House of Representatives>Small Business Committee>Newsletter

On Thursday, May 10, House Small Business Committee Chairman Don Manzullo (R-IL) introduced legislation to reauthorize the programs of the U.S. Small Business Administration for four years. In addition, Chairman Manzullo announced the Small Business Committee will vote on the legislation at a 10 a.m. markup on Wednesday, May 17, in Room 2360 of the Rayburn House Office Building.

HR 5352, the Small Business Reauthorization Act of 2006, will improve the SBA’s response to catastrophic disasters and expand the reach of the SBA’s finance and entrepreneurship programs to more small businesses in America. The legislation will also eliminate unnecessary programs at the SBA and combat waste, fraud and abuse by increasing fines for misuse of SBA programs. Chairman Manzullo drafted the legislation following consultations with related industry groups, the SBA, and several subcommittee hearings on the issue.

“This legislation will enhance the SBA’s popular finance programs to help our small businesses get the funding they need to survive and prosper. It will strengthen the SBA’s ability to provide vital assistance to the victims of catastrophic disasters. And it will eliminate unnecessary programs and target scofflaws who misuse SBA resources,” Chairman Manzullo said. “This is a fiscally prudent bill that will help the SBA carry on its mission to help small businesses grow and create jobs for Americans.”

Specifically, HR 5352 will:

1) Reauthorize for four years (through FY 2010) all the basic small business programs of the Small Business Administration (SBA) at fiscally prudent levels.

2) Increase the maximum 7(a) loan amount from $2 million to $3 million and the guarantee limit from $1.5 million to $2.25 million, which will effectively deal with the loss of combination financing or “piggyback” loans.

3) Increase the loan guarantee amount for International Trade loans from $2 million to $2.5 million.

4) Make a variety of improvements to the 504 or Certified Development Company (CDC) program, including transferring a ½ point lender fee to CDCs and borrowers in order to encourage more lender participation in the program; allowing CDCs to liquidate defaulted loans, instead of sitting on the desks of SBA offices; and keeping CDCs focused on local economic development.

5) Reconstitute the Participating Securities (PS) component of the Small Business Investment Company (SBIC) program all within the context of a zero subsidy rate and at a very much reduced authorization level ($300 million in FY 07 from $3 billion in FY 05).

6) Elevate the importance and role of the head of the Office of International Trade at the SBA to report directly to the SBA Administrator.

7) Incorporate the following four Small Business Development Center (SBDC) related bills:

(a) HR 230 helps small businesses comply with federal regulations;

(b) HR 527 provides vocational and technical students with start-up business advice;

(d) HR 3207 establishes peer-to-peer roundtables for “second-stage” entrepreneurial firms, which have the greatest potential to grow and create new jobs.

8) Strengthen the SBA disaster response program by:

(a) Increasing from $1.5 million to $10 million the maximum size of a SBA disaster loan for “incidents of national significance;”

(b) Allowing disaster mitigation loans to be based on the entire cost of the damage, not just the SBA portion of the recovery cost;

(c) Allowing small non-profits in disaster areas to obtain economic injury disaster loans (current law only allows non-profits to receive physical injury disaster loans);

(d) Allowing SBDC portability grants (used to response to unanticipated emergencies) over the $100,000 limit for states impacted by catastrophic events; and

(e) Allowing SBDCs to provide out-of-state assistance in response to catastrophic events without jeopardizing their funding formula based on state demographics.

9) Continue “sustainability” funding for existing Women Business Centers beyond their five year grant cycle but at a decreasing rate to where it was in FY 2003: 48 percent in 2007, 42 percent in 2008, 36 percent in 2009, and 30 percent 2010.

10) Eliminate three unnecessary or unused programs at the SBA:

(a) Tree Planting program;

(b) Central European Enterprise Development program; and

11) Phase out the authorization of federal funding for the National Veterans Business Development Corporation to zero by 2010.

12) Combat fraud and abuse by:

(a) increasing fines for misrepresentation(s) to the SBA.

(b) creating new penalties for those that misuse the SBA name or trademark (recommendations from the Office of Inspector General at the SBA).

13) Extend SBA’s private sector co-sponsorship authority through 2010.

14) Repeal and replace SBA’s franchising regulation (the Garvin Enterprises decision).

15) Prohibit SBA District Directors from being involved in the selection of SBDC Directors.

16) Reauthorize the Very Small Business Concerns pilot program through 2010.

17) Reauthorize the ability of the SBA to charge a secondary market fee.

18) Contain a technical correction to the HUBZone program: changing the word “of” to “or.”

In addition, HR 5352 will:

1) Not adopt the Administration’s proposal to impose an adjustable interest rate on SBA disaster loans during the 5th year.

2) Not adopt the Administration’s proposal to impose an additional fee to partially cover administrative expenses to manage the 7(a), CDC, and SBIC programs.

3) Not adopt the Administration’s proposal to abolish the Microloan program.

4) Not adopt the Administration’s proposal to eliminate Small Business Innovative Research (SBIR)/Small Business Technology Transfer (STTR) rural outreach grants.

5) Not adopt the Administration’s proposal to eliminate the BusinessLinc program.

6) Not adopt the Administration’s proposal to eliminate the LowDoc loan program (as a subset of the 7(a) program).

7) Not adopt the Administration’s proposal to eliminate the Program for Investment in Microenterprise (PRIME).

8) Not adopt the Administration’s proposal to eliminate the Federal and State Technology Partnership (FAST) program.

For further information, please contact Phil Eskeland, Policy Director, or Barry Pineles, Chief Counsel.

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Chairman Manzullo: Investment Tax Credit Would Help America’s Small Businesses Prosper, Create Jobs

On Wednesday, May 10, U.S. House Small Business Committee Chairman Donald Manzullo (R-IL) urged his colleagues to support his legislation creating tax incentives to encourage more private investment in America’s small businesses.

Chairman Manzullo, who chaired a Small Business Committee hearing on the issue on Wednesday, said small employers need more access to capital to prosper and create jobs for Americans. The Access to Capital for Entrepreneurs (ACE) Act of 2006 (HR 5198), authored by Chairman Manzullo and Representative Earl Pomeroy (D-ND), would provide a windfall of needed capital by offering a tax credit for investments in U.S. small businesses.

Specifically, HR 5198 would create a 25-percent tax credit for accredited individual investors and certain partnerships (including angel investment pools if all are accredited investors) that invest cash or cash equivalents at an arm’s length in a qualified small business (as defined by the Small Business Act). An angel investment pool is a group of investors who come together to pursue common investments.

To qualify for the tax credit, an investor would have to hold onto the investment for at least three years. The maximum amount eligible for the credit is $250,000 per investment and a total of $500,000 per qualified individual investor.

“The ACE Act provides a needed boost to our nation’s qualified small businesses by helping angel investors increase equity stakes in these companies,” Chairman Manzullo said. “If the provisions of the ACE Act were signed into law, many small businesses that would otherwise fail for lack of adequate resources could grow and expand, creating more jobs for Americans.”

According to the Center for Venture Research, 227,000 angels invested more than $23 billion into new ventures last year, creating 198,000 new jobs, or four new jobs per angel investment. Twenty-one states currently offer some sort of income tax credit to encourage such private investments in early stage businesses, but this would be the first such credit at the federal level.

For further information, please contact John Westmoreland, Chief Tax Counsel.

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Chairman Manzullo Votes to Prevent Tax Increases on Families, Seniors and Small Employers

On Wednesday, May 10, House Small Business Committee Chairman Donald Manzullo (R-IL) voted for legislation to extend tax relief and prevent tax increases on middle-income families, seniors, and small business owners throughout America.

The Tax Increase Prevention and Reconciliation Act (H.R. 4297) passed the House by a bipartisan vote of 244 to 185 on May 10. On Thursday, May 11, the Senate passed H.R. 4297 by a vote of 54 to 44. Because H.R. 4297 was part of the budget and tax reconciliation process from last year, the bill was not subject to a Senate filibuster, thus allowing a simple majority in the Senate to pass the legislation. H.R. 4297 prevents massive tax increases by extending the following tax relief provisions of interest to small business:

· AMT relief for individuals: The Alternative Minimum Tax (AMT) is an additional tax some people have to pay on top of the regular income tax, especially two parent families who live in high-taxed states. H.R. 4297 increases AMT exemption levels to $62,550 for joint filers and $42,500 for single filers. The bill also extends current law that allows most non-refundable personal tax credits, such as the dependent care credit and the Hope college credit, to be claimed against the AMT so families can continue to receive full benefit of those credits.

· Reduced tax rates on seniors, other investors: The legislation prevents a $20 billion tax increase on seniors and other investors by extending the lower tax rates on capital gains and dividends for another two years. H.R. 4297 continues the maximum tax rate for capital gains and dividend income at 15 percent. For taxpayers in the 10- and 15-percent tax brackets, the tax rate is 5 percent in 2007 and zero in 2008.

· Two-year extension of higher small business expensing allowance: Under current law, small businesses may expense (deduct in the first year) up to $100,000 of investments in depreciable assets. The deduction phases out dollar-for-dollar to the extent the business’s annual investments exceed $400,000. Without action, the expensing limit would have declined to $25,000 and the phase-out threshold would have declined to $200,000 after 2007. This tax relief allows small employers a significant tax deduction that allows them to invest back into their businesses and create jobs.

"This tax relief will prevent massive tax increases on our seniors who are living off their investments and our middle-income families under threat of the Alternative Minimum Tax," Chairman Manzullo said. "It will also help our small employers who can continue to use this tax relief to strengthen their companies and create more jobs for Americans."

For further information, please contact John Westmoreland, Chief Tax Counsel.

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Manzullo Joins House Leadership in Introducing CFIUS Reform Bill –

Legislation would have required greater scrutiny of Dubai port deal

On Wednesday, May 10, U.S. House Small Business Committee Chairman Donald Manzullo (R-IL) joined House leaders in introducing legislation to reform the U.S. government committee that initially gave rapid and cursory approval to the controversial Dubai ports deal.

HR 5337, the Reform of National Security Reviews of Foreign Direct Investments Act of 2006, would require the Administration to more closely scrutinize deals when foreign government-owned enterprises try to purchase companies operating in the United States. The bill would require an automatic 45-day extended investigation of these deals and would prohibit the Administration from waiving the extended review. The legislation is sponsored by Chairman Manzullo, House Majority Whip Roy Blunt, House Republican Conference Chairman Deborah Pryce (who chairs the Financial Services Subcommittee on Domestic and International Monetary Policy, Trade and Technology that has legislative jurisdiction over CFIUS), and others.

The bill would also require the secretive Committee on Foreign Investment in the United States (CFIUS) to provide more information to Congress on pending deals; it would require CFIUS to consider foreign purchases of infrastructure in the United States as a national security concern; and it would name the Secretary of the Department of Homeland Security as the vice-chairman of the CFIUS committee (Secretary of Treasury would remain chair of CFIUS).

CFIUS created a furor earlier this year when it approved the sale of a British port management company to Dubai Ports World – a state-owned enterprise of the United Arab Emirates – and gave the Middle Eastern country management control over 27 terminals at six major U.S. ports. The Dubai government has since announced it would divest itself of the U.S. port management business after House leaders announced plans to kill the deal.

“This legislation will provide common-sense reforms to ensure the CFIUS process works correctly the next time a case like the Dubai ports deal comes before the U.S. government,” said Chairman Manzullo, who has challenged several CFIUS deals over the last few years. “This bill protects our national security while continuing to encourage foreign investment in our country. It has been an honor to work with House leaders on this legislation that means so much for the future of our country.”

Chairman Manzullo also sits on Chairman Pryce’s Financial Services subcommittee that has legislative jurisdiction over CFIUS. For further information, please contact Rich Beutel, Special Counsel.

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Issues in Brief

On Thursday, May 11, the Senate failed to invoke cloture on the Health Insurance Marketplace Modernization and Affordability Act of 2005 (S. 1955), which would allow small businesses to pool together for the purposes of purchasing health care insurance through Association Health Plans (AHPs). Even though a majority of the Senate supported AHPs, S. 1955 failed to win a supermajority of 60 votes needed to overcome a Senate filibuster. There are 55 Republicans and 45 Democrats currently serving in the U.S. Senate. Invoking cloture to halt a filibuster failed by a near party-line vote of 55 to 43, thus preventing a full debate and a vote on this issue. The House of Representatives has passed this legislation (H.R. 525) seven times in years past, including most recently on July 26, 2005 by a bipartisan vote of 263 to 165 (see SBC Notes 109-20). AHPs have been the subject of several House Small Business Committee hearings in the past (see SBC Notes 109-41 for the most recent hearing).

On Monday, May 8, the Senate also failed to invoke cloture on two medical liability reform bills – the Medical Care Access Protection Act of 2006 (S. 22) and the Healthy Mothers and Healthy Babies Access to Care Act (S. 23) – that are key elements in trying to keep health costs down for small business. S. 22 would impose a $500,000 cap on non-economic damages in all medical liability cases. S. 23 would impose a $500,000 cap on non-economic damages in medical liability cases only affecting obstetrical or gynecological services. In the attempt to compromise on this issue, the Senate bill contained a $500,000 cap, double the $250,000 limit that was in H.R. 5 (see SBC Notes 109-20). H.R. 5 passed the House on July 28, 2005 by a vote of 230 to 194. Even still, that effort at a compromise was rejected by the opponents of placing any limits on medical liability lawsuits. Even though a majority of the Senate supported both of these bills, S. 22 and S. 23 failed to win a supermajority of 60 votes needed to overcome a Senate filibuster. Invoking cloture on S. 22 and S. 23 failed by near party-lines votes of 48 to 42 and 49 to 44 respectively, thus preventing a full debate and a vote on this issue. Medical liability reform has been the subject of several House Small Business Committee hearings in the past (see SBC Notes 109-41 for the most recent hearing).

On Wednesday, May 10, the House Veterans Affairs Committee Subcommittee on Economic Opportunity passed the Veteran-Owned Small Business Promotion Act of 2005 (H.R. 3082), authored by Subcommittee Chairman John Boozman (R-AR) and ranking minority member Stephanie Herseth (D-SD), by unanimous voice vote. H.R. 3082 would give veteran-owned small businesses preferences in Department of Veterans Affairs (VA) contracting. H.R. 3082, as amended in subcommittee, would require the VA to set annual contracting goals but would leave the specifics up to the discretion of the VA Secretary. H.R. 3082 would also require the VA to maintain a database of those small businesses and ensure that they are truly owned by veterans. The bill is expected to be considered by the full committee sometime before the end of June.

On Monday, May 8, House Small Business Committee Chairman Donald Manzullo (R-IL) submitted a comment letter to the Department of Treasury on the proposed rule that would modify the tax treatment of funds held by qualified intermediaries. Chairman Manzullo challenged the rulemaking process in this case for the failure of Treasury and the Internal Revenue Service (IRS) to prepare a thorough regulatory flexibility analysis and thus ignored the impact of this proposed rule on small business. For more details, please contact John Westmoreland, Chief Tax Counsel.

On Thursday, May 4, the House Appropriations Committee Chairman Jerry Lewis (R-CA) announced the “302(b) subcommittee allocations.” This is the next step in the process by which all of the federal government is funded, including the SBA. There are 11 appropriations subcommittees in the House divided by issue areas and federal agencies that allocate the federal government’s discretionary spending (i.e., not mandatory spending such as Social Security and Medicare) for each fiscal year, which begins on October 1^st. The 302(b) subcommittee allocations are the maximum funding level each appropriations subcommittee can spend for the upcoming fiscal year. The Science and the Departments of State, Justice, and Commerce (SSJC) Appropriations Subcommittee also approves the funding level for the SBA. Chairman Lewis allocated $59.836 billion for the SSJC Appropriations Subcommittee in Fiscal Year 2006, which represents an increase of 4.6 percent from FY 05 levels and an increase of 0.2 percent from the President’s FY 06 budget request. The Appropriations Committee aims to pass on the House floor all of the 11 appropriations bills, including SSJC, by the end of June.

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Upcoming Events

Wednesday, May 17 10:00AM – full committee mark-up of Small Business Reauthorization Act of 2006 (H.R. 5352)

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Past hearings/mark-ups/roundtables/meetings in 2006

February 1, 2006 – Tax, Finance & Exports (TF&E) and Rural Enterprises, Agriculture & Technology (REA&T) joint subcommittee hearing on “Transforming the Tax Code: An Examination of the President’s Tax Reform Panel Recommendations.”

February 8, 2006 – Regulatory Reform & Oversight (RR&O) Subcommittee hearing on “The Internet Sales Tax: Headaches Ahead for Small Business?”

March 2, 2006 – Workforce Empowerment & Government Programs (WE&GP) Subcommittee hearing on the “Oversight of the Small Business Administration’s Entrepreneurial Development Programs.”

March 8, 2006 – TF&E Subcommittee hearing on the “Oversight of the Small Business Administration’s Finance Programs.”

March 15, 2006 – REA&T Subcommittee hearing entitled, “The Missouri River and its Spring Rise: Science or Science Fiction?”

March 15, 2006 – hearing on the Fiscal Year 2007 Budget and Reauthorization Proposals of the SBA.

March 16, 2006 – RR&O Subcommittee hearing entitled, “The State of Small Business Security in a Cyber Economy.”

March 30, 2006 – RR&O Subcommittee hearing on the “Procurement Assistance Programs of the SBA.”

April 5, 2006 – hearing on “IRS Latest Enforcement: Is the Bulls-Eye on Small Businesses?”

April 6, 2006 – RR&O Subcommittee hearing entitled “Can Small Healthcare Groups Feasibly Adopt Electronic Medical Records Technology?”

April 26, 2006 – hearing on “Cutting Our Trade Deficit: Can the U.S. Muster Its Diverse Trade Promotion Operations to Make an Impact?”

April 27, 2006 – WE&GP Subcommittee hearing on “Healthcare and Small Business: Proposals that will Help Lower Costs and Cover the Uninsured.”

May 3, 2006 – REA&T Subcommittee hearing on “The Future of Rural Telecommunications: Is Universal Service Reform Needed?”

May 3, 2006 – hearing on “What is the Proper Balance Between Investor Protection and Capital Formation for Smaller Public Companies?”

May 10, 2006 – hearing on “Bridging the Equity Gap: Examining the Access to Capital for Entrepreneurs Act of 2006.”

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Small Business Website

Check out the Small Business Committee website at http://www.house.gov/smbiz. The site includes regular updates on small business committee news. The site features special projects, press releases, hearings and scheduling information.

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Phil Eskeland

Deputy Chief of Staff & Policy Director

House Committee on Small Business

Phil.Eskeland@mail.house.gov

(202) 225-5821

To contact any staff member listed in the above newsletter, please use the general number for the House Small Business Committee – (202) 225-5821. Please E-mail me if you want to be removed from the mailing list or if you know of others who might be interested in receiving this publication.

Mission Statement of the House Committee on Small Business

"We promote the success of America’s small businesses by leveling the global economic playing field and reducing domestic burdens that impede their growth. In this spirit, we work to ensure that every branch of the U.S. government understands the critical role America’s small businesses play – both at home and abroad – including the jobs they create and the spirit of entrepreneurship they embody.”

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