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                                                        Calendar No. 21
107th Congress                                                   Report
                                 SENATE
 1st Session                                                      107-4

======================================================================



 
      SMALL BUSINESS AND FARM ENERGY EMERGENCY RELIEF ACT OF 2001

                                _______
                                

                 March 21, 2001.--Ordered to be printed

                                _______
                                

Mr. Bond, from the Committee on Small Business, submitted the following

                              R E P O R T

                         [To accompany S. 295]

    The Committee on Small Business, to which was referred the 
bill (S. 295) to provide emergency relief to small businesses 
affected by significant increases in the prices of heating oil, 
natural gas, propane, and kerosene, and for other purposes, 
having considered the same, reports favorably thereon and 
recommends that the bill, as amended, do pass.

                               I. PURPOSE

    The purpose of the Small Business Energy Emergency Relief 
Act of 2001 is to provide emergency relief, through affordable, 
low-interest Small Business Administration Economic Injury 
Disaster Loans (EIDLs), and loans through the Department of 
Agriculture's Emergency Loan Program, to small businesses and 
small farms that have suffered direct economic injury, or are 
likely to suffer direct economic injury, from the significant 
increases in the prices of heating oil, propane, kerosene, 
natural gas or electricity.

                                II. NEED

    Many small businesses are dependent upon heating oil, 
propane, kerosene, natural gas or electricity, because they 
sell or distribute the product, because they use it to heat 
their facilities, or because they use it for other purposes 
necessary to operate their business. According to the 
Department of Energy, the cost of heating oil nationally 
climbed 72 percent from February 1999 to February 2000, the 
cost of natural gas climbed 27 percent from September 1999 to 
September 2000 and 59% over the past year,\1\ and the cost of 
propane climbed 54 percent from January 2000 to January 2001.
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    \1\ Washington Post, March 16, 2001.
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    While these national fluctuations capture the larger market 
trends, they do not demonstrate how some localities have been 
even harder hit by unpredictable and sudden price spikes 
because of a greater dependence on a single fuel, insufficient 
inventories, distribution problems and other reasons.
    Last year in New England, for example, the threat of a 
relatively common cold winter snap put such serious pressure on 
the insufficient supply of heating oil that Massachusetts 
declared a state of emergency. With consumers at the mercy of a 
market, in which demand was up and supply was down, the price 
of heating oil soared. In a matter of weeks, the average price 
per gallon of heating oil fuel went up 60 percent, from $1.12 
to $1.79. In rural California, businesses are facing doubling 
propane prices. Prices have risen 96 percent, from about $1.20 
in February 2000 to $2.35 per gallon this February.\2\
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    \2\ Washington Post, February 25, 2001.
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    When operating costs rise gradually, small businesses have 
time to plan and adjust their pricing and operations 
accordingly. Rapid shifts in operating costs, however, can 
disrupt a small company's business plans causing short-term 
cash flow difficulties. Such volatility can make planning month 
to month as difficult as planning year to year.
    For those small businesses in danger of suffering, or 
suffering from, significant economic injury caused by crippling 
increases in the costs of heating fuel or electricity, they 
need access to capital to mitigate or avoid serious losses. 
However, commercial lenders typically will not make loans to 
these small businesses because they often don't have the 
increased cash flow to demonstrate the ability to repay the 
loan.
    To exacerbate the situation, banks have tightened their 
lending to small businesses by 45 percent over the past three 
months. According to the Federal Reserve Board's quarterly 
survey on lending practices that was released February 5, 2001, 
banks surveyed said they have tightened credit to small 
businesses, particularly on riskier loans, by making borrowing 
more expensive and requiring customers to have less outstanding 
debt. They have changed their lending policies because they are 
concerned about ``a less favorable or more uncertain economic 
outlook . . . and a reduced tolerance for risk.'' While the 
banks say that only a handful of borrowers canceled their plans 
under the stricter lending policies, the Committee believes 
that the Federal Reserve Board's survey reinforces the need for 
this legislation.
    To mitigate the adverse impact on our nation's 24 million 
small businesses,\3\ the Small Business and Farm Energy 
Emergency Relief Act of 2001 would expand the EIDLs at the 
Small Business Administration and the Emergency Loans at the 
Department of Agriculture so that small businesses that suffer 
direct economic injury by, or are likely to suffer direct 
economic injury by, significant increases in the prices of 
heating oil, propane, kerosene, natural gas, or electricity are 
eligible to apply for those loans.
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    \3\ According to the SBA's Office of Advocacy, there are 24.8 
million small businesses in this country.
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    The loans authorized by this legislation are made directly 
from the Small Business Administration and the Department of 
Agriculture, rather than through lenders who are working in 
partnership with the Small Business Administration to make 
government guaranteed loans and who are often reluctant to make 
loans for these purposes. In fact, according to the SBA, it 
cannot identify any loans originated under its 7(a) guaranteed 
business loan program that were made last year to help small 
businesses trying to cope with the energy spikes.
    SBA defines substantial economic injury as the inability of 
a business to meet its obligations as they mature and to pay 
its ordinary and necessary operating expenses. Lack of profit 
or loss of anticipated sales alone is not sufficient to 
establish substantial economic injury. Some indicators of 
economic injury are larger than normal volume of receivables, a 
lower sales volume, slow inventory turnover, and the 
development of delinquencies in trade payables, current 
accruals and debt repayments.
    SBA's economic injury disaster loans give affected small 
businesses necessary working capital until normal operations 
resume, or until they can restructure or change their business 
to address the market changes, in order to meet financial 
obligations a small business owner could have met had the 
disaster not occurred.
    This legislation really gets at helping those who have 
nowhere else to turn. The Committee feels strongly that the 
SBA's mission is to help small businesses succeed and improve 
their access to affordable loans. The Committee recognizes that 
the Agency's existing disaster loan program is an appropriate 
way to assist small businesses struggling with the energy price 
spikes. As such, it is justified an obligatory to make sure 
this program is available to such small businesses.
    The Committee recognizes that the SBA Disaster Loan Program 
and the USDA Emergency Loan Program were initially established 
to help individuals, small businesses and farms recover from 
natural disasters, such as floods, tornadoes, or fires. 
However, there are precedents for extending the SBA Economic 
Injury Disaster Loan program for severe disruptions other than 
natural disasters. For example, the SBA authorized the loans to 
help small businesses hurt by riots in the late 1960s and early 
1990s, and to help small businesses hurt by the Mexican Peso 
devaluation and currency exchange freezes in 1983.
    Building on the SBA's Disaster Loan program so that small 
businesses, adversely affected by spikes in heating fuel and 
electricity prices, are eligible to apply for economic injury 
loans complements our efforts last year. Last year Congress 
encouraged the SBA to market aggressively its government 
guaranteed loan programs, such as the 7(a) program, through the 
press and its lending partners to small businesses that might 
need access to credit to make it through the energy problems. 
The SBA did this, and the Committee urges SBA and its lending 
partners to continue to publicize and provide guaranteed loans 
to affected small businesses. It creates a comprehensive 
approach to helping small businesses across the nation get the 
assistance they need.
    The Committee also wants to emphasize that this is a 
responsible way to help small businesses and small farms. By 
providing assistance in the form of loans which are repaid by 
the small businesses and small farms to the U.S. Treasury, the 
SBA and USDA disaster loan programs help reduce the Federal 
emergency and disaster costs, compared to other forms of 
disaster assistance, such as grants.

                         III. COMMITTEE INTENT

    The Small Business and Farm Emergency Energy Relief Act of 
2001 is designed to provide emergency relief, through 
affordable, low-interest Small Business Administration Economic 
Injury Disaster Loans (EIDLs), and loans through the Department 
of Agriculture's Emergency Loan Program, to small businesses 
that have suffered direct economic injury, or are likely to 
suffer direct economic injury, from the significant increases 
in the prices of heating oil, propane, kerosene, natural gas or 
electricity.
    The Committee included small businesses that ``are likely'' 
to suffer substantial economic injury because one goal of this 
legislation is to mitigate the losses to a small business. 
Rather than waiting until a small business has already suffered 
and is in serious economic trouble, the Committee wants small 
businesses to get assistance when there is an anticipated need. 
The purpose of the legislation is, to the extent possible, to 
keep small businesses healthy, maintain stable tax bases stable 
and retain jobs. It should be sufficient for a small business 
to show need through circumstances such as a projected 
inability to cover operating costs because the heating fuel 
bills are consuming both cash flow and reserves. The Committee 
urges the SBA to be as responsibly creative and generous as 
possible in assisting relevant small businesses applying for 
these economic injury disaster loans.
    The Committee also wants to make clear that, consistent 
with the SBA's Economic Injury Disaster Loan program and USDA's 
emergency loan program, the loans are intended to help small 
businesses directly affected by the sharp and significant 
increase in the price of heating fuels; if not for the economic 
injury caused by the energy price spikes, the small businesses 
and small farms could meet their ordinary obligations. The 
loans are not intended to help with indirect impact, such as 
higher prices in inventory, which were raised to cover the 
higher cost of production or the higher cost of transporting 
the product.
    The Committee also recognizes the Administration's concern 
that the scope of this legislation regarding the authority to 
declare a disaster could be misinterpreted to apply to the 
entire SBA Disaster Loan program. That is not the intent of the 
Committee. The Committee intends for the disaster declaration 
authority in this legislation to be limited to the purposes of 
this legislation, which is economic injury caused by the sharp 
and significant increase in the price of heating oil, natural 
gas, propane, kerosene or electricity.
    Chairman Bond included a provision in the substitute 
amendment that limits to two years the operation of the loan 
programs authorized by the legislation and requires the 
Administrator of the Small Business Administration and the 
Secretary of the Agriculture to issue separate reports on the 
effectiveness of the program authorized under this legislation. 
The Committee intends to use the reports to evaluate the 
efficiency and effectiveness of these programs, to determine 
whether the programs need improvements, and to determine if 
they merit re-authorization or should sunset after two years, 
as currently set forth in the legislation.
    The Committee intends for this assistance to be available 
to small businesses and small farms not just for future energy 
problems that could arise over the next two years, but also for 
parts of 2000 and early 2001, regardless of when Congress 
passes the legislation and the President signs it into law. The 
Committee included these times frames within the scope of the 
legislation because the data shows that the prices began to 
spike in June 2000 for electricity and in November 2000 for 
heating fuels.

                           IV. COMMITTEE VOTE

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following votes were recorded on February 28, 
2001. A motion by Senator Bond to adopt the substitute 
amendment by Senator Kerry to the Small Business Energy 
Emergency Relief Act of 2001 passed by unanimous voice vote. A 
motion by Senator Kerry to adopt the Small Business Energy 
Emergency Relief Act of 2001 was approved by an 18-0 recorded 
vote, with the following Senators voting in the affirmative: 
Bond, Kerry, Burns, Bennett, Snowe, Enzi, Fitzgerald, Crapo, 
Allen, Ensign, Levin, Harkin, Lieberman, Wellstone, Cleland, 
Landrieu, Edwards, and Cantwell.

                   V. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who utilize the services provided.

                      VI. CHANGES IN EXISTING LAW

    In the opinion of the Committee, it is necessary to 
dispense with the requirement of section 12 of rule XXVI of the 
Standing Rules of the Senate in order to expedite the business 
of the Senate.

                           VII. COST ESTIMATE

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts indicated by the 
Congressional Budget Office (CBO). The CBO cost analysis was 
not completed at the time the Committee Report was filed, and 
it will be submitted for the official record just as soon as it 
is received by the Committee.

                        VIII. SECTION-BY-SECTION

    Section 1. Sets forth the short title of the bill, the 
``Small Business and Farm Energy Emergency Relief Act of 
2001.''
    Section 2. Delineates the Congressional findings and the 
need for the legislation.
    Section 3. Amends the Small Business Disaster Loan Program 
so that small businesses adversely impacted by the sharp and 
significant price increases of heating fuels are eligible to 
apply for Economic Injury Disaster Loans.
    Subsection (A) designates the four types of heating fuels 
(heating oil, natural gas, propane, and kerosene) covered by 
the legislation and gives the Administrator of SBA the 
authority, in consultation with the Secretary of Energy, to 
define the meaning of ``sharp and significant increase'' in the 
price of the covered heating fuels. While SBA is knowledgeable 
about and experienced in efficiently making disaster loans to 
small businesses, the Department of Energy (DoE) is 
knowledgeable about issues related to energy. Together they are 
expected to develop a definition of ``sharp and significant 
increases'' that captures conditions that could have an adverse 
impact on small businesses and cause financial hardship that 
could justify the need for economic injury disaster loans. 
Though the Committee defers to the SBA and DoE to define this 
term, the Committee does not intend for businesses to be 
eligible for economic injury disaster loans if the price of 
energy increases in consecutive years and the second year's 
increase is relatively negligible or minimal. Small businesses 
should be able to budget for the latter year and therefore 
should not need a loan to maintain adequate working capital to 
meet their obligations in the second year.
    Subsection B gives the Administrator of SBA the authority 
to make Economic Injury Disaster Loans to small businesses that 
have suffered or are likely to suffer substantial economic 
injury as the result of a sharp and significant increase in the 
price of heating fuel or electricity.
    Subsection C requires that all economic injury disaster 
loans made for the purposes described in this legislation be 
made at the same interest rate of existing economic injury 
disaster loans. SBA Disaster Loans are made at interest rates 
of 4 percent or less.
    Subsection D, with one exception, caps each economic injury 
disaster loan to a small business at $1.5 million. However, 
consistent with existing law, if a small business is a major 
source of employment in its surrounding area, the Administrator 
of SBA has the discretion to waive the cap.
    Subsection E requires that a disaster be declared in one or 
more states, or portions of states, in order for the SBA to be 
able to make such Economic Injury Disaster Loans, and so sets 
forth the terms for declaring a disaster. There are three ways 
for a disaster to be declared under this legislation. The 
President may declare a disaster. The SBA Administrator may 
declare a disaster. Or, in lieu thereof, a governor may certify 
to the SBA Administrator that small businesses in the state 
have suffered economic injury caused by a sharp and significant 
increase in the price of heating fuel or electricity and that 
financial assistance is not available to those businesses 
elsewhere in the area on reasonable terms. Once SBA receives 
the certification, in accordance with existing practice, the 
SBA Administrator will evaluate the certification and 
mayauthorize the Agency to make loans under this program.
    The disaster declaration authority in this legislation 
would be limited to the purposes of this legislation, which is 
economic injury caused by the sharp and significant increase in 
the price of heating oil, natural gas, propane, kerosene or 
electricity.
    Subsection F allows small businesses approved for EIDLs 
under this program to use the loan proceeds not only for 
working capital, as required under the existing program, but 
also for capital to convert their systems from using heating 
fuel or electricity to those using renewable or alternative 
energy sources, such as fuel cells or wind energy. Small 
businesses cannot qualify for these loans solely to convert 
their systems. They must demonstrate they have suffered 
economic injury and must make clear in their application that 
they intend to use the proceeds for both purposes.
    Section 4. Amends the emergency loan program in the 
Consolidated Farm and Rural Development Act (Act) (7 U.S.C. 
1961(a)) at the U.S. Department of Agriculture (USDA) to make 
disaster loans available to small farms and small agri-
businesses that suffer or are likely to suffer economic injury 
due to sharp and significant increases in the prices of the 
heating oil, natural gas, propane, kerosene or electricity, or 
inputs derived from energy sources. This is necessary because 
only non-farm small businesses are eligible for SBA's Economic 
Injury Disaster Loans. The Act authorizes the President or the 
Secretary of Agriculture to declare a disaster.
    Section 5. Directs the Administrator of the SBA and the 
Secretary of Agriculture, within 30 days of the date of 
enactment, to publish any guidelines deemed necessary to 
implement the two programs established by this legislation. The 
Committee believes that prompt implementation is necessary to 
address the needs of small businesses, small farms, and small 
agri-businesses, that are suffering from the soaring costs of 
heating fuels or electricity.
    Section 6. Requires the Administrator of the SBA and the 
Secretary of the Agriculture to each issue reports on the 
effectiveness of the program authorized under this legislation. 
Their reports should be sent to the Committees on Small 
Business of the Senate and the House of Representatives not 
later than 18 months after the date on which they publish their 
respective implementing guidelines required by this 
legislation. At the same time, the report from the USDA should 
be submitted to the Committees on Small Business of the Senate 
and the House of Representatives as well as the Committee on 
Agriculture, Nutrition, and Forestry of the Senate and to the 
Committee on Agriculture of the House.
    Section 7. Establishes the effective and sunset dates of 
the programs authorized under this legislation. It also 
establishes the dates for determining when sharp and 
significant increases in the prices of heating fuels and 
electricity can be used for program eligibility.
    At the SBA, the program shall operate for two years after 
the Agency publishes the final implementing guidelines. The 
legislation establishes separate time frames for purposes of 
determining the beginning of the price increases of heating 
fuel and electricity. For heating fuels (heating oil, natural 
gas, propane, or kerosene), the Administrator of the SBA must 
consider data covering the period since November 1, 2000; for 
electricity, the Administrator of the SBA must consider data 
covering the period since June 1, 2000.
    This means that small businesses that have suffered, or are 
likely to suffer, economic injury caused by the sharp and 
significant increases in the price of heating fuel that started 
on or after November 1, 2000, shall be eligible to apply for 
these loans. Similarly, small businesses experiencing, or 
likely to experience, economic injury by the sharp and 
significant price increases of electricity that started on or 
after June 1, 2000, shall be eligible to apply for these loans.
    At the USDA, the program shall operate for two years after 
the Department publishes the final implementing guidelines. For 
declaring a disaster caused by the price increases of heating 
fuels (heating oil, natural gas, propane, or kerosene), 
electricity, or input costs, the Secretary of USDA must 
consider covering the period since June 1, 2000.