THE U.S. SMALL BUSINESS ADMINISTRATION SUMMARY REPORT TO PRESIDENT CLINTON An Overview of Regulatory Reform and Performance Management CONTENTS I. AGENCY OVERVIEW . . . . . . . . . . . . . . . . . . . . . 1 II. EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . 4 A. SBA Method of Review . . . . . . . . . . . . . . . . 4 B. Anticipated Changes. . . . . . . . . . . . . . . . . 6 C. Regulatory Change Highlights . . . . . . . . . . . . 6 D. List of Team Members . . . . . . . . . . . . . . . . 9 E. Statistics on Regulation Elimination and Reinvention 11 III. THE SMALL BUSINESS ADMINISTRATION'S PERFORMANCE MANAGEMENT SYSTEM . . . . . . . . . . . . . . . . . . . . 12 A. Mission Statement and Agency-Wide Goals . . . . . . 12 B. Implementation of Agency-Wide Performance Measures and Relationship to Customer Service Standards . . . 14 1. Customer Service Standards. . . . . . . . . . . 14 2. Agency Level Results Oriented Performance Appraisals . . . . . . . . . . . . 16 3. Work to Date on the Government Performance and Results Act of 1993 . . . . . . . . . . . . 17 C. Actions Taken to Evaluate Internal Personnel Performance Measures, and Actions Taken to Eliminate Performance Measures Based on Process and Punishment . . . . . . 19 i D. Timetable for Implementation of New Personnel Performance Measures for All Employees . . . . . . . 20 1. Timetable and Number of Employees Affected . . 20 2. Front-line Regulators: Old and New Standards for Financial Analysts . . . . . . . . . . . . 20 3. Catalogue of Changes Made to Existing Personnel Performance Evaluations . . . . . . . 21 IV. GRASSROOTS REGULATORY PARTNERSHIP MEETINGS . . . . . . . 22 A. Overview . . . . . . . . . . . . . . . . . . . . . 22 B. Specific Recommendations . . . . . . . . . . . . . . 23 C. SBA Implementation Plans . . . . . . . . . . . . . . 25 D. SBA's 504 Loan Program: A Partnership Success Story 26 V. NEGOTIATED RULEMAKING . . . . . . . . . . . . . . . . . . 28 VI. WAIVING PENALTIES AND CUTTING FREQUENCY OF REPORTING REQUIREMENTS . . . . . . . . . . . 29 A. Penalties . . . . . . . . . . . . . . . . . . . . . 29 B. Reporting Requirements . . . . . . . . . . . . . . . 31 ii I. AGENCY OVERVIEW The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise, and to maintain and strengthen the overall economy of our Nation. Small business is critical to the health of our economy, to building America's future and to helping the United States compete in today's global marketplace. The SBA delivers many of its programs through private sector partners, such as commercial lending institutions, certified development companies, small business investment companies, surety and insurance companies and their agents, small business development centers, private sector cosponsors, business concerns which act as 7(j) management and technical assistance program providers, and volunteer organizations such as the Service Corps of Retired Executives (SCORE) and Active Corps of Executives (ACE). Our vision for the SBA involves two principles: customer-driven outreach and quality- focused management. We are determined to reach out to small businesses in an unprecedented way, to listen to their needs, to report these needs to President Clinton and to suggest appropriate initiatives to assist small businesses. We also recognize the need to change our regulations, management culture, organizational structure and business practices to improve the quality of our work. Through these changes, we are creating a more entrepreneurial, customer- driven and efficient SBA. The SBA has enthusiastically supported the Clinton Administration's renewed emphasis on revitalizing the American economy and creating jobs. There are approximately 21.5 million small businesses in the United States. The small business segment of the United States economy provided about 71 percent of the 1.9 million new jobs created in 1993, and accounts for 50 percent of the private gross domestic product. Small businesses provide most workers with their first jobs and initial on-the-job training in basic skills, produce twice as many innovations as large firms, employ 54 percent of the private work force, and contribute 52 percent of all sales in the country. The SBA is reducing, consolidating and improving its regulations comprehensively for the first time since SBA's formation in 1953. SBA will revise all of its own regulations, with a focus on clarity and plain language. It plans to eliminate 355 pages of the 700 pages of text, or 51% of SBA's section of the Code of Federal Regulations. Two regulation parts involving grants and non-procurement debarment and suspension matters will remain unchanged for the moment, but only because they contain uniform rules governing all federal agencies. The regulations which remain will be reorganized and consolidated into a much more coherent and "user-friendly" format. At the completion of this initiative, SBA's customers will benefit from a much more understandable, streamlined regulatory scheme. SBA has employed customer service during the past two years. Participating as a pilot agency under the Government Performance and Results Act of 1993 ("GPRA"), it has identified clear goals and objectives. The Administrator signed a Performance Agreement with the President in 1994; SBA's District Directors then signed Performance Agreements with the Administrator. All of SBA's management has been trained to develop performance goals focusing on quality service. New performance standards for all employees should be in place beginning October 1, 1995. SBA employees will focus on aid and assistance to small business, not process or punishment. To establish SBA's Grassroots Regulatory Partnerships, we arranged outreach meetings this year in San Antonio, Philadelphia, New York, St. Louis, and San Francisco. At the meetings, SBA frontline employees, small business owners and SBA's partners (banks, development companies, business development center representatives, and others) came together to share ideas about regulatory reform. SBA has compiled the information and is incorporating the resulting ideas into its program-by-program review and its regulatory rewriting process. SBA is building on the partnership spirit created in these meetings by continuing to solicit and share ideas from its partners on the upcoming revisions to SBA's regulations, processes, and procedures. SBA has not yet identified any areas where formal negotiated or consensual rulemaking would be helpful. It has made extensive efforts to work with the small business community to develop better, more reasonable regulations. Interested trade associations and their members have provided valuable insight into SBA's regulatory scheme and its resultant impact. SBA may decide to initiate a negotiated rulemaking for the Small Business Investment Company Program; in the interim, it will continue to work with its small business partners to improve regulations across the board. All of these efforts, and SBA's future plans, are more fully explained below and in a separate submission to the President and Vice President Gore entitled "The NEW SBA Reinventing SERVICE to the Small Business Community" dated June 12, 1995. The SBA has adopted an aggressive schedule to accomplish all of its streamlining objectives by December 31, 1995; it is already working at full speed to meet that timeline. II. EXECUTIVE SUMMARY As directed by President Clinton in his Memorandum of March 4, 1995, the Small Business Administration (SBA) has completed a page-by-page, line-by-line review of all of its existing regulations to determine which might be revised or eliminated. In total, 100% of the current SBA-specific regulations will be reinvented as part of SBA's regulatory reform initiative. SBA believes that it can significantly clarify and streamline its regulations, reducing their total number of pages by 51%, and that it can complete this effort by December 31, 1995. This regulatory reform will help SBA conserve resources, improve procedures, and serve its customers more effectively. A. SBA Method of Review. To implement President Clinton's March 4, 1995 directive, I asked John Spotila, SBA's General Counsel and Regulatory Policy Officer, to lead a special task force of agency attorneys in evaluating all agency regulations for need, effectiveness, and clarity. Eighteen attorneys (14 from the field), were assigned to work on four simplification teams, each responsible for a broad subject area (government contracting, finance, administration, and other SBA programs). A list of the team members and their offices is enclosed. Under the direction of David Kohler and Mark Stephens of SBA's Office of General Counsel, the teams reviewed the 700 pages of SBA regulations in detail, identifying specific ways to streamline and simplify. The work of these teams and others throughout the agency who have helped, deserve special recognition. We also held five "grassroots" partnership meetings with the regulated community -- bankers, small business owners, government contractors, and SBA field personnel. These meetings were led by me or Jere Glover, our Chief Counsel for Advocacy. The meetings proved very successful, as the community participants welcomed SBA's efforts to reduce regulatory burdens, eliminate confusion, and minimize the time, effort and expense involved in complying with governmental requirements. While a number of participants indicated that they did not regard SBA as a major source of regulatory burdens, they welcomed the prospect of further streamlining and paperwork reduction. The attorney teams first undertook a page-by-page and line-by-line review of each regulation, looking for duplication, outdated or outmoded requirements, and confusing language. During this examination, they asked program personnel with expertise and experience for suggestions and ideas. As part of the review, they focused on the agency's delivery of programs, seeking to ensure a less cumbersome and more efficient process, with an emphasis on enhanced customer service. After this line-by-line review, the attorneys summarized their findings, highlighting any regulation which imposes an unnecessary burden or which would be more appropriately covered in internal operating procedures or a statement of policy guidance. They also noted the effective date of each regulation to assist in determining whether it was outdated. Whenever possible, the teams identified substantive changes which could lead to effective, concise, user-friendly regulations. The task force goal was to help the agency improve speed and efficiency, use resources more effectively, and make it easier for employees to do their job. If partnership was a theme, common sense was the guide. These methods proved extremely successful, laying the foundation for an anticipated reduction of present SBA regulations by 51%, with significant improvements in clarity and simplicity for the remainder. SBA is committed to full implementation of the suggested changes and expects to complete them by calendar year end. B. Anticipated Changes. In reviewing the 1995 version of SBA regulations, which consists of 38 Parts totalling 700 pages, SBA has determined that it can entirely eliminate 14 Parts, thereby deleting 64 pages of regulation. Additionally, 22 Parts can be substantively reinvented or consolidated, resulting in the anticipated elimination of 291 more pages. SBA will no longer have a supplemental chapter to the Federal Acquisition Regulation. In total, we estimate that at least 355 pages of regulatory text can be eliminated, a 51% reduction in the total number of pages. The remaining two Parts, with 45 pages, will remain unchanged only because they are uniform rules among executive branch agencies. Therefore, in essence, SBA has undertaken to reinvent all of its agency-specific regulations. C. Regulatory Change Highlights. This initiative will reduce SBA's regulations by more than one-half, giving SBA's customers, partners, and employees a more user-friendly, concise regulatory scheme. Following are specific highlights, all of which are already in process: 1. Development of a recommendation that we eliminate all government-wide regulations, such as non-procurement debarment and suspension regulations and drug free workplace restrictions, from 13 C.F.R. and consolidate them into one volume of the C.F.R. for all agencies. SBA believes a separate volume containing all government-wide regulations would eliminate hundreds of pages of regulations, and would provide a more user-friendly format for government and nongovernment users of the C.F.R. Currently, each executive agency or department has its own version of these regulations in its own C.F.R. volume, an unnecessary and sizable portion of the federal regulation system. 2. Consolidation of all agency discrimination regulations in one C.F.R. Part. Currently, SBA has four separate Parts addressing various forms of discrimination such as race, national origin, age and sex. One new Part will address all forms of discrimination, while eliminating the duplicative procedural requirements now repeated in each separate Part. 3. Simplification of size regulations to clarify, correct, and consolidate definitions and procedures for filing and processing a small business size protest or size appeal. These changes will have a government-wide beneficial effect, and will assure that size protests are determined more expeditiously to the benefit of government contracting officers and contractors alike. The changes will also greatly reduce the time spent by SBA employees in processing size determinations and appeals of those determinations. The size regulations define a "small business concern" for purposes of government programs benefitting small business, and establish procedures for SBA's determination of the size status of a particular firm in response to a protest or a request by a contracting officer or other interested party. While the size regulations are comprehensive, many of the provisions are complex and unduly burdensome. SBA's regulatory review will simplify greatly these provisions. 4. Simplification of the 8(a) program regulations to expedite eligibility reviews and contracting actions. The 8(a) program helps socially and economically disadvantaged individuals enter the economic mainstream, partly through access to federal contracts. The agency will eliminate an unnecessary and burdensome procedural step for admission and will develop more specific eligibility guidelines. We also will eliminate other regulations which serve as impediments to the receipt of 8(a) contractual support. These regulatory changes will reduce significantly the burden on SBA's program participants, SBA staff and non-SBA procurement officials around the country. SBA has already begun its regulatory reform reinvention of the 8(a) program, and published final regulations to streamline and clarify certain regulatory provisions the first week of June, 1995. 5. Reinvention and redrafting of SBA's business loan regulations into one Part to encompass all business loan programs. Section 7(a) of the Small Business Act authorizes the SBA to guarantee loans to small businesses that cannot obtain financing on reasonable terms through normal lending channels. This change will allow small businesses or SBA intermediaries to find the relevant loan program regulations in one section. This provides a real savings of time for all people involved with SBA loan programs, including employees and our small business partners. 6. Simplification and streamlining of SBA's 504 Program regulations, with commensurate savings of staff time. The 504 program uses public/private partnerships to make loans available for acquisition of land, buildings, machinery and equipment. The key to SBA's 504 loan program is a certified development company, a nonprofit organization sponsored by private interests or by state or local governments. Sweeping changes to this program, once implemented, will substantially reduce SBA staff time spent on some aspects of program delivery. Specifically, the average review time by SBA attorneys will be reduced from four hours to 20 minutes per loan package, resulting in quicker and more efficient service to small business borrowers and greater control over the delivery and timing of services for the CDC. 7. Elimination of forms published in the Small Business Investment Company ("SBIC") program regulations. In February of this year, SBA eliminated 71 of its then currently published 151 pages of SBIC regulations by adoption of this approach. The SBIC regulations are, by far, the largest of SBA's C.F.R. Parts. Ultimately, SBA expects to eliminate approximately 120 of that Part's original 151 pages. SMALL BUSINESS ADMINISTRATION SIMPLIFICATION AND REGULATORY REFORM INITIATIVE STRUCTURE AND MEMBERSHIP REGULATORY POLICY OFFICER John T. Spotila General Counsel INITIATIVE TEAM LEADER David R. Kohler Associate General Counsel DEPUTY TEAM LEADER Mark K. Stephens Associate General Counsel SENIOR ADVISORS Martin D. Teckler Deputy General Counsel Eric S. Benderson Associate General Counsel Ronald F. Matzner Associate Deputy General Counsel GROUP 1 -- SUPPORT FUNCTIONS AND STRUCTURE Leader Cheri Wolff, Central Office Member Tim Treanor, Chicago Member Robert Gangwere, Kansas City Member Rick Lukich, Cleveland GROUP 2 -- FINANCIAL PROGRAMS Leader Mark Stephens, Central Office Member Frank Conley, Boston Member Constance Kobayashi, San Francisco Member Terry Ashker, San Diego Member Nick Newbold, Salt Lake City GROUP 3 -- PROCUREMENT PROGRAMS Leader John Klein, Central Office Member Dale Rettig, San Francisco Member Frank Flato, Dallas Member Paul Beck, Philadelphia GROUP 4 -- OTHER PROGRAMS AND PROCEDURES Leader Gary Fox, Central Office Member Hatem El-Gabri, Chicago Member Linda Ritter, Louisville Member Nina Rivera, Phoenix Member Phil Vitiello, Boston ADMINISTRATIVE COORDINATOR Attorney Advisor Raenelle H. Zapata ADMINISTRATIVE SUPPORT Legal Secretary Rhonda M. Dent Confidential Assistant to Cheryl M. Stauts the General Counsel SMALL BUSINESS ADMINISTRATION ELIMINATING AND IMPROVING REGULATIONS REGULATORY REVIEW OF 13 C.F.R. PARTS 101 - 146 1995 -- 13 C.F.R.  101-146 & 48 C.F.R.  2209 38 Parts Totalling 700 Pages REINVENTED 1996 -- 13 C.F.R. PARTS 101-146 14 Parts Eliminated Entirely 64 Pages Eliminated (9%) 22 Parts Reinvented/Consolidated291 Pages Eliminated (42%) TOTAL:355 Pages Eliminated (51%) SBA WILL ELIMINATE OR MODIFY 100% OF THE AGENCY-SPECIFIC REGULATIONS (655 OF THE CURRENT 655 PAGES) In addition, SBA will eliminate its entire supplement to the Federal Acquisition Regulation, 48 C.F.R. Part 2209 2 Parts Unchanged 45 Pages Unchanged (6%) NOTE: The page estimates are approximations until redrafting occurs. The final numbers may vary slightly due to several Parts sharing pages. Where only a portion of one Part appears on a page, the page is counted as a full page. No attempt was made to divide pages by percentage. The two parts unchanged contain uniform regulations among executive branch agencies (which SBA lacks discretion to change). III. THE SMALL BUSINESS ADMINISTRATION'S PERFORMANCE MANAGEMENT SYSTEM A. Mission Statement and Agency-Wide Goals. The mission of the Small Business Administration is to aid, counsel, assist and protect small businesses. SBA is committed to providing quality customer service to the small business community. To that end, SBA is expanding its small business outreach, improving its overall management, and becoming more customer-driven. SBA knows that the efficient and effective delivery of program services is needed to meet growing demands with fewer resources. These concepts are emphasized in the Performance Agreement submitted by the Agency and approved by President Clinton in March, 1994. They form the background for SBA's participation as a pilot agency under the Government Performance and Results Act of 1993 ("GPRA"). The President has given the SBA four goals: (1) free up capital for investment in small business and work to end the credit crunch and create jobs; (2) eliminate unnecessary paperwork and regulations that inhibit the growth and productivity of small business; (3) reinvigorate the SBA to construct a lean, highly motivated organization focused on the needs of small business; and (4) be the "eyes and ears" of the President for small business. For each of these established goals, SBA has set Agency-wide strategic objectives which its personnel will strive to meet at all levels, from the policy-makers at headquarters to the frontline personnel in the field. Goal Number One: Free up capital for investment in small business and work to end the credit crunch and create jobs. SBA has worked to stimulate private investment, generate jobs and tax revenue, increase private capital, expand credit for small businesses with the greatest potential in niche markets, and develop new and creative credit instruments. With SBA's assistance, the U.S. economy in 1994 created more than 3.5 million new jobs, 62% of them in industries dominated by small firms; at the same time business failures declined 17% during 1994. SBA's new participating security helped attract new Small Business Investment Company licensees with more private capital in FY 1994 than in the previous 10 years combined. Goal Number Two: Eliminate unnecessary paperwork and regulations that inhibit the growth and productivity of small business. SBA has re-engineered, streamlined, or eliminated forms, processes and procedures; monitored and enforced the Regulatory Flexibility Act and Paperwork Reduction Act; proposed a list of government regulations to be eliminated or reinvented; reduced credit documentation required for loans; and streamlined its procurement regulations to improve access to government contracting opportunities. SBA introduced new programs such as "LowDoc" which reduces the paperwork required for loans under $100,000, and "Fa$trak" which eliminates SBA paperwork entirely, allowing banks to rely on their own documentation. Goal Number Three: Reinvigorate the SBA to construct a lean, highly motivated organization focused on the needs of small business. SBA has become more effective, efficient and customer driven; has instituted performance measurement based upon results, not process; has improved communications and created a shared vision; has applied modern information technology; has improved financial management; has expanded employee training; and has created an empowered, "can-do" attitude among its workforce. In addition, SBA has shifted resources from headquarters to the field, and has downsized its regional offices. Goal Number Four: Be the "eyes and ears" of the President for small business. SBA has reported to the President on the town meetings it has held with its small business customers across America. Working task forces, customer surveys and focus groups have all generated customer feedback, enabling SBA to make policy recommendations to the National Economic Council. It has supported the White House Conference on Small Business, whose policy recommendations were submitted to the Administrator on June 14, 1995. B. Implementation of Agency-Wide Performance Measures and Relationship to Customer Service Standards. SBA has implemented its strategic objectives through customer service standards, seeking to serve the small business community through better outreach and to enhance employee performance. 1. Customer Service Standards: In the last year, SBA published customer service standards to guide SBA employees in their daily interaction with the public. This publication was a part of SBA's response to Executive Order 12862 which mandated that the federal government be customer- driven and meet a standard for quality service that is equal to the "best in business." Our Agency is dedicated to establishing appropriate benchmarks from the "best in business," applying these standards to our programs, monitoring our success, and eliciting feedback from our customers on our performance. Specifically, SBA is committed to the following general customer service principles: (a)to provide prompt, courteous and accurate responses to requests for information received by telephone, in writing or in person; (b)to look for cost-effective and user-friendly ways to make information easily accessible to the small business community; (c)to streamline and reinvent processes to make conducting business with SBA easier for both our resource partners and small business owners; (d)to provide the small business owner with specialized technical assistance through a variety of programs in a variety of locations; (e)to work to relieve the regulatory burden on small business; and (f)to facilitate and strengthen working relationships between small contractors and federal procuring agencies. To further these goals, SBA developed and implemented a customer service training program for all field management last fall. Customer service training was given in each of SBA's ten regions, to all District Directors and the Finance and Investment heads in each district. At these sessions, discussion centered around who our customers were and how to best motivate frontline staff to better serve customers. Monetary rewards and means of putting customer service standards into individual Performance Management Appraisal System ratings ("PMASs") were discussed. Each program office in SBA headquarters also put together a customer service presentation for the Operations Board. In preparing for that presentation, managers met with their employees, discussed who their customers were, and set specific standards and goals for each office. Many managers are also in the process of putting these goals in individual PMASs to ensure that they are carried out at all levels of SBA. SBA expects that customer service goals can be implemented into the PMASs of most Agency employees by October 1, 1995. 2. Agency Level Results-Oriented Performance Appraisals: SBA's 1994 Performance Agreement with President Clinton called for a more entrepreneurial, customer-driven and efficient SBA. To help implement this Agreement, cascading agreements were signed between the Administrator and all program and field office heads last summer. The end result has been to define clear goals for each office and to hold each manager accountable for achieving results. The individual performance agreements signed by District Directors with the Administrator bring Agency level performance standards to each field office and implement them in each District Director's PMAS criteria. The end result is to define clear goals for each office and to hold District Directors accountable at the end of the year for meeting the goals to which they have agreed. Under the performance agreements, a performance plan for each District Director sets appropriate goals. The performance plan has three elements (Program Responsibility, Management and Internal Controls). The District's business plan, the District Director's performance agreement with the Administrator, and the District's specific goals are included in each element. For example, goals are set for lending and other program areas such as minority enterprise development. Marketing and outreach (customer service) are a part of the management element. SBA's other Agency-wide goals are reflected in the performance plans, including portfolio quality, liquidation recovery, aggressive utilization of the 504, microloan and surety bond programs, and involvement in local economic development and external resource development. The Directors have agreed to manage their operations effectively and efficiently and to work diligently to achieve the Agency's four goals set forth above. Each performance plan serves as a framework for a performance appraisal which measures results against customer service, partnership, education and program delivery goals, all set to the particular needs of the local populace and economy. The District Directors are also reviewed on their expansion of managerial, technical and financial assistance to those underserved small businesses most in need of SBA's support, including minority and women- owned enterprises, rural and inner city businesses, and high technology and export-oriented firms. 3. Work to Date on the Government Performance and Results Act of 1993: Two years ago, SBA began a concerted effort to become more customer-driven, quality focused and results-oriented. As mentioned above, these efforts led to SBA's appointment as a pilot performance agency under "GPRA." As such, last year, SBA was one of the first four agencies to sign the agency-wide Performance Agreement with the President and SBA was featured in the second round of major agency streamlining activities.As the President announced on March 27, 1995, SBA is continuing its efforts to streamline and to create an SBA that "works better and costs less." We are moving forward with our reinvention plan, which reflects the Agency's commitment to customer service and to public/private partnerships. Through a comprehensive program of cost reduction, consolidation, centralization, and relocation, SBA proposes to reduce its annual budget 29 percent below the 1996 budget request, and save taxpayers $1.2 billion over the next five years. Pursuant to GPRA, SBA set four key mission areas: capital access, education and training, advocacy and contract opportunities, and disaster assistance. Programs in these key areas are structured to give small business specific benefits that are not provided adequately in the private market: access to capital to start and expand small businesses; quality education and training to develop, expand or maintain a business; effective advocacy to reduce paperwork and burdensome regulations; increased access to federal contract opportunities; and access to capital to rebuild after disasters. For each of these major mission areas, SBA is currently in the process of selecting key program objectives and identifying measures of success and progress. Even though the process is ongoing, in the past 18 months SBA has made significant progress in each of these four areas. New programs such as LowDoc (reduced paperwork loans under $100,000) and Fa$trak (streamlined loan program which relies on bank documentation) have tapped new and under served markets and have resulted in phenomenal growth of the 7(a) program from 27,000 loans ($5.9 billion) in FY 1992 to 56,000 loans ($7.8 billion) projected for FY 1995. Even with increased lending, the program will cost taxpayers less this year ($215 million) because of reforms adopted to make the program more cost-effective. Our SBIC program attracted more private capital ($700 million) in FY 1994 and FY 1995 than in the previous 10 years combined. A comprehensive review of the Minority Enterprise Development Program was completed. The Agency's plans for the program will improve the assistance provided to minority-owned and women-owned small businesses by streamlining the application process, reducing burdensome reporting requirements, improving management and technical assistance, and providing greater contract opportunities. The Administration's recent regulatory reform announcements -- giving small business owners a right to cure first time violations, calling for changes in many EPA regulations, halving the frequency of many Government forms required from small businesses, and allowing fines to be used to correct new violations -- reflected recommendations from the unprecedented interagency forum which SBA helped launch last year. Finally, SBA championed the Administration's efforts to strengthen and enforce the Regulatory Flexibility Act. Obviously, SBA is proud that it has made great strides in achieving the four goals for SBA set out in the Agency's performance plan and looks forward to implementing further performance initiatives to reinvent the SBA. C. Actions Taken to Evaluate Internal Personnel Performance Measures, and Actions Taken to Eliminate Performance Measures Based on Process and Punishment. In the last several years, there has been an aggressive Agency-wide effort to train managers and supervisors in drafting performance standards. First, there was a one day Train- the-Trainers Workshop in which the participants received instruction, guidance, and an index of materials to be used during their training sessions. At least one individual from the ten Regional Offices received this training, as well as three from Headquarters. After this initial workshop, a mandatory, intensive one-day training workshop was sponsored for all managers and supervisors, nationwide, until all were trained. During the training, each manager and supervisor received hands-on training and guidance on how to draft standards linking performance plans to their respective program office's strategic plan. They were asked to develop performance standards, where possible, that describe the results to be achieved and measure the quantity and quality of performance during the year based thereon. D. Timetable for Implementation of New Personnel Performance Measures for All Employees. 1. Timetable and Number of Employees Affected. As set forth above, managers and supervisors have been revising many of the Agency's performance measures for several years. An Office of Personnel notice will be issued within the next month, advising managers and supervisors that all measures utilizing punishment or processes must be eliminated from employees' performance plans prior to establishing their performance plans for FY 1996. Additionally, the Notice will address the inclusion of agency customer service standards into the performance plans for all employees presently lacking them. Including its Disaster Assistance program, SBA currently has 5,386 employees, of which 3,717 are permanent employees and 1,669 are temporary employees. 2. Front-line Regulators: Old and New Standards for Financial Analysts. SBA has reviewed its performance standards and has found very few that measure employee performance based upon either process or punishment. In fact, SBA located only one performance plan for one employee position, financial analyst in the SBIC program, which seemed to measure performance based upon the punishment the employee could mete out. Only 11 employees were affected by this plan, and the SBIC program has had a longstanding policy allowing concerns to cure most regulatory violations, without incurring any penalty. As of this date, SBA has rewritten its plan in this area to eliminate both process and punishment performance standards. Further elimination of process measures from this and other plans will continue throughout the year. 3. Catalogue of Changes Made to Existing Personnel Performance Evaluations. In addition to the changes set forth above, SBA has made changes in the way its non-Senior Executive Service ("non-SES") District Directors are rated. To ensure consistency and fairness in the District Director rating process, a Performance Review Board was established to review the performance ratings for all non-SES District Directors. The Board will also explore the feasibility of performance awards for these individuals, and will ensure that all legal and other requirements are observed. SBA received OPM approval for this change in standard operating procedures on April 27, 1995. The Board will be used for the first time at the end of this rating cycle (September 30, 1995). IV. GRASSROOTS REGULATORY PARTNERSHIP MEETINGS A. Overview. By Memorandum dated March 4, 1995, the President directed that the heads of Departments and Agencies promptly convene grassroots partnership meetings around the country to be attended by frontline regulators and those being regulated. SBA has used such meetings to foster a spirit of cooperation between government and those it serves, and to provide a ready forum through which regulators may learn and receive suggestions and recommendations from those affected by regulation. In response to the President's directive, the Small Business Administration organized and conducted Grassroots Regulatory Partnership Meetings at five different locations throughout the United States: San Antonio, Texas; King of Prussia, Pennsylvania; St. Louis, Missouri; New York, New York; and San Francisco, California. These meetings were held from April 10 through April 27, 1995, and were attended, in total, by more than two hundred fifty (250) small business owners, contractors, lenders, loan recipients, 8(a) concerns, 7(j) program providers, large prime contractors, small business development centers, certified development companies, state agencies, SCORE volunteers, and SBA employees. At each meeting, those in attendance were invited to participate in various break-out sessions concentrating on specific topics of particular interest to SBA partners: Financial and Business Development Programs, Government Contracting, and Small Business Regulatory Issues. In one instance, there also was a Speak-out session devoted to simplification of SBA's 504 Program. The Business Regulatory Issues breakout provided a forum for small businesses to tell SBA about any concerns they had with any agency's regulations. These sessions also provided an opportunity for those affected by SBA's regulatory functions to voice their views concerning the performance of the Agency, and to offer suggestions as to how SBA programs can be made more efficient, less burdensome, and more "user friendly." Thereafter, upon the conclusion of the break-out sessions, all participants reconvened and the various ideas raised in the individual discussion groups were summarized for the consideration of all in attendance. At three locations, Administrator Philip Lader addressed the assembly, and shared his initial thoughts regarding many of the proffered ideas and recommendations. At two of the meetings, Jere Glover, Chief Counsel for Advocacy, chaired the events and shared with the participants information he had learned from the various White House Conferences on Small Business that he had attended around the country. At all of the meetings, the purpose was to listen and learn. The specific suggestions raised at the grassroots meetings pertain to all aspects of the Agency's functions, and bear upon the various partnerships which SBA has forged with those it regulates. While a complete listing of all recommendations is now being prepared for distribution to participants and Agency officials, the following sample readily serves to demonstrate the insights offered by SBA's partners and the clear value of continuing to hold periodic partnership meetings in the future. B. Specific Recommendations. Among the many suggestions offered for consideration were the following: þ Place all regulations relating to business loans into one Part of the CFR þ Consolidate all certifications by borrowers into one document þ Increase SBDC involvement with new borrowers þ Require business counseling before a borrower receives a loan þ Institute a uniform certification system for all government programs designed to assist disadvantaged business concerns þ Coordinate the policies of SBA and the Office of the Comptroller of the Currency on small business loan issues þ Increase publicity regarding the benefits of the 8(a) program þ Create a government-wide telecommunications system on business issues to disseminate information to small businesses and SBA intermediaries þ Improve program marketing to the public þ Improve communications between SBA and lenders so that the latter will better understand Agency programs þ Permit lenders to use their own forms in connection with 7(a) loans applications þ Increase use of business development assistance þ Increase size standards for retail businesses þ Offer a line of credit program for small businesses þ Provide more technical assistance in the area of international trade þ Assist in export financing þ Standardize the 504 program to eliminate differences among the SBA district offices þ Make greater use of alternative dispute resolution þ Attempt each year to award some 8(a) contracts to firms in each region that have not previously received them þ Place a cap on 8(a) contracts received by program participants þ Ensure that regulations do not try to account for every possible action þ Provide flexibility with respect to minor regulatory violations þ Establish a public and private sector advisory group As noted, SBA plans to distribute a summary of the recommendations submitted at each of the Agency's five grassroots meetings to participants and Agency officials. It also intends to ask District Offices to confer and coordinate with partners on policy and programs. By these actions, it is anticipated that SBA can continue the process begun with the five meetings just completed, improve its delivery of services to the public, and strengthen its partnership with those it serves. C. SBA Implementation Plans. As an immediate response to several of the recommendations offered at the grassroots meetings, and to further energize and reinforce the Agency's partnership with those it regulates and serves, SBA intends to implement the following measures: 1. SBA will meet with its partners, federal procurement agencies, and other federal, state and local agencies on a regular basis to create, develop, and improve programs and initiatives responsive to the specific needs of the Agency's customers and intermediaries; 2. SBA will work closely with lenders to educate and train them to the extent practicable prior to public dissemination of a new program or initiative; 3. SBA will initiate a joint effort by federal agencies and small businesses to increase small business participation in the area of international trade, with special emphasis on the creation of new opportunities for small business export financing; 4. SBA will implement the use of electronic technologies to process applications for assistance, to disseminate information relevant to small businesses, and to communicate with participating lenders; 5. SBA will work with government procurement agencies and small businesses to develop a more streamlined process to identify and award government contracts; 6. SBA's District Office officials will visit more frequently with offices of lenders to observe firsthand this intermediary link between the agency and its customers, and increase the Agency's availability to discuss problems and develop solutions; 7. SBA will continue to send senior officials to trade association meetings, and will utilize these opportunities to recognize the accomplishments and contributions of intermediary partners; 8. SBA will implement additional formats, including letters from the Agency's Administrator, to recognize and reward particular small businesses that have contributed noteworthy ideas or achieved outstanding performance; and 9. SBA will meet with the office of the Comptroller of the Currency to examine regulatory issues affecting small business. D. SBA's 504 Loan Program: A Partnership Success Story. The SBA is engaged in an intensive ongoing partnership to streamline and simplify SBA's 504 program. The 504 program uses public/private partnerships to make loans available for acquisition of land, buildings, machinery and equipment. The key to SBA's 504 loan program is a certified development company ("CDC"), a nonprofit organization sponsored by private interests or by state or local governments. In 1994, SBA met with industry representatives to listen to their ideas. They focused on regulatory changes, form simplification and process and procedural review. Small business borrowers participated at SBA's San Francisco Grassroots Regulatory meeting and gave meaningful ideas on the loan process. Working groups, including SBA employees and industry representatives from around the country have been formed and are meeting for week-long sessions in Washington. Each working group is based on a function, such as the loan application process, credit analysis, loan servicing and loan closing. As a result of this process, the entire program, including regulations, standard operating procedures, forms and agreements, will be streamlined and simplified with input from the regulators and the regulated. The burden on the small business, SBA personnel, and the CDC will be reduced significantly. The entire program restructuring is scheduled to be completed by August 31, 1995. SBA has instituted the first step in the streamlined procedure, an expedited loan closing process. SBA will rely upon the CDCs and their private sector attorneys designated to review the loan packages submitted. The average SBA attorney review time will be reduced from four hours to twenty minutes per loan package, and the small business borrower will have the benefits of reduced paperwork and simplified procedures. V. NEGOTIATED RULEMAKING SBA has no upcoming rulemaking actions suitable for negotiated rulemaking. SBA believes strongly that any rulemaking process should include substantial involvement by the regulated community and other members of the public. Very few of SBA's rulemakings regulate directly the conduct or activity of small business owners. SBA customarily works with the regulated community and its representatives to obtain comments and participation in the process. SBA presently is considering the feasibility of negotiated rulemaking in the Small Business Investment Company program. VI. WAIVING PENALTIES AND CUTTING FREQUENCY OF REPORTING REQUIREMENTS Pursuant to the President's Memorandum dated April 21, 1995, SBA has identified monetary penalties which may be imposed upon small businesses for correctable violations, as well as regularly scheduled reporting requirements established by statute, regulation, standard operating procedure, or contractual obligation. In each instance, careful consideration was given to determine whether the penalties could be modified or waived, and whether the frequency of the regularly scheduled reports could be reduced. The results of SBA's detailed review are set forth below. A. Penalties. SBA's rules and regulations contain few monetary penalties imposed on small businesses in connection with violations. Those which have been identified are as follows: 1. 13 C.F.R.  107.1001(d) provides that whenever the length of time required for the examination of an SBIC's books and records is excessive because of a lack of cooperation or the condition of such books and records, an additional examination fee of up to $250 per day may be imposed; 2. 13 C.F.R.  120.104-2(b) provides that a participating lender (not SBA) may impose upon a borrower a penalty fee on late loan payments in an amount up to five percent (5%) of the monthly loan payment plus interest (the imposition of this monetary penalty is authorized by 15 U.S.C.  636(a)(22)); 3. 13 C.F.R.  123.19(a) provides that one who wrongfully misapplies disaster loan proceeds shall be civilly liable to SBA in an amount equal to one-and-one- half times the original principal amount of the loan. This regulation is based upon statute, which also mandates the imposition of the penalty when this conduct occurs. See, 15 U.S.C.  636(b); 4. 15 U.S.C.  687g(a) provides that an SBIC which violates any regulation or written directive issued by SBA requiring the filing of a report pursuant to  687b(b) shall pay a penalty of up to $100 for every day during which the failure to file continues, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. 15 U.S.C.  687g(b) provides that, under certain circumstances, the Agency may exempt an SBIC from the provisions of subsection (a) for a period of time it deems necessary and appropriate; and 5. the Secondary Participation Guaranty Agreements (SBA Form 1086) permits the imposition of certain penalties upon the lender and the Fiscal and Transfer Agent. Under appropriate circumstances, SBA waives the penalties set forth in 13 C.F.R.  107.1001(d) and 15 U.S.C.  687g(a), and regularly waives all but one of the penalties allowed under Form 1086. Any penalties levied pursuant to 13 C.F.R.  120.104-2(b) are imposed by participating lenders, not by SBA, and the maximum late payment fee applied is in accordance with the standard commercial rate. Moreover, the civil penalty permitted by 13 C.F.R.  123.19(a) is imposed in connection with certain criminal wrongdoing, and is levied only after an exercise of discretion by SBA as to the propriety of imposing such a penalty. Finally, the single penalty set forth in Form 1086, which is not routinely waived, is commercially reasonable, is consistent with a similar penalty imposed in the private sector, and is imposed only after the expiration of a two-day grace period. Accordingly, SBA's present policy regarding monetary penalties is consistent with a flexible approach towards regulation, and SBA's plan is to ensure a continuation of this present policy. B. Reporting Requirements. Regularly scheduled reporting requirements relevant to SBA programs are set forth in eight of the thirty-eight Parts of SBA's regulations, in a few of SBA's Standard Operating Procedures, and in the Program Announcement for the Agency's SBDC Program. A chart summarizing each of these regularly scheduled reporting requirements is annexed to this submission. Pursuant to the President's Memorandum of April 21, 1995, SBA engaged in a thorough review of each of the Agency's regularly scheduled reporting requirements in order to determine if the frequency of such reporting obligations could be reduced by one-half. Such review has led the Agency to conclude that eleven of its regularly scheduled reporting requirements can be cut back because such reporting cutback would not impede the effective administration of SBA's programs or because the present reporting requirement is not statutorily mandated. Other reporting requirements should not be changed, however. SBA is a federal lending agency which is highly dependent upon the regular reporting of financial and other relevant data in order to ensure the integrity and effectiveness of its programs. A number of the regularly scheduled reports required by SBA are periodic financial statements which, in many instances, are already routinely prepared by small businesses for purposes unrelated to SBA requirements, are customary in the commercial world, and thus impose no additional burden on small businesses. We have concluded that SBA cannot accomplish the proper performance of its mandated activities without the timely financial data provided by such statements. Accordingly, with the exception of the eleven reporting requirements discussed below, SBA has concluded, and I personally declare that the Agency's regularly scheduled reporting requirements should be maintained in order to promote the effective administration of SBA's programs, assist in reducing other regulatory burdens, and comply with governing statutory provisions. As indicated, SBA has determined that it can reduce eleven of its reporting requirements. In two instances the reduction has already occurred (numbers 4 and 5 below): 1. 13 C.F.R.  108.503-1(b)(3) currently requires certain certified development companies to submit contracts for professional services annually to the Agency for approval. SBA intends to modify this regulation so as to require that the certified development companies simply maintain copies of such contracts in their files for SBA review. 2. 13 C.F.R.  122.54-6(b) currently requires recipients of Export Revolving Line of Credit loans to furnish monthly progress reports to lenders. The Agency intends to modify this regulation so as to require only quarterly reporting in the absence of special circumstances. 3. 13 C.F.R.  122.55-1(b)(2)(v) currently requires certain annual reporting by trustees of a qualified employee trust. SBA intends to eliminate this reporting requirement. 4. The regulation formerly designated as 13 C.F.R.  124.312(b)(7) required 8(a) program participants to submit, among other things, quarterly financial statements. On June 7, 1995, SBA published a final rule in the Federal Register which redesignated this regulation as  124.312(b)(4), and eliminated the requirement of quarterly financial statements. 5. The regulation formerly designated as 13 C.F.R.  124.312(c)(10) required 8(a) program participants during the program transitional stage to submit, among other things, quarterly financial statements. On June 7, 1995, SBA published a final rule in the Federal Register which redesignated this regulation as  124.312(c)(7), and eliminated the requirement of quarterly financial statements. 6. 13 C.F.R.  128.7-9(b)(5) and 128.7-9(g)(1) mandates certain reporting requirements from grant recipients. However, all of Part 128 will be removed from the Agency's regulations pursuant to its streamlining efforts, and, of course, these reporting requirements will be eliminated as a result. 7. Under the SBDC Program Announcement, recipients of SBDC awards are required to submit quarterly counseling and training reports. SBA intends to cut back this reporting requirement from quarterly to semi-annually. 8. Under the SBDC Program Announcement, recipients of SBDC awards are required to submit annual counseling reports. SBA intends to eliminate this reporting requirement. 9. Under the SBDC Program Announcement, recipients of SBDC awards are required to submit quarterly reports on certain specified SBA forms. SBA intends to cut back this reporting requirement from quarterly to semi-annually. 10.Under the SBDC Program Announcement, recipients of SBDC awards are required to submit quarterly performance reports for the first three years of participation in the program, and semi-annual performance reports thereafter. SBA intends to cut back this reporting requirement from quarterly to semi- annually for SBDCs participating in the program for under three years, and from semi-annually to annually for SBDCs participating in the program for over three years. 11.SOP 90-80, paragraph 17 requires that grant awardees in the Women's Business Ownership Demonstration Project Program must submit quarterly performance and financial reports. SBA is developing a paperless reporting system in connection with this program, and it is anticipated that once such system has been in operation for a year, such reporting can be cut back to a semi-annual, rather than a quarterly, basis. As this Report was being finalized, first-time regulations were published which pertain to the SBDC program, and which had gone through a lengthy preparation process. These regulations contain reporting requirements which the Agency will review and revise where appropriate so as to be consistent with this Report. SBA expects to achieve all of these reporting reductions by December 31, 1995. Some will require regulatory changes; others will be implemented through Policy Notices issued by the appropriate program heads within the next two weeks. Once these changes have been achieved, SBA will have modified approximately 20% of those provisions relevant to its programs which establish regularly scheduled reporting requirements.