52174 Federal Register / Vol. 82, No. 217 / Monday, November 13, 2017 / Rules and Regulations 

12 44 U.S.C. 3506; 5 CFR part 1320. 

final regulatory flexibility analysis do 

not apply. 

Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act of 1995,12 the Board has 

reviewed this final rule. No collections 

of information pursuant to the 

Paperwork Reduction Act are contained 

in the final rule. 

List of Subjects in 12 CFR Part 209 

Banks and banking, Federal Reserve 

System, Reporting and recordkeeping 

requirements, Securities. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Board amends Regulation 

I, 12 CFR part 209, as follows: 

PART 209—ISSUE AND 

CANCELLATION OF FEDERAL 

RESERVE BANK CAPITAL STOCK 

(REGULATION I) 

■ 1. The authority citation for part 209 

continues to read as follows: 

Authority: 12 U.S.C. 12 U.S.C. 222, 248, 

282, 286–288, 289, 321, 323, 327–328, and 

466. 

■ 2. In part 209, remove all references to 

‘‘$10,122,000,000’’ and add in their 

place ‘‘$10,283,000,000’’, wherever they 

appear. 

By order of the Board of Governors of the 

Federal Reserve System, acting through the 

Secretary of the Board under delegated 

authority, November 7, 2017. 

Margaret M. Shanks, 

Deputy Secretary of the Board. 

[FR Doc. 2017–24553 Filed 11–9–17; 8:45 am] 

BILLING CODE 6210–01–P 

SMALL BUSINESS ADMINISTRATION 

13 CFR Part 107 

RIN 3245–AG65 

Small Business Investment 

Companies—Administrative Fees 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Final rule. 

SUMMARY: The U.S. Small Business 

Administration (SBA) is revising its 

regulations to increase the Small 

Business Investment Company (SBIC) 

licensing and examination fees. The 

Small Business Investment Act of 1958, 

as amended, allows SBA to collect 

licensing and examination fees to offset 

SBA’s costs associated with the 

administration of these two activities. 

SBA last increased fees for SBICs in 

1996. Current fees offset less than 40% 

of SBA’s administrative expenses 

related to these activities. This final rule 

increases SBIC licensing and 

examination fees in annual steps 

through October 2020, at which time 

SBA estimates that the annual fees will 

recoup approximately 80% of SBA’s 

annual expenses directly related to 

these activities. Beginning in October 

2021, this rule increases licensing and 

examination fees annually based on 

inflation. 

DATES: This rule is effective December 

13, 2017. 

FOR FURTHER INFORMATION CONTACT: 

Theresa Jamerson, Office of Investment 

and Innovation, (202) 205–7563 or sbic@

sba.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

The Small Business Investment Act of 

1958, as amended (‘‘Act’’), authorizes 

SBA to collect fees to cover the costs 

associated with the licensing and 

examination of SBICs. 15 U.S.C. 

681(e)(2)(B) and 687b(b). Although SBA 

has regulations setting the amount of 

these fees, SBA has not increased 

licensing and examination fees for 

SBICs since 1996. As part of the final 

rule published January 31, 1996 (61 FR 

3177), SBA set licensing fees ‘‘to reflect 

the Agency’s costs of processing 

applications’’ and similarly set 

examination fees to ‘‘produce total 

revenue sufficient to cover the current 

direct costs to SBA of conducting 

examinations.’’ In a subsequent rule 

published on April 30, 1997 (62 FR 

23337), SBA capped examination fees at 

$14,000, which lowered the fee for 

SBICs with over $60 million in assets. 

As part of the rationale for this change, 

the rule stated, ‘‘many of the largest 

SBICs are bank-owned and do not use 

federal leverage, so that fees computed 

on the basis of total assets do not 

appropriately reflect the level of effort 

and risk associated with the 

examination process.’’ Neither rule 

included an adjustment for inflation. 

Although fees set in 1996, as adjusted 

in 1997, were intended to fully 

reimburse SBA’s costs, by fiscal year 

(FY) 1999 (the earliest fiscal year for 

which SBA expenses are readily 

available), licensing and examination 

fees only covered approximately 85% of 

SBA’s direct costs. SBA’s direct costs 

are the expenses related to licensing and 

examination (e.g., personnel 

compensation and benefits associated 

with licensing and examinations, 

technology, subscription services, travel 

and other costs associated with 

licensing and examinations), and 

excludes SBA’s overhead costs (e.g., 

office space, utilities, and other 

supporting offices within SBA). In FY 

2016, licensing and examination fees 

reimbursed approximately 35% of 

SBA’s direct licensing and examination 

expenses, and less than a quarter of 

SBA’s licensing and examination 

expenses when including overhead. 

On December 16, 2016, SBA 

published a proposed rule (81 FR 

91049) to gradually increase the SBIC 

licensing and examination fees each 

year through October 1, 2020, and 

thereafter annually based on inflation, 

beginning on October 1, 2021. The 

proposed rule detailed the reasons for 

the widening gap between fees received 

and SBA related expenses. Key reasons 

include inflation, changes in the SBIC 

portfolio, increased capital at risk (SBAguaranteed leverage and commitments), 

SBA’s efforts to improve SBIC program 

performance, and technology 

implementation. 

As noted above, the Act authorizes 

SBA to collect fees to cover the costs 

associated with the licensing and 

examination of SBICs. The Act requires 

SBA to deposit the fees in the account 

for salaries and expenses of the 

Administration and authorizes SBA to 

use licensing fees to cover licensing 

costs and examination fees to cover the 

costs of examinations and other program 

oversight activities. 15 U.S.C. 681(e)(2) 

and 687b(b). To the extent that SBA 

does not cover its licensing and 

examination costs by charging SBICs for 

these fees, the balance is paid out of 

Agency funds. In other words, when 

SBICs do not pay fees sufficient to cover 

SBA’s licensing and examination costs, 

taxpayers bear the burden of covering 

those costs. It is an appropriate use of 

SBA’s statutory authority in this final 

rule to increase SBIC licensing and 

examination fees to cover a greater 

percentage of licensing and examination 

costs. 

The effect of the statutory language 

authorizing SBA to use licensing fees to 

cover licensing costs and examination 

fees to cover the costs of examinations 

and ‘‘other program oversight activities’’ 

is that SBA may use examination fees to 

cover a broader category of expenses 

than those for which it may charge (i.e., 

examination costs alone). Although the 

current and estimated future costs of 

compensation and benefits of SBA 

personnel involved in licensing and 

examinations, not including any 

additional related expenses, fully 

support the fee increases in this final 

rule, in the proposed rule, SBA 

identified a number of costs it expected 

to pay for with the funds made available 


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by this rule, such as technology, 

training, information services and 

contractor support for examinations. 

While the expenses other than licensing 

and examinations personnel 

compensation and benefits discussed in 

the proposed rule and this final rule are 

not necessary to support the fee 

increases in this final rule, these 

expenses are priorities of SBA. 

Accordingly, SBA intends to use the 

additional funds made available by this 

rule—whether those funds are fee 

revenue or Agency funds currently used 

to pay compensation and benefits of 

personnel involved in licensing and 

examinations that are replaced by fee 

revenue from this rule—to pay for such 

expenses. 

SBA received three sets of comments. 

These comments are addressed in the 

Section-by-Section Analysis. 

II. Section-by-Section Analysis 

A. General Comments on the Proposed 

Rule 

SBA received several comments that 

were generally directed to the proposed 

rule (81 FR 91049) rather than a specific 

section. Each of these is addressed 

below. 

One comment stated that the 

proposed rule does not comply with the 

Presidential Executive Order 13771 

issued on January 30, 2017, entitled 

‘‘Reducing Regulation and Controlling 

Regulatory Costs.’’ OMB issued 

guidance on April 5, 2017, entitled, 

‘‘Guidance Implementing Executive 

Order 13771,’’ which states that 

Executive Order 13771 applies only to 

significant rules, as defined by section 

3(f) of Executive Order 12866. Since 

OMB has determined that this rule is 

not significant, Executive Order 13771 

does not apply to this rule. 

SBA received a number of comments 

that centered on the theme that SBA is 

using dollars that should be directed to 

the SBIC program for other programs. 

For example, one comment stated that 

SBA’s Office of Investment and 

Innovation (OII), which oversees the 

SBIC program, has been redirecting its 

human capital and funding from the 

SBIC program to other programs, such 

as the Small Business Innovation 

Research (SBIR) program. Another 

comment stated that SBICs have no 

certainty that if higher fees are charged 

that the additional resources generated 

would not be used to offset increased 

spending for non-SBIC matters, and 

‘‘there is no limitation on monies that 

are currently spent on licensing and 

examinations from being diverted to 

other uses by the SBA.’’ Another 

comment stated similar concerns and 

asked what assurances SBA could 

provide that the fee increase would 

benefit the SBIC program. A final 

comment stated that ‘‘OII should use all 

its resources to support the SBIC 

program.’’ 

The comments misunderstand or fail 

to take into account SBA’s statutory 

obligations, extensive transparency with 

respect to spending, and commitments 

identified in the proposed rule. First, by 

statute, SBA must use SBIC licensing 

fees for licensing expenses and SBIC 

examination fees for examination and 

other program oversight expenses. 15 

U.S.C 681(e)(2)(A), 687b(b). This 

statutory obligation governing the use of 

fees should provide SBICs with 

certainty that SBA is using the fees 

generated by this final rule only for 

SBIC matters. Second, SBA provides 

comprehensive budget transparency, 

which should provide additional 

assurance to SBICs that SBA is using the 

fee increase in the final rule only for 

SBIC matters. SBA’s Congressional 

Budget Justification separately tracks 

and reports the costs for each of its 

programs, including the costs of the 

SBIC and SBIR programs. This 

information is made publicly available 

every year by SBA, and is available at 

www.sba.gov/about-sba/sbaperformance/performance-budgetfinances/congressional-budgetjustification-annual-performance-report. 

Current SBIC licensing and examination 

fees are applied to SBA’s account for 

salaries and expenses, as required by the 

Act, and are used to pay the salaries of 

personnel associated with SBIC 

licensing and examination activities. In 

FY 2016, SBA spent an estimated $4.8 

million on personnel compensation and 

benefits associated with these activities 

alone, and $5.4 million including travel, 

technology, subscription services and 

other costs associated with these 

activities. Licensing and examination 

fees provided only $1.9 million to offset 

these costs. By FY 2021, SBA estimates 

that direct costs associated with 

licensing and examinations will 

increase to $9.4 million and that this 

final rule will generate an additional $5 

to $6 million in fees annually. 

Accordingly, even after the fee increases 

in this rule are fully phased in, a 

shortfall of $1.5 million to $2.5 million 

will still exist between aggregate 

licensing and examination direct 

expenses. When factoring in overhead, 

SBA’s estimated licensing and 

examination costs will even further 

exceed anticipated fees. Third, SBA 

recognizes the need for additional 

resources in the SBIC program. Indeed, 

that is one of the purposes of the 

rulemaking and should provide 

assurance that the additional funds 

made available by this final rule will be 

used to benefit the SBIC program. As 

more fully discussed below, SBA 

intends to allocate the additional funds 

made available by this rule to pay for 

needed resources, including technology, 

subscription services, contractors, and 

training. Finally, and more broadly, the 

SBIC program is one of many programs 

operated by SBA. OII manages several 

programs, including, but not limited to, 

the SBIC program and the SBIR 

program. As is the case with the SBIC 

program, SBA has statutory obligations 

with respect to operating the SBIR 

program. SBA assesses resource needs 

for each program to efficiently and 

effectively execute its statutory 

responsibilities. Consistent with the 

statute, no SBIC fee revenue has been or 

will be used for this program. 

One comment stated that SBIC 

program costs have not substantially 

increased in recent years and 

questioned the need for increased fees. 

The comment is correct that SBIC 

program costs have not substantially 

increased over the past few years. 

Nonetheless, excluding SBA overhead, 

the SBIC program direct operating 

budget has increased from $7.4 million 

in FY 1999 (the earliest period for 

which SBIC budgets are readily 

available) to approximately $12.9 

million in FY 2016. Over half of the 

increase is due to inflation ($7.4 million 

in January 1999 would equate to $10.7 

million in January 1999 based on the 

U.S. Bureau of Labor Consumer Price 

Index calculator located at data.bls.gov/ 

cgi-bin/cpicalc.pl) with the remainder 

due to the addition of subscription 

services, such as Preqin and Lexis/ 

Nexis, technology improvements, and 

the costs associated with more 

experienced analysts necessary to 

oversee SBA’s increased capital at risk 

(SBA leverage and commitments). As 

discussed in the proposed rule, SBICs 

ultimately benefit financially from 

improvements in the quality of the SBIC 

program portfolio through lower annual 

charges on SBA-guaranteed debenture 

leverage. The SBIC debenture leverage 

annual charge has decreased from 1% in 

FY 1999 to an annual charge of 0.347% 

in FY 2017, reflecting improvements to 

the SBIC debenture portfolio (a cost 

savings of $979,500 in just one year for 

a hypothetical SBIC issuing $150 

million of debentures at the lower 

annual charge). In FY 1999, SBA had 

less than $3.9 billion in capital at risk; 

this figure grew to $14.5 billion by the 

end of FY 2016. Analyzing SBICs and 

SBIC applicants has become more time 


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intensive due to the increased 

complexity of SBIC organizational 

structures, legal documents, 

management fees, and financings. As an 

example, on October 21, 2014, SBA 

published a final rule (79 FR 62819) 

requested by the SBIC industry, which 

allowed the use of up to two levels of 

passive businesses under 13 CFR 

107.720(b)(2) in order to provide more 

flexibility to its SBICs in structuring 

investments. To appropriately monitor 

these financings, SBA must examine 

each passive business used in the 

financing in addition to the operating 

business. While SBA understands such 

financings provide SBICs additional 

flexibility in structuring investments, 

these financings cause additional work 

for SBA to review and monitor. 

One comment asked SBA to identify 

its priorities for the increased fee 

revenue associated with this rule. SBA 

intends to use the additional funds 

made available by this rule to: (1) 

Support its continued efforts to migrate 

from desktop database tools to a secure 

cloud-based system comparable to the 

systems used by a typical private equity 

fund of funds (an investment fund that 

holds a portfolio of private equity 

funds); (2) pay for additional contractor 

services to support examinations and 

facilitate SBA’s transition to a paperless 

environment; (3) increase travel related 

to licensing, examination, and other 

program oversight; (4) train employees; 

(5) increase access to subscription 

services typically used by a typical 

private equity fund of funds, such as 

industry reports; and (6) to further offset 

the compensation and benefits of 

personnel associated with these 

activities. 

One comment stated that the 

proposed fee increase was excessive and 

it was unclear why an additional $3 to 

$4 million in fees is needed to 

administer the program, noting that the 

costs cited in the proposed rule only 

totaled $1.7 million. As support, the 

comment cited the $100,000 in 

information subscription services, 

$500,000 in increased licensing and 

examination costs for technology 

improvements, $100,000 to incur 

additional training costs, and $1 million 

in contracting resources identified in 

the proposed rule. 

Setting aside the $1.7 million in 

specific additional expenses needed for 

licensing and examination expenses 

identified in the proposed rule, the 

commenter appears to disregard the 

licensing and examination expenses that 

current fees are not covering. The intent 

of this final rule is to cover more of 

SBA’s existing expenses for these 

activities and provide sufficient income 

to pay for the additional and necessary 

expenses identified in the proposed 

rule. As discussed above, in FY 2016, 

SBA expended approximately $5.4 

million, excluding overhead, on SBIC 

licensing and examination activities, but 

received only $1.9 million in licensing 

and examination fees, resulting in a $3.5 

million shortfall which was paid out of 

SBA’s taxpayer-funded budget. Through 

this rule, SBA expects to reduce this 

shortfall. 

One comment suggested that SBA 

should conduct an in-depth accounting 

of the needs and requirements of OII to 

provide ‘‘first-class service’’ to SBICs to 

determine the minimum resources 

necessary to fulfill its mission, identify 

where costs can be cut, better allocate 

existing resources, improve efficiencies 

through private sector solutions, and 

then present the final accounting of 

these amounts to the public. Regarding 

the in-depth accounting requested by 

the comment, the proposed rule set 

forth in detail current licensing and 

examination expenses and the 

additional expenses related to these 

functions that SBA believes are critical 

to fulfilling the statutory mission of the 

SBIC program. This final rule discusses 

those costs and future estimates in 

further detail. In reviewing existing 

resources, SBA identified five key areas 

for improvements, which it intends to 

pay for using the additional funds made 

available as a result of this final rule, as 

follows: 

(1) Technology: SBA’s Office of the 

Chief Information Officer (OCIO) is 

working closely with OII to improve its 

systems to provide functionality similar 

to a typical private sector private equity 

fund of funds and serve as a virtual data 

room. In addition to this software, SBA 

needs to migrate from Microsoft Access 

and acquire data visualization and 

analytical tools commensurate with 

private equity funds and other 

government loan programs. SBA also 

expects to periodically update its 

hardware. 

(2) Outsourced Contractor Services: 

SBA intends to utilize contractors to 

provide certain services for which SBA 

does not currently have sufficient 

resources to perform and to assist in 

certain risk control functions of OII. 

This includes hiring contractors for 

scanning, file management, record 

management, and cyber security to help 

migrate the entire office to a paperless 

environment. This also includes 

valuation services to help support SBIC 

program oversight and SBIC 

examinations where SBA determines 

that an independent valuation is 

appropriate or necessary. In reviewing 

the examination function, SBA has 

established a goal of increasing the 

frequency with which individual SBICs 

are examined to further reduce risk of 

loss to the SBIC program. Due to staffing 

limitation issues, SBA intends to 

outsource certain examination functions 

in order to ensure that it is able to meet 

statutory examination requirements. 

(3) Travel: SBA intends to increase 

staff travel in furtherance of program 

objectives for licensing, examinations, 

and other program oversight activities. 

(4) Training: As noted in the proposed 

rule, the Office of Inspector General 

(OIG) noted that ‘‘without proper 

training and technology examiners may 

not effectively identify all regulatory 

violations as intended by the Act.’’ OIG 

Audit Report 13–22 at 11. OII intends to 

devote a larger portion of its budget for 

employee training. 

(5) Subscription Services: SBA is 

evaluating information sources used by 

a typical private sector private equity 

fund of funds to identify which sources 

may most effectively help its analysts 

better evaluate and assess SBICs and 

applicants. 

SBA regularly assesses needs and 

resources for all programs to ensure that 

SBA is able to meet its statutory 

obligations in an efficient and effective 

manner. In assessing the expenses of the 

SBIC program more broadly than 

licensing and examination expenses 

alone, total program costs for the SBIC 

program are already low compared to 

cost of the SBIC program from prior eras 

based on capital at risk and comparable 

current private sector entities based on 

assets under management. SBIC 

program resources have not kept pace 

with increased capital at risk since FY 

1999 (the earliest period for which the 

SBIC program operating budget is 

readily available). In FY 1999, SBA 

spent $7.4 million, excluding overhead, 

to manage a portfolio of less than $3.9 

billion in capital at risk (leverage and 

commitments); in FY 2016, SBA spent 

$12.9 million to manage a portfolio of 

$14.5 billion. SBA’s capital at risk 

continues to increase, reaching $15.3 

billion as of May 22, 2017. While SBA’s 

capital at risk has more than tripled in 

size, SBA’s costs to manage its much 

larger portfolio have not even doubled. 

As a result, the SBIC program’s FY 1999 

operating budget, excluding overhead, 

represented 0.19% of its capital at risk 

and its FY 2016 operating budget 

represents 0.09%. If SBA returned to the 

FY 1999 rate of 0.19%, the SBIC 

program’s direct budget would need to 

increase to $29 million today, which 

would still fall significantly below 

comparable private sector costs. As a 

comparison, a typical private sector 

fund of funds commonly charges 1% of 


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assets under management (AUM) 

annually to manage the fund; notably, 

SBICs typically charge 2% in annual 

management fees. 

SBA estimates that by FY 2021 the 

Agency will need approximately $19.9 

million, excluding overhead, to manage 

the SBIC program (‘‘SBIC Program 

Direct Cost Estimates’’), as shown in 

Table 1, SBIC Program Direct Cost 

Estimates (In Millions of Dollars), 

below. The cost estimate includes 

increases for inflation through FY 2021 

and funding for the five key areas that 

are targeted for improvement. 

TABLE 1—SBIC PROGRAM DIRECT

COST ESTIMATES

[In millions of dollars] 

Category FY 

2016 

FY 

2021 

Personnel (Compensation 

& Benefits) .................... $11.65 $13.53 

Technology ....................... 0.79 3.16 

Outsourced Contractor 

Services ........................ ............ 2.29 

Travel ................................ 0.22 0.47 

Subscription Services ....... 0.19 0.21 

Training and Other Expenses ........................... 0.09 0.27 

Total SBIC Program 

Direct Cost Estimates ..................... 12.94 19.93 

Direct licensing costs are expected to 

increase from approximately $2 million 

in FY 2016 to almost $3 million by FY 

2021, and examination costs are 

expected to increase from $3.4 million 

in FY 2016 to almost $6.4 million by FY 

2021. Table 2, SBIC Program Direct Cost 

Estimates for Licensing and 

Examination Activities (In Millions of 

Dollars), below provides a breakdown 

for SBIC licensing and examination 

costs. 

TABLE 2—SBIC PROGRAM DIRECT COST ESTIMATES FOR LICENSING AND EXAMINATION ACTIVITIES

[In millions of dollars] 

Category 

Licensing costs Examination costs 

FY 2016 FY 2021 FY 2016 FY 2021 

Personnel (Compensation & Benefits) ............................................................ $1.80 $2.31 $2.96 $4.12 

Technology ...................................................................................................... 0.09 0.31 0.20 0.79 

Outsourced Contractor Services ...................................................................... 0.00 0.11 0.00 1.11 

Travel ............................................................................................................... 0.00 0.06 0.22 0.26 

Subscription Services ...................................................................................... 0.12 0.13 0.00 0.00 

Training and Other Expenses .......................................................................... 0.01 0.03 0.02 0.07 

Total SBIC Direct Cost Estimates ............................................................ 2.02 2.95 3.40 6.35 

SBA realized that the cost estimates 

on which the proposed rule was 

developed (‘‘proposed rule cost 

estimate’’) significantly underestimated 

SBA costs for technology, outsourcing, 

and overhead. The proposed rule 

identified only $1 million for 

technology, half of which was allocated 

to licensing and examinations. After 

further review of commercially available 

systems used by private sector funds of 

funds and tools used by other 

government financial programs, SBA 

believes technology costs are likely to be 

significantly higher than originally 

estimated in the proposed rule. The 

proposed rule cost estimate also 

understated costs for outsourced 

services, particularly with respect to 

examinations and cyber security. Most 

significantly, the proposed rule used an 

agency overhead rate of less than half a 

percent (0.48%) of all direct SBIC costs. 

After publishing the proposed rule, OII 

became aware that the actual agency 

overhead rate amounts to approximately 

thirty percent (30%) of the program’s 

total cost. (For example, if the total 

program cost were $10 million, $7 

million would be the program office’s 

direct costs while the other $3 million 

would represent agency overhead.) As a 

result, the fee increase in this final rule 

is likely to cover less of SBA’s license 

and examination expenses than SBA 

expected when proposing the rule. After 

the full increase is phased in by FY 

2021, the fees will cover approximately 

80% of SBA’s direct licensing and 

examination expenses, and less than 

60% of such expenses when including 

overhead. SBA is concerned that the 

phased in fee increase in this final rule 

may not provide SBA with fees 

necessary to pay for critical resources as 

quickly as necessary. SBA is also 

concerned that, after the phase-in is 

complete, fees collected will not cover 

all expenses authorized by statute. 

Accordingly, SBA is considering 

proposing a new rule after this final rule 

becomes effective to more fully cover its 

licensing and examination costs in a 

more expedited timeframe. 

One comment questioned OII’s 

priorities, stating that OII recently 

created and hired a position which the 

commenter believes duplicates a 

currently existing role in OII rather than 

filling core competencies. How SBA 

chooses to allocate its non-fee related 

budget is not the subject of this rule. In 

addition, as noted above, SBA regularly 

reviews resource allocations within SBA 

to maximize efficiency and prioritize 

resources. Based on this review, SBA is 

currently seeking to provide additional 

resources to licensing and examinations. 

One comment stated that although 

more staffing resources should be 

allocated to SBIC examinations, those 

resources should come from other areas 

within OII or sought from congressional 

appropriations. SBA assesses the needs 

for all of its programs and cannot 

reallocate money from one program to 

another without repercussions to the 

program that would lose resources. In 

addition, any reallocations of personnel 

to examination functions would not 

lower examination costs. Such 

resources, therefore, would not reduce 

the need for the fees set forth in this 

final rule. SBA could request additional 

funds from Congress; however, Congress 

gave SBA the authority to recoup its 

SBIC licensing and examination 

expenses by charging SBIC licensing 

and examination fees. By this final rule, 

SBA is complying with the statutory 

intent to cover more of its licensing and 

examination costs through the use of 

fees, which will provide SBA with the 

ability to pay for necessary additional 

resources required to administer the 

SBIC program. 


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Two comments noted that technology 

improvements, such as a virtual data 

room, could significantly reduce costs. 

Neither commenter provided data to 

support cost reductions. As part of the 

budget estimate presented in Table 1, 

SBA considered the use of private sector 

technology, such as adopting software 

commonly used by a typical private 

equity fund of funds, virtual data rooms, 

and analytical tools to improve the 

efficiency of its processes. In general, 

SBA has found that while technology 

improves the accessibility of 

information, it does not necessarily 

decrease the time or manpower required 

to license or examine a fund. For 

example, while a virtual data room 

would help in accessing a business 

plan, it takes the same amount of time 

to read and understand the business 

plan in an electronic version as a paper 

version. Similarly, while a virtual data 

room helps SBA access SBIC financing 

documents, most of SBA’s time is spent 

reviewing the documents, and assessing 

whether the financing complies with 

SBIC regulations. SBA also notes that 

such technology is used by SBIC 

managers and other professionals (such 

as accounting and law firms) that charge 

expenses to SBICs and that their costs 

have not declined. 

One comment stated that the 

increased fees would significantly deter 

existing and prospective SBIC fund 

managers from continuing in the 

program. The fees identified in this final 

rule represent a small percentage of a 

fund’s capital or expenses. Regarding 

the licensing fees, in FY 2016, SBA 

licensed 21 SBICs with average initial 

private capital exceeding $55 million. 

Those intending to issue SBA 

guaranteed debentures (‘‘leveraged 

SBICs’’) had average initial private 

capital of $53 million, and those not 

intending to issue SBA guaranteed 

debentures (‘‘non-leveraged SBICs’’) had 

average initial capital of $74 million. 

The FY 2021 licensing fee of $45,000 

represents 0.06% of the average nonleveraged SBIC’s capital and 0.03% of 

the leveraged SBIC’s total capital 

(assuming the leveraged SBIC will draw 

leverage equal to two times private 

capital). Even after full phase-in by FY 

2021, the licensing fee is expected to 

account for a modest percentage of an 

SBIC’s total organizational costs (e.g., 

legal fees and other professional and 

consulting services, fundraising 

expenses, etc.), which frequently reach 

or exceed $500,000. Regarding the 

examination fee, under this final rule, in 

approximately three years (by October 

2020), the examination fee for a 

leveraged SBIC with $150 million in 

assets at cost would be $44,000 (0.03% 

of assets) and for a non-leveraged SBIC 

$30,000 (0.02% of assets). SBA’s goal is 

to examine leveraged SBICs every 

twelve months and non-leveraged SBICs 

every eighteen months. In FY 2016, an 

SBIC with $150 million in assets 

typically incurred annual management 

fees of $3 million and annual audit fees 

between $50,000 and $60,000. SBA 

believes that while the increased fees 

may deter a few funds with limited 

ability to raise capital from applying to 

the program, most applicants will not be 

deterred. To the extent that such 

deterrence occurs, it may help SBA 

focus its resources on stronger SBIC 

applicants. 

B. Indexing Fees 

Section 107.50—Definition of Terms 

Current SBIC regulations do not 

adjust SBA’s administrative fees for 

inflation. As a result, fees have not 

increased since 1996 and do not cover 

SBA’s costs. To enable fees to remain 

current with inflation, SBA is adding 

the term ‘‘Inflation Adjustment’’, which 

is defined as the methodology used to 

increase SBIC administrative fees using 

the consumer price index for all urban 

consumers (CPI–U), as calculated by the 

U.S. Bureau of Labor and Statistics 

(BLS), based on the U.S. city average for 

all items, not seasonally adjusted, with 

the base period 1982 ¥ 84 = 100. 

Beginning on October 1, 2021, and prior 

to each federal government fiscal year 

(October 1) thereafter, SBA would 

recalculate the examination and 

licensing fees to reflect increases in the 

CPI–U based on the change in the index 

from the June CPI–U in the previous 

year to the most recent June CPI–U. For 

example, the CPI–U is 238.638 in June 

2015 and 241.038 in June 2016; a 

1.0057% increase would be applied and 

then rounded to the nearest $100. If the 

CPI–U decreases, no change would be 

made to the fees. SBA would publish 

the resulting fees in a notice in the 

Federal Register each year prior to 

October 1. 

SBA received one comment that 

opposed the inflation adjustment, 

stating that instituting an inflation 

adjustment removes SBA’s 

accountability for reducing costs and 

streamlining processes. SBA does not 

agree. More than half of SBA’s SBIC 

expense increase between 1999 and 

2016 was due to inflation. These 

increased expenses were funded by 

taxpayers rather than SBICs. 

Implementing an inflation adjustment to 

ensure that SBA’s licensing and 

examination fees keep pace with 

inflation helps to ensure that, consistent 

with the statutory authority Congress 

provided to SBA in Sections 301 and 

310 of the Act, SBICs, not taxpayers, are 

paying the costs related to these 

activities. SBA estimates that if SBA had 

instituted an inflation adjustment in 

1996, over the 5-year period between 

FYs 2012 and 2016 alone, SBA could 

have saved taxpayers over $6 million. 

Further, SBA’s budget process ensures 

accountability by providing disclosure 

of SBA’s costs to the public each year. 

SBA further notes that using inflation 

adjustments is in line with other federal 

financial regulators such as bank 

examiner fees (For example, pursuant to 

12 CFR 8.2, the Office of the 

Comptroller of the Currency applies an 

inflation adjustment to the fees it 

charges for examining and supervising 

national banks.) Finally, SBA remains 

committed to ensuring that the SBIC 

program is operated efficiently and 

effectively. This final rule adopts the 

proposed § 107.50 language without 

change. 

C. Licensing Fees 

Section 107.300—License Application 

Form and Fee 

Current regulations require SBIC 

applicants to pay a licensing fee when 

submitting a complete application. 

Under those regulations, the licensing 

fee consisted of a base fee of $10,000 

plus additions as follows: $5,000 if the 

applicant intended to operate as a 

limited partnership; $5,000 if the 

applicant intended to issue Participating 

Securities leverage (a type of leverage no 

longer available); and $10,000 if the 

applicant intended to be licensed as an 

Early Stage SBIC (a type of license no 

longer issued after September 30, 2016). 

SBA proposed to remove the 

additions and to adopt a uniform 

licensing fee of $25,000 in FY 2017, 

which would increase by $5,000 each 

October through October 1, 2020, 

resulting in a licensing fee of $45,000 by 

October 1, 2020. Beginning on October 

1, 2021, the rule proposed to increase 

the amount based on inflation. The 

proposed rule did not propose changing 

when the licensing fee was payable. 

Consistent with SBA’s existing practice, 

the preamble to the proposed rule 

discussed SBA’s licensing phases and 

what forms and fees are required at each 

phase as follows: 

The first phase in the licensing 

process (‘‘Initial Review’’) begins when 

a first time applicant submits its 

Management Assessment Questionnaire 

(‘‘MAQ’’), which consists of SBA Forms 

2181 and Exhibits A through F of SBA 

Form 2182, or when the management of 

an existing SBIC submits a request to 


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SBA to be considered for a subsequent 

SBIC license. (SBIC application forms 

are available on SBA’s Web site at 

www.sba.gov/sbic.) SBA reviews the 

MAQ or subsequent SBIC applicant 

materials, performs due diligence, 

analyzes the management team’s 

performance, interviews those 

management teams invited for an inperson interview, and ultimately 

determines whether to issue a formal 

invitation (‘‘Green Light Letter’’) to the 

applicant to proceed to the final 

licensing phase of the process. Once an 

applicant receives a Green Light Letter, 

the applicant typically has up to 18 

months to raise the requisite private 

capital. During this timeframe, SBA 

keeps in touch with the applicant, 

conducts SBIC training classes, and 

provides guidance as needed. The 

applicant pays the licensing fee only at 

the final licensing phase (‘‘Final 

Licensing’’). Final Licensing occurs at 

the time SBA accepts an applicant’s 

complete license application (consisting 

of an updated SBA Form 2181 and 

complete SBA Forms 2182 and 2183), 

which application is submitted after 

raising sufficient private capital. A 

number of applicants fail to raise the 

requisite capital or for other reasons do 

not submit a license application. As a 

result, SBA estimates that less than half 

of SBIC applicants pay the licensing fee, 

even though SBA expends resources on 

all applicants. 

As part of the proposed rule, SBA 

asked for comments as to whether an 

applicant should pay a licensing fee 

prior to submitting its complete license 

application, since SBA expends 

significant resources prior to that time. 

SBA received one comment that 

supported a fee of up to $10,000 at the 

first phase, Initial Review, with a 

commensurate decrease in the licensing 

fee at the second phase, Final Licensing. 

The commenter also suggested that SBA 

clarify its licensing standards, since half 

of all applicants that apply to the 

program do not receive a Green Light 

Letter. SBA recommends that applicants 

use the pre-screening process described 

on its Web site at www.sba.gov/sbic/ 

applying-be-sbic/pre-screening-process, 

which will remain free of charge after 

this final rule is published. This process 

helps applicants identify whether they 

are likely to qualify for a license before 

beginning the licensing process. 

SBA agrees that a fee at Initial Review 

is appropriate; this final rule includes a 

$10,000 fee at Initial Review (‘‘Initial 

Licensing Fee’’) beginning on the 

effective date of this rule. The amount 

of the licensing fee due at Final 

Licensing (‘‘Final Licensing Fee’’) in 

this final rule has been reduced from the 

amount for such fee in the proposed 

rule by a commensurate decrease of 

$10,000. Accordingly, by October 1, 

2020, the combined licensing fees for a 

single applicant will total $45,000, 

which is the total amount of licensing 

fees proposed by SBA in the proposed 

rule. The amount of the Final Licensing 

Fee is the amount due in effect on the 

date when SBA accepts an applicant’s 

license application. Due to the timing of 

this final rule, SBA removed the 

proposed FY 2017 licensing fee. Table 3, 

SBIC Initial and Final Licensing Fees, 

below, identifies the Initial Licensing 

Fee and Final Licensing Fees in this 

final rule for each fiscal year. 

TABLE 3—SBIC INITIAL AND FINAL LICENSING FEES

Time Initial 

licensing fee 

Final 

licensing fee 

December 13, 2017–September 30, 2018 .......................................................................................................... $10,000 $20,000 

October 1, 2018–September 30, 2019 ................................................................................................................ 10,000 25,000 

October 1, 2019–September 30, 2020 ................................................................................................................ 10,000 30,000 

October 1, 2020–September 30, 2021 ................................................................................................................ 10,000 35,000 

Beginning on October 1, 2021, SBA will 

increase the Initial Licensing Fee and 

Final Licensing Fee using the Inflation 

Adjustment and, prior to the date of the 

increase, will publish the amount in a 

Notice in the Federal Register. 

Section 107.410—Changes in Control of 

Licensee 

SBA treats a change in control of a 

Licensee as a licensing action since SBA 

must perform similar functions and 

processes to those in SBA’s licensing 

processes. Current regulations require 

SBICs seeking a change in control to pay 

a $10,000 fee, similar to the licensing 

fee. Since the procedures and costs are 

similar to those in the licensing process, 

the proposed regulations changed the 

current fee to be equal to the licensing 

fee identified in § 107.300. SBA 

received no comments on this section. 

As noted above, this final rule does not 

change the total amount of the licensing 

fee in the proposed rule, but requires 

two payments rather than one: the 

Initial Licensing Fee and the Final 

Licensing Fee. The final § 107.410 

modifies the language in proposed 

§ 107.410 to reflect the combined 

Licensing Fee (Initial Licensing Fee plus 

the Final Licensing Fee) as defined in 

the final § 107.300. 

D. Examination Fees 

Section 107.692(b)—Base Fee 

Current § 107.692(b) identifies a base 

examination fee calculated as a 

percentage of an SBIC’s total assets at 

cost. As set forth in current § 107.692(b), 

the percentage decreases as the assets 

increase, with the maximum base 

examination fee set at $14,000 for SBICs 

with total assets greater than $60 

million. 

SBA proposed to modify § 107.692(b), 

to replace the base fee calculation with 

the following formula: Base Fee = 

Minimum Base Fee + 0.024% of assets 

at cost, but not to exceed the Maximum 

Base Fee. The Minimum Base Fee 

would increase to $5,000 in FY 2017 

and increase each October by $1,000 

through October 1, 2020. As proposed, 

the Maximum Base Fee for Nonleveraged SBICs would increase to 

$20,000 in FY 2017 and increase by 

$2,500 each October through October 1, 

2020. The Maximum Base Fee for 

Leveraged SBICs would increase to 

$20,000 in FY 2017 and then by $6,000 

each October through October 1, 2020. 

Beginning on October 1, 2021, the 

Minimum and Maximum Base Fee (for 

both Leveraged and Non-leveraged 

SBICs) would increase using the 

Inflation Adjustment. 

For the purposes of calculating the 

examination fee, the proposed rule 

defined Non-leveraged SBICs as SBICs 

that have no outstanding SBAguaranteed leverage or leverage 

commitments and, in the case of SBICs 

that have issued leverage in the form of 

Participating Securities, hold no 

Earmarked Assets. An SBIC that satisfies 

these requirements must also certify to 

SBA that it will not seek new SBA 

leverage in the future. 

SBA received one comment 

supporting SBA’s proposal to tie the 

examination fee to assets, noting that a 

fee not tied to assets would have been 

burdensome for smaller funds. 


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SBA received one comment that the 

increase is excessive, noting that while 

there is an increase in the number of 

SBICs to be examined, there was no 

evidence provided that the cost of 

examining an individual SBIC has 

doubled. As discussed previously, over 

half of the increase in examination 

expenses since 1999 is due to inflation, 

with most of the remainder due to the 

addition of subscription services, 

technology improvements, and costs 

associated with more experienced 

analysts necessary to oversee SBA’s 

increased capital at risk (SBA leverage 

and commitments), particularly in larger 

leveraged SBICs with over $60 million 

in assets. In December 1996, only 6 of 

the 28 SBICs with over $60 million in 

assets used leverage and only 1 of the 

12 SBICs with over $120 million in 

assets used leverage. As of December 31, 

2016, 122 of the 129 SBICs with over 

$60 million in assets used leverage and 

72 of the 74 SBICs with over $120 

million in assets used leverage. SBA 

applies a higher level of scrutiny in 

examining leveraged SBICs than nonleveraged SBICs in exams, since SBA 

bears credit risk with respect to 

leveraged SBICs. In addition, larger 

leveraged SBICs often use complex 

transaction structures which are more 

time-consuming to examine. For 

example, the percentage of SBIC 

financings made through passive 

businesses (a type of financing that is 

generally prohibited, but with permitted 

exceptions for passive businesses that 

pass through proceeds to eligible active 

small businesses) increased from 3% in 

1996 to over 14% over the past few 

years. This is partially due to the 

expansion of SBIC passive business 

rules on December 23, 2014 (78 FR 

77377), which revised 13 CFR 

107.720(b)(2) to allow SBICs to invest in 

up to two levels of passive businesses 

under certain circumstances. Although 

SBA understands that these types of 

accommodations are necessary to enable 

SBICs to finance certain small 

businesses, these transactions require 

SBA to use more resources to monitor 

and examine them. 

SBA believes the examination base fee 

is reasonable and consistent with the 

cost of other auditing services and is 

finalizing § 107.692(b) as proposed with 

the exception of one timing-related 

change. Due to the timing of this final 

rule, SBA is removing the FY 2017 fee 

increase identified in the proposed rule 

and will begin with the FY 2018 fee, 

after the effective date of this rule. The 

final § 107.692(b) replaces the base fee 

calculation with the following formula: 

Base Fee = Minimum Base Fee + 0.024% 

of assets at cost, but not to exceed the 

Maximum Base Fee. Both the Minimum 

Base Fee and the Maximum Base Fee 

change each year as shown on Table 4, 

Minimum and Maximum Base Fees, and 

are adjusted for inflation each year 

beginning October 1, 2021: 

TABLE 4—MINIMUM AND MAXIMUM BASE FEES

Time period (based on the examination start date) Minimum base 

fee 

Maximum base 

fee for 

non-leveraged 

SBICs 

Maximum base 

fee for 

leveraged 

SBICs 

December 13, 2017 to September 30, 2018 ......................................................................... $6,000 $22,500 $26,000 

October 1, 2018 to September 30, 2019 .............................................................................. 7,000 25,000 32,000 

October 1, 2019 to September 30, 2020 .............................................................................. 8,000 27,500 38,000 

October 1, 2020 to September 30, 2021 .............................................................................. 9,000 30,000 44,000 

Section 107.692(c)—Adjustments to 

Base Fee and (d) Fee Discounts and 

Additions Table 

Current § 107.692(c) provides for the 

following adjustments to the base 

examination fee calculated under 

§ 107.692(b): 15% discount for no prior 

violations; 10% discount for 

responsiveness; 5% addition if SBIC is 

structured as a partnership or limited 

liability company; 10% addition if the 

SBIC was licensed with the intent of 

issuing Participating Securities; 10% 

addition if SBIC records are maintained 

at multiple locations; and 10% addition 

if the SBIC is licensed as an Early Stage 

SBIC. These adjustments were 

summarized in tabular form in 

§ 107.692(d). 

SBA proposed to revise § 107.692(c) 

as follows: 

• Retain No Violation Discount: SBA 

proposed to retain the no violation 

discount, which gives a 15% discount 

on the Base Fee to SBICs that have no 

outstanding regulatory violations at the 

time of the examination start date and 

had no violations as a result of the most 

recent prior examination. 

• Add Low and Moderate Income 

(LMI) Investing Discount: SBICs would 

receive a discount of 1% of the Base Fee 

for every $10 million in LMI 

Investments (in dollars at cost) financed 

since the Licensee’s last examination up 

to a maximum 10% of the Base Fee. LMI 

Investments are defined in § 107.50. 

• Remove Fully-responsive Discount; 

Add Non-Responsiveness Addition: 

During development of the proposed 

rule, SBA found that most SBICs 

regularly received the 10% discount 

available under § 107.692(c) for being 

‘‘fully responsive to the letter of 

notification of examination.’’ SBA 

therefore took into account the cost 

efficiencies resulting from 

responsiveness when formulating the 

revised Base Fees in proposed 

§ 107.692(b). To compensate SBA for the 

additional time required to examine the 

minority of SBICs that are not 

responsive, proposed § 107.692(c)(3) 

included an addition of 15% of the Base 

Fee for any SBIC that is ‘‘not fully 

responsive to the letter of notification of 

examination.’’ 

• Retain Records/Files at Multiple 

Location Addition: Proposed 

§ 107.692(c)(4) also retained the 10% 

addition charged to SBICs that maintain 

records located in multiple locations. 

• Add Unresolved Finding Addition: 

To encourage SBICs to resolve findings 

in a timely manner, § 107.692(c)(5) SBA 

proposed an additional fee equal to 5% 

of the Base Fee for every 30 calendar 

days or portion thereof that any 

examination finding that remains 

unresolved after a 90 calendar day cure 

period (beginning on the date that SBA 

notifies the SBIC that corrective action 

must be taken), unless SBA ultimately 

resolves the finding in the SBIC’s favor. 

• Remove Additions for Partnership 

and LLC: Since almost all SBICs are 

organized as partnerships and LLCs, the 

proposed rule removed these additional 

fees from § 107.692(c) and incorporated 

the cost into the Base Fee. 

• Remove Additions for Participating 

Securities Licensees and Early Stage 

SBICs: SBA proposed to remove the fee 

additions for Participating Securities 

Licensees and Early Stage SBICs, both of 

which SBA no longer licenses. 

SBA received one comment that 

supported the removal of additions for 

early stage, participating securities, and 


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partnership/LLC; this final rule adopts 

these proposed changes to § 107.692(c). 

SBA received one comment that 

opposed the LMI discount, stating that 

discounts should not be used for 

political or social goals. SBA proposed 

this discount partly in response to a 

comment submitted by the same 

commenter on a different rule proposed 

by SBA, the Impact SBIC Rule (81 FR 

5666), which comment stated, 

‘‘facilitating investment dollars in LMI 

areas is consistent with the core statute 

and the Congressional mandate for the 

SBIC program’’ and suggested that the 

LMI discount might be helpful. SBA 

agrees that LMI investments are 

consistent with the SBIC program 

mission. Nonetheless, since the public 

opposed this discount in the context of 

this rule, and LMI investments do not 

have a meaningful impact on the 

amount of time and resources required 

by SBA in connection with an 

examination, this final rule § 107.692(c) 

does not include this discount in 

§ 107.692(c). 

SBA received several comments on 

the proposed adjustments to the 

examination base fee in the proposed 

rule. One comment stated that SBA 

should not make adjustments to the 

examination fee based on arbitrary 

decisions by examiners, including the 

no violation discount, non-responsive 

addition, records/files at multiple 

locations addition, and the unresolved 

finding addition. Examination fee 

adjustments are not determined 

arbitrarily, but rather, through a process 

requiring exam manager review. An 

examination may only apply an 

adjustment to the fee if an SBA exam 

manager agrees with the decision by the 

examiner that an adjustment is 

warranted. SBA exam managers review 

examination fees prepared by each 

examiner to ensure they are fairly and 

accurately assessed. Furthermore, SBICs 

have the right to dispute any 

examination fee invoice. SBA receives 

questions from SBICs concerning less 

than approximately 3% of its 

examination invoices. Each of the 

adjustments SBA received comments on 

is addressed in further detail below: 

• No Violation Discount: SBA 

received one comment that supported a 

uniform examination fee, with no 

discounts and no additional fees, except 

in egregious cases. SBA agrees, in part, 

with this comment, and believes that a 

more uniform examination fee is 

desirable. Accordingly, this final rule 

seeks to avoid any single discount or 

addition being applied to a majority of 

SBICs. Although the proposed rule 

proposed to retain the no violation 

discount in current SBA regulations, 

since over 70% of SBICs examined in 

FY 2016 received the no violation 

discount, SBA believes it is appropriate 

not to retain this discount. Further, and 

consistent with the desire for a more 

uniform examination fee, the 

examination base fee identified in this 

final rule reflects SBA’s average cost to 

examine an SBIC, and examinations 

resulting in violations require SBA to 

spend time and resources to identify 

and address those violations. If SBA 

were to retain the no violation discount, 

the examination fee would not fully 

cover SBA’s cost of examining the SBIC. 

Therefore, and in light of the comment 

received supporting a more uniform 

examination fee, SBA removed the no 

violation discount in this final rule. 

• Non-Responsive Addition: The 

comment objecting to this addition was 

particularly concerned that such an 

addition would be applied arbitrarily 

and without warning. SBA agrees with 

the comment that a written warning 

would be appropriate prior to assessing 

this addition. As with all additions, this 

addition may only be applied with exam 

manager approval. Over 97% of SBICs 

examined in FY 2016 received the 

discount for being responsive, and SBA 

expects that if SBIC responsiveness 

remains similar to FY 2016, it will only 

be necessary to apply the nonresponsive addition in less than 3% of 

cases. For the reasons discussed above 

regarding SBA’s desire for a more 

uniform examination fee consisting of 

an examination base fee that reflects 

SBA’s average cost to examine an SBIC 

with adjustments which increase that 

cost, the final rule includes the nonresponsive addition. Since 

uncooperative SBICs increase SBA’s 

costs, this final rule adopts the nonresponsive addition of 15% as 

proposed, but with the clarification that 

SBA will provide a written warning 

prior to assessment. 

• Records/Files at Multiple Location 

Addition: SBA received one comment 

objecting to this addition, which is 

currently in SBA regulations and which 

SBA proposed to retain. SBA notes that 

there is no risk of arbitrary application 

of this addition, since SBIC records are 

maintained either in a single or multiple 

locations. Further, in FY 2016, less than 

2% of SBICs received this addition. This 

final rule maintains this addition in 

§ 107.692(c) since traveling to multiple 

locations increases SBA’s time and 

costs. 

• Unresolved Finding Addition: One 

comment objected to this addition on 

the grounds that some resolutions, such 

as the sale of a portfolio company, may 

take more than 90 days to resolve. SBA 

agrees with the comment that certain 

resolutions may take longer than 90 

days to resolve. Accordingly, the final 

§ 107.692(c) adopts this addition, since 

SBA spends a significant amount of 

time trying to resolve unresolved 

findings, but clarifies the language to 

account for resolutions requiring longer 

than 90 days to resolve. 

A summary of the resulting final 

§ 107.692(c) examination fee additions 

(also presented in tabular form in final 

§ 107.692(d)) is summarized in Table 5, 

Proposed Examination Fee Additions, 

below. 

TABLE 5—PROPOSED EXAMINATION FEE ADDITIONS

Examination fee additions Amount of addition ¥ % of base fee 

(1) Non-responsive ................................................................................... 15%. 

(2) Records/Files at multiple locations ..................................................... 10%. 

(3) Unresolved Findings ........................................................................... 5% of Base Fee for every 30 days or portion thereof beyond the 90 

day cure period or such later date as SBA sets forth in the notice for 

each unresolved finding. 

Just as with current § 107.692, the 

final examination fee is calculated by 

taking the Base Fee determined under 

§ 107.692(b) and adding the adjustments 

identified in § 107.692(c). The following 

example demonstrates this calculation. 

Assume that in March 2019, a leveraged 

SBIC has $125 million in assets at cost. 

The Base Fee calculation ($7,000 + 

.024% × $125 million) computes to 

$37,000. Since the Base Fee may not 

exceed the Maximum Base Fee for the 

relevant time period, the Base Fee 

would be equal to $32,000. If the SBIC 

is non-responsive to the examiner’s 

requests and has records in multiple 

locations, the examination fee would be 

calculated as follows: 


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TABLE 6—EXAMPLE MARCH 2019 EXAMINATION FEE CALCULATION

Amount Explanation 

$32,000 ....................................................... Base Fee determined per final § 107.692(b). 

+ $ 4,800 ...................................................... 15% addition for non-responsiveness per final § 107.692(c)(1). 

+ $ 3,200 ...................................................... 10% addition for records in multiple locations per final § 107.692(c)(2). 

$40,000 ....................................................... Examination Fee. 

Although the Base Fee has a 

minimum and maximum, the resulting 

examination fee does not have a 

minimum or maximum. Unresolved 

findings beyond the 90-day cure period 

could result in increasingly higher 

examination fees. These additions are 

intended to incentivize SBICs to be 

responsive and resolve any findings as 

quickly as possible. 

Section 107.692(e)—Delay Fee 

Current § 107.692(e) states that SBA 

may assess an additional fee of $500 per 

day if SBA determines the examination 

is delayed due to the SBIC’s lack of 

cooperation or the condition of its 

records. 

SBA proposed to amend § 107.692(e) 

to increase the current $500 per day 

delay fee to $700 per day, to be adjusted 

annually using the Inflation 

Adjustment, beginning on October 1, 

2021, to coincide with the date on 

which the other fee inflation 

adjustments are computed. SBA 

received one comment objecting to the 

fee, asserting that it could be assessed 

arbitrarily in an examiner’s discretion. 

SBA does not assess this fee arbitrarily, 

and any assessment requires the process 

set forth in the SBIC Examinations 

Guidelines Standard Operating 

Procedure (10 09, October 28, 2013, Ch. 

4, § 2(e)), which provides that only the 

Associate Administrator for Investment 

and Innovation may assess this delay fee 

after consulting with the Director of 

SBIC Examinations. SBA did not assess 

this delay fee for any of the SBICs 

examined in FY 2016. Delays can 

significantly increase SBA examination 

costs, therefore, SBA maintained this 

delay fee in cases involving delays due 

to a lack of cooperation on the part of 

the SBIC or the poor condition of the 

SBIC’s records. This final rule adopts 

proposed § 107.692(e) without change. 

Compliance With Executive Orders 

12866, 12988, 13132 and 13771, the 

Paperwork Reduction Act (44 U.S.C. Ch. 

35) and the Regulatory Flexibility Act (5 

U.S.C. 601–612) 

Executive Order 12866 

The Office of Management and Budget 

has determined that this rule is not a 

‘‘significant’’ regulatory action under 

Executive Order 12866. However, to 

provide additional transparency for the 

SBIC community, a Regulatory Impact 

Analysis is set forth below. 

1. Necessity of Regulation 

The Act authorizes SBA to collect 

administrative fees to cover licensing 

and examination costs. Currently, 

licensing fees cover less than a quarter 

of SBA’s direct licensing costs and 

examination fees cover less than half of 

direct examination costs. It is critical 

that SBA increase fees in order to cover 

a larger portion of its licensing and 

examination expenses as contemplated 

by Congress. In addition, SBA will use 

the funds made available as a result of 

the rule to: (1) Improve technology for 

both licensing and examinations; (2) 

improve examiner training; (3) pay for 

necessary information subscription 

services; and (4) provide contractor 

resources to support licensing and 

examination activities. 

2. Alternative Approaches to the 

Regulation 

A. Licensing Fees 

SBA considered several alternatives 

regarding licensing fees. SBA first 

considered indexing the licensing fees 

for inflation from 1996 (the year in 

which SBA most recently raised 

licensing fees) to 2017. This alternative 

did not produce sufficient fees to offset 

SBA licensing costs and produced lower 

licensing fees than those in this final 

rule. The increase in SBA’s licensing 

costs has been driven not only by 

inflation since 1996, but also by the real 

increase in SBA’s capital at risk (SBA 

guaranteed leverage and commitments) 

and the increased complexity of SBIC 

applicant organizational documents. 

Therefore, SBA rejected the option of 

adjusting the current fees only for 

inflation. 

Given its technology and processing 

time concerns, SBA considered higher 

licensing fees than those proposed and 

finalized in this rule, in order to obtain 

the same technology and resources 

utilized by industry peers, and 

contractor support to reduce times in 

the licensing process. SBA did not 

attempt to fully cover its licensing costs 

in the proposed rule; at that time, SBA 

stated that it believed the proposed fee 

increases would be sufficient to meet 

essential needs while remaining well 

within the ability of qualified applicants 

to pay. In re-evaluating its technology 

resources utilized in licensing in 

response to a comment SBA received on 

the proposed rule, SBA now believes it 

will require technology and other 

licensing resources similar to industry 

peers. Therefore, SBA’s licensing costs, 

excluding overhead, are expected to 

increase from approximately $2 million 

in FY 2016 to approximately $3 million 

by FY 2021. SBA is concerned that this 

final rule will only offset half of SBA’s 

licensing costs, excluding overhead, by 

FY 2021. SBA is considering proposing 

a new rule after this final rule to further 

offset its costs. 

SBA also considered implementing a 

larger increase immediately in order to 

offset costs more quickly. For the time 

being, SBA is opting to pursue the 

gradual increase identified in the 

proposed rule to allow potential 

applicants time to adjust to these 

increases. However, in order to obtain 

technology similar to private sector 

peers more quickly, SBA may consider 

a future rule to accelerate this phased in 

schedule. 

B. Examination Fees 

SBA considered several alternatives to 

the examination fees in this final 

regulation. SBA considered indexing the 

fees in current § 107.692(b) to reflect 

inflation from 1997 to 2017. This 

alternative did not produce sufficient 

fees to offset SBA’s examinations costs. 

In assessing the reasons for this, SBA 

analyzed the SBIC portfolios from both 

periods and determined that the SBIC 

portfolio in 1997 was significantly 

different than today. In 1997, most of 

the SBICs with the highest total assets 

were bank-owned SBICs that did not 

issue SBA guaranteed debentures, and 

therefore required less time and 

resources for SBA to examine. Today, 

most of the highest-asset SBICs have 

significant amounts of SBA leverage. 

Therefore, merely indexing the existing 

fees would not appropriately reflect the 

costs associated with examinations. 

SBA also considered smaller 

examination fee increases that were 

sufficient only to cover current costs 

and did not provide additional money 

needed to address technology upgrades, 


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training, or contractor support. SBA 

rejected this alternative for three 

reasons. First, the OIG indicated the 

need for improved technology and 

training for examiners and suggested 

that SBA increase its fees to cover these 

costs. SBA agrees that such resources 

would improve the examination 

function. Second, SBA believes the 

examination fees in the proposed rule 

are less than fees charged for similar 

activities such as financial audits. SBA 

calculated the median private sector 

financial audit fee paid by SBICs 

examined in FY 2016 to be $53,000; this 

rule would result in an average FY 2021 

Examination Fee for those SBICs of less 

than half of that amount: approximately 

only $24,000. Third, while SBA’s 

outstanding leverage in its operating 

portfolio has more than quadrupled 

from $2.2 billion at the end of 

September 30, 1999 to $10.7 billion as 

of March 31, 2017, the number of 

personnel in SBIC Examinations has 

declined by almost a third. In order to 

continue to monitor the SBIC program at 

the same level as in previous years, SBA 

intends to hire contractors with 

specialized skills to support this 

function. 

SBA also considered a flat 

examination fee applicable to all SBICs 

regardless of the cost of assets they hold. 

SBA believes its examination activities 

are similar to financial auditor or bank 

examiner activities, which typically 

charge fees, based on asset cost, and 

therefore rejected this alternative. SBA 

also received a comment to the 

proposed rule that expressed concerns 

about adverse impact on smaller funds 

if the examination fee were not based on 

assets. 

SBA considered increasing the fees 

more quickly to cover most of its 

estimated costs, but believed that a 

gradual increase over a multi-year 

period would allow SBICs time to 

budget and adjust to the higher fees. As 

stated above, SBA is now concerned 

that the gradual approach will not allow 

SBA to obtain critical resources in a 

timely manner, and is considering 

proposing a new rule to accelerate and 

further increase the fee increase. 

3. Potential Benefits and Costs 

SBA anticipates this final rule may 

benefit taxpayers by covering a larger 

portion of SBIC program administrative 

costs through the collection of an 

additional estimated $5 million to $6 

million per year by October 2020. As 

noted previously, these increased fees 

will (1) improve SBIC program 

technology for both licensing and 

examinations, (2) improve examiner 

training, (3) pay for necessary 

information subscription services, (4) 

provide contractor resources to support 

licensing and examination activities, 

and (5) cover a higher portion of 

existing costs of licensing and 

examination activities. Collections are 

expected to increase annually each year 

beginning in October 2021 based on the 

CPI–U Inflation Adjustment. 

SBICs should also benefit from the 

improved technology SBA expects to 

acquire with the additional funds made 

available as a result of this final rule. 

This final rule will increase licensing 

costs for applicants and examination 

costs for SBICs. Beginning on the 

effective date, the final rule will 

increase licensing costs by $10,000 for 

an applicant applying for Initial Review 

and by $5,000 for an applicant 

submitting a complete license 

application at Final Licensing. The 

Final Licensing fee will increase by 

$5,000 each fiscal year, so by October 

2020, the fee at Final Licensing will 

increase by an additional $15,000 from 

the first increase after the effective date 

of this Final Rule. SBA estimates that by 

October 2020, the average non-leveraged 

examination fee will increase by $7,000 

and the average examination fee for 

leveraged SBICs will increase by 

$18,000 based on FY 2014–2016 

examinations data. Thereafter, SBICs’ 

costs will increase further through the 

annual increases to reflect inflation 

adjustments. 

Executive Order 13563 

A description of the need for this 

regulatory action and benefits and costs 

associated with this action is included 

above in the Regulatory Impact Analysis 

under Executive Order 12866. 

In developing this rule, SBA talked 

with fund of funds managers, auditors, 

and contractors to determine whether 

the fees in this final rule were 

reasonable and, based in part on those 

discussions, SBA believes the fees in 

this final rule are reasonable. In 

reviewing organizational costs for SBIC 

applicants, including legal and other 

professional costs, SBIC applicants often 

incur organizational costs amounting to 

$500,000 or more. The increased 

licensing fee represents a small 

percentage of the total organizational 

costs typically incurred by SBIC 

applicants. SBA also compared Federal 

bank examiner fees and SBIC auditor 

fees (based on the SBIC annual 

Financial Reporting Form 468s 

submitted in 2015) with SBIC 

examination fees in this final rule. SBA 

believes the final licensing and 

examination fees are reasonable in 

comparison to the market. 

The table below provides the capital 

and typical SBIC expenses for the 

average fund size of an SBIC licensed in 

FY 2016. As shown, SBIC licensing and 

examination fees represent a small 

percentage of the SBIC’s total capital 

and its expenses. 

TABLE 7—SBA LICENSING AND EXAMINATION FEES IN COMPARISON TO CAPITAL AND TYPICAL EXPENSES FOR SBIC OF

AVERAGE FUND SIZE LICENSED IN FY 2016 

Description Leveraged 

SBIC 

Non-leveraged 

SBIC 

Total Capital ......................................................................................................................................................... $157,500,000 $73,750,000 

Private Investor Capital ................................................................................................................................ 52,500,000 73,750,000 

SBA-Guaranteed Leverage .......................................................................................................................... 105,000,000 0 

Typical Organizational Costs 

Organizational Costs in FY 2016 ................................................................................................................. 500,000 500,000 

SBA Licensing Fee in FY 2021 .................................................................................................................... 45,000 45,000 

Typical Annual SBIC Operating Expenses 

Management Fee (2%) ................................................................................................................................. 3,150,000 1,475,000 

Other Expenses (Excluding SBA Leverage Interest, Leverage Fees, & Examination Fees) ...................... 500,000 250,000 

SBA Examination Fee in FY 2021 (Assumes asset cost equal to total capital. Non-leveraged SBICs are 

typically only examined every 18 months.) .............................................................................................. 44,000 26,700 


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52184 Federal Register / Vol. 82, No. 217 / Monday, November 13, 2017 / Rules and Regulations 

Executive Order 12988 

This rule meets applicable standards 

set forth in section 3(a) and 3(b)(2) of 

Executive Order 12988, Civil Justice 

Reform, to minimize litigation, 

eliminate ambiguity, and reduce 

burden. The rule will not have 

retroactive or presumptive effect. 

Executive Order 13132 

For the purpose of Executive Order 

13132, SBA has determined that this 

rule will not have substantial, direct 

effects on the States, on the relationship 

between the national government and 

the States, or on the distribution of 

power and responsibilities among the 

various levels of government. Therefore, 

for the purpose of Executive Order 

13132, Federalism, SBA has determined 

that this final rule has no federalism 

implications warranting the preparation 

of a federalism assessment. 

Executive Order 13771 

This rule is not an E.O. 13771 

regulatory action because this rule is not 

significant under E.O. 12866. 

Paperwork Reduction Act, 44 U.S.C. Ch. 

35 

For purposes of the Paperwork 

Reduction Act, 44 U.S.C. Ch. 35, SBA 

has determined that this rule will not 

impose any new reporting or 

recordkeeping requirements. 

Regulatory Flexibility Act, 5 U.S.C. 601– 

612 

The Regulatory Flexibility Act (RFA), 

5 U.S.C. 601, requires administrative 

agencies to consider the effect of their 

actions on small entities, small nonprofit businesses, and small local 

governments. Pursuant to the RFA, 

when an agency issues a final rule, the 

agency must prepare a Final Regulatory 

Flexibility Act (FRFA) analysis, which 

describes whether the impact of the rule 

will have a significant economic impact 

on a substantial number of small 

entities. However, § 605 of the RFA 

allows an agency to certify a rule, in lieu 

of preparing a regulatory flexibility 

analysis, if the rulemaking is not 

expected to have a significant economic 

impact on a substantial number of small 

entities. This final rule will affect all 

applicants that submit applications 

(which averaged 50 per year for FYs 

2014 to 2016), and all operating SBICs 

(316 as of May 22, 2017). SBA estimates 

that approximately 98% of these SBICs 

are small entities. Therefore, this rule 

will have an impact on a substantial 

number of small entities. However, SBA 

has determined that the rule will not 

have a significant economic impact on 

small entities affected by the rule. 

As noted above, the final § 107.300 

will increase licensing costs by $10,000 

for all applicants that submit an 

application for Initial Review after the 

effective date of the rule, and by an 

additional $20,000 by October 1, 2020, 

for all applicants that submit a license 

application for Final Review. The 

combined total increase of $30,000 

represents less than 0.05% of the 

average applicant’s Regulatory Capital 

based on newly licensed SBICs between 

October 1, 2014, and September 30, 

2016. Many applicants have 

organizational costs totaling around 

$500,000, and some have far in excess 

of that amount. The combined FY 2021 

initial and final licensing fee of $45,000 

would represent a small fraction of 

those costs. 

SBA estimates that § 107.692 in this 

final rule will eventually increase the 

average non-leveraged examination fee 

by $7,000, representing less than 0.02% 

of the average non-leveraged SBIC’s 

Regulatory Capital, and the average 

leveraged SBIC examination fee by 

$18,000, representing 0.02% of the 

average total capital under management 

(Regulatory Capital and outstanding 

SBA guaranteed leverage). As a point of 

comparison, most SBIC managers charge 

management fees of approximately 2% 

of capital under management. 

(Management fees, like the examination 

fees, are paid by the SBIC.) For a 

leveraged SBIC with $50 million in 

Regulatory Capital and using 2 tiers of 

leverage charging a 2% management fee, 

the management fee would equal $3 

million a year. If the leveraged SBIC had 

assets at cost of $150 million, and did 

not incur any exam fee additions, the 

exam fee in FY 2021 would amount to 

$44,000, representing less than 0.03% of 

the SBIC’s total capital. The 

examination fee would be a very small 

percentage of the SBIC’s expenses. 

SBA believes that most applicants 

with sufficient private equity experience 

and capital raising ability will not be 

discouraged from applying to the 

program based on the administrative fee 

increases identified in this final rule. 

SBA asserts that the economic impact of 

the rule is minimal. Accordingly, the 

Administrator of the SBA certifies that 

this final rule will not have a significant 

economic impact on a substantial 

number of small entities. 

List of Subjects in 13 CFR Part 107 

Examination fees, Investment 

companies, Loan programs—business, 

Licensing fees, Small businesses. 

For the reasons stated in the 

preamble, SBA amends 13 CFR part 107 

as follows: 

PART 107—SMALL BUSINESS 

INVESTMENT COMPANIES 

■ 1. The authority citation for part 107 

continues to read as follows: 

Authority: 15 U.S.C. 681, 683, 687(c), 

687b, 687d, 687g, 687m. 

■ 2. Amend § 107.50 by adding a 

definition of ‘‘Inflation Adjustment’’ in 

alphabetical order to read as follows: 

§ 107.50 Definition of terms. 

* * * * * 

Inflation Adjustment is the 

methodology used to increase SBIC 

administrative fees using the Consumer 

Price Index for Urban Consumers (CPI– 

U), calculated by the U.S. Bureau of 

Labor and Statistics (BLS), using the 

U.S. city average for all items, not 

seasonally adjusted, with the base 

period of 1982 ¥ 84 = 100. To calculate 

the Inflation Adjustment, each year, 

SBA will divide the CPI–U from the 

most recent June by the CPI–U from 

June of the preceding year. If the result 

is greater than 1, SBA will increase the 

relevant fees as follows: 

(1) Multiply the result by the current 

fee; and 

(2) Round to the nearest $100. 

* * * * * 

■ 3. Revise § 107.300 to read as follows: 

§ 107.300 License application form and 

fee. 

SBA evaluates license applicants in 

two review phases (initial review and 

final licensing), as follows: 

(a) Initial review. Except as provided 

in this paragraph, SBIC applicants must 

submit a MAQ and the Initial Licensing 

Fee. MAQ means the Management 

Assessment Questionnaire in the form 

approved by SBA and available on 

SBA’s Web site at www.sba.gov/sbic. 

Initial Licensing Fee means a nonrefundable fee of $10,000. An applicant 

under Common Control with one or 

more Licensees must submit a written 

request to SBA, and the Initial Licensing 

Fee, to be considered for a license and 

is exempt from the requirement in this 

paragraph to submit a MAQ unless 

otherwise determined by SBA in SBA’s 

discretion. 

(b) Final licensing. (1) An applicant 

may proceed to the final licensing phase 

only if notified in writing by SBA that 

it may do so. Following receipt of such 

notice, in order to proceed to the final 

licensing phase, the applicant must 

submit a complete license application, 

in the form approved by SBA and 

available on SBA’s Web site at 

www.sba.gov/sbic, within the timeframe 

identified by SBA; and the Final 

Licensing Fee. The Final Licensing Fee 


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Federal Register / Vol. 82, No. 217 / Monday, November 13, 2017 / Rules and Regulations 52185 

means a non-refundable fee (determined 

as of the date SBA accepts the 

application) adjusted annually as 

follows: 

Time period Final licensing 

fee 

December 13, 2017 to September 30, 2018 ................................................................................................................................. $20,000 

October 1, 2018 to September 30, 2019 ...................................................................................................................................... 25,000 

October 1, 2019 to September 30, 2020 ...................................................................................................................................... 30,000 

October 1, 2020 to September 30, 2021 ...................................................................................................................................... 35,000 

(2) Beginning on October 1, 2021, 

SBA will annually adjust both the Initial 

Licensing Fee and Final Licensing Fee 

using the Inflation Adjustment and will 

publish a Notice prior to such 

adjustment in the Federal Register 

identifying the amount of the fee. 

■ 4. In § 107.410, revise paragraph (b) to 

read as follows: 

§ 107.410 Changes in Control of Licensee 

(through change in ownership or 

otherwise). 

* * * * * 

(b) Fee. A processing fee equal to the 

combined Licensing Fee (Initial 

Licensing Fee plus the Final Licensing 

Fee then in effect) defined in § 107.300 

must accompany any application for 

approval of one or more transactions or 

events that will result in a transfer of 

Control. 

■ 5. In § 107.692, revise paragraphs (b) 

through (e) to read as follows: 

§ 107.692 Examination fees. 

* * * * * 

(b) Base Fee. (1) The Base Fee will be 

assessed based on your total assets (at 

cost) as of the date of your latest 

certified financial statement, including 

if requested by SBA in connection with 

the examination, a more recently 

submitted interim statement. For 

purposes of this section, Base Fee means 

the Minimum Base Fee plus 0.024% of 

assets at cost, rounded to the nearest 

$100, not to exceed the Maximum Base 

Fee. The Minimum and Maximum Base 

Fees are adjusted annually as follows: 

Time period 

(Based on the examination start date) 

Minimum 

base fee 

Maximum 

base fee for 

non-leveraged 

SBICs 

Maximum 

base fee for 

leveraged 

SBICs 

December 13, 2017 to September 30, 2018 ......................................................................... $6,000 $22,500 $26,000 

October 1, 2018 to September 30, 2019 .............................................................................. 7,000 25,000 32,000 

October 1, 2019 to September 30, 2020 .............................................................................. 8,000 27,500 38,000 

October 1, 2020 to September 30, 2021 .............................................................................. 9,000 30,000 44,000 

(2) In the table in paragraph (b)(1) of 

this section, a Non-leveraged SBIC 

means any SBIC that, as of the date of 

the examination, has no outstanding 

Leverage or Leverage commitment, has 

no Earmarked Assets, and certifies to 

SBA that it will not seek Leverage in the 

future. Beginning on October 1, 2021, 

SBA will annually adjust the Minimum 

Base Fee and Maximum Base Fees using 

the Inflation Adjustment and will 

publish a Notice prior to such 

adjustment in the Federal Register 

identifying the amount of the fees. 

(c) Adjustments to Base Fee. In order 

to determine the amount of your 

examination fee, your Base Fee, as 

determined in paragraph (b) of this 

section, will be increased based on the 

following criteria: 

(1) If you were not fully responsive to 

the letter of notification of examination 

(that is, you did not provide all 

requested documents and information 

within the time period stipulated in the 

notification letter in a complete and 

accurate manner, or you did not prepare 

or did not have available all information 

requested by the examiner for on-site 

review) after a written warning by the 

SBA, you will pay an additional charge 

equal to 15% of your Base Fee; 

(2) If you maintain your records/files 

in multiple locations (as permitted 

under § 107.600(b)), you will pay an 

additional charge equal to 10% of your 

Base Fee; and 

(3) For any regulatory violation that 

remains unresolved 90 days from the 

date SBA notified you that you must 

take corrective action (as established by 

the date of the notification letter) or 

such later date as SBA sets forth in the 

notice, you will pay an additional 

charge equal to 5% of the Base Fee for 

every 30 days or portion thereof that the 

violation remains unresolved after the 

cure period, unless SBA resolves the 

finding in your favor. 

(d) Fee additions table. The following 

table summarizes the additions noted in 

paragraph (c) of this section: 

Examination fee additions Amount of addition ¥ % of base fee 

Non-responsive ................................................... 15%. 

Records/Files at multiple locations ..................... 10%. 

Unresolved Findings ........................................... 5% of Base Fee for every 30 days or portion thereof beyond the 90 day cure period or such 

later date as SBA sets forth in the notice for each unresolved finding. 

(e) Delay fee. If, in the judgment of 

SBA, the time required to complete your 

examination is delayed due to your lack 

of cooperation or the condition of your 

records, SBA may assess an additional 

fee of $700 per day. Beginning on 

October 1, 2021, SBA will annually 

adjust this fee using the Inflation 

Adjustment and will publish a Notice 

prior to such adjustment in the Federal 

Register identifying the amount of the 

fee. 


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52186 Federal Register / Vol. 82, No. 217 / Monday, November 13, 2017 / Rules and Regulations 

Dated: November 6, 2017. 

Linda E. McMahon, 

Administrator. 

[FR Doc. 2017–24535 Filed 11–9–17; 8:45 am] 

BILLING CODE 8025–01–P 

DEPARTMENT OF LABOR 

Veterans’ Employment and Training 

Service 

20 CFR Part 1011 

[Docket No. VETS–2017–0001] 

RIN 1293–AA21 

HIRE Vets Medallion Program 

AGENCY: Veterans’ Employment and 

Training Service (VETS), Labor. 

ACTION: Final rule. 

SUMMARY: VETS published a proposed 

rule implementing the Honoring 

Investments in Recruiting and 

Employing (HIRE) American Military 

Veterans Act of 2017 (HIRE Vets Act or 

Act). The HIRE Vets Act requires the 

Department of Labor (DOL or 

Department) to establish by rule a HIRE 

Vets Medallion Program (Medallion 

Program) and annually solicit and 

accept voluntary information from 

employers for consideration of 

employers to receive a HIRE Vets 

Medallion Award (the award). Under 

the Program, VETS will review 

applications and notify recipients of 

their awards, and announce their names 

at a time that coincides with Veterans 

Day. This final rule sets out the criteria 

for the different categories and levels of 

HIRE Vets Medallion Awards, the award 

application process, and the award fees. 

VETS invited written comments on the 

proposed rule, and any specific issues 

related to the proposal, from members of 

the public. 

DATES: This rule is effective on January 

12, 2018. 

FOR FURTHER INFORMATION CONTACT: 

Randall Smith, Veterans’ Employment 

and Training Service, U.S. Department 

of Labor, Room S–1325, 200 

Constitution Avenue NW., Washington, 

DC 20210, email: HIREVETS@dol.gov, 

telephone: (202) 693–4700 or TTY (877) 

889–5627 (these are not toll-free 

numbers). For press inquiries, contact 

Joe Versen, Office of Public Affairs, U.S. 

Department of Labor, 200 Constitution 

Avenue NW., Room S–1032, 

Washington, DC 20210, email: 

versen.joseph.h@dol.gov, telephone: 

(202) 693–4696 (this is not a toll-free 

number). 

SUPPLEMENTARY INFORMATION: 

Background 

The HIRE Vets Act was enacted on 

May 5, 2017, as Division O of the 

Consolidated Appropriations Act, 2017, 

Public Law 115–31. The purpose of the 

Act is to create a voluntary program for 

recognizing efforts by employers to 

recruit, employ, and retain veterans 

through a HIRE Vets Medallion Award. 

The Act requires the Department to 

issue regulations establishing the HIRE 

Vets Medallion Program. 

In preparation for drafting a rule to 

implement the Act, VETS conducted 

three stakeholder sessions during the 

week of June 5, 2017. During these 

stakeholder sessions, VETS obtained 

input from large, medium, and small 

employers, veterans service 

organizations, military service 

organizations, and other interested 

parties. 

On August 18, 2017, VETS published 

a notice of proposed rulemaking 

(NPRM) to implement the HIRE Vets Act 

(82 FR 39371). VETS invited public 

comment on the proposed regulations, 

and included questions about specific 

issues. The comment period closed on 

September 18, 2017, and VETS has 

considered all timely comments 

received in response to the proposed 

regulations. 

VETS received 18 comments from a 

wide variety of sources. Commenters 

included: Veterans, employers, a 

national organization representing 

service providers, an employer 

association, and members of the public. 

While a few of the comments were 

general comments related to the benefit 

of the program or to veterans issues, the 

majority of comments specifically 

addressed issues contained in VETS’ 

proposed rule. 

Section-by-Section Summary of the 

Final Rule and Discussion of Comments 

This preamble summarizes the final 

rule, section by section, and evaluates 

and responds to the public comments 

received. The subparts of the preamble 

generally follow the subparts of the final 

rule. Within each subpart of the 

preamble, VETS addresses those public 

comments related to regulatory sections 

within that subpart of the rule. If a 

proposed regulatory section is not 

addressed in the discussion below, it is 

because the public comments submitted 

in response to the NPRM did not 

substantively address that specific 

section and no changes have been made 

to the regulatory text. Further, VETS has 

made a number of non-substantive 

changes to improve the readability and 

conform the document stylistically that 

are not discussed in the analysis below. 

Before beginning the section-bysection analysis, however, VETS 

acknowledges and responds to 

comments that did not correspond to 

specific sections of the rule. 

Comments: Several commenters 

expressed general support for the HIRE 

Vets Medallion Program and the 

proposed rule. 

Response: VETS looks forward to 

honoring employers who make it a 

priority to invest in recruiting, 

employing, and retaining veterans. The 

HIRE Vets Medallion Award is based on 

transparent criteria and aims to honor 

all employers, from the smallest to the 

largest, who meet these standards. The 

example set by recipients of this award 

will serve as models for other employers 

committed to hiring and retaining 

veterans. 

Comments: Conversely, several 

commenters expressed skepticism as to 

the utility of the proposed program and 

whether the costs of the proposed 

program outweighed the program’s 

benefits. 

Response: No one is required to apply 

for a HIRE Vets Medallion Award. If the 

costs for an employer exceed the 

benefits, they need not apply. 

Nevertheless, VETS is of the opinion 

that some employers will find that the 

benefits of the award exceed the costs of 

applying. Congress determined that the 

HIRE Vets Medallion Program is a 

constructive way for the Federal 

Government to recognize companies 

that have made significant efforts to hire 

and retain veterans. The HIRE Vets 

Medallion Program will allow VETS to 

further leverage its existing Veteran 

Employment Outreach Program (VEOP) 

that directly supports efforts to assist 

employers in recruiting and employing 

veterans, along with existing 

partnerships with agencies such as the 

Small Business Administration (SBA) 

and State workforce agencies. This 

Program allows VETS to highlight and 

model employer efforts that can assist 

employers nationwide to develop 

veteran employment efforts further. 

Comment: Finally, one commenter 

questioned why the HIRE Vets 

Medallion Program is not administered 

by the U.S. Department of Veterans 

Affairs. 

Response: Under 38 U.S.C. 

4102A(a)(1), the Assistant Secretary of 

Labor for VETS is responsible for all 

DOL employment and training programs 

that to the extent that they affect 

veterans. VETS’ mission is to prepare 

America’s veterans, service members, 

and their spouses for rewarding careers, 

provide them with employment 

resources and expertise, protect their 

employment rights, and promote their 


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