small business sources, we ensure that the nation 
maintains a greater industrial base.
    By taking legislative action on this issue, the Committee 
ensures that small businesses continue to have access to 
Federal contracts and a fair opportunity to compete for those 
contracts.
    Several studies have pointed to weaknesses in the current 
definition. The current term ``bundling of contract 
requirements'' means consolidating two or more of an agency's 
requirements for supplies or services, previously provided or 
performed under separate smaller contracts, into a solicitation 
for a single contract that is likely to be unsuitable for small 
business because of the (a) diversity, size, or specialized 
nature of the elements of the performance specified (e.g., too 
many units for one small firm); (b) the aggregate dollar value 
of the contract is larger than a small business can handle 
financially; (c) the geographical dispersion of the contract 
performance sites (e.g., having to perform a service in both 
New Jersey and California, which a small business may not be 
able to do); or (d) any combination of the factors described in 
(a), (b), and (c).
    This definition has led to implementation problems because 
it does not account for all circumstances in which contracts 
can be bundled together, and the prerequisite that it be 
unsuitable for award to a small business concern. The 
definition excludes new requirements. This definition also 
excludes multiple award contracts, which are contracts awarded 
under the GSA Multiple Award Schedule Program. Multiple award 
contracts include any indeterminate delivery or quantity 
contracts that are awarded to more than one firm.
    In addition, some Federal agencies have interpreted the 
requirement that a bundled contract is one that is ``unsuitable 
for award to a small business concern'' to mean that if a small 
business could submit an offer on a contract, it is not, by 
definition, bundled. Because current law permits small 
businesses to team together to perform a bundled contract, and 
still be considered a small business, it is nearly impossible 
for a contract ever to be ``unsuitable for award to a small 
business concern.''
    In light of the foregoing, the bill replaces the term 
``bundling of contract requirements'' with ``consolidation of 
contract requirements,'' which means the use of a solicitation 
to obtain offers for a single contract or a multiple award 
contract to satisfy two or more requirements of a Federal 
agency.
    The Committee believes that the new definition will 
eliminate the issues with the current definition leaving room 
for interpretation by the Federal agencies and will close the 
loopholes in the current definition pertaining to multiple 
award contracts. Moreover, it replaces the current definition 
standard, concerning the diversity, size, specialized nature of 
the elements of the performance specified, aggregate dollar 
value, and the geographical dispersion of consolidated 
requirements, with the following more meaningful standard. 
Under the bill, a contract is consolidated if the total cost of 
the contract for which the offers are now solicited is greater 
in cost than the cost of the previously awarded individual 
contracts.
    The bill builds on the amendment offered by Senator Collins 
to the Fiscal Year 2004 Senate Department of Defense 
Reauthorization bill. That amendment established policy for 
Department of Defense contract processes only. The Committee 
has built on the amendment's definition language so that it 
applies government-wide.
    The bill also alters the current requirements under the 
Small Business Act regarding procurement strategies when a 
contract is consolidated to include a threshold level for 
triggering the economic research requirements of the Small 
Business Act. The Committee intends for agency heads, before 
they proceed with an acquisition strategy that could lead to a 
consolidated contract, to continue to conduct market research 
to determine whether consolidation is necessary and justified.
    The bill also includes language limiting the authority of 
Federal agencies to execute such an acquisition strategy that 
includes consolidated requirements with a total value in excess 
of $2 million ($5 million for Department of Defense) unless the 
agency demonstrates that the consolidation is necessary and 
justified based on market research and identifies any 
alternative contracting approaches that would involve a lesser 
degree of consolidation.
    Previously, agencies were required to provide a written 
determination and findings to the SBA Administrator for each 
consolidation strategy, regardless of dollar value. The bill 
raises the dollar threshold for this requirement, which is 
intended to target contracting actions that would most likely 
involve contract consolidation.
    For Federal agency contracts that contain consolidated 
requirements with a total value in excess of $5 million ($7 
million for Department of Defense), the bill directs agencies 
to conduct a more extensive analysis of the benefits to be 
derived from contract consolidation. This analysis includes a 
rationale for not choosing alternative strategies that would 
reduce or minimize the scope of the consolidation. The 
Committee recognizes that an infinite number of alternative 
strategies may exist and intends for Federal agencies to 
evaluate reasonable alternative strategies that offer 
substantial benefit.
    An amendment proposed by Senator Crapo, which was approved 
by the Committee, requires the GAO to study the feasibility of 
establishing alternative thresholds based on industry 
categories.
    The Committee recognizes that successful small business 
procurement strategies implemented on an ad hoc basis are very 
difficult to institutionalize. A better approach is to identify 
best practices and adopt them uniformly to synchronize the 
process. Therefore, the bill also requires the SBA to include 
in their annual contract bundling report to the Congress a new 
section on best practices for maximizing small business prime 
and subcontracting opportunities. The Committee intends for the 
SBA to disseminate these examples to all departments and 
agencies in the Federal government.
    The Committee believes that the contract bundling 
provisions included in the bill will do more to ensure that 
small businesses have access to the Federal marketplace while 
at the same time ensuring fiscal responsibility in government.

Subcontracting

    Advocates of contract bundling allege that denying small 
businesses access to prime contracts can be offset by ensuring 
that such firms receive more subcontracts from the large firms 
that are awarded the prime contracts. The Committee notes, 
however, that the success of the small business subcontracting 
program depends solely upon the voluntary good faith effort of 
Federal prime contractors. And, while many large prime 
contractors have taken the existing subcontracting policies 
seriously, the Committee has received numerous reports from 
small businesses that some prime contractors continue to treat 
them unfairly. Additionally, there is little incentive for 
prime contractors to award subcontracts to small businesses.
    Small businesses testified at a hearing before the 
Committee on March 18, 2003, that prime contractors used them 
to create competitive subcontracting plans, helping the prime 
contractor win a contract, only to have the prime contractor 
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 not more than $500,000, imprisonment for 
not more than ten years, or both. The bill also authorizes 
contracting officers to withhold prime contractor payment until 
the prime contractor provides the agency with complete and 
accurate subcontracting reports.
    To prevent prime contractors from taking advantage of small 
business subcontractors, 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. If non-compliance with a subcontracting plan is 
found to constitute a material breach of contract by the 
contracting officer, these provisions require the contracting 
officer to refer the case to the Inspector General of the 
affected agency for investigation into the extent of criminal 
activity or fraud. This review does not prevent the contracting 
officer to use the tools available to correct this material 
breach.
    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.
    Responding to concerns raised by small business interest 
groups at the April 9, 2003, roundtable discussion concerning 
the amount of time it takes to receive payment for work 
performed on Federal subcontracts, the bill includes a 
provision that directs the SBA to develop and implement a pilot 
initiative, similar to the Navy/Marine Intranet contract direct 
payment to subcontractors program, to test the feasibility of 
allowing direct payments to subcontractors.

Contracting opportunities for women-owned small businesses

    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 government's contracting with them. 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 for 
women-owned small businesses. The Committee understands that 
the SBA has completed a study; however, the study has never 
been officially released.
    In order to achieve the original goal of improving 
contracting opportunities for women-owned small businesses, the 
bill reassigns responsibility for the study to the GAO. The 
Committee expects that the GAO can expeditiously and 
impartially report the results of its review and analysis and 
enable the SBA to move forward with the regulations authorized 
in 2000.

Historically Underutilized Business Zone (HUBZone) Program

    The Historically Underutilized Business Zone (HUBZone) 
program was designed to direct portions of Federal contracting 
dollars into areas of the country that in the past have been 
out of the economic mainstream. HUBZone areas, which include 
qualified census tracts, poor rural counties, and Indian 
reservations, often are out-of-the-way places that the stream 
of commerce passes by, and thus tend to be in low or moderate 
income areas. These areas can also include certain rural 
communities and tend generally to be low-traffic areas that do 
not have a reliable customer base to support business 
development. As a result, businesses have been reluctant to 
move into these areas. It simply has not been profitable, 
without a customer base to keep them operating.
    The HUBZone program seeks to overcome this problem by 
making it possible for the Federal government to become a 
customer for small businesses that locate in HUBZones. While a 
small business works to establish a regular customer base, a 
Federal contract can help it stabilize its revenues and 
maintain profitability.
    In past years, the HUBZone Program has encountered issues 
relating to the statutory requirement that a HUBZone firm be 
entirely owned and controlled by individual U.S. citizens. This 
requirement means that all HUBZone applicants need to be owned 
by human beings and not business entities. Exceptions for 
Alaska Native Corporations, Indian tribal governments and 
community development corporations were added by Title VI of 
the Small Business Reauthorization Act of 2000. A corporate 
entity with an ownership stake in a small business 
automatically disqualifies an otherwise eligible firm from 
participation in the HUBZone program.
    In general, a small business that is successful enough to 
attract institutional investment is one that the Committee 
believes should be eligible for the HUBZone program because 
such a firm has the wherewithal to make a difference in the 
distressed communities that the program seeks to reinvigorate. 
Accordingly, the bill modifies the ownership requirements for 
HUBZone small businesses to include any small business 
investment company, specialized small business investment 
company, New Markets Venture Capital company, or other similar 
investment company, provided such ownership does not exceed 15 
percent of the small business concern.
    The Committee recognizes the economic ramifications of 
military base closures and that the HUBZone program can harness 
the strength and the creativity of the private sector by 
providing incentive for small businesses to relocate to areas 
suffering such ramifications. Therefore, the Committee intends 
that military bases that close after the date of enactment of 
this act, be designated as HUBZones in order to attract small 
businesses to areas affected by base closure where there are 
customers and a skilled workforce. The Committee believes that 
new business and new jobs created through HUBZone small 
businesses mean new life for areas affected by base closure.

                         TITLE V--MISCELLANEOUS

Minority Small Business Capital Ownership Development Program

    The Small Business Act authorizes the 8(a) Program, which 
is intended to help eligible small socially and economically 
disadvantaged businesses compete in the American economy 
through business development activities.
    Believing it essential to further the success of the 8(a) 
Program, Congress made three major legislative attempts--in 
1978, 1980, and 1988--to improve the SBA's administration of 
the 8(a) program and to emphasize business development aspects. 
Changes to the program enabled 8(a) firms to receive 
management, technical, financial and other services tailored to 
their specific needs.
    Reports prepared by the General Accounting Office disclose 
that the SBA has continued to emphasize business management 
skills instead of contracting opportunities. For example, since 
Fiscal Year 1996, SBA has devoted 40 to 50 percent of its $2.6 
million management and technical assistance training budget 
under Section 7(j) to executive education for 8(a) firms. The 
8(a) Business Development Mentor-Protege Program, which 
encourages private-sector relationships with mentors, is 
designed to help 8(a) firms compete more successfully for 
contracts through assistance, such as financial, technical, and 
management assistance provided by mentors. As of July 2003, the 
SBA has more than 200 mentor-protege agreements in place.
    To reflect this shift in program emphasis and achieve 
consistency with the program purpose, the bill includes an SBA 
proposal to change the name of the Office of Minority Small 
Business Capital Ownership Development to the ``Office of 
Business Development.''

Extension of authority for technology assistance programs

    The SBA's primary small business technology assistance 
programs are the Small Business Innovation Research (SBIR) 
Program and Small Business Technology Transfer Program (STTR) 
programs. Through the SBIR program, ten Federal agencies, which 
have annual external research and development requirements of 
more than $100 million, reserve 2.5 percent of their research 
and development requirements for award to small businesses. In 
its 20-year history, small technology firms have submitted more 
than 250,000 proposals, which have resulted in over 60,000 
awards worth more than $12 billion.
    Similarly, under the STTR program, five agencies with 
annual external research and development budgets of more than 
$1 billion reserve 15 percent of these requirements for award 
to collaborative efforts between small businesses and non-
profit research institutions. The STTR Program awards $70 
million annually to small businesses.
    While both the SBIR and STTR programs are currently 
authorized through Fiscal Years 2008 and 2009, respectively, 
and are therefore not addressed in the bill, two related 
programs are reauthorized by the Committee. The Small Business 
Innovation Research Rural Outreach Program provides grants to 
approximately 25 states to increase participation in the SBIR 
Program. Recognizing the important contribution that this 
program makes for small business innovation and research, the 
bill provides for authorization for the program through Fiscal 
Year 2006.
    The bill also provides authorization for the Federal and 
State Technology Partnership program (FAST) through Fiscal Year 
2006. FAST is a competitive grants program, that allows each 
state to receive funding in the form of a grant to provide an 
array of services in support of the Small Business Innovation 
Research and Small Business Technology Transfer programs.
    During its April 9, 2003, roundtable, the Committee 
received comments and concerns from a wide range of 
participants and supporters of these programs about the SBA's 
Office of Technology that oversees them. According to the 
agency, the Office of Technology has seen a reduction in 
staffing and funding while its responsibilities relating to 
monitoring and administering these programs have significantly 
increased.
    Specifically, the SBIR program has grown from providing $44 
million in grants in Fiscal Year 1983 to $1.5 billion in Fiscal 
Year 2002, and the STTR program has grown from $18 million in 
Fiscal Year 1994 to $91 million in Fiscal Year 2002. Despite 
doubling and tripling in program volume and responsibilities, 
the staff resources have been cut from 10 to five employees, 
and the budget over the past ten years has been cut from almost 
$900,000 to $280,000.
    Because the programs overseen by the SBA's Office of 
Technology are too important to the development of innovations 
in this country, the Committee urges the SBA to evaluate 
carefully the staffing, travel and other resources required by 
the Office of Technology as well as the status of the office 
within the agency. If the Office of Technology is to ensure the 
continued success of the SBIR, STTR, Rural Outreach, and FAST 
programs, the agency must recognize the importance of the 
office and dedicate sufficient resources for it to carry out 
its responsibilities.

                          III. Committee Vote

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following votes were recorded on July 10, 2003.
    A motion by Senator Snowe to adopt the amendment offered by 
her and Senator Kerry to reauthorize the Program for Investment 
in Micro-Entrepreneurs (PRIME) and to increase the amount of 
technical assistance grant funds that Microlenders can use to 
assist potential borrowers passed by unanimous voice vote.
    The Chair also included in this amendment the following 
four proposals:
          (1) Senator Bayh's amendment to increase the amount 
        that manufacturers could borrow through the 504 loan 
        program and to increase the job creation requirement 
        for loans to manufacturers.
          (2) Senator Crapo's amendment to add a GAO study on 
        the feasibility of setting contract bundling thresholds 
        according to industry categories rather than fixed 
        dollar amounts;
          (3) Senator Landrieu's amendment to improve the 
        process for filling vacancies on the National Women's 
        Business Council; and
          (4) Senator Levin's amendment to establish a Small 
        Business Intermediary Lending Pilot Program.
    A motion by the Chair to adopt the Small Business 
Administration 50th Anniversary Reauthorization Act of 2003 as 
amended, to reauthorize the programs of the Small Business 
Administration, and for other purposes, was approved by a 
unanimous 19-0 recorded vote, with the following Senators 
voting in the affirmative: Snowe, Kerry, Bond, Burns, Bennett, 
Enzi, Fitzgerald, Crapo, Allen, Ensign, Coleman, Levin, Harkin, 
Lieberman, Landrieu, Edwards, Cantwell, Bayh, and 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.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, August 1, 2003.
Hon. Olympia J. Snowe,
Chairman, 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. 1375, the Small 
Business Administration 50th Anniversary Reauthorization Act of 
2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Melissa 
Zimmerman.
            Sincerely,
                                         Robert A. Sunshine
                               (For Douglas Holtz-Eakin, Director).
    Enclosure.

S. 1375--Small Business Administration 50th Anniversary Reauthorization 
        Act of 2003

    Summary: S. 1375 would authorize appropriations for fiscal 
years 2004 through 2006 for the Small Business Administration 
(SBA) and would make a number of changes to SBA loan programs, 
programs that support entrepreneurship, and programs that 
involve preferences for small businesses in government 
contracting.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing S. 1375 would cost about $3 billion 
over the 2004-2008 period. About $1.6 billion of this amount is 
the estimated subsidy and administrative cost of continuing SBA 
credit programs, and $1.3 billion would be for other SBA 
programs and activities. The remaining $0.1 billion is for 
provisions related to federal procurement activities. Enacting 
this bill would not have a significant effect on direct 
spending or revenues.
    S. 1375 contains no intergovernmental or private-sector 
mandates as defined by the Unfunded Mandates Reform Act (UMRA). 
Any costs incurred by state, local, or tribal governments would 
be the result of complying with conditions of federal grants. 
The bill would authorize $2 million per year for pilot programs 
run by the Office of Native American Affairs (ONAA) over the 
2004-2007 period.
    Major Provisions: Title I would set the maximum amounts of 
small business loans that could be guaranteed by SBA in 2004, 
2005, and 2006. It also would authorize the appropriation of 
funds for the Service Corps of Retired Executives (SCORE), for 
technical assistance grants to recipients of microloans, and 
for certain activities of the Small Business Development 
Centers (SBDCs). Title I would authorize the appropriation of 
such sums as may be necessary for the diaster loan program and 
for administrative expenses to carry out the Small Business Act 
and the Small Business Investment Act.
    Title II would make a number of changes to SBA's loan 
guarantee programs. It would require SBA to:
           Collect fees from business-lending companies 
        sufficient to offset the cost of financial examinations 
        by SBA;
           Reduce the initial and annual fees paid by 
        prospective borrowers under the 7(a) loan program;
           Develop and implement a new subsidy model 
        for the microloan program by 2005; and
           Establish a new pilot program at SBA to 
        guarantee pools of conventional small business loans.
    Title III would reauthorize the Program for Investment in 
Microentrepreneurs through 2006, reauthorize and amend several 
Women's Small Business Ownership Programs, create grant 
programs for Native American business development, and 
reauthorize SBA's Outreach Grants for Veterans.
    Title IV would authorize appropriations for the HUBZone 
program for 2004 through 2006.
    Title V would extend the authorization of appropriations 
for the Federal and State Technology Partnership and Rural 
Outreach Programs through 2006.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 1375 is shown in Table 1. The costs of 
this legislation fall primarily within budget function 370 
(commerce and housing credit).

                            TABLE 1.--SPENDING SUBJECT TO APPROPRIATION UNDER S. 1375
----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal year, in millions of dollars--
                                                           -----------------------------------------------------
                                                              2003     2004     2005     2006     2007     2008
----------------------------------------------------------------------------------------------------------------
SBA Spending Under Current Law:
    Estimated Authorization Level 1.......................      765        0        0        0        0        0
    Estimated Outlays.....................................      917      225       67       11        4        0
Changes to SBA Loan Programs:
    Estimated Authorization Level.........................        0      536      549      561        0        0
    Estimated Outlays.....................................        0      322      505      539      210       27
Changes to Noncredit Programs:
    Estimated Authorization Level.........................        0      441      457      484        5        5
    Estimated Outlays.....................................        0      190      307      411      241      141
Subtotal, Changes to SBA Spending:
    Estimated Authorization Level.........................        0      977    1,005    1,045        5        5
    Estimated Outlays.....................................        0      512      812      951      452      168
SBA Spending Under S. 1375:
    Estimated Authorization Level 1.......................      765      977    1,005    1,045        5        5
    Estimated Outlays.....................................      917      737      879      962      456      168
Changes to Federal Procurement Spending:
    Estimated Authorization Level.........................        0       23       23       23       23       23
    Estimated Outlays.....................................        0       14       23       23       23       23
Total Changes to Spending Under S. 1375:
    Estimated Authorization Level.........................        0    1,000    1,028    1,068       28       28
    Estimated Outlays.....................................        0      526      835      974      475      191
----------------------------------------------------------------------------------------------------------------
1 The 2003 level is the amount appropriated for SBA operations for that year.

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted near the beginning of fiscal year 2004 and 
that the necessary amounts will be appropriated by the start of 
each fiscal year. Outlay estimates are based on historical 
spending rates for existing or similar programs.

Spending subject to appropriation

    Most of the bill's budgetary effects would come from 
reauthorizing existing SBA programs and would consist primarily 
of the subsidy costs of direct and guaranteed loans. Provisions 
affecting government procurement also would add to the cost of 
implementing the legislation.
    Small Business Administration. The bill would reauthorize 
most of the programs administered by SBA through 2006. Based on 
information from SBA and historical spending patterns for the 
agency's programs, CBO estimates that implementing those 
provisions would cost $2.9 billion (including about $1.6 
billion for loan programs) over the 2004-2008 period.
    Loan Programs. The bill would authorize SBA to guarantee 
loans and make direct loans to businesses worth up to $29 
billion in 2004, $30 billion in 2005, and $31 billion in 2006. 
By comparison, the authorized loan level for 2003 is $29 
billion, and in 2002, the agency's direct and guaranteed loans 
were worth about $15 billion. S. 1375 would authorize the 
agency to make an indefinite amount of disaster loans over the 
2004-2006 period. Table 2 shows the loan levels that would be 
authorized by the bill for SBA's guaranteed and direct business 
loans and CBO's estimate of the amounts of disaster loans, as 
well as the estimated subsidy cost and administrative expenses 
for those loans.
    The Federal Credit Reform Act of 1990 requires an 
appropriation of the 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 loan guarantee, 
calculated on a net present-value basis, excluding 
administrative costs.) The bill does not specify an explicit 
authorization for either the subsidy or administrative costs 
for the guaranteed, direct, or disaster loans, and CBO 
estimated these amounts based on historical information about 
the operation of those programs.
    The estimated subsidy rates for the different types of 
business loans and loan guarantees offered by SBA ranges from 
zero to about 9 percent. Based on historical data for those 
loan programs and incorporating minor program changes required 
by this bill, CBO estimates that the subsidy costs for the 
authorized levels of guaranteed and direct business loans would 
be $189 million in 2004, $195 million in 2005, and $200 million 
in 2006.
    Based on the current administrative costs for SBA's loan 
programs, CBO estimates that the administrative costs for the 
business loan programs would be $132 million in fiscal year 
2004, $136 million in fiscal year 2005, and $140 million in 
fiscal year 2006.

           TABLE 2.--ESTIMATED SBA LOAN LEVELS, SUBSIDY COSTS, AND ADMINISTRATIVE COSTS UNDER S. 1375
----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal year, in millions of dollars--
                                                                    --------------------------------------------
                                                                       2004     2005     2006     2007     2008
----------------------------------------------------------------------------------------------------------------
                                             Authorized Loan Levels

Guaranteed and Direct Business Loans...............................   28,650   29,905   31,160        0        0
Disaster Loans.....................................................      815      815      815        0        0

                                               Loan Subsidy Costs

Guaranteed and Direct Business Loans:
    Estimated Authorization Level..................................      189      195      200        0        0
    Estimated Outlays..............................................       99      181      188       87        4
Disaster Loans:
    Estimated Authorization Level..................................      114       14      114        0        0
    Estimated Outlays..............................................       57      103      114       57       11

                                            Loan Administration Costs

Guaranteed and Direct Business Loans:
    Estimated Authorization Level..................................      132      136      140        0        0
    Estimated Outlays..............................................       94      126      135       38        7
Disaster Loans:
    Estimated Authorization Level..................................      101      104      107        0        0
    Estimated Outlays..............................................       72       96      103       29        5
----------------------------------------------------------------------------------------------------------------
\1\ These are estimated loan levels, based on the historical experience of SBA's Disaster Loan Program.

    For this estimate, CBO assumes that demand for SBA's 
disaster loans would be near the average historical rate for 
the past four years, excluding loans authorized to be made by 
the Small Business Investment Company Amendments Act of 2001 
immediately following the terrorist attacks of September 11, 
2001. We estimate that SBA would make disaster loans worth $815 
million a year over the 2004-2006 period. Over the last four 
years, loan volume for the regular disaster loan program has 
ranged from about $760 million to $870 million. CBO estimates 
that the administrative costs for the disaster loan program 
would be $101 million in 2004, $104 million in 2005, and $107 
million in 2006. The estimated subsidy rate for disaster loans 
is about 14 percent, based on the historical performance of 
those loans.
    Noncredit Programs. The bill would authorize the 
appropriation of funds for noncredit programs that support 
small businesses and other SBA activities, most of which the 
agency does under current law. CBO estimates that continuing 
those activities would require the appropriation of $1.3 
million over the 2004-2008 period. Of that amount, the bill 
would specifically authorize the appropriation of $763 million 
for SBDCs, SCORE, technical assistance for recipients for SBA 
microloans, the women's business council, the drug-free 
workplace program, the HUBZone program, and various other SBA 
programs designed to benefit businesses owned by Native 
Americans and veterans over the 2004-2006 period.
    Fees for 7(a) Loans. Section 202 would permanently reduce 
the initial loan fee and the annual fees that borrowers pay 
under the 7(a) program. In 2001, the fees associated with loan 
guarantees under the 7(a) program were temporarily reduced by 
the Small Business Investment Company Amendments Act of 2001. 
Based on information provided by the Administration, CBO 
assumes for this estimate that the reduced fees would only 
apply to loans made in 2004 and after, and would not affect 
loans made before those fees were reduced in 2001. The 
estimated subsidy rate set by the Administration for fiscal 
year 2003 for the 7(a) program is about 1 percent. That subsidy 
estimate considers the lower fees that are temporarily in 
place. Thus, CBO estimates that permanently reducing the fees 
would not change the current subsidy rate for the 7(a) program.
    By permanently lowering the 7(a) program fees, this 
provision would increase the subsidy rate from what it would 
otherwise be if the temporary reduction in fees were allowed to 
expire. Because the number of 7(a) loan guarantees that the SBA 
can issue in any year is limited by the amount of the subsidy 
appropriation, the agency would be able to guarantee fewer 
loans when the subsidy rate increases.
    Interest Rate on Microloans. Under current law, SBA 
microloans of $7,500 or less are eligible to receive an 
interest rate reduction of 75 basis points below the interest 
rate for direct loans in the microloan program. Section 211 
would increase the maximum loan amount eligible for the 
interest rate reduction to $10,000. Because more loans could 
receive a lower interest rate under the bill, CBO expects that 
this provision would lead to a minor increase in the subsidy 
rate for the microloan program. Because of the small volume of 
such loans, however, we estimate that the increased cost of 
this provision would be less than $500,000 a year.
    Examination Fees. Section 221 would require small business 
lending companies to pay the costs of financial examinations 
performed by SBA. Based on the amount SBA currently spends to 
examine small business lending companies, CBO estimates this 
provision would increase collections, which are an offset to 
discretionary spending for those examinations, by $3 million a 
year over the 2004-2008 period.
    Pilot Program for Guarantees on Pools of Non-SBA Loans. A 
common financial practice among commercial lenders and firms 
that issue securities is to pool together large collections of 
individual conventional and government-guaranteed loans. Such 
loan pools are used to create asset-backed securities (ABSs). 
The sale of such ABSs give lenders access to capital from the 
secondary loan marketplace to fund new loans. Section 265 would 
authorize a three-year pilot program that would enable the SBA 
to guarantee pools of conventional small business loans (that 
is, loans not guaranteed by SBA). Under the bill, the SBA would 
guarantee a portion of the timely payments of scheduled 
principal and interest due on the pooled loans that back those 
securities in exchange for a fee paid by the issuers of those 
ABSs. CBO estimates that SBA would charge the lenders or 
issuers of the ABSs a fee of about 20 basis points to cover the 
estimated subsidy cost associated with the program. Without 
such a fee, SBA would require appropriations of about $2 
million over the next three years to cover the estimated 
subsidy cost of the program.
    This legislation does not specify a particular structure 
for the new SBA pilot program. CBO consulted firms involved 
with small business credit to understand how this program might 
work. There are many ways to structure such a program, and for 
this estimate, CBO assumes that the lender or issuer of the 
ABSs would assume a first-loss position and SBA would assume a 
second-loss position. That is, the lenders or issuers of the 
securities would realize losses before SBA would be called upon 
to make good on its guarantee. (In contrast, a typical SBA loan 
guarantee would cover 75 percent of any loss associated with 
the underlying loan.) SBA has not decided how the risk shares 
would be allocated for this program. To estimate the subsidy 
cost associated with this program, CBO assumes that the first-
loss position would cover the first 5 percent of the loss and 
that SBA would cover the next 20 percent of the loss. If SBA 
were to cover a smaller portion of the loss, estimated subsidy 
costs would be lower than this estimate. Alternatively, if SBA 
were to cover a greater portion of the loss, estimated subsidy 
costs would be greater than we have estimated here.
    Over the past 10 years, there have been about 40 commercial 
issues involving the securitization of conventional small 
business loans, totaling about $4 billion. (The largest 
offering by a single issuer was about $590 million in 1999.) In 
contrast, the SBA reports that in 2001 the outstanding balance 
on all small business loans totaled $460 billion. Industry 
analysts that CBO consulted anticipate that the demand for a 
secondary market for conventional small business loans would be 
relatively small. Small business loans are often profitable for 
lenders, and as a result, many lenders prefer to hold such 
loans in a portfolio rather than sell them. Moreover, such 
loans are not always the best candidates for pooling into 
securities because as a group they are not homogenous, and 
small business lenders do not currently adhere to a standard 
set of underwriting guidelines, creating some additional 
underlying risk for the firm issuing an ABS consisting of small 
business loans.
    This legislation would limit the number of entities that 
could participate in the program to no more than five lenders 
or issuers. Given this limitation on the number of participants 
and information that suggests only modest demand for ABSs 
backed by conventional small business loans, CBO estimates that 
over the next three years, SBA would provide guarantees for 
ABSs worth about $1 billion.
    Under credit reform procedures, funds must be appropriated 
in advance to cover the subsidy cost of loan guarantees, 
measured on a present-value basis. Under this legislation, SBA 
would be required to charge a fee that would cover--in whole or 
in part--the cost of the credit subsidy for SBA's guarantee on 
the pools of small business loans. CBO estimates that the 
subsidy rate for this pilot program as outlined above would be 
about 0.2 percent if no fees were charged to lenders or the 
issuers of securities. Furthermore, CBO estimates that if SBA 
charged an up-front fee of about 20 basis points, this 
estimated subsidy cost would be offset and no additional 
appropriations would be required. If, however, the participants 
in the pilot program would not be willing to pay such a fee, 
CBO estimates that the SBA would require appropriations of 
about $2 million over the next three years to cover its cost of 
expected losses under a $1 billion guarantee program. 
Additionally, if SBA implements the risk share differently, the 
program could be more costly and appropriations greater than $2 
million would be required.
    Small Business Intermediary Lending Pilot Program. Section 
293 would authorize the SBA to make direct loans of up to $20 
million over the 2004-2006 period for the new Small Business 
Intermediary Lending (SBIL) program. The new program would be 
similar to the existing direct loans made under the microloan 
program but would feature lower interest rates, a longer loan 
duration, and a longer grace period. CBO estimates that the 
subsidy rate for the SBIL would be about 30 percent, or around 
three times the subsidy rate for direct loans under the 
microloan program. We estimate that the subsidy cost for the 
authorized amount of SBIL loans would be about $6 million over 
the 2004-2006 period.
    Procurement Center Representatives. Section 401 would 
expand the use of the federal procurement center representative 
(PCR) program. Under the bill, the program would operate at 
each major federal procurement center and in each state. The 
PCR program helps small businesses obtain federal contracts. 
According to SBA, there are 255 major federal procurement 
centers. The PCR program currently operates at 47 of those 
centers. CBO estimates that expanding the program to operate at 
each major procurement center and in each state would cost $23 
million a year.

Direct Spending and revenues

    Premier Certified Lenders Program. Certified Development 
Company (CDC) loans, also known as section 503 and 504 loans, 
provide small businesses with long-term, fixed-rate financing 
for the purchase of land, buildings, and equipment. The Premier 
Certified Lenders Program allows a participating CDC the 
authority to review and approve loan requests and to foreclose 
litigate, and liquidate loans made under the program. Under 
current law, CDCs can qualify as Premier Certified Lenders 
(PCLs) if, among other requirements, they agree to pay 10 
percent of SBA's potential loss on a defaulted 504 loan. A PCL 
must hold 10 percent of this potential loss (i.e., 1 percent of 
the total loan) in a reserve for the life of the loan.
    Sections 242 and 243 would have two effects on the 
requirements for loss reserves under the PCL Program. First, 
the provisions would change the loss-reserve requirement from 1 
percent of the total value of the loan to 1 percent of the 
total loan outstanding. PCLs would be allowed to withdraw any 
funds from their loss reserves in excess of this amount. 
Second, certain PCLs would have the option to maintain an 
alternate loss-reserve level based on risk rather than a fixed 
percentage. The amount of the reserve would be determined by an 
independent, SBA-approved auditor. under the two provisions, if 
a PCL chooses this option, it must pay 15 percent of SBA's 
total loss on defaulted CDC loans.
    Under current law, the Administrator SBA must adjust an 
annual fee on CDC loans to produce an estimated subsidy rate of 
zero at the time the loans are guaranteed. Enacting sections 
242 and 243 could affect the subsidy rates for previous cohorts 
of CDC loans. Decreasing the loss reserve requirement for PCLs 
would cause SBA to collect a smaller amount of recoveries if a 
small business defaults on a loan and a PCL is unable to pay 
its portion of SBA's total loss. However, increasing the 
required loss coverage to 15 percent for PCLs that opt to 
maintain a loss-reserve level base on risk would increase SBA's 
recoveries on defaulted CDC loans. It is unclear if, taken 
together, those effects would increase or decrease the average 
subsidy costs for previous CDC loans. However, CBO estimates 
that the net result of those two effects would not have a 
significant impact on direct spending.
    Civil Penalties. Sections 222 and 223 of the bill would 
authorize SBA to impose civil penalties on small business 
lending companies and SBA lenders that are not federally 
regulated. Such penalties are recorded in the budget as 
revenues. CBO expects that any increase in civil penalties 
resulting from the enactment of S. 1375 would be insignificant.
    Intergovernmental and private-sector impact: S. 1375 
contain non intergovernmental or private-sector mandates as 
defined by UMRA. The intergovernmental impacts, primarily 
benefits, would be on tribal governments. Title III, the native 
American Small Business Development act, would establish ONAA 
would create and administer Native American Business Centers 
and provide grants and other assistance to tribal governments 
and businesses owned and operated by Native Americans.
    Previous estimate: On June 5, 2003, CBO transmitted a cost 
estimate for H.R. 923, the Premier Certified Lenders Program 
Improvement Act of 2003, as ordered reported by the House 
Committee on Small business on May 22, 2003. Provisions of that 
bill are similar to sections 242 and 243 of S. 1375, and the 
estimated costs for those provisions are the same.
    Estimated prepared by: Federal Costs: Melissa E. Zimmerman, 
Julie Middleton, Susanne Mehlman, Lisa Cash Driskill, Matthew 
Pickford, and Matthew Schmit. Impact on State, Local, and 
Tribal Governments: Sarah Puro. Impact on the Private Sector: 
Cecil McPherson.
    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.

                    VI. Section-by-Section Analysis

Section 1. Short title; table of contents

    The short title of the bill is the Small Business 
Administration 50th Anniversary Reauthorization Act of 2003.

Sec. 2. Effective date

    The provisions of the bill shall be effective on October 1, 
2003.
    Subsection (b) provides that unless otherwise stated, the 
Administrator shall publish proposed regulations to carry out 
the provisions of the bill within 180 days of enactment and 
final regulations not later than 300 days after the date of 
enactment.

                      TITLE I--GENERAL PROVISIONS

               Subtitle A--Administration Accountability

Sec. 101. Document retention and investigations

    Section 101(a) updates Section 10(e) of the Small Business 
Act to emphasize that the Administration shall maintain its 
documents and records for at least two years and to provide a 
broader illustration of the types of documents and records 
covered by the section.
    In addition, this section clarifies that such documents 
shall be available to the Committee and the Committee on Small 
Business of the House of Representatives for their inspection 
and examination. Specifically, the section provides that upon 
the written request of either Committee, the Administrator or 
the Inspector General, as applicable, shall make any documents 
or records requested available to the requesting Committee or 
its duly authorized representatives within 5 business days of 
the request. This section further provides that if a document 
or record cannot be made available within such time frame, the 
Administrator or the Inspector General, as applicable, shall 
provide the requesting Committee with a written explanation 
stating the reason that each document or record requested has 
not been provided and a date certain for its production.

Sec. 102. Management of the Small Business Administration

    Section 102 transfers the responsibility for operating the 
SBA's Office of Lender Oversight from within the Office of 
Capital Access to the office of the Chief Operating Officer of 
the SBA.

                       Subtitle B--Authorizations

Sec. 111. Program authorization levels

    Section 111 provides authorization levels for Fiscal Years, 
2004, 2005, and 2006 for the individual SBA programs.
    (See Chart of Program Levels in Section II of the report 
above).

Sec. 112. Additional reauthorizations

            (a) Drug-Free Workplace Program Assistance
    Section 112(a) amends Section 21(c)(3)(T) of the Small 
Business Act by extending through October 1, 2006, the 
assistance through Small Business Development Centers (SBDCs) 
to provide small businesses with information and assistance to 
establish drug-free workplace programs.
            (b) Paul C. Coverdell Drug-Free Workplace Program
    Section 112(b) amends Section 27(g)(1) of the Small 
Business Act by extending the program for the Fiscal Years 
2004, 2005 and 2006 at the authorized funding levels of $5 
million each Fiscal Year.
            (c) Small Business Development Centers Program
    Section 112(c) amends Section 21(a)(4)(C) of the Small 
Business Act to authorize the Small Business Centers Program 
for: $125 million in Fiscal Year 2004; $130 million in Fiscal 
Year 2005; and $135 million in Fiscal Year 2006.
    Section 112(c)(3) reserves $1 million of appropriated funds 
in Fiscal Year 2004, 2005, and 2006 to provide temporary SBDC 
assistance in communities experiencing severe economic 
challenge as a result of industry/military base downsizing or 
closing that result in an increase of job loss or small 
business instability. Grants of $100,000 or less will be 
administered by the SBA.

                     TITLE II--FINANCIAL ASSISTANCE

                Subtitle A--7(a) Loan Guarantee Program

Sec. 201. National Preferred Lenders Pilot Program

    Section 201 amends Section 7(a) of the Small Business Act 
by directing the SBA to operate a three-year pilot program in 
which participants in the 7(a) Preferred Lenders Program (``PLP 
program'') would be authorized to operate as a preferred lender 
in any state or SBA district if the lender meets eligibility 
criteria established by the agency. Currently, PLP lenders have 
to apply for separate authorization in each SBA district in 
which they operate.
    This section also enumerates eligibility criteria to be a 
National PLP lender, including: (i) demonstrated proficiency in 
the PLP program for at least 3 years; (ii) annual loan 
approvals of a minimum number of PLP loans to be determined by 
the SBA, but excluding SBAExpress loans; (iii) operation by the 
lender in at least 5 states or 10 SBA districts; (iv) 
centralized loan approval, loan servicing, and loan liquidation 
functions and processes that are satisfactory to the SBA, and 
(v) consideration of any comments about the lender that may be 
received from an SBA District Director or Regional 
Administrator.

Sec. 202. Extension of program participation fees

    This section makes permanent the two-year reduction of 
borrowers' and lenders' fees enacted as part of PL 107-100. For 
borrowers, it reduces one-time fees on loans of up to $150,000 
from 2 to 1 percent, and for loans of $150,000 to $750,000 it 
reduces the fee from 3 to 2.5 percent. For lenders, it reduces 
the annual guarantee fee from 0.5 to 0.25 percent. This fee is 
paid on the outstanding balance of the loan guarantee.

Sec. 203. Loans sold in secondary market

    Currently, the Small Business Act permits lenders to sell 
the guaranteed portion of their 7(a) loans to investment firms, 
which package groups or ``pools'' of 7(a) loans and then sell 
shares of those pools to other private investors. Section 203 
amends Section 5(g) of the Small Business Act to allow loan 
pools to be comprised of loans with varying interest rates; the 
pool's interest rate would reflect the weighted average 
interest rate of such loans. Section 203 requires that the SBA 
prescribe the maximum amount of variation in the loan 
characteristics in order to enhance marketability of the pool.

Sec. 204. Clarification of eligibility for veterans

    This provision clarifies that all veterans, not just 
service-disabled veterans, are eligible to receive 7(a) loans.

Sec. 205. Enhancement of Low Documentation Loan Program

    The SBA's Low Documentation (``LowDoc'') Program allows 
small businesses to apply for 7(a) loans using a simplified 
one-page application form, and to receive a response from the 
SBA within a few days. Section 205 increases the maximum size 
of a LowDoc loan from the current $100,000 to $250,000. Under 
current laws, loans under the general 7(a) program that are 
less than or equal to $150,000 generally receive a guarantee 
rate of 85% from the SBA (with the exception of Express loans), 
and loans above $150,000 have a guarantee rate of 75%. The 
change in the maximum LowDoc loan size will not effect those 
guarantee rates.

Sec. 206. Increased loan amounts for exporters

    Section 206 increases the maximum size of the 7(a) loan 
that an exporter may receive. The section provides that a small 
business that is involved in exporting products may receive an 
SBA guarantee of up to $1.3 million on a 7(a) loan under the 
SBA's Export Working Capital Program (``EWCP'') (instead of the 
current maximum SBA guarantee of $1 million) and have a total 
loan size of $2.6 million (instead of the current maximum loan 
size of $2 million). In order to conform the size of the 
guaranteed portion of an EWCP loan to that of a loan under the 
SBA's International Trade Loan (``ITL'') Program, the section 
also increases the maximum SBA-guaranteed portion of an ITL 
Program loan from $1.25 million to $1.3 million.

                     Subtitle B--Microloan Program

Sec. 211. Microloan program improvements

    Section 211 makes several changes to the Microloan program. 
Section 211(a) permits an entity to be licensed as a microloan 
intermediary even if that entity does not have institutional 
experience as a microloan lender or technical assistance 
provider, provided that the new microloan intermediary hires a 
full-time employee with at least three years of experience 
making microloans and the intermediary has at least one year of 
experience providing intensive marketing, management, and 
technical assistance to its borrowers.
    Section 211(b) makes a change to the Small Business Act to 
provide that microloan intermediaries that have a microloan 
portfolio with an average loan size of not more than $10,000 
can receive an interest rate lower than the normal rate 
extended 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.
    Section 211(c) increases the amount of technical assistance 
grants that an intermediary can contract out to a third-party 
technical assistance provider from 25 percent to 30 percent.
    Section 211(d) allows intermediaries to make revolving-term 
loans or longer fixed-term loans to small businesses; 
previously, intermediaries were only allowed to make ``short-
term'' loans with fixed terms.
    Section 211(e) requires the SBA to make an annual report to 
Congress about the SBA's performance of the current statutory 
obligation to use microloan funds to assist intermediaries' 
training.
    Section 211(f) requires the SBA to develop and implement a 
subsidy model for the microloan program to be used in the 
Fiscal Year 2005 budget that is more accurate than the model 
currently in use.
    Section 211(g) increases the amount of a technical 
assistance grant from the SBA that an intermediary can devote 
to potential borrowers, rather than actual borrowers, from 25 
percent of the grant to 30 percent.

                      Subtitle C--Lender Oversight

Sec. 221. Examination and review fees

    Section 221 authorizes the SBA to charge and retain fees 
from lenders participating in the 7(a) program for the cost of 
the SBA's annual examinations of the lenders and any necessary 
follow-up actions. The fee levels will be set by the SBA after 
consultation by the SBA with lenders, and will be based upon 
the size of the lenders' loan portfolios being reviewed.

Sec. 222. Enforcement authority for Small Business Lending Companies 
        and Non-Federally Regulated SBA Lenders

    Section 222 provides the SBA with specific enforcement and 
supervisory authority over Small Business Lending Companies 
(``SBLCs'') and Non-Federally Regulated SBA Lenders, as now 
defined in new Section 223, including the ability to issue 
cease and desist orders, impose civil money penalties, and 
remove officers and directors who are acting in an unsafe and 
unsound manner. The enforcement language gives the SBA various 
mechanisms to address substantive and technical legislative and 
regulatory violations that do not warrant court action or 
revocation of an SBLC's or Non-Federally Regulated SBA Lender's 
lending authority. All mechanisms incorporate notice and other 
due process protections for the regulated entity.

Sec. 223. Definitions for Small Business Lending Companies and Non-
        Federally Regulated SBA Lenders

    Section 223 codifies the definitions of the Small Business 
Lending Companies (``SBLCs'') and Non-Federally Regulated SBA 
Lenders over which the SBA is now statutorily authorized to 
assert supervisory and other regulatory authority (see Section 
222). SBLCs are defined as non-depository financial 
institutions that only make loans under Section 7 of the Small 
Business Act. The definition for Non-Federally Regulated SBA 
Lenders identifies those entities as financial institutions 
that make loans under Section 7 of the Small Business Act, are 
not SBLCs, and are not regulated by the Farm Credit 
Administration, the Federal Financial Institution Examination 
Council, the Board of Governors of the Federal Reserve System, 
the Office of the Comptroller of the Currency, the Federal 
Deposit Insurance Corporation, the Office of Thrift 
Supervision, or the National Credit Union Administration.

              Subtitle D--Disaster Assistance Loan Program

Sec. 231. Conforming amendment for Disaster Assistance Loan Program

    Current law allows businesses that are major sources of 
employment for a particular area to receive disaster loans 
``larger than $500,000,'' with a clarification in a note to the 
Small Business Act that such loans cannot exceed $1.5 million. 
Section 231 makes the conforming change to the Small Business 
Act to codify the $1.5 million loan ceiling for these entities.

Sec. 232. Disaster relief for small business concerns damaged by 
        drought

    Section 232 clarifies that SBA disaster assistance loans 
may be made to farm-related as well as non-farm-related small 
businesses that have suffered substantial economic harm from 
drought. The definition of ``disaster'' for the purpose of this 
section includes below-average water levels in the Great Lakes 
or any other body of water in the country that is used for 
commercial purposes.

Sec. 233. Disaster Mitigation Pilot Program

    Section 233 reauthorizes and extends to Fiscal Year 2006 a 
pilot program authorized in 2000 to offer pre-disaster loans, 
under the SBA's disaster assistance loan program, to small 
business borrowers in disaster-prone areas, such as areas with 
frequent floods or tornadoes. A small business receiving a loan 
under the program can use the loan proceeds to mitigate the 
damage that may occur to the business from a future disaster.

                      Subtitle E--504 Loan Program

Sec. 241. Extension of user fees

    Section 241 extends through fiscal year 2006 the 504 
program fees paid by the borrower, the first mortgage lender, 
and the Certified Development Company (CDC) under the 504 
program. These fees cover the subsidy rate of the program, and 
therefore the program requires no appropriations. The fees are 
as follows: The first mortgage lender pays a one-time upfront 
fee of 0.5 percent of the amount of the first mortgage. The CDC 
pays an annual fee of 0.125 percent of the outstanding amount 
of each debenture authorized after September 1996. In addition, 
the borrower pays an annual fee based on the outstanding amount 
of the debenture. The exact amount of this fee, which can be up 
to 0.975 percent per year of the outstanding balance of the 
loan, is determined by SBA in order to maintain a zero subsidy 
rate for the program.

Sec. 242. Amortized loan loss reserve fund

    This section allows a CDC to withdraw money from its loan 
loss reserve as the borrower pays down the loan, so that the 
amount in the reserve is always proportionate to the ratio of 
CDC liability and the outstanding amount of the loan guarantee.

Sec. 243. Alternative loss reserve for certain premier certified 
        lenders

    Section 243 permits lenders in the 504 Loan Program that 
are Premier Certified Lenders (``PCLs'') to elect to operate 
under a newly established loan loss reserve system based upon 
risk. PCLs that elect to operate under the new system will be 
required to maintain in their loan loss reserve accounts at 
least $100,000, as well as any additional amount necessary to 
allow the lender to meet its obligations to protect the Federal 
government from risk of loss. Such PCLs will also be required 
to assume greater exposure on the loans, increasing their 
responsibility from 10 percent to 15 percent for any losses. 
The provision also requires that the analysis of the 
appropriate level for each lender that elects the new loss 
reserve calculation will be done by an independent accounting 
firm approved by the SBA.
    Subsection (d) requires the SBA to contract with another 
Federal agency, or with a member of the Federal Financial 
Institutions Examinations Council, to study the extent to which 
statutory requirements have caused overcapitalization in PCLs' 
loan loss reserves, and to identify alternatives for 
establishing and maintaining loss reserves sufficient to 
protect the Federal government from risk of loss. This report 
shall be delivered to the Committee and to the Committee on 
Small Business of the House of Representatives not later than 
180 days after the enactment of this Act.

Sec. 244. Debenture size

    Section 244 amends Section 502 of the Small Business 
Investment Act of 1958 (``SBIA'') to increase the maximum 
potential size of a loan made to a small business by a 
Certified Development Company (CDC). New subparagraph (b)(2)(A) 
increases the maximum loan guarantee amount (now $1,000,000) to 
$1.5 million under the general CDC program. New subparagraph 
(b)(2)(B) increases the maximum loan guarantee amount (now 
$1,300,000) to $2 million if the project being funded is 
directed towards one of the nine categories enumerated as 
public policy goals in Section 501(d)(3): rural development; 
expansion of exports; expansion of minority business 
development; business district revitalization; enhanced 
economic competition; restructuring because of Federally 
mandated standards or policies; changes necessitated by Federal 
budget cutbacks; expansion of small businesses owned and 
controlled by veterans; and expansion of small businesses owned 
and controlled by women.
    In addition, for small business loans that will be used for 
manufacturing, this section increases the maximum size of the 
SBA's guarantee to $4 million.

Sec. 245. Job creation or retention standards

    The Small Business Act grants the SBA discretion to set a 
job creation test for small businesses that receive 504 loans. 
Since 1990, the SBA has required that small businesses 
receiving 504 loans certify that, for each $35,000 guaranteed 
by the SBA, the small business is creating or retaining one 
job. Section 245 modifies that standard so that the small 
business must create or retain one job for each $50,000 
guaranteed by the SBA. For loans that will be used for 
manufacturing, however, this section requires that the small 
business create or retain one job for each $100,000 guaranteed 
by the SBA.

Sec. 246. Simplified applications

    Section 246(a) requires the SBA to develop and make 
available to Certified Development Companies (CDCs) that make 
504 loans, within 180 days of the enactment of this 
legislation, a shorter, more concise, and simplified 
application form for 504 program loan guarantees of $400,000 or 
less. Subsection (b) requires the SBA to develop and make 
available to CDCs, within 270 days of the enactment of this 
legislation, a similarly improved application for all 504 
loans.

Sec. 247. Child Care Lending Pilot Program

    Section 247 provides for a new pilot program under which 
non-profit child-care providers may qualify for loans under the 
504 loan program. The pilot program is limited to 7 percent of 
the number of loans guaranteed annually under the 504 loan 
program. The section also requires the General Accounting 
Office to submit a report on the pilot program to the Committee 
and to the Committee on Small Business of the House of 
Representatives by March 31, 2006.

Sec. 248. Definition of rural area

    For purposes of the rural development public policy goal 
that allows larger loans to be made under the 504 loan program, 
Section 248 amends the SBIA by defining the term ``rural'' as 
any area other than a city or town that has a population of 
greater than 50,000 inhabitants and other than an urbanized 
area adjacent to such a city or town. This change conforms the 
definition used by the 504 loan program to that used by the 
U.S. Department of Agriculture (USDA) for purposes of certain 
programs administered by the USDA.

                    Subtitle F--Surety Bond Program

Sec. 251. Clarification of maximum surety bond guarantee

    Section 251 clarifies that the SBA's $2 million limit on 
surety bonds applies to the bond guarantee and not the contract 
size.

Sec. 252. Authorization of Preferred Surety Bond Guarantee Program

    Section 252 extends the authority of the SBA to administer 
the preferred surety bond guarantee program through Fiscal Year 
2006.

                       Subtitle G--Miscellaneous

Sec. 261. Coordination of SBA loans

    Section 261 allows a small business to participate 
simultaneously in both the 7(a) and 504 loan programs up to the 
maximum loan limit in both programs.

Sec. 262. Leasing options for 7(a) and 504 borrowers

    Section 262 simplifies the guidelines for leasing a portion 
of property financed with an SBA 7(a) or 504 loan. Existing 
legislation requires that 60 percent of the space must be used 
by the small business and allows for 20 percent to be leased on 
a long-term basis. The statute is silent on the remaining 20 
percent. This section clarifies that the entire 40 percent can 
be leased out and allows it to be leased on a short-term or 
permanent basis.

Sec. 263. Calculation of financing limitation for small business 
        investment companies

    Section 263 eases some of the restrictions that small 
businesses with investments from Small Business Investment 
Companies (``SBICs'') face when attempting to obtain loans 
through the SBA's 7(a) or 504 programs. The SBA's regulations 
currently prohibit an SBIC from having more than 20 percent of 
the SBIC's privately raised funds invested in any one small 
business. The SBA counts a small business's 7(a) and 504 loans 
against this 20 percent limit for any SBIC investment. This 
section modifies the restriction so that, for an SBIC with an 
investment in a particular small business, only 50 percent of 
the small business's 7(a) or 504 loan values will be counted by 
the SBIC in determining the SBIC's 20 percent limit. A small 
business must elect whether to use this calculation for its 
7(a) or 504 loan; it may not apply to both types of loans.

Sec. 264. Establishing alternative size standard

    Section 264 enables the SBA to establish an alternative 
size standard for small businesses, for use in the 7(a) program 
as well as the 504 program, that considers a business's net 
worth and net income. This provision will simplify the 7(a) 
lending process and provide small businesses with a streamlined 
procedure for determining if they are eligible for 7(a) loans. 
It will also conform the standards used by the 7(a) and 504 
programs.

Sec. 265. Pilot program for guarantees on pools of non-SBA loans

    Section 265 authorizes the SBA to develop a three-year 
pilot program in which financial firms, after being licensed by 
the SBA, could create ``pools'' of conventional (i.e., non-SBA) 
loans made to small businesses and issue securities (which 
would offer returns based upon the returns from the loans in 
the pools), and sell these securities to investors. Under the 
pilot program, the SBA would be permitted to issue partial 
guarantees on the pools themselves, rather than on individual 
loans. The SBA's guarantees will be in a ``second loss'' 
position, meaning that the private investors would suffer 
losses before any SBA guarantee applied. Fees from the loan 
pools will be placed into reserve accounts, which will fund the 
SBA's guarantee costs. The section also requires the GAO to 
study the pilot program and analyze its results, and requires 
the SBA to report its plan for the program to the Committee and 
the Committee on Small Business of the House of Representatives 
before implementing the program.

                Subtitle H--New Markets Venture Capital

Sec. 271. Time frame for raising private capital

    Section 271 requires the SBA to provide each conditionally 
approved New Markets Venture Capital company with two years to 
raise its matching private capital. Currently, the statute 
grants the SBA the discretion to allow up to two years for the 
matching private capital to be raised.

Sec. 272. Definition of low-income geographic area

    Section 272 amends the Small Business Investment Act of 
1958 to modify the definition of ``low-income geographic area'' 
as it relates to metropolitan areas to provide more conformity 
between the SBA's New Markets Venture Capital program and the 
New Markets Tax Credit program. Specifically, the statute 
currently provides that ``low-income geographic area'' means, 
in the case of population census tracts or equivalent areas 
that are within a particular metropolitan area, a census tract 
or area with (1) a poverty rate of at least 20 percent, (2) a 
substantial population of low-income individuals and an 
inadequate access to investment capital, and (3) 50 percent or 
more of the households in that census tract having an income 
equal to less than 60 percent of the area median gross income. 
This section modifies the last element of the definition, so 
that the census tract or equivalent area qualifies as a ``low-
income geographic area'' if the first two criteria are met and 
the census tract or area has a median household income that 
``does not exceed 80 percent of the greater of the statewide 
median household income or the metropolitan area median 
household income.''

         Subtitle I--Small Business Investment Company Program

Sec. 281. Investment of excess funds

    Section 281 authorizes Small Business Investment Companies 
(``SBICs'') to invest funds being held as cash in additional 
types of securities. SBICs holding cash prior to investing in a 
small business are currently only permitted to invest directly 
in obligations of the United States or obligations guaranteed 
by the United States, or in Federally insured savings accounts. 
This section would permit SBICs to invest in instruments that 
themselves invest in the obligations that are currently 
permitted (e.g., mutual funds that invest only in U.S. Treasury 
bonds).

Sec. 282. Maximum prioritized payment rate

    Section 282 increases from 1.38 percent to 1.7 percent the 
maximum amount of the fee paid by SBICs to the SBA, which is 
needed to maintain a zero subsidy rate for the program. The 
annual fee for each SBIC that uses bond-backed (debenture) 
financing will not change, but the annual fee for each SBIC 
that uses participating securities backed by the SBA will be up 
to 1.7 percent of that SBIC's outstanding SBA-backed leverage.

Sec. 283. Improved distribution requirements

    Section 283 allows SBICs using SBA-backed participating 
securities to increase the distributions that they make from 
their securities to investors, including the SBA, so long as 
the principal the SBA provided to the SBIC is first repaid to 
the agency.

     Subtitle J--Small Business Intermediary Lending Pilot Program

Sec. 291. Short title

    The short title for this subtitle is the ``Small Business 
Intermediary Lending Pilot Program Act of 2003.''

Sec. 292. Findings

    This section provides findings for the pilot program 
detailed in Section 293.

Sec. 293. Small Business Intermediary Lending Pilot Program

    Section 293 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 Committee on Small Business of 
the House of Representatives.

            TITLE III--ENTREPRENEURIAL DEVELOPMENT PROGRAMS

           Subtitle A--Office of Entrepreneurial Development

Sec. 301. Service Corps of Retired Executives

    Section 301(a) amends Section 8(b)(1)(B) to confirm that 
space and personnel support would be provided to the Service 
Corps of Retired Executives (SCORE) Headquarters in Washington, 
D.C. to oversee the program.
    Section 301(a)(3) amends Section 8(b)(1)(B) to allow SCORE 
to manage the gifts and contributions that the organization 
receives.
    Section 301(c) extends the SBA's current cosponsorship 
authority for the Fiscal Years 2004, 2005, and 2006.

Sec. 302. Small Business Development Centers Program

    Section 302(a) changes the word ``certification'' to 
``accreditation'' in Sections 20(a)(1) and 21(k) to distinguish 
the Association of Small Business Development Centers (SBDCs) 
accreditation programs based on examinations of small business 
development centers from the agency's certification programs.
    Section 302(b) protects the privacy of SBDC clients by 
prohibiting the disclosure of client information without the 
client's written consent, unless it is required by a Federal or 
state agency or for a SBA audit.

Sec. 303. PRIME reauthorization and transfer to the Small Business Act

    Section 303 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 2004, 2005 and 2006.

         Subtitle B--Women's Small Business Ownership Programs

Sec. 311. Office of Women's Business Ownership

    This section incorporates the Women's Small Business 
Programs Improvement Act of 2003 (S. 1154) with additional 
provisions.
    Section 311 amends Section 29(g) of the Small Business Act 
by directing the SBA Office of Women's Business Ownership 
(OWBO) to develop new programs and services for women-owned 
businesses. This section also requires the OWBO 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 when development such 
programs and services.
    This section requires that training be provided for SBA 
District Office personnel responsible for carrying out the 
agency's programs designed to benefit women-owned businesses. 
Section 311 also requires the Administration to improve the 
Women's Business Center grant process and the programmatic and 
financial oversight process.

Sec. 312. Women's Business Center Program

    This section pertains to the Women's Business Centers 
program, replacing the five-year grant program and pilot 
Sustainability Program (which sunsets at the end of Fiscal Year 
2003) with a permanent grant program that can be renewed at 
three-year intervals.
    Section 312 authorizes that the Administration to make 
four-year initial grants and three-year renewal grants of not 
more than $150,000 per year to Women Business Centers. This 
section also sets forth the grant procedures, criteria and 
requirements of the grant applicant, existing Women's Business 
Centers, and the SBA.
    Section 312(a) also provides a transition rule for Women 
Business Centers funded by a sustainability grant and provides 
a one-year extension for sustainability grants scheduled to 
expire not later than June 30, 2005.
    Section 312(b) authorizes $500,000 in Fiscal Year 2004 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, 2003 and ending on June 30, 2004. 
The Fiscal Year authorizations for the Women's Business Center 
program set out in this section are: $15 million for Fiscal 
Year 2004; $16 million for Fiscal Year 2005; and $17.5 million 
for Fiscal Year 2006.
    Section 312(c)(1) recognizes the existence and activities 
of associations of women's business centers, which are defined 
in Section 312(a) as an organization that represents not less 
than 30 percent of the women's business centers participating 
in the Administration's Women's Business Center Program.

Sec. 313. National Women's Business Council

    Section 313(a) amends Section 406 of the Women's Business 
Ownership Act of 1988 by providing the National Women's 
Business Council with cosponsorship authority.
    Section 313(b) clarifies membership representation on the 
Council so that a small business represented on the Council can 
change the individual representing the business after 
consultation with the chairperson of the Council.
    Section 313(c) 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.
    Section 313(d) provides authority for the Council to serve 
as a clearinghouse for information on small business owned and 
controlled by women.
    Section 313(e) amends Section 410(a) of the Women's 
Business Ownership Act of 1988 by changing the Council's 
research allocation from $550,000 to 30 percent of appropriated 
funds.

Sec. 314. Interagency Committee on Women's Business Enterprise

    Section 314(a) amends Section 403(b) of the Women's 
Business Ownership Act of 1988 by providing that the Deputy 
Administrator of the SBA shall serve as the acting chairperson 
for the Interagency Committee on Women's Business Enterprise in 
the event that a chairperson has not been appointed.
    Section 314(b) establishes a policy advisory group to 
assist the chairperson in developing policies and programs, and 
defines the composition of the policy advisory group.
    Section 314(c) creates subcommittees to reflect the 
committees established for the National Women's Business 
Council, establishes the duties, and states activities of the 
Interagency Committee.

Sec. 315. Preserving the Independence of the National Women's Business 
        Council

    Section 315 addresses the membership of the National 
Women's Business Council and the procedure for the replacement 
of vacancies in order to maintain the independence of the 
National Women's Business Council.
    Section 315(c) amends Section 407(f) of the Women's 
Business Ownership Act of 1988 by requiring an equal number of 
members appointed to serve on the Council represent each of the 
two major political parties. This section also requires that if 
a vacancy is not filled, or if an imbalance of party-affiliated 
members exists on the Council, a report must be submitted 
within 10 days to the Committee and the Committee on Small 
Business of the House of Representatives.

             Subtitle C--Office of Native American Affairs

Sec. 321. Short title

    The short title for this title of the bill is the Native 
American Small Business Development Act.

Sec. 322. Native American Small Business Development Program

    Section 322 provides financial assistance (grants, without 
a matching requirement, contracts, or cooperative agreements) 
to Tribal Governments and Tribal Colleges through five-year 
projects to provide financial, management, and marketing 
education, including appropriate training and counseling.

Sec. 323. Pilot programs

    Establishes two pilot programs. The first program awards 
two to four-year grants to provide culturally tailored business 
development training and other services to Native Americans 
owned small businesses. The second is a four-year pilot program 
for American Indian Tribal Assistance Centers to provide 
assistance to prospective and current owners of small business 
concerns located on or near tribal lands. The pilot programs 
sunset in Fiscal Year 2007.

          Subtitle D--Office of Veterans Business Development

Sec. 331. Advisory Committee on Veterans Business Affairs

    Section 331 amends Section 33(h) by extending SBA's 
responsibility for the Advisory Committee on Veterans Business 
Affairs through Fiscal Year 2006; amends Section 203(h) of 
Public Law 106-50 by extending SBA's responsibility for the 
outreach activities of the Advisory Committee on Veterans 
Business Affairs through 2006.

Sec. 332. Outreach grants for veterans

    Section 332 amends Section 8(b)(17) by expanding the grant 
program to apply to all veterans, including service disabled 
veterans and members of a reserve component of the Armed 
Forces. The SBA Outreach Program for Veterans was established 
by Public Law 105-135 and the scope of the outreach activities 
is more clearly defined in Public Law 106-50.

Sec. 333. Authorization of appropriations

    Section 333 authorized funding for the SBA's Office of 
Veterans Business Development to carry out the outreach 
programs for veterans as follows: $1 million for Fiscal Year 
2004, $1.5 million for Fiscal Year 2005, and $2 million for 
Fiscal Year 2006. This gradual increase will enable the SBA to 
expand programs and assistance for veterans nationwide.

           TITLE IV--SMALL BUSINESS PROCUREMENT OPPORTUNITIES

Sec. 401. Contract consolidation

    Section 401(a) replaces the definition of ``bundled'' 
contracts with ``consolidation of contract requirements'' to 
mean the use of a solicitation to obtain offers for a single 
contract or a multiple award contract to satisfy two or more 
requirements previously provided or performed, or of a type 
that is capable of being provided or performed by small 
business for that department or agency under two or more 
separate contracts smaller in cost than the total cost of the 
contract for which the offers are solicited.
    Section 401(b) amends Section 15(e) of the Small Business 
Act and complements the intent of the original contract 
bundling legislation. It sets forth the procedures to be 
followed by Federal agencies and the SBA with regard to 
consolidation-of-contract requirements.
    This section also limits the authority of Federal agencies 
to execute an acquisition strategy that includes a 
consolidation-of-contract requirement with a total value in 
excess of $2 million ($5 million for the Department of Defense) 
unless the agency demonstrates that the consolidation is 
necessary and justified based on market research. In addition, 
agencies must identify alternative contracting approaches that 
would involve a lesser degree of consolidation of contract 
requirements.
    When an agency contemplates a consolidated procurement 
above $5 million ($7 million for the Department of Defense), 
this section requires the agency to conduct a more extensive 
review that includes the estimated benefits of the proposed 
consolidated contract requirements and how such benefits were 
calculated. Additionally, this section requires an agency to: 
(1) assess the specific impediments to participation by small 
business concerns as prime contractors that will result from 
the consolidation; (2) specify actions designed to maximize 
small business participation as prime contractors, including 
provisions that encourage small business teaming; (3) specify 
actions designed to maximize small business participation as 
subcontractors (including suppliers) at any tier under the 
contract or contracts that may be awarded to meet the 
requirements; and, (4) identify alternative strategies that 
would reduce or minimize the scope of consolidation and justify 
the rationale for not choosing the alternatives.
    Section 401(c) modifies Section 15(p)(4)(B) of the Small 
Business Act to require the SBA to collect procurement 
strategies that have been successful in maximizing small 
business prime and subcontracting opportunities. It requires 
the SBA to include in its annual contract bundling report to 
the Congress a section that identifies and describes these best 
practices.
    Section 401(d) amends Section 15(l) of the Small Business 
Act to provide for at least one Procurement Center 
Representative (PCR) in each state. In addition, this section 
directs the Administration to ensure there is not less than one 
PCR assigned at each major procurement center. This subsection 
also clarifies that these individuals shall be independent of 
and have responsibilities independent from those of SBA 
Breakout Procurement Center Representatives and Commercial 
Market Representatives.
    Section 401(e) makes technical corrections to Section 15(k) 
of the Small Business Act, and Section 401(f) makes conforming 
amendments to Section 15(p) of the Small Business Act.
    Section 401(g) requires the GAO to conduct a study by June 
30, 2004, of the feasibility of establishing contract 
consolidation thresholds based on industry categories.

Sec. 402. Agency accountability

    Section 402 makes numerous changes that hold agencies 
accountable for small business utilization goals. Subsection 
(a) amends Section 15(g)(2) of the Small Business Act to 
require agency heads to identify, in their strategic plan and 
their annual budget submission to Congress, a specific portion 
of their budget requests that will be awarded to small 
businesses; and, to report on these amounts as part of the 
Government Performance and Results Act (GPRA) in their Annual 
Performance and Accountability reports.
    Additionally, the head of an agency may also be required to 
provide a complete report to the agency's congressional 
appropriators on the agency's small business utilization at the 
next appropriations cycle.
    This section also directs agency senior procurement 
executives to communicate to subordinate employees the 
importance of achieving small business goals. In addition, it 
directs agencies to include in the annual performance 
evaluation for senior procurement and program office employees, 
a factor that measures the success of that senior executive in 
small business utilization.
    For agencies that fail to achieve their small business 
achievement goals, this section would permit, where 
appropriate, a percentage of the performance bonus for that 
agency's senior procurement and program office employees to be 
withheld.
    Section 402(b) amends Section 15(k)(3) of the Small 
Business Act to ensure that all Directors for the Office of 
Small and Disadvantaged Business Utilization report to the head 
of the agency.
    Section 402(c) amends Section 10(d) of the Small Business 
Act to require, in addition to the Department of Defense, all 
Federal agencies represented on the President's Management 
Council to submit annual small business achievement reports to 
the Committees and the Committee on Small Business of the House 
of Representatives showing the amount of funds appropriated 
that have been expended, obligated, or contracted to be spent 
with small business.

Sec. 403. Small business participation in prime contracting

    Section 403(a) amends Section 15(g) of the Small Business 
Act to establish a government-wide goal for participation by 
small businesses of the dollar value of awards placed against 
multiple award schedule contracts at not less than 23 percent.
    Subsection (b) amends Section 15(j) of the Small Business 
Act to ensure that the small business reserve threshold is 
adjusted for any increase to the simplified acquisition 
threshold. This subsection further amends Section 15(j) to 
include Federal Supply Schedule orders within the small 
business reserve.

Sec. 404. Small business participation in subcontracting

    Section 404(a) makes several changes that hold prime 
contractors responsible for the validity of subcontracting 
data. It amends Section 8(d)(6) of the Small Business Act to 
require the chief executive officer of large prime contractors 
to certify the accuracy of the firm's subcontracting report 
under penalty of law. It also 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.
    Subsection (b) amends Section 16(f) of the Small Business 
Act to impose penalties for false certifications of past 
compliance with small business subcontracting.

Sec. 405. Evaluating subcontract participation in awarding contracts

    Section 405 amends Section 8(d) of the Small Business Act 
to provide for the consideration of proposed small business 
participation as subcontractor and suppliers as part of the 
process of selecting among competing offerors for any contract 
award that includes significant opportunity for subcontracting. 
It also provides for recognition of a prime contractor's past 
performance in supporting small business subcontracting 
participation in other Federal contracts.
    This section 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.
    It also requires contracting officers to withhold prime 
contractor payment until the prime contractor provides the 
agency with complete and accurate subcontracting reports.
    If a subcontracting violation is found to constitute a 
material breach of contract, this section requires such 
material breaches to be referred to the Inspector General of 
the affected agency for investigation.

Sec. 406. Direct payments to subcontractors

    Section 406 amends Section 8(d) of the Small Business Act 
to establish a pilot program in certain agencies to test direct 
payment to small business subcontractors. This program shall 
remain in effect until September 30, 2006.

Sec. 407. Women-owned small business industry study

    Section 407 amends Section 8(m)(4) to direct the GAO to 
conduct a study by December 31, 2003, to identify industries in 
which small businesses owned and controlled by women are 
underrepresented with respect to Federal procurement.

Sec. 408. HUBZone authorization

    Section 408 amends Section 31(d) of the Small Business Act 
to extend authorization of funding levels for the HUBZone 
program through Fiscal Year 2006.

Sec. 409. Definition of HUBZone; treatment of certain former military 
        installation lands as HUBZones

    The section amends Section 3(p) of the Small Business Act 
to designate military installations undergoing closure as 
HUBZones.

Sec. 410. Definition of HUBZone small business concern

    Section 410 amends Section 3(p) of the Small Business Act 
to modify the ownership requirements for HUBZone small 
businesses to include any small business investment company, 
specialized small business investment company, New Markets 
Venture Capital company, or other similar investment company, 
provided such ownership does not exceed 15 percent of the small 
business concern.

Sec. 411. Acquisition regulations

    Section 411 establishes a deadline for procurement 
regulations to be issued no later than 180 days after the date 
of the enactment of this bill.

                         TITLE V--MISCELLANEOUS

Sec. 501. Minority small business capital ownership development program

    Section 501(a) amends Sections 4(b), 7(j) and 8(a) of the 
Small Business Act to change the name of the office from the 
``Office of Minority Small Business Capital Ownership 
Development'' to the ``Office of Business Development.'' 
Section 501(b) makes conforming amendments to the Small 
Business Act to reflect the above name change.
    Section 501(c) amends Section 8(a)(20)(A) of the Small 
Business Act to change the requirement for 8(a) firms to report 
on fees paid to consultants, attorneys, accountants, etc. from 
the current semi-annual to an annual basis.

Sec. 502. Extension of authority for technology assistance programs

    Section 502(a) amends Section 9(s)(2) of the Small Business 
Act to extend the Rural Outreach Program authorization through 
Fiscal Year 2006.
    Subsection (b) amends Section 34 of the Small Business Act 
to extend the program authorization for the Federal and State 
Technology Partnership Program through Fiscal Year 2006.

Sec. 503. BusinessLINC report to Congress

    Section 503 modifies Section 8(n) of the Small Business Act 
to require the Administration to report annually on the 
effectiveness of the Program.

                                
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