HR3207SEP9

TheWeekInCongress.com

Week Ending September 9, 2005

H.R.3207 To direct the Administrator of the Small Business Administration to establish a pilot program to make grants to eligible entities for the development of peer learning opportunities for second-stage small business concerns.

BRIEF

Small businesses are categorized as being in one of four stages: new venture, expansion, professionalization, and consolidation. Small business is any business with yearly revenues under $10 million.

This bill works on the assumption that a good many US small businesses are at the 2^nd (expansion) stage and need help with the process. Such businesses are called Gazelles and making the wrong decision can cause the gazelle to stumble the Committee report said.

Should the bill pass the 2^nd stage businesses would gain assistance in particular areas such as ‘intellectual property protection, proper workforce education and investment in human capital, and development of market opportunities.’ Participating ‘Gazelles’ will have already been receiving Small Business Administration funding. The bill authorizes businesses to be included in this pilot program. Grants will be distributed in relation to State population: the smaller the State the smaller the funding. $50,000 is the minimum grant amount.

The four year pilot program would aim to: identify second-stage small business concerns that have the capacity for significant business growth and job creation; facilitate business growth and job creation by second-stage small business concerns through the development of peer learning opportunities; utilize the network of small business development centers to expand access to peer learning opportunities for second-stage small business concerns; and assist businesses owned by minority individuals, service-disabled veterans, and women, the bill report noted.

Sponsor: Representative Michael G. Fitzpatrick (R-PA-8^th)

Vote:

Cost to the taxpayers: “CBO estimates that implementing H.R. 3207 would not have a significant cost in 2006 and would cost about $4 million over the 2006-2010 period, with about $2 million in outlays after 2010.”

MORE INFORMATION

SECTION-BY-SECTION ANALYSIS

Section 1. Short title

The section establishes the short title as the `Second-Stage Small Business Development Act of 2005.'

Section 2. Purpose

This section states the Congressional rationale for enactment of the program.

Section 3. Pilot program

Subsection (a) mandates that the Administrator establish the program of peer learning opportunities through SBDCs.

Subsection (b) requires that the Administrator to select eligible entities (SBDCs) that apply pursuant to the pilot program. Eligible entities are defined as those institutions or governmental organizations that currently receive funding pursuant to Sec. 21 of the Small Business Act. The term `eligible entities' does not refer to the sites at which locations of services are delivered by entities that receive funds pursuant to 21 of the Small Business Act. Subsection (b) limits the pilot program to twenty grantees, two selected from each of the ten federal regions as delineated in paragraph (4). The Committee recognizes that some states may have more than one SBDC eligible to receive funding pursuant to the funding formula in 21 of the Small Business Act. For those states, the Committee intends that the Administrator select only one SBDC program from those states with more than one grantee under 21. Eligible grantees may submit an application to the Administrator with a plan for offering peer learning opportunities and a plan to ensure that these peer learning opportunities will become self-sustaining by the end of the pilot program. The Administrator is required to select the applicants with the best plans for providing the opportunities and ensuring that the peer learning opportunities shall be self-sustaining. Nothing in the bill restricts the Administrator from weighting the factors in favor of the self-sustaining aspects or the quality of the peer learning opportunities. Paragraph (5) of subsection (b) requires the Administrator to consult with the Association recognized pursuant to 21(a)(3)(A) of the Small Business Act and give the Association's recommendations substantial weight. The Committee intends that the term `substantial weight' not give the Association controlling weight; rather the term `substantial' is used in its administrative law context of more than a scintilla but less than a preponderance. See Grand Canyon Air Tour Coalition v. FAA, 154 F.3d 455, 474-75 (D.C. Cir. 1998), cert. denied, 526 U.S. 1158 (1999). It is not the Committee's intention that this consultation process not fall within the requirements of the Federal Advisory Committee Act. Paragraph (6) of subsection (b) requires completion of the selection process within 60 days after the regulations to implement the pilot program have been promulgated.

Subsection (c) requires that a grantee selected in the pilot program to use the funds solely for purposes of conducting peer learning opportunities. Funds may not be used by the selected grantees for any other purpose, including provision of any other service mandated by Sec. 21 of the Small Business Act or the grantees contract or cooperative agreement with the Small Business Administration.

Subsection (d) establishes the procedures for distributing grants among the selected state programs. The formula is based on the principle that a state, which has a smaller population, also will have, in absolute terms, fewer small businesses than a larger state. The formula, therefore, allocates funds according to the relative size of each state. The Committee believes that the minimum funds needed to initiate a state program will be $50,000 and grants the Administrator the authority to modify the grant size calculated by the formula in this subsection to ensure that each SBDC selected under the pilot program will receive a minimum of $50,000.

Subsection (e) requires the applicants to satisfy the matching funds requirements of subparagraphs (A) and (B) of Sec. 21(a)(4) of the Small Business Act. The Committee decided that since these peer learning opportunities would be of sufficient value to the small business community, the selected programs should be able to obtain matching funds, including the payment of attendance fees by the participants. Furthermore, the matching requirement will expand the total resources devoted to the program. Subsection (e) provides an exception for lead centers located at community colleges, historically Black college, Hispanic-serving institutions, and minority institutions in meeting these matching requirements. Where the lead center in a state is housed in any of these centers, such center must only obtain only 50% of the matching fund requirements of subparagraphs (A) and (B) of 21(a)(4) of the Small Business Act. The matching funds requirement shall be calculated based on the amount of the grant made under this pilot program.

Subsection (f) requires each SBDC selected to operate peer learning opportunities must provide a quarterly report to the Administrator with the information set forth in paragraphs (A)-(C). Nothing in this requirement alters any other reporting requirement mandated by the Administrator. The Administrator, for the sake of reductions in paperwork burdens, may combine the report required by this subsection with other quarterly reports. Since the reports mandated by this subsection must be filed electronically, we urge the Administrator to establish an overall electronic reporting system for SBDCs to the extent such a system has not been developed.

The Association recognized by Sec. 21 of the Small Business Act provides a number of services to SBDCs. It frequently acts as a conduit to provide information to the Administrator and from the Administrator to the SBDCs. Given this role, the Committee determined that the Association should act as a clearinghouse and conduit of information to SBDCs under the terms set forth in subsection (g).

The Committee believes that peer learning will be sufficiently valuable addition to the services provided by SBDCs that they would be able to recoup, after an initial period, the entire cost of providing this service. Thus, the Committee mandates in subsection (h) that the reports required by H.R. 3207 provide the Administrator with progress on making the peer learning opportunities self-sustaining. Such reports shall be filed on annual basis. To ensure that the Administrator has sufficient information to conduct audits and reviews of the program, subsection (h) also requires the grantees to submit, on an annual basis, descriptions of the peer learning opportunities and the number of `second-stage' small business concerns assisted by the pilot program. Finally, the Committee included a requirement that the grantees assess the economic impact of the program but delayed that requirement until one year after the program was established.

Subsection (i) provides the same privacy protections to grantees in the pilot program that currently exist for SBDC clients pursuant to Sec. 21 as added by Division K of H.R. 4818, the Consolidated Appropriations Act of 2005, Pub. L. No. 108-447. This subsection prohibits the disclosure of client information (including the name, address, telephone and facsimile numbers, and e-mail address) of any concern or individual receiving assistance from a SBDC grantee or its subcontractors (who operate service centers that business owners can utilize to obtain advice) unless the Administrator is ordered to make such disclosure pursuant to a court order or civil or criminal enforcement action commenced by a federal or state agency. The Committee expects that SBDC grantees will only respond to formal agency requests, such as civil investigative demands, and subpoenas. The Committee also recognizes that the Administrator has significant management responsibilities to ensure that federal taxpayer dollars are wisely used by grantees and are in compliance with the law, regulations, and the cooperative agreements signed by SBDC grantees. Thus, the Committee authorizes the SBDC grantees to provide client names for the purposes of financial audits conducted by the Administrator or Inspector General and for client surveys to ensure that the SBDC grantees are satisfying certain aspects of their grant agreements. The Committee recognizes that client surveys may be misused and impose restrictions on their use. The Committee expects that the regulations promulgated pursuant to the amendments made to .0021 pursuant to Pub. L. No. 108-447 shall apply to this pilot program, including the regulations about the use of client surveys.

Subsection (j) requires the Comptroller General of the United States to provide a report evaluating the effectiveness of the program three years after establishment. The report also should contain any suggested modifications to the program. Finally, the Comptroller General should provide its opinion concerning whether the program should be continued and expanded to include more SBDCs on self-funding basis. The report shall be transmitted to the Committees on Small Business of the Senate and House of Representatives. The Committee expects that the program will be sufficiently successful to expand the program to other SBDCs without the need for additional federal funds.

Subsection (k) provides for termination of the pilot program on September 30, 2009. The Committee decided not to provide for any authorization contingency if the program does not receive appropriations for the entire authorized length of the pilot program.

Section 4. Promulgation of regulations

Section 4 authorizes the Administrator to promulgate regulations to implement this program no later than 180 days after the enactment of the Act. Such regulations only shall be promulgated after the public has been given an opportunity for notice and comment. The Committee believes that the Administrator can and should accomplish the issuance of regulations within the deadline set by statute. The Committee considers this Act to be some other law for purposes of section 603 of Title 5 of the United States Code.

The regulations shall include the standards relating to conduct of peer learning opportunities, the number of individuals that may participate in a group, determining whether a participant constitutes a competitor, various requirements for the facilitators of these peer learning opportunities, and requirements for transitioning these peer learning opportunities to full self-sustaining basis. The Committee expects that the regulations will lay out milestones and other requirements to ensure that this program will become self-funding once the pilot program's authority lapses.

Section 5. Definitions

Paragraph (1) defines the term `Administrator' to be the Administrator of the Small Business Administration.

Paragraph (2) defines the term `peer learning opportunities' as formally organized groups, overseen by professional facilitators, of presidents, owners, and chief executive officers of second-stage small business concerns. These groups meet regularly to discuss strategies and tactics and share ideas about operating their businesses. Meetings among business executives may lead to the perception of collusion in violation of the antitrust laws. While the Committee does not believe that second-stage entrepreneurs have sufficient market power to collude, the Committee took the safer approach by prohibiting peer learning among competitors. Thus, peer learning opportunities will be limited to non-competitors. The Committee believes that valuable information, such as capital markets or handling certain workforce issues, will be shared among non-competitors. Furthermore, by eliminating competitors, members of the peer learning groups may be more willing to speak freely without concern about revealing important information to a competitor.

Paragraph (3) establishes the criteria for determining whether a business concern qualifies as a second-stage entrepreneur and, thus, eligible for inclusion in the peer learning opportunities. Any small business that has survived the start-up, or new venture, phase may be considered a second-stage business. However, the Committee's impetus for passing H.R. 3207 is to assist not all second-stage entrepreneurs but those that have shown the potential for accelerated growth, i.e., a gazelle. Additionally, the Committee wished to ensure maximum participation of women, service-disabled, and minority entrepreneurs who were in the `gazelle' category; as such, the legislation provides such ownership as meeting one of the three necessary requirements for qualification under clause (ii). Therefore, the Committee determined that parameters were necessary for circumscribing those second-stage entrepreneurs that are or have the potential for being gazelles. This paragraph establishes those standards and small business concerns must be both a small business as defined by the Administrator's regulations set forth in 13 C.F.R. Sec. 121.201 and meet the criteria set forth in clauses (i) or (ii).

Paragraph (4) defines a small business concern by cross-reference to Sec. 3 of the Small Business Act. The Committee intends that the Administrator shall construe the terms in H.R. 3207 and the Small Business Act in pari materia.

Paragraph (5) defines the term `state' to include all the states, the District of Columbia and the territories of the United States Virgin Islands, Guam, the Commonwealth of Puerto Rico, and American Samoa. Puerto Rico, the Virgin Islands, and Guam all have SBDCs that receive funding pursuant to subsection (a)(4) of Sec. 21. Guam provides the services mandated by 21 to American Samoa.

Paragraphs (6)-(9) set forth the definitions of those institutions of higher learning that are eligible for the reduced matching requirement pursuant to Sec. 3(e).

Section 6. Authorization of appropriations

Section (6) limits the operation of the program only to the funds appropriated in advance for the program. The Committee provides an authorization of $1.5 million for each four fiscal years starting with the first fiscal year after enactment. Section (6) also prohibits the Administrator from using other funds, including other funds made available for the operation of SBDCs, to conduct this pilot program. The Committee authorized the additional appropriations because it determined that funding of the peer learning opportunities program should not detract from the available funding for the delivery of other services by SBDCs.

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