Child Care Lending Pilot Act of 2003

Mr. President, today, as ranking democrat on the Committee on Small Business and Entrepreneurship, I join the committee's chair, Senator Olympia Snowe, in bringing to the floor for final Senate consideration, a 3-year reauthorization bill for the Small Business Administration's programs.

These programs help small businesses with access to capital, business advice and training and Federal procurement opportunities. But before I speak more specifically about the provisions of the bill, I would like to thank Chair Snowe for working hand-in-hand with me on this, my third reauthorization of the Small Business Administration since becoming ranking member in 1997. Having worked close on two previous reauthorizations, and as a member of the Small Business and Entrepreneurship Committee for over 18 years, I can tell you that the SBA reauthorization process takes diligence and a strong attention to detail. I want to commend Senator Snowe for taking the initiative to draft legislation that makes such important and necessary changes to the SBA during this reauthorization process and for showing great leadership in her first 9 months as chair of the Committee on Small Business and Entrepreneurship.

Our bill will strengthen the SBA and dramatically improve the agency's ability to deliver services to small businesses in every State. It is based on a sound committee record. In addition to holding two hearings and three roundtables to specifically address the SBA's programs and related reauthorization issues, our committee met and spoke with numerous constituents, program directors and small business advocates. It is through this correspondence, research and input that our committee has been able to prepare a comprehensive piece of legislation that should serve the Small Business Administration and the entire small-business community well past even the next reauthorization period.

Over the past 3 years, as chairman and ranking member of this committee, I have seen this administration

reduce Government funding and transfer that money to the wealthy with tax cut after tax cut, resulting in a significant loss of revenue for essential initiatives aimed at fostering small businesses and the job creation and economic activity they bring about. While many of like to note that small businesses are the engine of economic growth and should be bolstered by our Government, this administration has given small businesses more words than action.

The need for small business programs--for access to capital, for training and counseling, for assistance in gaining access to the Federal marketplace--runs counter cyclically to the economy. When the economy is slumping, as it now is, small businesses and entrepreneurs need the SBA even more. Our committee has heard from the small-business community that demand for training and assistance and access to capital is up, yet this administration has proposed freezing funding for virtually all SBA programs for 6 years. Their proposal includes no adjustment for inflation or demand, despite the SBA's own numbers that show demand is up for its programs. The SBA's largest lending programs would have run out of money this year had the SBA not taken the drastic step of capping the size of loans. Both the problem of imminent shutdown and the SBA's solution of a cap would have been bad for struggling small businesses. But for additional funding of more than $3 billion made available by Congress, the SBA's solution would have disrupted many small businesses' access to otherwise unattainable capital. Again, the problem and its solution could have been avoided had the administration properly funded this important program.

It is in carrying out our legislative and oversight responsibilities that Chair Snowe and I raised a number of concerns regarding the SBA's reauthorization proposal and the overall management and direction of many of the agency's programs through hearings and roundtables and in letters and phone calls to the administration. And after hearing from the community and working with small business experts in the field, Senator Snowe and I came to the conclusion that many of the proposals put forth by the Small Business Administration would not help the agency's programs, but rather would ultimately hinder them.

This administration and small businesses across this Nation will find, however, that our prescription for small businesses in a flailing economy is quite different. Our reauthorization legislation embraces the initiatives that have worked for years, redirects those that have struggled, and sets the SBA and our small business sector up for continued success.

Although banks have plenty of cash to lend, many small businesses still have a problem getting access to credit. Either the terms are unreasonable, or they can not get a loan at all. For the past few years as the economy has fizzled, the Federal Reserve has reported that banks have cut back on lending to small businesses, making it harder and more expensive to get loans. And who has been there to pick up the slack? The Small Business Administration and its lending partners.

Lending is up 37 percent in the SBA's largest lending program for working capital. Lending is up 22 percent in the SBA's loan program for small businesses that are growing and need money to buy equipment and buildings. Lending is up in the SBA's microloan program, which serves those with the least access to capital through the private sector. And the SBA's venture capital programs play a significant role in this country's investment in our fastest-growing small businesses, accounting for more than 50 percent of all U.S. venture investments. Last year these loans and investments pumped about $20 billion into the economy, leveraged millions more from the private sector, fed the local tax base as the Federal Government cut back, and created or retained more than 400,000 jobs.

As the committee reviewed the SBA's programs for reauthorization, these facts figured largely into establishing the program levels. I thank our chair, Senator Snowe, for working with me to set the levels for the SBA's lending and venture capital programs at increasing levels for the next 3 years. I am particularly pleased with the increased funding levels for the microloan program.

I disagree with the administration's proposals over the past few years to cut back its investment in microloans and training assistance to micro-entrepreneurs. And I disagree with the administration's contention that these borrowers are being served through the 7(a) loan program. The small borrower in the microloan program is different than the small borrower being served through the 7(a) loan program. Both lending vehicles are important, but they are different, and one is not a substitute for the other.

And who are these borrowers being served through the microloan program? Thirty percent are African American. Eleven percent are Hispanic. Thirty-seven percent are women. And anywhere from 30 to 40 percent go to small businesses in rural areas. Banks turn these borrowers away, and yet the administration proposed cutting the microloan program by 36 percent in its most recent budget--fiscal year 2004. The SBA needs to fully fund these programs and put more resources into the office that manages the program. Four people are not enough to manage 1,400 loans and 180 grants.

Not only is the program level for microloans troublesome, but also the level for the agency's largest small business lending program, the 7(a) program. In the report that accompanies S. 1375, the committee notes that our duty as members of this committee, as well as that of the SBA itself, is not simply to maintain these programs but to monitor the demand and adjust the programs accordingly to meet the needs of small businesses. According to SBA's testimony before the committee on April 30, 2003, the agency estimates demand only by looking backwards-- what has happened in the past year. However, there are other important factors to consider: changes in loan volume, trends in the economy, and initiatives and program changes that will affect loan volume. For example, the agency often enters into memoranda of understanding with trade and ethnic associations in order to help their members who own small businesses, and recently the SBA opened its lending programs to all credit unions, which number 10,000. Both of these changes are intended to raise awareness of the SBA's services, which ultimately will affect demand. In a press release from the SBA regarding credit unions, the agency stated that delivery of SBA loans through credit unions, ``Represents a possible increase of nearly 30 percent in the overall number of institutions where entrepreneurs can seek capital for their businesses.'' That possibility, if it becomes a reality, will almost certainly increase demand for 7(a) loans. Therefore, it should be factored into the SBA's estimate of programs demand for fiscal year 2004 and beyond, and aligned in its annual appropriations requests and legislative proposals.

Aside from setting the level for each small business financial assistance program, our SBA reauthorization makes important program changes and starts some important, new initiatives. In the SBA's microloan program, we have adopted many of the provisions we passed last year as part of S. 174, which Senator Snowe and I introduced and the committee and the full Senate voted to pass by unanimous consent. I thank the Association for Enterprise Opportunity, AEO, as well as the participants of the reauthorization roundtable on April 30, 2003--Mary Mathews of Minnesota's Northeast Entrepreneur Fund, Zach Gast of AEO in Washington, D.C., Alan Corbet of Missouri's Go Connection, and Blake Brown of Maine's Coastal Enterprises--for representing the microloan industry so convincingly and educating the committee on the inextricable correlation between technical assistance, lending and successful businesses that can repay their loans. I thank them for illustrating so vividly how they serve borrowers that would not otherwise have access to capital--because their loans are not profitable enough to appeal to traditional lenders, and because the efficiencies of credit scoring work against these small borrowers, even those with repayment ability. The SBA's microloans represent their only credit option to help them achieve economic independence and become bankable in the future.

Picking up where we left off last year, and even the year before when we

made important changes to the microloan program, S. 1375 will make it possible for lenders to offer small business ``short-term'' loans. This will benefit small businesses, the lenders and the SBA because it will eliminate repeated paperwork and administrative oversight from those small businesses, such as carpenters, who need revolving loans to finance the jobs as they come in, rather than taking multiple little fixed-term loans. Rather than tying eligibility to the expertise of the entity, we have made it possible for new entities to qualify as the SBA microlending intermediaries if they have staff with this unique lending and technical assistance expertise. We have made a conforming change regarding the average smaller size of microloans, increasing it from $7,500 to $10,000, to make it consistent with similar changes enacted in December 2000.

Unlike the provisions we considered in 2000 and again last year with S. 174, this bill does not go as far to eliminate the restrictions on lenders contracting out the technical assistance or assistance before a loan is made. Instead, we raise from 25 percent to 30 percent the amount of TA funds an intermediary can contract with an outside expert and the amount of grants a lender can use to counsel prospective borrowers. The latter change does not go as far as I would like, but represents a compromise. Although there is a perception that pre-loan assistance means that TA money is used on microentrepreneurs who never get loans, in actuality the small-business owner in many cases needs help getting the loan more than assistance running the business after he or she gets the loan. Also, unlike the last two microloan bills, instead of including a provision authorizing the SBA to fund peer-to- peer mentoring among microloan lenders and TA providers, the microlenders asked the committee to increase the oversight of an existing statutory provision that requires the SBA to contract out 7 percent of its loan dollars for training of intermediaries.

Now the SBA will have to report annually on this specific provision to highlight what they have done to comply with the law. Last, S. 1375 requires the SBA to develop an improved subsidy rate model to determine the cost of microloans because the one they have used since the program's inception does not reflect the performance of the program. For example, last year, in Fiscal Year 2003, the administration's budget doubled the subsidy rate, which is the Government's cost of the program, from 6.78 percent to 13.05 percent, even though the program had not experienced any loss of Federal funds since the first loan was made in 1992. This broken method of calculating the cost of these loans is a waste of taxpayer money because Congress has to appropriate unnecessary funds to run the program.

In the 7(a) loan program, the SBA's largest loan program, which provides loans to small businesses for working capital with long terms of up to 25 years, we made permanent the reduction in the fees borrowers and lenders pay. We are testing a proposal that allows the most proficient 7(a) lenders in good standing to lend in every State. Lenders have complained that applying for lending autonomy in each of the 70 district offices and branches is administratively burdensome, both for them and for the agency staff, and that some district offices have taken advantage of the power to approve or disapprove lenders when they apply for this special lending status.

Let me be clear--while I want to avoid unnecessary paperwork and eliminate reported abuses, I do not want the lenders to take this as a signal to quit working with the district directors and district staff. It is important to have a local connection and for the SBA and the lenders to work together to maximize service to the small businesses. We need to maximize resources to reach not only as many small businesses as possible, but also those populations that most need access to affordable capital. It would be unreasonable to continue holding district directors accountable for lending goals in their areas without building in a mechanism to encourage interaction. There are concerns that allowing lenders to make loans on a nationwide basis and bypass the local SBA staff to work only with SBA staff in Washington, DC, could undermine the local infrastructure and the SBA's ability to meet the individual needs of local small businesses. For this purpose I have included a provision that directs the SBA to consider the recommendations and comments of any district directors and regional administrators when reviewing a lender for national lending authority.

To increase the value of 7(a) loans sold in the secondary market, the committee has included a provision to allow the SBA to pool and sell the guaranteed portion of loans with varied rates. Currently, the SBA has the authority to only sell those loans with identical rates. Proponents argue that this will create efficiencies in the market and strengthen the program by bringing it into line with what the private sector has been doing for years.

At Senator Snowe's request, in order to reach more under-served small businesses, we have enhanced the Low-Doc program, allowing lenders to use the simplified application from for loans up to $250,000 from $100,000, making it the same as the SBA Express program. We have also expanded the incentives for lenders to provide financing to export small businesses, and proposed letting 7(a) borrowers use a simplified size standard when determining if an applicant is a small business.

To improve the 504 loan program, which makes long-term loans of up to 20 years to small, growing businesses to buy equipment and buildings, we have raised the debenture size to keep peace with the rising cost of commercial real estate and equipment. We have raised the job requirement standard up from $35,000 to $50,000. This is reasonable given the increase in the Consumer Price Index since the last time the job requirement was changed in 1990. We have directed the SBA to simplify the application and documentation process of applying for and closing 504 loans, long a goal of this Committee and made a priority based on the compelling testimony of some of our witnesses during the reauthorization process. We have also created two alternatives for 504 lenders to use when establishing a loan loss reserve to cover potential losses.

I am particularly pleased that we have included S. 822, the Child Care Lending Pilot Act in the reauthorization bill. It allows small, non-profit childcare businesses access to 504 loans. I thank Senator Snowe and my colleagues for agreeing to try this for 3 years, similar to what we have done with the microloan program. And I thank the trade association of 504 lenders, the National Association of Certified Development Companies, and other 504 lenders for their endorsement of, and input on, the pilot.

The more research I have done, the more I have come to realize how vitally important it is that we give non-profit day care providers the same opportunities as for-profits to expand their businesses. Non- profit day care centers are often the only childcare suppliers available in needy areas, from the most urban to be most rural. I have taken note of states like Oregon, where 79 percent of day care providers are non-profit, Michigan, where that number jumps to 86 percent, Iowa with 77 percent, my own State of Massachusetts with 90 percent, Ohio with 62 percent, and the list goes on and on. I've learned that in State after State families are waiting for affordable day care; from more than 1,000 families on the waiting list in both Nevada and Maine to more than 30,000 on the list in Texas. These parents are waiting for quality day care they can afford, and making available affordable loans to all licensed child care providers may increase access to care and cut down those waiting lists.

I understand there is concern about the precedent of the SBA lending to non-profits. Right now it is done in only limited circumstances-- microloans, physical disaster loans and economic injury disaster loans in the areas affected by the terrorist attacks of 9/11. And I agree it should not be expanded to all industries. However, this is a very unique industry whose critically important services in many States are delivered mostly through non-profits, and the only way to increase facilities to provide the child care is to reach both for-profit and non-profit child care providers. Further, non-profits are usually the providers that care for the neediest kids. I have added provisions to the pilot program to ensure that the underwriting

standards are just as tough, if not more so, as those applied to for- profit centers. The loans must be personally guaranteed, the collateral must be owned outright by the child care provider, and it must be able to make its loan payments and cover normal operating expenses from the revenue generated from its clients. With these protections, the loans to non-profits should perform just as well as those made to for- profits, and if there is a problem, the loans should be collateralized sufficiently to cover the losses.

The bill defines a small, non-profit child care businesses as an entity organized as a 501(c)(3), but not just any organization. It must be a licensed child care provider; it must meet the size standard for a small business; and it must provide care to infants, toddlers and pre- kindergarten and care to older children after school. This makes assistance available to eligible entities that offer Head Start services. At Senator Snowe's request, the pilot is limited to seven percent of the number of loans guaranteed by the 504 program overall, which is less than the 10 percent allowed for pilots under SBA's 7(a) guaranteed business loan program. I feel that the agreed upon cap should allow for sufficient lending under the pilot to adequately test whether lending to non-profit childcare providers is effective in increasing access to affordable childcare, and whether it protects the general 504 program, which is vital to the financing of small businesses in this country.

Before I move on to discuss another important provision in the bill, I want to thank all the members of the Advisory Committee on Child Care and Small Business in Massachusetts who not only identified the need for this policy change but also developed many innovative ideas to coordinate Federal and State business services and child welfare services to expand the availability of quality, affordable child care and strengthen the businesses of child care of child care providers.

The bill also includes a comprehensive study by the GAO to track and monitor the impact of this program both on child care industry and the 504 program. Last, I want to remind my colleagues that the 504 program is funded entirely through fees and does not require appropriations. Further, when the Congressional Budget Office reviewed the reauthorization act and estimated its cost and the impact the provisions would have on the programs, CBO assessed no cost increase to the 504 program, its subsidy rate, or the agency by enacting the child care lending pilot provision.

Also included in this bill is S. 318, the Small Business Drought Relief Act. This simply reinforces in legislation something that the SBA should already be doing. You see, the SBA doesn't treat all drought victims the same. The agency only helps those small businesses whose income is tied to farming and agriculture. However, farmers and ranchers are not the only small business owners whose livelihoods are at risk when drought hits their communities. The impact can be just as devastating to the owners of rafting businesses, marinas, and bait and tackle shops. Sadly, at present these small businesses cannot get help through the SBA's disaster loan program because of something taxpayers hate about government--bureaucracy.

The SBA denies these businesses access to disaster loans because its lawyers say drought is not a sudden event and therefore it is not a disaster by definition. Despite numerous requests, written and verbal, for a copy of this legal opinion, the SBA delayed compliance for 6 months. The delay jeopardized enactment of emergency legislation during the 107th Congress, leaving small business drought victims without assistance. Contrary to the agency's position that drought is not a disaster, as of July 16, 2002, the day this legislation was introduced last year, the SBA had drought disaster declarations in effect in 36 States. That number had grown to 48 by the beginning of this year, demonstrating that the problem had gotten worse and even more small businesses were in need.

As I have said time and again, the SBA already has the authority to help all small businesses hurt by drought in declared disaster areas, but the agency will not do it. For years the agency has been applying the law unfairly, helping some and not others, and it is out of compliance with the law. The Small Business Drought Relief Act of 2003 would force the SBA to comply with existing law, restoring fairness to an unfair system, and would get help to small business drought victims that need it. I thank former Governor Jim Hodges of South Carolina, and his staffer Lane Hudson, for bringing this to the committee's attention. They served the needy small businesses of their State extremely well, and I am sorry that politics kept this common sense and much needed provision from being enacted. I thank the other 15 Governors who fought for their constituents, too. And I thank Senator Bond for working with me on this when he was the ranking member of the Committee on Small Business & Entrepreneurship, and Senator Snowe and her staff for all their help and support. While we might have had a lot of rain recently in the northeast, there are areas like Lake Mead in Arizona and Nevada where it is so dry that the water level is down and small businesses are losing business and having to make expensive changes, such as extending docks to reach the water in order to stay in business.

In this bill are also provisions to strengthen the SBA's venture capital programs--the Small Business Investment Company Debenture and Participating Securities programs, and the New Markets Venture Capital Program. We have balanced investment incentives with financial soundness issues and allowed small businesses to receive more SBIC financing than currently permissible if they also have a 504 or 7(a) loan. We have improved the arrangement for distributing payments from successful SBICs so that the SBA and the investors are treated more fairly and the taxpayer has more protection for realizing repayment on the investments. We have put in place conforming amendments to make the New Markets Venture Capital program work with the New Markets Tax Credit, as Congress intended. And we have clarified that New Markets Venture Capital companies have 2 years to raise their matching capital, as Congress intended. The committee has been troubled by the agency's interpretation of the NMVC statute, which SBA viewed as permitting the agency to choose how much time it could give conditionally approved NMVCs to raise the private-sector matching money. The SBA's chosen time frames were unreasonable and not what Congress intended.

I very much regret that the managers' amendment that we are considering today does not include a change to the New Markets Venture Capital Program which would better align allowable investments with repayment obligations. Right now the repayment and profit participation schedules are out of sync. Experts argue that this situation could force NMVCs to liquidate promising small businesses in order to raise repayment money. It would be unfortunate if this were to occur, particularly for the employees of small businesses in these high- unemployment areas who will be hard-pressed in this economy to find another job with sustainable wages and benefits. I do not have an SBA NMVC in my State, but there are about 20 States with NMVCs which would have benefited from this proposed change--Maine, New Hampshire, Vermont, Kentucky, Maryland, West Virginia, Ohio, Delaware, New Jersey, Pennsylvania, Arizona, and Washington, DC. I am sorry that we could not reach a compromise and I hope for the sake of existing NMVCs and the small businesses they assist that the experts are not right.

I thank the many experts who have advised this committee over the years on developing and implementing the new markets venture capital program. My colleagues on the committee and I are grateful for their help. It is a great service to the taxpayers and businesses and the communities that will benefit from this innovative investment. In no particular order, I thank Dr. Julia Rubin who helped us when she was at Harvard, at Brown and now at Rutgers University. I thank Saunders Miller, now himself a small business owner of Peaq Funds in Manhattan, who was a principal developer of this program and may other venture capital initiatives for the many years he worked at the SBA. I thank Don Christensen, the former head of the SBA's investment

division, where he served this nation and president Clinton extremely well. And to the many developmental venture capitalists who routinely impart their expertise and wisdom to this committee, such as Elyse Cherry of the Boston Community Venture Fund and Ray Moncrief of Kentucky Highlands.

Responding to findings by the General Accounting Office and the SBA's Office of Inspector General, this legislation includes many measures to strengthen the SBA's oversight of lenders. And we have reauthorized and clarified the law for surety bond guarantees to help small businesses get Government contracts.

While no one would deny the importance that access to capital plays in the success of small businesses, as SBA Administrator Hector Barreto and past SBA administrators have acknowledged time and again, debt is not always the answer. In the SBA's FY 2004 budget request, there is reference to information from the Ewing Marion Kauffman Foundation and Dun & Bradstreet that indicates ``80 percent of new businesses discontinue operation within 5 years because of lack of `knowledge' of key business skills.'' Despite the recognized importance of such assistance, the SBA's funding request for fiscal year 2004 and its legislative proposal to implement that request would freeze funding levels for virtually all agency programs, without even accounting for inflation, for a 6-year period. If enacted, that would severely hamstring this nation's small businesses and their ability to effectively compete and prosper in the national economy. For this reason, Senator Snowe and I took a comprehensive approach to supporting and improving the SBA's entrepreneurial development programs, while rejecting proposals put forth that would undermine their success.

Cuts to or inadequate funding of the SBA's entrepreneurial development programs are often attributed to vague and unfounded claims of duplication. Such claims mistake a common mission of training and counseling for duplication, ignoring the reality that small businesses vary greatly, are often at very different stages of development, and have many different needs. Just as it would be ineffective to only have one type of loan or venture capital financing structure for the 25 million small businesses in this country, it would be futile to water down specialized management and training programs to impose a one-size- fits-all approach.

I want to commend Chair Snowe for giving women entrepreneurs such a prominent place in the reauthorization process. Rarely do women entrepreneurs get the recognition and attention they deserve for their contributions to our economy: Eighteen million Americans would be without jobs today if it were not for these entrepreneurs who had the courage and the vision to strike out on their own. During my tenure as a member, chair, and lead Democrat of the Senate Committee on Small Business and Entrepreneurship, I have worked to increase and improve the opportunities for enterprising entrepreneurial women in a variety of ways, leading to greater earning power, financial independence and asset accumulation--and I am glad that Senator Snowe is joining me in this endeavor.

As Chair Snowe expressed when she introduced the Women's Small Business Programs Improvement Act--and when Senator Snowe and I passed the Women's Business Center's Preservation Act--protecting the extremely effective and well-established Women's Business Center network was a high priority in this reauthorization. For that reason, we make permanent the Women's Business Center Sustainability Pilot Program by creating 3-year ``renewal'' grants for those centers with sustainability grants and 4-year ``initial'' grants for new centers; increase the program's authorization levels; and direct the Office of Women's Business Ownership, OWBO, to make all Women's Business Center grants at $150K and to consult with the associations of Women's Business Centers when making improvements to the program. Other changes to the Women's Business Center Program include streamlining the data collection and the grant application and selection criteria, protecting the privacy of Women's Business Center, WBC, clients, and providing for a smooth transition from sustainability to the newly established WBC program.

Our legislation will not only secure the future of the Women's Business Center Program, but it will connect all SBA-related women's initiatives with a unified mission, similar guidance and training. These changes were coupled with minor, yet significant, changes to the National Women's Business Council, NWBC, and the Interagency Committee on Women's Business Enterprise. Senator Snowe and I included provisions to give the NWBC cosponsorship authority, to allow more flexibility in the way the council uses funds, and to direct the council to serve as a clearinghouse for historical data. Each of these things will enable the council to become a better resource for the administration, Congress and the entire small-business community. Since its inception, the NWBC has provided Congress, the Small Business Administration, and the Interagency Committee on Women's Business Enterprise with independent advice and policy recommendations on issues facing women in business.

In recognition of the council's importance to policy making and women in business, Senator Landrieu offered and the committee adopted an amendment identical to her National Women's Business Council Independence Preservation Act of 2003, which seeks to maintain the bipartisan balance on the NWBC. The structure of the NWBC helps to maintain its independence. It has 15 members. The chair is appointed by the President and must be a prominent business woman. Six members are representatives of women's business organizations, including representatives of women's business center sites, and the remaining eight are members appointed by the SBA administrator based upon recommendations of the chair and ranking members of the Senate Small Business and Entrepreneurship Committee and the House Small Business Committee. Of these eight ``party-affiliated'' members, four come from the same political party as the President and four members who are not from the President's party; all of them must be small business owners. The bipartisan balance in the NWBC's membership helps to ensure that any policy recommendations will reflect the needs of women in business and not the political agenda of one political party over another.

Vacancies on the NWBC are supposed to be filled no later than 30 days after the position becomes open; however, in the past 2 years, the SBA has failed to meet this 30-day statutory deadline. The NWBC Chair was vacant from May 29, 2001, to May 21, 2002, a period of 11 months and 22 days. Of the party-affiliated slots reserved for the President's party, one was vacant for 3 months, two were vacant for a period of 7 months; and one was vacant for 21 months. Two of the seats reserved for members who are not from the President's party were vacant for nearly 2 years, one seat was vacant for 7 months, and the fourth seat remains vacant. At one point during the past 2 years the NWBC had a severe partisan imbalance. There were three Republican members on the NWBC and no Democratic members. The committee is concerned that these vacancies undermine the effectiveness of the NWBC, and that the lack of bipartisan balance will subject any policy positions taken by the NWBC to criticism as being motivated by partisan interests.

Senator Landrieu's amendment, which was approved unanimously by the committee, requires that vacancies in the party-affiliated slots will be filled to maintain a bipartisan balance on the NWBC. The provision also ensures accountability by requiring the administration to report to Congress on vacancies that remain unfilled for more than 30 days. The committee expects the report to cite the reasons for the vacancies, what is causing any delays in filling the positions, whether nominees were available for consideration, at what stage in the vetting process nominees are, whether there are any objections to the nominees and what those objections are, an estimate for when the vacancies will be filled, and any other relevant information relating to the vacancies.

To bolster the representation of women business owners in the Federal Government, our bill re-establishes the Interagency Committee on Women's Business Enterprise, directs the Deputy Administrator of the SBA to serve

as acting chairperson of the Interagency Committee until a chairperson is appointed, establishes a Policy Advisory Group to assist the Committee's chairperson in developing policies and programs under this act and creates three subcommittees similar to those created under the National Women's Business Council.

This bill also supports and protects the Small Business Development Center network, which has served millions of small-business owners since its inception more than 20 years ago. It should also be noted that in 2001, SBDCs helped small businesses create or retain over 80,000 jobs, generate $3.9 billion in sales and obtain $2.7 billion in financing. For every dollar spent on an SBDC, $2.09 in tax revenue was returned to the Federal Government. Numbers aside, the nationwide network of SBDCs provides important counseling services to small- business owners that are unable to afford private consulting, many of whom are women and minority clients. The SBDC program has grown to serve 1.25 million small-business owners and entrepreneurs each year, and there are nearly 1,000 centers serving every State in the Nation.

While this bill rejects the potentially detrimental changes proposed by the SBA to the SBDC network, it does address concerns expressed by the centers and small businesses. Our bill increases authorization levels to keep up with increased demand and a provision to protect the privacy of the program's clients and a provision to help the SBDCs that have been adversely affected by poor economic conditions or government downsizing. Also included is a portability provision proposed by Senator Snowe to provide supplemental assistance to State SBDC networks that have been adversely affected by a military base or industrial site closure which has lead to a loss of jobs and severe economic harm. If implemented correctly, portability has the potential to help States, reeling in the aftermath of a sudden economic change, to provide the necessary small business assistance to quell the economic injury to a particular area.

Also, included in the entrepreneurial development section of our bill is a provision to increase to $7 million annually the authorization level for the Service Corps of Retired Executives, SCORE, which has 10,500 volunteers, and technical change to allow SCORE to keep its modest staff of 14 employees. For more than 38 years, SCORE has been one of the SBA's greatest and most efficient successes. In 2002, SCORE volunteers held over 300,000 counseling sessions and put in nearly 1.4 million volunteer hours. To keep up with an our nonstop national economy, SCORE has dramatically advanced the outreach of its online services to reach clients 24 hours a day, seven days a week. Last year, for $5 million, SCORE volunteers provided small business owners an estimated $170.8 million worth of professional business advice. It is safe to say that in this down economy, SCORE is one investment that will be paying dividends for years to come.

I thank Senator Snowe for working with me to include, as introduced, the Native American Small Business Development Act, which I reintroduced earlier this year together with Senator Johnson and Senator Smith to address the SBA's growing lack of commitment to the Native American community. According to a report released by the U.S. Census Bureau, the ``three year average poverty rate for American Indians and Alaska Natives from 1998-2000 was 25.9 percent; higher than for any other race groups.'' With an unemployment rate well above the national average and household income at just three-quarters of the national average, Native American communities need a commitment from the Federal Government that we will help them, particularly during these difficult economic times. To reaffirm this commitment, the Johnson-Kerry-Smith bill provides Native Americans the resources they need to take advantage of the opportunities of entrepreneurship.

The Native American Small Business Development Act, as included in our reauthorization bill, will ensure that the SBA's programs to assist Native American communities cannot be dissolved by making the SBA's Office of Native American Affairs, ONAA, and its assistant administrator permanent. Our legislation would also create a statutory grant program, known as the Native American Development grant program, to assist Native Americans. It would also establish two pilot programs to try new means of assisting Native American communities and require Native American communities to be consulted regarding the future of the SBA programs designed to assist them. In short, this legislation will ensure that our Native American communities receive the adequate assistance they need to help start and grow small businesses.

Senator Bingaman and I have worked closely to develop a provision for inclusion in a joint managers' amendment to the reported bill, which will expand the Program for Investment in Microentrepreneurs, PRIME, with a separate $2 million authorization to provide direct, in-depth technical assistance and counseling to disadvantaged Native American small business owners. The provision will complement the Native American Business Centers created in the Native American Small Business Development Act by following the PRIME model, which provides technical assistance through microenterprise entities that have extensive experience helping the least experienced entrepreneurs in low-income communities. The rationale for amending the PRIME Act, rather than creating a separate program, is that PRIME is currently operational and simply needs additional funding so it can better address the needs of the Native American entrepreneurial community. The provision follows the existing Small Business Administration's approach and terminology for implementing the PRIME Act to enhance the possibility of economic development through entrepreneurship in Native American communities. The Bingaman provision will strengthen the three-pronged approach the Senator Johnson and I designed in the Native American Small Business Development Act to find a solution to the longterm economic handicap existing in Native American communities nationwide. There are a number of microenterprise organizations in states across the country that are willing and prepared to take on the additional challenge of assisting disadvantaged Native American entrepreneurs, and there are a number of Native American communities that are eager to take a different path to economic development. However, there are currently a limited amount of funds to allow that to happen. I commend Senator Bingaman for his attention to this matter, for his continued support of my small business legislation, and for his foresight and vision for Native Americans in New Mexico and across the country. The Native American communities across our nation will be better off with the assistance that this provision makes possible. Were it not for the persistence of Senator Bingaman, this provision would not be part of SBA's tools to help Native American entrepreneurs. I also want to thank Senator Snowe for working with Senator Bingaman and me to include this provision in the managers' amendment.

To address the growing business development needs of veterans, Senator Snowe and I reauthorized the Advisory Committee on Veterans Affairs, expanded veterans outreach grants from solely serving disabled veterans, to serving all veterans, reservists and service-disabled veterans. Further, we increase the funding for the Office of Veterans Business Development to enable that office to better deal with the demand by veterans for outreach and development services.

Included in a joint Snowe-Kerry amendment, which was unanimously approved at the Committee markup, is a reauthorization of PRIME at $15 million. SBA Administrator Hector Barreto has stated, ``The PRIME program was created to help the smallest of small businesses. These are entrepreneurs at the most basic stage of starting a business and who typically require the greatest amount of committed service and guidance. In order to succeed, they require training and technical assistance that must be accessible.''

PRIME is a powerful investment that provides critical assistance to struggling, distressed communities. It's engineered to help low-income and very low-income families, defined as those at 150 percent of the poverty line or below. A very low-income family of

four earns about $23,000 a year. The International Labor Organizations estimates that the return on investment in microenterprise development through resources like PRIME ranges from $2.06 to $2.72 for every dollar invested. Microenterprise contributes to our national economy through public tax revenues, private income increases, and reduced dependence on public assistance, such as welfare. Small Business Development Centers define a ``client'' as someone who has received two hours of training. On average, however, PRIME organizations spend 10 hours with low-income and very low-income entrepreneurs.

Many often confuse PRIME assistance with the microloan technical assistance. Unlike the microloan program's technical assistance, which is directly tied to helping microentrepreneurs obtain access to capital through microlenders, the PRIME program is designed to help microentrepreneurs who may not be credit-worthy or don't need or want loans, but do need intensive technical assistance.

Currently, there are fewer than 80 organizations with PRIME grants, yet the need for PRIME assistance is now greater than ever. While access to credit is vital for many microentrepreneurs, for low-income individuals, there is a severe gap between being credit-worthy and receiving the technical assistance needed to be successful in business. The PRIME program addresses this gap. for these reason, Senator Snowe and I reauthorized the program for three years. Our bill also moves PRIME's statutory language to the Small Business Act and includes a data collection provision.

We continue to receive reports of the detrimental effects of the Administration's policy of reduced staffing and resources for essential programs aimed at allowing small businesses to thrive. Week after week, the Federal Times reports on the decline in contracts being allocated to small businesses, small businesses losing ground in the Federal marketplace, and most recently, on the awarding of more big contracts with less oversight from Federal agencies. With agencies awarding larger, more complex and more costly contracts with fewer staff performing oversight, this nation's small businesses and its tax payers are the ones shouldering the burden when small business goals continue to be unmet. In addition to helping small businesses obtain access to procurement opportunities, these goals are meant to help the government benefit from the cost-savings and innovations small business contractors can often provide.

Significant improvements to the on-going problem of contact bundling, also called contract consolidation, are included in this bill. One provision included in this legislation that will make a significant impact on small businesses' ability to compete is the method we have adopted to address the ongoing problem of contract bundling. This language is a prime example of the effectiveness of bipartisanship, diligence and compromise. This approach incorporates language from an amendment to the Department of Defense reauthorization offered by Senator Collins and Senator Talent, language from my contract bundling bill, S. 633 and the President's initiative on contract bundling.

The first provision creates a two-tiered threshold in order to prevent unnecessary contract consolidation. Civilian agencies will be required to meet specific standards if they attempt to consolidate contracts above $2 million and $5 million. The Department of Defense is required to meet similar requirements for contracts above $5 million and $7 million. The bill also further expands the definition of contract bundling to include contract consolidation, closing a loophole in the definition that has been widely used and detrimentally affecting small businesses.

The second provision increases in the number of procurement center representatives, PCRs. These representatives advocate on behalf of small businesses in cases directly affecting contracting, such as the bundling or consolidation of contracts. Unfortunately, the number of PCRs has been reduced from over 200 at its peak in the late 1980s to the current level of just 47. In addition to reducing the number of traditional PCRs, the administration has also eliminated the Breakout PCRs, specially trained advocates that analyze highly technical large contracts and ``unbundle'' contracts and break out portions that are appropriate for small businesses. Their responsibilities have been rolled into that of traditional PCRs, even though the number of PCRs continued to decline. Often, the role of commercial marketing representatives, CMRs, was also incorporated into the responsibilities of traditional PCRs. CMRs are responsible for identifying opportunities and developing marketing strategies for small businesses to appeal to large prime contractors. The SBA's attempt to streamline their offices and replace trained individuals with electronic systems has resulted in the disenfranchisement of small businesses and hindered the SBA's ability to maintain a proper level of oversight over Federal contracting.

In the bill, we have increased the number of procurement center representatives to ensure that every State and every major procurement center is allocated a PCR. Meanwhile, we have also ensured that these PCRs are not burdened with responsibilities that were previously the duties of breakout PCRs and commercial marketing representatives. These two improvements will dramatically increase the efficacy and efficiency of all three positions and allow proper review of the approximately 40 percent of Federal contracts, nearly, $90 billion, that are currently not being reviewed by PCRs. This should increase small business's access to Federal contract opportunities.

The bill would also create a reporting requirement for the BusinessLINC program, which has been showing promise in creating real teaming opportunities for small businesses in the private sector. Although the administration recommended elimination of the program, the reports this committee received regarding the overwhelming success of the existing nine programs made it clear that the SBA did not have sufficient information about BusinessLINC to make an informed decision on its effectiveness. The committee's bill would ensure that the SBA offers the proper level of oversight and would foster the continued success of the program. I would like to thank Senator Snowe for working with me to find a compromise to preserve this successful program.

At the Committee's roundtable on non-credit programs and the hearing on contract bundling, the small business community reiterated the need for accountability for small business contracting at the agency level. I applaud Senator Snowe on her efforts to ensure that Federal agencies be held accountable for fully utilizing small businesses and to allow a greater amount of Congressional oversight of the implementation of agency procurement strategies. Provisions within this bill will ensure that the heads of Federal agencies identify a specific portion of their budget request that will be awarded to small businesses in their strategic plan and their annual budget submission to Congress. The bill also gives senior procurement executives and senior program managers additional authority to educate their staff regarding the importance of meeting the government-wide goals for small business utilization and allows for greater accountability in annual performance evaluations. I would like to thank the members of the Senate committee on Government Affairs for working with Senator Snowe and me on these provisions to ensure that agency officials have the authority, as well as the flexibility, to efficiently and effectively meet the goals we have placed before them.

In addition to increasing opportunities for prime contracts, this bill addresses another serious problem: Small businesses have been severely hampered by dishonest practices by some businesses that have prime contracts with the Federal Government and have received preference over other prime contractors due to their superior small business subcontracting plans. Senator Snowe and I have worked closely to address the concerns of small businesses regarding delays in payment, false reporting and the use of ``bait and switch'' tactics by prime contractors.

The bill holds prime contractors responsible for the validity of subcontracting data, requiring the CEO to certify to the accuracy of the subcontracting report under penalty of law. It also expands the penalties for falsifying data included in subcontracting reports to match the $500,000 or 10

years in prison for businesses that falsify their status as a small and disadvantaged business. If one intentionally falsifies data as a part of a subcontracting report to a Federal agency, he is defrauding the United States government and will be punished to the full extent of the law.

During the committee's reauthorization roundtables, we heard numerous accounts of subcontractors receiving late payments or partial payments from their prime contractors. Small firms do not have the luxury of waiting for their payments when they have invested time and money to provide their products and services to the prime contractor. To address this concern, the bill directs the SBA to create a three-year pilot program, which tests the feasibility of direct payment to subcontractors from the Federal agencies that are receiving the contracts and or services.

In 2000, Congress passed legislation to implement a limited competition, set-aside program for women-owned businesses, intended to assist agencies to increase contracting to these firms and help to meet the five percent government-wide goal. The original bill amended the Small Business Act in section 8(m)(4) to require the SBA Administrator to complete a study to identify industries in which women-owned businesses are under-represented and report to Congress. The original study has been completed, but has been delayed by a subsequent study of the original study's ``methodology,'' causing the program to be delayed indefinitely rather than be implemented in 2002, as it should have been. This bill expedites the implementation of the already overdue program by reassigning the responsibility of the study from the SBA to the GAO and giving the Comptroller a deadline of December 31, 2003, to report his findings to Congress.

During this time of economic downturn, we must ensure that long-term strategies of reorganization and restructuring do not have immediate negative impacts on our communities. One example of this is the economic impact on surrounding areas when a military base is closed. The loss of contracts to small businesses, jobs and resources can cripple a community's economy. To reduce the impact on these regions, this bill utilizes a contracting program, called the HUBZone program, intended to target under-served areas and maintain the profitability of the firms located within these areas. This bill will allow military installations that are closed after passage of this legislation to receive HUBZone status. Senator Snowe and I have included a further provision within the managers' amendment of S. 1375, which would limit this special classification for 5 years after the closure of the base. The intent of the immediate qualification of these areas is to allow for a smoother transition of the base to commercial use by encouraging small businesses to relocate to those facilities, through Federal contracting opportunities, and employing the workers in that area. Additional options for assistance for these areas are available through the SBA if these areas do not receive continued economic stability following the expiration of the 5-year HUBZone status.

I want to thank Chair Snowe and her able staff for all of their cooperation over the past several months. I would like to thank the members of the Senate Committees on Armed Services and Government Reform for working closely with me and my staff to ensure that this bill meets the needs of the Federal Government's diverse procurement offices as they work to ensure that the government receives the essential goods and services it requires. I also want to express my gratitude to all the members of the committee for their diligent efforts to improve this legislation and urge them and my other Senate colleagues to support the Small Business Administration 50th Anniversary Reauthorization Act of 2003.

Mr. President, today, as Ranking Democrat on the Committee on Small Business and Entrepreneurship, I join the Committee's Chair, Senator Olympia Snowe in introducing a three-year reauthorization bill for the Small Business Administration's programs. These programs help small businesses, often called the engine of the American economy, with access to capital, business advice and training and Federal procurement opportunities. But before I speak more specifically about the provisions of the bill, I would like to thank Chair Snowe for working hand-in-hand with me on this, my third, reauthorization of the Small Business Administration. Having worked closely on two previous reauthorizations, and as a member of the Small Business and Entrepreneurship Committee for over 18 years, I can tell you that the SBA reauthorization process takes diligence and a strong attention to detail. I want to commend Senator Snowe for taking the initiative to draft legislation that makes such important and necessary changes to the SBA during this reauthorization process and for showing great leadership in her first seven months as Chair of the Committee on Small Business and Entrepreneurship.

Our bill will strengthen the SBA and dramatically improve the agency's ability to deliver services to small businesses in every state. It is based on a sound Committee record. In addition to holding two hearings and three roundtables to specifically address SBA's programs and related reauthorization issues, our Committee met and spoke with numerous constituents, program directors and small business advocates. It is through this correspondence, research and input that our Committee has been able to prepare a comprehensive piece of legislation that will likely serve the Small Business Administration and the entire small-business community well past even the next reauthorization period.

Over the past three years, as Chairman and Ranking Member of this Committee, I have seen this administration reduce government funding and transfer that money to the wealthy with tax cut after tax cut, resulting in a significant loss of revenue for essential programs aimed at fostering small businesses and the economic activity they bring about. While many of us like to note that small businesses are the engine of economic growth and should be bolstered by our government, this administration has given small businesses more words than action.

The need for small business programs--for access to capital, for training and counseling, for assistance in gaining access to the Federal marketplace--runs counter cyclical to the economy. When the economy is slumping, as it now is, small businesses and entrepreneurs need the SBA even more. Our Committee has heard from the small-business community that demand for training and assistance and access to capital is up, yet this administration has proposed freezing funding for virtually all SBA programs for six years. Their proposal includes no adjustment for inflation or demand, despite SBA's own numbers that show demand is up for its programs.

It is carrying out our legislative and oversight responsibilities that Chair Snowe and I raised a number of concerns regarding the SBA's reauthorization proposal and the overall management and direction of many of the agency's programs through hearings, and roundtables and in letters and phone calls to the administration. And after hearing from the community and working with small business experts in the field, Senator Snowe and I came to the conclusion that many of the proposals put forth by the Small Business Administration would not help the agency's programs but ultimately hinder them.

This administration and small businesses across this Nation will find, however, that our prescription for small businesses in a flailing economy

is quite different. Our reauthorization legislation embraces the programs that have worked for years, redirects those that have struggled and sets the SBA and up for continued success.

Although banks have plenty of cash to lend, small businesses are still having a problem getting access to credit. For the past few years as the economy has fizzled, the Federal Reserve has reported that banks have cut back on lending to small businesses, making it harder and more expensive to get loans. And who has been there to pick up the slack? The Small Business Administration and its lending partners.

Lending is up in SBA's largest lending program for working capital. Lending is up in SBA's microloan program, which serves those with the least access to capital through the private sector. And SBA's venture capital programs account for a significant role--more than 50 percent-- in this country's investment in our fastest-growing small businesses. Last year these loans pumped about $20 billion into the economy, leveraged millions more from the private sector, fed the local tax base as the Federal government cut back, and created at least 400,000 jobs.

As the Committee reviewed SBA's programs for reauthorization, these facts figured largely into establishing the program levels. I thank our Chair, Senator Snowe, for working with me to set the levels for SBA's lending and venture capital programs at increasing levels for the next three years. I am particularly pleased with the increased funding levels for the microloan programs.

I disagree with the administration's proposals over the past few years to cut back its investment in microloans and training assistance to micro-entrepreneurs. And I disagree with the Adminstration's contention that these borrowers are being served through the 7(a) loan program. The small borrower in the microloan program is different than the small borrower being served through the 7(a) loan program. Both are important, but they are different, and one is not a substitute for the other.

And who are these borrowers being served through the microloan program? Thirty percent are African American. Eleven percent are Hispanic. Thirty-seven percent are women. And anywhere from 30 to 40 percent go to small businesses in rural areas. Banks turn these borrowers away, and yet the administration proposed cutting the microloan program by 36 percent in its most recent budget. SBA needs to fully fund these programs and put more resources into the office that manages the program. Four people is not enough to manage 1,400 loans and 180 grants.

Aside from setting the levels for each small business financial assistance program, we made important program changes and started new initiatives. In the 7(a) loan program, SBA's largest loan program, which provides working capital to small businesses with long terms of up to 25 years, we made permanent the reduction in the fees borrowers and lenders pay. We are testing a proposal that allows the most proficient 7(a) lenders in good standing to lend in every state. Lenders have complained that applying for lending autonomy in each of the 70 district office and branches is administratively burdensome, both for them and for the Agency staff, and that some district offices have taken advantage of the power to approve or disapprove lenders when they apply for this special lending status.

I want to make clear while I want to avoid unnecessary paperwork and eliminate reported abuses, I do not want the lenders to take this as authority to quit working with the district directors. It is important to have a local connection and for the SBA and the lenders to work together to maximize service to the small businesses. For this purpose I have included a provision which directs the SBA to consider the recommendations and comments of any district directors and regional administrators when reviewing a lender for national lending authority.

To increase the value of 7(a) loans sold in the secondary market, the Committee has included a provision to allow SBA to pool and sell the guaranteed portion of loans with varied rates. Currently SBA has the authority to only sell those loans with identical rates. This should create efficiencies in market and bring down borrowing costs for the small business borrower. At Senator Snowe's request, in order to reach more under-served small businesses, we have enhanced the Low-Doc program, allowing lenders to use the simplified application form for loans up to $250,000 from $100,000, making it the same as the SBA Express program. We have also expanded the incentives for lenders to provide financing to export small businesses, and proposed letting 7(a) borrowers use a simplified size standard when determining if an applicant is a small business.

To improve the 504 loan program, which makes long-term loans of up to 20 years to small, growing businesses to buy equipment and buildings, we have also raised the debenture size to keep pace with the rising cost of commercial real estate and equipment. We have brought the job requirement standard up from $35,000 to $50,000 after ten or twelve years. We have directed SBA to simplify the application and documentation process of applying for and closing 504 loans, long a goal of this Committee and made a priority based on the testimony of one of our witnesses during the reauthorization process. We have created two alternatives for 504 lenders to use when establishing a loan loss reserve to cover potential losses.

I am particularly pleased that we have included S. 822, the Child Care Lending Pilot Act in the reauthorization bill. It allows small, non-profit childcare businesses access to 504 loans. I thank Senator Snowe and my colleagues for agreeing to try this for three years, similar to what we have done with the microloan program. And I thank the trade association of 504 lenders, the National Association of Certified Development Companies, and other 504 lenders for their endorsement of an input on the pilot.

The more research I've done, the more I've come to realize how vitally important it is that we give non-profit day care providers the same opportunities as for-profits to expand their businesses. Non- profit day care centers are often the only child care suppliers available in needy areas, from the most urban to the most rural. Giving these businesses access to 504 loans for three years will allow us to gauge whether this valuable loan program is the best way to aid these valuable providers of care to our Nation's children. I have taken note of states like Oregon, where 79 percent of day care providers are non- profit, Michigan, where that number jumps to 86 percent, Iowa with 77 percent, my own State of Massachusetts with 90 percent, Ohio with 62 percent, and the list goes on and on. I've learned that in State after State families are waiting for affordable day care; from more than one thousand families on the waiting list in Nevada and Maine to more than thirty thousand on the list in Texas. These parents are waiting for quality day care they can afford, and making available affordable loans to all licensed child care providers may increase access to care and cut down those waiting lists.

I understand the concerns of those who are concerned about the precedent of SBA lending to non-profits. And I agree it should not be expanded to all industries. However, this is a very unique industry that in many States is delivered mostly through non-profits, and the only way to penetrate the market is to reach both for-profit and non- profit. Further, non-profits are usually the providers that care for the neediest kids. I have added provisions to ensure the underwriting standards are just as tough, if not more so, as those applied to for- profit centers. The loans must be personally guaranteed, the collateral must be owned outright by the child care provider, and it must be able to make its loan payments and cover normal operating expenses from the revenue generated from its clients. With these protections, the loans to non-profits should perform just as well as those made to for- profits, and if there is a problem, the loans should be collateralized sufficiently to cover the losses.

The bill defines a small, non-profit child care business to mean an entity organized as a 501(c)(3), but not just any organization. It must be a licensed child care provider; it must meet the size standard for a small business; and it must provide care to infants, toddlers and pre- kindergarten and older children after school. At Senator Snowe's request, the pilot is limited to

7 percent allowed for pilots under SBA's 7(a) guaranteed business loan program. I feel that the agreed upon cap should allow for sufficient lending under the pilot to adequately test whether lending to non- profit childcare providers is effective in increasing access to affordable childcare, and whether it protects the general 504 program, which is vital to the financing of small businesses in this country.

The bill also includes a comprehensive study by the GAO to track and monitor the impact of this program both on the industry and the program. Last, I want to remind my colleagues that the 504 program is funded entirely through fees and does not require appropriations.

Also included in this bill is S. 318, the Small Business Drought Relief Act. This simply reinforces in legislation something which SBA should already be doing. You see, the SBA doesn't treat all drought victims the same. The Agency only helps those small businesses whose income is tied to farming and agriculture. However, farmers and ranchers are not the only small business owners whose livelihoods are at risk when drought hits their communities. The impact can be just as devastating to the owners of rafting businesses, marinas, and bait and tackle shops. Sadly, at present these small businesses cannot get help through the SBA's disaster loan program because of something taxpayers hate about government--bureaucracy.

The SBA denies these businesses access to disaster loans because its lawyers say drought is not a sudden event and therefore it is not a disaster by definition. However, contrary to the Agency's position that drought is not a disaster, as of July 16, 2002, the day this legislation was introduced last year, the SBA had in effect drought disaster declarations in 36 states. That number had grown to 48 the beginning of this year, demonstrating that problem had gotten worse and even more small businesses were in need.

As I have said time and again, the SBA has the authority to help all small businesses hurt by drought in declared disaster areas, but the Agency won't do it. For years the Agency has been applying the law unfairly, helping some and not others, and it is out of compliance with the law. The Small Business Drought Relief Act of 2003 would force SBA to comply with existing law, restoring fairness to an unfair system, and get help to small business drought victims that need it. I thank Senator Bond for working with me on this when he was the Ranking Member of the Committee on Small Business & Entrepreneurship, and I thank Senator Snowe and her staff for all their help and support. While we might have had a lot of rain recently in the Northeast, there are areas like Lake Mead in Arizona where it is so dry that the water level is down and small businesses are losing business and making expensive changes to extend docks to reach the water.

In this bill are also provisions to shore up SBA's venture capital programs--the Small Business Investment Company Debenture and Participating Securities programs, and the New Markets Venture Capital Program. We have balanced investment incentives with soundness issues and allowed small businesses to receive more SBIC financing than currently permissible if they also have a 504 or 7(a) loan. We have improved the arrangement for distributing payments from successful SBICs so that SBA and the investors are treated more fairly and the taxpayers has more protection for realizing repayment on the investments. We have put in place conforming amendments to make the New Markets Venture Capital program work with the New Markets Tax Credit, as Congress intended. We have clarified that new markets venture capital companies have two years to raise their matching capital, as Congress intended. The Committee has been troubled by the Agency's interpretation of the NMVC statute which they viewed as permitting SBA to choose how much time it can give conditionally approved NMVCs to raise the private-sector matching money. The chosen time frames were unreasonable and not what Congress intended.

We have also included many measures to strengthen SBA's oversight of lenders, responding to findings by the General Accounting Office and the Office of Inspector General. And we have reauthorized and clarified the law for surety bond guarantees to help small businesses get government contracts.

While no one would deny the importance access to capital plays in the success of small businesses, as SBA Administration Hector Barreto and past SBA Administrators have acknowledged time and again, debt is not always the answer. In the SBA's FY 2004 budget request, there is reference to information from the Ewing Marion Kauffman Foundation and Dun & Bradstreet that indicates ``80 percent of new businesses discontinue operation within five years because of lack of `knowledge' of key business skills.'' Despite the recognized importance of such assistance, the SBA's funding request for FY 2004 and its legislative proposal to implement that request would freeze funding levels for virtually all Agency programs, without even accounting for inflation, for a six-year period. If enacted, that would severely hamstring this nation's small businesses and their ability to effectively compete and prosper in the national economy.

Cuts to or inadequate funding of the SBA's entrepreneurial development programs are often attributed to vague and unfounded claims of duplication. Such claims mistake a common mission of training and counseling for duplication, ignoring the reality that small businesses vary greatly, are often at very different stages of development, and have many different needs. Just as it would be ineffective to only have one type of loan or venture capital financing structure for the 25 million small businesses in this country, it would be futile to water down specialized management and training programs to impose a one-size- fits-all approach.

I want to commend Chair Snowe for giving women entrepreneurs such a prominent place in the reauthoziation process. Rarely do women entrepreneurs get the recognition and attention they deserve for their contributions to our economy: 18 million Americans would be without jobs today if it weren't for these entrepreneurs who had the courage and the vision to strike out of their own. During my tenure as a member, Chair, and lead Democrat of the Senate Committee on Small Business and Entrepreneurship, I have worked to increase and improve the opportunities for enterprising entrepreneurial women in a variety of ways, leading to greater earning power, financial independence and asset accumulation--and I am glad that Senator Snowe is joining me in this endeavor.

As Chair Snowe expressed when she introduced the Women's Small Business Programs Improvement Act--and when Senator Snowe and I passed the Women's Business Center's Preservation Act--protecting the extremely effective and well-established Women's Business Center network was a high priority in this reauthorization. For that reason, we make permanent the Women's Business Center Sustainability Pilot Program by creating three-year ``renewal'' grants for those centers with sustainability grants and four-year ``initial'' grants for new centers; increase the program's authorization levels; and direct the Office of Women's Business Ownership, OWBO, to make all Women's Business Center grants at $150K and to consult with the associations of Women's Business Centers when making improvements to the program. Other changes to the Women's Business Center Program include streamlining the data collection and the grant application and selection criteria, protecting the privacy of Women's Business Council, WBC, clients, and providing for a smooth transition from sustainability to the newly established WBC program. Our legislation will not only secure the future of the Women's Business Center Program, but it will connect all SBA-related women's initiatives with a unified mission, similar guidance and training. These changes were coupled with minor, yet significant, changes to the National Women's Business Council, NWBC, and the Interagency Committee on Women's Business Enterprise. Senator Snowe and I included provisions to give the NWBC cosponsorship authority, to allow more flexibility in the way the Council uses funds, and to direct the Council to serve as a clearinghouse for historical data. Each of these things will enable the Council to become a better resource for the Administration, Congress and the entire small-business

community. To bolster the representation of women business owners in the federal government, our bill re-establishes the Interagency Committee on Women's Business Enterprise, directs the Deputy Administrator of the SBA to serve as acting chairperson of the Interagency Committee until a chairperson is appointed, establishes a Policy Advisory Group to assist the Committee's chairperson in developing policies and programs under this Act and creates three subcommittees similar to those created under the National Women Business Council.

This bill also supports and protects the Small Business Development Center network, which has served 9 million small-business owners since its inception more than 20 years ago. It should also be noted that in 2001, SBDCs helped small businesses create or retain over 80,000 jobs, generate $3.9 billion in sales and obtain $2.7 billion in financing. For every dollar spent on an SBDC, $2.09 in tax revenue was returned to the Federal Government. Numbers aside, the nationwide network of SBDCs provide important counseling services to small-business owners that are unable to afford private consulting, many of whom are women and minority clients. The SBDC program has grown to serve 1.25 million small-business owners and entrepreneurs each year, and there are nearly 1,000 centers serving every State in Nation.

While this bill rejects the potentially detrimental changes proposed by the SBA to the SBDC network, it does address concerns expressed by the centers and small businesses. Included in our bill are increased authorization levels to keep up with increased demand and a provision to protect the privacy of the program's clients and a provision to help SBDCs that have been adversely affected by poor economic conditions or government downsizing.

Also, included in the entrepreneurial development section of our bill is a provision to increase to $7 million annually the authorization level for the Service Corps of Retired Executives, SCORE, which has nearly 11,000 volunteers, and a technical change to allow SCORE to keep its modest staff of fourteen employees.

I want to thank Senator Snowe for working with me to include, as introduced, the Native American Small Business Development Act, which I reintroduced earlier this year together with Senator Johnson and Senator Smith to address the SBA's growing lack of commitment to the Native American community. According to a report released by the U.S. Census Bureau, the ``three year average poverty rate for American Indians and Alaska Natives [from 1998-2000] was 25.9 percent; higher than for any other race groups.'' With an unemployment rate well above the national average and household income at just three-quarters of the national average, Native American communities need a commitment from the Federal government that we will help them, particularly during these difficult economic times. To reaffirm this commitment, the Johnson-Kerry-Smith bill provides Native Americans the resources they need to take advantage of the opportunities of entrepreneurship.

The Native American Small Business Development Act, as included in our reauthorization bill, will ensure that the SBA's programs to assist Native American communities cannot be dissolved by making the SBA's Office of Native American Affairs, ONAA, and its Assistant Administrator permanent. Our legislation would also create a statutory grant program, known as the Native American Development grant program, to assist Native Americans. It would also establish two pilot programs to try new means of assisting Native American communities and require Native American communities to be consulted regarding the future of SBA programs designed to assist them. In short, this legislation will ensure that our Native American communities receive the adequate assistance they need to help start and grow small businesses.

To address the growing business development needs of veterans, Senator Snowe and I reauthorized the Advisory Committee on Veterans Affairs, expanded veterans outreach grants from just service-disable veterans, to veterans, reservists and service-disable veterans. Further, we increase the funding for the Office of Veterans Business Development to enable that office to better deal with the demand by veterans for outreach and development services.

We continue to receive reports of the detrimental effects of the Administration's policy of reduced staffing and resources for essential programs aimed at allowing small businesses to thrive. Week after week, the Federal Times reports on the decline in contracts being allocated to small businesses, small businesses losing ground in the federal marketplace, and most recently, on the awarding of more big contracts with less oversight from Federal agencies. With agencies awarding larger, more complex and more costly contracts with less staff performing oversight, this nation's small businesses and its tax payers are the ones shouldering the burden when small business goals continue to be unmet. In addition to helping small businesses obtain access to procurement opportunities, these goals are meant to help the government benefit from the cost-savings and innovations small business contractors can often provide.

Significant improvements to the on-going problem of contract bundling, also called contract consolidation, are included in this bill. The first provision creates a two-tiered approach to preventing unnecessary contract consolidation. Civilian agencies will be required to meet specific standards if they attempt to consolidate contracts above $2 million and additional requirements for those contracts above $5 million. The Department of Defense is required to meet two types of similar requirements for contracts above $5 million and $7 million. The bill also eliminates the use of the term ``contract bundling'' and expands the definition of ``contract consolidation,'' closing a loophole that has been widely used and has detrimentally affected small businesses.

The second provision increases in the number of Procurement Center Representatives (PCRs) stationed throughout the country. These representatives advocate on behalf of small businesses in cases directly affecting contracting, such as the bundling or consolidation of contracts. In the bill, we have increased the number of PCRs to ensure that every state and every major procurement center is allocated at least one PCR. Meanwhile, we have also ensured that these PCRs are not burdened with responsibilities that were previously the duties of Breakout PCRs and Commercial Marketing Representatives. These two improvements will dramatically increase the efficacy and efficiency of all three positions and allow proper review of the approximately 40 percent of Federal contracts, nearly $90 billion, that are currently not being reviewed by PCRs. This should increase small business's access to Federal contract opportunities.

The bill would also create a reporting requirement for the BusinessLINC program, which has been showing promise in creating real teaming opportunities for small businesses in the private sector. Although the Administration recommended elimination of the program, the reports this Committee received regarding the overwhelming success of the existing nine programs made it clear that the SBA did not have sufficient information about BusinessLINC to make an informed decision on its effectiveness. The Committee's bill would ensure that the SBA offers the proper level of oversight and would foster the continued success of the program. I would like to thank Senator Snowe for working with me to find a compromise to preserve this successful program.

At each of this Committee's three Roundtables on Reauthorization and the hearing on contract bundling, the small business community reiterated the need for accountability for small business contracting at the agency level. I applaud Senator Snowe on her efforts to ensure that Federal agencies be held accountable for fully utilizing small businesses and to allow a greater amount of Congressional oversight of the implementation of agency procurement strategies. Provisions within this bill will ensure that the heads of Federal agencies identify a specific portion of their budget request that will be awarded to small businesses in their strategic plan and their annual budget

submission to Congress; will hold senior executives and senior program managers accountable in their annual performance evaluations for small business utilization in Federal contract awards.

In addition to increasing opportunities for prime contracts, this bill addresses another serious problem: small businesses have been severely hamstrung by dishonest practices by some businesses that have prime contracts with the Federal Government and receive preference over other prime contractors due to their superior subcontracting plans. Senator Snowe and I have worked closely to address the concerns of small businesses regarding delays in payment, false reporting and the use of ``bait and switch'' tactics by prime contractors.

This bill holds prime contractors responsible for the validity of subcontracting data, requiring the CEO to certify to the accuracy of the subcontracting report under penalty of law. It also expands the penalties for falsifying data included in subcontracting reports to match the $500,000 penalty for businesses that falsify their status as a small and disadvantaged business. If one intentionally falsifies data as a part of a subcontracting report to a Federal agency, he is defrauding the United States government and will be punished to the full extent of the law. I commend Senator Snowe for her diligence in creating these strict penalties and her efforts to create a bipartisan response to protect small businesses.

I want to thank Chairwoman Snowe and her able staff for all of their hard work over the past several months. I also want to express my gratitude to all members of the Committee and urge them and my other Senate colleagues to support the Small Business Administration 50th Anniversary Reauthorization Act of 2003.

Mr. President, I rise today to seek unanimous consent for the passage of the Small Business Administration 50th Anniversary Reauthorization Act of 2003, S. 1375, a bill to reauthorize the U.S. Small Business Administration, SBA and its programs for the next 3 years, together with a managers' amendment.

As the chair of the Committee on Small Business and Entrepreneurship, I am pleased to report that this legislation passed the Committee on July 10, 2003, by a unanimous vote. It is the product of significant contributions by the members of my committee, and I am grateful for the efforts of the committee's ranking member, Senator Kerry, to make this a truly bipartisan bill.

The challenge for today's SBA is enormous. Each year, there are 3 to 4 million new business start-ups--1 in 25 adult Americans is taking steps to start a business. And, small businesses account for approximately two-thirds of the net new jobs in our country.

We began the reauthorization process this year with a series of hearings, roundtables, and discussions to develop a bill that would improve the SBA programs that provide counseling and training for entrepreneurs--and to improve the SBA's financial assistance and Government procurement programs that enable small businesses to prosper and expand. While the particulars of this bill are extensive, let me highlight a few of its key areas.

In terms of financing programs for small businesses, I have focused extensively on improving the credit and venture capital resources that the SBA provides for small businesses. These programs are the centerpiece of the SBA's efforts to help entrepreneurs get started and assist small businesses to prosper. In fact, in just the past 3 years alone, the SBA's lending programs made it possible for small businesses to create or retain more than 1.3 million jobs.

Nevertheless, access to capital continues to rank as a primary concern for small business owners. So, we are proposing to continue the growth of the financing programs through reasonable increases in the authorization levels of the 7(a), 504 and Microloan programs. The bill also increases the amount that small businesses can borrow subject to the SBA's guarantee, so that the SBA's loan sizes realistically reflect what it costs to start and operate a small business in today's economy. Moreover, the bill addresses access to capital by helping SBA's lending partners--for instance, through the new National Preferred Lenders Pilot Program.

In the area of entrepreneurial development, we set out to ensure that the SBA's programs continue to provide the products and services essential to small businesses. Recognizing the tremendous accomplishments by women entrepreneurs, I have included the Women's Small Business Improvement Act of 2003, which I introduced earlier this year, to integrate and better leverage the spectrum of women's business programs that the SBA provides for women entrepreneurs.

A cornerstone of these improvements involves making the Women's Business Center Program a permanent program that will offer opportunities for the creation of new centers and renewal grants for existing centers on a competitive basis. By replacing the pilot Sustainability Program, which expires at the end of the current fiscal year, with a fair and balanced grant program, the bill will correct the funding constraints that have plagued the program in 2003.

In addition, the SBA's entrepreneurial development partners--the Small Business Development Centers and the Service Corps of Retired Executives--continue to provide quality training and free counseling through almost 2,000 locations. As a result, in addition to minor technical changes in these programs, the bill reauthorizes these critical programs for the next three years.

Finally, one of the most serious problems facing small businesses is their inability to participate fully in Federal contracts, on either a prime or subcontract basis. In the last 10 years, contract bundling has forced more than 50 percent of small businesses out of the Federal marketplace. The bill addresses the practice of Federal contract bundling by changing the definition of ``contract bundling'' to limit its use so that small businesses have better access to Federal contracts and a fair opportunity to compete for them.

Furthermore, the bill implements the Procurement Program for Women- owned Small Business Concerns, which will give contracting officers the tools necessary to help women-owned small businesses compete in the Federal marketplace more effectively. The bill also contains improvements to the HUBZone program, including the designation of a closed military base as a HUBZone for 5 years to reduce the serious consequences that military base closings pose for our local communities.

With this bill, I am offering a managers' amendment, which is co- sponsored by Senator Kerry, to address several issues that have risen since the

committee's markup of the bill. In working with several of my colleagues, on and off of the Small Business Committee, I believe the changes encompassed in this amendment address certain concerns and strengthen particular aspects of the bill so that it provides the greatest benefit to small businesses and entrepreneurs in this country. Let me highlight several of these changes.

First, the amendment removes section 265, which would have authorized the SBA to develop and implement an innovative 3-year pilot program in which the SBA would provide a partial guarantee on pools of securitized small business loans that are not otherwise guaranteed by the SBA.

When the President's Fiscal Year 2004 budget request was transmitted to the Congress this past February, it stated that the SBA was exploring a possible new approach to expand the opportunities of small businesses to access capital markets by facilitating the securitization of conventional small business loans that were not already guaranteed by the SBA. Increasing access to capital is a high priority of small businesses, and has been one of the Committee's priorities throughout its history. We are always seeking innovative ways to increase access to capital for small businesses, while at the same time measuring the cost and risk of loss that the Federal Government must incur to facilitate such financing. Accordingly, I recognized the potential benefits of this proposal for small businesses across the Nation.

At our roundtable on April 30, 2003, the committee examined the loan- pooling proposal in greater detail. The SBA reported that it had been exploring this type of program for some time, and thought the idea had considerable merit. The agency, however, was uncertain if it had the authority to develop and implement such a program, absent legislative authorization. After the roundtable, we consulted with the SBA and with participants in the small business financing industry to determine the program's appropriate elements.

In addition to the support the SBA expressed for the proposal in its budget request, at the committee's roundtable, and in subsequent discussions with committee staff, the SBA took other steps to help make the proposal a success. For example, the agency entered into a contract with Dun & Bradstreet and with Fair, Isaacs, Co., to create a credit- scoring model for small businesses, similar to individual consumer credit scores, to help small businesses gauge their credit quality. The scoring model will assist the pooling proposal by providing uniformity of pricing, thus reducing a primary obstacle to the securitization of non-SBA small business loans. The SBA also helped build support for the proposal by publicizing the need to take the foundational steps to build a secondary market for small business loans, rather than later trying to create such a market in one step when economic pressures called for an immediate response.

The SBA is not alone in its support for a program to securitize small business loans. The Board of Governors of the Federal Reserve System, in its September 2002 Report to the Congress on the Availability of Credit to Small Businesses, stated that the securitization of small business loans could ``substantially influence the availability of credit'' to small businesses. The Federal Reserve noted that one primary benefit of a secondary market would be that small business borrowers could enjoy lower financing costs. In addition to the Federal Reserve report, other studies have shown that small businesses could benefit from an efficient secondary market for small business loans.

The Federal Reserve report noted that a primary obstacle to a wide- spread secondary market for small business loans was the lack of standardized information to evaluate small business loans for re-sale. As noted, the SBA has exercised foresight by securing the contract with Dun & Bradstreet and Fair, Isaacs to attack this problem. With the information provided by this new credit-scoring model, the securitization of non-SBA small business loans will be far more feasible.

The committee has received support for the pilot program from representatives of thousands of small businesses that believe the program could improve access to capital, and could improve the terms of loans received, for many small businesses, particularly those without significant real estate property to use as collateral. Significant support for the program has been expressed particularly by small businesses that are owned by minorities or by women. For these small businesses, which often have less real estate collateral, on average, than other small businesses, the pilot program holds great potential for creating capital resources to meet their financing needs.

Financial firms currently involved in the pooling and securitization of SBA 7(a) and 504 loans have also expressed their support for the program, and have stated their belief that it will increase small businesses' access to effective capital.

With this input from the SBA, small businesses, and financial firms in hand, and having considered many studies regarding small business credit and the effectiveness of secondary markets, we included Section 265 in S. 1375, which was approved unanimously by the committee. Section 265 authorized, but did not require, the SBA to develop the pilot program if the SBA determined that it could be practically implemented.

The rationale for this proposal is to increase effective liquidity for small businesses by improving the quality and amount of loans available to them. The pooling structure is based on similar arrangements for home mortgages, credit card loans, and car loans, which have active secondary markets. This program would allow lenders, including community banks, to benefit from the increased liquidity of small business loans and to utilize capital that is otherwise locked into existing loans, and therefore provide better terms on loans to small businesses, as well as to make more small business loans.

This proposal, as embodied in Section 265, is not a departure from the SBA's current practice of guaranteeing loans and regulating the securitization of those loans. The SBA already regulates the securitization of both guaranteed portions of loans provided to small businesses and non-guaranteed portions of the same loans. These loans are made both by Federally-regulated lenders and by lenders that are not Federally regulated. In Fiscal Year 2002, the SBA regulated the securitization of $3.4 billion in Government-guaranteed small business loans made under Section 7(a) of the Small Business Act. When the guaranteed portions of the 7(a) loans are securitized separately from the non-guaranteed portions, the SBA is guaranteeing 100 percent of the loan pools.

The new proposal presents a much more measured SBA involvement than is involved with the SBA's current financing programs. Under the pilot program, financial firms approved by the SBA would pool loans not individually guaranteed by the SBA. These pooling entities would then issue securities offering returns based upon the returns from the loans in the pool. The securities would be rated by a rating agency and sold to investors.

The pooling entity would also offer a partial ``first-loss'' guarantee to investors on the securities' returns. If the loans had insufficient returns to pay the expected returns on the securities, the pooling entity's guarantee would be the first guarantee called into performance to pay investors. The SBA would issue partial, not complete, ``second loss'' guarantees on the return from the securities, but not on individual loans within the pool. The agency's guarantees would thus be available only after the first-loss guarantees offered by the pool issuers are exhausted. In addition, the SBA will only need to provide guarantees at a much lower percentage level than is currently the case for the SBA's guarantees on individual loans. Finally, and perhaps most importantly, the cost of the SBA guarantees will be fully funded by fees paid by the loan poolers, so no Federal appropriations will be necessary.

The proposed program also requires three separate types of reports. The SBA must provide to the committee and to the Committee on Small Business of the House of Representatives a report detailing the pooling program before it is implemented, and wait 50 days after submitting the report before implementing the program. In addition, the SBA must file with the Congress, in the SBA's Budget Request and

Performance Plan, an annual report about the program's performance. Finally, the GAO is required to study the program, if implemented, and report on the program's performance, including any effects the program may have on the 504 or 7(a) programs, before calendar year 2006.

Working with Senator Pryor and with other colleagues, both on and off the committee, we endeavored to provide greater specificity in the instructions the provision gives the SBA regarding the pilot program, so as to ensure that the pooling proposal provides the greatest benefit to small businesses in need of capital while limiting risk to the Federal Government. I believe those modifications would have greatly improved the pilot program and increased its potential to provide increased access to capital on terms that are beneficial to small businesses.

Access to credit for small businesses is often a challenge, and the committee has consistently believed that encouraging more lending to small businesses that have a likelihood to succeed, grow, and create new jobs is a sound national policy. The pilot program takes advantage of the successful example of the prior securizations of SBA small business loans, and of changes in the investment community, to facilitate lending in the small business community for years to come.

However, while I continue to recognize the merits of this measure and believe that it should be included in this bill, the administration has now taken a contrary position. In the interest of expediting the passage of S. 1375 before the SBA's current authorizing legislation expires, I am reluctantly removing this provision to focus on those elements of the bill that must be enacted.

While I am disappointed to have to remove this section, it is clear that this bill must move forward as quickly as possible. I want to be clear, however, that I continue to appreciate the benefits of this pilot program, and will introduce this provision as a separate bill in the near future. With the support this proposal already has, I am confident we can implement this innovative program, and I look forward to the benefits it can provide for small businesses as we try to assist small businesses to prosper, create more jobs, and pull the economy out of its current doldrums.

The amendment also modifies the provisions of the bill relating to the New Markets Venture Capital Program and the definition of ``low- income geographic area,'' in which New Markets Venture Capital companies are to invest most of their funds. In order to coordinate the definition of ``low-income geographic area'' used in the SBA's New Markets Venture Capital Program and that used for the New Markets Tax Credit under the tax code, the managers' amendment specifies that the Small Business Act's definition will be based on median family income, rather than median household income as under current law.

This change will eliminate confusion that has resulted from the use of different definitions for two related programs. More importantly, by significantly broadening the definition of those areas in which investment is permitted under the New Markets Venture Capital program, this change will increase the flexibility that New Markets Venture Capital companies have in choosing small businesses in which to invest. As a result, we should see stronger New Markets Venture Capital companies and more small businesses being served through this venture capital program.

The third part of the managers' amendment modifies several provisions in the bill relating to government contracting opportunities for small businesses. In 1994, Congress enacted the Federal Acquisition Streamlining Act, FASA, to streamline Federal procurement processes. FASA included an amendment to the Small Business Act that created an exclusive reservation for small businesses consisting of contracts valued at more than $2,500 but not more than $100,000. And, while it had the chance to classify purchases under multiple-award schedule contracts, including Federal Supply Schedule, within this reserve at that time, the Congress expressly excluded these sales from small business set-aside rules. Accordingly, rules on small business set- asides do not apply to Federal Supply Schedule purchases, and, instead, contracting officers are required to give a ``preference'' to small businesses.

Although reports now indicate that the level of small business participation on schedule contracts is growing and is relatively higher than the share small businesses receive on non-schedule contracts, small businesses continue to report to the committee that they invest time and money to negotiate a schedule contract successfully with the General Services Administration or an executive agent managing a Government-wide Acquisition Contract, and then they never receive the benefit of an order placed against that contract. Small businesses further report that the Government relies on a limited and preferred list of larger firms to meet its requirements for goods and services.

Small businesses deserve to have a fair opportunity to compete for those orders. The Small Business Administration 50th Anniversary Reauthorization Act would protect small businesses and ensure that they continue to have access to, and the opportunity to compete for, multiple-award and schedule purchases. Specifically, the bill restricts competition of schedule orders valued between $2,500 and $100,000 for small businesses.

I know that some of my colleagues believe that by setting aside schedule orders under $100,000, thousands of small firms that supply and sell through contracts held by large firms may significantly be harmed. They also question the need for action if small businesses are successfully competing for and winning schedule orders each day. Finally, they assert that scheduled contracts are a faster, easier, more flexible way for agencies to meet their needs and any change that reduces that ease should be challenged.

In my view, if small businesses enjoy a majority share of schedule contracts--which they do--should not their participation in these contracts reflect their representation on the supply schedule? Currently, small businesses represent more than 70 percent of the companies listed on the Federal Supply Schedule, yet these small businesses are receiving just under 30 percent of the awards under the schedule.

The intent of multiple-award contacting was not to have a majority of orders awarded on a sole-source basis. Rather, it was designed to be a streamlined acquisition process to achieve competition without increasing the government's risk. Including small business helps to ensure the Federal Government is getting the best products and services at the best prices.

Nevertheless, in order to ensure the timely passage of this important reauthorization legislation, I have agreed to modify the bill's provision that would have allowed small business set-asides of awards on multiple-award contracts, to require, instead, that contracting officers review the offers of at least two small businesses when completing orders on multiple-award contacts. While I had hoped to provide stronger provisions for small businesses seeking to contract with the Federal Government, I believe this compromise will still lead to greater procurement opportunities for small enterprises.

This modification anticipates that a contracting officer will give serious consideration to small businesses seeking to provide goods and services to the Federal Government. As an example, when placing orders for supplies with contractors on the General Services Administration's Federal Supply Schedule, contracting officers should consider the information available on the GSA Advantage on-line shopping service or other catalogs and price lists of at least two small business multiple- award-schedule contractors that provide the supplies that are being purchased.

Placing orders for services, however, may be more complex at times. In these instances, contracting officers purchasing from Government- wide acquisition contacts, multi-agency contracts, or the Federal Supply Schedule should include at least two small businesses when they solicit offers. These actions will ensure that small business multiple- award contractors have a fair opportunity to be considered for orders.

To ensure the necessary steps are taken to establish clear guidance and that agencies follow these established procedures to implement this compromise, my committee will closely

monitor competition and small business participation on multiple-award contracts. Specifically, the amendment mandates the U.S. General Accounting Office, GAO, to report bi-annually to the Committees on Small Business on the number of actions and dollars awarded to small business under multiple-award contracts and help to achieve the level of competition in Federal contracting that Congress envisioned. In addition, the existing provisions in the bill require the GAO to conduct periodic reviews of small business participation in multiple- award contracts, which will help Congress to ensure these provisions are implemented appropriately.

Responding to additional concerns raised by my colleagues, the managers' amendment withdraws language that references the authority of agencies to withhold a portion of a performance-related bonus awarded to procurement officials for failure to achieve small business goals.

The committee believes measures that hold agency officials accountable for their performance will drive results. Therefore, language in the bill, as reported, would have held agency procurement officials accountable for small business goals. It directed agencies to include in the annual performance evaluation for agency procurement officials a factor that measures the success of that official in small business utilization.

It further required agencies to factor the performance of procurement officials in achieving these small business goals into any monetary rewards under consideration. In order to avoid delaying the entire bill for this provision, I have reluctantly agreed to withdraw this latter provision. Nevertheless, my committee will continue to monitor the extent to which agencies are meeting their small business goals and look for every opportunity to hold failing agencies accountable to our small business constituency.

With respect to subcontracting opportunities, once a contract that contains a small business subcontracting plan has been awarded by a Federal agency, the prime contractor is required to submit reports periodically to the Government that include information on the prime contractor's achievement of its subcontracting goals and the dollars awarded to small business subcontractors. While the U.S. General Accounting Office indicates that most contractors that the GAO reviewed make good faith efforts to comply with their subcontracting plans, small businesses report to my committee that not only do prime contractors fail to comply with subcontracting plans, but they also fail to submit complete and accurate subcontracting reports. Therefore, this managers' amendment contains a technical correction to clarify that the company president or the head of the entity must certify that data contained in subcontracting compliance evaluation reports provided to the government is accurate and complete.

In addition, under current language in the bill, a contracting officer must first consider ``all reasonable issues regarding the subcontractor's performance, or lack of performance, before making a determination that the prime contractor failed in its responsibility to timely pay a small business subcontractor.'' Some of my colleagues, however, have raised concerns that this language limits the contracting officer's discretion to issues regarding only the performance of the subcontractor, and that other issues that might legitimately cause non- payment, such as disputes over off-sets, could not be considered. That was never the intent of the bill reported by the committee.

In light of these concerns, the managers' amendment modifies the language to ensure that a contracting officer can consider ``all reasonable issues regarding the circumstances surrounding the failure to make timely payment to a small business subcontractor'' before making a determination to make a direct payment to the subcontractor under a pilot program to test direct payments to small business contractors.

The committee also recognizes the economic ramifications that military base closures can have on our local communities and economies. We believe the SBA's Historically Underutilized Business Zone, HUBZone, program can harness the strength and the creativity of the small business sector by providing these firms with incentives to relocate to areas suffering from the effects of a military base closure. Therefore, we included language in the bill to designate base closure areas as HUBZones, and the managers' amendment clarifies that such designation will apply to military bases closed after the date of enactment for a period of 5 years in order to attract small businesses to areas affected by base closure where there are customers and a skilled workforce. The committee believes that new business and new jobs created through HUBZone small businesses means new life for areas affected by base closure.

Lastly, our colleague from New Mexico, Senator Bingaman, has requested an adjustment to the Program for Investment in Microentrepreneurs, PRIME, which the bill reauthorizes for 3 years. To accommodate this request, the managers' amendment authorizes $2 million under the PRIME program to be spent to provide grants to intermediaries to assist disadvantaged Native American entrepreneurs. This modification enhances the bill's provisions that encourage Native American-owned businesses and new Native American entrepreneurs.

Mr. President, I will close by noting that this is one of the most expansive SBA reauthorization bills in the 50-year history of the agency. The SBA estimates that reauthorizing the agency will result in 3.3 million jobs over the next 5 years, with the SBA and its programs predicted to support over 1 million jobs over that same period through prime contracts and subcontracts.

This bill is based on the deliberative, methodical, and systematic approach that this committee has taken to review the spectrum of SBA programs, building on those that are working and fixing those that are not. How can we do anything less for the economic engine of our economy--small business--which holds the greatest hope for this country's recovery from the current economic doldrums?

I urge my colleagues to support this important legislation.

(At the request of Mr. Daschle, the following statement was ordered to be printed in the Record.)

I thank the Senator for her generous comments, and I appreciate her work on the Committee. She added an excellent amendment to the bill to ensure that the National Women's Business Council maintains a bipartisan balance. I thank her for supporting this bill.

I am also a strong supporter of the HUBZone program. Today there are more than 8,300 HUBZone small businesses that helped to create more than 30,000 jobs in the last 2 years. In our reauthorization bill, the committee has made some minor changes to strengthen the program. One of these changes would ensure that communities affected by military base closures would receive temporary HUBZone eligibility, preventing a significant economic downturn. The bill also allows HUBZone companies to receive up to 15 percent investment from outside organizations, allowing them to raise capital, expand their business and create even more jobs.

I thank the Senator for bringing this to my attention. I am happy to work with the Senator on this issue. I thank the Senator from Louisiana for her support of this legislation.

I agree with the Senator that attracting new air service and retaining current service to small communities is a critical economic issue. I am also familiar with the GAO report to which he refers, since Senator Wyden and I were two of the three Senate requesters of that report, together with our colleague on the Aviation Subcommittee, Senator Rockefeller.

I share the Senator's view that it is critical to explore, support and promote alternative approaches for meeting the transportation needs of small and rural communities. This includes ensuring that Federal agencies take the appropriate action to provide financial assistance to small business franchisees interested in helping communities improve transportation services.

As chair of the Small Business Committee, I am concerned by any interpretation of the Small Business Act that unnecessarily inhibits access to SBA programs and services by eligible small businesses. This interpretation not only affects the ability of small businesses to receive financial assistance under the 7(a) loan program but also to bid on Federal contracts set aside for small businesses. As the economy struggles to recover, it is critical that we get back to business--an investment in small business is an investment in jobs.

As we work with our colleagues on the House Small Business Committee to reauthorize the SBA's programs and services, we will carefully consider provisions to address this issue and work with the SBA to find an agreeable solution.

Madam President, I rise to speak about the subject of taxation from a little different perspective, a legislative proposal which, if adopted, would add very considerably to productivity in America, and that is a proposal for a flat tax. In the fall of 1994, Richard Armey of the House of Representatives introduced a flat tax. I studied it, then in the spring of 1995, I introduced a flat tax for the Senate. That was the first one introduced. I have introduced it in successive years.

I usually pick April 15, because April 15 is tax filing day. But this year we are going to be in recess for the spring break. I had thought today would be the last day we would be in session. That is open to debate at this point. I just came from a conference of the Appropriations Committee, and there are a great many unresolved issues. I posed the question to my colleagues on the Appropriations Committee: What time do we vote on Sunday?

Some of my colleagues may be listening on C-SPAN2, and that will give them a jolt: What time do we vote on Sunday? Or we might not vote as early as Sunday. We might pick a time on Monday.

I got the attention of the clerks, too, by talking about something important: When are we going to finish the business of the Senate? The distinguished Parliamentarian is nodding his head in chagrin as to what is happening here.

Some suggestions have been floated around the Appropriations Committee of a way to solve this impasse between the House and the Senate on appropriations, the impasse between the House and the Senate on the budget, and that is a constitutional amendment for a unicameral legislature. That would be a shocker. For anybody watching C-SPAN2, that means one chamber. Then the question would come up: Which chamber will it be?

Nobody is going to go to a unicameral legislature, and I do not know when we are going to conclude the business of the Senate. I may be offering this flat tax legislation on the wrong day. Perhaps I ought to wait, because we may still be here on April 15, which would be next Tuesday.

In all seriousness, we have the most extraordinarily complex system for filing taxes ever devised. In the midst of an overwhelming bureaucracy and a regulatory system in Washington, DC, nothing compares to the Federal tax code.

The Federal tax code has grown from 744,000 words in 1955 to 6.9 million words and 17,000 pages at the present time. A study showed that more than 13 hours are consumed by the average American--rather, more than 13 hours are consumed on average--there is no such thing as an average American--on average by taxpayers in filling out the principal Form 1040. And if one goes to the various schedules, it can be another 5\1/2\ hours or 7\1/2\ hours.

I just finished filling out my tax return, and it is inordinately complicated. It is insufficient to be a Philadelphia lawyer to understand the Federal tax code, and then the State taxes, and then city taxes, the wage tax, the property tax, and the real estate tax. It is a nightmare.

It is possible to change all of that by going to a flat tax, and then the tax return would be on a postcard. The wonders of television. People can see the postcard. It will take about 15 minutes to fill out a postcard, which would identify the individual, specify the total compensation, specify the allowance, the number of dependents, and in the course of 15 minutes it would be finished.

This tax would be calculated on a flat rate of 20 percent. It would be very beneficial to people at all levels of the income strata except for those who engage in tax shelters. The average American today, or in the middle income, a family of four, which does not itemize deductions, pays taxes on all income over $19,850. Under this flat tax, there would be a personal exemption of $27,500 for a family of four, and taxes would be paid only over that amount.

After having just criticized charts, my staff has brought me a chart which they prepared. I certainly would not want to omit the showing of this chart. The writing is too small for reading on C-SPAN2, but it specifies the identity of the person, the total compensation, the personal allowance, and it can be filled out in the course of 15 minutes.

A superior depiction, in my opinion, is the postcard. People can deal more easily with postcards than they can with charts.

I have provided for two deductions which I am maintaining, deductions on interest and charitable contributions. It may be that ultimately we will have a totally flat tax, which would reduce another percent down to 19 percent. I have included interest on home mortgages because it is so prevalent, and I believe Americans might be very surprised not to be able to deduct their interest on home mortgages. That interest on home mortgages has been a great stimulus for housing construction and also a great encouragement for people to own their own homes. That is very important as a societal matter.

I have also retained the deduction on charitable contributions, which remains very important. That was reinforced by the Senate earlier this week by providing an increase in charitable contributions deductibility looking toward faith-based initiatives.

What I would like to do most emphatically would be to get the debate started. This body, the House, and the Treasury Department have never seriously considered a flat tax. It ought to be seriously considered. Whether it would be accepted or not would be the outcome of the debate. The flat tax proposal which I am bringing to you today, which is modeled after the outline by Professor Hall and Professor Rabushka of Stanford University, has been very carefully thought through. It is a neutral tax scheme. An analysis of people at various income levels shows that it is universally beneficial for all except those who engage in tax shelters and pay no tax at all.

The greatest benefit would be the savings to the American people of some 5.8 billion hours a year and some $194 billion in preparation expenses. I have actually seen estimates on the cost of tax compliance as high as $800 billion. Again, these estimates are such that nobody really knows, but as lawyers say in litigation, the pain and suffering that goes with filing these returns, or the cruel and unusual punishment involved in making these computations and the study involved, it would be a great relief to the American people. It would be win, win, win. There would be great savings in time. There would be savings in individual taxes, and there would be a tremendous stimulus to the economy so that so many corporations and businesses would no longer have to have a special office, which is the practice in many places, for the tax collector who comes in to conduct the audit on a yearly basis.

To reiterate, in less than one week, American taxpayers face another Federal income tax deadline. The date of April 15 stabs fear, anxiety, and unease into the hearts of millions of Americans. Every year during ``tax season,'' millions of Americans spend their evenings poring over page after page of IRS instructions, going through their records looking for information, and struggling to find and fill out all the appropriate forms on their Federal tax returns. Americans are intimidated by the sheer number of different tax forms and their instructions, many of which they may be unsure whether they need to file. Given the approximately 325 possible forms, not to mention the instructions that accompany, simply trying to determine which form to file can in itself be a daunting and overwhelming task. According to the Tax Foundation, American taxpayers, including businesses, spend more than 5.8 billion hours and $194 billion each year in complying with tax laws. That works out to more than $2,400 per U.S. household. Much of this time is spent burrowing through IRS laws and regulations which fill 17,000 pages and have grown from 744,000 words in 1955 to over 6.9 million words in 2000. By contrast, the Pledge of Allegiance has only 31 words, the Gettysburg Address has 267 words, the Declaration of Independence has about 1,300 words, and the Bible has only about 1,773,000 words.

The majority of taxpayers still face filing tax forms that are far too complicated and take far too long to complete. According to the estimated preparation time listed on the forms by the IRS, the 2002 Form 1040 is estimated to take 13 hours and 10 minutes to complete. Moreover this does not include the estimated time to complete the accompanying schedules, such as Schedule A, for itemized deductions, which carries an estimated preparation time of 5 hours, 37 minutes, or Schedule D, for reporting capital gains and losses, shows an estimated preparation time of 7 hours, 35 minutes. Moreover, this complexity is getting worse each year. Just from 1998 to 2002 the estimated time to prepare Form 1040 jumped 96 minutes.

It is no wonder that well over half of all taxpayers, 56 percent according to a recent survey now hire an outside professional to prepare their tax returns for them. However, the fact that only 29 percent of individuals itemize their deductions shows that a significant percentage of our taxpaying population believes that the tax system is too complex for them to deal with. We all understand that paying taxes will never be something we enjoy, but neither should it be cruel and unusual punishment. Further, the pace of change to the Internal Revenue Code is brisk--Congress made about 9,500 Tax Code changes in the past 12 years. And we are far from being finished. Year after year, we continue to ask the same question--is there not a better way?

My flat tax legislation would make filing a tax return a manageable chore, not a seemingly endless nightmare, for most taxpayers. My flat tax legislation will fundamentally revise the present Tax Code, with its myriad rates, deductions, and instructions. This legislation would institute a simple, flat 20 percent tax rate for all individuals and businesses. This proposal is not cast in stone but is intended to move the debate forward by focusing attention on three key principles which are critical to an effective and equitable taxation system: simplicity, fairness, and economic growth.

My flat tax plan would eliminate the kinds of frustrations I have outlined above for millions of taxpayers. This flat tax would enable us to scrap the great majority of the IRS rules, regulations, and instructions and delete most of the 6.9 million words in the Internal Revenue Code. Instead of billions of hours of non-productive time spent in compliance with, or avoidance of, the tax code, taxpayers would spend only the small amount of time necessary to fill out a postcard- sized form. Both business and individual taxpayers would thus find valuable hours freed up to engage in productive business activity or for more time with their families instead of poring over tax tables, schedules, and regulations.

My flat tax proposal is dramatic, but so are its advantages: a taxation system that is simple, fair and designed to maximize prosperity for all Americans. A summary of the key advantages are:

A 10-line postcard filing would replace the myriad forms and attachments currently required, thus saving Americans up to 5.8 billion hours they currently spend every year in tax compliance.

The flat tax would eliminate the lion's share of IRS rules, regulations and requirements, which have grown from 744,000 words in 1955 to 6.9 million words and 17,000 pages currently. It would also allow us to slash the mammoth IRS bureaucracy of 117,000 employees.

Economists estimate a growth of over $2 trillion in national wealth over 7 years, representing an increase of approximately $7,500 in personal wealth for every man, woman, and child in America. This growth would also lead to the creation of 6 million new jobs.

Investment decisions would be made on the basis of productivity rather than simply for tax avoidance, thus leading to even greater economic expansion.

Economic forecasts indicate that interest rates would fall substantially, by as much as two points, as the flat tax removes many of the current disincentives to savings.

Americans would be able to save up to $194 billion they currently spend every year in tax compliance.

As tax loopholes are eliminated and the tax code is simplified, there will be far less opportunity for tax avoidance and fraud, which now amounts to over $120 billion in uncollected revenue annually.

Simplification of the tax code will allow us to save significantly on the $7 billion annual budget currently allocated to the Internal Revenue Service.

The most dramatic way to show what the flat tax is to consider that the income tax form for the flat tax is printed on a postcard--it will allow all taxpayers to file their April 15 tax returns on a simple 10- line postcard. This postcard will take 15 minutes to fill out.

At my town hall meetings across Pennsylvania, the public support for fundamental tax reform is overwhelming. I would point out that in those speeches that I never leave home without two key documents: 1, my copy of the Constitution; and, 2, a copy of my 10-line flat tax postcard. I soon realized that I needed more than just one copy of my flat tax postcard. Many people wanted their own postcard so that they could see what life in a flat tax world would be like, where tax returns only take 15 minutes to fill out and individual taxpayers are no longer burdened with double taxation on their dividends, interest, capital gains and estates.

This is a win-win situation for America because it lowers the tax burden on the taxpayers in the lower brackets. For example in the 2002 tax year, the standard deduction is $4,700 for a single taxpayer, $6,900 for a head of household and $7,850 for a married couple filing jointly, while the personal exemption for individuals and dependents is $3,000. Thus, under the current tax code, a family of four which does not itemize deductions would pay taxes on all income over $19,850-- these are personal exemptions of $12,000 and a standard deduction of $7,850. By contrast, under my flat tax bill, that same family would receive a personal exemption of $27,500, and would pay tax on only income over that amount.

The tax loopholes enable write-offs to save some $393 billion a year. What is eliminated under the flat tax are the loopholes, the deductions in this complicated code which can be deciphered, interpreted, and found really only by the $500-an-hour lawyers. That money is lost to the taxpayers. $120 billion would be saved by the elimination of fraud because of the simplicity of the tax code, the taxpayer being able to find out exactly what he or she owes.

This bill is modeled after legislation organized and written by two very distinguished professors of law at Stanford University, Professor Hall and Professor Rabushka. Their model was first introduced in the Congress in the fall of 1994 by Majority Leader Richard Armey. I introduced the flat tax bill--the first one in the Senate--on March 2, 1995, S. 488. On October 27, 1995, I introduced a Sense of the Senate, resolution calling on my colleagues to expedite Congressional adoption of a flat tax. The Resolution, which was introduced as an amendment to pending legislation, was not adopted. I reintroduced this legislation in the 105th Congress with slight modifications to reflect inflation- adjusted increases in the personal allowances and dependent allowances. I re-introduced the bill two Congresses ago on April 15, 1999--income tax day--in a bill denominated as S. 822. More recently, I introduced my flat tax legislation as an amendment to S. 1429, the Tax Reconciliation bill. The amendment was not adopted.

Over the years and prior to my legislative efforts on behalf of flat tax reform, I have devoted considerable time and attention to analyzing our Nation's Tax Code and the policies which underlie it. I began the study of the complexities of the Tax Code over 40 years ago as a law student at Yale University. I included some tax law as part of my practice in my early years as an attorney in Philadelphia. In the spring of 1962, I published a law review article in the Villanova Law Review, ``Pension and Profit Sharing Plans: Coverage and Operations for Closely Held Corporations and Professional Associations,'' 7 Villanova L. Rev. 335, which in part focused on the inequity in making tax-exempt retirement benefits available to some kinds of businesses but not others. It was apparent then, as it is now, that the very complexities of the Internal Revenue Code could be used to give unfair advantage to some. Einstein himself is quoted as saying ``the hardest thing in the world to understand is the income tax.''

The Hall-Rabushka model envisioned a flat tax with no deductions whatever. After considerable reflection, I decided to include in the legislation limited deductions for home mortgage interest for up to $100,000 in borrowing and charitable contributions up to $2,500. While these modifications undercut the pure principle of the flat tax by continuing the use of tax policy to promote home buying and charitable contributions, I believe that those two deductions are so deeply ingrained in the financial planning of American families that they should be retained as a matter of fairness and public policy--and also political practicality. With only those two deductions maintained, passage of a modified flat tax will be difficult, but without them, probably impossible.

In my judgment, an indispensable prerequisite to enactment of a modified flat tax is revenue neutrality. Professor Hall advised that the revenue neutrality of the Hall-Rabushka proposal, which uses a 19- percent rate, is based on a well-documented model founded on reliable governmental statistics. My legislation raises that rate from 19 percent to 20 percent to accommodate retaining limited home mortgage interest and charitable deductions.

This proposal taxes business revenues fully at their source so that there is no personal taxation on interest, dividends, capital gains, gifts or estates. Restructured in this way, the Tax Code can become a powerful incentive for savings and investment--which translates into economic growth and expansion, more and better jobs, and raising the standard of living for all Americans.

The key advantages of this flat tax plan are threefold: First, it will dramatically simplify the payment of taxes. Second, it will remove much of the IRS regulatory morass now imposed on individual and corporate taxpayers and allow those taxpayers to devote more of their energies to productive pursuits. Third, since it is a plan which rewards savings and investment, the flat tax will spur economic growth in all sectors of the economy as more money flows into investments and savings accounts.

Professors Hall and Rabushka have projected that within 7 years of enactment, this type of a flat tax would produce a 6-percent increase in output from increased total work in the U.S. economy and increased capital formation. The economic growth would mean a $7,500 increase in the personal income of all Americans. No one likes to pay taxes. But Americans will be much more willing to pay their taxes under a system that they believe is fair, a system that they can understand, and a system that they recognize promotes rather than prevents growth and prosperity. My flat tax legislation will afford Americans such a tax system.

I ask unanimous consent that the bill, be printed in the Record.

Mr. President, imagine a world with cars that spew out no smog, no toxic emissions, and no greenhouse gases. The only thing that would come out of the tailpipe would be water pure enough to drink.

Imagine a world in which we don't import a drop of Mideast oil, because clean, domestic, renewable energy sources meet all of our needs.

Imagine a world in which we don't need to worry about a terrorist strike on our large nuclear power plants, or a storm causing a blackout over a large region, because we get all of our electricity from small distributed generators on farms and in buildings throughout the country.

Sound too good to be true? The technology to do this, using hydrogen energy and fuel cells, is out of the labs and being tested on our streets and in our buildings today. For those of us who have been working for many years to bring this vision into reality, that is very exciting. But we still need a major effort to bring the costs down and commercialize the technology.

And there is remarkable bipartisan agreement on the need for government action. A couple years ago we were fighting for scraps of funding. Now the President has proposed $1.7 billion over 5 years toward getting hydrogen fuel cell vehicles on the road. The Senate energy bill last year, before it died in conference, included tax incentives for stationary fuel cells, fuel cell vehicles, hydrogen vehicles, hydrogen fueling infrastructure, and hydrogen fuel.

But we are still too timid to bring about the fundamental shift to the hydrogen economy. The Department of Energy is working toward a go- no go decision by the car companies by 2015, and mass production of vehicles by 2020. But the car companies themselves have been talking about commercial vehicles by 2010.

We need a bolder, more comprehensive plan. That's why I am introducing the Hydrogen and Fuel Cell Energy Act of 2003. This bill addresses three critical requirements to bringing hydrogen energy and fuel cells into commerce, and start gaining their environmental and security benefits, as soon as technically feasible.

First we need a technological push. We need better fuel cell stack components to reduce costs and improve longevity. We need lighter, more efficient ways to store hydrogen on-board vehicles. In the long term, we need cheaper ways of converting renewable energy to hydrogen fuel.

This bill reauthorizes the Matsunaga Act, which established the Federal hydrogen energy research program. It updates the language and sets clearer priorities. It expands the authorization to cover fuel cell research and development as well, to reflect the technical and bureaucratic reality that research on fuel cells--the most efficient, flexible, and cleanest way to use hydrogen energy--has become inextricably linked to research on hydrogen energy. It supports work on domestic and international codes and standards, to work through a major regulatory barrier to working with combustible hydrogen and to making all the infrastructure pieces fit together. It includes a specific mandate to do public education on hydrogen and fuel cells and to do university training in critical skills needed in the industry. And it increases funding levels over the next few years to accelerate progress in pre-commercial technologies.

Second, and perhaps most important right now, we need a near-term demand pull. As long as the fuel cells and hydrogen appliances are made by hand, they will remain very expensive. But it's also expensive to build the factories to build them more cheaply. We need support to get industry over that initial cost hump.

The first step is large demonstration programs that serve a dual purpose: they provide a realistic test of how the laboratory technologies work in the real world, and they provide funding for pre- commercial prototypes of the technologies, including starting to build a hydrogen fueling infrastructure.

The Hydrogen and Fuel Cell Energy Act authorizes several new, large demonstration programs:

The main demostration program would provide over $1 billion over 7 years for demonstrations of the full range of fuel cell applications and associated hydrogen infrastructure. These demonstrations would include fleets of fuel cell passenger vehicles, fuel cell buses and farm vehicles, stationary fuel cells in houses and commercial buildings, and portable fuel cells such as auxiliary power units in trucks.

A second, closely related program, would provide hydrogen fueling infrastructure over major transportation corridors and entire regions, and then demonstrate hydrogen-powered vehicles that are not tethered to a single pump. Early demonstrations, at least, would likely use vehicles that burn hydrogen; these are similar to gas-electric hybrids that you can buy today, but run on hydrogen rather than gasoline. These vehicles provide most of the benefits of fuel cell vehicles at a fraction of the current cost. They are not as good as fuel cell vehicles in the long term, they are less efficient, less flexible, and produce a little pollution, but would move us a long way toward the goal and would provide a good large-scale test of a hydrogen fueling system.

A third program would demonstrate hydrogen and fuel cell technologies in foreign countries. Hydrogen energy could have an early application in places where a competing fossil fuel infrastructure is not already well-developed. And assisting this application is in our national interest in order to promote global development without causing global warming and other harmful environmental effects, and to increase the global market for American hydrogen and fuel cell technologies.

The last program would focus on emerging technologies for production of hydrogen from renewable resources. Two approaches show particular promise for clean, efficient production of hydrogen at this time. Biorefineries make hydrogen and other products from biomass. And in ``electrofarming'' the hydrogen is produced and used on the same farm. The hydrogen might be made by growing and reforming biomass, from wind energy, or from farm waste; it could be used in farm vehicles and equipment and for heat and electricity in farm buildings.

All these demonstration programs would be conducted using competitive merit review of funding proposals from a wide variety of companies and organizations, and they would require cost-sharing from awardees.

Third, we need to show there will be a market for commercial hydrogen and fuel cell technologies in the long term. The Federal Government can do this by buying early commercial products and by providing incentives to others to do so, in recognition of their public benefits.

The bill includes Federal purchase requirements for both zero emission vehicles and stationary fuel cells. The vehicle requirements are similar to Federal fleet requirements for purchase of alternative fuel vehicles. They would require zero emission vehicles, most likely hydrogen fuel cell vehicles, to make up an increasing percentage of Federal fleet vehicle purchases up to 75 percent. Alternative fuel vehicles with very low emissions, such as hydrogen hybrid vehicles, would get partial credit. For stationary fuel cells, the bill

would require modifying energy efficiency regulations for Federal buildings to presume use of fuel cells to power new Federal buildings and to encourage their use in older buildings.

The bill also provides a broad array of tax incentives for stationary and portable fuel cells, hydrogen and fuel cell vehicles, hydrogen fueling infrastructure, and hydrogen fuel. These incentives are similar to those that have been proposed in the CLEAR Act on alternative fuel vehicles, in previous bills on stationary fuel cells, and in last year's energy bill. However, this bill makes some important changes. It makes all the tax credits tradable so that government agencies and non- profit organizations can use them as well as consumers and private companies. It increases the credit for hydrogen fueling infrastructure to recognize the cost of making the hydrogen on-site, not just pumping it. It adds an additional incentive for hydrogen from renewable resources to encourage a transition to a sustainable hydrogen system. And most importantly, it extends the tax credits so the industry will know the incentives will be there when they are needed--when real commercial products are available.

Finally, the bill ensures effective coordination and oversight of the expanded Federal hydrogen and fuel cell energy activities, with a new interagency task force to coordinate activities, a revamped technical advisory panel, and periodic outside review by the National Academies.

These measures will require a significant Federal investment in our energy future. But with these measures we can use hydrogen and fuel cell technologies to turn into reality a vision of cars that don't pollute, of power that won't go out, and of feeling less dependent on an area of the world where we are fighting the second war in recent years. It is time to take these steps now.

Mr. President, in the early 1990s, a large number of U.S. companies began a process of switching their defined benefit pension plans to cash balance plans. Many of the employees whose pension plans were to be altered drastically weren't told and didn't notice that they were essentially going to be working for years without earning any more benefits. Their not knowing was viewed as a key benefit by management. And the retirees were furious.

As Keith Williams with Watson Wyatt Worldwide and Amy Viener with William Mercer, two firms that put together these plans in 1998 said at an Actuaries conference:

Mr. Williams: I've been involved in cash balance plans five

or six years down the road and what I have found is that

while employees understand it, it is not until they are

actually ready to retire that they understand how little they

are actually getting.

Ms. Viener: Right, but they're happy while they're

employed.

One of the most abusive practices in cash balance conversions is known as ``wear away.'' Older workers see nothing added to their pensions as the value of the pensions is frozen, often for many years, until it reaches the lower value of the new pension plan. At the same time younger workers are getting their pensions increased. In my view, this is clearly age discrimination and bad pension policy. In 1999, I introduced a bill to make it illegal for corporations wear away the benefits of older workers during conversions to cash balance plans. I offered my bill as an amendment. Forty-eight Senators, including 3 Republicans, voted to waive the budget point of order so we could consider this amendment. We did not have enough votes then, but I believe the tide is turning.

After that vote, more and more stories came out about how many workers were losing their pensions. In September of 1999, the Secretary of the Treasury put a moratorium on conversions from defined benefit plans to cash balance plans. That moratorium has been in effect now for over three years. In April of 2000, I offered a sense-of-the-Senate resolution to stop this practice, and it passed the Senate unanimously.

But last December, the Treasury decided to end that moratorium. The Department proposed a regulation that will allow hundreds of companies, many employing thousands of workers each to go forward with conversions that will allow for the wear-away of the current benefits of people across the country. This plan is breathtaking in its audacity. In a time when people have lost their life savings to market downturns and corporate duplicity, they are looking at changing the rules so that employers can once again bolster their bottom line by shifting funds from the pensions they promised their workers. I will not stand by and let it happen.

There are over 800 age discrimination complaints currently pending before the EEOC based on cash balance conversions. How many more will there be if we again start allowing companies to make these abusive conversions?

I want to make it very clear: I am not opposed to all cash balance plans. Some cash balance plans can be very good. What I oppose is the unilateral decision of a company being able to change their plans and stop contributing to older employees' pensions while benefits are given to newer employees.

That is what this issue is all about. It is fairness. It is equity. I know discussion of pension law can become very convoluted. But in essence, what some of these companies have been doing to these workers is nothing less than sheer thievery. They are able to save millions, in some cases hundreds of millions of dollars, by converting their plans, robbing workers who have been loyal and hard working, robbing them of their rightful claims on future benefits, It is not right. It is not fair.

There is one thing that has distinguished the American workplace from others around the world. We have valued loyalty. At least we used to. That is one of the reasons pension plans exist--the longer you work somewhere, the more you earn in your pension program. Obviously, the longer you work someplace, the better you do your job, the more you learn about it, the more productive you are. We should value that loyalty.

If companies are able to wear away the benefits of the longest serving workers, what kind of a signal does that send to the workers? It tells workers they are fools if they are loyal because if you put in 20 to 25 years, the boss can just change the rules of the game, and break their promise. It tells younger workers that it would be crazy to work for a company for a long time, that it's best to hedge your bets and move on as soon as it is convenient.

This destroys the kind of work ethic we have come to value and that we know built this country. But some of these cash balance conversions counter all of that. Her is an analogy. Imagine I hire someone for five years with a promise of a $50,000 bonus at the end of five years of service. At the end of three years, however, I renege on the $50,000 bonus. But the employee has three years invested. Had they known that the deal was going to be off, perhaps they would not have gone to work for me. They could have gone to work someplace else for a total higher compensation package. Is that the way we want to treat workers in this country, where the employer has all the cards and employees have none, and employers can make whatever deal they want, but can change the rules at any time?

That is why I am introducing this legislation. It is simple. It says that you have to give older, longer serving employees a choice, at retirement, when their pension plan is converted to a cash balance plan to get the benefits earned in the old plan instead. It also says that employers must start counting the new cash balance benefits where the old defined benefit plan left off, instead of starting the cash balance

plan at a lower level than an employee had already earned.

In the March 3, 2002 issue of Fortune magazine, Janice Revell said of the possible impending flood of cash balances conversions: ``Brace yourself for a very un-fairy-tale ending to this tory. Millions of American workers are sure to see a large slice of their retirement income go up in smoke. It may not happen right away, but the groundwork is being laid right now.''

I urge my colleagues in the Senate to join me in cosponsoring this measure, so that we can stop the flood before it starts.