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The original documents are located in Box 4, folder "1974/08/23 S.3331 Small Business
Amendments of the White House Records Office: Legislation Case Files at the Gerald R.
Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Exact duplicates within this folder were not digitized.
Digitized from Box 4 of the White House Records Office Legislation Case Files at the Gerald R. Ford Presidential Library
Hendri
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
Drawn APPROVED WA
WASHINGTON, D.C. 20503
AUG 1 6 1974
MEMORANDUM FOR THE PRESIDENT
Posted
Subject: Enrolled Bill S. 3331 - Small business amendments
8/24
Sponsor - Sen. Cranston (D) California
Jo archuic
Last Day for Action
8/26
August 23, 1974 - Friday
Purpose
Provides increased ceilings and authorities for SBA's loan
programs, requires that SBA make a minimum of $400 million
in direct lcans during fiscal year 1975, clarifies and amends
certain provisions applicable to SBA's loans, transfers cer-
tain authorities from the Economic Opportunity Act to the
Small Business Act, prescribes a new reporting requirement by
SBA and a special GAO audit of SBA, and creates two new posi-
tions within SBA.
Agency Recommendations
Office of Management and Budget
Disapproval (veto message
attached)
Department of the Treasury
Disapproval
Council of Economic Advisers
Disapproval (qualified)
Federal Energy Administration
No objection
Department of Justice
Defers to SBA
Small Business Administration
Approval
Discussion
S. 3331 contains a number of provisions which were requested or
supported by the Administration as necessary to continue SBA's
loan programs. It contains other unrequested provisions which
are not, however, considered undesirable.
GERALS ? LIBRARY 1010
2
One feature of S. 3331 is so objectionable as to warrant, in
our opinion, disapproval of the bill. It would require SBA
to make a minimum of $400 million in direct loans in fiscal
year 1975 -- this would increase 1975 budgeted outlays by
approximately $360 million, in the absence of reprogramming.
The main provisions of the bill are discussed in more detail
below.
Provisions requested or supported by the Administration
(1) Section 2 (a) of the bill would increase from
$4.875 billion to $6 billion the total amount of loans, gua-
rantees, and other obligations and commitments which may be
outstanding at any one time from the business loan and in-
vestment fund established by section 4 (c) of the Small Busi-
ness Act ("the Act"). Presently SBA has no unused authority
within the existing limitation and can make loans only to
the extent of repayment of existing loans.
(2) Section 2 (b) would transfer to the Small Business
Act the authority to render financial assistance to socially
or economically disadvantaged persons now embodied in title
IV of the Economic Opportunity Act.
(3) Section 3 (1) would provide that when SBA is required
to purchase a financial institution's share of a guaranteed
loan, it may continue to charge the borrower up to the rate of
interest that the financial institution charged. At present,
SBA can charge only 5 1/2 percent or the Treasury rate in such
cases; this creates an incentive for a borrower to default on
an SBA guaranteed loan in order to obtain a lower interest rate.
(4) Section 3 (2) would clarify the provision of the Act
relating to the rate of interest applicable to loans under
SBA's handicapped assistance program.
(5) Section 6 would expand SBA's authority to carry out
its lease guarantee and surety bond guarantee programs.
(6) Section 9 would authorize disaster-type loans with
terms of up to 30 years for small business concerns affected
adversely by energy shortages whenever SBA determines that
such firms have suffered or are likely to suffer substantial
economic injury without such assistance.
3
Provisions not opposed by the Administration
(1) Section 4 of the bill would require SBA to submit
annual sealed reports to the House and Senate Banking Com-
mittees concerning (a) complaints alleging illegal conduct
by SBA employees and (b) investigations undertaken by SBA,
including external and internal audits and security and in-
vestigation reports.
(2) Section 5 attempts to clarify section 18 of the
Act, which currently prohibits SBA from duplicating the work
of any other Federal department or agency. SBA's views letter
on the enrolled bill, however, indicates that section 5 actu-
ally is more ambiguous than clarifying and would be very dif-
ficult to administer in cases where an agency other than SBA
denies loan applications.
(3) Sections 7 and 10 would create the position of
Associate Administrator for Minority Small Business and would
require designation of an existing SBA employee as Chief Coun-
sel for Advocacy. The former would be basically responsible
for formulating policy and reviewing the execution of programs
relating to the agency's minority enterprise programs. The
latter would be a focal point for (a) handling small business
complaints, proposals, and issues concerning the relationship
between public and private organizations, (b) counselling
small businesses in these areas, and (c) representing their
views before other Federal agencies.
(4) Section 8 would remove the statutory interest rate
of 5 1/2 percent for SBA's regular direct business loans and
substitute the Treasury rate plus one-fourth of one percent.
Treasury, in its views letter on the enrolled bill, states
that the formula in the bill is technically deficient in
that it would be based on coupon rates and thus bear no di-
rect relationship to the current cost of funds to the Govern-
ment, and would be set only once a year.
(5) Section 11 would require SBA to conduct a study
of the surety bond guarantee program and submit a report to
the Congress within one year after enactment.
(6) Section 13 would direct the GAO to conduct a com-
plete audit of SBA and report to the Congress within six
months from the date of enactment.
4
Provision strongly opposed by the Administration
Section 12 would require SBA to make direct loans under its
regular business loan program in an aggregate amount of at
least $400 million during fiscal year 1975. The 1975 Budget
provides for only $40 million in direct loans for this pro-
gram. Thus, in the absence of reprogramming, the effect of
Section 12 would be to increase 1975 outlays by $360 million.
This requirement is inappropriate and unwarranted and runs
directly counter to the Administration's and the Congress'
efforts to reduce Federal spending. The legislative history
of S. 3331 indicates the Congressional intent that a supple-
mental appropriation be enacted in order for Section 12 to
take effect. However, the provision would invite litigation
which could conceivably result in a court ruling that Section
12 requires reprogramming in the absence of additional appro-
priat ons.
The success of SBA's loan guarantee program makes direct loans
in addition to the budgeted level unnecessary and inappropri-
ate. Expansion of the direct loan level would impair SBA's
excellent relations with the private banking sector. A sub-
stantial increase in staff would be required to administer an
expanded program.
If the increased outlays under Section 12 were to be offset
by reprogramming within SBA, the guaranteed loan and the
minority business assistance programs would have to be mostly
eliminated, in addition to other program reductions. Even
with such a reprogramming, 1975 outlays would be increased by
about $180 million.
Arguments for approval
-- An increase of SBA's loan ceiling is essential to
carry out the budgeted loan programs.
-- S. 3331 incorporates, in identical or similar form,
all other small business legislation which has
been requested by the Administration during the
93rd Congress.
5
-- The Administration could subsequently seek to
have a provision added to the pending SBA
appropriation bill which would have the effect
of cancelling out the $400 million direct loan
requirement of S. 3331. In its views letter on
the enrolled bill, SBA indicates that it has
received informal indications from its Appro-
priations Subcommittees "that a $400 million
appropriation will not be forthcoming."
Arguments for disapproval
-- The bill would result in inappropriate and un-
necessary Federal outlays, thus undermining both
Congressional and Executive efforts to fight
inflation through reduced spending. Moreover,
the desired level of assistance can largely be
achieved through the loan guarantee program which
produces minimal outlays.
-- An amendment to the SBA's appropriations bill
cancelling the direct loan provision might well
not survive. The House Banking Committee clearly
indicated in its report accompanying the bill its
intention that SBA immediately seek a supple-
mental appropriation for the expanded direct loan
program if necessary to achieve the mandated
lending level.
-- A veto of this bill would, we believe, be
sustained. (The bill was approved by a voice
vote in both Houses.)
-- Congress can promptly enact a new bill omitting
the objectionable direct loan provision.
SBA recommends approval of S. 3331 because of the desirable
authorities provided by the bill including the needed in-
creased revolving fund ceilings. SBA believes that the
effect of the expanded direct loan provision is mitigated
by the need for supplemental appropriations which may not
be forthcoming.
6
In its views letter on the enrolled bill, CEA states:
"There is one provision, however, which appears to
be contrary to two pressing Administration concerns --
reducing inflation and increasing productivity. Sec-
tion 12 of the bill would require the SBA to make an
aggregate of no less than $400 million worth of direct
loans in FY 1975
"We believe that the SBA rather than Congress is a
better judge of the minimum amount of loans that
should be issued in FY 1975. The mandated minimum
is an important provision that may be contrary to
achieving other objectives. If there is a high
probability of SBA direct loans falling below $400
million in FY 1975 under the same standards as have
prevailed in the last few years, then we recommend
that S. 3331 should be vetoed by the President."
The Office of Management and Budget and Treasury recommend that
the bill be disapproved because the direct loan provision is
greatly excessive and unwarranted in the light of efforts to
reduce Federal expenditures.
We have prepared the attached draft of a veto message for
your consideration.
Director
Enclosures
SERALD LISEARY FORD
TO THE SENATE
I am returning today without my approval S. 3331, the
"Small Business Amendments of 1974.' "
Many of the provisions of this bill are essential to the
on-going programs of the Small Business Administration or are
desirable amendments to existing law. For example, the bill
raises ceilings on the SBA's loan programs as requested by the
Administration.
I would approve the bill except for one unacceptable pro-
vision which is completely incompatible with our joint fight
against inflation. That provision would require SBA to make
direct loans under its regular business loan program in an
aggregate amount of at least $400 million during fiscal year
1975. The House Banking and Currency Committee report states
its expectation that the SBA will request the necessary supple-
mental appropriations to achieve this level.
The 1975 Budget provides $40 million for this direct loan
program. Thus, in the absence of reprogramming, the effect
S. 3331 seeks to achieve would be to increase Federal budget
outlays by $360 million this year. Even if SBA's successful
guaranteed loan and minority business assistance programs were
virtually eliminated in order to mitigate this budget add-on,
1975 outlays would still have to be increased by about $180
million.
Outlays of the magnitude this bill seeks to mandate are
prohibitive at a time when both the Congress and the Administra-
tion are committed to the American taxpayers to fight inflation
through reduced Federal spending. The 1975 Budget level of
$40 million for direct loan outlays, combined with the
2
continuing success of SBA's loan guarantee program, should
ensure an adequate level of assistance for small businessmen.
I urge the Congress to reenact immediately legislation
which incorporates the needed and desirable authorities of
the bill but which eliminates the direct loan provision.
This is the responsible course of action which I believe
that Congress will, on further reflection, adopt as part of
our vital fight against inflation.
THE WHITE HOUSE
August
1974
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
AUG 16 1974
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 3331 - Small business amendments
Sponsor - Sen. Cranston (D) California
Last Day for Action
August 23, 1974 - Friday
Purpose
Provides increased ceilings and authorities for SBA's loan
programs, requires that SBA make a minimum of $400 million
in direct loans during fiscal year 1975, clarifies and amends
certain provisions applicable to SBA's loans, transfers cer-
tain authorities from the Economic Opportunity Act to the
Small Business Act, prescribes a new reporting requirement by
SBA and a special GAO audit of SBA, and creates two new posi-
tions within SBA.
Agency Recommendations
Office of Management and Budget
Disapproval (veto message
attached)
Department of the Treasury
Disapproval
Council of Economic Advisers
Disapproval (qualified)
Federal Energy Administration
No objection
Department of Justice
Defers to SBA
Small Business Administration
Approval
Discussion
S. 3331 contains a number of provisions which were requested or
supported by the Administration as necessary to continue SBA's
loan programs. It contains other unrequested provisions which
are not, however, considered undesirable.
BERRED FORD LIBRARY
2
One feature of S. 3331 is so objectionable as to warrant, in
our opinion, disapproval of the bill. It would require SBA
to make a minimum of $400 million in direct loans in fiscal
year 1975 -- this would increase 1975 budgeted outlays by
approximately $360 million, in the absence of reprogramming.
The main provisions of the bill are discussed in more detail
below.
Provisions requested or supported by the Administration
(1) Section 2 (a) of the bill would increase from
$4.875 billion to $6 billion the total amount of loans, gua-
rantees, and other obligations and commitments which may be
outstanding at any one time from the business loan and in-
vestment fund established by section 4 (c) of the Small Busi-
ness Act ("the Act"). Presently SBA has no unused authority
within the existing limitation and can make loans only to
the extent of repayment of existing loans.
(2) Section 2(b) would transfer to the Small Business
Act the authority to render financial assistance to socially
or economically disadvantaged persons now embodied in title
IV of the Economic Opportunity Act.
(3) Section 3(1) would provide that when SBA is required
to purchase a financial institution's share of a guaranteed
loan, it may continue to charge the borrower up to the rate of
interest that the financial institution charged. At present,
SBA can charge only 5 1/2 percent or the Treasury rate in such
cases; this creates an incentive for a borrower to default on
an SBA guaranteed loan in order to obtain a lower interest rate.
(4) Section 3(2) would clarify the provision of the Act
relating to the rate of interest applicable to loans under
SBA's handicapped assistance program.
(5) Section 6 would expand SBA's authority to carry out
its lease guarantee and surety bond guarantee programs.
(6) Section 9 would authorize disaster-type loans with
terms of up to 30 years for small business concerns affected
adversely by energy shortages whenever SBA determines that
such firms have suffered or are likely to suffer substantial
economic injury without such assistance.
3
Provisions not opposed by the Administration
(1) Section 4 of the bill would require SBA to submit
annual sealed reports to the House and Senate Banking Com-
mittees concerning (a) complaints alleging illegal conduct
by SBA employees and (b) investigations undertaken by SBA,
including external and internal audits and security and in-
vestigation reports.
(2) Section 5 attempts to clarify section 18 of the
Act, which currently prohibits SBA from duplicating the work
of any other Federal department or agency. SBA's views letter
on the enrolled bill, however, indicates that section 5 actu-
ally is more ambiguous than clarifying and would be very dif-
ficult to administer in cases where an agency other than SBA
denies loan applications.
(3) Sections 7 and 10 would create the position of
Associate Administrator for Minority Small Business and would
require designation of an existing SBA employee as Chief Coun-
sel for Advocacy. The former would be basically responsible
for formulating policy and reviewing the execution of programs
relating to the agency's minority enterprise programs. The
latter would be a focal point for (a) handling small business
complaints, proposals, and issues concerning the relationship
between public and private organizations, (b) counselling
small businesses in these areas, and (c) representing their
views before other Federal agencies.
(4) Section 8 would remove the statutory interest rate
of 5 1/2 percent for SBA's regular direct business loans and
substitute the Treasury rate plus one-fourth of one percent.
Treasury, in its views letter on the enrolled bill, states
that the formula in the bill is technically deficient in
that it would be based on coupon rates and thus bear no di-
rect relationship to the current cost of funds to the Govern-
ment, and would be set only once a year.
(5) Section 11 would require SBA to conduct a study
of the surety bond guarantee program and submit a report to
the Congress within one year after enactment.
(6) Section 13 would direct the GAO to conduct a com-
plete audit of SBA and report to the Congress within six
months from the date of enactment.
4
Provision strongly opposed by the Administration
Section 12 would require SBA to make direct loans under its
regular business loan program in an aggregate amount of at
least $400 million during fiscal year 1975. The 1975 Budget
provides for only $40 million in direct loans for this pro-
gram. Thus, in the absence of reprogramming, the effect of
Section 12 would be to increase 1975 outlays by $360 million.
This requirement is inappropriate and unwarranted and runs
directly counter to the Administration's and the Congress'
efforts to reduce Federal spending. The legislative history
of S. 3331 indicates the Congressional intent that a supple-
mental appropriation be enacted in order for Section 12 to
take effect. However, the provision would invite litigation
which could conceivably result in a court ruling that Section
12 requires reprogramming in the absence of additional appro-
priations.
The success of SBA's loan guarantee program makes direct loans
in addition to the budgeted level unnecessary and inappropri-
ate. Expansion of the direct loan level would impair SBA's
excellent relations with the private banking sector. A sub-
stantial increase in staff would be required to administer an
expanded program.
If the increased outlays under Section 12 were to be offset
by reprogramming within SBA, the guaranteed loan and the
minority business assistance programs would have to be mostly
eliminated, in addition to other program reductions. Even
with such a reprogramming, 1975 outlays would be increased by
about $180 million.
Arguments for approval
-- An increase of SBA's loan ceiling is essential to
carry out the budgeted loan programs.
-- S. 3331 incorporates, in identical or similar form,
all other small business legislation which has
been requested by the Administration during the
93rd Congress.
FORD & SERVIC LIBRARY
5
-- The Administration could subsequently seek to
have a provision added to the pending SBA
appropriation bill which would have the effect
of cancelling out the $400 million direct loan
requirement of S. 3331. In its views letter on
the enrolled bill, SBA indicates that it has
received informal indications from its Appro-
priations Subcommittees "that a $400 million
appropriation will not be forthcoming."
Arguments for disapproval
-- The bill would result in inappropriate and un-
necessary Federal outlays, thus undermining both
Congressional and Executive efforts to fight
inflation through reduced spending. Moreover,
the desired level of assistance can largely be
achieved through the loan guarantee program which
produces minimal outlays.
-- An amendment to the SBA's appropriations bill
cancelling the direct loan provision might well
not survive. The House Banking Committee clearly
indicated in its report accompanying the bill its
intention that SBA immediately seek a supple-
mental appropriation for the expanded direct loan
program if necessary to achieve the mandated
lending level.
--- A veto of this bill would, we believe, be
sustained. (The bill was approved by a voice
vote in both Houses.)
-- Congress can promptly enact a new bill omitting
the objectionable direct loan provision.
SBA recommends approval of S. 3331 because of the desirable
authorities provided by the bill including the needed in-
creased revolving fund ceilings. SBA believes that the
effect of the expanded direct loan provision is mitigated
by the need for supplemental appropriations which may not
be forthcoming.
6
In its views letter on the enrolled bill, CEA states:
"There is one provision, however, which appears to
be contrary to two pressing Administration concerns --
reducing inflation and increasing productivity. Sec-
tion 12 of the bill would require the SBA to make an
aggregate of no less than $400 million worth of direct
loans in FY 1975
"We believe that the SBA rather than Congress is a
better judge of the minimum amount of loans that
should be issued in FY 1975. The mandated minimum
is an important provision that may be contrary to
achieving other objectives. If there is a high
probability of SBA direct loans falling below $400
million in FY 1975 under the same standards as have
prevailed in the last few years, then we recommend
that S. 3331 should be vetoed by the President."
The Office of Management and Budget and Treasury recommend that
the bill be disapproved because the direct loan provision is
greatly excessive and unwarranted in the light of efforts to
reduce Federal expenditures.
We have prepared the attached draft of a veto message for
your consideration.
Director
Enclosures
THE PRESIDENT HAS SEEN
ACTION
THE WHITE HOUSE
WASHINGTON
August 23, 1974
MEMORANDUM FOR
THE PRESIDENT
FROM:
KEN COLE
SUBJECT:
Enrolled Bill S. 3331 - Small
Business Amendments
Last day for action - August 23, 1974 - Friday
BACKGROUND
This bill would increase from $4.875 billion to $6 billion
the total amount of loans, guarantees and other obligations,
which SBA could lend at any one time. Presently SBA has
no unused authority within the existing limitation and can
make loans only to the extent of the repayment of existing
loans. The bill would also furnish other beneficial pro-
visions like disaster-type loans for small businesses affected
adversely by energy sources and continue the authority for SBA
to carry out its lease guarantee and surety bond guarantee
programs.
The bill, however, contains the unfavorable provision that
would require SBA to make direct loans of at least $400 million
in FY 75, a figure more than SBA's total program budget and ten
times the amount budgeted for direct loans in FY 75. OMB opposes
the bill because it feels this provision is inflationary and
budget busting. OMB also maintains that the legislative history
of the bill indicates Congressional intent for a supplemental
appropriation to effect this and even if no supplemental were
forthcoming, the provision might invite litigation which might
mean a court ruling calling for SBA reprogramming to meet the
$400 million figure.
FORD : 03 LIBRARY
- 2 -
SBA also opposes the additional direct loan funds but maintains
that a veto of the bill would kill any meaningful new loans
until a clean bill comes out of Congress. It further claims
that it would be difficult to obtain a new bill without
additional direct loan authority and that the threat of liti-
gation is unlikely because this is not an appropriation bill.
SBA proposes that you sign the bill with a statement that you
will not request a supplemental appropriation to obtain the
$400 million for direct loans. Bill Timmons indicates that
from some quick Hill checks his office found the Appropriations
people not disposed to supporting a supplemental for this pro-
gram even if requested by the President (Tab).
In the light of recent conversations with key figures on the
Senate and House Appropriation Committees, Tom Kleppe, Adminis-
trator of SBA, feels that the latter course of action would be
a more effective tactic for eliminating the direct loan addition
than a veto and request for a clean bill, particularly because
Congress was not given a clear veto signal on this bill by SBA.
SBA's Senate Appropriation Committee recently set the direct
loan figure at $40 million.
RECOMMENDATIONS
Veto
Treasury
Council of Economic Advisors
OMB (Ash) - because of budgetary implications
Sign
SBA
Ken Cole
Phil Buchen previous legal objection satisfied and now defers
to Timmons
Bill Timmons with statement that you disapprove of this
mandated provision and will not request $400
million in supplemental appropriations
DECISION
APPROVE
DISAPPROVE
THE PRESIDENT HAS SEEN
day
THE WHITE HOUSE
WASHINGTON
August 23, 1974
MEMORANDUM FOR THE PRESIDENT
FROM:
William E. Timmons
B.
SUBJECT:
SBA Legislation
Walking back from the Housing bill signing yesterday you
asked me about subject legislation.
Tom Kleppe recommends you sign into law S. 3331, the
Small Business Amendments. He recognizes that the
requirement for SBA to make direct loans of $400 million
this fiscal year is unwarranted and excessive. However,
he argues that:
-- Congressmen knew this authorization would never be
funded at that level and voted for the measure as a
political tool in their re-election campaigns.
-- He has personally talked to George Mahon, A1 Cederberg,
John Slack, Bill Stanton, John Pastore and others involved
who told Kleppe to "forget it", that there is no inclination
to appropriate more than the budgeted $40 million in direct
loans.
-- The SBA Administrator advises me that the mandating
language only requires Tom to request $400 million of
OMB but that you have no obligation to submit it to the
Congress. He expects you will not.
My office did some quick Hill checks and indeed found appropria-
tions people not disposed to supporting a supplemental for this
program even if you request it. Hugh Scott and John Rhodes
urge you to sign the bill, as do Bill Simon, Burt Talcott and
others.
-2-
You should know, however, that there would be a problem
if Congress - on its own - added monies to some supple-
mental and the bill were signed. SBA would have to spend
it all this fiscal year.
It should be pointed out that all congressional votes on this
measure were by voice and our veto strength is probably
not good. Also, we did not signal a veto during the legislative
process so Members have no reason to expect a veto. The
Black Caucus raised this at your meeting. There is a legal
question now involved since it is unclear whether or not you
would veto or pocket veto during this recess in light of
recent court cases.
NOTE: If you decide to sign the bill you may wish to call
Rep. Charles Rangel (D-NY) to tell him you could go either
way and ask the Black Caucus position. He will urge signing
and when you sign it will demonstrate your interest in the
Black Members of Congress. You might also elect to call
Tom Kleppe if you decide to sign.
RECOMMENDATION:
That you sign S. 3331 and in your statement say that you
disapprove of this mandated provision and will not request
$400, 000, 000 in supplemental appropriations.
APPROVE RECOMMENDATION
DISAPPROVE RECOMMENDATION
.
rously
OF
DEPARTMENT THE THE TREASURY
THE GENERAL COUNSEL OF THE TREASURY
WASHINGTON, D.C. 20220
1789
AUG 1 3 1974
Director, Office of Management and Budget
Executive Office of the President
Washington, D.C. 20503
Attention: Assistant Director for Legislative
Reference
Sir:
Reference is made to your request for the views of this
Department on the enrolled enactment of S. 3331, "Small Business
Amendments of 1974."
The enrolled enactment would change the interest formula
used to determine the interest rate on Small Business Administration
(SBA) loans to small businesses. The present formula sets
fixed minimum and maximum rates. The enrolled enactment makes
the rate equal to the average annual interest rate on all interest
bearing obligations of the United States as computed at the end
of the fiscal year preceding the date of the loan, plus one-quarter
of one percent.
The new formula, which according to the legislative history
is "based upon the cost of money to the Government as determined
by available yields of Government securities," is technically
deficient. The proposed interest formula is based on coupon rates
and, thus, bears little if any relation to the current cost of
funds to the Government. The Treasury recommended formula, which
is contained in OMB Circular A-70, uses current market yields on
outstanding obligations of the United States of comparable maturity
as the best measure of the current Government financing cost.
Further, the rate would also be set only once a year. This defect
appears also in the sections in the act creating the guarantee
funds, where the formula otherwise is appropriate; i.e., a rate
determined by the Secretary of the Treasury taking into consideration
the current average market yield on outstanding marketable obligations
of comparable maturity.
FORD
-2-
Section 12 of the enrolled enactment provides that in fiscal
year 1975 the SBA Administrator "shall" make direct loans "in an
aggregate amount of not less than $400,000,000." Such require-
ment to make budget outlays is contrary to effective budget
policy and is inconsistent with current Administration efforts
to control the budget.
In view of the foregoing, the Department would concur in
a recommendation that the enrolled enactment not be approved by
the President.
Sincerely yours,
General Counsel
THE CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
August 14, 1974
Dear Mr. Rommel:
This is in response to your request for our views on
S. 3331, a bill to clarify and increase the authority of the
Small Business Administration.
We recognize that we live in an imperfect world in which
some small enterprises which will eventually produce market-
able goods and services at a profit may have difficulty borrowing
funds from conventional commercial lenders, at legal rates of
interest, if these loans are not guaranteed by some public agency.
We also recognize that there is widespread public interest in
promoting small enterprises. The result has been the develop-
ment of the Small Business Administration loan program. We,
therefore, support the current bill's expanding the ceilings of the
SBA revolving funds and the other provisions that will make the
SBA more responsive to the concerns of Congress, the public
and small business.
There is one provision, however, which appears to be
contrary to two pressing Administration concerns -- reducing
inflation and increasing productivity. Section 12 of the bill would
require the SBA to make an aggregate of no less than $400 million
worth of direct loans in FY 1975.' Suppose, however, the SBA
determines, with due regard for current standards for promoting
small business, it would issue less than $400 million in loans in
FY 1975. Section 12 would then require the SBA to make loans to
firms it deems not worthy of such public support. These are
firms that the SBA views as not likely to become efficient. The
expenditure of resources by inefficient firms increases aggregate
demand and inflation, and decreases productivity. Such a policy
would intensify, rather than mitigate, our current difficulties.
REVOLUTION
BICENTENNIAL
FORD :
AMERICAN
1776-1976
- 2 -
We believe that the SBA rather than Congress is a
better judge of the minimum amount of loans that should be
issued in FY 1975. The mandated minimum is an important
provision that may be contrary to achieving other objectives.
If there is a high probability of SBA direct loans falling below
$400 million in FY 1975 under the same standards as have
prevailed in the last few years, then we recommend that
S. 3331 should be vetoed by the President.
Sincerely,
Habel Stem
Herbert Stein
Mr. Wilfred H. Rommel
Assistant Director for Legislative Reference
Office of Management and Budget
Washington, D. C. 20503
FEDERAL ENERGY ADMINISTRATION
WASHINGTON, D.C. 20461
August 15, 1974
MEMORANDUM FOR: Wilfred H. Rommel
Assistant Director for
Legislative Reference
Office of Management and Budget
ATTN:
Jay P. Brenneman
FROM:
Eric J. Fygi
Assistant General Counsel for
General Law, Legislation
and Resource Development
SUBJECT:
Enrolled Bill, S. 3331, "To clarify the
authority of the Small Business Adminis-
tration, to increase the authority of the
Small Business Administration, and for
other purposes."
This is in response to your request for the views of the
Federal Energy Administration on section 9 of the subject
enrolled bill, which section would authorize the Small
Business Administration to make loans to small business
concerns adversely affected by energy shortages.
Section 9 (a) of the enrolled bill would add a new sub-
paragraph (8) to section 7 (b) of the Small Business Adminis-
tration Act which would authorize the SBA to make loans
directly or through participation agreements in order to
assist or refinance small business concerns "seriously
and adversely" affected by fuel or other energy shortages,
or shortages of raw or processed materials resulting from
such energy shortages, if the SBA determines that such
small business have or will suffer "substantial economical
injury" without such assistance.
- 2 -
Though the Federal Energy Administration is sensitive to the
impact which energy shortages may have upon small business
concerns, we believe generally that the Administration's
policy should avoid creation of economical disincentives for
energy conservation. Small business concerns most acutely
affected by energy shortages often would be the highest
proportional users of energy, and we believe it appropriate
and necessary that such small business concerns, like
businesses generally, should be encouraged to develop sound
energy conservation practices and, where appropriate, to
utilize alternative, more abundant, energy sources.
Accordingly, we believe that administration of any loan
program such as that which would be authorized by section 9
of the enrolled bill should be premised upon including sound
energy conservation programs by small business concerns
affected in the process whereby the assistance is provided.
If this bill is approved by the President, we believe it
would be appropriate for any signing statement to include
a reference to this approach as a fundamental constituent
of the loan program that would be established.
Subject to these comments, we have no objection to approval
of the enrolled bill.
ASSISTANT ATTORNEY GENERAL
LEGISLATIVE AFFAIRS
Department of Justice
Washington, D.C. 20530
AUG 14 1974
Honorable Roy L. Ash
Director, Office of
Management and Budget
Washington, D. C. 20503
Dear Mr. Ash:
In compliance with your request, I have examined a
facsimile of the enrolled bill S. 3331, "To clarify the author-
ity of the Small Business Administration, and for other purposes.' "
S. 3331 would authorize the SBA, upon purchase of a
deferred participation, to charge a rate of interest not
exceeding that initially charged, except that the Administration
would not charge more than 3 percent on its share of loans to
the handicapped. The bill also purports to enable the Adminis-
trator to investigate with subpoena power (I.C.C. V. Brimson, 154
U.S. 447) and creates a Chief Counsel for Advocacy.
The substantive provisions of S. 3331 involve policy
considerations, as to which the Department of Justice makes no
recommendations.
The assignment of functions to the Chief Counsel for
Advocacy in Section 10 of the bill might be viewed as rigidly
confining the Administrator in dealing with functions specifically
assigned to the Chief Counsel for Advocacy; they might create an
independent unresponsive authority with powers encroaching on the
powers of the Administrator by conferring status incompatible
with direction and control by the Administrator on the discretion
delegated to him by statute, as in relation to dealings with
other agencies and even in other areas of more direct and
immediate concern to SBA and its Administrator.
Nevertheless, the Department of Justice defers to the
Small Business Administration as to whether this bill should
receive Executive approval.
W. Vincent Rakestraw
Assistant Attorney General
SMALL
BUSINESS
U.S. SMALL BUSINESS ADMINISTRATION
ATONT
WASHINGTON, D.C. 20416
1953
OFFICE OF THE ADMINISTRATOR
AUG 9 1974
Mr. Wilfred H. Rommel
Assistant Director for
Legislative Reference
Office of Management and Budget
Washington, D. C. 20503
Dear Mr. Rommel:
This is in response to your request of August 9, 1974, for the views
of the Small Business Administration with respect to S. 3331, an
enrolled bill, "The Small Business Amendments of 1974. "
Earlier this year, SBA submitted to the Congress its own proposed
amendments to the Small Business Act and the Small Business
Investment Company Act of 1958. These amendments would have
increased the revolving fund ceilings in section 4(c) of the Small
Business Act, transferred our EOL and 406 programs from the
Economic Opportunity Act to the Small Business Act, permitted
SBA to charge the same rate of interest as the participating lender
where SBA is required to repurchase a loan in default, clarified the
interest rate applicable to handicapped assistance loans and in-
creased the amount of capital authorized by the Small Business
Investment Company Act for our lease guarantee and surety bond
guarantee programs. In addition, we participated in the drafting
of an amendment to the Small Business Act which authorizes SBA
to provide appropriate assistance to small concerns seriously and
adversely affected by energy and materials shortages. All these
proposals are contained in the enrolled bill.
However, S. 3331, as enacted, goes beyond our proposals and pro-
vides some authorities not sought by the Administration. Of
those provisions of the bill which we did not recommend, we have
no objection to any, except sections 5 and 12.
Section 11 had previously been of some concern. This section amends
section 411(c) of the Small Business Investment Company Act of 1958
to require SBA to administer the surety bond guarantee program on
"a prudent and economically justifiable basis and to conduct a study
of this program which is to be transmitted to the Congress within
one year after enactment of the bill. The initial House Banking and
Currency Committee version of this amendment would have required
the fees charged by SBA for this program to be based on "sound
actuarial methods and underwriting practices" -- in effect, a require-
ment that the program be self-sustaining.
Page 2
This initial draft of the amendment might have required SBA to raise
these fees to such an extent that the surety bond guarantee program
could have ceased functioning, since small, and particularly minority,
contractors would have been unable to afford such increased fees.
However, the new language and the remarks made on the Senate floor
during consideration of the House version of this bill make clear that
the only requirement is that the total benefits of this program to the
Nation should equal its costs. We, therefore, have no objection to
this provision.
Section 5 of S. 3331 amends section 18 of the Small Business Act,
which currently prohibits SBA from duplicating the work of any other
Federal department or agency. Section 5 provides that no duplica-
tion shall be deemed to exist where the other government agency is
denying loan applications because of "administrative withholding from
obligation or withholding from apportionment, or [an] administratively
declared moratorium. II This provision is extremely ambiguous and
will therefore be very difficult to administer. It is unclear, from
both the language of the provision and the accompanying legislative
history, whether this amendment applies, for example, if only
minor amounts are withheld or if a moratorium is in effect for only
a short period of time. There is further ambituity as to how "with-
holding" and "moratorium" should be defined.
Section 12 of S. 3331 authorizes SBA to make $400, 000, 000 in direct
section 7(a) loans during Fiscal Year 1975. While this provision
would appear to have serious budgetary implications, it should be
remembered that this language merely authorizes, and does not
appropriate, funds for this purpose. In addition, it is clear from
both the House Committee report and the House floor debate that
the Congress expects the submission of a supplemental appropriation
request for these funds and does not expect SBA to use funds appro-
priated for other programs for this purpose. We would admit that
an appropriation of $400 million for direct loans might have serious
budgetary ramifications and might impair SBA's currently excellent
relations with the private banking sector. However, informal indi-
cations from our Appropriations Subcommittees are that a $400 million
appropriation will not be forthcoming.
It should also be noted that there was no indication by the Adminis-
tration to the Congress that inclusion of this provision in the enrolled
bill might result in the President's disapproval of this measure.
While this fact, by itself, might not now preclude a veto, it should
certainly be weighed in arriving at a decision. In addition, it could
be argued that the President's approval of this bill, including the
$400 million authorization, might later foreclose disapproval of any
appropriation pursuant to it. However, that problem could be resolved
Page 3
by issuing a short statement when the bill is approved, indicating
that any subsequent appropriation might be disapproved. Such a
statement could cite the fiscal irresponsibility of such an appropriation,
the substantial additional staff that would be required to administer
it and the potential adverse effect on SBA's relations with the Nation's
banking community.
Finally, there is one other factor to be considered in our recommen-
dation to the President. Our section 4(c) revolving fund ceiling and
three other subceilings are subject to the provision in P. L. 93-237
which prohibits SBA from incurring any additional obligations after
June 30, 1974. We are thus currently limited in almost all of our
programs to incurring obligations only out of repayments and
cancellations, which limits our loan-making capability to approxi-
mately 60% of normal. The failure to increase these ceilings,
as is provided in S. 3331, will result in our continued inability to
provide the Nation's small businesses with a vitally needed source of
capital and other assistance. In addition, our excellent relations
with the private sector, which we have worked so hard to cultivate
and which are so vital to our success, might be seriously impaired.
Therefore, based on all these considerations, I strongly recommend
that the President approve S. 3331.
Thomas Sincerely, S. Heppe
Thomas S. Kleppe
Administrator
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 520
Date: August 19, 1974
Time:
9:30 a.m.
its
FOR ACTION: Geoff Shepard
cc (for information): Warren K. Hendriks
hand Bushardt Phil Buchen comments
Jerry Jones
Bill Timmons
Dave Gergen
FROM THE STAFF SECRETARY
DUE: Date:
Tuesday, August 20, 1974
Time:
2:00 p.m.
SUBJECT:
Enrolled Bill S. 3331 - Small Business Amendments
ACTION REQUESTED:
For Necessary Action
XX For Your Recommendations
Prepare Agenda and Brief
Draft Reply
For Your Comments
Draft Remarks
REMARKS:
Please return to Kathy Tindke
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINCTON
LOG NO.: 520
Date: August 19, 1974
Time:
9:30 a.m.
FOR ACTION: Geoff Shepard
cc (for information): Warren K. Hendriks
Phil Buchen
Jerry Jones
Bill Timmons
Dave Gergen
FROM THE STAFF SECRETARY
DUE: Date:
Tuesday, August 20, 1974
Time:
2:00 p.m.
SUBJECT:
Enrolled Bill S. 3331 - Small Business Amendments
ACTION REQUESTED:
For Necessary Action
XX For Your Recommendations
Prépare Agenda and Drief
Draft Reply
For Your Comments
Draft Remarks
REMARKS:
Please return to Kathy Tindle
8/21
No objection to nets for reasons stated.
Lo aligit to SB A suggestion That President
sign and not send up an appropriation bill for
mandatory 400 million in loans because it
The could imply overtines 9 important Phil B ucher contacted personally and
D. chapman
is 07 This
view.
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
LIBRARY GERALD ? 1080
If you have any questions or if you anticipate a
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE
ACTION MEMORANDUM
WASHINGTON
LOG NO.: 520
Date:
August 19, 1974
Time:
9:30 a.m.
FOR ACTION: Geoff Shepard
CC (for information): Warren K. Hendriks
Fred Buzhardt
Jerry Jones
Bill Timmons
Dave Gergen
FROM THE STAFF SECRETARY
DUE: Date:
Tuesday, August 20, 1974
Time:
2:00 p.m.
SUBJECT:
Enrolled Bill S. 3331 - Small Business Amendments
ACTION REQUESTED:
For Necessary Action
XX For Your Recommendations
Prepare Agenda and Brief
Draft Reply
For Your Comments
Draft Remarks
REMARKS:
Please return to Kathy Tindle
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
K. R. COLE, JR.
telephone the Staff Secretary immediately.
For the President
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
AUG 1 6 1974
MEMORANDUM FOR THE PRESIDENT
Subject: Enrolled Bill S. 3331 - Small business amendments
Sponsor - Sen. Cranston (D) California
Last Day for Action
August 23, 1974 - Friday
Purpose
Provides increased ceilings and authorities for SBA's loan
programs, requires that SBA make a minimum of $400 million
in direct loans during fiscal year 1975, clarifies and amends
certain provisions applicable to SBA's loans, transfers cer-
tain authorities from the Economic Opportunity Act to the
Small Business Act, prescribes a new reporting requirement by
SBA and a special GAO audit of SBA, and creates two new posi-
tions within SBA.
Agency Recommendations
Office of Management and Budget
Disapproval (veto message
attached)
Department of the Treasury
Disapproval
Council of Economic Advisers
Disapproval (qualified)
Federal Energy Administration
No objection
Department of Justice
Defers to SBA
Small Business Administration
Approval
Discussion
S. 3331 contains a number of provisions which were requested or
supported by the Administration as necessary to continue SBA's
loan programs. It contains other unrequested provisions which
are not, however, considered undesirable.
2
One feature of S. 3331 is so objectionable as to warrant, in
our opinion, disapproval of the bill. It would require SBA
to make a minimum of $400 million in direct loans in fiscal
year 1975 -- this would increase 1975 budgeted outlays by
approximately $360 million, in the absence of reprogramming.
The main provisions of the bill are discussed in more detail
below.
Provisions requested or supported by the Administration
(1) Section 2 (a) of the bill would increase from
$4.875 billion to $6 billion the total amount of loans, gua-
rantees, and other obligations and commitments which may be
outstanding at any one time from the business loan and in-
vestment fund established by section 4 (c) of the Small Busi-
ness Act ("the Act"). Presently SBA has no unused authority
within the existing limitation and can make loans only to
the extent of repayment of existing loans.
(2) Section 2 (b) would transfer to the Small Business
Act the authority to render financial assistance to socially
or economically disadvantaged persons now embodied in title
IV of the Economic Opportunity Act.
(3) Section 3(1) would provide that when SBA is required
to purchase a financial institution's share of a guaranteed
loan, it may continue to charge the borrower up to the rate of
interest that the financial institution charged. At present,
SBA can charge only 5 1/2 percent or the Treasury rate in such
cases; this creates an incentive for a borrower to default on
an SBA guaranteed loan in order to obtain a lower interest rate.
(4) Section 3 (2) would clarify the provision of the Act
relating to the rate of interest applicable to loans under
SBA's handicapped assistance program.
(5) Section 6 would expand SBA's authority to carry out
its lease guarantee and surety bond guarantee programs.
(6) Section 9 would authorize disaster-type loans with
terms of up to 30 years for small business concerns affected
adversely by energy shortages whenever SBA determines that
such firms have suffered or are likely to suffer substantial
economic injury without such assistance.
3
Provisions not opposed by the Administration
(1) Section 4 of the bill would require SBA to submit
annual sealed reports to the House and Senate Banking Com-
mittees concerning (a) complaints alleging illegal conduct
by SBA employees and (b) investigations undertaken by SBA,
including external and internal audits and security and in-
vestigation reports.
(2) Section 5 attempts to clarify section 18 of the
Act, which currently prohibits SBA from duplicating the work
of any other Federal department or agency. SBA's views letter
on the enrolled bill, however, indicates that section 5 actu-
ally is more ambiguous than clarifying and would be very dif-
ficult to administer in cases where an agency other than SBA
denies loan applications.
(3) Sections 7 and 10 would create the position of
Associate Administrator for Minority Small Business and would
require designation of an existing SBA employee as Chief Coun-
sel for Advocacy. The former would be basically responsible
for formulating policy and reviewing the execution of programs
relating to the agency's minority enterprise programs. The
latter would be a focal point for (a) handling small business
complaints, proposals, and issues concerning the relationship
between public and private organizations, (b) counselling
small businesses in these areas, and (c) representing their
views before other Federal agencies.
(4) Section 8 would remove the statutory interest rate
of 5 1/2 percent for SBA's regular direct business loans and
substitute the Treasury rate plus one-fourth of one percent.
Treasury, in its views letter on the enrolled bill, states
that the formula in the bill is technically deficient in
that it would be based on coupon rates and thus bear no di-
rect relationship to the current cost of funds to the Govern-
ment, and would be set only once a year.
(5) Section 11 would require SBA to conduct a study
of the surety bond guarantee program and submit a report to
the Congress within one year after enactment.
(6) Section 13 would direct the GAO to conduct a com-
plete audit of SBA and report to the Congress within six
months from the date of enactment.
4
Provision strongly opposed by the Administration
Section 12 would require SBA to make direct loans under its
regular business loan program in an aggregate amount of at
least $400 million during fiscal year 1975. The 1975 Budget
provides for only $40 million in direct loans for this pro-
gram. Thus, in the absence of reprogramming, the effect of
Section 12 would be to increase 1975 outlays by $360 million.
This requirement is inappropriate and unwarranted and runs
directly counter to the Administration's and the Congress'
efforts to reduce Federal spending. The legislative history
of S. 3331 indicates the Congressional intent that a supple-
mental appropriation be enacted in order for Section 12 to
take effect. However, the provision would invite litigation
which could conceivably result in a court ruling that Section
12 requires reprogramming in the absence of additional appro-
priations.
The success of SBA's loan guarantee program makes direct loans
in addition to the budgeted level unnecessary and inappropri-
ate. Expansion of the direct loan level would impair SBA's
excellent relations with the private banking sector. A sub-
stantial increase in staff would be required to administer an
expanded program.
If the increased outlays under Section 12 were to be offset
by reprogramming within SBA, the guaranteed loan and the
minority business assistance programs would have to be mostly
eliminated, in addition to other program reductions. Even
with such a reprogramming, 1975 outlays would be increased by
about $180 million.
Arguments for approval
-- An increase of SBA's loan ceiling is essential to
carry out the budgeted loan programs.
-- S. 3331 incorporates, in identical or similar form,
all other small business legislation which has
been requested by the Administration during the
93rd Congress.
5
-- The Administration could subsequently seek to
have a provision added to the pending SBA
appropriation bill which would have the effect
of cancelling out the $400 million direct loan
requirement of S. 3331. In its views letter on
the enrolled bill, SBA indicates that it has
received informal indications from its Appro-
priations Subcommittees "that a $400 million
appropriation will not be forthcoming."
Arguments for disapproval
--- The bill would result in inappropriate and un-
necessary Federal outlays, thus undermining both
Congressional and Executive efforts to fight
inflation through reduced spending. Moreover,
the desired level of assistance can largely be
achieved through the loan guarantee program which
produces minimal outlays.
-- An amendment to the SBA's appropriations bill
cancelling the direct loan provision might well
not survive. The House Banking Committee clearly
indicated in its report accompanying the bill its
intention that SBA immediately seek a supple-
mental appropriation for the expanded direct loan
program if necessary to achieve the mandated
lending level.
---- A veto of this bill would, we believe, be
sustained. (The bill was approved by a voice
vote in both Houses.)
-- Congress can promptly enact a new bill omitting
the objectionable direct loan provision.
SBA recommends approval of S. 3331 because of the desirable
authorities provided by the bill including the needed in-
creased revolving fund ceilings. SBA believes that the
effect of the expanded direct loan provision is mitigated
by the need for supplemental appropriations which may not
be forthcoming.
6
In its views letter on the enrolled bill, CEA states:
"There is one provision, however, which appears to
be contrary to two pressing Administration concerns --
reducing inflation and increasing productivity. Sec-
tion 12 of the bill would require the SBA to make an
aggregate of no less than $400 million worth of direct
loans in FY 1975
"We believe that the SBA rather than Congress is a
better judge of the minimum amount of loans that
should be issued in FY 1975. The mandated minimum
is an important provision that may be contrary to
achieving other objectives. If there is a high
probability of SBA direct loans falling below $400
million in FY 1975 under the same standards as have
prevailed in the last few years, then we recommend
that S. 3331 should be vetoed by the President."
The Office of Management and Budget and Treasury recommend that
the bill be disapproved because the direct loan provision is
greatly excessive and unwarranted in the light of efforts to
reduce Federal expenditures.
We have prepared the attached draft of a veto message for
your consideration.
Director
Enclosures
TO THE SENATE
I am returning today without my approval S. 3331, the
"Small Business Amendments of 1974. "
Many of the provisions of this bill are essential to the
on-going programs of the Small Business Administration or are
desirable amendments to existing law. For example, the bill
raises ceilings on the SBA's loan programs as requested by the
Administration.
I would approve the bill except for one unacceptable pro-
vision which is completely incompatible with our joint fight
against inflation. That provision would require SBA to make
direct loans under its regular business loan program in an
aggregate amount of at least $400 million during fiscal year
1975. The House Banking and Currency Committee report states
its expectation that the SBA will request the necessary supple-
mental appropriations to achieve this level.
The 1975 Budget provides $40 million for this direct loan
program. Thus, in the absence of reprogramming, the effect
S. 3331 seeks to achieve would be to increase Federal budget
outlays by $360 million this year. Even if SBA's successful
guaranteed loan and minority business assistance programs were
virtually eliminated in order to mitigate this budget add-on,
1975 outlays would still have to be increased by about $180
million.
Outlays of the magnitude this bill seeks to mandate are
prohibitive at a time when both the Congress and the Admini
tion are committed to the American taxpayers to fight inflation
through reduced Federal spending. The 1975 Budget level of
FOR
$40 million for direct loan outlays, combined with
the
BERALIC
2
continuing success of SBA's loan guarantee program, should
ensure an adequate level of assistance for small businessmen.
I urge the Congress to reenact immediately legislation
which incorporates the needed and desirable authorities of
the bill but which eliminates the direct loan provision.
This is the responsible course of action which I believe
that Congress will, on further reflection, adopt as part of
our vital fight against inflation.
THE WHITE HOUSE
August
v 1974
OF
THE THE TREASURY
THE GENERAL COUNSEL OF THE TREASURY
WASHINGTON, D.C. 20220
1789
AUG 1 3 1974
Director, Office of Management and Budget
Executive Office of the President
Washington, D.C. 20503
Attention: Assistant Director for Legislative
Reference
Sir:
Reference is made to your request for the views of this
Department on the enrolled enactment of S. 3331, "Small Business
Amendments of 1974.'
The enrolled enactment would change the interest formula
used to determine the interest rate on Small Business Administration
(SBA) loans to small businesses. The present formula sets
fixed minimum and maximum rates. The enrolled enactment makes
the rate equal to the average annual interest rate on all interest
bearing obligations of the United States as computed at the end
of the fiscal year preceding the date of the loan, plus one-quarter
of one percent.
The new formula, which according to the legislative history
is "based upon the cost of money to the Government as determined
by available yields of Government securities," is technically
deficient. The proposed interest formula is based on coupon rates
and, thus, bears little if any relation to the current cost of
funds to the Government. The Treasury recommended formula, which
is contained in OMB Circular A-70, uses current market yields on
outstanding obligations of the United States of comparable maturity
as the best measure of the current Government financing cost.
Further, the rate would also be set only once a year. This defect
appears also in the sections in the act creating the guarantee
funds, where the formula otherwise is appropriate; i.e., a rate
determined by the Secretary of the Treasury taking into consideration
the current average market yield on outstanding marketable obligations
of comparable maturity.
-2-
Section 12 of the enrolled enactment provides that in fiscal
year 1975 the SBA Administrator "shall" make direct loans "in an
aggregate amount of not less than $400,000,000." Such require-
ment to make budget outlays is contrary to effective budget
policy and is inconsistent with current Administration efforts
to control the budget.
In view of the foregoing, the Department would concur in
a recommendation that the enrolled enactment not be approved by
the President.
Sincerely yours,
General Counsel
THE CHAIRMAN OF THE
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON
August 14, 1974
Dear Mr. Rommel:
This is in response to your request for our views on
S. 3331, a bill to clarify and increase the authority of the
Small Business Administration.
We recognize that we live in an imperfect world in which
some small enterprises which will eventually produce market-
able goods and services at a profit may have difficulty borrowing
funds from conventional commercial lenders, at legal rates of
interest, if these loans are not guaranteed by some public agency.
We also recognize that there is widespread public interest in
promoting small enterprises. The result has been the develop-
ment of the Small Business Administration loan program. We,
therefore, support the current bill's expanding the ceilings of the
SBA revolving funds and the other provisions that will make the
SBA more responsive to the concerns of Congress, the public
and small business.
There is one provision, however, which appears to be
contrary to two pressing Administration concerns -- reducing
inflation and increasing productivity. Section 12 of the bill would
require the SBA to make an aggregate of no less than $400 million
worth of direct loans in FY 1975. Suppose, however, the SBA
determines, with due regard for current standards for promoting
small business, it would issue less than $400 million in loans in
FY 1975. Section 12 would then require the SBA to make loans to
firms it deems not worthy of such public support. These are
firms that the SBA views as not likely to become efficient. The
expenditure of resources by inefficient firms increases aggregate
demand and inflation, and decreases productivity. Such a policy
would intensify, rather than mitigate, our current difficulties.
REVOLUTION
AMERICAN
BICENTENNIAL
1776-1976
- 2 -
We believe that the SBA rather than Congress is a
better judge of the minimum amount of loans that should be
issued in FY 1975. The mandated minimum is an important
provision that may be contrary to achieving other objectives.
If there is a high probability of SBA direct loans falling below
$400 million in FY 1975 under the same standards as have
prevailed in the last few years, then we recommend that
S. 3331 should be vetoed by the President.
Sincerely,
Habel Stem
Herbert Stein
Mr. Wilfred H. Rommel
Assistant Director for Legislative Reference
Office of Management and Budget
Washington, D. C. 20503
FEDERAL ENERGY ADMINISTRATION
WASHINGTON, D.C. 20461
August 15, 1974
MEMORANDUM FOR: Wilfred H. Rommel
Assistant Director for
Legislative Reference
Office of Management and Budget
ATTN:
Jay P. Brenneman
FROM:
Eric J. Fygi
Assistant General Counsel for
General Law, Legislation
and Resource Development
SUBJECT:
Enrolled Bill, S. 3331, "To clarify the
authority of the Small Business Adminis-
tration, to increase the authority of the
Small Business Administration, and for
other purposes."
This is in response to your request for the views of the
Federal Energy Administration on section 9 of the subject
enrolled bill, which section would authorize the Small
Business Administration to make loans to small business
concerns adversely affected by energy shortages.
Section 9 (a) of the enrolled bill would add a new sub-
paragraph (8) to section 7 (b) of the Small Business Adminis-
tration Act which would authorize the SBA to make loans
directly or through participation agreements in order to
assist or refinance small business concerns "seriously
and adversely" affected by fuel or other energy shortages,
or shortages of raw or processed materials resulting from
such energy shortages, if the SBA determines that such
small business have or will suffer "substantial economical
injury" without such assistance.
- 2 -
Though the Federal Energy Administration is sensitive to the
impact which energy shortages may have upon small business
concerns, we believe generally that the Administration's
policy should avoid creation of economical disincentives for
energy conservation. Small business concerns most acutely
affected by energy shortages often would be the highest
proportional users of energy, and we believe it appropriate
and necessary that such small business concerns, like
businesses generally, should be encouraged to develop sound
energy conservation practices and, where appropriate, to
utilize alternative, more abundant, energy sources.
Accordingly, we believe that administration of any loan
program such as that which would be authorized by section 9
of the enrolled bill should be premised upon including sound
energy conservation programs by small business concerns
affected in the process whereby the assistance is provided.
If this bill is approved by the President, we believe it
would be appropriate for any signing statement to include
a reference to this approach as a fundamental constituent
of the loan program that would be established.
Subject to these comments, we have no objection to approval
of the enrolled bill.
ASSISTANT ATTORNEY GENERAL
LrESISLATIVE AFFAIRS
Department of Justice
Washington, D.C. 20530
AUG 14 1974
Honorable Roy L. Ash
Director, Office of
Management and Budget
Washington, D. C. 20503
Dear Mr. Ash:
In compliance with your request, I have examined a
facsimile of the enrolled bill S. 3331, "To clarify the author-
ity of the Small Business Administration, and for other purposes. "
S. 3331 would authorize the SBA, upon purchase of a
deferred participation, to charge a rate of interest not
exceeding that initially charged, except that the Administration
would not charge more than 3 percent on its share of loans to
the handicapped. The bill also purports to enable the Adminis-
trator to investigate with subpoena power (I.C.C. V. Brimson, 154
U.S. 447) and creates a Chief Counsel for Advocacy.
The substantive provisions of S. 3331 involve policy
considerations, as to which the Department of Justice makes no
recommendations.
The assignment of functions to the Chief Counsel for
Advocacy in Section 10 of the bill might be viewed as rigidly
confining the Administrator in dealing with functions specifically
assigned to the Chief Counsel for Advocacy; they might create an
independent unresponsive authority with powers encroaching on the
powers of the Administrator by conferring status incompatible
with direction and control by the Administrator on the discretion
delegated to him by statute, as in relation to dealings with
other agencies and even in other areas of more direct and
immediate concern to SBA and its Administrator.
Nevertheless, the Department of Justice defers to the
Small Business Administration as to whether this bill should
receive Executive approval.
Markistian
W. Vincent Rakestraw
Assistant Attorney General
SMALL
BUSINESS
U.S. SMALL BUSINESS ADMINISTRATION
SANINGLE
ATOMA
WASHINGTON, D.C. 20416
1953
OFFICE OF THE ADMINISTRATOR
AUG 9 1974
Mr. Wilfred H. Rommel
Assistant Director for
Legislative Reference
Office of Management and Budget
Washington, D. C. 20503
Dear Mr. Rommel:
This is in response to your request of August 9, 1974, for the views
of the Small Business Administration with respect to S. 3331, an
enrolled bill, "The Small Business Amendments of 1974. If
Earlier this year, SBA submitted to the Congress its own proposed
amendments to the Small Business Act and the Small Business
Investment Company Act of 1958. These amendments would have
increased the revolving fund ceilings in section 4(c) of the Small
Business Act, transferred our EOL and 406 programs from the
Economic Opportunity Act to the Small Business Act, permitted
SBA to charge the same rate of interest as the participating lender
where SBA is required to repurchase a loan in default, clarified the
interest rate applicable to handicapped assistance loans and in-
creased the amount of capital authorized by the Small Business
Investment Company Act for our lease guarantee and surety bond
guarantee programs. In addition, we participated in the drafting
of an amendment to the Small Business Act which authorizes SBA
to provide appropriate assistance to small concerns seriously and
adversely affected by energy and materials shortages. All these
proposals are contained in the enrolled bill.
However, S. 3331, as enacted, goes beyond our proposals and pro-
vides some authorities not sought by the Administration. Of
those provisions of the bill which we did not recommend, we have
no objection to any, except sections 5 and 12.
Section 11 had previously been of some concern. This section amends
section 411(c) of the Small Business Investment Company Act of 1958
to require SBA to administer the surety bond guarantee program on
"a prudent and economically justifiable basis' and to conduct a study
of this program which is to be transmitted to the Congress within
one year after enactment of the bill. The initial House Banking and
Currency Committee version of this amendment would have required
the fees charged by SBA for this program to be based on "sound
actuarial methods and underwriting practices" -- in effect, a require-
ment that the program be self-sustaining.
Page 2
This initial draft of the amendment might have required SBA to raise
these fees to such an extent that the surety bond guarantee program
could have ceased functioning, since small, and particularly minority,
contractors would have been unable to afford such increased fees.
However, the new language and the remarks made on the Senate floor
during consideration of the House version of this bill make clear that
the only requirement is that the total benefits of this program to the
Nation should equal its costs. We, therefore, have no objection to
this provision.
Section 5 of S. 3331 amends section 18 of the Small Business Act,
which currently prohibits SBA from duplicating the work of any other
Federal department or agency. Section 5 provides that no duplica-
tion shall be deemed to exist where the other government agency is
denying loan applications because of "administrative withholding from
obligation or withholding from apportionment, or [an] administratively
declared moratorium. This provision is extremely ambiguous and
will therefore be very difficult to administer. It is unclear, from
both the language of the provision and the accompanying legislative
history, whether this amendment applies, for example, if only
minor amounts are withheld or if a moratorium is in effect for only
a short period of time. There is further ambituity as to how "with-
holding" and "moratorium" should be defined.
Section 12 of S. 3331 authorizes SBA to make $400, 000, 000 in direct
section 7(a) loans during Fiscal Year 1975. While this provision
would appear to have serious budgetary implications, it should be
remembered that this language merely authorizes, and does not
appropriate, funds for this purpose. In addition, it is clear from
both the House Committee report and the House floor debate that
the Congress expects the submission of a supplemental appropriation
request for these funds and does not expect SBA to use funds appro-
priated for other programs for this purpose. We would admit that
an appropriation of $400 million for direct loans might have serious
budgetary ramifications and might impair SBA's currently excellent
relations with the private banking sector. However, informal indi-
cations from our Appropriations Subcommittees are that a $400 million
appropriation will not be forthcoming.
It should also be noted that there was no indication by the Adminis-
tration to the Congress that inclusion of this provision in the enrolled
bill might result in the President's disapproval of this measure.
While this fact, by itself, might not now preclude a veto, it should
certainly be weighed in arriving at a decision. In addition, it could
be argued that the President's approval of this bill, including the
$400 million authorization, might later foreclose disapproval of any
appropriation pursuant to it. However, that problem could be resolved
Page 3
by issuing a short statement when the bill is approved, indicating
that any subsequent appropriation might be disapproved. Such a
statement could cite the fiscal irresponsibility of such an appropriation,
the substantial additional staff that would be required to administer
it and the potential adverse effect on SBA's relations with the Nation's
banking community.
Finally, there is one other factor to be considered in our recommen-
dation to the President. Our section 4(c) revolving fund ceiling and
three other subceilings are subject to the provision in P. L. 93-237
which prohibits SBA from incurring any additional obligations after
June 30, 1974. We are thus currently limited in almost all of our
programs to incurring obligations only out of repayments and
cancellations, which limits our loan-making capability to approxi-
mately 60% of normal. The failure to increase these ceilings,
as is provided in S. 3331, will result in our continued inability to
provide the Nation's small businesses with a vitally needed source of
capital and other assistance. In addition, our excellent relations
with the private sector, which we have worked so hard to cultivate
and which are so vital to our success, might be seriously impaired.
Therefore, based on all these considerations, I strongly recommend
that the President approve S. 3331.
Sincerely,
Thomas S. Heppe
Thomas S. Kleppe
Administrator
CORRECTE
S. 3331
Ainety-third Congress of the United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Monday, the twenty-first day of January,
one thousand nine hundred and seventy-four
An Act
To clarify the authority of the Small Business Administration, to increase the
authority of the Small Business Administration, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That this Act may
be cited as the "Small Business Amendments of 1974".
SEC. 2. (a) The Small Business Act is amended-
(1) by redesignating subsection (b) of section 2 as subsec-
tion (c) and by adding after subsection (a) of that section the
following new subsection:
"(b) The assistance programs authorized by sections 7(i) and 7(j)
of this Act are to be utilized to assist in the establishment, preservation,
and strengthening of small business concerns and improve the mana-
gerial skills employed in such enterprises, with special attention to
small business concerns (1) located in urban or rural areas with high
proportions of unemployed or low-income individuals; or (2) owned
by low-income individuals; and to mobilize for these objectives private
as well as public managerial skills and resources.";
(2) by striking out paragraphs (1) and (2) of section (c),
and inserting in lieu thereof the following:
(c) (1) There are hereby established in the Treasury the following
revolving funds: (A) a disaster loan fund which shall be available
for financing functions performed under sections 7(b) (1), 7(b) (2),
7(b) (4), 7(b) (5), 7(b) (6), 7(b) (7), 7(b) (8), 7(c) (2), and 7(g) of
this Act, including administrative expenses ih connection with such
functions; and (B) a business loan and investment fund which shall
be available for financing functions performed under sections 7(a),
7(b) (3), 7(e), 7(h), 7(i), and 8(a) of this Act, and titles III and V
of the Small Business Investment Act of 1958, including adminis-
trative expenses in connection with such functions.
"(2) All repayments of loans and debentures, payments of interest
and other receipts arising out of transactions heretofore or hereafter
entered into by the Administration (A) pursuant to sections 7(b) (1),
7(b) (2), 7(b) (4), 7(b) (5), 7(b) (6), (b) (7), 7(b) (8), and 7(c) (2)
of this Act shall be paid into a disaster loan fund; and (B) pursuant
to sections 7(a), 7(b) (3), 7(e), 7(h), 7(i), and 8(a) of this Act, and
titles III and V of the Small Business Investment Act of 1958, shall
be paid into the business loan and investment fund.";
(3) by striking out paragraph (4) of section 4(c), and insert-
ing in lieu thereof the following:
"(4) The total amount of loans, guarantees, and other obligations
or commitments, heretofore or hereafter entered into by the Adminis-
tration, which are outstanding at any one time (A) under sections
7(a), 7(b) (3), 7(e), 7(h), 7(i), and 8(a) of this Act, shall not exceed
$6,000,000,000; (B) under title III of the Small Business Investment
Act of 1958, shall not exceed $725,000,000; (C) under title V of the
Small Business Investment Act of 1958, shall not exceed $525,000,000;
and (D) under section 7(i) of this Act, shall not exceed $450,000,000.";
and
(4) by adding at the end of section 7 the following three new
subsections:
"(i) (1) The Administration also is empowered to make, participate
(on an immediate basis) in, or guarantee loans, repayable in not more
than fifteen years, to any small business concern, or to any qualified
person seeking to establish such a concern, when it determines that
S. 3331-2
such loans will further the policies established in section 2(b) of this
Act, with particular emphasis on the preservation or establishment
of small business concerns located in urban or rural areas with high
proportions of unemployed or low-income individuals, or owned by
low-income individuals: Provided, however, That no such loans shall
be made, participated in, or guaranteed if the total of such Federal
assistance to a single borrower outstanding at any one time would
exceed $50,000. The Administration may defer payments on the prin-
cipal of such loans for a grace period and use such other methods as
it deems necessary and appropriate to assure the successful establish-
ment and operation of such concern. The Administration may, in its
discretion, as a condition of such financial assistance, require that
the borrower take steps to improve his management skills by partici-
pating in a management training program approved by the Adminis-
tration: Provided, however, That any management training program
so approved must be of sufficient scope and duration to provide reason-
able opportunity for the individuals served to develop entrepreneurial
and managerial self-sufficiency.
"(2) The Administration shall encourage, as far as possible, the
participation of the private business community in the program of
assistance to such concerns, and shall seek to stimulate new private
lending activities to such concerns through the use of the loan guaran-
tees, participations in loans, and pooling arrangements authorized by
this subsection.
(3) To insure an equitable distribution between urban and rural
areas for loans between $3,500 and $50,000 made under this subsection,
the Administration is authorized to use the agencies and agreements
and delegations developed under title III of the Economic Oppor-
tunity Act of 1964, as amended, as it shall determine necessary.
"(4) The Administration shall provide for the continuing evalua-
tion of programs under this subsection, including full information on
the location, income characteristics, and types of businesses and indi-
viduals assisted, and on new private lending activity stimulated, and
the results of such evaluation together with recommendations shall be
included in the report required by section 10(a) of this Act.
"(5) Loans made pursuant to this subsection (including immediate
participation in and guarantees of such loans) shall have such terms
and conditions as the Administration shall determine, subject to the
following limitations-
(A) there is reasonable assurance of repayment of the loan;
(B) the financial assistance is not otherwise available on
reasonable terms from private sources or other Federal, State, or
local programs;
(C) the amount of the loan, together with other funds avail-
able, is adequate to assure completion of the project or achieve-
ment of the purposes for which the loan is made;
"(D) the loan bears interest at a rate not less than (i) a rate
determined by the Secretary of the Treasury, taking into con-
sideration the average market yield on outstanding Treasury
obligations of comparable maturity, plus (ii) such additional
charge, if any, toward covering other costs of the program as the
Administration may determine to be consistent with its purposes:
Provided, however, That the rate of interest charged on loans
made in redevelopment areas designated under the Public Works
and Economic Development Act of 1965 (42 U.S.C. 3108 et seq.)
shall not exceed the rate currently applicable to new loans made
under section 201 of that Act (42 U.S.C. 3142) ; and
S. 3331-3
(E) fees not in excess of amounts necessary to cover adminis-
trative expenses and probable losses may be required on loan
guarantees.
"(6) The Administration shall take such steps as may be necessary
to insure that, in any fiscal year, at least 50 per centum of the amounts
loaned or guaranteed pursuant to this subsection are allotted to small
business concerns located in urban areas identified by the Administra-
tion as having high concentrations of unemployed or low-income
individuals or to small business concerns owned by low-income indi-
viduals. The Administration shall define the meaning of low income
as it applies to owners of small business concerns eligible to be assisted
under this subsection.
"(7) No financial assistance shall be extended pursuant to this sub-
section where the Administration determines that the assistance will
be used in relocating establishments from one area to another if such
relocation would result in an increase in unemployment in the area of
original location.
(j) (1) The Administration is authorized to provide financial
assistance to public or private organizations to pay all or part of the
cost of projects designed to provide technical or management assistance
to individuals or enterprises eligible for assistance under subsection
7(i) of this Act, with special attention to small business located in
urban areas of high concentration of unemployed or low-income indi-
viduals or owned by low-income individuals.
"(2) Financial assistance under this subsection may be provided
for projects, including without limitation-
(A) planning and research, including feasibility studies and
market research;
(B) the identification and development of new business
opportunities;
(C) the furnishing of centralized services with regard to
public services and Government programs including programs
authorized under subsection 7(i)
(D) the establishment and strengthening of business service
agencies, including trade associations and cooperatives;
"(E) the encouragement of the placement of subcontracts by
major business with small business concerns located in urban areas
of high concentration of unemployed or low-income individuals
or owned by low-income individuals, including the provision of
incentives and assistance to such major businesses so that they
will aid in the training and upgrading of potential subcontractors
or other small business concerns; and
(F) the furnishing of business counseling, management train-
ing, and legal and other related services, with special emphasis on
the development of management training programs using the
resources of the business community, including the development
of management training opportunities in existing businesses, and
with emphasis in all cases upon providing management training
of sufficient scope and duration to develop entrepreneurial and
managerial self-sufficiency on the part of the individuals served.
"(3) The Administration shall give preference to projects which
promote the ownership, participation in ownership, or management of
small business concerns by residents of urban areas of high concentra-
tion of unemployed or low-income individuals, and to projects which
are planned and carried out with the participation of local
businessmen.
"(4) The financial assistance authorized by this subsection includes
assistance advanced by grant, agreement, or contract, but does not
include the procurement of plant or equipment, or goods or services.
S. 3331-4
(5) The Administration is authorized to make payments under
grants and contracts entered into under this subsection in lump sum
or installments, and in advance or by way of reimbursement, and in the
case of grants, with necessary adjustments on account of overpayments
or underpayments.
(6) To the extent feasible, services under this subsection shall be
provided in a location which is easily accessible to the individuals and
small business concerns served.
"(7) The Administration shall provide for an independent and
continuing evaluation of programs under this subsection, including
full information on, and analysis of, the character and impact of
managerial assistance provided, the location, income characteristics,
and types of businesses and individuals assisted, and the extent to
which private resources and skills have been involved in these pro-
grams. Such evaluation together with any recommendations deemed
advisable by the Administration shall be included in the report
required by section 10(a) of this Act.
(8) The Administration shall take such steps as may be necessary
and appropriate, in coordination and cooperation with the heads of
other Federal departments and agencies, so that contracts, subcon-
tracts, and deposits made by the Federal Government or in connection
with programs aided with Federal funds are placed in such a way as
to further the purposes of this subsection and of subsection 7(i) of
this Act. The Administration shall provide for the continuing evalua-
tion of programs under this subsection and the results of such evalua-
tion together with recommendations shall be included in the report
required by section 10(a) of this Act.
" (k) In carrying out its functions under subsections 7(i) and 7(j)
of this Act, the Administration is authorized-
(1) to utilize, with their consent, the services and facilities
of Federal agencies without reimbursement, and, with the consent
of any State or political subdivision of a State, accept and utilize
the services and facilities of such State or subdivision without
reimbursement;
"(2) to accept, in the name of the Administration, and employ
or dispose of in furtherance of the purposes of this Act, any
money or property, real, personal, or mixed, tangible, or intan-
gible, received by gift, devise, bequest, or otherwise;
"(3) to accept voluntary and uncompensated services, notwith-
standing the provisions of section 3679(b) of the Revised Statutes
(31 U.S.C. 655(b)) ; and
"(4) to employ experts and consultants or organizations thereof
as authorized by section 15 of the Administrative Expenses Act
of 1946 (5 U.S.C. 55a), except that no individual may be employed
under the authority of this subsection for more than one hundred
days in any fiscal year; to compensate individuals so employed
at rates not in excess of $100 per diem, including traveltime; and
to allow them, while away from their homes or regular places of
business, travel expenses (including per diem in lieu of subsist-
ence) as authorized by section 5 of such Act (5 U.S.C. 73b-2)
for persons in the Government service employed intermittently,
while so employed: Provided, however, That contracts for such
employment may be renewed annually."
(b) Title IV of the Economic Opportunity Act of 1964 is hereby
repealed; and all references to such title in the remainder of that Act
are repealed.
SEC. 3. The Small Business Act is further amended-
(1) by amending section 5(b) by striking out "and" following
paragraph (8), by striking out the period at the end of para-
CORRECT
S. 3331-5
graph (9) and inserting in lieu thereof a semicolon and by adding
at the end of paragraph (9) the following new paragraphs:
(10) upon purchase by the Administration of any deferred
participation entered into under section 7 of this Act, continue
to charge a rate of interest not to exceed that initially charged
by the participating institution on the amount SO purchased for
the remaining term of the indebtedness; and
(11) make such investigations as he deems necessary to deter-
mine whether a recipient of or participant in any assistance under
this Act or any other person has engaged or is about to engage
in any acts or practices which constitute or will constitute a
violation of any provision of this Act, or of any rule or regu-
lation under this Act, or of any order issued under this Act.
The Administration shall permit any person to file with it a
statement in writing, under oath or otherwise as the Adminis-
tration shall determine, as to all the facts and circumstances
concerning the matter to be investigated. For the purpose of any
investigation, the Administration is empowered to administer
oaths and affirmations; subpena witnesses, compel their attend-
ance, take evidence, and require the production of any books,
papers, and documents which are relevant to the inquiry. Such
attendance of witnesses and the production of any such records
may be required from any place in the United States. In case
of contumacy by, or refusal to obey a subpena issued to, any
person, including a recipient or participant, the Administration
may invoke the aid of any court of the United States within the
jurisdiction of which such investigation or proceeding is carried
on, or where such person resides or carries on business, in requir-
ing the attendance and testimony of witnesses and the production
of books, papers, and documents; and such court may issue an
order requiring such person to appear before the Administration,
there to produce records, if so ordered, or to give testimony touch-
ing the matter under investigation. Any failure to obey such
order of the court may be punished by such court as a contempt
thereof. All process in any such case may be served in the judicial
district whereof such person is an inhabitant or wherever he may
be found."; and
(2) by striking out the third sentence in paragraph (2) of
section 7 (h) and inserting in lieu thereof: "The Administration's
share of any loan made under this subsection shall bear interest
at the rate of 3 per centum per annum."
SEC. 4. Section 10 of the Small Business Act is amended by adding
at the end thereof the following new subsection:
"(g) The Administration shall transmit, not later than December 31
of each year, to the Committee on Banking, Housing and Urban Affairs
of the Senate and the Committee on Banking and Currency of the
House of Representatives a sealed report with respect to-
"(1) complaints alleging illegal conduct by employees of the
Administration which were received or acted upon by the Admin-
istration during the preceding fiscal year; and
"(2) investigations undertaken by the Administration, includ-
ing external and internal audits and security and investigation
reports.".
Sec. 5. Section 18 of the Small Business Act is amended by adding
at the end thereof the following new sentence: "If loan applications
are being refused or loans denied by such other department or agency
responsible for such work or activity due to administrative withhold-
ing from obligation or withholding from apportionment, or due to
S. 3331-6
administratively declared moratorium, then, for purposes of this sec-
tion, no duplication shall be deemed to have occurred.".
Sec. 6. (a) The Small Business Investment Act of 1958 is amended-
(1) by striking out in the table of contents in section 101 all
references to title-IV and section numbers therein and inserting
in lieu thereof the following:
"TITLE IV-GUARANTEES
"PART A-LEASE GUARANTEES
"Sec. 401. Authority of the Administration.
"Sec. 402. Powers.
"Sec. 403. Fund.
"PART B-SURETY BOND GUARANTEES
"Sec. 410. Definitions.
"Sec. 411. Authority of the Administration.
"Sec. 412. Fund.";
(2) by striking out section 403 and inserting in lieu thereof
the following:
"FUND
"SEC. 403. There is hereby created within the Treasury a separate
fund for guarantees which shall be available to the Administrator
without fiscal year limitations as a revolving fund for the purposes of
this part. There are authorized to be appropriated to the fund from
time to time such amounts not to exceed $10,000,000 to provide capital
for the fund. All amounts received by the Administrator, including
any moneys, property, or assets derived by him from his operations in
connection with this part, shall be deposited in the fund. All expenses
and payments pursuant to operations of the Administrator under this
part shall be paid from the fund. From time to time, and at least at
the close of each fiscal year, the Administrator shall pay from the
fund into Treasury as miscellaneous receipts interest at a rate deter-
mined by the Secretary of the Treasury on the cumulative amount of
appropriations available as capital to the fund, less the average undis-
bursed cash balance in the fund during the year. The rate of such
interest shall be determined by the Secretary of the Treasury, and
shall not be less than a rate determined by taking into consideration
the average market yield during the month preceding each fiscal year
on outstanding marketable obligations of the United States with
remaining periods to maturity comparable to the average maturity
of guarantees from the fund. Moneys in the fund not needed for the
payment of current operating expenses or for the payment of claims
arising under this part may be invested in bonds or other obligations
of, or bonds or other obligations guaranteed as to principal and interest
by, the United States; except that moneys provided as capital for
the fund shall not be so invested.";
(3) by striking out "$500,000" in section 411 and inserting in
lieu thereof "$1,000,000"; and
(4) by adding after section 411 the following new section:
"FUND
"Sec. 412. There is hereby created within the Treasury a separate
fund for guarantees which shall be available to the Administrator
without fiscal year limitation as a revolving fund for the purposes of
this part. There are authorized to be appropriated to the fund from
time to time such amounts not to exceed $35,000,000 to provide capital
for the fund. All amounts received by the Administrator, including
S. 3331-7
any moneys, property, or assets derived by him from his operations in
connection with this part, shall be deposited in the fund. All expenses
and payments pursuant to operations of the Administrator under this
part shall be paid from the fund. From time to time, and at least at
the close of each fiscal year, the Administrator shall pay from the
fund into Treasury as miscellaneous receipts interest at a rate deter-
mined by the Secretary of the Treasury on the cumulative amount
of appropriations available as capital to the fund, less the average
undisbursed cash balance in the fund during the year. The rate of
such interest shall be determined by the Secretary of the Treasury,
and shall not be less than a rate determined by taking into considera-
tion the average market yield during the month preceding each fiscal
year on outstanding marketable obligations of the United States with
remaining periods to maturity comparable to the average maturity of
guarantees from the fund. Moneys in the fund not needed for the
payment of current operating expenses or for the payment of claims
arising under this part may be invested in bonds or other obligations
of, or bonds or other obligations guaranteed as to principal and
interest by, the United States; except that moneys provided as capital
for the fund shall not be SO invested."
(b) Unexpected balances of capital previously transferred to the
fund pursuant to section 403 of the Small Business Investment Act
of 1958 (15 U.S.C. 694), as in effect prior to the effective date of this
Act, shall be allocated, together with related assets and liabilities, to
the funds established by paragraphs (2) and (4) of subsection (a) of
this section in such amounts as the Administrator shall determine.
In addition, the Administrator is authorized to transfer to the fund
established by paragraph (4) of subsection (a) of this section not to
exceed $2,000,000 from the fund established under section 4(c) (1) (B)
of the Small Business Act: Provided, That section 4(c) (6) and the
last sentence of section 4(c) (5) shall not apply to any amounts so
transferred.
SEC. 7. Section 4(b) of the Small Business Act is amended-
(1) by striking out "three" in the third sentence and inserting
in lieu thereof "four"; and
(2) by inserting after the third sentence the following new
sentence: "One of the Associate Administrators shall be desig-
nated at the time of his appointment as the Associate Adminis-
trator for Minority Small Business and shall be responsible to
the Administrator for the formulation of policy relating to the
Administration's programs which provide assistance to minority
small business concerns and in the review of the Administration's
execution of such programs in light of such policy."
SEC. 8. Sections 7(a) (B) and 7(a) (5) (B) of the Small Business
Act are each amended to read as follows: "the rate of interest for the
Administration's share of any such loan shall be the average annual
interest rate on all interest-bearing obligations of the United States
then forming a part of the public debt as computed at the end of the
fiscal year next preceding the date of the loan and adjusted to the
nearest one-eighth of 1 per centum plus one-quarter of 1 per centum
per annum; and".
SEC. 9. (a) Section 7(b) of the Small Business Act is amended by
striking out the period at the end of paragraph (7) and inserting in
lieu thereof "; and" and by adding immediately after paragraph (7)
the following new paragraph:
"(8) to make such loans (either directly or in cooperation with
banks or other lending institutions through agreements to par-
ticipate on an immediate or deferred basis) as the Administration
may determine to be necessary or appropriate to assist, or refinance
S. 3331-8
the existing indebtedness of, any small business concern seriously
and adversely affected by a shortage of fuel, electrical energy, or
energy-producing resources, or by a shortage of raw or processed
materials resulting from such shortages, if the Administration
determines that such concern has suffered or is likely to suffer
substantial economic injury without assistance under this
paragraph."
(b) The first paragraph following the numbered paragraphs of
section 7(b) of the Small Business Act is amended by striking out
"or (7)," immediately following "(6)," and inserting in lieu thereof
(7), or (8),".
SEC. 10. Section 5 of the Small Business Act is amended by adding
at the end thereof the following new subsection
(e) The Administrator shall designate an individual within the
Administration to be known as the Chief Counsel for Advocacy and
to perform the following duties:
"(1) serve as a focal point for the receipt of complaints, criti-
cisms, and suggestions concerning the policies and activities of the
Administration and any other Federal agency which affects small
businesses;
(2) counsel small businesses on how to resolve questions and
problems concerning the relationship of the small business to the
Federal Government;
"(3) develop proposals for changes in the policies and activities
of any agency of the Federal Government which will better fulfill
the purposes of the Small Business Act and communicate such
proposals to the appropriate Federal agencies;
"(4) represent the views and interests of small businesses before
other Federal agencies whose policies and activities may affect
small businesses; and
"(5) enlist the cooperation and assistance of public and private
agencies, businesses, and other organizations in disseminating
information about the programs and services provided by the
Federal Government which are of benefit to small businesses, and
information on how small businesses can participate in or make
use of such programs and services.".
Sec. 11. (a) The first sentence of section 411 (c) of the Small Busi-
ness Investment Act of 1958 is amended by inserting "administer this
program on a prudent and economically justifiable basis and shall"
immediately after "shall".
(b) Section 411 (c) of the Small Business Investment Act of 1958
is amended by adding at the end thereof the following: "Within 30
days after the date of enactment of this sentence and at monthly inter-
vals thereafter, the Administration shall publish the cost of the pro-
gram to the Administration for the month immediately preceding the
date of publication. The Administration shall conduct a study of the
program in order to determine what must be done to make the program
economically sound. Within one year after the date of enactment of
this sentence, the Administration shall transmit a report to Congress
containing a detailed statement of the findings and conclusions of the
study, together with its recommendations for such legislative and
administrative actions as it deems appropriate.".
SEC. 12. Section 7(a) of the Small Business Act is amended by add-
ing at the end thereof the following new paragraph:
"(8) During the fiscal year ending June 30, 1975, the Admin-
istrator shall make direct loans under this subsection in an aggre-
gate amount of not less than $400,000,000.".
S. 3331-9
SEC. 13. The General Accounting Office is directed to conduct a full-
scale audit of the Small Business Administration, including all field
offices. This audit shall be submitted to the House and Senate not later
than six months from the date of enactment of this Act.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.
939 CONGRESS
HOUSE OF REPRESENTATIVES
REPORT
2d Session
No. 93-1178
GERALD
LIBBRA
SMALL BUSINESS AMENDMENT OF 1974
JULY 3, 1974.-Committed to the Committee of the Whole House on the State
of the Union and ordered to be printed
Mr. PATMAN, from the Committee on Banking and Currency,
submitted the following
REPORT
together with
ADDITIONAL VIEWS
[To accompany H.R. 15578]
The Committee on Banking and Currency, to whom was referred
the bill (H.R. 15578) to amend the Small Business Act, the Small Busi-
ness Investment Act, and for other purposes, having considered the
same, report favorably thereon with amendments and recommend
that the bill as amended do pass.
The amendments are as follows:
On page 16, beginning in line 18, strike out "but shall be" and all
that follows down through the colon in line 22, and insert in lieu
thereof a period.
On page 18, beginning in line 6, strike out "but shall be" and all that
follows down through "under this part" in line 11.
On page 18, line 12, strike out "appropriations made" and insert in
lieu thereof "capital previously transferred".
On page 22, line 2, insert "of 1958" immediately after "Act".
On page 22, after line 11, insert the following:
SEC. 12. The General Accounting Office is directed to con-
duct a full-scale audit of the Small Business Administration,
including all field offices. This audit shall be submitted to the
House and Senate not later than six months from the date of
this Act.
HISTORY OF LEGISLATION
On May 18, 1974 the Small Business Subcommittee held hearings
on S. 3331, which was passed by the Senate in mid April. The follow-
ing day, the Subcommittee met in Executive Session and adopted a
38-006
2
number of amendments to S. 3331. The Subcommittee then voted to
have a clean bill introduced and recommended to the full Committee.
On June 24, 1974 Congressman Stephens of the Small Business Sub-
committee introduced H.R. 15578 for himself and Mr. Mitchell of
Maryland, Mr. Gonzalez, Mr. Gettys, Mr. Annunzio, Mr. Hanley, Mr.
Cotter, Mr. J. William Stanton, Mr. Williams, Mrs. Heckler of Mas-
sachusetts, Mr. Burgener, and Mr. Roncallo of New York.
The full House Committee on Banking and Currency met in Execu-
tive Session on June 26, 1974 and by a voice vote unanimously ordered
the bill reported.
PURPOSE OF THE LEGISLATION
The most basic purpose of H.R. 15578 is to increase the overall loan,
guaranty, and investment ceilings of the Agency. At the present time,
the Agency can have outstanding in all of its lending programs, other
than disaster loans, $4.875 billion. This legislation would increase the
overall ceiling to $6 billion with increases in several subceilings for
programs such as small business investment companies and economic
opportunity loans.
Under the terms of P.L. 93-237 Congress, in addition to establish-
ing a 4.875 billion overall ceiling, placed an additional requirement on
the Agency with regard to its lending authority. The restrictions
provided that if the ceiling was not reached by June 30, 1974 then on
that date the authority of the Agency to expend additional funds
would expire. Thus, unless this legislation is enacted; the Small Busi-
ness Administration will be virtually precluded from engaging in any
additional lending or guaranty activities.
The legislation also transfers the functions of the Economic Op-
portunity Act, which have been carried out by the Small Business Ad-
ministration, to the Small Business Act. This does not provide any
additional authority for the Small Business Administration but merely
is a technical change SO as to continue the SBA-Economic Oppor-
tunity Act programs if the Economic Opportunity Act is not allowed
to continue.
There are a number of other changes in this legislation which will
be outlined further in the section-by-section summary.
SECTION-BY-SECTION SUMMARY
Section 1: Section 1 of the legislation cites the bill as the Small
Business Amendments of 1974.
Section 2: Section 2 of the bill accomplishes the following: (1)
transfers to the Small Business Act the authority to provide financial
assistance to socially or economically disadvantaged persons previ-
ously authorized by Title IV of the Economic Opportunity Act of
1964, the economic opportunity loan program and the 406 management
and technical assistance programs. The SBA has been authorized, by
statute to carry out these programs since 1966, and this transfer of
authority is to eliminate any confusion should the Economic Oppor-
tunity Act expire. No substantive changes are being made in the lan-
guage transfering the legislative authority. (2) Increases the amount
3
of funds that SBA may have outstanding in its loan, guaranty and
other obligations fund in the following manner: the total amount out-
standing is increased from $4.875 billion to $6 billion. The amount
which can be outstanding in the Small Business Investment Company
program is increased from $556.25 million to $725 million and loans
which are outstanding under Title IV of the Economic Opportunity
Act for loans to low-income individuals and for businesses located in
areas of high unemployment or low income areas is raised from $381.25
million to $450 million. The ceiling on State and local government
loans remains unchanged at $525 million.
These ceiling increases are estimated to carry the SBA through the
end of fiscal year 1975 and permit an additional contingency reserve
of $112.2 million. Neither these ceilings nor does this legislation pro-
vide the Small Business Administration with any additional un-
appropriated funds. The legislation merely allows SBA to increase its
loan ceilings SO that it may spend funds that it will obtain either
through the appropriation process or through repayments of prior
loans which also must be approved by the Congress via the appropria-
tion process.
Section 3 : Section 3 provides that when a financial institution makes
a legitimate demand upon SBA for the Agency to purchase its share
of a guaranteed loan, that SBA may continue to charge the borrower
the rate that the lending institution had charged for such a loan.
Under existing legislation when SBA purchases the guaranteed por-
tion from the participant and assumes servicing of the account, the
rate of interest to the borrower is automatically reduced to the statu-
tory rate applicable to the SBA share, which can go as low as 3%.
This situation creates an inconsistency since it allows a borrower who
may have gotten into trouble with his loan to receive an interest rate
of 3% while the borrower who meets all payments of his guaranteed
loan would be required to pay the financial institution rate, which
in some cases is as high as 12%. Section 3 would allow SBA to charge
the higher rate, but does not make such a position mandatory. Section
3 also provides SBA with the authority to make investigations and to
issue subpoenas and to administer oaths in conjunction with investi-
gations under the SBA. In 1966 Congress granted this authority to
SBA for the Small Business Investment program, but did not grant
the authority for programs operated under the authority of the Small
Business Act.
Thus, Section 3 would give the SBA the same investigatory powers
over all of its programs that it now has over the Small Business In-
vestment Company programs. Some question has been raised as to
whether the authority granted to SBA in the 1966 Act in connection
with subpeonas and hearings for Small Business Investment Compa-
nies, also covers other facets of the Small Business Act, such as lease,
guarantees and surety bond programs. Your Committee feels that the
1966 authority was not limited to the SBIC program but was intended
to cover all of the program then offered or to be offered in the future
by the Small Business Investment Act. Your Committee backs this
belief by the fact that it extended similar authority to programs cov-
ered by the Small Business Act with the understanding that this
would bring all Small Business Administration programs under the
4
same investigatory authority. If the Committee had felt that some pro-
grams under the Small Business Investment Act were not now covered,
then it would have added those programs to the new authority. By its
lack of action in that area, your Committee believes that these pro-
grams are already covered and further legislative action is not nec-
essary. Section 3 also clarifies a portion of the Small Business Act re-
lating to the rate of interest applicable to loans under SBA's handi-
capped assistance program. This section clarifies the rate of interest on
these loans SO that loans made in conjunction with private lenders will
bear a rate of interest set by the borrower, but SBA's share of such
loans shall remain at 3%.
Section 4: Section 4 requires the Administrator to transmit to the
Banking Committee of both Houses a report each year outlining (1)
complaints alleging illegal conduct on the part of employees of the
Administration and (2) investigations and audits undertaken by the
Administration in conjunction with all of its programs.
Section 5: Section 5 raises the surety bond guaranty maximum from
$500,000 to $1 million and authorizes up to $10 million in additional
capital to carry out the lease guaranty functions of the Agency and
up to $35 million for the surety bond fund. This section also allows
SBA to transfer up to $2 million to the lease guaranty fund from the
general business fund while awaiting appropriated funds.
Section 6: Section 6 provides for an additional associate adminis-
trator of the Agency to be designated Associate Administrator for
Minority Small Business.
Section 7: Section 7 removes the statutory interest rate of 51/2% for
SBA regular business loans made on a direct basis. And instead bases
the rate at the cost of money to the government plus 1/4 of 1%. At the
present time the interest rate on these loans set by that formula would
be 61/8%. Since the statutory rate at the present time is below the cost
of money, the Office of Management and Budget has greatly restricted
SBA from making direct loans. The new language is designed to make
the SBA profitmaking and, thus, remove the OMB objection.
Section 8: Section 8 is designed to deal with small businesses and
the energy crisis. This would allow SBA to make direct or guaran-
teed loans on a disaster basis to small businesses affected by the energy
crisis. It would also allow SBA to refinance existing loans to such
small businesses.
Section 9: Section 9 would create a position in the Small Business
Administration to be known as the Chief Counsel for Advocacy. The
purpose of this job would be to serve as a focal point for input to small
businessmen.
Section 10: Section 10 would require that the surety bond program
be operated on an at least break even point. At the present time, the
losses in this program exceed premium income by about 200%, and
section 10 is designed to make certain that the surety bond fees are of
such an amount as to assure that these losses will be reduced.
Section 11 : Section 11 directs the Administration to make available
during fiscal year 1975 at least $400 million in direct regular business
loans.
Section 12 Section 12 directs the General Accounting Office to con-
duct a complete audit of the Small Business Administration includ-
5
ing all of its programs and field offices and to provide the House and
Senate with the results of that audit not later than six months from
the date of enactment of this Act.
GENERAL INFORMATION
The increases authorized under this legislation will provide SBA
with enough ceiling authorization to operate through the end of fiscal
year 1975. Your Committee considered extending the ceiling for only
a nine month basis but decided against this because the ceiling would
be reached during a period when the new Congress would be orga-
nizing and it might result in a long delay in providing new funds
once the ceiling was reached.
Because your Committee granted a one year increase rather than
a nine month increase is not to be interpreted that the Committee is
satisfied with the operations of the Small Business Administration
or its efforts to clean up a large number of problems within the
Agency that have come to light in the past year. The full year in-
creases were granted to help small businessmen and not as a com-
mendation to the SBA.
Your Committee also notes that in the past Congress has enacted
ceiling increases for two and three year periods, thus, the one year
extension is indeed a drastic departure from normal ceiling increases
and will require the SBA to return to Congress next year, thereby
giving the Committee the additional oversight opportunities.
While the Committee realizes that vast majorities of SBA em-
ployees conduct their job with complete dedication and integrity, the
Committee has noticed an ever-growing deterioration in the quality
of loan processing and in the administration of SBA programs, much
of it at the highest levels of the Agency. Your Committee also notes
there has been a general unwillingness on the part of the Agency to
recognize this deterioration which in some cases may have resulted in
criminal acts and to deal with these matters. This attitude was best
characterized by Congressman Annunzio when he stated during a
Small Business Subcommittee hearing that the "SBA officials are
more interested in covering up than uncovering scandals in the
Agency."
Your Committee fully expects SBA to diligently pursue any
wrongdoings on the part of SBA employees or any recipients and to
take firm and appropriate action where necessary.
DIRECT LOANS
In every loan ceiling increase report filed by this Committee in recent
years the Committee has consistently urged the Small Business Ad-
ministration to increase the amount of money it is making available
to direct regular business loans. Despite these urgings, SBA has totally
ignored the Committee's wishes. For instance, in fiscal year 1974 SBA
made only $40 million available in direct (a) loans and $22 million
available in immediate participation loans. Under the immediate par-
ticipation loans SBA provides up to 80% of the funds while private
lenders provide the rest of the money. On a direct loan SBA provides
6
100% of the financing. The Small Business Administration has sub-
mitted a budget identical to 1974 for direct and immediate participa-
tion loans during fiscal year 1975. While these figures are pale indeed
to the more than $1 billion that SBA will make available in guarantees
during 1974 and 1975, they could be reduced even further if the Office
of Management and Budget impounds additional direct loan funds
as it has done in previous years. "The trend away from direct loans
and more towards bank guaranteed loans is indeed alarming to your
Committee. It has resulted in saddling small businessmen with millions
of dollars in excess interest rates at a time when they least can afford
to pay such rates. Under the guaranteed loan program SBA allows
banks to charge an interest rate which is adopted on a quarterly basis
by the Agency. Prior to adopting this method of setting interest rates,
the SBA allowed the banks to charge whatever rate the banks desired
and on occasion that rate approached 13%. Under the new SBA rate
setting program, the rate has reached as high as 11% and currently
is set as 101/2%.
Instead of assisting small. businessmen with low cost direct loans
as money has tightened, SBA has gone in just the opposite direction
and has forced thousands of small businessmen to pay unnecessary
extra interest charges.
In 1965, for example, 92.2% of SBA's business loan activities were
in the form of either direct or immediate participation. However, in
1973 direct and immediate participation loans had fallen to only 6.8%
of the volume. Your Committee feels that since SBA has refused to
reverse the trend through the suggestion route that it is now necessary
to direct the change through the legislative route.
For this reason, H.R. 15578 directs the Small Business Administra-
tion to make available $400 million in direct loans during fiscal year
1975. The $400 million represents roughly 1/3 of the authorization in-
crease requested by SBA and will go a long way towards reversing the
trend of requiring small businessmen to pay unnecessary high rates
for loans.
In the past, the Office of Management and Budget has given as its
excuse for refusing to allow SBA to make more guaranteed loans the
statutory interest rates on these loans of 51/2%. The Office of Manage-
ment and Budget contends that it costs the government more to obtain
the money than it would receive in interest from the Small Business
Administration direct loans and thus the loans were being provided
on a loss basis.
Your Committee has remedied that situation by removing the statu-
tory interest rate of 5½%. In its place the Committee has substituted
a formula which sets the rate at the cost of money to the government
plus 1/4% of 1% for servicing fees. Under present interest rates that
formula would result in an interest of approximately 61/8% to 61/4%
on a direct loan. While this raises the rate on direct loans in actuality,
it is a large reduction in the amount the small businessman would have
to pay if he was forced to obtain a bank guaranteed loan which cur-
rently is set at 101/2%.
The new rate will result in not only a lower interest rate to small
businessmen, but will also turn the loans into a profitmaking situation
for the Federal government.
7
Since H.R. 15578 removes the OMB objection to a less than market
interest rate on direct loans, there can be no reason why SBA will not
make the $400 million available in direct loans. Your committee will
look with great disfavor on any attempt to short circuit this aid to
small businessmen.
In the event the SBA feels it does not have the necessary appropria-
tion authority to make this money available from the revolving fund,
your Committee expects SBA to immediately seek a supplemental
appropriation for the direct loans. Your Committee notes that Con-
gress has always granted SBA virtually every dollar it has requested
in loan appropriations.
SURETY BOND PAYMENTS
Your Committee adopted a provision which raised the amount of
the surety bond that SBA may guaranty from $500,000 to $1 million.
These are bonds that are issued to small businessmen by a surety and
which are then reinsured on a 90% basis by the Small Business Ad-
ministration. In voting for a 100% increase in these bonds, your Com-
mittee at the same time feels it is necessary to put this program on a
sound footing. The Small Business Administration contends that when
Congress enacted the surety bond program it did not intend to make
the program operate at a profit. While your Committee agrees that
the program was not designed with a profit to the government in mind,
at the same time it was not designed to incur the tremendous losses
that have arisen in this program. Although your Committee has been
presented with several sets of figures and additional testimony on the
losses in the program, it appears that the amount that SBA has paid
out to sureties in connection with contract defaults is in the neighbor-
hood of 200% in excess of the amount that SBA has taken in in fees
for these guarantees.
While these losses are themselves the subject of concern to the Com-
mittee, of even greater concern was the method in which SBA pre-
sented the results of a three-year test program to the Committee.
Small Business Administration Administrator, Thomas Kleppe, was
extremely vague in providing loss figures to Congressman Cotter dur-
ing the colloquy on surety bond results. This less than candid approach
by the Agency on the subject of surety bonds heightens your Com-
mittee's belief that the program might need an upward revision in its
rate structure.
Since SBA, by its own testimony, states that the surety bond pro-
gram was designed as a pilot project and that initial fees were arbi-
trarily set until an experience factor could be obtained, your Commit-
tee feels it is now time to readjust the fee schedule. There was a
reluctance on the part of many Committee members to support the
increase in the amount of surety bonds from $500,000 to $1 million
unless the fee schedule placed SBA closer to a break-even point.
The Small Business Administration contends that by requiring it
to use sound actuarial methods and underwriting procedures in estab-
lishing rates for the surety bonds, these bonds will be placed out of the
reach of small businessmen. Your Committee feels, however, that the
SBA is "shooting from the hip" in this area and has not presented
detailed information to back up its argument. Your Committee finds
8
it strange that an Agency that could not even correctly inform the
Committee of the excess of default payments to set income, suddenly
is able to predict economic disaster for the surety bond program. If
agencies of the government are to suggest pilot programs to the Con-
gress then these agencies must be willing to use the results of the pilot
programs in drafting permanent program procedures.
CHIEF COUNSEL FOR ADVOCACY
A number of small business trade associations have suggested that
a position be created within the Small Business Administration to
be known as the Chief Counsel for Advocacy. Basically, this posi-
tion would serve as an ombudsman for small business. The fact that
thousands of small businessmen across the Country feel that it is
necessary for an agency with a single constituency to be forced to es-
tablish an office to advocate the position of small businessmen, merely
confirms the findings of the Committee's Small Business Subcom-
mittee of mismanagement and criminal activities within the SBA.
If the SBA were meeting the needs of small businesses throughout the
Country it would not be necessary to create the position of Chief
Counsel for Advocacy. However, your Committee believes that such
a position is needed and that this position could be of great assistance
not only in helping small businesses but also to point out the short-
comings of the Agency.
While your Committee does not mean to imply through the title
of Chief Counsel for Advocacy that the person filling this post need
be a lawyer, your Committee at the same time expects this position
to be placed at a high enough level within the Agency to insure that
its operations will not be thwarted because of a lengthy chain of
command within the Agency.
Your Committee also recognizes the fact that in order for the office
of the Chief Counsel for Advocacy to be effective, it is necessary that
this position be given a great deal of latitude in its operation and
that it not be filled by a person who will become a "yes" man for
the Agency. It must be pointed out that the first allegiance of the
Chief Counsel for Advocacy is to the small businessmen of the Coun-
try-not to the Small Business Administration. Consequently, in re-
viewing the operations of this new office; your Committee will use
that criteria to measure performance.
GENERAL ACCOUNTING OFFICE AUDIT
Although the General Accounting Office does audit the operations
of the Small Business Administration this is only done on a selected
program basis and does not result in an annual overall report on the
Agency's operations.
While your Committee realizes the monetary and manpower limi-
tations, it is not suggesting that such a report be required on an
annual basis. However, your Committee is concerned that it is im-
possible for SBA to uncover all the problems within its own Agency
by conducting an in-house audit. Therefore, the only alternative is
to ask the GAO to make such an audit. Several members of the Com-
mittee have stated that without this audit they could not vote for
9
H.R. 15578, paricularly in light of the discoveries made by the Small
Business Subcommittee with regard to mismanagement and criminal
activities.
TECHNICAL ASSISTANCE
During its oversight hearings of the Small Business Administra-
tion, the Small Business Subcommittee repeatedly heard testimony
from small businessmen, particularly minority small businessmen,
about the lack of technical assistance provided SBA borrowers.
The prevalent feeling among the witnesses appeared to be that
the SBA would provide the money to small businessmen and then
forget about them. Several witnesses testified that they made repeated
attempts to secure technical assistance from the Agency but were un-
able to obtain help.
Your Committee feels that the SBA is not meeting its commitment
to small businessmen merely by providing a loan or a contract award.
The Committee has numerous cases in its file of loan situations that
have gone into default which might have been saved had SBA fol-
lowed through with technical assistance.
One witness during the Chicago field hearing testified that when
big businesses have a tax, legal, or bidding problem it merely brings in
its in-house experts in this area or hires outside consultants. Small
businessmen, the witness contended, do not have the resources to ob-
tain the services of such individuals and are forced to seek solutions
to their problems without expert advice. This situation has forced
many small businesses into bankruptcy.
The witness suggested that the SBA should maintain a staff of
experts in such fields as law, taxation, contract procurement, labor
negotiations, and other related fields of importance to small business-
men who can provide services on a direct case-by-case basis to small
businessmen.
Your Committee realizes that such positions would increase the
cost of the operation of the Agency, but this increase would be a small
comparison to the millions of dollars in defaulted loans that would
be saved if these individuals were quickly and inexpensively available
to small businessmen.
COST OF CARRYING OUT THE BILL
In compliance with Clause 7 of Rule 13 of the House of Repre-
sentatives, the following statement is made relative to the cost of carry-
ing out this bill. Since the main section of the legislation merely in-
creases the ceilings under which loans or guarantees can be expended
out of repayments of existing loans, there would be no budgetary
impact in carrying out these provisions. The other loan programs
included in this legislation, except handicap loan assistance, would
all bear profitmaking interest rates, i.e., above the cost of money to
the government, and, therefore, should not result in any increased
long-term expenditures. Since SBA has not made any direct handicap
assistance loans, there would appear to be no direct cost to the gov-
ernment for that program. The only area of the legislation which
might result in a cost increase would be in the creation of an Asso-
H. Rept. 93-1178-2
10
ciate Administrator for Minority Business and a Chief Counsel for
Advocacy. The creation of a new Associate Administrator will re-
quire only the upgrading of an existing position and will increase the
cost of this legislation only a few thousand dollars. There may not
necessarily be a cost increase in the creation of the Chief Counsel for
Advocacy since the legislation does not preclude the Agency from
appointing a current employee to that position.
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3 of rule XIII of the Rules of the House
of Representatives, changes in existing law made by the bill, as
reported, are shown as follows (existing law proposed to be omitted
is enclosed in black brackets, new matter is printed in italic, existing
law in which no change is proposed is shown in roman) :
SMALL BUSINESS ACT
SEC. 1. This Act may be cited as the "Small Business Act."
SEC. 2. (a) The essence of the American economic system of private
enterprise is free competition. Only through full and free competition
can free markets, free entry into business, and opportunities for the
expression and growth of personal initiative and individual judgment
be assured. The preservation and expansion of such competition is
basic not only to the economic well-being but to the security of this
Nation. Such security and well-being cannot be realized unless the
actual and potential capacity of small business is encouraged and
developed. It is the declared policy of the Congress that the Govern-
ment should aid, counsel, assist and protect, insofar as is possible, the
interests of small-business concerns in order to preserve free competi-
tive enterprises, to insure that a fair proportion of the total pur-
chases and contracts or subcontracts for property and services for the
Government (including but not limited to contracts or subcontracts
for maintenance, repair, and construction) be placed with small-busi-
ness enterprises, to insure that a fair proportion of the total sales of
Government property be made to such enterprises, and to maintain
and strengthen the overall economy of the Nation.
(b) The assistance programs authorized by sections 7(i) and 7(j)
of this Act are to be utilized to assist in the establishment, preserva-
tion, and strengthening of small business concerns and improve the
managerial skills employed in such enterprises, with special attention
to small business concerns (1) located in urban or mural areas with
high proportions of unemployed or low-income individuals; or (2)
owned by low-income individuals; and to mobilize for these objectives
private as well as public managerial skills and resources.
[(b)] (c) Further, it is the declared policy of the Congress that the
Government should aid and assist victims of floods and other catas-
trophes, and small-business concerns which are displaced as a result of
federally aided construction programs,
SEC. 4. (a)
(b) The management of the Administration shall be vested in an
Administrator who shall be appointed from civilian life by the Presi-
dent, by and with the advice and consent of the Senate, and who shall
11
be a person of outstanding qualifications known to be familiar and
sympathetic with small-business needs and problems. The Adminis-
trator shall not engage in any other business, vocation, or employment
than that of serving as Administrator. In carrying out the programs
administered by the Small Business Administration including its
lending and guaranteeing functions, the Administrator shall not dis-
criminate on the basis of sex or marital status against any person or
small business concern applying for or receiving assistance from the
Small Business Administration, and the Small Business Administra-
tion shall give special consideration to veterans of the Armed Forces
of the United States and their survivors or dependents. The Adminis-
trator is authorized to appoint a Deputy Administrator and [three]
four Associate Administrators (including the Associate Administra-
tor specified in section 201 of the Small Business Investment Act of
1958) to assist in the execution of the functions vested in the Admin-
istration. The Deputy Administrator shall be Acting Administrator
of the Administration during the absence or disability of the Ad-
ministrator or in the event of a vacancy in the office of the Administra-
tor. One of the Associate Administrators shall be designated at the
time of his appointment as the Associate Administrator for Minority
Small Business and shall be responsible to the Administrator for the
formulation of policy relating to the Administration's programs
which provide assistance to minority small business concerns and in
the review of the Administration's execution of such programs in the
light of such policy.
(c) (1) There are hereby established in the Treasury the following
revolving funds: (A) a disaster loan fund which shall be available for
financing functions performed under sections (b) (1), 7(b) (2), 7 (b)
(4), 7(b) (5), 7(b) (6), (b) (7), 7(b) (8), 7(c) (2), and 7 (g) of this
Act, including administrative expenses in connection with such func-
tions; and (B) a business loan and investment fund which shall be
available for financing functions performed under sections 7 (a), 7 (b)
(3), 7 (e), [7 (g) (h), 7(i), and 8 (a) of this Act, and titles III and
V of the Small Business Investment Act of 1958, [and title IV of the
Economic Opportunity Act of 1964,] including administrative ex-
penses in connection with such functions.
(2) All repayments of loans and debentures, payments of interest
and other receipts arising out of transactions heretofore or hereafter
entered into by the Administration (A) pursuant to sections 7 (b) (1),
7(b) (2), (b) (4), 7(b) (5), (b) (6), (b) (7), 7(b) (8), and 7(c) (2)
of this Act shall be paid into [the] a disaster loan fund; and (B)
pursuant to sections (a), (b) (3), 7(e), (h), (i), and 8 (a) of this
Act, and titles III and V of the Small Business Investment Act of
1958, [and title IV of the Economic Opportunity Act of 1964,] shall
be paid into the business loan and investment fund.
(3) Unexpended balances of appropriations made to the fund pur-
suant to this subsection, as in effect immediately prior to the effective
date of this paragraph, shall be allocated, together with related assets
and liabilities, to the funds established by paragraph (1) in such
amounts as the Administrator shall determine. In addition to any
sums SO allocated, appropriations are hereby authorized to be made
to such funds, as capital thereof, in such amounts as may be necessary
12
to carry out the functions of the Administration, which appropriations
shall remain availabel until expended.
(4) The total amount of loans, guarantees, and other obligations or
commitments, heretofore or hereafter entered into by the Administra-
tion, which are outstanding at any one time (A) under sections 7(a),
7(b) (3), (e), 7(h), 7(i), and 8 (a) of this Act, [and title IV of the
Economic Opportunity Act of 1964,] shall not exceed [$4,875,000,000]
$6,000,000,000; (B) under title III of the Small Business Investment
Act of 1958, shall not exceed [$556,250,000] $725,000,000; (C) under
title V of the Small Business Investment Act of 1958, shall not exceed
$525,000,000; and (D) under [title IV of the Economic Opportunity
Act of 1964 section 7 (i) of this Act, shall not exceed [$381,250,000]
$450,000,000.
*
*
*
*
*
*
*
SEC. 5. (a)
*
(b) In the performance of, and with respect to, the functions,
powers, and duties vested in him by this Act the Administrator may-
(1) sue and be sued in any court of record of a State having
general jurisdiction, or in any United States district court, and
jurisdiction is conferred upon such district court to determine
such controversies without regard to the amount in controversy;
but no attachment, injunction, garnishment, or other similar
process, mesne or final, shall be issued against the Administrator
or his property;
(2) under regulations prescribed by him, assign or sell at public
or private sale, or otherwise dispose of for cash or credit, in his
discretion and upon such terms and conditions and for such con-
sideration as the Administrator shall determine to be reasonable,
any evidence of debt, contract, claim, personal property, or secu-
rity assigned to or held by him in connection with the payment of
loans granted under this Act, and to collect or compromise all
obligations assigned to or held by him and all legal or equitable
rights accruing to him in connection with the payment of such
loans until such time as such obligations may be referred to the
Attorney General for suit or collection;
(3) deal with, complete, renovate, improve, modernize, insure,
or rent, or sell for cash or credit upon such terms and conditions
and for such consideration as the Administrator shall determine
to be reasonable, any real property conveyed to or otherwise
acquire by him in connection with the payment of loans granted
under this Act;
(4) pursue to final collection, by way of compromise or other-
wise, all claims against third parties assigned to the Adminis-
trator in connection with loans made by him. This shall include
authority to obtain deficiency judgments or otherwise in the case
of mortgages assigned to the Administrator. Section 3709 of the
Revised Statutes, as amended (41 U.S.C., sec. 5), shall not be
construed to apply to any contract of hazard insurance or to any
purchase or contract for services or supplies on account of prop-
erty obtained by the Administrator as a result of loans made
under this Act if the premium therefor or the amount thereof does
13
not exceed $1,000. The power to convey and to execute in the name
of the Administrator deeds of conveyance, deeds of release, as-
signments and satisfactions of mortgages, and any other written
instrument relating to real property or any interest therein ac-
quired by the Administrator pursuant to the provisions of this
Act may be exercised by the Administrator or by any officer or
agent appointed by him without the execution of any express
delegation of power or power of attorney. Nothing in this section
shall be construed to prevent the Administrator from delegating
such power by order or by power of attorney, in his discretion,
to any officer or agent he may appoint;
(5) acquire, in any lawful manner, any property (real, per-
sonal, or mixed, tangible or intangible), whenever deemed neces-
sary or appropriate to the conduct of the activities authorized in
section 7 (a) and 7 (b)
(6) make such rules and regulations as he deems necessary to
carry out the authority vested in him by or pursuant to this Act;
(7) in addition to any powers, functions, privileges, and im-
munities otherwise vested in him, take any and all actions, includ-
ing the procurement of the services of attorneys by contract, de-
termined by him to be necessary or desirable in making, servicing,
compromising, modifying, liquidating, or otherwise dealing with
or realizing on loans made under the provisions of this Act; but
no attorneys' services shall be procured by contract in any office
where an attorney or attorneys are or can be economically em-
ployed full time to render such services;
(8) pay the transportation expenses and per diem in lieu of
subsistence expenses, in accordance with the Travel Expense Act
of 1949, for travel of any person employed by the Administration
to render temporary services not in excess of six months in con-
nection with any disaster referred to in section 7(b) from place
of appointment to, and while at, the disaster area and any other
temporary posts of duty and return upon completion of the as-
signment; [and]
(9) accept the services and facilities of Federal, State, and local
agencies and groups, both public and private, and utilize such
gratuitous services and facilities as may, from time to time, be
necessary, to further the objectives of section 7(b)[];
(10) upon purchase by the Administration of any deferred
participation entered into under section 7 of this Act, continue to
charge a rate of interest not to exceed that initially charged by
the participating institution on the amount 80 purchased for the
remaining term of the indebtedness; and
(11) make such investigations as he deems necessary to de-
termine whether a recipient of or participant in any assistance
under this Act or any other person has engaged or is about to
engage in any acts or practices which constitute or will constitute
a violation of any provision of this Act, or of any rule or regula-
tion under this Act, or of any order issued under this Act. The
Administration shall permit any person to file with it a statement
in writing, under oath or otherwise as the Administration shall
determine, as to all the facts and circumstances concerning the
14
matter to be investigated. For the purpose of any investigation,
the Administration is empowered to administer oaths and affirma-
tions, subpena witnesses, compel their attendance, take evidence,
and require the production of any books, papers, and documents
which are relevant to the inquiry. Such attendance of witnesses
and the production of any such records may be required from any
place in the United States. In case of contumacy by, or refusal to
obey a subpena issued to, any person, including a recipient or
participant, the Administration may invoke the aid of any court
of the United States within the jurisdiction of which such investi-
gation or proceeding is carried on, or where such person resides
or carries on business, in requiring the attendance and testimony
of witnesses and the production of books, papers, and documents;
and such court may issue an order requiring such person to appear
before the Administration, there to produce records, if so ordered,
or to give testimony touching the matter under investigation. Any
failure to obey such order of the court may be punished by such
court as a contempt thereof. All process in any such case may be
served in the judicial district whereof such person is an inhabitant
or wherever he may be found.
*
*
*
*
(d) Section 3648 of the Revised Statutes (31 U.S.C. 529) shall not
apply to prepayments of rentals made by the Administration on safety
deposit boxes used by the Administration for the safeguarding of in-
struments held as security for loans or for the safeguarding of other
documents.
(e) The Administrator shall designate an individual within the Ad-
ministration to be known as the Chief Counsel for Advocacy and to
perform the following duties:
(1) serve as a focal point for the receipt of complaints, criti-
cisms and suggestions concerning the policies and activities of the
Administration and any other Federal agency which affects small
businesses;
(2) counsel small businesses on how to resolve questions and
problems concerning the relationship of the small business to the
Federal Government;
(3) develop proposals for changes in the policies and activities
of any agency of the Federal Government which will better ful-
fill the purposes of the Small Business Act and communicate such
proposals to the appropriate Federal agencies;
(4) represent the views and interests of small businesses before
other Federal agencies whose policies and activities may affect
small businesses; and
(5) enlist the cooperation and assistance of public and private
agencies, businesses, and other organizations in disseminating in-
formation about the programs and services provided by the Fed-
eral Government which are of benefit to small businesses, and in-
formation on how small businesses can participate in or make use
of such programs and services.
15
SEC. 7. (a) The Administration is empowered to make loans to
enable small-business concerns to finance plant construction, conver-
sion, or expansion, including the acquisition of land; or to finance the
acquisition of equipment, facilities, machinery, supplies, or materials;
or to supply such concerns with working capital to be used in the
manufacture of articles, equipment, supplies, or materials for war,
defense, or civilian production or as may be necessary to insure a well-
balanced national economy; and such loans may be made or effected
either directly or in cooperation with banks or other lending institu-
tions through agreements to participate on an immediate or deferred
basis. The foregoing powers shall be subject, however, to the following
restrictions and limitations:
(1) No financial assistance shall be extended pursuant to this
subsection unless the financial assistance applied for is not other-
wise available on reasonable terms.
(2) No immediate participation may be purchased unless it is
shown that a deferred participation is not available; and no loan
may be made unless it is shown that a participation is not avail-
able.
(3) In agreements to participate in loans on a deferred basis
under this subsection, such participation by the Administration
shall not be in excess of 90 per centum of the balance of the loan
outstanding at the time of disbursement.
(4) Except as provided in paragraph (5) (A), no loan under
this subsection shall be made if the total amount outstanding and
committed (by participation or otherwise) to the borrower from
the revolving fund established by this Act would exceed $350,000;
(B) the rate of interest for the Administration's share of any
such loan shall be [no more than 51/2] the average annual inter-
est rate on all interest-bearing obligations of the United States
then forming a part of the public debt as computed at the end of
the fiscal year next preceding the date of the loan and adjusted
to the nearest one-eighth of 1 per centum plus one-quarter of 1
per centum per annum; and (C) no such loan, including renewals
or extensions thereof, may be made for a period or periods ex-
ceeding ten years except that such portion of a loan made for the
purpose of constructing facilities may have a maturity of fifteen
years plus such additional period as is estimated may be required
to complete such construction.
(5) In the case of any loan made under this subsection to a
corporation formed and capitalized by a group of small-business
concerns with resources provided by them for the purpose of ob-
taining for the use of such concerns raw materials, equipment, in-
ventories, supplies or the benefits of research and development,
or for establishing facilities for such purpose, (A) the limitation
of $350,000 prescribed in paragraph (4) shall not apply, but the
limit of such loan shall be $250,000 multiplied by the number of
separate small businesses which formed and capitalized such cor-
poration; (B) the rate of interest for the Administration's share
of any such loan shall be [no less than 3 nor more than 5] the
16
average annual interest rate on all interest-bearing obligations of
the United States then forming a part of the public debt as com-
puted at the end of the fiscal year next preceding the date of the
loan and adjusted to the nearest one-eighth of 1 per centum plus
one quarter of 1 per centum per annum; and (C) such loan, in-
cluding renewals and extensions thereof, may not be made for a
period or periods exceeding ten years except that if such loan is
made for the purpose of constructing facilities it may have a
maturity of twenty years plus such additional time as is required
to complete such construction.
(7) All loans made under this subsection shall be of such sound
value or SO secured as reasonably to assure repayment.
(8) During the fiscal year ending June 30, 1975, the Adminis-
trator shall make direct loans under this subsection in an aggre-
gate amount of not less than $400,000,000.
(b) The Administration also is empowered-
(1) to make such loans (either directly or in cooperation with
banks or other lending institutions through agreements to par-
ticipate on an immediate or deferred basis) as the Administration
may determine to be necessary or appropriate because of floods,
riots or civil disorders, or other catastrophes:
(2) to make such loans (either directly or in coopeartion with
banks or other lending institutions through agreements to par-
ticipate on an immediate or deferred basis) as the Administration
may determine to be necessary or appropriate to any small busi-
ness concern located in an area affected by a disaster, if the Ad-
ministration determines that the concern has suffered a substan-
tial economic injury as a result of such disaster and if such dis-
aster constitutes-
(A) a major disaster, as determined by the President under
the Act entitled "An Act to authorize Federal assistance to
States and local governments in major disasters, and for
other purposes", approved September 30, 1950, as amended
(42 U.S.C. 1855-1855g), or
(B) a natural disaster, as determined by the Secretary of
Agriculture pursuant to the Consolidated Farmers Home Ad-
ministration Act of 1961 (7 U.S.C. 1961) ;
(3) to make such loans (either directly or in cooperation with
banks or other lending institutions through agreements to partic-
ipate on an immediate or deferred basis) as the Administration
may determine to be necessary or appropriate to assist any small
business concern or appropriate to assist any small business con-
cern in continuing in business at its existing location, in reestab-
lishing its business, in purchasing a business, or in establishing a
new business, if the Administration determines that such concern
has suffered substantial economic injury as the result of its dis-
placement by, or location in, adjacent to, or near, a federally aided
urban renewal program or a highway project or any other con-
struction constructed by or with funds provided in whole or in
part by the Federal Government; and the purpose of a loan made
pursuant to such project or program may, in the discretion of the
17
Administration, include the purchase or construction of other
premises whether or not the borrower owned the premises occupied
by the business; and
(4) to make such loans (either directly or in cooperation with
banks or other lending institutions through agreements to partic-
ipate on an immediate or deferred basis) as the Administration
may determine to be necessary or appropriate to assist any small
business concern in reestablishing its business if the Administra-
tion determines that such concern has suffered substantial eco-
nomic injury as a result of the inability of such concern to proc-
ess or market a product for human consumption because of disease
or toxicity occurring in such product through natural or undeter-
mined causes: Provided, That loans under this paragraph include
loans to persons who are engaged in the business of raising live-
stock (including but not limited to cattle, hogs, and poultry), and
who suffer substantial economic injury as a result of animal
disease; and
(5) to make such loans (either directly or in cooperation with
banks or other lending institutions through agreements to partici-
pate on an immediate or deferred basis) as the Administration
may determine to be necessary or appropriate to assist any small
business concern in effecting additions to or alterations in its
plant, facilities, or methods of operation to meet requirements
imposed on such concern pursuant to any Federal law, any State
law enacted in conformity therewith, or any regulation or order
of a duly authorized, Federal, State, regional, or local agency
issued in conformity with such Federal law, if the Administration
determines that such concern is likely to suffer substantial eco-
nomic injury without assistance under this paragraph: Provided,
That the maximum loan made to any small business concern under
this paragraph shall not exceed the maximum loan which, under
rules or regulations prescribed by the Administration, may be
made to any business enterprise under paragraph (1) of this sub-
section; and
(6) to make such loans (either directly or in cooperation with
banks or other lending institutions through agreements to par-
ticipate on an immediate or deferred basis) as the Administra-
tion may determine to be necessary or appropriate to assist, or
to refinance the existing indebtedness of, any small business con-
cern directly and seriously affected by the significant reduction
of the scope or amount of Federal support for any project as a
result of any international agreement limiting the development
of strategic arms or the installation of strategic arms or strategic
arms facilities, if the Administration determines that such con-
cern is likely to suffer substantial economic injury without assist-
ance under this paragraph.
(7) to make such loans (either directly or in cooperation with
banks or other lending institutions through agreements to par-
ticipate on an immediate or deferred basis) as the Administration
may determine to be necessary or appropriate to assist any small
business concern in continuing in business at its existing location,
H. Rept. 93-1178-3
18
in reestablishing its business, in purchasing a new business, or in
establishing a new business if the Administration determines that
such concern has suffered or will suffer substantial economic
injury as the result of the closing by the Federal Government of a
major military installation under the jurisdiction of the Depart-
ment of Defense, or as a result of a severe reduction in the scope
and size of operations at a major military installation and
(8) to make such loans (either directly or in cooperation with
banks or other lending institutions through agreements to partici-
pate on an immediate or deferred basis) as the Administration
may determine to be necessary or appropriate to assist, or refinance
the existing indebtedness of, any small business concern seriously
and adversely affected by a shortage of fuel, electrical energy, or
energy-producing resources, or by a shortage of raw or processed
materials resulting from such shortages, if the Administration de-
termines that such concern has suffered or is likely to suffer sub-
stantial economic injury without assistance under this paragraph.
No loan under this subsection, including renewals and extensions
thereof, may be made for a period or periods exceeding thirty years:
Provided, That the Administrator may consent to a suspension in the
payment of principal and interest charges on, and to an extension in
the maturity of, the Federal share of any loan under this subsection
for a period not to exceed five years, if (A) the borrower under such
loan is a homeowner or a small business concern, (B) the loan was
made to enable (i) such homeowner to repair or replace his home, or
(ii) such concern to repair or replace plant or equipment which was
damaged or destroyed as the result of a disaster meeting the require-
ments of clause (A) or (B) of paragraph (2) of this subsection, and
(C) the Administrator determines such action is necessary to avoid
severe financial hardship: Provided further, That the provisions of
paragraph (1) of subsection (c) of this section shall not be applicable
to any such loan having a maturity in excess of twenty years. Not-
withstanding the provisions of any other law, and except as otherwise
provided in this subsection, the interest rate on the Administration's
share of any loan made under this subsection shall not exceed 3 per
centum per annum, except that in the case of a loan made pursuant to
paragraph (3), (5), (6), [or] (7), or (8), the rate of interest on the
Administration's share of such loan shall not be more than the higher
of (A) 23/4 per centum per annum; or (B) the average annual interest
rate on all interest-bearing obligations of the United States then form-
ing a part of the public debt as computed at the end of the fiscal year
next preceding the date of the loan and adjusted to the nearest one-
eighth of 1 per centum plus one-quarter of 1 per centum per annum. In
agreements to participate in loans on a deferred basis under this sub-
section, such participation by the Administration shall not be in excess
of 90 per centum of the balance of the loan outstanding at the time of
disbursement.
In the administration of the disaster loan program under para-
graphs (1), (2), and (4) of this subsection, in the case of property loss
or damage or injury resulting from a major disaster as determined by
the President or a disaster as determined by the Administrator which
occurs on or after January 1, 1971, and prior to July 1, 1973, the Small
19
Business Administration, to the extent such loss or damage OT injury
is not compensated for by insurance or otherwise
(A) may make any lean for repair, voliabilitation, or replace-
ment of uppoperty damaged or destroyed without regard to
whether the required furancial assistance is otherwise available
from private sources;
(B) may, in the case of the total destruction or substantial
property damage of a home or business concern, refinance any
mortgage or other liens outstanding against the destroyed or
damaged property if such property is to be repaired, rehabilitated,
or replaced, except that (1) in the case of a business concern, the
amount refinanced shall not exceed the amount of the physical
loss sustained, and (2) in the case of a home, the amount of each
monthly payment of principal and interest on the loan after
refinancing under this clause shall be not less than the amount of
each such payment made prior to such refinancing;
(C) may, in the case of a loan made under clause (A) or
a mortgage or other lien refinanced under clause (B) in con-
nection with the destruction of, or substantial damage to, prop-
erty owned and used as a residence by an individual who by
reason of retirement, disability, or other similar circumstances
relies for support on survivor, disability, or retirement benefits
under a pension, insurance, or other program, consent to the sus-
pension of the payments of the principal of that loan, mortgage,
or lien during the lifetime of that individual and his spouse for SO
long as the Administration determines that making such payments
would constitute a substantial hardship;
(D) shall, notwithstanding the provisions of any other law
and upon presentation by the applicant of proof of loss or dam-
age or injury and a bona fide estimate of cost of repair, rehabilita-
tion, or replacement, cancel the principal of any loan made to
cover a loss or damage or injury resulting from such disaster,
except that-
(i) with respect to a loan made in connection with a dis-
aster occurring on or after January 1, 1971 but prior to Jan-
uary 1, 1972, the total amount SO canceled shall not exceed
$2,500, and the interest on the balance of the loan shall be at
a rate of 3 per centum per annum; and
(ii) with respect to a loan made in connection with a dis-
aster occurring on or after January 1, 1972 but prior to July
1, 1973, the total amount SO canceled shall not exceed $5,000,
and the interest on the balance of the loan shall be at a rate of
1 per centum per annum.
With respect to any loan referred to in clause (D) which is outstand-
ing on the date of enactment of this paragraph, the Administrator
shall-
(i) make such change in the interest rate on the balance of such
loan as is required under that clause effective as of such date of
enactment; and
(ii) in applying the limitation set forth in that clause with
respect to the total amount of such loan which may be canceled,
consider as part of the amount SO canceled any part of such loan
20
which was previously canceled pursuant to section 231 of the
Disaster Relief Act of 1970.
Whoever wrongfully misapplies the proceeds of a loan obtained
under this subsection shall be civilly liable to the Administrator in an
amount equal to one-and-one-half times the original principal amount
of the loan.
(h) (1) The Administration also is empowered, where other finan-
cial assistance is not available on reasonable terms, to make such loans
(either directly or in cooperation with Banks or other lending institu-
tions through agreements to participate on an immediate or deferred
basis) as the Administration may determine to be necessary or
appropriate-
(A) to assist any public or private organization-
(i) which is organized under the laws of the United
States or of any State, operated in the interest of handicapped
individuals, the net income of which does not inure in whole
or in part to the benefit of any shareholder or other
individual;
(ii) which complies with any applicable occupational
health and safety standard prescribed by the Secretary of
Labor; and
(iii) which, in the production of commodities and in
the provision of services during any fiscal year in which it
receives financial assistance under this subsection, employs
handicapped individuals for not less than 75 per centum of
the man-hours required for the production or provision of the
commodities or services; or
(B) to assist any handicapped individual in establishing,
acquiring, or operating a small business concern.
(2) The Administration's share of any loan made under this sub-
section shall not exceed $350,000, nor may any such loan be made if the
total amount outstanding and committed (by participation or other-
wise) to the borrower from the business loan and investment fund
established by section 4 (c) (1) (B) of this Act would exceed $350,000.
In agreements to participate in loans on a deferred basis under this
subsection, the Administration's participation may total 100 per cen-
tum of the balance of the loan at the time of disbursement. [Any loan
made under this subsection shall bear interest at the rate of 3 per
centum per annum.] The Administration's share of any loan made
under this subsection shall bear interest at the rate of 3 per centum
per annum. The maximum term of any such loan, including extensions
and renewals thereof, may not exceed fifteen years. All loans made
under this subsection shall be of such sound value or SO secured
as reasonably to assure repayment: Provided, however, That any
reasonable doubt shall be resolved in favor of the applicant.
(3) For purposes of this subsection, the term "handicapped indi-
vidual" means a person who has a physical, mental, or emotional
impairment, defect, ailment, disease, or disability of a permanent
nature which in any way limits the selection of any type of employ-
ment for which the person would otherwise be qualified or qualifiable.
(i) (1) The Administration also is empowered to make, participate
21
(on an immediate basis) in, or guarantee loans, repayable in not more
than fifteen years, to any business concerne, or to any qualified
person seeking to establish such a concern, when it determines that
such loans will further the policies established in section 2(b) of this
Act, with particular emphasis on the preservation or establishment of
small business concerns located in urban or rural areas with high
proportions of unemployed or low-income individuals or owned by
low-income individuals: Provided, however, That no such loans shall
be made, participated in, or guaranteed if the total of such Federal
assistance to a single borrower outstanding at any one time would
exceed $50,000. The Administration may defer payments on the prin-
cipal of such loans for a grace period and use such other methods as
it deems necessary and appropriate to assure the successful establsh-
ment and operation of such concern. The Administration may, in its
discretion, as a condition of such financial assistance, require that the
borrower take steps to improve his management skills by participating
in a management training program approved by the Administration:
Provided, however, That any management training program 80 ap-
proved must be of sufficient scope and duration to provide reasonable
opportunity for the individuals served to develop entrepreneurial
and managerial self-sufficiency.
(2) The Administration shall encourage, as far as possible, the
participation of the private business community in the program of
assistance to such concerns, and shall seek to stimulate new private
lending activities to such concerns through the use of the loan guar-
antees, participations in loans, and pooling arrangements authorized
by this subsection.
(3) To insure an equitable distribution between urban and rural
areas for loans between $3,500 and $50,000 made under this subsec-
tion, the Administration is authorized to use the agencies and agree-
ments and delegations developed under title III of the Economic Op-
portunity Act of 1964, as amended, as it shall determine necessary.
(4) The Administration shall provide for the continuing evaluation
of programs under this subsection, including full information on the
location, income characteristics, and types of businesses and indi-
viduals assisted, and on new private lending activity stimulated, and
the results of such evaluation together with recommendations shall
be included in the report required by section 10(a) of this Act.
(5) Loans made pursuant to this subsection (including immediate
participation in and guarantees of such loans) shall have such terms
and conditions as the Administration shall determine, subject to the
following limitations-
(A) there is reasonable assurance of repayment of the loan;
(B) the financial assistance is not otherwise available on rea-
sonable terms from private sources or other Federal, State, or
local programs;
(C) the amount of the loan, together with other funds avail-
able, is adequate to assure completion of the project or achieve-
ment of the purposes for which the loans is made;
(D) the loan bears interest at a rate not less than (i) a rate
determined by the Secretary of the Treasury, taking into con-
sideration the average market yield on outstanding Treasury
22
obligations of comparable maturity, plus (ii) such additional
charge, if any, toward covering other costs of the program as the
Administration may determine to be consistent with its purposes:
Provided, however, That the rate of interest charged on loans
made in redevelopment areas designated under the Public Works
and Economic Development Act of 1965 (42 U.S.C. 3108 et seq.)
shall not exceed the rate currently applicable to new loans made
under section 201 of that Act (42 U.S.C. 3142) ; and
(E) fees not in excess of amounts necessary to cover adminis-
trative expenses and probable losses may be required on loan
guarantees.
(6) The Administration shall take such steps as may be necessary
to insure that, in any fiscal year, at least 50 per centum of the amounts
loaned or guaranteed pursuant to this subsection are allotted to small
business concerns located in urban areas identified by the Administra-
tion as having high concentrations of unemployed or low-income in-
dividuals or to small business concerns owned by low-income in-
dividuals. The Administration shall define the meaning of low income
as it applies to owners of small business concerns eligible to be assisted
under this subrection.
(7) No financial assistance shall be extended pursuant to this sub-
section where the Administration determines that the assistance will
be used in relocating establishments from one area to another if such
relocation would result in an increase in unemployment in the area
of original location.
(j) (1) The Administration is authorized to provide financial
assistance to public or private organizations to pay all or part of the
cost of projects designed to provide technical or management assistance
to individuals or enterprises eligible for assistance under subsection
7(i) of this Act, with special attention to small business located in
urban areas of high concentration of unemployed or low-income in-
dividuals or owned by low-income individuals.
(2) Financial assistance under this subsection may be provided for
projects, including without limitation-
(A) planning and research, including feasibility studies and
market research;
(B) the identification and development of new business oppor-
tunities;
(C) the furnishing of centralized services with regard to public
services and Government programs including programs author-
ized under subsection 7(i);
(D) the establishment and strengthening of business service
agencies, including trade associations and cooperatives;
(E) the encouragement of the placement of subcontracts by
major business with small business concerns located in urban
areas of high concentration of unemployed or low-income in-
dividuals or owned by low-income individuals, including the pro-
vision of incentives and assistance to such major businesses so that
they will aid in the training and upgrading of potential subcon-
tractors or other small business concerns; and
(F) the furnishing of business counseling, management train-
ing, and legal and other related services, with special emphasis
on the development of management training programs using the
23
resources of the business community, including the development
of management training opportunities in existing businesses, and
with emphasis in all cases upon providing management training
of sufficient scope and duration to develop entrepreneurial and
managerial self-sufficiency on the part of the individuals served.
(3) The Administration shall give preference to projects which
promote the ownership, participation in ownership, or management of
small business concerns by residents of urban areas of high concentra-
tion of unemployed or low-income individuals, and to projects which
are planned and carried out with the participation of local business-
men.
(4) The financial assistance authorized by this subsection includes
assistance advanced by grant, agreement, or contract, but does not
include the procurement of plant or equipment, or goods or services.
(5) The Administration is authorized to make payments under
grants and contracts entered into under this subsection in lump sum
or installments, and in advance or by way of reimbursement, and in
the case of grants, with necessary adjustments on account of overpay-
ments or underpayments.
(6) To the extent feasible, services under this subsection shall be
provided in a location which is easliy accessible to the individuals and
small business concerns served.
(7) The Administration shall provide for an independent and con-
tinuing evaluation of programs under this subsection, including full
information on, and analysis of, the character and impact of mana-
gerial assistance provided, the location, income characteristics, and
types of businesses and individuals assisted, and the extent to which
private resources and skills have been involved in these programs.
Such evaluation together with any recommendations deemed ad-
visable by the Administration shall be included in the report required
by section 10 (a) of this Act.
(8) The Administration shall take such steps as may be necessary
and appropriate, in coordination and cooperation with the heads of
other Federal departments and agencies, 80 that contracts, subcon-
tracts, and deposits made by the Federal Government or in connec-
tion with programs aided with Federal funds are placed in such a
way as to further the purposes of this subsection and of subsection
7(i) of this Act. The Administration shall provide for the continuing
evaluation of programs under this subsection and the results of such
evaluation together with recommendations shall be included in the
report required by section 10(a) of this Act.
(k) In carrying out its functions under subsections 7 (i) and 7(j)
of this Act, the Administration is authorized-
(1) to utilize, with their consent, the services and facilities of
Federal agencies without reimbursement, and, with the consent of
any State or political subdivision of a State, accept and utilize
the services and facilities of such State or subdivision without
reimbursement;
(2) to accept, in the name of the Administration, and employ
or dispose of in furtherance of the purposes of this Act, any money
or property, real, personal, or mixed, tangible or intangible, re-
ceived by gifts, devise, bequest, or otherwise;
24
(3) to accept voluntary and uncompensated services, notwith-
standing the provisions of section 3679(b) of the Revised Statutes
(31 U.S.C. 655 (b) and
(4) to employ experts and consultants or organizations thereof
as authorized by section 15 of the Administrative Expenses Act of
1946 (5 U.S.C. 55a), except that no individual may be employed
under the authority of this subsection for more than one hundred
days in any fiscal year; to compensate individuals 30 employed at
rates not in excess of $100 per diem, including traveltime; and to
allow them, while away from their homes or regular places of
business, travel expenses (including per diem in lieu of sub-
sistence) as authorized by section 5 of such Act (5 U.S.C. 73b-2)
for persons in the Government service employed intermittently,
white 80 employed: Provided, however, That contracts for such
employment may be renewed annually.
SEC. 10. (a)
(g) The Administration shall transmit, not later than December 31
of each year, to the Committee on Banking, Housing and Urban Af-
fairs of the Senate and the Committee on Banking and Currency of
the House of Representatives a sealed report with respect to-
(1) complaints alleging illegal conduct by employees of the
Administration which were received or acted upon by the Admin-
istration during the preceding fiscal year; and
(2) investigations undertaken by the Administration, includ-
ing external and internal audits and security and investigation
reports.
ECONOMIC OPPORTUNITY ACT OF 1964
[TITLE IV-EMPLOYMENT AND INVESTMENT
INCENTIVES
[STATEMENT OF PURPOSE
[SEC. 401. It is the purpose of this title to assist in the establishment,
preservation, and strengthening of small business concerns and im-
prove the managerial skills employed in such enterprises, with special
attention to small business concerns (1) located in urban or rural areas
with high proportions of unemployed or low-income individuals, or
(2) owned by low-income individuals; and to mobilize for these objec-
tives private as well as public managerial skills and resources.
[LOANS, PARTICIPATIONS, AND GUARANTIES
[SEC. 402. (a) The Administrator of the Small Business Administra-
tion is authorized to make, participate (on an immediate basis) in,
or guarantee loans, payable in not more than fifteen years, to any
25
small business concern (as defined in section 3 of the Small Business
Act (15 U.S.C. 632) and regulations issued thereunder), or to any
qualified person seeking to establish such a concern, when he deter-
mines that such loans will assist in carrying out the purposes of this
title, with particular emphasis on the preservation or establishment of
small business concerns located in urban or rural areas with high pro-
portions of unemployed or low-income individuals or owned by low-
income individuals: Provided, however, That no such loans shall be
made, participated in, or guaranteed if the total of such Federal as-
sistance to a single borrower outstanding at any one would exceed
$25,000. The Administrator of the Small Business Administration
may defer payments on the principal of such loans for a grace period
and use such other methods as he deems necessary and appropriate
to assure the successful establishment and operation of such concern.
The Administrator of the Small Business Administration may, in his
discretion, as a condition of such financial assistance, require that the
borrower take steps to improve his management skills by participat-
ing in a management training program approved by the Adminis-
trator of the Small Business Administration: Provided, however,
That any management training program SO approved must be of suf-
ficient scope and duration to provide reasonable opportunity for the
individuals served to develop entrepreneurial and managerial self-
sufficiency. The Administrator of the Small Business Administration
shall encourage, as far as possible, the participation of the private
business community in the program of assistance to such concerns,
and shall seek to stimulate new private lending activities to such con-
cerns through the use of the loan guaranties, participations in loans,
and pooling arrangements authorized by this section.
[(c) To the extent necessary or appropriate to carry out the pro-
grams provided for in this title the Administrator of the Small Busi-
ness Administration shall have the same powers as are conferred upon
the Director by section 602 of this Act. To insure an equitable distribu-
tion between urban and rural areas for loans between $3,500 and
$25,000 made under this title, the Administrator is authorized to use
the agencies and agreements and delegations developed under title III
of the Act as he shall determine necessary.
[(c) The Administrator shall provide for the continuing evaluation
of programs under this section, including full information on the loca-
tion, income characteristics, and types of businesses and individuals
assisted, and on new private lending activity stimulated, and the re-
sults of such evaluation together with recommendations shall be in-
cluded in the report by section 608.
[loan TERMS AND CONDITIONS
[SEc. 403. Loans made pursuant to section 402 (including immediate
participation in and guaranties of such loans) shall have such terms
and conditions as the Administrator of the Small Business Adminis-
tration shall determine, subject to the following limitations—
(a) there is reasonable assurance of repayment of the loan;
[(b) the financial assistance is not otherwise available on reason-
able terms from private sources or other Federal, State, or local
programs;
26
(c) the amount of the loan, together with other funds available,
is adequate to assure completion of the project or achievement of the
purposes for which the loan ismade;
[(d) the loan bears interest at a rate not less than (1) a rate deter-
mined by the Secretary of the Treasury, taking into consideration the
average market yield on outstanding Treasury obligations of compa-
rable maturity, plus (2) such additional charge, of any, toward cover-
ing other costs of the program as the Administrator of the Small
Business Administration may determine to be consistent with its pur-
poses: Provided, however, That the rate of interest charged on loans
made in redevelepment areas designated under the Area Redevelop-
ment Act (42 U.S.C. 2501 et seq.) shall not exceed the rate currently
applicable to new loans made under section 6 of that Act (42 U.S.C.
2505) ; and
[(e) fees not in excess of amounts necessary to cover administrative
expenses and probable losses may be required on loan guaranties.
[DISTRIBUTION OF FINANCIAL ASSISTANCE
[Sec. 404. The Administrator of the Small Business Administra-
tion shall take such steps as may be necessary to insure that, in any
fiscal year, at least 50 per centum of the amounts loaned or guaranteed
pursuant to this part are allotted to small business concerns located in
urban areas identified by the Director, after consideration of any
recommendations of the Administrator of the Small Business Admin-
istration, as having high concentrations of unemployed or low-income
individuals or to small business concerns owned by low income in-
dividuals. The Administrator of the Small Business Administration,
after consideration of any recommendations of the Director, shall de-
fine the meaning of low income as it applies to owners of small busi-
ness concerns eligible to be assisted under this part, and such defini-
tion need not correspond to the definition of low income as used else-
where in this Act.
[LIMITATION ON FINANCIAL ASSISTANCE
[Sec. 405. No financial assistance shall be extended pursuant to this
title where the Administrator of the Small Business Administration
determines that the assistance will be used in relocating establishments
from one area to another if such relocation would result in an increase
in unemployment in the area of original location.
[TECHNICAL ASSISTANCE AND MANAGEMENT TRAINING
[SEC. 406. (a) The Administrator of the Small Business Adminis-
tration is authorized to provide financial assistance to public or private
organizations to pay all or part of the costs of projects designed to
provide technical and management assistance to individuals or enter-
prises eligible for assistance under section 402, with special attention
to small business concerns located in urban areas of high concentration
of unemployed or low income individuals or owned by low-income
individuals.
27
[(b) Financial assistance under this section may be provided for
projects, including without limitation-
[(1) planning and research, including feasibility studies and
market research;
[(2) the identification and development of new business
opportunities;
[(3) the furnishing of centralized services with regard to public
services and government programs, including programs author-
ized under section 402;
[(4) the establishment and strengthening of business service
agencies, including trade associations and cooperatives;
[(5) the encouragement of the placement of subcontracts by
major business with small business concerns located in urban areas
of high concentration of unemployed or low-income individuals
or owned by low-income individuals, including the provision of
incentives and assistance to such major businesses so that they will
aid in the training and upgrading of potential subcontractors or
other small business concerns; and
[(6) the furnishing of business counseling, management train-
ing, and legal and other related services, with special emphasis.
on the development of management training programs using the
resources of the business community, including the development
of management training opportunities in existing businesses, and
with emphasis in all cases upon providing management training
of sufficient scope and duration to develop entrepreneurial and
managerial self-sufficiency on the part of the individuals served.
[(c) The Administrator of the Small Business Administration shall
give preference to projects which promote the ownership, participa-
tion in ownership, or management of small business concerns by
residents of urban areas of high concentration of unemployed or low-
income individuals, and to projects which are planned and carried out
with the participation of local businessmen.
[(d) To the extent feasible, services under this section shall be pro-
vided in a location which is easily accessible to the individuals and
small business concerns served.
[(e) The Administrator of the Small Business Administration
shall, in carrying out programs under this section, consult with and
take into consideration the views of the Secretary of Commerce, with
a view to coordinating activities and avoiding duplication of effort.
[(f) The President may, if he determines that it is necessary to
carry out the purposes of this part, transfer any of the functions
under this section to the Secretary of Commerce.
[(g) The Administrator of the Small Business Administration
shall provide for an independent and continuing evaluation of pro-
grams under this section, including full information on and analysis
of the character and impact of managerial assistance provided, the
location, income characteristics, and types of businesses and individ-
uals assisted, and the extent to which private resources and skills have
been involved in these programs. Such evaluation together with any
recommendations as he deems advisable shall be included in the report
required by section 608.
28
[GOVERNMENT CONTRACTS
[SEC. 407. (a) The Administrator of the Small Business Admin-
istration shall take such steps as may be necessary and appropriate,
in coordination and cooperation with the heads of other Federal de-
partments and agencies, SO that contracts, subcontracts, and deposits
made by the Federal Government or in connection with programs
aided with Federal funds are placed in such a way as to further the
purposes of this title.
[(b) The Administrator of the Small Business Administration
shall provide for the continuing evaluation of programs under this
section and the results of such evaluation together with recommenda-
tions shall be included in the report required by section 608.
[DURATION OF PROGRAM
[SEC. 408. The Administrator of the Small Business Administra-
tion and the Secretary of Commerce shall carry out the programs
provided for in this title during the fiscal year ending June 30, 1967,
and the eight succeeding fiscal years.]
*
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*
TITLE VI-ADMINISTRATION AND COORDINATION
PART A-ADMINISTRATION
*
*
*
*
*
*
AUTHORITY OF DIRECTOR
SEC. 602. In addition to the authority conferred upon him by other
sections of this Act, the Director is authorized, in carrying out his
functions under this Act, to—
(a)
***
*
*
*
(k) notwithstanding any other provision of law relating to the
acquisition, handling, or disposal of real or personal property by the
United States, deal with, complete, rent, renovate, modernize, or sell
for cash or credit at his discretion any properties acquired by him in
connection with loans, participations, and guaranties made by him
pursuant to [titles] title III [and IV] of this Act;
*
*
*
*
DEFINITIONS
SEC. 609. As used in this Act-
(1) the term "State" means a State, the Commonwealth of
Puerto Rico, the District of Columbia, Guam, American Samoa,
or the Virgin Islands, and for purposes of title I, title II, and
title III-A, [and title IV] the meaning of "State" shall also
include the Trust Territory of the Pacific Islands; except that
when used in section 225 of this Act this term means only a State,
29
Puerto Rico, or the District of Columbia. The term "United
States" when used in a geographical sense includes all those places
named in the previous sentence, and all other places continental
or insular, subject to the jurisdiction of the United States;
(2) the term "financial assistance" when used in titles I, II,
III-B, [IV,] and V-B includes assistance advanced by grant,
agreement, or contract, but does not include the procurement of
plant or equipment, or goods or services;
*
*
*
*
*
*
TITLE VII-COMMUNITY ECONOMIC DEVELOPMENT
*
*
*
*
ESTABLISHMENT OF PROGRAMS
SEC. 712. (a) The Director is authorized to provide financial assist-
ance to community development corporations and to cooperatives and
other nonprofit agencies in conjunction with qualifying community
development corporations for the payment of all or part of the costs
of programs which are designed to carry out the purposes of this part.
Such programs shall be restricted in number SO that each is of sufficient
size, scope, and duration to have an appreciable impact on the area
served. Such programs may include-
(1) economic and business development programs, including
programs which provide financial and other assistance (including
equity capital) to start, expand, or locate businesses in or near the
areas served SO as to provide employment and ownership oppor-
tunities for residents of such areas, and programs [including
those described in title IV of this Act] for small businesses in or
owned by residents of such areas;
(2) community development and housing activities which
create new training, employment, and ownership opportunities
and which contribute to an improved living environment; and
(3) manpower training programs for unemployed or low-
income persons which support and complement economic, busi-
ness, housing, and community development programs, including
without limitation activities such as those described in part B of
title I of this Act.
*
*
*
*
*
SMALL BUSINESS INVESTMENT ACT OF 1958
*
*
*
*
*
*
*
TITLE I-SHORT TITLE, STATEMENT OF POLICY, AND
DEFINITIONS
SHORT TITLE
SEC. 101. This Act, divided into titles and sections according to the
following table of contents, may be cited as the "Small Business In-
vestment Act of 1958."
30
TABLE OF CONTENTS
TITLE I-SHORT TITLE, STATEMENT OF POLICY, AND DEFINITIONS
Sec. 101. Short title.
Sec. 102. Statement of policy.
Sec. 103. Definitions.
TITLE II-SMALL BUSINESS INVESTMENT DIVISION OF THE SMALL BUSINESS
ADMINISTRATION
Sec. 201. Establishment of Small Business Investment Division.
Sec. 202. Provision and purposes of funds.
TITLE III-SMALL BUSINESS INVESTMENT COMPANIES
Sec. 301. Organization of small business investment companies.
Sec. 302. Capital stock and subordinated debentures.
Sec. 303. Borrowing power.
Sec. 304. Provision of equity capital for small-business concerns
Sec. 305. Long-term loans to small-business concerns.
Sec. 306. Aggregate limitations.
Sec. 307. Exemptions.
Sec. 308. Miscellaneous.
Sec. 309. Approving State chartered companies for operations under this Act.
[TITLE IV-LEASE GUARANTEE] TITLE IV-GUARANTEES
PART A-LEASE GUARANTEES
Sec. 401. Authority of the Administration.
Sec. 402. Powers.
Sec. 403. Fund.
PART B-SURETY BOND GUARANTEES
Sec. 410. Definitions.
Sec. 411. Authority of the Administration.
Sec. 412. Fund.
TITLE V-LOANS TO STATE AND LOCAL DEVELOPMENT COMPANIES
TITLE VI-CHANGES IN FEDEBAL RESERVE AUTHORITY
Sec. 601. Repeal of section 13b of the Federal Reserve Act.
Sec. 602. Fund for management counseling.
TITLE IV-GUARANTEES
PART A-LEASE GUARANTEES
TITLE VII-CRIMINAL PENALTIES
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*
*
*
*
*
*
TITLE IV-GUARANTEES
PART A-LEASE GUARANTEES
AUTHORITY OF THE ADMINISTRATION
SEC. 401. (a) The Administration may, whenever it determines
such action to be necessary or desirable, and upon such terms and
conditions as it may prescribe, guarantee the payment of rentals under
leases of commercial and industrial property entered into by small
business concerns to enable such concerns to obtain such leases. Any
31
such guarantee may be made or effected either directly or in coopera-
tion with any qualified surety company or other qualified company
through a participation agreement with such company. The foregoing
powers shall be subject, however, to the following restrictions and
limitations:
(1) No guarantee shall be issued by the Administration (A)
if a guarantee meeting the requirements of the applicant is other-
wise available on reasonable terms, and (B) unless the Admin-
istration determines that there exists a reasonable expectation that
the small business concern in behalf of which the guarantee is is-
sued will perform the covenants and conditions of the lease.
(2) The Administration shall, to the greatest extent practi-
cable, exercise the powers conferred by this section in cooperation
with qualified surety or other companies on a participation basis.
(b) The Administration shall fix a uniform annual fee for its share
of any guarantee under this section which shall be payable in advance
at such time as many be prescribed by the Administrator. The amount
of any such fee shall be determined in accordance with sound actuarial
practices and procedures, to the extent practicable, but in no case
shall such amount exceed, on the Administration's share of any guar-
antee made under this part, 21/2 per centum per annum of the mini-
mum annual guaranteed rental payable under any guaranteed lease:
Provided, That the Administration shall fix the lowest fee that experi-
ence under the program established hereby has shown to be justified.
The Administration may also fix such uniform fees for the porcessing
of applications for guarantees under this section as the Administrator
determines are reasonable and necessary to pay the administrative
expenses that are incurred in connection therewith.
(c) In connection with the guarantee of rentals under any lease pur-
suant to authority conferred by this section, the Administrator may
require, in order to minimize the financial risk assumed under such
guarantee-
(1) that the lessee pay an amount, not to exceed one-fourth of
the minimum guaranteed annual rental required under the lease,
which shall be held in escrow and shall be available (A) to meet
rental charges accruing in any month for which the lessee is in
default, or (B) if no default occurs during the term of the lease,
for application (with accrued interest) toward final payments of
rental charges under the lease;
(2) that upon occurrence of a default under the lease, the
lessor shall, as a condition precedent to enforcing any claim under
the lease guarantee, utilize the entire period, for which there are
funds available in escrow for payment of rentals, in reasonably
diligent efforts to eliminate or minimize losses, by releasing the
commercial or industrial property covered by the lease to another
qualified tenant, and no claim shall be made or paid under the
guarantee until such effort has been made and such escrow funds
have been exhausted;
(3) that any guarantor of the lease will become a successor
of the lessor for the purpose of collecting from a lessee in default
rentals which are in arrears and with respect to which the lessor
32
has received payment under a guarantee made pursuant to this
section; and
(4) such other provisions, not inconsistent with the purposes
of this part, as the Administrator may in his discretion require.
POWERS
SEC. 402. Without limiting the authority conferred upon the Ad-
ministrator and the Administration by section 201 of this Act, the Ad-
ministrator and the Administration shall have, in the performance of
and with respect to the functions, powers, and duties conferred by this
part, all the authority and be subject to the same conditions prescribed
in section 5 (b) of the Small Business Act with respect to loans, in-
cluding the authority to execute subleases, assignments of lease and
new leases with any person, firm, organization, or other entity, in
order to aid in the liquidation of obligations of the Administration
hereunder.
[SEC. 403. There is hereby established a revolving fund for use by
the Administration in carrying out the provisions of this part and
part B of this title. Initial capital for such fund shall consist of not to
exceed $10,000,000 transferred from the fund established under section
4 (c) of the Small Business Act: Provided, That the last sentence of
such section 4(c) shall not apply to any amounts SO transferred. Into
the fund established by this section there shall be deposited all receipts
from the guarantee programs authorized by this title. Moneys in
such fund not needed for the payment of current operating expenses
or for the payment of claims arising under such programs may be
invested in bonds or other obligations of, or bonds or other obliga-
tions guaranteed as to principal and interest by, the United States;
except that moneys provided as initial capital for such fund shall not
be So invested but shall be returned to the fund established by section
(c) of the Small Business Act, in such amounts and at such times as
the Administration determines to be appropriate, whenever the level
of the fund herein established is sufficiently high to permit the return
of such moneys without danger to the solvency of the programs under
this title. The Administration shall pay into miscellaneous receipts of
the Treasury, as of the close of each fiscal year, interest on the net
outstanding disbursements of the initial capital from the fund, at
rates determined by the Secretary of the Treasury, taking into con-
sideration the average yield on outstanding long-term, interest-bearing
marketable public debt obligations of the United States as of the
month of June preceding such fiscal year.]
FUND
SEC. 403. There is hereby created within the Treasury a separate
fund for guarantees which shall be available to the Administrator
without fiscal year limitation as a revolving fund for the purposes of
this part. There are authorized to be appropriated to the fund from
time to time such amounts not to exceed $10,000,000 to provide capital
for the fund. All amounts received by the Administrator, including
any moneys, property, or assets derived by him from his operations in
33
connection with this part, shall be deposited in the fund. All expenses
and payments pursuant to operations of the Administrator under
this part shall be paid from the fund. From time to time, and at least
at the close of each fiscal year, the Administrator shall pay from the
fund into Treasury as miscellaneous receipts interest at a rate deter-
mined by the Secretary of the Treasury on the cumulative amount of
appropriations available as capital to the fund, less the average undis-
bursed cash balance in the fund during the year. The rate of such
interest shall be determined by the Secretary of the Treasury, and
shall not be less than a rate determined by taking into consideration
the average market yield during the month preceding each fiscal year
on outstanding marketable obligations of the United States with re-
maining periods to maturity comparable to the average maturity of
guarantees from the fund. Moneys in the fund not needed for the
payment of current operating expenses or for the payment of claims
arising under this part may be invested in bonds or other obligations
of, or bonds or other obligations guaranteed as to principal and inter-
est by, the United States; except that moneys provided as capital for
the fund shall not be so invested.
PART B-SURETY BOND GUARANTEES
DEFINITIONS
SEC. 410. As used in this part-
(1) The term "bid bond" means a bond conditioned upon the
bidder on a contract entering into the contract, if he receives the
award thereof, and furnishing the prescribed payment band and
performance bond.
(2) The term "payment bond" means a bond conditioned upon
the payment by the principal of money to persons under contract
with him.
(3) The term "performance bond" means a bond conditioned
upon the completion by the principal of a contract in accordance
with its terms.
(4) The term "surety" means the person who (A) under the
terms of a bid bond, undertakes to pay a sum of money to the
obligee in the event the principal breaches the conditions of the
bond, (B) under the terms of a performance bond, undertakes to
incur the cost of fulfilling the terms of a contract in the event the
principal breaches the conditions of the contract, or (C) under
the terms of a payment bond, undertakes to make payment to all
persons supplying labor and material in the prosecution of the
work provided for in the contract if the principal fails to make
prompt payment.
(5) The term "obligee" means (A) in the case of a bid bond,
the person requesting bids for the performance of a contract, or
(B) in the case of a payment bond or performance bond, the per-
son who has contracted with a principal for the completion of the
contract and to whom the obligation of the surety runs in the
event of a breach by the principal of the conditions of a payment
bond or performance bond.
34
(6) The term "principal" means (A) in the case of a bid bond,
a person bidding for the award of a contract, or (B) the person
primarily liable to complete a contract for the obligee, or to make
payments to other persons in respect of such contract, and for
whose performance of his obligation the surety is bound under
the terms of a payment or performance bond. A principal may be
a prime contractor or a subcontractor.
(7) The term "prime contractor" means the person with whom
the obligee has contracted to perform the contract.
(8) The term "subcontractor" means a person who has con-
tracted with a prime contractor or with another subcontractor to
perform a contract.
AUTHORITY OF THE ADMINISTRATION
SEC. 411. (a) The Administration may, in consultation with the Sec-
retary of Housing and Urban Development and upon such terms and
conditions as it may prescribe, guarantee and enter into commitments
to guarantee any surety against loss, as hereinafter provided, as the
result of the breach of the terms of a bid bond, payment bond, or per-
formance bond by a principal on any contract up to [$500,000] $1,000,
000 in amount, subject to the following conditions:
(1) The person who would be the principal of the bond is a
small business concern.
(2) The bond is required in order for such person to bid on a
contract, or to serve as a prime contractor or subcontractor
thereon.
(3) Such person is not able to obtain such bond on reasonable
terms and conditions without a guarantee under this section.
(4) The Administration determines that there is a reasonable
expectation that such person will perform the covenants and con-
ditions of the contract with respect to which the bond is required.
(5) The contract meets requirements established by the Admin-
istration for feasibility of successful completion and reasonable-
ness of cost.
(6) The terms and conditions of any bond guaranteed under
the authority of this part are reasonable in light of the risks in-
volved and the extent of the surety's partieipation.
(b) Any contract of guarantee under this section shall obligate
the Administration to pay to the surety a sum not to exceed 90 per
centum of the loss incurred by the surety in fulfilling the terms of his
contract as the result of the breach by the principal of the terms of a
bid bond, performance bond, or payment bond.
(c) The Administration shall fix a uniform annual fee based on
sound actuarial methods and underwriting practices which it deems
reasonable and necessary for any guarantee issued under this section,
to be payable at such time and under such conditions as may be
determined by the Administration. Such fee shall be subject to períodic
review in order that the lowest fee that experience under the program
shows to be justified will be placed into effect. The Administration shall
also fix such uniform fees for the processing of applications for guar-
antees under this section as it determines are reasonable and necessary
35
to pay administrative expenses incurred in connection therewith. Any
contract of guarantee under this section shall obligate the surety to pay
the Administration such portions of the bond fee as the Administra-
tion determines to be reasonable in the light of the relative risks and
costs involved.
(d) The provisions of section 402 shall apply in the administration
of this section.
FUND
SEC. 412. There is hereby created within the Treasury a separate
fund for guarantees which shall be available to the Administrator
without fiscal year limitation as a revolving fund for the purposes of
this part. There are authorized to be appropriated to the fund from
time to time such amounts not to exceed $35,000,000 to provide capital
for the fund. All amounts received by the Administrator, including
any moneys, property, or assets derived by him from his operations
in connection with this part, shall be deposited in the fund. All ex-
penses and payments pursuant to operations of the Administrator
under this part shall be paid from the fund. From time to time, and
at least at the close of each fiscal year, the Administrator shall pay
from the fund into Treasury as miscellaneous receipts interest at a
rate determined by the Secretary of the Treasury on the cumulative
amount of appropriations available as capital to the fund, less the
average undisbursed cash balance in the fund during the year. The
rate of such interest shall be determined by the Secretary of the Treas-
ury, and shall not be less than a rate determined by taking into con-
sideration the average market yield during the month preceding each
fiscal year on outstanding marketable obligations of the United States
with remaining periods to maturity comparable to the average matu-
rity of guarantees from the fund. Moneys in the fund not needed for
the payment of current operating expenses or for the payment of
claims arising under this part may be invested in bonds or other obliga-
tions or, or bonds or other obligations guaranteed as to principal and
interest by, the United States; except that moneys provided as capital
for the fund shall not be 80 invested.
*
*
COMMENTS AND ADDITIONAL VIEWS OF HON. WRIGHT
PATMAN
Hearings and investigations conducted by the Small Business Sub-
committee, and the full Banking and Currency Committee have
revealed the existence of self-dealing, favored treatment and shaky if
not fraudulent loan practices existing in a number of SBA offices
around the country.
While I recognize that there are many SBA offices that operate in
a highly efficient and exemplary manner, there is at the same time a
tendency on the part of to many offices to turn many of their functions
over to the commercial banking industry; and this has led to severe
problems since the banks do not necessarily protect the interest of
the SBA.
The practices uncovered by the Small Business Subcommittee con-
stitute dishonesty of the most fundamental nature since they channel
desperately needed financial resources away from those who are
worthy and most in need. Instead much of the program's resources
are being diverted into the hands of persons intent only on carrying
political favor or influence or gratifying their own desire for financial
power at public expense. The chain of corruption revealed by the
efforts of the Small Business Subcommittee threads its way to some of
the highest offices of the SBA.
It is my sincere hope that the Small Business Administration pro-
gram will be cleaned up quickly and completely. But I would be less
than candid if I did not add that I have serious doubts about whether
this will be accomplished, even to a degree approaching adequacy. The
ability of this Administration, let alone the Small Business Adminis-
tration, to achieve and sustain a high level of integrity, is something
which has yet to be demonstrated.
My misgivings over the present and future condition of the Small
Business program have given rise to the question of whether the Small
Business Administration itself should be abolished. Certainly its con-
tinued existence without extensive reform cannot be condoned.
I am by no means suggesting that the financial resources extended
by the Small Business Administration to every corner of the nation
should be eliminated through any decision to abolish SBA. Rather, I
would point to the fact that the roots of the SBA program itself
provide an answer for the credit needs of small business and industries
should the Agency be abolished.
The basic structure of the Small Business Administration was de-
veloped as part of the Reconstruction Finance Corporation, a Federal
agency established during the depression to help get the country back
on its feet. The RFC provided billions of dollars of loans at reason-
able interest rates to priority areas of the economy deprived of credit
on reasonable terms from private lending institutions. Functioning in
this way, the RFC played a vital role not only in the economic re-
(37)
38
covery of the nation prior to World War II, but during the war itself
when the need to finance thousands of new plants and to fund enor-
mous production changeovers was of crucial importance to the coun-
try's survival.
It has been a source of constant regret to me that the RFC was dis-
mantled in the post war years as the nation achieved economic stabil-
ity. But the RFC did not entirely disappear. Its program to provide
credit to viable small businesses and industries which could not obtain
investment capital from banks and other lenders survived and has
made a significant contribution to the nation's economy and the wel-
fare of our people. Against this background, the present ignoble con-
dition of the SBA program is sad indeed.
Perhaps the only way to effectively and fairly serve the credit needs
of small businesses and industries is to establish a new Federal vehicle
to provide investment funds at reasonable cost when private sector
financing is not feasible. Since small business and industry, important
as they are, constitute but one of several priority areas of the economy,
any new Federal credit agency should be designed to aid all priority
area borrowers who cannot obtain funds under conditions which they
can afford.
Establishment of a National Development Bank, similar to the RFC,
to allocate credit on reasonable terms to all priority areas of the econ-
omy would, I am convinced, provide a full response not only to the
credit problems of small business and industry, but for our low and
moderate income housing needs and the constant need of state and
local governments to finance urgently needed public works and facili-
ties. A National Development Bank, funded through Congressional
appropriations and given authority to borrow from the Treasury and
in the open market, could serve as a lender of last resort for priority
area borrowers who cannot obtain loan funds on reasonable terms from
the private sector.
I would emphasize that a National Development Bank formed to
serve these purposes should confine its credit activities to direct loans.
The investigations conducted by the Small Business Subcommittee
make it painfully clear that loan guarantees provide an easy path for
corrupt Agency officials and irresponsible bankers to waste the re-
sources of the SBA program on unqualified borrowers at the expense
of the taxpayers.
As far as I am concerned, the Small Business Administration is now
on trial. I am willing to give it a reasonable opportunity to get its
house in order and fully conduct its affairs in the public interest. Fail-
ure to reach this goal in the near future should provide the Banking
and Currency Committee and all other Members of Congress with an
unmistakable signal that a new approach must be taken along the lines
I have indicated.
WRIGHT PATMAN.
ADDITIONAL VIEWS OF HON. FRANK ANNUNZIO
While I co-sponsored H.R. 15578 and voted for the legislation
in the Committee, I must point out that my actions in no way are
intended to be an endorsement of the operations of the Small Busi-
ness Administration.
My support for this legislation is solely for the purpose of helping
small businessmen who desperately needed financial assistance, par-
ticularly in these most critical economic times.
Perhaps the best commentary on the performance of the Small
Business Administration is contained in Section 9 of the legislation
which establishes a position to be known as Chief Counsel for Ad-
vocacy within the SBA. This position has been suggested by a number
of small business groups around the Country who are concerned that
the SBA is not performing in the best interest of small businessmen.
I cannot help but wonder why an Agency that serves only one seg-
ment of the economy is doing such a poor job in carrying out its func-
tions that a new office has to be created in order to see that the Agency
meets its goals. This is very much like saying that the Department of
Defense should have a new office created to make certain that the
Agency is interested in the welfare of our armed services.
It must also be re-emphasized that the creation of a Chief Counsel
for Advocacy was suggested by the small business community, the
very constituency that the SBA should be serving but apparently is
not.
Another disturbing aspect of the SBA has been its efforts to un-
cover wrong-doers or to clean up its loan making processes. It is my
belief that the SBA is more interested in covering up than in clean-
ing up its operations. I detect a "Watergate mentality" within the
higher echelon of the Small Business Administration.
For instance, the SBA has told the Committee that it had found no
conflicts of interest in connection with former Wisconsin State direc-
tor, Richard Murry. Murry resigned his SBA position to become a
president of a bank in Wisconsin and previous to his resignation he
helped secure a loan for at least one of the principals of the bank
which later employed him.
When the Small Business Subcommittee held hearings in Milwau-
kee, Wisconsin, the regional director of the area that includes Wis-
consin testified as far as he was concerned Mr. Murry had a conflict
of interest from the inception of the loan and that that conflict had
never been resolved. Now, the SBA central office has virtually retracted
its "no conflict of interest" stand on Mr. Murry, which means that its
first statement is now "inoperative." The fact that Mr. Murry resigned
his position in Wisconsin to go to work for the Committee to Re-Elect
the President in 1972 and subsequently was rehired to the Wisconsin
job following the presidential election, also heightens my fears that
the SBA was more interested in exonerating Mr. Murry rather than
establishing the facts.
(39)
40
I must confess also my unhappiness with the role of the Justice
Department in prosecuting individuals both in and out of the SBA
who are allegedly involved in criminal activities involving govern-
ment loan programs.
During the Subcommittee's hearing in Chicago I strongly ques-
tioned the Justice Department's go slow attitude on these cases and
on a number of other occasions I have restated these questions. In
Chicago for instance I pointed out that the Justice Department had
done nothing to collect a $400,000 loan that had gone into default after
the borrower violated his agreement with the SBA. Less than four
days after my statement a suit was filed to recover this money and a
few days later the Justice Department announced indictments in con-
nection with loan frauds in the Philadelphia office. I don't know
whether these actions were a result of my statements and the pur-
pose of these views is not to take any credit for those actions. The
important thing is that we punish the wrong-doers and protect the
taxpayer's funds rather than argue over credit for initiating action.
Hopefully, the Justice Department will continue with its new
found conscience including a speed up of its investigation of the
Richmond SBA office. The Subcommittee was informed that indict-
ments would be handed down in that situation by the end of January
1974. It is now some six months later and there are still no indict-
ments nor have we seen any action in connection with the Dr. Matthew
case in New York even though local law enforcement officials have ob-
tained convictions against Dr. Matthew for mis-use of Federal funds.
In conclusion, let me reiterate that I sponsored and voted for this
legislation not because of the SBA but in spite of it.
FRANK ANNUNZIO.
ADDITIONAL VIEWS OF HON. WILLIAM R. COTTER
Although I am a co-sponsor of H.R. 15578, I would be remiss if I
did not express my deep and continuing concern over the administra-
tion of the Small Business Administration.
My support for this bill is solely determined by the need of legiti-
mate small businesses to receive assistance, but my support for this
worthy goal is seriously challenged by continuing reports of wide-
spread mismanagement, and possible criminal activities within SBA
programs.
The investigations of the Subcommittee on Small Business have
uncovered serious shortcomings and abuses of legitimate SBA pro-
grams. It appears that only when the Subcommittee brought these
abuses to light did the SBA become involved. I use the term "involved"
because of the actions of the SBA to date have not convinced me that
there is a serious systematic and effective effort being made to root
out the irregularities, but merely a cosmetic attempt to paper over
ongoing problems. The situation that the Subcommittee discovered in
Richmond appeared in other SBA offices throughout the United
States, and the Subcommittee hearings amply record the startling
dimensions of the problems.
The House Small Business Subcommittee will continue its investi-
gative work, but it is also incumbent upon the SBA to clear up these
irregularities. Without such an effort by the SBA the Congressional
calls for the abolition of the SBA will grow in number and intensity
and of these calls become a majority view, the small business commu-
nity that the SBA was created to serve will lose a valuable means of
assistance
WILLIAM R. COTTER.
(41)
ADDITIONAL VIEWS OF HON. PARREN J. MITCHELL
The Small Business Subcommittee must be commended for its
recent investigations involving abuse and corruption within the
Small Business Administration.
Although the Small Business Administration is still plagued with
many internal problems and coupled with an unwillingness on the
part of some SBA officials to recognize or admit any fault within the
Agency, the Committee acted on this Bill in light of the needs of
the Small businessman. I am grateful for the Committee's action be-
cause it is meaningful for many minority businessmen whose survival
depends on the Small Business Administration. The structure, pol-
icies and program delivery of the Small Business Administration are
deficient in many respects, but deficient though they may be, SBA
is still the backbone support for minority business enterprise.
7 (A) LOAN CEILING
When H.R. 15578 comes to the House Floor I am considering offer-
ing an Amendment to increase the Small Business 7 (a) loan maximum
from $350,000 to $500,000. The Senate saw the necessity to make this
change when they passed S. 3331, the Senate version of H.R. 15578.
The 7 (a) loan is to enable small business concerns to finance plant con-
struction, conversion, expansion, equipment, facilities, supplies, mate-
rials; and to supply such concerns with working capital.
The critical issue here seems to be "what is the size of small busi-
ness?" Would an increase in the 7 (a) loan maximum from $350,000
to $500,000 make a small business a big business? The answer is
clearly no.
The $350,000 maximum has not been changed since 1958. Since that
time the rapid inflationary spiral in our economy has caused the cost
of business plant and equipment to increase 47 percent; the increase
in labor unit cost has risen 49 percent; consumer prices have gone up
54 percent. According to current economic indicators $539,000 is needed
in 1974 to purhase what $350,000 bought in 1958. The ceiling increase
would technically apply only to guarantee and participation loans
because of the administratively set ceiling of $100,000 on all SBA
direct loans.
The net effect of the Committee's decision not to increase the 7 (a)
ceiling is to make a 1974 small business smaller with less chance to
become a big business than its 1958 counterpart.
SURETY BOND GUARANTEE PROGRAMS
The Committee adopted a well intended Amendment advanced by
Congressman Cotter (section 10 of this Bill) to make the Small Busi-
ness Surety Bond Guarantee program actuarially sound; in effect
(43)
44
requiring that the program be operated on at least break even point.
This Amendment will cripple if not completely destroy the surety bond
guarantee program.
At the end of Fiscal Year 1974, SBA will have guaranteed contracts
with total value of $1.07 billion. The incurred losses will be $13.2 mil-
lion but the actual payment will only be $6.0 million since payments
are not made until losses are finally established and confirmed.
In order to make this program self-sustaining, it would be necessary
to triple fees. Contractors now pay .2 percent of the contract value
and the surety pay .1 percent (10 percent of the premium pay it by
the contractor). The effect of the Cotter Amendment would be to
burden the Contractor to a point where his competitive position would
be endangered and Sureties would certainly tighten up underwriting
standards. We would be right back to the situation that existed before
the program, i.e. small contractors will be unable to obtain bonds.
There would be an extremely adverse affect on minority contractors
(35% of total) who have a higher than average loss rate.
Compare the program losses to the mission of the Small Business
Administration, i.e. to assist small businessmen. Assume losses of
$12.4 million on contracts valued at $1.0 billion. The result is delivery
of $1.0 billion in direct aid to small business for $12.4 million in cost
to the government. That certainly is not out of line with cost of other
government programs.
The Surety Bond Programs is actually one of the governments
most successful programs. Approximately 50 percent of contracts are
in federal, state or municipal jobs. Awards are approximately 7 per-
cent under the next highest bidder. $.5 billion in contracts result in the
saving of $35 million to taxpayers. Compare this saving to the $12.4
million operating cost (losses incurred in the surety bond program).
The Cotter Amendment, though well intended, is clearly a counter
productive restrictive measure. It is based on insurance actuary
principals. Actuarial science does not lend itself to suretyship in the
same manner as it does to insurance.
I urge elimination of the Cotter Amendment (section 10) before
this Bill becomes law.
PARREN J. MITCHELL.
Calendar No. 748
93D CONGRESS
SENATE
REPORT
2d Session
No. 93-776
AMENDING THE SMALL BUSINESS ACT
APRIL 9, 1974.-Ordered to be printed
Mr. CRANSTON, from the Committee on Banking, Housing and Urban
Affairs, submitted the following
REPORT
[To accompany S. 3331]
The Committee on Banking, Housing and Urban Affairs, having
considered the same, reports favorably a committee bill (S. 3331) to
amend the Small Business Act, with amendments and recommends that
the bill do pass.
HISTORY OF LEGISLATION
S. 3137 and S. 3138 were introduced on March 8, 1974, and hearings
held by the Small Business Subcommittee on March 12 and 13, 1974.
On March 26, 1974, the committee agreed without objections to re-
port a clean bill (S. 3331) with three amendments.
EXPLANATION OF THE BILL
The committee bill is divided into six sections. S. 3137 and S. 3138,
are incorporated in the committee bill.
Section 1 cites the bill as the Small Business Amendments of 1974.
Section 2 (a) (1), (a) (2), and 2 (a) (4) transfers to the Small Business
Act en toto the authority to provide financial assistance to socially or
economically disadvantaged persons previously authorized by title IV
of the Economic Opportunity Act of 1964, the economic opportunity
loan program and the 406 management and technical assistance pro-
grams. The SBA has been authorized, by statute to carry out these
programs since 1966, and this transfer of authority from one statute
to another is to eliminate any confusion should the Economic Oppor-
tunity Act expire. No substantive changes are made in the language as
it now appears in title IV of the Economic Opportunity Act, but some
technical changes in wording have been made to be consistent with the
language of the Small Business Act.
99-010
2
In addition, SBA is authorized to utilize, with respect to title IV,
of the Economic Opportunity Act, some of the administrative powers
conferred on the Director of OEO by title VI of the Economic Oppor-
tunity Act. Since many of these powers are already contained in the
Small Business Act, all of the title VI authorities referred to need not
be transferred to the Small Business Act. Thus section 2 (a) (4) also
transfers to the Small Business Act the title VI authorities already
conferred on SBA by the Economic Opportunity Act and which are
necessary to administer the title IV programs but which are not already
provided SBA by the Small Business Act.
Section 2 (a) (3) of the-bill amends section 4 (c) (4) of the Small
Business Act to increase the total amount of loans, guarantees, and
other obligations or commitments outstanding by the Small Business
Administration. This section effects three amendments to the provi-
sions of section 4 (c) (4) of the Small Business Act.
Subsection A, the first of these amendments, would increase from
$4.875 billion to $6 billion the amount which may be outstanding from
the business loan and investment fund at any one time for direct, im-
mediate participation and guaranteed loans under section 7 (a) ; 7(b)
(3) displaced business loans; 7 (c) trade adjustment loan program;
8(a) prime contract authority program; and economic opportunity
loans under title IV of the Economic Opportunity Act of 1964.
Subsection B, will increase from $556.25 million to $725 million
SBA's commitment authority to Small Business Investment com-
panies under title III of the Small Business Investment Act of 1958.
Subsection C, the subceiling for the State and local development
company program, remains unchanged at $525 million.
Subsection D, will increase from $381.25 million to $450 million
SBA's commitment authority under title IV of the Economic Oppor-
tunity Act of 1964 for loans to low-income individuals and for busi-
nesses located in areas of high unemployment or low income areas.
The overall ceiling and the three subceilings under 4 (c) (4) are sub-
ject to the provisions of Public Law 93-237, which prohibits SBA
from incurring any obligations under these programs after June 30,
1974. The Small Business Administration estimates that these in-
creases will assure continued lending activities through fiscal year
1975 and permit an additional contingency reserve of $112.2 million.
Section (c) (1) of the Small Business Act, as amended by Public
Law 89-409 approved May 2, 1966 created (a business loan and in-
vestment fund, and a disaster loan fund) for the financing of SBA's
programs.
Section 4 (c) (3) of the act authorizes appropriations to the two
funds "* * * in such amounts as may be necessary * * *." However,
with respect to the business loan and investment fund, the Congress
has set limits on the amounts which may be used for the various pro-
grams by providing in section 4 (c) (4) for limitations on the amounts
of loans guarantees, and other obligations or commitments which may
be outstanding at any one time from that fund.
When the Small Business Act was originally passed in 1954 ceilings
on outstanding financial commitments by the agency were placed in
the legislation to provide Congress with a check on the operations
S.R. 776
3
of the Small Business Administration. As these ceilings are reached,
SBA is required to come before the Congress to justify a new ceiling
increase thus providing an automatic review of the agency's operation.
The ceiling increases in section 1 represent neither an appropriation
of funds nor an authorization for appropriations. The legislation
merely allows SBA to increase its loan ceilings SO that it may spend
funds that it will obtain through the appropriation process or through
repayment of prior loans. It also is the means by which Congress
controls the extent of the Government's possible outstanding financial
liability for the respective SBA programs within a given period.
Section 3, paragraph (1) provides that, in the case of loans guaran-
teed by the Small Business Administration pursuant to section 7 of
the Small Business Act, for purchase of which the participating in-
stitution has made a valid demand under the terms of the guarantee,
a rate of interest not to exceed that charged by the institution may
continue to be charged by the SBA for the remaining term of the out-
standing indebtedness. Under the existing legislation, when SBA
purchases the guaranteed portion from the participant and assumes
servicing of the account, the rate of interest to the borrower is auto-
matically reduced to the statutory rate applicable to the SBA share,
which can vary between 3 and 63/4 percent per annum. This situation
creates an inconsistency because interest may be charged by participat-
ing financial institutions at a rate which is legal and reasonable, and
SBA must reimburse the participant at that rate of interest. Yet if
SBA purchases the guarantee under existing law, the interest on their
share must be reduced to the statutory rate.
This creates an inequity since most purchase actions result from a
condition of borrower default. A defaulted borrower automatically
is the beneficiary of reduced interest rates, while those borrowers who
maintain their loan accounts in current status must pay the higher
interest cost permitted to be charged by participating institutions. This
is a technical amendment to close the present loophole in the law.
Section 3. paragraph 2 clarifies section 7 (h) (2) of the Small Busi-
ness Act relating to the rate of interest applicable to loans under
SBA's handicapped assistance program. The existing legislation reads
"Any loan made under this subsection shall bear interest at a rate of
3 per centum per annum." It is unclear whether that rate is applicable
only to SBA's share, or also to the participating lender's share of a
loan in the case of immediate participation loans or guarantees. Obvi-
ously, if this rate of interest were to be required for the private lender,
no handicapped assistance loans would be made.
In an effort to clarify this ambiguity, SBA requested an opinion
from the Comptroller General. They were advised that it was not un-
reasonable to conclude that the intent in enacting this interest rate
provision was that a reasonable and appropriate rate of interest be
charged on the participating lenders' share of such loans. While this
opinion clarified the ambiguity to some degree, the SBA now seeks
appropriate legislative revision of the language in question. Thus this
section revises the interest rate language directing participating lend-
ers to charge a legal and reasonable rate of interest as they do on all
other loan programs.
S.R. 776
4
In addition section 3 (2) raised the interest rate on the SBA share of
direct and participation loans from 3 percent to cost of money to the
government. The Committee in considering this section adopted an
amendment that caused the interest rate of SBA's share of handi-
capped loans to remain at the subsidized rate of 3 per centum per
annum. There was no evidence presented at the Committee hearings
that handicapped persons no longer needed this low rate of interest as
Congress intended.
Section 4 increases the Small Business 7 (a) loan maximum from
$350,000 to $500,000. The 7 (a) loan is to enable small business con-
cerns to finance plant construction, conversion, expansion, equipment,
facilities, supplies, materials; and to supply such concerns with work-
ing capital.
The $350,000 maximum has not been changed since 1958. Since that
time the rapid inflationary spiral in our economy has caused the cost
of business plant and equipment to increase 47 percent; the increase
in labor unit cost has risen 49 percent; consumer prices have gone up
54 percent.
According to current economic indicators $539,000 is needed in 1974
to purchase what $350,000 bought in 1958. This amendment would
technically apply only to guarantee and participation loans because
of the administratively set ceiling of $100,000 on all SBA direct loans.
Section 5 requires the SBA to report on an annual basis to the re-
spective congressional committees in a sealed report all matters in-
volving alleged improprieties on the part of SBA employees, indicat-
ing the name of the complainant, nature of the complaint, name of
the employee involved, and the corrective action instituted.
During the last year, information has come to the subcommittee that
a number of SBA employees have been allegedly guilty of impropri-
eties. Administrator Kleppe indicated to the committee that the had
taken prompt and effective action to discipline the persons responsible.
However, the subcommittee's field investigation indicated that proper
follow up has not been occurring on public complaint. Additional staff
has been requested by the SBA to provide continuing audit and spot
checks on all SBA offices. Prior information indicates that SBA due
to lack of staff had only audited 35 of its 77 field offices in the history
of the program. Sufficient staff and increased oversight is imperative
if an effective policing job is to be done in view of the tremendous SBA
activity in loans and related programs.
Section 6 raises the surety bond guarantee maximum from $500,000
to $1,000,000, and authorizes up to $10 million in additional capital to
carry out the lease guarantee and up to $35 millíon for the surety bond
guarantee fund. These reserves are expected to carry these programs
through FY 75.
A technical amendment separates the lease guarantee revolving fund
from the surety bond guarantee revolving funds. Operating both the
lease guarantee program, which by statute must be operated on a sound
actuarial basis to the extent practicable and is in fact self-sustaining,
and the surety bond guarantee program which is not self-sustaining
and requires substantially greater capital, out of a single fund is caus-
ing the SBA to pay losses to the sureties from the premiums collected
S.R. 776
5
from applicants for lease guarantee. Therefore, it is essential that the
funds for these two programs be separate and distinct.
The Committee believes that the bill will be extremely helpful to
small business and recommends that the bill be given favorable con-
sideration by the Senate.
CORDON RULE
In the opinion of the committee, it is necessary to dispense with the
requirements of subsection 4 of rule XXIX of the Standing Rules
of the Senate in order to expedite the business of the Senate in connec-
tion with the report.
S.R. 776
FOR IMMEDIATE RELEASE
AUGUST 24, 1974
Office of the White House Press Secretary
THE WHITE HOUSE
STATEMENT BY THE PRESIDENT
Late yesterday I signed into law S. 3331, the "Small Business Amendments
of 1974 "
Most of the provisions of this bill are essential to the ongoing programs of the
Small Business Administration or are desirable amendments to existing law,
This legislation, for instance, raises ceilings on the SBA's loan programs.
It increases the agency's flexibility to establish interest rates on guaranteed
bans purchased from financial institutions. It expands the authority to
carry out lease guarantee and surety bond guarantee programs. And it
authorizes disaster loans with terms of up to thirty years for small
business concerns affected adversely by energy shortages.
Each of these provisions was either requested or supported by the
Executive Branch. Their enactment is welcome evidence that the Executive
Branch and the Congress can work together to meet the needs of small
business. In the Congress, I have long supported small business as the
backbone of our American enterprise system. As President, I intend to
encourage small business in every way I can.
There is one provision in this bill which disturbs me. That provision would
require SBA to make direct loans under its regular business loan program in
an aggregate amount of at least $400 million during fiscal year 1975. The
1975 budget, however, provides only $40 million for this direct loan program.
Thus, in the absence of reprogramming, the effect of S. 3331, if fully funded,
would be to increase Federal budget outlays by $360 million this year.
At a time when both the Congress and the Administration are committed to
fighting inflation by reducing Federal spending, outlays of this magnitude
would be excessive. Therefore, I do not intend to request additional
appropriations to carry out the $400 million authorization for fiscal year
1975. The present 1975 budget request of $40 million, combined with the
continuing success of SBA's loan guarantee program, should ensure an
adequate level of assistance for small businessmen.
In sum, the bill is generally responsive to the needs of small businesses.
I commend the Congress for enacting it.
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LIBRARY GERALD FORD
August 12, 1974
Dear Mr. Director:
The following bills were received at the White
House on August 12th:
S. 3331
s. 3782
Please let the President have reports and
recommendations as to the approval of these
bills as soon as possible.
Sincerely,
Robert D. Linder
Chief Executive Clerk
The Honorable Roy L. Ash
Director
Office of Management and Budget
Washington, D. C.